2007 Telecommunications Annual Report Company Contents 1 Shentel: a Retrospective 10 Letter to the Shareholders

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Shenandoah 2007 Telecommunications Annual Report Company Contents 1 Shentel: A Retrospective 10 Letter to the Shareholders

14 Board & Executives

16 Selected Statistics

18 Financial Summary Management’s Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Consolidated Financial Statements Notes to Consolidated Financial Statements Management’s Discussion & Analysis Shareholder Information Shentel: A Retrospective In 1960, The Farmers’ have laid a foundation for the Mutual Telephone System of successes of this past year. Shenandoah County became Whether you are a long-standing known as Shenandoah investor or you just invested in Telephone Company, starting an the last few years, we hope the era of remarkable advancements following pages not only inform in telephone, cable, Internet and you of our recent successes, but wireless services. In the pages also familiarize you with some that follow, we offer you, our important events that have Shareholders, an unprecedented shaped our history. view of our history and a look at how historical accomplishments Shenandoah Telecommunications Shentel: A Retrospective ~ Company ~

At the turn of the 20th century, the future of a Telephone telephone company was very much an uncertainty. In order to survive, a company like The Farmers’ Mutual Telephone System of Shenandoah County (FMTS), now known as Shentel, had to withstand Telephonelayoffs caused by the Great Depression, uncertainty of world wars, and rapid technology changes. But Shentel saw great opportunity in serving the local community, connecting people, and distributing information – regardless of the underlying technology.

With this outlook, Shentel thrived and continually led a rapidly changing industry. Shentel’s growth paralleled Shenandoah County’s – access lines increased from 4,336 in 1957 to 24,536 in 2007

Operating Revenue - Telephone in millions

31 30 29 28 27 26 25

2007 06 05 04 03 $ 30.5 30.5 29.0 27.4 25.8

SCC grants FMTS a license Warren B. French, Jr. Shareholders approve to operate as named General borrowing $2.5 million public utility Manager of FMTS from REA

Shentel: A Retrospective Shentel: 1950 1955 2 Annual Report

Telephone Today, Shentel is aggressively investing in the future through Fiber-to-the-Home (FTTH) and Voice over Internet Protocol (VoIP) technologies. We look forward to the future with the same enthu- siasm we have always demonstrated for our most while the County’s population doubled. Capital- important assets – our customers, shareholders izing on this growth, Shentel’s customer-focused and employees. outlook served as the catalyst for several mile- stones, including starting to bury telephone cable in 1965 and converting from party lines to one-party service in 1976. By 1987, with the conversion to digital switching technology, Shentel continued its role as an inudstry leader.

Combined with the foresight to enter the cable industry in 1983, remaining technologically advanced exemplifies how Shentel has minimized access line losses, at a time when most telephone companies are losing up to 5% of their access lines annually.

Name changed to Shenandoah Telephone Company Installation of Crews begin direct-distance burying Cutover from manual First cash dialing equipment Net income telephone switchboards to dial dividend issued [first in Virginia] exceeds $100,000 cable

1960 1965 A Retrospective Shentel: 3 Shenandoah Telecommunications ~ Company ~

Shentel’s desire to supply cable television service Cable or Cable TV in Shenandoah County began in the 1960’s but was initially thwarted by FCC regulations. Nearly twenty years later, on December 19, 1980, Shentel’s perseverance paid off when Cablethe FCC granted the company the ability to offer twenty-one channels to Edinburg, VA residents. At the time, Shentel was one of the first telephone companies to offer cable service.

The FCC approval made possible one of the many forward-thinking decisions in the company’s history. By the mid-1990’s, it was increasingly evident that Cable TV would ultimately prove to be an essential element of a telephone, cable and Internet “bundle” and in 1996, Shentel made an acquisition of an adjacent cable provider. In 2004, Shentel pushed outside Shenandoah County when it acquired NTC, known today as Shentel Con- verged Services, providing more than 150 channels of digital video to thousands of customers in the southeast.

Gross revenue exceeds $1,000,000 Mobile telephone 10,000th Paging service telephone line service launched installed launched

Shentel: A Retrospective Shentel: 1965 1970 4 Annual Report

Two decades of perseverance by a telephone company with an integrated approach to voice, video and data have produced remarkable results in customer and service growth. Early in 2007, the company successfully launched High-Definition and DVR service to Shenandoah County residents.

Today, the cable industry is in a period of dynamic change. Content expenses continue to be a significant challenge, but consumers continue to demand more diverse and premium services.

Digital Cable Subscribers

2,600 2,400 2,200 2,000 1,800 1,600 1,400

2007 06 05 04 03 2,608 2,105 2,079 1,896 1,570

Conversion to one-party Approval Gross revenue 15,000th telephone granted by exceeds telephone line service FCC to provide $2,000,000 installed complete Cable TV

1975 1980 A Retrospective Shentel: 5 Shenandoah Telecommunications ~ Company ~

In the early 1990’s, the Internet took the world by Internet storm – at dial-up speeds – and Shentel was at the forefront of the revolution when it launched local Internet access on September 1, 1994. The Inter- net represented another opportunity for Shentel to Internetfocus on connecting consumers with information. The northern Shenandoah Valley lacked an Internet service provider, a situation which clashed with Shentel’s strong belief that service availability and quality should never be substandard. Shentel spent nearly five generations building the foundation for this service through continuing investments in its telephone operations. In just a few years, the Internet has become the third essential piece of the “bundle”.

Shenandoah Telecommunications Company established First fiber Shenandoah Shenandoah cable laid in Mobile Gross revenue Cable Shenandoah Company exceeds established County established $10,000,000

Shentel: A Retrospective Shentel: 1980 1985 6 Annual Report

In 1994, Shentel began introducing dial-up service to Shenandoah County and the surrounding localities. By 1999, demand for Internet access was rapidly growing and applications were requir- ing faster connections. Shentel quickly began upgrading its telephone network for high-speed Digital Subscriber Line (DSL) access, which deliv- ers speeds up to 340 times faster than dial-up. In 2005, just six years later, Shentel announced 100% DSL availability to all of its telephone customers. In addition to DSL, Shentel proudly boasts high- Shentel was one of the first service providers to speed Internet access with new fiber technologies reach this service level. for consumers and businesses. Including Con- verged Services, Shentel has over 40,000 Internet customers in the mid-Atlantic and southeast. DSL Subscribers Shentel’s customers will continue to demand higher capacity service as Internet applications 9,000 such as Podcasts and other video content continue 8,000 to evolve. Welcoming this challenge, the company 7,000 6,000 is planning a significant upgrade in 2008 to greatly 5,000 enhance its Internet speeds. 4,000 3,000 2,000 1,000

2007 06 05 04 03 8,136 6,599 4,748 2,646 1,298

Chris French Shentel Interactive video appointed Foundation installed in President established county schools PCS service launched Conversion Shenandoah First Local Internet to digital Cellular pay-per-view access Caller ID switching established options available launched launched

1990 1995 A Retrospective Shentel: 7 Shenandoah Telecommunications ~ Company ~

Known today as cellular phone service, Shentel Wireless launched an earlier form of wireless communication called mobile radiotelephone service in 1966. The service was accessible to most of Shenandoah County and was furnished by one channel of com- Wirelessmunication to a mere four customers. These four customers would mark the beginning of a trans- formation leading to one of the most prosperous decisions ever made by Shentel.

In 1972, when there were only 13 mobile phone subscribers, Shentel announced the launch of its first paging service quickly realizing the potential of mobile services to connect people in new ways. Created in 1984, Shenandoah Mobile Company positioned Shentel for future decisions that would help grow wireless service into Shentel’s largest subsidiary.

PCS Subscribers in thousands

200 180 160 140 120 100 80

2007 06 05 04 03 187.3 153.5 123.0 102.6 85.1

20,000th telephone line installed Conversion Cable TV Purchase of from GSM expanded to C-4 Media technology provide digital systems to CDMA packages

Shentel: A Retrospective Shentel: 1995 2000 8 Annual Report

Wireless

In 1990, to fulfill the increasing desire for mobile communication, Shentel launched Shenandoah Cellular, the first company in Virginia to offer cellular service to a rural area. By 1999, Shentel’s PCS subsidiary became an affiliate of Sprint, and continued building its customer base into one that today exceeds 187,000 customers. Since that time, Shentel has consistently ranked among the top affiliates for service quality and network performance and its customer growth rates continue to lead the industry.

Shentel has come a long way from servicing four mobile radiotelephone customers in 1966, but the company continues to look to the future of wireless. Customers use Shentel’s network to talk, send text messages, and access the Internet. With the launch of Evolution-Data Optimized (EV-DO) service in 2007, Shentel’s subscribers have the ability to use the wireless network at broadband speeds. Shen- tel will continue to search for new and innovative services, always with a constant focus on customers and a zealous entrepreneurial spirit.

Latest stock split results in one original FMTS share equaling 8,640 SHEN Gross revenue Launch exceeds Acquisition DSL availability of EV-DO $100,000,000 of NTC reaches 100% service

2005 2010 A Retrospective Shentel: 9 ~ Telecommunications Shenandoah 10

Letter to the Shareholders Company

~ President Christopher E. French Letter totheShareholders to evaluateto forproviders.MDUs video to access of question the Theraised notice making initiated by the Federal Communications Commission (FCC) in March 2007 rule - a was growth revenue Services’ Converged constrained that factor Another ments withus. to convince owners MDU property to makenecessary long-term contract commit- relationships the develop to anticipated initially than longer taking is it providers, providerviable to the MDU community.a Due to experiencesunsatisfactory as with previous Shentel establishing with and message, this with success some see viewedkeyas differentiatefactorsto allowing us wereofferings.our service, Wehave to begun quality providing to approach traditional our with along Shentel, of business over the past few years, and reputation it was clear that the stability very owners tenants. their and Aswe have worked developto Convergedthe Services many of whom lack the to ability meet the needs long-term of service the property mented mix of inexperienced and under-capitalized private cable operators (PCOs), Services business unit. The MDU market has historically been served by a very frag - unit (MDU) locations, we believe there is great revenue potential for our Converged about a third of the U.S. population living in apartments and other multiple dwelling for life of certain assets, loss but also due to operating revenue growth falling the short of our goals. in With increase 10.4%Converged Services, in part from a our late 2006 decision to experiencedshorten the depreciation We results. Services Despite the great overall financial results, we were not satisfied with the Converged end oftheyear. owningthe at approximately twenty-sevenoutstanding shares total our of percent collectively stock, our accumulate to continued have funds, pension and advisors Institutional shares. authorized million 48.0 investorsinvestmentsuchcompanies, mutualinsurance other indexfunds, and as total a of out outstanding, shares million 23.5 approximately has now Company the Board’saction, the of result Asa date. record the on held share one every for shares additional two receiving distributed to shareholders of record as of August 2, was2007, which split, resulted in shareholders The split. three-for-onestock a declared Directors of Board the which2006, includedaspecialdividendof ninecentspershare. Also during2007, twenty-seven of dividend cash whichshare per cents was a overcents two of increase an in paid dividend total the declared Directors of Board the 2007, During awards compensation made during2007. share-based non-cash for million $2.0 of increase an and 2006, of end the at announced program retirement early the to additional related expenses in million $2.6 was expenses operating 2007’s in Included 25.7%. or $110.0$148.0and million million $38.0 of decrease a forperiods, million same the were expenses Operating 16.6%. or million $28.0 of decrease a 2006, in million $169.2 to $141.2werecompared million, 2007 for revenuesCompany’s Thetotal Nextel. Sprint with agreement the of terms new the from resulting presentation changethe of result in a as over 2006, 2007 in expensesdecreased operating and $31.2 million, a record increase of $10.0 million or 47.3% from being 2006. 2007 for Both income operating revenuesfinancially,positive with effectvery wasnet The negotiated amendmentstoourmanagementagreementwithSprintNextel. year’slast under results PCS of full-year the and years, two past the overgrowth 63.7%. Driving the greatly improved income performance was our strong customer Ruralthe of tion Telephone of increase significant experienceda income Bank,net gain of $6.4 million the Telephone Company recorded in 2006 related to the liquida - tax of net one-time, the excluding When 2006. over 4.9% of increase an million, Your company had an yearoutstanding in 2007. Net income for the year was $18.8 Dear Shareholder: March 28,2008 Annual Report

whether exclusive contracts tended to reduce competition for video providers to enter the MDU market. Shentel has made use of exclusive contracts as a way to ensure we have an opportunity to earn a return on the investment necessary for us to compete with the larger incumbent cable television providers. While the initial focus of the FCC’s rulemaking was on the use of exclusive contracts by the incumbent cable television providers, the process has added uncertainty and confusion to the negotiation process between providers and the property owners. While we believe there are valid reasons that our Converged Services business should not be constrained by the FCC’s final ruling, at this time it is unclear what the ultimate impact will be.

When we announced early last year that we had reached a new agreement with Sprint Nextel, we expected the changes in our agreement to make positive contributions to our financial results. We have exceeded our expectations in this area, in large part due to the continued efforts of our PCS sales teams who have produced record growth and to our employees who have continued to do an outstanding job of taking care of our customers. Our PCS segment contributed $28.8 million “The fundamentals of our operating income during 2007, an increase of $13.2 million or 84.1% over of our business are 2006. We ended the year with 187,303 retail PCS customers, an increase of very strong, and our 33,800 or 22.0% over the total at the end of 2006. While our financial results company continues to were significantly improved, we experi- grow profitably.” enced an unfavorable increase in retail churn in the later part of the year. Monthly churn averaged 2.0% for 2007, compared to 1.9% for the prior year, but was 2.3% during the fourth quarter of 2007. Reducing churn is one of our areas of focus for the current year, and we believe it will return to the historically lower levels.

Our PCS business has become successful in large part due to our ongoing efforts to improve service, both with expansion of our network capacity and coverage, and with the customer care delivered by our numerous retail stores located throughout our service area, including the 13 new locations purchased from Sprint Nextel in spring of 2007. While we control a large part of the customer experience necessary to successfully compete in the wireless business, we are not immune to the overall results experienced by Sprint Nextel. There has been much written in the trade press concerning the post-merger performance of Sprint Nextel. How successfully they compete against their larger national rivals and the quality of customer service they provide, will have an impact on our growth; but, we believe we can still differ- entiate our PCS service by continuing to improve service so we can increasingly be the preferred choice of customers within our markets.

There are currently two major initiatives underway to improve service. First is our plan to construct sixty new sites to extend coverage into areas adjacent to our existing wireless footprint, and to the un-served areas with the highest population densities and traffic counts. The second area of focus is the continued rollout of wireless high-speed data, or Evolution-Data Optimized (EV-DO) services. During 2007 we installed EV-DO capabilities at fifty-two of our base stations, and have an additional fifty installations planned for 2008. EV-DO enables users to experience DSL-like data speeds on their handsets or with wireless data cards used in laptops or PCs.

Higher speeds for data usage continue to be in great demand, not just on our to the Shareholders Letter 11 ~ Telecommunications Shenandoah 12

Letter to the Shareholders Company

~ been a steep downward trend since then, with the price recently closing at levelsat closing recently price the with then, since downwardtrend steep a been Although our stock price ended the year at $23.98 per share, there has unfortunately by theendof2007, which isa26.0%compounded annualrateofreturn. reinvestedstock,$100been Shentel original had in the wouldhave $317grownto dividends all and $100 invested2002, stockdaybeen of Shentel last had in the on 10-K Exchange and Securities the with filed Commission. shows graph That if that Form our in included is returns these NASDAQof graph the The Telecommunicationsindices. and Market National NASDAQ the both of returns benchmark the the returntotal to shareholders over the previous five year period greatly exceeded 2007,of end returns.the Throughshareholder long-term excellentdeliveredhave Your company’s management team, dedicated employees, and Board of Directors, year. the of end the of as outstanding shares million 23.5 total the of 0.71% than less Compensation Plan the approvedEquity by and shareholders represented in 2005, under authorizedwere 2007 employeesduring eligible all awardedto shares sand 2006. in weremade grants no whereas Thegrants, 165.9 forequity thou- 2007 in shareholders. our expensecompensation in million Thecompanyrecognized$2.1 of those with interests financial their betteraligning while value shareholder term long- maximize to incentive an them provided and results, business and financial our in improvementteam’s our for reward a in as grants both significant served grants 2007. made These Board the awards, equity past of Sprint level the with reviewing relationship our concerning 2006 year.that during made compensation Nextel,wereequity there of grants no After in uncertainties the of Because employees, primarilytothemembersofourmanagementteam. was the use of compensation equity to provide the proper long-term incentives for by making additional contributions to employee accounts. Another area addressed plan participants, while at to the same time enhancing our assets defined contribution 401(k) the plan distribute and plan pension benefit defined the freeze to sion significant more the of deci- One changes our was program. compensation our of of ourbusinesssegments,andalsoimplementedvarious changes tothestructure each of needs the match better to levels staffing our resizing of goal our attrition,met we and retirements early through 2007, primarily early In structure. sation compen- levels and staffing our changesin address needed to steps took also we As we have invested in our networks and service improvements for our customers, available. more and more high-definitionbuy televisionconsumers setsas and additionalprogramming programmingthis becomes for demand increasing be will there expect 2007, January high-definition in channels. additional added havewesince We and alongwith CATV our made availableto customers wasfirst capabilities, recorder video digital service, This CATV system. our on deploying by service was television improvements high-definition service made have we which in area Another customers. our of most availableto being Mbits/second 5.0 to up speeds with Mbits/second, upgrading in 1.5is rate DSL popular most investofferOur to network speeds. the higher increasingly to continued also have we services, increasing DSL to of addition penetration In our 2006. of end the from 23.3% of increase an and lines 2007,of wasaccess customers 8,136,24,536 DSL our of of number 33.2% our or end the our At of accepted. well all be to to continued DSL has offercompany’scustomers telephone to necessary investment the make to decision past Our wireless network, but also with our DSL within service our telephone area. service Annual Report

last reached late summer 2006. While no investors (except short-sellers) like to see a decline in their stock’s value, we know our stock has previously experienced periods with large up and down movements in price. A similar drop occurred with our stock after the end of 2002, which was at a time when we had sold our cellular partnership interest, there were problems with PCS affiliates, and there was a lot of financial and regulatory uncertainty for our industry. The beginning of 2008 is again a period of uncertainty. Sprint Nextel is undergoing a leadership change as it tries to recover from its merger. There are also concerns about the overall economy, with the possibility that the country may be heading into, or is already in, a reces- sion, and a continuation of the subprime loan problems and further declines in housing sales and prices. All are causes of concern that may have an impact on our short-term growth prospects. Telecommunication stocks in general, as well as the broader market indices, have all experienced significant declines. Although drops in share price can be compounded by emotional reactions, our role as managers must remain focused on creating long-term growth in our Company’s earnings, and not on short-term variations of our stock price. Over our company’s modern history, we have seen that earnings growth ultimately drives the increasing value of our stock, and therefore our shareholders’ investment. The fundamentals of our business are very strong, and our company continues to grow profitably. While we have much work to do, our growth in operating income provides comfort that we are taking the steps necessary to continue creating shareholder value; and, doing this over the long-term remains our primary goal.

For the Board of Directors,

Christopher E. French President Letter to the Shareholders Letter 13 ~ Telecommunications Shenandoah 14

Board & Executives Company

~ Board of DirectorsBoard of Farmer Ken L. Burch Executive Officers Directors & Board &Executives President &CEO Chris French

Pace Harmon,LLC and Consultant Financial Systems Expert Jonelle St. John Comsonics, Inc. CFO Dale S. Lam Executive VP & COO Earle MacKenzie Richard L. Koontz, Jr. Holtzman OilCorp Vice President CFO & Treasurer Adele Skolits Shentel President &CEO Board Chairman Christopher E. French Customer Service Vice President David Ferguson Douglas C. Arthur Arthur & Allamong Attorney Board Vice Chairman Shenandoah University Academic Affairs Senior VP & VP, Tracy Fitzsimmons Sales Vice President Willy Pirtle William A. Truban, Jr. Owen and Truban, PLC Attorney Secretary VP Legal, GeneralCounsel& Jonathan Spencer James E.Zerkel, Inc. Vice President James E. Zerkel II Business Development Marketing & Director Chris Kyle

Annual Report

Special Thanks

We would like to take a moment to thank the Thomas Keeler Gail Payne following employees with more than 20 years of Project Coordinator Project Coordinator service for their combined 627 years of dedicated Operations Information Technology service to our company. 38 years 35 years

Ron Bankert Jane DeCourcy Gary Kronk Christina Price Network Technician Network Engineer Cable Locator Analyst Operations Operations Operations Customer Service 21 years 27 years 36 years 21 years

David Brock Kenneth Fadely Pamela Martz William Raynor Manager, Network Cable Splicer Dispatcher Sr. Wireline Technician Operations Operations Operations Operations 20 years 32 years 23 years 35 years

Daniel Burner David Ferguson Lisa Mauck Dwayne Ryman Sr. Wireline Technician Vice President Supervisor Cable Splicer Operations Customer Service Customer Service Operations 36 years 40 years 20 years 22 years

Jerry “Butch” Cooper Christopher French Doug McIlwee William Sibert Network Technician President Supervisor, Outside Manager, Outside Plant Operations Executive Plant Engineering Engineering & Construction 21 years 26 years Operations Operations 24 years 32 years Norma Copeland Ruth Hoffman Secretary Business Customer Vickie Mumaw Ann Wetzel Executive Department Service Representative Accounting Associate Secretary 33 years Customer Service Finance Customer Service 21 years 29 years 35 years

Brian Brooks Tom Whitaker Rich Baughman Marlene Willams Director Director Director Controller Sales Operations Information Technology

Dan Detamore-Hunsberger Bobby Gadams Dexter Torculas Ed McKay Director Director Director Director Compliance Human Resources Engineering Technology & Executives Board 15 Shenandoah Telecommunications Selected Statistics (unaudited) ~ Company ~

The following table shows selected operating statistics of the Company as of the most recent three year ends.

2007 2006 2005

Telephone Access Lines 24,536 24,830 24,740 Cable Television Subscribers 8,303 8,440 8,684 Dial-Up Internet Subscribers 7,547 9,869 12,498 DSL Subscribers 8,136 6,599 4,748 Retail PCS Subscribers 187,303 153,503 122,975 Long Distance Subscribers 10,689 10,499 10,418 Fiber Route Miles 647 625 616 Total Fiber Miles 35,872 33,764 33,201 Long Distance Calls (in thousands)1] 31,243 28,028 26,628 Total Switched Access Minutes (in thousands) 352,032 308,815 287,967 Originating Switched Access Minutes (in thousands) 101,736 92,441 81,380 Employees (full time equivalents) 411 376 387 CDMA Base Stations (sites) 346 332 311 Towers (100 ft. and over) 101 100 85 Towers (under 100 ft.) 14 13 13 PCS Market POPS (in thousands)2] 2,297 2,268 2,236 PCS Covered POPS (in thousands)2] 1,814 1,752 1,704 PCS Average Monthly Churn % 2.0% 1.9% 2.0% Converged Services (NTC) Properties Served3] 112 102 109 Converged Services (NTC) Video Service Users 11,240 8,989 8,461 Converged Services (NTC) Telephone Service Users 4,035 4,492 9,914 Converged Services (NTC) Network/Internet Users 25,979 21,943 22,901

Notes Plant Facility Statistics at Dec. 31, 2007 Telephone CATV 1] Originated by customers of the Company’s Telephone subsidiary. Excludes information for Converged Services (NTC) 2] POPS refers to the estimated population of a given geographic area and is based on informa- Route Miles 2,256 574 tion purchased by Sprint Nextel from Geographic Information Services. Market POPS are those within a market area which the Company is authorized to serve under its Sprint Nextel Miles of Distribution Wire 638 191 agreements, and Covered POPS are those covered by the network’s service area. Utility Poles 7,549 38 3] Indicates MDU complexes where Converged Services provides service. Miles of Aerial Copper Cable 314 162 Miles of Buried Copper Cable 1,393 377 Miles of Underground Copper Cable 39 2 Fiber Miles Regulated 310 - Fiber Miles Unregulated 249 - Fiber Miles Network 94 - Selected Statistics 16 Annual Report

Five-Year Summary 2007 2006 2005 2004 2003 of Selected Financial Data in thousands, except per share data Operating revenues $ 141,183 $ 169,195 $ 146,391 $ 120,994 $ 105,661 Operating expenses 109,998 148,021 127,015 102,983 87,740 Operating income 31,185 21,174 19,376 18,011 17,921 Interest expense 1,873 2,362 3,076 3,129 3,510 Income taxes 12,971 12,370 6,716 5,921 5,166 Net income (loss) from continuing operations1] $ 18,803 $ 17,999 $ 10,735 $ 10,038 $ 9,539 Discontinued operations, net of tax - - - - 22,389 Cumulative effect of a change in accounting, net of tax - (77) - - (76) Net income $ 18,803 $ 17,922 $ 10,735 $ 10,038 $ 31,852 Total assets 221,524 207,720 204,921 211,421 185,520 Total debt – including current maturities 21,907 26,016 35,918 52,291 43,346

Shareholder Information Shares outstanding 23,509 23,284 23,061 22,889 22,778 Income (loss) per share from continuing operations-diluted2] $ 0.80 $ 0.77 $ 0.46 $ 0.44 $ 0.42 Income per share from discontinued operations-diluted2] - - - - 0.98 Loss per share from cumulative effect of a change in accounting2] - - - - - Net income per share-diluted2] 0.80 0.77 0.46 0.44 1.39 Cash dividends per share2] $ 0.27 $ 0.25 $ 0.15 $ 0.14 $ 0.13

Operating Income External Revenue by Segment for 2007 in millions 7.0 % 35.0 2.8 % 30.0 PCS 3.6 % Telephone 25.0 7.9 % 20.0 Converged Services 15.0 Cable TV 10.0 Mobile Other 16.9 % 61.8 % 2007 06 05 04 03 $ 31.2 21.2 19.4 18.0 17.9

Net Income Revenue in millions in millions

170.0 35.0 160.0 30.0 150.0 25.0 140.0 20.0 130.0 15.0 120.0 10.0 110.0 5.0 100.0

2007 06 05 04 03 2007 06 05 04 03 $ 18.8 17.93] 10.7 10.0 31.94] $ 141.25] 169.2 146.4 121.0 105.6

Notes 1] The 2006 balance shown includes a gain of $6.4 million, net of tax, relating to the disposition of 4] The gray portion shown represents operating net income and after tax gain on sale of the Com- the RTB stock. pany’s investment in the Virginia 10 RSA Limited Partnership.

2] All share and per share figures reflect the two for one stock split effected February 23, 2004, and 5] Reduction in revenues is a result of the change in presentation resulting from the new terms of the three for one stock split effected August 2, 2007. the agreement with Sprint Nextel.

3] The gray portion shown represents a gain of $6.4 million, net of tax, relating to the disposition of the RTB stock. Selected Statistics 17 Financial 19 Management’s Report on Internal Control Over Financial Reporting Summary 20 Reports of Independent Registered Public Accounting Firm

22 Consolidated Financial Statements

28 Notes to Consolidated Financial Statements

46 Management’s Discussion & Analysis

62 Shareholder Information Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of our Chief Executive Officer and our Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007, based on the framework and criteria established in Internal Control – Integrated Frame- work, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on management’s evaluation under the COSO framework of our internal control over financial reporting, management concluded that our internal control over financial reporting was effective as of December 31, 2007.

KPMG LLP, an independent registered public accounting firm, which audited the Company’s financial statements included in this Annual Report, has issued a report on the effectiveness of the Company’s internal control over financial reporting, which is included on page 20 of this Annual Report. ~ Telecommunications Shenandoah 20

Management’s & Auditors’ Reports Company

~ Reports ofIndependentRegisteredPublic Accounting Firm March 12, 2008 Richmond, Virginia statements. qualified opiniononthoseconsolidatedfinancial un- an expressed 2008 12,March dated 2007,report 31, our December and ended period three-year of statements consolidated related the and the in flows each the years cash for of and comprehensiveincome, 2006, and shareholders’ income, equity and 2007 31, December of as subsidiaries and Board the consolidated balance (United sheets States), of Shenandoah Telecommunications Company PublicCompanythe of AccountingOversightstandards the Wewith haveaccordance also in audited, work, issuedby theCommittee ofSponsoringOrganizationsthe Treadway Commission. reporting as of December 31, 2007, based on criteria established in In our opinion, the Company maintained, in all material respects, effective internal control over financial compliance withthepoliciesorproceduresmay deteriorate. the risk that controls may become inadequate because of changesto in conditions, or that the degree of subject are periods future effectivenessto of evaluation any of projections Also, misstatements. detect or prevent not may reporting financial over control internal limitations, inherent its of Because assets thatcouldhave amaterialeffect onthefinancialstatements. garding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s authorizations of management and directors of the company; and (3) provide reasonable assurance re- principles, and that receipts and expenditures of the company are being made only in accordance with accounting accepted generally with accordance in neces- statements financial as of preparation recorded permit to are sary transactions that assurance reasonable provide (2) company; the of assets the of dispositions and transactions the reflect fairly and accurately detail, reasonable in that, records of maintenance the to pertain (1) that procedures and policies those includes reporting financial over nal purposes in accordance with generally accepted accounting principles. A company’s internal control ance regarding the reliability of financial reporting and the preparation of financialstatements for exter A company’s internal control over financial reporting is a process designed to provide reasonable assur a reasonablebasisfor ouropinion. other procedures as we considered necessary in the circumstances. We believe that our audit provides suchperforming included also audit Our risk. assessed the on based effectivenesscontrol internal of assessing the risk that a material weakness exists, and testing and evaluating the design and operating rial respects. Our of audit an internal included understanding control obtaining over financial reporting, effectivewhether about assurance overcontrol internal mate- all in reporting financial maintained was Board (United States). Those standards require that we plan and perform the audit to obtain reasonable We conducted our audit in accordance with the standards of the Public Company Accounting Oversight financial reportingbasedonouraudit. Company’sthe expresson to opinion is an responsibility Our Reporting. Financial overcontrol internal over Control Management’s accompanying Internal the on in Report included reporting, overfinancial control internal effectiveness of the of assessment its for and reporting financial over control ternal in- effective maintaining for responsible is management Company’s The (COSO). Commission way the Treadof Organizations - Sponsoring of Committee the by Frameworkissued Control—Integrated , in established 2007, criteria 31, on December based of as reporting financial over control nal Company’s)Shenandoah (the inter subsidiaries’audited haveTelecommunicationsWe and Company Shenandoah Telecommunications Company: The Board ofDirectorsandShareholders Internal Control—Integrated Frame- Internal - - - Annual Report

The Board of Directors and Shareholders Shenandoah Telecommunications Company:

We have audited the accompanying consolidated balance sheets of Shenandoah Telecommunications Company and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Over- sight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Shenandoah Telecommunications Company and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in note 10 to the consolidated financial statements, the Company changed its method of accounting for share-based payment in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control–Integrated Framework, issued by the Commit- tee of Sponsoring Organizations of the Treadway Commission, and our report dated March 12, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Richmond, Virginia March 12, 2008 Management’s & Auditors’ Reports Auditors’ & Management’s 21 ~ Telecommunications Shenandoah 22

Consolidated Financial Statements Company

~ Deferred incometaxes Prepaid expenses andother Materials andsupplies Income taxesreceivable Accounts receivable, net Total assets Other assets, net Deferred charges andotherassets,net Cost inexcess ofnetassetsbusinessesacquired assets, net Intangible Other Assets Net property, plantandequipment Plant inservice Property, PlantandEquipment Total investments Other investments Investments carried atfair value Investments Total current assets Plant underconstruction in thousands ASSETS December 31, 2007and 2006 Consolidated Balance Sheets Shenandoah Telecommunications Company &Subsidiaries See accompanying notestoconsolidatedfinancial statements. (continued) Cash andcashequivalents Current Assets Less accumulatedamortizationanddepreciation Consolidated FinancialConsolidated Statements

$ $ 300,622 221,524 155,424 289,279 145,198 15,028 41,136 12,338 17,245 11,343 2,221 4,664 2,845 9,852 2,331 9,936 2,602 3,762 7,334 2007 906 $ $ 155,644 274,061 118,417 207,720 267,622 14,138 30,863 13,440 11,611 2,499 1,297 1,487 9,852 2,799 6,439 2,016 7,075 7,075 2006 - - Annual Report

Shenandoah Telecommunications Company & Subsidiaries Consolidated Balance Sheets December 31, 2007 and 2006

LIABILITIES AND SHAREHOLDERS’ EQUITY 2007 2006 in thousands Current Liabilities Current maturities of long-term debt $ 4,248 $ 4,109 Accounts payable 6,073 7,364 Advanced billings and customer deposits 5,455 4,975 Accrued compensation 3,098 1,974 Income taxes payable - 23 Accrued liabilities and other 5,182 2,835 Total current liabilities 24,056 21,280

Long-term debt, less current maturities 17,659 21,907

Other Long-Term Liabilities Deferred income taxes 20,970 22,515 Pension and other 5,000 4,303 Deferred lease payable 2,715 2,526 Total other liabilities 28,685 29,344

Commitments and Contingencies

Shareholders’ Equity Common stock, no par value, authorized 48,000 shares; issued and outstanding 23,509 shares in 2007 and 23,284 shares in 2006 14,691 11,322 Retained earnings 138,172 125,690 Accumulated other comprehensive loss, net of tax (1,739) (1,823) Total shareholders’ equity 151,124 135,189

Total liabilities and shareholders’ equity $ 221,524 $ 207,720

See accompanying notes to consolidated financial statements. Consolidated Financial Statements 23 ~ Telecommunications Shenandoah 24

Consolidated Financial Statements Company

~ in thousands,except pershareamounts Years Ended December 31, 2007, 2006and 2005 Consolidated Statements Income of Shenandoah Telecommunications Company &Subsidiaries See accompanying notestoconsolidatedfinancial statements. Weighted average shares outstanding, diluted Cumulative effect ofachange netofincometaxes inaccounting, Net incomebefore cumulative effect ofachange inaccounting Diluted netincomepershare: Weighted average shares outstanding, basic Cumulative effect ofachange netofincome taxes inaccounting, Net incomebefore cumulative effect ofachange inaccounting Basic netincomepershare: Income pershare: Net income Cumulative effect ofachange netofincome taxes inaccounting, Net incomebefore cumulative effect ofachange inaccounting and amortizationshown separatelybelow exclusiveCost ofgoodsandservices, ofdepreciation Operating expenses: Operating revenues Income tax expenseIncome tax effect ofachange inaccounting Income before incometaxes andcumulative Non-operating income,net Gain (loss)oninvestments, net Interest expense Other income(expense): Operating income Total operating expenses Depreciation andamortization depreciation andamortizationshown separatelybelow generalandadministrative,Selling, exclusive of Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports

$ $ $ $ $ $ 141,183 109,998 23,497 23,365 32,590 18,803 18,803 31,185 12,971 29,198 31,774 48,210 (1,873) 1,623 2007 0.80 0.80 0.80 0.80 839 - - - $ $ $ $ $ $ 148,021 169,195 23,331 23,157 72,075 30,369 48,656 12,370 10,644 21,174 17,922 17,999 27,290 (2,362) 2006 0.77 0.77 0.77 0.77 913 (77) - - $ $ $ $ $ $ 146,391 127,015 22,977 22,382 60,791 43,842 19,376 23,109 10,735 10,735 17,451 (3,076) 1,303 6,716 2005 0.46 0.46 0.47 0.47 (152) - - - Annual Report

Shenandoah Telecommunications Company & Subsidiaries Consolidated Statements of Shareholders’ Equity & Comprehensive Income Years Ended December 31, 2007, 2006 and 2005 in thousands, except per share amounts Shares Common Retained Accumulated Other Total Stock Earnings Comprehensive Income (Loss)

Balance, December 31, 2004 22,890 $ 6,319 $ 106,373 $ 65 $ 112,757

Comprehensive income: Net income - - 10,735 - 10,735 SERP additional minimum pension liability - - - (104) (104) Net unrealized change in securities available-for-sale, net of tax of $(40) - - - (65) (65) Total comprehensive income 10,566 Dividends declared ($0.15 per share) - - (3,532) - (3,532) Stock based compensation - 347 - - 347 Common stock issued through exercise of incentive stock options 171 1,169 - - 1,169 Excess tax benefit from stock options exercised - 293 - - 293 Balance, December 31, 2005 23,061 $ 8,128 $ 113,576 $ (104) $ 121,600

Comprehensive income: Net income - - 17,922 - 17,922 SERP additional minimum pension liability - - - 104 104 Net unrealized loss from pension plans, net of tax - - - (1,823) (1,823) Total comprehensive income 16,203 Dividends declared ($0.25 per share) - - (5,808) - (5,808) Dividends reinvested in common stock 31 474 - - 474 Common stock repurchased from dividend reinvestment plan participants - (6) - - (6) Stock based compensation - 94 - - 94 Conversion of liability classified awards to equity classified awards - 1,037 - - 1,037 Common stock issued through exercise of incentive stock options 192 1,368 - - 1,368 Net excess tax benefit from stock options exercised - 227 - - 227 Balance, December 31, 2006 23,284 $ 11,322 $ 125,690 $ (1,823) $ 135,189

Comprehensive income: Net income - - 18,803 - 18,803 Reclassification adjustment for unrealized loss from pensioin plans included in net income, net of tax - - - 476 476 Net unrealized loss from pension plans, net of tax - - - (392) (392) Total comprehensive income 18,887 Dividends declared ($0.27 per share) - - (6,321) - (6,321) Dividends reinvested in common stock 23 518 - - 518 Common stock repurchased (26) (636) - - (636) Stock based compensation - 153 - - 153 Common stock issued for share awards 98 2,075 - - 2,075 Conversion of liability classified awards to equity classified awards - 55 - - 55 Common stock issued through exercise of incentive stock options 130 1,048 - - 1,048 Net excess tax benefit from stock options exercised - 156 - - 156 Balance, December 31, 2007 23,509 $ 14,691 $ 138,172 $ (1,739) $ 151,124

See accompanying notes to consolidated financial statements. Consolidated Financial Statements 25 ~ Telecommunications Shenandoah 26

Consolidated Financial Statements Company

~ Net cashusedininvesting activities from continuingoperations Proceeds frominvestment activities Purchase ofinvestment securities Acquisition ofbusinesses,netcashacquired Proceeds fromsaleofequipment Purchase andconstruction ofplantandequipment Cash Flows from Investing Activities Net cashprovided by operating activitiesfrom continuingoperations Other prepaids,deferrals and accruals Deferred leasepayable Accounts payable Increase (decrease)in: Accounts receivable (Increase) decreasein: Changes inassetsandliabilities,exclusive ofacquiredbusinesses: Materials andsupplies Other investmentsNet gainfrompatronageandequity Net gainondisposalofinvestments Unrealized lossoninvestments carried atfair value Loss ondisposalofequipment Deferred incometaxes Excess benefitsonstock tax option exercises Stock basedcompensationexpense Amortization Depreciation Cumulative effect ofchange inaccountingprinciple by operatingactivitiesfromcontinuingoperations: Adjustments toreconcilenetincomecashprovided Net income Cash Flows from Operating Activities from ContinuingOperations in thousands Years Ended December 31, 2007, 2006 Consolidated Statements Cash Flows of Shenandoah Telecommunications Company &Subsidiaries See accompanying notestoconsolidatedfinancial statements. (continued) Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports

and 2005

$ $ $ $ (30,594) (29,084) 28,603 18,803 43,743 (2,872) (1,038) (1,208) (2,165) (1,195) 2,321 2007 (995) (727) (156) 959 403 704 595 189 (78) 90 - - - $ $ $ $ (21,195) (10,542) 34,350 26,459 11,489 (9,836) (1,693) 17,922 (2,120) 1,396 2006 (453) (206) (228) 323 296 436 254 203 350 831 915 77 - - $ $ $ $ (30,113) (29,527) 32,249 21,920 10,735 (1,511) (2,374) 2,642 2005 (600) (536) (589) (962) 403 353 925 383 347 462 147 (74) (8) - - - Annual Report

Shenandoah Telecommunications Company & Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2007, 2006 and 2005 in thousands 2007 2006 2005 Cash Flows from Financing Activities

Principal payments on long-term debt $ (4,109) $ (8,725) $ (4,373) Payments on lines of credit - (1,177) (12,000) Dividends paid (5,803) (5,334) (3,532) Repurchase of stock (636) (6) - Excess tax benefits on stock option exercises 156 228 - Proceeds from exercise of incentive stock options 1,048 1,368 1,169 Net cash used in financing activities from continuing operations $ (9,344) $ (13,646) $ (18,736)

Net cash provided by (used in) continuing operations $ 3,805 $ 10,868 $ (16,600) Net cash provided by operating activities from discontinued operations - - 5,000 Net increase (decrease) in cash and cash equivalents $ 3,805 $ 10,868 $ (11,600)

Cash and cash equivalents: Beginning 13,440 2,572 14,172 Ending $ 17,245 $ 13,440 $ 2,572

Supplemental Disclosures of Cash Flow Information Cash payments for: Interest, net of capitalized interest of $20 in 2007, $19 in 2006, and $20 in 2005 $ 1,912 $ 2,362 $ 3,072 Income taxes $ 17,782 $ 12,960 $ 6,296

See accompanying notes to consolidated financial statements. Consolidated Financial Statements 27 ~ Telecommunications Shenandoah 28

Notes to Consolidated Financial Statements Company

~ NOTE 1:Summary ofSignificant accounts monthly. Past due balances meeting specific criteria specific meeting balances due Pastmonthly. accounts economic data. The Company reviews its allowance local forand doubtful industry and experiencewrite-off historical on based allowance existing the Company’sdetermines Company Thereceivable. accounts the in losses credit probable of amount the of estimate best Company’s the is accounts doubtful for allowance The interest. bear not do at and amount invoiced recorded the are receivable Accounts receivable: Accounts respectively.2006, were $14.8 million and $12.6 million at December 31, 2007) 2007 and 31, December at funds management cash institutional of entirely equivalents(comprised Cash limits. insurance FDIC of excess in be mayinvestments these times, At institutions. financial quality credit high with investments cash temporary three months or less of to be cash equivalents. maturity The Company places a its with purchased investments cash porary - tem equivalents: all cash considers Companyand The Cash actual results coulddiffer fromthosereported estimates. and estimates, revised in result may circumstances and facts as liabilities for income taxes and pension benefits. Changes in those related to recoverability and useful lives of assets as well reporting periods. Management reviews its estimates, including and the reported amounts of revenues statements and financial expenses during the consolidated the of date the at liabilities of assets and liabilities, the disclosure of contingent assets and reporting the to related assumptions and estimates of number a made has Company the of Management estimates: of Use have and transactions been eliminatedinconsolidation. balances intercompany significant All subsidiaries. owned wholly all of accounts the include ments - state financial consolidated consolidation: The of Principles significant accountingpolicies follows: Company’sthe of summary A 7). Note (See license spectrum territory, and operates its network under the Sprint Nextel radio this in name brand Sprint the use to licensed is Company The Virginia. Harrisonburg, to Virginia, West of panhandle the and and burg York, Harris- Pennsylvania,through south WesternMaryland, Altoona, from extending area geographic the in range spectrum megahertz 1900 the on services and products work net- communications mobility wireless providing Affiliate PCS exclusiveSprint the lectively, is Company the Nextel”), “Sprint (col- parties related its and Company Communications Nextel Sprint with agreement management a to Pursuant Virginia.of ValleyShenandoah Northern the surrounding region four-state the in located are operations Company’s Delaware.other The and Mississippi Tennessee, Florida, Georgia, Carolina, South Maryland, Carolina, North Virginia,including States United ern (primarily off-campus college student housing) throughout the southeast- communities (“MDU”) unit multi-dwelling to basis non-exclusiveexclusiveand an on voice, services Internet and video, distance long and local provides Services, Converged Shentel subsidiary its through Company, The network. optic fiber interstate an maintains and operates and towers leases Internet access, services, and paging services. In addition, the Company and sales equipment communications unregulated television, cable name, brand Sprint the under (“PCS”) service communications personal “Company”) wireless service, the telephone provide (collectively, subsidiaries its and TelecommunicationsCompany Shenandoah business: of Description A cc Notes to Consolidated FinancialNotes toConsolidated Statements ounting Plicies

netr hl fr ae sc a tlpoe ad accessories, and telephones as such sale, for held Inventory value. market or cost average of lower the at inventory in ried car are materials reusable and New supplies: and Materials accounting therelated policies areasfollows: and securities those of The classification is warranted. as in values impairments reflect will pany theCom- conditions, industry and information financial tions, condi- marketsuchfactors as on based investments,and all of is periodically reassessed. The Company monitors the fair value acquired. are ments suchof Theappropriateness classification invest- individual date the at management by determined are securities equity and debt of Investments:classifications The 2006 and 2005 aresummarized and2005 below2006 (inthousands): 2007,31, December ended years the for receivable accounts during 2007. balance Changes in the allowance for doubtful accounts for trade this reversed Company the below, agreement described Nextel Sprint the in changes the to Due PCS. to related million $0.5 included accounts doubtful for allowance Company’sthe 2006, 31, December of As companies. cations the Company’s geographic service area and large telecommuni- Accounts receivable are concentrated among customers within exhaustedforpotential the and remote. considered is recovery been have collection of means all after allowance the against chargedoffare balances Account basis. pooled revieweda on are reviewed individually for collectibility. All other balances are Bad debtexpense Losses charged toallowance Balance atbeginningofyear Recoveries addedtoallowance Balance atendofyear temporary decline. temporary a than other is whichinvestment the of value in decline there a is when loss these a recognizes of Company valueThe investments. carrying the reduce earnings. received in reflected Distributions is investees of losses or earnings in the equity method. Under this method, the Company’s equity the ability to exercise significant influence, are reported under has otherwise Company the where or more, or 20% is ship Company’sthe owner where corporations unconsolidated in Equity Method Investments: Investments in partnerships and investment isestablished. the for basis cost new a and earnings to charged are ments Impair value. in reviewedimpairment is of evidenceforcost at carriedinvestments regarding Information cost. at carried are market, ready no is there which for and 20%) than (less ownership significant havea not does Companywhich the in stock common in Investments Cost: at Carried Investments Other Investments: other of component comprehensive income). a as equity in than (rather earnings in losses and gains unrealized reflect and value, market at ties securi- these value to elected terms, its with accordance in Liabilities”,Financial forFinancial and Assets 2007,during and Option Value“FairSFAS159, adopted Company The value. fair at reported are Plan, ExecutiveRetirement Supplemental pany’s rabbi trust, which is related to the Company’s unfunded bond mutual funds and investment trusts held within the Com- and stock in Investments FairValue: at Carried Investments $ $ 2007 (439) (148) 583 160 164 $ $ 2006 (3,753) 3,553 573 583 210 $ $ (2,839) 2,780 2005 351 573 281 - - - Annual Report

are carried at the lower of average cost or market value. Non- underlying the obligation. The Company records the retirement reusable material is carried at estimated salvage value. obligation on towers owned where there is a legal obligation to remove the tower and restore the site to its original condition, Property, plant and equipment: Property, plant and equip- as required by certain operating leases and applicable zoning ment is stated at cost. The Company capitalizes all costs ordinances of certain jurisdictions, at the time the Company associated with the purchase, deployment and installation discontinues its use. The obligation is estimated based on the of property, plant and equipment, including interest on major size of the towers. The Company’s cost to remove the tower capital projects during the period of their construction. Expen- is amortized over the life of the tower. Changes in the liability ditures, including those on leased assets, which extend the for asset removal obligations for the years ended December 31, useful life or increase its utility, are capitalized. Maintenance 2007, 2006 and 2005 are summarized below (in thousands): expense is recognized when repairs are performed. Deprecia- 2007 2006 2005 tion is calculated on the straight-line method over the estimated Balance at beginning of year $ 928 $ 374 $ 334 useful lives of the assets. Depreciation and amortization is not included in the income statement line items “Cost of goods and Additional liabilities accrued 218 181 4 services” or “Selling, general and administrative.” Depreciation Estimate revisions accrued - 317 - lives are assigned to assets based on their estimated useful Disposition of assets - (6) - lives. Leasehold improvements are depreciated over the lesser Accretion expense 70 62 36 of their useful lives or respective lease terms. The Company Balance at end of year $ 1,216 $ 928 $ 374 takes technology changes into consideration as it assigns the estimated useful lives, and monitors the remaining useful lives Cost in excess of net assets of business acquired and intan- of asset groups to reasonably match the remaining economic gible assets: SFAS No.142, “Goodwill and Other Intangible life with the useful life and makes adjustments when neces- Assets,” eliminates amortization of goodwill and intangible sary. During the years ended December 31, 2007, 2006 and assets that have indefinite useful lives and requires annual tests 2005, the estimated useful lives of certain asset classes were of impairment of those assets. SFAS No. 142 also provides spe- decreased to reflect the remaining estimated economic useful cific guidance about how to determine and measure goodwill lives of these assets and as a result, the Company recorded and intangible asset impairments, and requires additional disclo- additional depreciation of $0.5 million, $0.2 million and $0.4 mil- sures of information about goodwill and other intangible assets. lion, respectively, for the changes in estimated useful lives. Goodwill is assessed annually, at November 30, for impairment and in interim periods if certain events occur indicating that Valuation of long-lived assets: Long-lived assets, such as the carrying value may be impaired. No impairment of goodwill property, plant, and equipment, and purchased intangibles was required to be recorded in the years ended December 31, subject to amortization, are reviewed for impairment whenever 2007 or 2005. Goodwill is allocated to the reporting segment events or changes in circumstances indicate that the carrying responsible for the acquisition that gave rise to the goodwill. amount of an asset may not be recoverable. Recoverability of The following table presents the goodwill balance allocated assets to be held and used is measured by a comparison of by segment and changes in the balances for the years ended the carrying amount of an asset to estimated undiscounted December 31, 2007, 2006 and 2005 (in thousands): future cash flows expected to be generated by the asset. If the CATV Converged Shentel Total carrying amount of an asset exceeds its estimated future cash Segment Services Wireless flows, an impairment charge is recognized by the amount by Segment Segment which the carrying amount of the asset exceeds the fair value of the asset. During 2006, the Company determined that certain Balance as of long-lived assets associated with Shentel Wireless Company December 31, 2004 $ 3,313 $ 5,550 $ - $ 8,863 were impaired, and impairment charges of approximately $88 thousand were recognized during the fourth quarter. NTC purchase price adjustment1] - 989 - 989 Acquisition2] - - 251 251 Fair value: Financial instruments presented on the consolidated balance sheets that approximate fair value include: cash and Balance as of December 31, 2005 3,313 6,539 251 10,103 cash equivalents, receivables, investments carried at fair value, payables, and accrued liabilities. Impairment charge3] - - (251) (251) Balance as of Asset retirement obligations: The Company records the fair December 31, 2006 value of an asset retirement obligation as a liability in the period and 2007 $ 3,313 $ 6,539 $ - $ 9,852 in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from acquisition, 1] During the third quarter of 2005, the Company recorded an adjustment to the initial allocation of construction, development and/or normal use of the assets. The the purchase price for the November 30, 2004 acquisition of NTC (Note 14). Property, plant and equipment was reduced by approximately $1.5 million with a corresponding increase to goodwill. Company also records a corresponding asset, which is depreci- In addition, goodwill was reduced by approximately $0.5 million as a result of settling the escrow ated over the life of the tangible long-lived asset. Subsequent funds dispute. to the initial measurement of the asset retirement obligation, 2] Goodwill recorded for the Broadband Metro Communications acquisition (Note 14). the obligation is adjusted at the end of each period to reflect the 3] During the fourth quarter of 2006, the Company recognized an impairment charge for the goodwill passage of time and changes in the estimated future cash flows associated with the Shentel Wireless Segment when the Company terminated Shentel Wireless’ operations and transferred its one remaining asset to Converged Services. Notes to Consolidated Financial Statements 29 ~ Telecommunications Shenandoah 30

Notes to Consolidated Financial Statements Company

~ periods shown willbeasfollows: the for assets intangible for expense amortization Aggregate Wireless’ contracts. Shentel of certain of termination the to related charges ment impair in million $0.1 included amount wasmillion. $0.5 2006 The assets intangible to related and expense amortization 2006 2007, 2005, 31, December ended years the of each For Intangible assetsconsistofthefollowing(inthousands): Intangible and2006 atDecember31,2007 expected to apply to taxable income in the years in which those rates tax enacted using measured are liabilities and assets tax Deferred bases. tax respective their and liabilities and assets ences between financial statement carrying amounts ofdiffer existing to attributable consequences tax future the for ognized rec- are liabilities and assets Deferred method. tax liability and Income taxes: Income taxes are accounted for under the asset stock intheplan’s portfolio. Companyholds directly plans retirement funded the of Neither contributionstothisplan. ary discretion- and matching make may Company The maximum. federalallowable the to up basis, pretax a on earnings their portion of a defer may employees all substantially which under 401(k) contribution defined a plan maintains TheCompanyalso the to equal liabilities underthisplan. assets hold to trust rabbi a funded and created plan. contribution Companya defined The to benefit defined a from amended was plan 2007,this During ofmanage- employees. ment group a select for benefits retirement providing additional of purpose the for primarily maintained is Supplemental and plan Executive an unfunded an is employees.This selected for maintains Plan Retirement also Company The ment ofLaborandERISA regulationsandrequirements. Depart- with accordance in plan the terminate and participants payable under this plan, and will settle accumulated benefits for benefits frozen has Company 2007, the 31, January Effective regulations. tax income federal allowable under maximum calculated contribution the fund to was policy Company’s The service. of years and compensation employees’ the on marily pri- covering based were benefits Pension plan employees. all substantially benefit defined noncontributory a maintained plans: Retirement 2012 2011 2010 2009 2008 Year EndingDecember31, Business contracts agreement Non-compete Trade name Other Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports ro t Jnay 1 20, h Company 2007, the 31, January to Prior Gross Carrying $ $ Amount 2,739 3,833 898 168 28 Accumulated Amortization in thousands 2007 $ $ Amount $ (1,502) 251 459 185 185 201 (702) (680) (103) (17) - - 2007 and2006. 2007 31, December both at million $0.2 was 104 SAB under enue (“SAB104”), 12 months. typically deferredof Theamount rev 104, Bulletin Accounting Staff with accordance in relationship customer the lifeof estimated overthe ratably recognized and Nonrefundable Converged Services’ activation fees are deferred set issoldandclassifiedasequipment revenue. revenue being recognized at the time the feerelated activationwireless hand - the of all substantially in resulted 00-21 EITF of changes any in moni- revenue recognition if need to be made. determine to The to adoption channels continues sales its Company with arrangements Thetor channel. sales each for Company the by into entered arrangement each of evaluation required 00-21 EITF of adoption The values. fair relative their on based units separate the to allocated and measured be will consideration the and transaction, bundled a be to presumed be will time, same the near or at into party,entered same the with contracts separate guidance, this applying In assets. use to rights and/or services, products, multiple of performance or delivery the i.e., activities, revenue-generating involvemultiple Revenue guidance addresses how to account for arrangements that formay “Accounting Deliverables.” EITF Element The 00-21, Multiple with Arrangements No. (“EITF”) Force Task Issues Emerging adopted Company the Effective 2003, 1, July about theManagementFeeFee. andNetService an versusas Net Agent.” forinformation7 additional Note See 99-19,No. Issue EITFPrincipal a Revenue“Reportingas Gross with accordance in Nextel, Sprint by Feeretained Service Net 8.8% 2007, the 1, January effective imposition its since and, wireless Agreement, revenues FeeManagement 8% the of net reported are service Management Nextel Sprint the Under sales the transaction iscomplete. when recognized is revenue sales, equipment For performed.are revenueservices the recognizedas is services, For revenue. the generating transactions of types various the on based Company the by recognized Revenuesare assured. reasonably is collectibility and determinable and fixed is buyer been rendered or products have been delivered, have the price to services the exists, arrangement an of evidence persuasive Revenue recognition: The Company recognizes revenue when against thedeferred assetsisnotnecessary. tax allowance valuation 2007, a 31, December at that concluded has and determination that make to threshold not than likely ing losses apportioned to that state. Management uses a more operat- net from basis state-by-state a on generated assets tax of recoverability the evaluates Company Thedate. enactment rates tax is recognized in income in the period that includes the in change a of liabilities and assets tax deferred effecton The differences temporary recoveredexpectedbe are tosettled. or $ $ 2,037 2,331 218 Net 65 11 Gross Carrying Gross Carrying $ $ Amount 2,823 3,917 898 168 28 Accumulated Amortization 2006 $ $ (1,118) (578) (459) (69) (12) $ $ 2,245 2,799 439 Net 99 16 - Annual Report

Converged Services also allows Internet service customers Note 2. Discontinued Operations to prepay their annual contract. For a prepayment equal to 11 In November 2002, the Company entered into an agreement monthly payments, the customer receives 12 months of ser- to sell its 66% General Partner interest in the Virginia 10 RSA vice. The Company defers such revenue amounts and amor- Limited Partnership (cellular operation) to Verizon Wireless. The tizes them over the contract period. Deferred revenues were closing of the sale took place on February 28, 2003. The total $0.1 million and $0.2 million at December 31, 2007 and 2006, proceeds received were $38.7 million, including $5.0 million held respectively. in escrow for any contingencies and indemnification issues arising during the two-year post-closing period. In February 2005, Earnings per share: Basic net income per share was com- the Company received the $5.0 million from the escrow agent. puted on the weighted average number of shares outstanding. Diluted net income per share was computed under the treasury Note 3. Investments stock method, assuming the conversion as of the beginning of The Company has three classifications of investments: invest- the period, for all dilutive stock options. For the year ended ments carried at fair value, investments carried at cost, and December 31, 2007, 66,806 contingently issuable performance equity method investments. See Note 1 for definitions of each shares did not meet the test to be considered issuable for classification of investment. purposes of the earnings per share computation, and so were excluded. For the year ended December 31, 2006, all options At December 31, 2007, investments carried at fair value con- were dilutive. For the year ended December 31, 2005, the sisted of: dilutive net income per share was exclusive of approximately 2007 480,000 stock options that were anti-dilutive. There were no in thousands adjustments to net income in the computation of diluted earn- Cash management trust $ 172 ings per share for any of the years presented. The Company Taxable bond funds 207 issued a three for one stock split in August, 2007. All prior years’ Domestic equity funds 1,884 share and per share amounts have been restated to reflect the effect of this stock split. International equity funds 339 $ 2,602 The following tables show the computation of basic and diluted earnings per share for the years ended December 31, 2007, Investments carried at fair value were acquired under a rabbi 2006 and 2005: trust arrangement related to the Company’s SERP. The Com- in thousands, except per share amounts 2007 2006 2005 pany purchases investments in the trust to mirror the invest- Basic income per share ment elections of participants in the SERP; gains and losses Net income $ 18,803 $ 17,922 $ 10,735 on the investments in the trust are reflected as increases or Weighted average decreases in the liability owed to the participants. During 2007, shares outstanding 23,365 23,157 22,977 the Company purchased $2.5 million of investments, recog- Basic income per share $ 0.80 $ 0.77 $ 0.47 nized interest and dividend income of $160,000, and unrealized losses of $90,000, for a total fair value change of $70,000. No Effect of stock options sales of investments were recorded during 2007. Fair values for outstanding: these investments are determined by quoted market prices for Weighted average the underlying mutual funds. Quoted market prices are level 1 shares outstanding 23,365 23,157 22,977 fair values as defined in FAS 157. Assumed exercise, at the strike price at the beginning of year 306 510 288 At December 31, 2007 and 2006, other investments, comprised Assumed repurchase of options of equity securities which do not have readily determinable fair under treasury stock method (175) (336) (156) values, consist of the following: Diluted weighted average shares 23,497 23,331 23,109 in thousands Diluted income per share $ 0.80 $ 0.77 $ 0.46 2007 2006

Cost method: Recently Issued Accounting Standards: In December 2007, NECA Services, Inc. $ 500 $ 500 the Financial Accounting Standards Board (“FASB”) issued two CoBank 1,938 1,817 statements, SFAS 141 (Revised 2007), Business Combinations Other 185 187 (“SFAS 141 Revised”), and SFAS 160, Non-Controlling Interests in Consolidated Financial Statements – an Amendment of ARB 2,623 2,504 No. 51 (“SFAS 160”). These two statements, which become effective January 1, 2009, change the accounting for transac- Equity method: tions where one entity acquires all, or a substantial portion of, South Atlantic Private Equity Fund IV L.P. 160 506 the ownership interests in another entity. SFAS 160 will also Magnolia Holding Company, LLC 11 18 change the accounting for and presentation of those owner- Dolphin Communications Parallel Fund, L.P. 325 206 ship interests not acquired in prior business combinations (for- Dolphin Communications Fund II, L.P. 2,151 2,012 merly, minority interests). As the Company currently has no Burton Partnership 1,809 1,596 non-controlling interests subject to SFAS 160, and as SFAS 141 Virginia Independent Telephone Alliance 208 191 Revised does not change the accounting for any prior acquisi- ValleyNet 47 42 tions, these statements have no impact upon the Company’s historical financial statements. 4,711 4,571

Total other investments $ 7,334 $ 7,075 Notes to Consolidated Financial Statements 31 ~ Telecommunications Shenandoah 32

Notes to Consolidated Financial Statements Company

~ Cable andwire Equipment andsoftware Buildings andstructures Land and 2006: Plant in consists service of the following at December 31, 2007 Note 4.PlantinServic 31, 2007. December at 4% than less of interest ownership an had pany investmentare eachin partnerships, limited whichof investeesCom- the method equity Other customers. other to charged those to Telephonecomparable and rates ValleyNetAlliance at Independent Virginia from services purchases Company The with the Company’s ownership interests at December 31, 2006. respectively,20%, and 22% approximatelywhich consistent is were 2007 31, Independent December and ValleyNetat TelephoneAlliance Virginia in interests ownership Company’s The callsfromthefundmanagers. pursuant tocapital investees method equity various in million $0.5 additional an As2007,31, December of Companythe committedis investto gain of$393thousandintheyear endedDecember31,2007. ended December 31, 2007. Other investmentsequity had a net recorded a net gain of approximately $538 thousand in the year investmentsLP. two II, Fund These Communications Dolphin and LP Fund, Parallel Communications Dolphin investments, equity two in thousand invested$390 and securities, and cash investments$1.2 equity totaling its from distributions in million received2007, Company 31, the December ended year the In Company has withCoBank. the balances loan and investment outstanding the from earned patronage ongoing the to respectively,due 2006, $101and and yearsthe in thousand 2007 31, December ended The Company’s investment in CoBank increased $121 thousand $0.1 millionfromtheRTB. stock. During 2007, the Company received a final distribution of related to the dissolution of the RTB and the redemption of the tax, of net million, approximately$6.4 of gain recognizeda and 31, December 2005. In 2006, the Company at received $11.3 method cost million in proceeds, the under $796,000 at books Company’s the on reflected waswhich($1.00Stock value) par Common RTB C Class and B Class of 10,821,770shares held Company The2005. 1, October of as RTB dissolving of pose pur the for resolutions of number a (the adopted Bank“RTB”) On August 4, 2005, the board of directors of the Rural Telephone in thousands Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports 3 – 16.6 years 15 –40years 15 –40years Useful Lives Estimated $ $ 289,279 179,427 46,777 61,914 1,161 2007 $ $ 156,391 267,622 2006 65,326 44,740 1,165 - CoBank (termloan) Total long-term debt Current maturities years areasfollows: subsequenttoDecember31,2007 fiveeachfor the debt of long-term maturitiesof aggregate The December 31,2007. at covenants all with compliance in was Company The tions. opera- continuing on calculated and basis 12-month trailing a on based quarter,each of end the at measured debt CoBank the for covenants financial meet to required is Company The tribution ofthecreditsby CoBank. year the ended December 31, 2007, in in anticipation of points the early dis- 2008 basis 100 accrued Company The balance. debt CoBank outstanding its respectively,on points, 100 basis 100approximatelyand of credits patronage receivedCompany the 2006, and 2007 of quarter first the During members. its to CoBank,whichprofits its distribute cooperativeto a required is of profits CoBank.of distribution a are credits patronage These from received are that credits patronage excludes rate stated The 8.05%. to 6.67% approximately from ranging rates fixed at is which $21.7million, is 2007 31, December at loan term Company’s subsidiaries. The outstanding balance of the CoBank The CoBank term loan is secured by a pledge of the stock of the CoBank termloanisin2013. the of maturity final The interest. plus thousand $350 mately approxi- of payments monthly requires loan term CoBank The pledge ofthestock ofall thesubsidiariesofCompany. a by secured is Company’s option. loan the The at rate fixed a adjustable rate, less patronage credits, that can be converted to an have facility the under Borrowingsavailable. amount the in reductions and payments quarterly with term 12year a has ity $11.3 million as of December 31, 2007.to up The borrow revolvingcan credit Company facilfacility,- the credit amended the of terms the Under facility. credit reducing revolving million $15 a forprovideCoBank, ACB to with LoanAgreement Master its of terms the amended Company the 2004, 30, November On in thousands 2006: and 2007 31, December followingat the Total of consists debt Rev Note 5.Long-Term Dbt and Later years 2012 2011 2010 2009 2008 Year RUS Development Loan olving LinesofCredt Fixed Weighted Average Interest Rate Interest free 7.58%

$ $ 21,707 21,907 17,659 4,248 2007 $ $ 200 in thousands $ $ Amount 21,907 21,907 25,816 26,016 2,076 2,648 3,975 4,561 4,399 4,248 4,109 2006 200 Annual Report

The estimated fair value of fixed rate debt instruments as of Net deferred tax assets and liabilities consist of the following at December 31, 2007 and 2006 was $22.5 million and $28.3 million, December 31, 2007 and 2006: respectively, determined by discounting the future cash flows of in thousands 2007 2006 each instrument at rates offered for similar debt instruments of Deferred tax assets: comparable maturities as of the respective year-end dates. State net operating loss carryforwards, net of federal $ 809 $ 1,016 Note 6. Income Taxes Lease obligations 1,029 936 Total income taxes for the years ended December 31, 2007, Deferred revenues 106 155 2006 and 2005 were allocated as follows: Accrued pension/ERO costs 1,396 2,363 in thousands 2007 2006 2005 Allowance for doubtful accounts 62 233 Accrued compensation costs 83 52 Income tax expense $ 12,971 $ 12,370 $ 6,716 Other, net 250 351 Income tax from cumulative ef- Total gross deferred tax assets 3,735 5,106 fect of an accounting change - (48) - Accumulated other comprehensive income for unrecognized Deferred tax liabilities: actuarial losses on pensions 54 (1,157) - Plant-in-service 23,463 25,900 Accumulated other comprehen- Deferred activation charges 294 49 sive income for unrealized holding losses on equity securities - - (40) Gain on investments, net 42 375 $ 13,025 $ 11,165 $ 6,676 Total gross deferred tax liabilities 23,799 26,324

The Company and its subsidiaries file income tax returns in sev- Net deferred tax liabilities $ 20,064 $ 21,218 eral jurisdictions. The provision for the federal and state income taxes attributable to income from continuing operations con- In assessing the ability to realize deferred tax assets, manage- sists of the following components: ment considers whether it is more likely than not that some Years Ended December 31, 2007 2006 2005 portion or all of the deferred tax assets will not be realized. The in thousands ultimate realization of deferred tax assets is dependent upon generating future taxable income during the periods in which Current expense those temporary differences become deductible. Manage- Federal taxes $ 11,812 $ 12,077 $ 7,356 ment considers the scheduled reversal of deferred tax liabilities, State taxes 2,367 1,938 868 projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical Total current provision 14,179 14,015 8,224 taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, Deferred expense (benefit) management believed it more likely than not that the Com- Federal taxes (1,611) (2,026) (851) pany would realize the benefits of the deferred tax assets and State taxes 403 381 (657) eliminated the valuation allowance at December 31, 2005. Total deferred provision (benefit) (1,208) (1,645) (1,508) The Company has generated net operating loss carryforwards Income tax expense $ 12,971 $ 12,370 $ 6,716 of approximately $13.8 million from its operations in several states. These carryforwards expire at varying dates beginning A reconciliation of income taxes determined by applying the in the year 2019 and ending in 2027. federal and state tax rates to income from continuing operations is as follows for the years ended December 31, 2007, As of January 1, 2007 and December 31, 2007, the Company 2006 and 2005: had no unrecognized tax benefits. Accordingly, there would Years Ended December 31, 2007 2006 2005 be no effective tax rate impact from recognition of previously in thousands unrecognized tax benefits. The December 31, 2007 balance sheet includes no amounts for interest or penalties related to Computed “expected” tax unrecognized tax benefits, and no such amounts were recog- expense (35%) $ 11,121 $ 10,629 $ 6,107 nized as components of income tax expense. State income taxes, net of federal tax effect 1,801 1,507 137 The Company files U.S. federal income tax returns and various Effect of change of tax rates state and local income tax returns. With few exceptions, years on deferred taxes - - 671 prior to 2004 are no longer subject to examination. No state Other, net 49 234 (199) or federal income tax audits were in process as of December Income tax provision $ 12,971 $ 12,370 $ 6,716 31, 2007. Notes to Consolidated Financial Statements 33 ~ Telecommunications Shenandoah 34

Notes to Consolidated Financial Statements Company

~ of the fee charged to the Company for these services. Sprint services. these for Company the to chargedfee the of defined in the agreements with Sprint Nextel for the calculation formula prescribed no was there 2004, 1, January before ods peri- For Company. the to functions, clearing-house travel including services other and back-office provides Nextel Sprint ber 31,2006. Decem- effectthrough in remained rate 2003. This 1, January since minute per $0.058 to reduced been have travel market Company.the by operated not inter-network on paid rates The the of segments other using feessubscribers Companyforcal recipro- Affiliates PCS its and Nextel Sprint paid Company the while subscribers, wireless their by network its of use the for Company the paid PCS Affiliates its and Nextel Sprint service. the use may whichthey in market a in homed wireless not subscribers Nextel Sprint by network the of usage inter-market for fees travel paid and received Company 2007, the to Prior distribution programs. national Nextel’s Sprint through handsets of sales for Nextel Sprint to paid commissions and handsets on to costs subsidized related transactions included also costs These handsets. of Sprint costs subsidized and and purchased inventory to Company relate Nextel the between transactions equipment of Cost costs. administrative and general selling, in included were such service customer and collections services billing, as of costs The sold. goods of cost in recorded were expenses, distance long nation- and the transactions travel to including access network, wide to related service of Cost income. of Company’s the statements in consolidated expensemarketing as travel revenue, travel cost, cost of equipment and selling and Affiliate partners’ territories. These transactions were recorded incurred minutes of use in Sprint Nextel and Sprint Nextel’s PCS Company’ssubscribers the when and Company’s territory the in use of minutes incurred subscribers partners’ Affiliate PCS travel stantial expensesNextelNextel’s Sprint Sprint when and sub- incurred and revenue travel substantial derived Company bution and product development. In addition, prior to 2007, the the of use distri- national advertising, national names, brand support, Nextel Sprint logistics network inventory national support, distance, operations long collections, billing, as customer service, such services support significant Company provides the Nextel Sprint agreements, Nextel Sprint the Under lined inthe Agreement. options, unless terminated by either party under provisions out- renewable10-yearautomatically forthree is yearsand for20 is to areas, aforementioned the Sprint Nextel’s specifications. in The initial term of the network, Agreement PCS Nextel’snationwide Sprint of portion its maintain and own build, to right exclusive the has Company the Nextel, Sprint of Affiliate PCS under the Sprint Nextel radio spectrum license. As an exclusive network its operate territory,and its in brand Sprint the use to authorized is Company The Virginia. Harrisonburg, to Virginia, of Westpanhandle the through Maryland, Westerncorridor 81 Interstate the along south and Pennsylvania, Harrisburg, and 1900 MHz band in its territory which extends from Altoona, York mobility communications network products and services on the wireless providing Nextel Sprint of Affiliate PCS exclusive the is Company the Agreement, the Under technology. interface mitted to construct and operate a PCS network using CDMA air com- Company the whereby Nextel “Agreement”)Sprint with In 1999, the Company executed a Management Agreement (the Rela Note 7.nifica Sig nt Contractual Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports tionship to recover costs for providing services to Manager, results results Manager, to services providing for costs recover to Nextel Sprint for necessary amounts the or usage, wholesale and patterns travel in changes if changed be only can Fee vice changed be only under certain circumstances. Until June 30, can 2010,Fee the Net Ser Service Net the for rate 8.8% The area. service local our in customers iDEN Nextel Sprint to support service customer local provide to cost annual expected the of net also is Fee Service Net The activation). gross per (cost CPGA and user) per cost (cash CCPU and travel for pricing new reflect to adjusted settlements current the approximate to designed is Fee Service Net The agreement. management previous the under Nextel Sprint by retained adjustments) billing other and write-offs account credits, customer of (net revenue 8% billed the of to addition in is Fee Service Net 8.8% This ments). write-offsadjust - account billing credits, other customer and of (net revenue billed of 8.8% to equal Fee Service Sprint Net a paysNextel Company the networks, other’s each on use for expenses and revenuessettling of the suchand feesof lieu In each new subscriberadded. the Company pay Sprint Nextel a fee per subscriber or a fee for will nor amounts; suchsettle longer no will Nextel Sprint and simplified. been Company the amendments, the of result a As development,product and has distribution national advertising, logistics support, use of the Sprint Nextel brand inventory names, national support, operations network collections, national distance, billing, long service, customer as such services, port sup- for Nextel Sprint compensates Company the which upon settle revenue and expenses, including travel and and roaming, whichNextelupon Sprint Company basis and the the ments”), Amend- “2007 (the Nextel Sprint with agreements affiliation As a result of the amendments to the existing management and □ □ □ □ were to: Nextel entered into a series of agreements, the effects of which Sprint and 2007,13, MarchSubsidiary Company’s On PCS the and SprintNextel. Company the between expenses and revenue settle to used enues through December 31, 2006, and simplified the methods expensesCompanyrev the and forto certain certainty greater provided 2004 Amendment the fees, certain fixing and formulas used the simplifying By Amendment”). “2004 (the 2004 1, January to retroactive 2004, 31, January on occurredwhich changed with the execution of an amendment to the Agreement feesannually.these Nextelleast adjusted at Thissituation first

quent acquisitionby SprintNextel ofNextel Partners, Inc. subse- the and Inc. Communications, Nextel and Corporation Settle all outstanding claims arising out of the merger of Sprint vice offerings withintheCompany’s area;and PCSservice ser wireless Nextel Sprint future in participate to terms ate certain circumstances and subject to agreement on appropri- under right the with Nextel Sprint and Company the Provide iDEN customersintheCompany’s area; service and provides local customer support service for Sprint Nextel phones Network) Enhanced Digital (Integrated iDEN Nextel Sprint sells now Company The Subsidiary. Company’sPCS store locations within the Company’s PCS area service to the Transfer, effective May 2007, all Sprint Nextel operated Nextel the Company andSprintNextel; between expenses settleand revenueto used methods the simplify further to Nextel Sprint with agreements services 1,2007,Amend, asofJanuary theexisting managementand - - - Annual Report

in the Net Service Fee (calculated using the same methods receivable from ValleyNet of approximately $0.3 million and $0.3 employed in setting the original rate) moving by more than two million, respectively. The Company’s PCS operating subsidiary full percentage points higher to 10.8% or more, or lower to leases capacity through ValleyNet fiber facilities. Payment for 6.8% or less. After June 30, 2010, on an annual basis either usage of these facilities was $1.3 million, $1.0 million and $1.0 party can request a change only if such change results in the million in the years ended December 31, 2007, 2006 and 2005, Net Service Fee moving by more than one full percentage respectively. point higher or lower than the Net Service Fee then in effect. The Net Service fee is capped at 12.0%, unless the Company’s Virginia Independent Telephone Alliance, an equity method use of services under the Services Agreement is dispropor- investee of the Company, provides SS7 signaling services to tionately greater than the use of the services in similar Sprint the Company. These transactions are recorded as expense on PCS markets, in which case the parties will negotiate an alter- the Company’s books and were less than $30 thousand in each native arrangement. of the years ended December 31, 2007, 2006 and 2005.

The Company’s PCS subsidiary is dependent upon Sprint Nex- Note 9. Retirement Plans tel’s ability to execute certain functions such as billing, customer The Company maintains a noncontributory defined benefit care, collections and other operating activities under the Com- pension plan and a separate defined contribution 401(k) plan. pany’s agreements with Sprint Nextel. Due to the high degree On November 30, 2006, the Company announced its intention of integration within many of the Sprint Nextel systems, and to offer early retirement benefits for certain employees (up to the Company’s dependency on these systems, in many cases it five years of additional age and service for those employees would be difficult for the Company to perform these services in- 50 years of age and older with 10 or more years of service); to house or to outsource the services to another provider. If Sprint freeze the defined benefit pension plan as of January 31, 2007; Nextel is unable to perform any such service, the change could and subsequently, to settle benefits earned under the plan and result in increased operating expenses and have an adverse terminate the plan. Settlement and termination are expected impact on the Company’s operating results and cash flow. In to be finalized during 2008. The Company reflected the effects addition, the Company’s ability to attract and maintain a suf- of freezing the plan during 2006, and recognized costs of the ficient customer base is critical to generating positive cash flow special termination benefits in 2006 for those seven employees from operations and profits for its PCS operation. Changes in who elected to accept the early retirement offer as of Decem- technology, increased competition, or economic conditions in ber 31, 2006. The Company recognized additional special termi- the wireless industry or the economy in general, individually nation benefits during 2007 as 25 additional employees elected and/or collectively, could have an adverse effect on the Com- to accept the early retirement offer. pany’s financial position and results of operations. As of December 31, 2006, the Company implemented the The Sprint Nextel agreements require the Company to maintain reporting and disclosure requirements of SFAS 158. SFAS 158 certain minimum network performance standards and to meet requires the funded status of retirement plans to be reflected other performance requirements. The Company was in com- in the Company’s statement of financial position, and requires pliance in all material respects with these requirements as of that certain effects of pension transactions be reflected in other December 31, 2007. comprehensive income. SFAS 158 does not impact the reported cost associated with retirement plans, nor does it require that Note 8. Related Party Transactions prior period amounts be restated to conform to the current pre- ValleyNet, an equity method investee of the Company, resells sentation. After recognizing the effects of the curtailment of capacity on the Company’s fiber network under an operating the pension plans at November 30, 2006, the implementation lease agreement. Facility lease revenue from ValleyNet was of SFAS 158 had no effect upon the Company’s statement of approximately $3.5 million, $3.7 million and $3.8 million in the financial condition at December 31, 2006, other than the inclu- years ended December 31, 2007, 2006 and 2005, respectively. sion of the qualified pension plan’s funded status shortfall of At December 31, 2007 and 2006, the Company had accounts $377,000 as a current liability rather than a non-current liability. Notes to Consolidated Financial Statements 35 ~ Telecommunications Shenandoah 36

Notes to Consolidated Financial Statements Company

~ in thousands recorded in accumulated loss, other unrecognized comprehensive of loss $1.8 million as remaining of the Decem- recognize to expects Company The acceptees. retirement early 32 the of 31 with settle benefits to pension plan retirement qualified the by disbursed payments lump-sum with connection in 2007 in loss net of amortization of $560,000 recognized Company The gain Curtailment Change inplanprovisions Amortization ofnetloss cost Service benefit costs: Components ofnetperiodic financial statements. Company’sthe in recognized amounts consolidated and status plan’s benefit funded defined the presents table followingThe Amortization of prior service costs Amortization ofpriorservice Benefit obligation,beginning Change inbenefitobligation: Special terminationbenefits Net lossfor theperiod Amortization ofnetloss other comprehensive income: benefit obligations recognized in Other changes inplanassetsand Net periodic benefitcost Expected return onplanassets Interest cost comprehensive income benefit costandother Total recognized innetperiodic Prepaid (accrued) benefitcost Unrecognized netloss Funded status Fair value ofplanassets, ending Contributions made Benefits paid Actual return onplanassets Fair value ofplanassets,beginning Change inplanassets: Benefit obligation, ending Change inplanprovisions Curtailment Special terminationbenefits Benefits paid Actuarial loss Interest cost cost Service Accrued liabilitiesandother balance sheets: Amounts recognized intheconsolidated Net amountrecognized Accumulated othercomprehensive income Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports

$ $ $ 1,976 2,046 1,313 2007 (570) (775) 280 570 640 588 - - - $ $ $ $ $ $ $ (2,424) 11,381 14,139 13,762 1,771 (2,424) (5,579) (5,579) 8,957 1,771 1,313 (653) (653) 2007 280 774 (1,791) 1,614 640 588 1,701 2006 (940) 337 953 369 109 876 (87) - - - - - $ $ $ $ $ $ 14,139 13,762 12,655 16,422 1,324 (5,873) 1,000 1,704 1,324 1,701 1,701 2005 2006 (377) (793) (377) (312) (312) 827 369 953 419 744 774 876 71 31 - - - - return onplanassets Expected long-termrateof Rate ofincreaseincompensationlevels Discount rate Rate ofincreaseincompensationlevels Discount rate ber 31,2007, were and2005 asfollows: 2006, Decem- yearsended forthe cost pension net of determination the in Company the by used assumptions average Weighted 31, 2007, were at December and2005 asfollows:2006 obligations benefit of determination the in Company the by used assumptions average Weighted respectively.and 2006, $11.4was plan 2007 31, December $14.1at and million million retirement qualified the for obligation benefit accumulated The disbursements toallotherparticipantsduring2008. settlement makes plan pension qualified the 2007,as 31, ber lowing thefreeze of thepensionplandescribedabove. benefits pension fol- of pay) place qualified in on aggregate the in 5% to (up contributions discretionary employer the reflects respectively. 2005, Theexpensein increase primarily for 2007 and 2007, 2006 31, December ended years the for thousand $1.1approximately$305 were and plan thousand $370 million, 401(k) contribution defined the to employer 2007, contributions discretionary) in beginning (and matching Company’s The Nocontributionwas2006. madeduring2007. uted $1.0 million to the plan during the year ended December 31, $11.4 2008. during contrib- CompanyTheparticipants, to million $2.4 million to the plan, and anticipates distributing approximately under the plan, the Company expects benefitsto settlementcontribute of expectedapproximately and freeze the of result a As Contributions accrued benefits toparticipants. of distribution expected the accommodate to assets plan sion pen- the of liquidity the increased terminate has Company the and plan, the settle freeze, to 2006 in decision Company’s the of result a As 1974, of amended. Act as Security Income Retirement Employee the of standards fiduciary the with tent has Plan consis- manner a in invested Pension be to assets Company’sfor been historically the of policy investment The Investment Policy as follows: value wereby at and December 2006, 31, 2007 asset category The Company’s pension plan asset allocations based on market Cash andcashequivalents Debt securities securities Equity Asset Category: 5.00% 6.50% 4.52% -% -% 2007 2007 5.00% 4.50% 4.50% 5.50% 7.50% 100% 2006 2006 2007 83% 17% -% 4.50% 4.50% 5.50% 5.75% 7.50% 100% 2005 2005 2006 44% 53% 3% Annual Report

In May 2003, the Company adopted an unfunded nonquali- Assumptions used by the Company in the determination of fied Supplemental Executive Retirement Plan (the “SERP”) for benefit obligations for the SERP consisted of the following at named executives. The plan was established to provide retire- December 31, 2006 and 2005: ment benefits in addition to those provided under the Retire- 2006 2005 ment Plan that covers all employees. In conjunction with the changes in the qualified defined benefit pension plan at the end Discount rate 5.50% 5.50% of 2006 as described above, the SERP was amended effective January 1, 2007 from a defined benefit plan to a defined contri- Rate of increase in compensation levels 4.50% 4.50% bution plan. Benefits were recalculated as of January 1, 2007, reflecting changes in benefits under the SERP from the change The Company contributed $120,000 to the participants’ accounts in the defined benefit plan; benefits so calculated became the under the SERP during 2007, and $70,000 in earnings on partici- opening participant balances of the defined contribution plan. pants’ balances were also credited to participants’ accounts. At The amended plan is non-contributory; the Company will credit December 31, 2007, the total liability due to participants in the each participant’s account with a contribution of 7% of com- SERP was $2.6 million. pensation (generally, base pay plus incentive pay), and 5% of a participant’s compensation in excess of IRS or ERISA limita- In order to provide some protection to the participants, the tions on compensation under the 401(k) plan. One participant Company created a rabbi trust to hold assets sufficient to pay in this plan accepted the early retirement offer described above, obligations under the SERP. The Company contributed the par- and a lump sum distribution of his account balance was made ticipants’ opening balances, and Company contributions based in October 2007. on compensation, to the trust. Assets within the trust were invested to mirror participant elections as to investment options The following table presents the actuarial information for the (a mix of stock and bond mutual funds); investment income, SERP at December 31, 2006: gains and losses in the trust were used to determine invest- in thousands 2006 ment returns on the participants’ balances in the SERP. Change in benefit obligation: Note 10. Stock Incentive Plans Benefit obligation, beginning $ 1,955 The Company maintains two shareholder-approved Company Service cost 189 Stock Incentive Plans providing for the grant of equity based Interest cost 110 incentive compensation to essentially all employees. The 1996 Actuarial loss 425 Plan authorized grants of up to 1,440,000 shares of common Curtailment (37) stock over a ten-year period beginning in 1996. The term of Benefit obligation, ending 2,642 the 1996 Plan expired in February of 2006. During 2005, the 2005 Plan was approved, under which 1,440,000 shares may Funded status $ (2,642) be granted over a ten-year period beginning in 2005. Under Unrecognized net loss 1,279 both Plans, grants may take the form of stock awards, awards of options to acquire stock, stock appreciation rights, and other Accrued benefit cost $ (1,363) forms of equity based compensation. Prior to 2007, most awards were granted in the form of options to acquire stock Amounts recognized in the as described more fully below; during 2007, both options to consolidated balance sheets: acquire stock and stock awards have been granted. Details Pension and other $ (2,642) about the stock grants will follow discussion of the Company’s Accumulated other comprehensive income 1,279 stock option grants. Net amount recognized $ (1,363) The Company completed a three for one stock split in August 2006 2005 2007. All prior years’ numbers of options and option prices per Components of net periodic benefit costs: share have been adjusted to reflect the impact of the split. Service cost $ 189 $ 152 Interest cost 110 71 Options Awards Amortization of prior service costs 449 36 The option price for all grants has been at the current market Amortization of net loss 50 20 price at the time of the grant. Grants have generally provided that one-half of the options vest and become exercisable on Net periodic benefit cost $ 798 $ 279 each of the first and second anniversaries of the grant date, with the options expiring on the fifth anniversary of the grant Other changes in plan assets and date. In the year ended December 31, 2003, the Company benefit obligations recognized in other comprehensive income: also issued a grant pursuant to which the options are vested Net loss for the period 1,330 over a five-year period beginning on the third anniversary of the grant date. The participant may exercise 20% of the total grant Amortization of net loss (51) after each anniversary date from the third through the seventh Total recognized in net periodic benefit cost and other comprehensive income $ 1,279 year, with the options expiring on the tenth anniversary of the grant date. In the years ended December 31, 2005 and 2004, the Company also made grants pursuant to which the options would have vested over a four-year period beginning on the third anniversary of the grant date; all of these grants were cancelled Notes to Consolidated Financial Statements 37 ~ Telecommunications Shenandoah 38

Notes to Consolidated Financial Statements Company

~ relinquished their right to receive cash from the Company upon EffectiveSARs voluntarily 2004 of holders certain July2006, 1, fair value method. a to method intrinsic an from expense compensation of ment measure- the in change a in SFASresulted 123(R)of the adoption grants, SARs 2005 and 2004 the both For 2005. 31, ber portion of the awards of $1.3 million for the year ended Decem- the Company recognized compensation expense for the vested 2005, and 2004 during granted awards tandem the For grant. the of date the at price market the to equal price exercise with an granted were options such all since 2004 to prior years in recognized was expense compensation No Disclosures.” and Compensation—Transition Stock-Based for “Accounting 148, SFASNo. by amended as 123, SFASNo. under required disclosures the provided Company The plans. compensation employee stock-based for accounting of method value-based established accounting and disclosure requirements using a Compensation”fair price. Stock-Based exercise for “Accounting the 123, exceeded No. SFAS stock underlying the of price expense compensation was recorded on the date method, of the grant only if this the current market Under 2000. March in Compensation,” Stock an interpretation of involvingAPB Opinion No. 25 issued Transactions Certain for “Accounting 44, No. (“FASB”)Interpretation Board Standards Accounting including Financial interpretations, related Employees,” and to Issued Stock for “Accounting 25, No. Opinion (“APB”) Board Prin- ciples Accounting by prescribed accounting of method based value- intrinsic the applying by options stock its for accounted Company SFASthe 123(R),of adoption the to prior periods In settlement. until period subsequent each and period service requisite the eachboth and during date date grant reporting the subsequent at calculated is value fair awards, classified liability are which SARs and options stock of awards tandem those For period. fair the on value based of the award, and is recognized over date, the requisite service grant the at measured is cost sation Accordingly, stock-basedawards, classified compen- equity for services. employee forexchanged awards stock-based for ing account- establishes which method, transition application tive prospec- modified the using (“SFAS123(R)”) 2004)” (Revised Financial 123,No. AccountingStandard “Share-BasedPayment of Statement Companyadopted the Effective 2006, 1, January stock priceexceeded theexercise priceoftheoptions. sation expense over the vesting period to the extent the current compen- recognized and SARs as awards these for accounted settlementfeature.net-share the feature,to Due Company the settlementnet-share a with SARs and stockawardsoptions of tled by issuing stock. During 2005, the Company issued tandem to receive shares of stock rather than cash, the liability was set- chose subsequently employees If award. the of value intrinsic the of portion vested the reflect to period each adjusted which was liability, a recording Company the in resulted plan this stock, of shares or cash receiving of choice the had employee the Because (“SARs”). rights stock appreciation of stock awards and tandem options issued also Company the 2004, In The Company didnotgrantany optionsduring2006. employment. of termination grantees’ the to due 2006 during Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports table fortable theyear endedDecember31,2005: been reduced to the pro forma amounts shown in the following have would share per earnings and income the net reported 123), of values SFASNo. in fairprescribed method (the on date grant the based at awards options the for recorded been formapro expense.expensecompensation compensation Had 123 No. SFAS and 25 No. Opinion APB between differences no were there since rights stock appreciation classified liability 2004 effect.the for made tax been have income income net to adjustments the No of net both expense, compensation classi- equity forma pro the 2005 of impact the and the rights appreciation stock fied to related compensation of impact the reflect below table the in income net to adjustments The a maximumseven year life. have and date, grant the of anniversaries sixth fifth and fourth, two and to non-qualified stock options, vest 25% annually on the third, options stock incentive both of consist grants officers. These granted hired recently Company the 2007, During exercised optionswas transferred toequity. fromliability shares instead of cash. For such exercises, the fair value of the receiveto exercise,right upon their elected, quish cash take to equity. to relin- not did SARS who 2004 of holders Subsequently, liability certain from transferred was modification of date the of as calculated awards these of value fair The exercise. was $77thousand, netoftaxes. effect of a change in accounting principle. cumulative The a cumulative effectas value fair its to value intrinsic its from liability Companythe recognized effectthe the re-measuring initially of which SFAS under liability a as classified be to continue 123(R), and liability a as classified previously options outstanding For Results ofpriorperiodshave notbeenrestated. years. prior inoutstanding unvested granted employee awards valuebased accounting method hadbeen used toaccount for all basedcompensation expense from January 1, 2006, as if the fair Company recognized stock- the prospective method modified the theeffective date using the modified prospective method. Under of SFASas recognizedapplying 123(R)was initially of impact The for accounted were under SFAS 123(R)’s fair-value payments methodduringtheseperiods. stock-based because above table the in presented not are 2007 and 2006 for Disclosures in thousands,except pershareamounts As reported Net Income Pro forma effectsnet ofrelatedincometax Deduct: Pro forma compensationexpense, effectsnet ofrelatedincometax expense includedinreportednetincome, Add: Recorded stock basedcompensation As reported,basic Earnings pershare, basicanddiluted Pro forma, diluted Pro forma, basic As reported,diluted $ $ $ 10,735 10,747 2005 0.47 0.47 0.46 0.47 (199) 211 Annual Report

The fair value of each grant was estimated at the grant date There were options for 296,541 shares outstanding at Decem- using a Black-Scholes option-pricing model with the following ber 31, 2007 at a weighted average exercise price of $10.97 weighted average assumptions: per share, an aggregate intrinsic value of $2.2 million and a 2007 2006 2005 weighted-average remaining contractual life of 3.5 years. There were options for 200,541 shares exercisable at December 31, 2007 at a weighted average exercise price of $8.78 per share, Dividend rate 1.41% 1.02% 1.42% an aggregate intrinsic value of $1.9 million and a weighted- Risk-free interest rate 4.24% 4.88% 4.30% average remaining contractual life of 2.2 years. The aggregate Expected lives of options 5 years 2.7 years 3.5 years intrinsic value represents the total pretax intrinsic value, based Price volatility 42.03% 39.06% 45.73% on the Company’s average closing stock price of $18.42 during the year ended December 31, 2007. For 2006, the assumptions were used to calculate the fair value of the options classified as a liability. The fair value of options clas- During 2007, the total fair value of options vested was $0.4 sified as a liability is calculated at the grant date and each subse- million; the total intrinsic value of options exercised was $1.3 quent reporting date until the options are settled. As of December million; and no options-based liabilities were paid. During 2007, 31, 2007 and 2006, 10,656 and 15,534 options, respectively, the total cash received as a result of employee stock option were classified as liability-type options. For 2007, the assump- exercises was $1.0 million, and the actual tax benefit realized tions shown were used to calculate the fair value of the options for the tax deductions was $160,000. granted to recently-hired officers; for the remaining liability-type options, change in fair value over the year was essentially equal As of December 31, 2007, the total compensation cost related to to the change in the stock price, as the remaining term of these nonvested options not yet recognized is $0.4 million which will options (15 months as of December 31, 2007) and its interaction be recognized over a weighted-average period of 4.0 years. with the other assumptions used in the option pricing model had little impact on the determination of fair value. Stock Awards During 2007, the Company made two grants of shares under Volatility is based on the historical volatility of the price of the the 2005 Plan. The Company granted 68,130 performance Company’s stock over the expected term of the options. The shares to all members of the Board of Directors and essentially expected term represents the period of time that the options all employees during 2007. Directors and senior management granted are expected to be outstanding. The risk free rate is in the aggregate were granted 23,404 performance shares based on the U.S. Treasury yield curve, in effect at the date the (“management shares”); all other employees in the aggregate fair value of the options is calculated, with an equivalent term. were granted 44,726 performance shares (“employee shares”). Management shares can vest at the fifth, sixth, seventh or As required by SFAS 123(R), management has made an esti- eighth anniversary of the grant date if, for the thirty day period mate of expected forfeitures and is recognizing compensation ending on the day prior to the respective anniversary date, the costs only for those awards expected to vest. Compensation average closing price of a share of the Company’s common cost recognized in 2007 and 2006 totaled $207 thousand and stock exceeds a defined target price. The target price for each $350 thousand, respectively, and the income tax benefit for anniversary date is equal to the grant date market price ($20.50 option-based compensation arrangements recognized in 2007 per share) plus $1.64 for each year since the grant date. Except and 2006 was $110 thousand and $105 thousand, respectively. for normal retirement, shares will vest only if the target price is achieved and the recipient has remained employed through the A summary of outstanding options at December 31, 2007, 2006 and anniversary date that the target price is achieved on. Employee 2005 and changes during the years ended on those dates is as follows: shares can vest at the fourth or fifth anniversary of the grant Options Weighted Fair Value Per date on otherwise similar terms. Average Grant Option Price Per Option Due to the market condition of achieving a target stock price Outstanding in order to vest, the Company determined the grant date fair December 31, 2004 716,433 $ 6.99 value of the performance shares, as well as the expected term of the awards, using a Monte Carlo simulation. The following Granted 237,093 10.53 $ 3.50 to 6.04 assumptions were used in deriving the grant date fair value and Cancelled (60,786) 8.44 expected term: Exercised (170,151) 6.08 Management Employee Outstanding Shares Shares December 31, 2005 722,589 8.24 Assumptions: Dividend rate 1.5% 1.5% Granted - - n/a Risk free rate 4.44% 4.38% Cancelled (153,450) 9.41 Annual price volatility 34% 34% Exercised (201,177) 7.14 Outstanding Derived values: December 31, 2006 367,962 8.36 Fair value per share $13.20 $12.20 Expected term (years) 5.81 5.38 Granted 60,000 20.50 $ 7.77 Cancelled (1,773) 3.37 The Company has estimated expected forfeitures of 40% for Exercised (129,648) 3.31 management shares and 35% for employee shares. Through

Outstanding Notes to Consolidated Financial Statements December 31, 2007 296,541 $ 10.97 39 ~ Telecommunications Shenandoah 40

Notes to Consolidated Financial Statements Company

~ eomnain s o hte te hrhle Rgt Plan should bemodified ortheRightsshouldberedeemed. Rights Shareholder the whether to as recommendation cate its conclusions to the full Board of Directors, including any Following each such review,years. the three every TIDE Committee least will communi- at shareholders its and Company the of interest the in be to continues it whether consider to order Company to review and evaluate the Shareholder Rights Plan in the of Committee”)directors independent of comprised is that “TIDE (the committee a appoint to Directors of Board the for provides Plan Rights Shareholder new The Company. the of Directors of Board the by amended be may Agreement Rights the of provisions the of any rights, the of price redemption the rights at any time for $.001 per right, and except with respect to outstanding the redeem may Directors of Board the that vides the benefits of the rights. The newto Shareholderentitled Rightsbe Plan pro- not would group or person a such Plans, Rights Shareholder both of terms theCom- the Under of stock. common pany’s ormore 15% of owner beneficial the become, to attempts or becomes group or person a if exercisable only are stock.rights Company’scommon The the from separately Company for $40). The rights are neither exercisable nor traded the of securities other or property cash, of worth $80 stances, circum- certain in (or,stock Company’scommon the of share outstanding a half one of $40 forpurchase to share entitled be will stock) per common right one at (granted right each of holders circumstances, certain Under 1998. in adopted was a new Shareholder Rights Plan to replace an expiring plan which Effective as of February 8, 2008, the Board of Directors adopted Note 12. ShareholderRightsPla n 2005. or 2006 2007, 31, December ended years the for revenues operating Company’sthe of 2.5% than more generated total relationship of Sprint Nextel’s nationwide through PCS network. portion Company’sNo the other or customer using customers by its and Nextel generated Sprint were 2005 31, year December the ended for revenues operating total of 65% and 2006, 31, 2007, December revenues foryear ended the operating total of 68% 31, December ended total year of the for 62% revenues operating Approximately revenue. of source a is significant that relationship customer major one has Company The Note 11. MajorCustomer $910 thousand. awards share all totaled $2.1 million, and the income tax benefit recognized for was 2007 in recognized cost Compensation due. taxes ing withold- pay to shares unrestricted the 26,076of surrendered Employees rights. voting and dividend full for provide shares unrestricted and restricted Both term. the as period restriction dividend yield of 1.5%, 3.1%, price of volatility of 40%, rate and the two free year risk a utilizing methodology, model pricing or price, market restricted date share. grant $18.87per Black-Scholes a utilized option The the valuation the of than less value 20% was the shares that determined Company the share); per ($23.59 grant of date the on stockpany’s common Com- the of price market the at valued were shares stricted unre- Theshares. the of disposition on restriction year two a carry half and unrestricted were half which 97,730of shares, granted Company employees. The management 26 to shares vested fully of grants made Company 2007, the December In to employees’ terminationofemployment. December 31, 2007, 1,324 employee shares were forfeited due Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports in thousands in excess ofoneyearareasfollows: asofDecember31,2007 terms lease variable initial with lease, the of inception the at assured reasonably are that renewals including leases, ing operat- non-cancelable under paymentsFuture lease minimum ods rangingfromfivetwenty toyears. peri- for renewaloptions certain contain generally leases other fourrenewalwith five terms of year orinitialterms ten years. five The have leases tower general, In clauses. escalation and rental payments. These leases typically include renewal options between annual minimum various require and 2050 and expire 2008 years the which agreements, non-cancelable under space various tower and buildings land, leases Company The Note 13.Lea hne iees h Cmay ok maret hre of charges impairment took Company The Wireless. at Shentel operations related terminated its and Services, and Converged to contract assets that transferred acquisition, this in acquired contracts the of one but all terminated Company the consolidated financial since statements that date. During 2006, the in included been have Wireless) Shentel name the under (operating operations Communication’s Metro Broadband of results The cash. in wire- million $0.6 for marketed services, broadband whichless Communications, of Metro assets the Broadband purchased Company the 2005, September In Broadband Metro Communications Note 14. ber 31,2005. ended year the in December 31, million 2006, and $8.5 million in the year ended Decem- $9.3 2007, 31, December ended year the in million $9.5 was income rent Company’s total The in thousands are asfollows:ber 31,2007 annual payments. minimum The total minimum rental receipts variousat Decem- require which agreements, non-cancelable various under entities other to equipment telecommunications and towerspace buildings, leased lessor,Ashas Company the ber 31,2005. December 31, 2006, and $5.3 million in the the year ended Decem- in million $6.5 ended 2007,year 31, the December in ended million year was $5.9 expense rent total Company’s The 2008 Year Ending 2008 Year Ending 2013 andbeyond 2012 2011 2010 2009 2013 andbeyond 2012 2011 2010 2009 A cquisitons se Commitments $ $ $ $ Amount Amount 12,128 20,949 46,769 1,442 2,861 3,240 3,270 4,480 5,458 6,254 3,632 6,358 355 598 Annual Report

approximately $430,000 in connection with the terminated con- region from Harrisburg, York and Altoona, Pennsylvania, to Har- tracts and termination of operations, including the write-off of risonburg, Virginia. $251,000 of goodwill recorded in the acquisition (see Note 1). The Telephone segment provides both regulated and unregu- Converged Services (formerly NTC) lated telephone services and leases fiber optic facilities primar- On November 30, 2004, the Company purchased the 83.9% of ily throughout the Northern Shenandoah Valley. NTC that it did not then own for $10 million, of which $1 million was held in escrow for payment of specified potential liabilities, The Converged Services segment provides local and long dis- and the assumption of NTC’s existing debt and other liabilities. tance voice, video, and internet services on an exclusive and During 2005, goodwill was reduced by approximately $0.5 mil- non-exclusive basis to MDU communities (primarily off-campus lion as a result of settling the escrow funds dispute (see Note 1). college student housing) throughout the southeastern United The results of NTC’s operations have been included in the con- States including Virginia, North Carolina, Maryland, South Caro- solidated financial statements since its acquisition. NTC provides lina, Georgia, Florida, Tennessee, Mississippi and Delaware. local and long distance voice, video, Internet and data services on an, at times, exclusive basis to multi-dwelling unit communi- The Mobile segment provides tower rental space to affiliates ties primarily located near colleges and universities. Effective and non-affiliates in the Company’s PCS markets and paging January 1, 2007, the Company changed the name of NTC to Con- services throughout the northern Shenandoah Valley. verged Services, but continues to use the NTC brand. The Cable TV segment provides cable television services under Pursuant to the NTC Interest Purchase Agreement, $1.0 mil- various franchise agreements within the incorporated areas of lion of the purchase price was placed in escrow to satisfy any Shenandoah County, Virginia, as well as in the unincorporated post-closing adjustments to the purchase price and any indem- areas of Shenandoah County. nification obligations of the Interest holders for a period of six months after the November 30, 2004 closing date. On January Other includes Shenandoah Telecommunications Inc. (previ- 23, 2006, the Company received $0.9 million of the escrow. ously reported as the Holding segment), ShenTel Service Company, Shenandoah Network Company, Shenandoah Long Note 15. Segment Reporting Distance Company, ShenTel Communications Company, Shen- SFAS Statement No. 131, “Disclosures about Segments of an tel Wireless Company and Converged Services of West Virginia. Enterprise and Related Information”, establishes standards for During the third quarter of 2005, Shenandoah Valley Leasing reporting information about operating segments. Operating Company changed its name to Shentel Wireless Company; segments are defined as components of an enterprise about during the fourth quarter of 2006, Shentel Wireless Company which separate financial information is available that is evaluated terminated most of its contracts, transferred its last remaining regularly by the chief operating decision makers. The Company contract and associated assets to Converged Services, and has six reportable segments, which the Company operates and ceased operations. manages as strategic business units organized geographically and by lines of business: (1) PCS, (2) Telephone, (3) Converged Income (loss) recognized from equity method nonaffiliated Services (NTC), (4) Mobile, (5) Cable TV and (6) Other. During investees by subsidiary is as follows: 2007, Cable TV met a threshold for consideration as a report- in thousands Holding Telephone Consolidated able segment, and replaced Holding in the Company’s segment Totals reporting for 2007 and prior years. Year 2007 $ 840 $ 93 $ 933 The PCS segment, as a Sprint PCS Affiliate, provides digital 2006 (65) 164 99 wireless service to a portion of a four-state area covering the 2005 (283) 57 (226) Notes to Consolidated Financial Statements 41 ~ Telecommunications Shenandoah 42

Notes to Consolidated Financial Statements Company

~ Total assets Net income(loss) Income taxes Interest (expense) Operating income(loss) Non-operating income(expense) Total operating expenses Depreciation andamortization shown separatelybelow depreciation andamortization administrative, exclusive of generaland Selling, separately below and amortizationshown exclusive ofdepreciation Costs ofgoodsandservices, Operating expenses Total operating revenues Internal revenues Total external revenues Other Equipment Facilities andtower lease Travel/roaming revenue Access charges Service revenuesService External revenues Year EndedDecember31, 2007 in thousands Selected financialdata foreach segmentisas follows: Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports $ $ $ $ (12,296) 78,278 16,957 28,824 58,483 80,054 15,226 28,150 15,107 87,307 87,307 2,193 5,015 45 (221) PCS 650 - - - Telephone $ $ $ $ 55,364 30,535 23,783 19,228 11,307 10,765 (4,402) 6,258 6,752 3,544 6,259 3,187 5,217 7,624 7,753 723 28 (4) - $ $ $ $ Converged Services 19,437 10,255 11,214 11,214 27,535 (5,691) (8,223) (1,092) 3,624 5,923 4,802 (NTC) 8,712 620 325 14 - - - -

$ $ $ $ Mobile 15,617 1,264 3,552 1,867 6,163 3,947 3,704 2,216 2,611 (964) (388) 923 243 762 5 - - - - $ $ $ $ Cable TV (1,812) (1,259) 6,870 1,050 1,659 5,058 5,026 4,573 4,161 7,903 (273) 826 420 32 33 - - - - $ $ $ $ 150,704 13,586 15,108 (1,522) (2,718) Other 3,907 3,680 9,906 2,049 6,882 8,519 5,611 241 978 662 313 (92) - - Eliminations $ $ $ $ (113,877) (12,680) (12,680) (12,680) (10,952) (2,823) (1,728) 2,823 ------Consolidated $ $ $ $ 221,524 141,183 141,183 109,998 108,023 (12,971) 32,590 18,803 31,185 29,198 48,210 10,765 (1,873) Totals 2,462 5,714 9,311 7,325 45 -

Annual Report

in thousands PCS Telephone Converged Mobile Cable TV Other Eliminations Consolidated Year Ended December 31, 2006 Services Totals (NTC) External revenues Service revenues $ 75,509 $ 6,440 $ 9,976 $ - $ 4,611 $ 6,609 $ - $ 103,145 Access charges - 11,319 - - - - - 11,319 Travel/roaming revenue 34,048 ------34,048 Facilities and tower lease - 3,791 2 3,412 - 1,899 - 9,104 Equipment 4,210 28 146 - 48 534 - 4,966 Other 1,688 3,099 543 183 306 794 - 6,613 Total external revenues 115,455 24,677 10,667 3,595 4,965 9,836 - 169,195

Internal revenues - 5,793 - 1,656 32 2,557 (10,038) - Total operating revenues $ 115,455 $ 30,470 $ 10,667 $ 5,251 $ 4,997 $ 12,393 $ (10,038) $ 169,195

Operating expenses Costs of goods and services, exclusive of depreciation and amortization shown separately below 52,511 6,868 8,662 1,595 3,241 7,919 (8,721) 72,075 Selling, general and administrative, exclusive of depreciation and amortization shown separately below 32,958 4,491 4,347 686 1,200 6,291 (1,317) 48,656 Depreciation and amortization 14,326 4,755 5,103 878 1,104 1,124 - 27,290 Total operating expenses 99,795 16,114 18,112 3,159 5,545 15,334 (10,038) 148,021

Operating income (loss) 15,660 14,356 (7,445) 2,092 (548) (2,941) - 21,174

Non-operating income (expense) 262 11,144 6 11 25 3,618 (3,509) 11,557 Interest (expense) (1,250) (180) (1,067) (392) (287) (2,695) 3,509 (2,362) Income taxes (5,908) (10,005) 2,762 (662) 197 1,246 - (12,370) Cumulative effect of a change in accounting, net of tax (11) (27) (21) (1) (7) (10) - (77) Net income (loss) $ 8,753 $ 15,288 $ (5,765) $ 1,048 $ (620) $ (782) $ - $ 17,922

Total assets $ 78,637 $ 62,619 $ 25,226 $ 15,758 $ 8,205 $ 160,028 $ (142,753) $ 207,720 Notes to Consolidated Financial Statements 43 ~ Telecommunications Shenandoah 44

Notes to Consolidated Financial Statements Company

~ Service revenuesService External Revenues Year EndedDecember31, 2005 in thousands Other Equipment Internal Revenues Total external revenues Facilities andtower lease Travel/roaming revenue Access charges Total operating revenues Operating income(loss) Total operating expenses Depreciation andamortization shown separatelybelow depreciation andamortization administrative, exclusive of generaland Selling, separately below and amortizationshown exclusive ofdepreciation Costs ofgoodsandservices, Operating expenses Net income(loss) Non-operating income(expense) Total assets Interest (expense) Income taxes Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports $ $ $ $ 61,606 84,689 28,848 81,796 94,418 94,419 12,692 43,149 27,220 (1,720) (2,659) 3,459 9,730 5,362 2,133 PCS 11 1 - - Telephone $ $ $ $ 24,738 28,994 12,631 16,363 59,873 11,433 (5,148) 6,486 2,881 3,921 4,256 4,430 6,620 5,313 7,850 (320) 687 17 - $ $ $ $ Converged Services 13,736 (3,914) 27,107 (3,301) 9,631 9,822 9,822 (NTC) 3,886 2,575 1,557 7,275 (982) 179 38 12 - - - -

$ $ $ $ Mobile 20,039 3,293 1,386 4,679 2,687 1,992 1,135 3,147 1,414 (750) (273) 560 146 713 166 - - - - Cable TV $ $ $ $ 4,675 5,032 1,052 5,287 9,414 5,001 3,121 1,114 (255) (746) (279) (217) 301 25 31 5 - - - $ $ $ $ 157,048 12,479 11,671 (3,003) Other 1,306 2,552 6,057 5,388 6,171 9,119 3,745 (808) 938 920 435 818 501 - - Eliminations $ $ $ $ (150,356) (8,226) (8,226) (8,226) (1,267) (6,959) (3,501) 3,501 ------Consolidated $ $ $ $ 146,391 146,391 204,921 127,015 88,455 43,842 22,382 60,791 19,376 10,735 11,433 27,220 (6,716) (3,076) Totals 4,331 6,578 1,151 8,374 -

Annual Report

Note 16. Quarterly results (unaudited) The following table shows selected quarterly results for the Company. in thousands except per share data First Second Third Fourth Total For the year ended December 31, 2007

Operating revenues $ 33,048 $ 35,101 $ 35,422 $ 37,612 $ 141,183 Operating income 7,084 9,738 8,129 6,234 31,185 Net income 4,071 5,947 5,107 3,678 18,803

Net income per share – basic $ 0.18 $ 0.25 $ 0.22 $ 0.16 $ 0.80 Net income per share – diluted 0.18 0.25 0.22 0.16 0.80

For the year ended December 31, 2006 First Second Third Fourth Total in thousands except per share data

Operating revenues $ 39,799 $ 41,427 $ 42,594 $ 45,375 $ 169,195 Operating income 4,151 4,773 5,927 6,323 21,174 Net income 8,545 2,784 3,381 3,212 17,922

Net income per share – basic $ 0.37 $ 0.12 $ 0.15 $ 0.14 $ 0.77 Net income per share – diluted 0.37 0.12 0.14 0.14 0.77

Note 17. Verizon Settlement In September 2005, the Company settled a claim against Verizon, with respect to overcharges for completing local calls from Shenandoah PCS customers to Verizon customers, for $750,000, which was received by the Company in September 2005 and recorded as a reduction in PCS costs of goods and services. Notes to Consolidated Financial Statements 45 ~ Telecommunications Shenandoah 46

Management’s Discussion & Analysis Company

~ □ □ □ □ □ □ by lineofbusiness: ages as strategic business units organized geographically and the has Company following six reporting The segments, which it operates and man- facilities. tower leased and facilities, long optics fiber services, equipment, data telecommunications of sale and distance, Internet video, well television, as cable affiliate), as PCS Sprint a personal (as services wireless communications and services telephone exchange provide local subsidiaries These subsidiaries. owned wholly its through services telecommunications unregulated and lated diversified telecommunications company providing both regu- a is Company Telecommunications Shenandoah Overview. General differ materially to results actual cause coulduncertainties that ingthefuture. Thesestatements aresubject tocertain risks and regarding our expectations, hopes, intentions, or strategies regard- 21E of the Securities Exchange Act of 1934, including statementsmeaning of Section 27A of the Securities Act of 1933 and SectionThis within the statements annual forward-looking report contains

Management’s Discussion& Analysis through Shenandoah Telecommunications Company. subsidiaries, its to services management and investment of provision the and Company, Communications ShenTel Company and Distance Long Shenandoah Company, Network Shenandoah Company, Service ShenTel broadband through wireless services, and CLEC, long-distance, leasing, ity other,facilwhichnetwork - involvesInternet, provisionof the Cable Television; Shenandoah through services, television high-definition and cable television, which involves the provision of analog, digital and leases throughShenandoahMobileCompany; towerpaging services, of provision the involves which mobile, Shentel through services, Converged Inc.; Services, long-distance and voice data, of video, provision the involves which services, converged phone Company; and regulated Shenandoah through services, telephone of non-regulated Tele- provision the involves which telephone, nications Company; Commu- Personal Shenandoah a through affiliate, as PCS Sprint PCS, or services, communications personal wireless funds anddirectinvestment innon-affiliated companies. technologiesand byservices investment technologyin venture to the it related services provides. mainly The Company participates in emerging equipment, leases and sells Company The lina, Georgia,Florida, Tennessee, MississippiandDelaware. including States Caro- South Virginia,Maryland, Carolina, North United southeastern the throughout housing student college off-campusof primarily consisting communities, MDU to basis non-exclusiveexclusiveand an on voice, services Internet and video, distance long and local provides Services, Converged Shentel subsidiary its Company,through the own, already not Companydid the that (“NTC”) L.L.C. Communications, NTC of 83.9% the of Novemberacquisition the of Asresult a 2004 30, operating areaislimited. County Shenandoah the in customers wireline additional of numbers Shenandoah for planned significant for potential the believesthat CompanyCounty, the being are developments housing new of number a While 2000. since 6,000 approximately by increased has which inhabitants, 41,000 approximately of tion popula- northwesternestimated in an area ruralwith Virginia, a distance business is Shenandoah County, Virginia. The county is long- and television cable telephone, the for area service mary Harrisburg, York and Altoona, Pennsylvania. The Company’s pri- MHz band under the Sprint brand from Harrisonburg, Virginia to 1900 the on services mobility and products wireless network of communications provider exclusive the is Company The Con- Shentel Inc.,andceasedoperations. verged Services, to contract that transferred services, wireless provide to contract one but all terminated Company Wireless Shentel 2006, of quarter fourth the During Group. Broadband Company’s Wireless the with associated activities the record to Company Wireless Shentel to name its changed Company Leasing Valley Shenandoah 2005, of quarter third the During circumstances, exceptcircumstances, asrequiredby law. these forward-looking statements to reflect subsequent eventsFactors.” or The Company “Risk undertakesand Developments” “Business-Recent under report nothis obligationin to publicly revise mightthattorscausedifferencesuch Fac - a includethosediscussed statements. forward-looking the in anticipated those from Annual Report

Significant Transactions The 2007, 2006 and 2005 financial results of the Company of common stock to the recipients; half were unrestricted shares reflected several significant transactions, some of which are and the other half carry a two year restriction on disposition of changes to the business reflected for the first time in these the stock. The Company recorded a $2.1 million charge for the financial statements, and others considered non-recurring in aggregate fair value of the shares distributed. nature or size. These transactions should be noted in understanding the financial results of the Company for 2007, 2006 On November 30, 2006, the Company announced that it would and 2005. The following tables summarize the impact of these freeze benefit accruals for all participants in the Company’s transactions, which are described in more detail in the subse- defined benefit pension plans as of January 31, 2007, and that it quent paragraphs: would replace the frozen benefits by increasing the Company’s contributions to the existing 401(k) Supplemental Retirement Significant Transactions in thousands Income Statement Impact Plan, as well as a new non-qualified defined contribution plan Effective Date 2007 2006 2005 to be established for selected employees, going forward. The Company also announced that it intended to terminate and settle the defined benefit pension plan. Included in net pension Cost of share award December 2007 $ (2,074) $ - $ - costs for 2006 was a gain on the curtailment of the pension Net gain from curtailment of plans of $1.8 million, offset by $0.8 million of accelerated amor- pension benefits November 2006 - 1,022 - tization of prior unrecognized pension costs. Cost of early retirement incentives December 2006 (2,675) (389) - The Company also announced a voluntary early retirement Gain on RTB incentive plan for 58 eligible participants, as well as the inten- dissolution March 2006 - 10,540 - tion to use the early retirement incentive, attrition, and if nec- Recovery on essary, an involuntary reduction in force to eliminate up to 50 settlement of Verizon positions. Severance benefits on a sliding scale based on pay overcharge September 2005 - - 750 category and years of service were payable under the reduction in force. As of December 31, 2006, seven employees Significant Transactions Diluted Earnings per Share Impact had elected to accept the early retirement incentive. Included 2007 2006 2005 in the Company’s consolidated statement of income for 2006 were $0.4 million in estimated costs of the early retirement Cost of share award $ (0.05) $ - $ - incentives for these employees. During January 2007, 25 addi- Net gain from curtailment tional employees elected to accept the early retirement offer, of pension benefits - 0.03 - and during February 2007, ten employees, including three Cost of early retirement incentives (0.07) (0.01) - hired on a temporary basis, separated from service under the Gain on RTB dissolution - 0.27 - reduction in force. The Company recorded approximately Recovery on settlement of Verizon $2.0 million in costs associated with the additional early retire- overcharge - - 0.02 ments during the first quarter of 2007, and during the fourth quarter of 2007, recognized $0.7 million in pension expense The diluted earnings per share impact utilizes the annual effec- related to the settlement of pension liabilities for employees tive tax rate applied to the income statement impact shown who took lump sum pension payments following their early above, and divides by the weighted average diluted shares out- retirement. At this time, the Company expects to complete standing, for the year shown. the settlement of the defined benefit pension plan in 2008, and will record approximately $1.8 million in pension expense In March 2007 retroactive to January 1, 2007, the Company as settlements occur. amended the Management Agreement with Sprint Nextel. As more fully described below, this amendment simplified the settle- On August 4, 2005, the board of directors of the Rural Telephone ment process between the Company and Sprint Nextel primarily Bank (“RTB”) adopted resolutions for the purpose of dissolv- by combining the net effect of travel revenue and expense and ing RTB as of October 1, 2005. The Company held 10,821,770 certain costs charged by Sprint Nextel into a new net service fee shares of Class B and Class C RTB Common Stock ($1.00 par of 8.8% of net billed revenue. The net effect of this change was a value) which was reflected on the Company’s books at $796,000 reduction in both revenues and expenses in our PCS segment. The under the cost method at December 31, 2005. In 2006, the amended agreement also provided for the Company to acquire the Company received $11.3 million in proceeds, and recognized a retail store locations described below, and to begin servicing the gain of approximately $6.4 million, net of tax, related to the dis- Sprint Nextel iDEN customer base. solution of the RTB and the redemption of the stock. In the fourth quarter of 2007, the Company received an additional $0.1 In May 2007, the Company acquired 13 retail store locations million as a final distribution on the dissolution of the RTB. from Sprint Nextel and began servicing Sprint Nextel’s iDEN customers. The Company hired a number of Sprint Nextel In September 2005, the Company settled a claim against employees upon acquisition of the stores, and added additional Verizon, with respect to overcharges for completing local calls staff in the stores and to support the expanded retail effort. from Shenandoah PCS customers to Verizon customers, for $750,000, which was received by the Company in September In December 2007, the Board of Directors approved an award of 2005. In connection with the settlement, the Company recorded shares of common stock to 26 management level employees with a reduction in PCS network costs of $750,000 during the third more than one year of service. The Company issued 97,730 shares quarter of 2005. Management’s Discussion & Analysis Discussion & Management’s 47 ~ Telecommunications Shenandoah 48

Management’s Discussion & Analysis Company

~ ies, for thethree-year periodendedDecember31,2007: recover of net write-offs, debt bad shows table following The management agreement. ofbad debt and related transactions handling under the amended Sprint Nextel the in changes reflects 2007 during (below) write-offs debt bad net in and (above) reserve the in decrease The on ofoperations. effect results adverse and material position financial liquidity, a our have could it adequate, not accounts doubtful is for allowance the If respectively. million, 31, 2007, 2006 and 2005 was $0.2 million, $0.6 million and $0.6 December of as balance accounts doubtful for allowance The 90 days old. pany provides an allowance TheCom- for substantially all receivables over categories. the aging to Company amounts specific the assigns information, this From accounts. doubtful for larger customers in determining the adequacy of the allowance its of position financial the billing and write-off of original date the the and date between elapses that time of length age aver historical the at looks also Companybilled. The originally waswhich subscriber in the period estimated the to relation in write-offs historical compares Company the estimates, these determining In analysis category. aging by the receivable accounts the and of policies, credit trends, current write-off experience, and collection historical on based are and accounts doubtful for allowance the determining in used are Estimates Allowance for Doubtful Accounts of operationsincludethefollowing: accounting policies that materially affect the Company’s results critical most future. The the in change might these how to as Company’sforecasts the as well as trends and results torical his- on based makesare assumptions and and estimates operating These and results. estimates condition offinancial its use affect that the assumptions on relies Company The Critical Accounting Policies use assets. In applying this guidance, separate contracts with contracts separate guidance, this applying In assets. use to rights and/or services, products, multiple of performance or delivery the i.e., activities, revenue-generating involvemultiple Revenue guidance addresses how to account for arrangements that formay “Accounting Deliverables.” EITF Element The 00-21, Multiple with Arrangements No. (“EITF”) Force Task Issues Emerging adopted Company the Effective 2003, 1, July revenue isrecognized whenthesalestransactioniscomplete. recognized as the services are performed. For equipment sales, is revenue services, For revenue. the generating transactions of types various the on based Company the by recognized are and determinable fixed and collectibility is is reasonably assured. buyer Revenues the to price the delivered, been have ucts of an arrangement exists, haveservices been rendered or prod- evidence persuasive when revenue recognizes Company The Revenue Recognition in thousands Year Ended December31, PCS subscribers Interexchange carriers Other subscribersandentities Net baddebtwrite-offs Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports

$ $ 2007 (16) (16) - - $ $ 3,208 3,543 2006 229 106 $ $ 2,265 2,558 2005 273 20 - - million in capital callsunderitsinvestments.million incapital $0.5 to up to subject is and leases operating under mitments transactions or arrangements: however, the Company has com- off-balancehaveunrecorded sheet anynot does CompanyThe Other basis over thenon-cancelableterm ofthelease. line straight a on revenue recognizes Company lessor,the the is Company the Where lease. the of inception the at assured reasonably are that periods renewal and term lease initial the overbasis straight-line a on expense rent recognizesCompany leases. The operating of recording the in options renewal tain cer exerciseof the includes Companyimprovements, the hold lease- and costs Company’sacquisition including site, the each in investment of light In Increases.” Rent Scheduled with Leases “AccountingOperating 85-3, for No. TechnicalBulletin the following leases “AccountingLeases,”13,FASB for SFASNo. and of operating guidance for accounts Company The Leases be will rate approximately 40%. tax income effective future the management that Currently, anticipates rates. tax income state various the and results, operating Company’s the factors, apportionment on effectivebased evaluatethe taxes will of Management rate if a valuation allowance is warranted for tax assets in each state. uses a more likely than not threshold Management to make the determination state. that to apportioned losses operating net from basis state-by-state a on generated assets tax deferred of recoverability the evaluates Company Thedate. enactment rates tax is recognized in income in the period that includes the in change a of liabilities and assets tax deferred effecton The differences temporary recoveredexpectedbe are tosettled. or expected to apply to taxable income in the years in which those rates tax enacted using measured are liabilities and assets tax ofexisting Deferred bases. tax respective amounts their and liabilities and assets carrying statement differences to financial attributable between consequences recognized tax are future liabilities the and for assets tax Deferred liability method. and asset the under for accounted are taxes Income Income Taxes versus Netasan Agent.” 99-19,No. Issue EITFPrincipal a Revenue“Reportingas Gross with accordance in Nextel, Sprint by Feeretained Service Net 8.8% 2007, the 1, January effective imposition its since and, wireless Agreement, revenues FeeManagement 8% the of net reported are service Management Nextel Sprint the Under respectively.of goodsandservices, wireless related the handset is sold time and is classified as equipment revenue the and cost at recognized are costs direct associated and revenuefee activation all Substantially future. the in made be to need would recognition revenue changesin any if determine to channels sales its with arrangements tor moni- to continue will Company The channel. sales each for Company the by into entered arrangement each of requiredevaluation has 00-21 EITF of adoption The values. fair their relative on based units separate the to allocated and is measured consideration the and transaction, bundled a be to sumed pre- are time, same the near party,or same at the into entered - Annual Report

Results of Continuing Operations 2007 Compared to 2006 Consolidated Results

The Company’s consolidated results for the years ended Operating expenses December 31, 2007 and 2006 are summarized as follows: For the year ended December 31, 2007, operating expenses decreased $38.0 million, or 25.7%, primarily due to the changes in thousands Year Ended Change in the Company’s PCS segment. For the year ended Decem- December 31, ber 31, 2007, PCS operating expenses decreased $41.3 million, 2007 2006 $ % or 41.4%, while Telephone and Cable TV operating expenses increased $3.1 million and $1.3 million, respectively, princi- Operating revenues $ 141,183 $ 169,195 $ (28,012) (16.6) pally due to costs associated with the early retirement offer Operating expenses 109,998 148,021 (38,023) (25.7) announced in late 2006, and the cost of the share award dis- Operating income 31,185 21,174 10,011 47.3 tributed in December 2007 to management level employees. Other income (expense) 589 9,195 (8,606) (93.6) The Company recognized expenses associated with these two Income tax provision 12,971 12,370 601 4.9 programs of approximately $4.8 million in 2007. Net income $ 18,803 $ 17,922 $ 881 4.9 Other income (expense) Operating revenues For the year ended December 31, 2006, other income (expense) For the year ended December 31, 2007, operating revenue included a $10.5 million pre-tax gain on the sale of RTB stock. decreased $28.0 million, or 16.6%, due to the changes in the For 2007 compared to 2006, gains on investments other than Company’s PCS segment as a result of the amendments to the the RTB stock increased $0.7 million, non-operating income management agreement with Sprint Nextel. Travel revenue and increased $0.7 million, and interest expense decreased $0.5 travel expenses, reported and settled on a gross basis in the million. past, are now settled net as a component of a Net Service Fee paid subsequent to January 1, 2007. The Net Service Fee, in Income tax provision addition to replacing the net travel settlements, also replaced The Company’s effective tax rate increased slightly from 40.7% several other fees and pass through costs historically recog- in 2006 to 40.8% in 2007. nized by PCS. See the PCS Segment Results section below for additional details of these changes. Management’s Discussion & Analysis Discussion & Management’s 49 ~ Telecommunications Shenandoah 50

Management’s Discussion & Analysis Company

~ in thousands Results:Segment such as customer service, billing, collections, long distance, distance, national long network operations collections, support, inventory billing, logistics support, service, customer as such services, support forNextel Sprint compensates Company the including travel, wholesale usage and and roaming, upon which expenses, and revenue settle Nextel Sprint which and Company upon the basis the Amendments, 2007 the of result a As □ □ were to: the (collectively, “2007 Amendments”), the operational primary effects agreements of which of series a into entered Nextel Sprint and 2007,13, MarchSubsidiary Company’s On PCS the each for expenses financial period. and revenue appropriate the record Company to the for provide information to complete Nextel and Sprint accurate on timely, relies Company The area. age Company’sthe coverin network service obtain that scribers sub- for Nextel Sprint from revenues receives Company The vania, toHarrisonburg, Virginia. covering the area region from Harrisburg, four-state Yorka and of Altoona, Pennsyl- portion a to service wireless digital vides pro- affiliate, PCS Sprint a as subsidiary, Company’sPCS The Wireless service revenue service Wireless revenues Segment operating income Segment operating operating expenses Total segment amortization Depreciation and shown separatelybelow preciation andamortization istrative, exclusive ofde- generalandadmin- Selling, separately below and amortizationshown exclusive ofdepreciation Cost ofgoodsandservices, expenses Segment operating operating revenues Total segment Equipment revenue Other revenue Travel androamingrevenue Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports

in theCompany’s area. service customers iDEN Nextel Sprint for support service customer local provide and phones iDEN Nextel Sprint and PCS Sprint both sell to Company the with Subsidiary, PCS Company’s store locations within the Company’s PCS area service to the Effective May 2007, transfer all Sprint Nextel operated Nextel the Company andSprintNextel; and between expenses settleand revenue to used methods the simplify further to Nextel Sprint with agreements services 1,2007,Amend, asofJanuary theexisting managementand $ $ PCS 80,054 28,824 58,483 15,226 28,150 15,107 87,307 2,193 5,015 2007 December 31, 45

Year Ended $ $ 115,455 15,660 99,795 32,958 34,048 75,509 14,326 52,511 1,688 4,210 2006

$ $ (41,312) (28,148) (34,003) (24,361) 13,164 (17,732) 4,545 781 505 805

$ Change (24.4) (41.4) (53.8) (46.4) (99.9) 29.9 84.1 19.1 5.5 6.0 %

- longer recorded by theCompany. no are $37.12006, in totaling revenues,million wholesale and travel,2007 Amendment, distance the long Asof result a data, true accruals. up2006 The wholesale revenue was of $0.1 million in 2007 recorded to Amendment. 2007 the of result a as revenue service wireless of components new are 2007 for fee service net the and offs write- allocated the and billings; increased to due $1.3million increased fees management adjustments; billing/service and to promotional incentives offered by Sprint Nextel in early 2007 due 15.6%, $1.5or increased million, adjustments and credits subscribers; of number the in increase the of primarily result a as 29.1%, or million, $25.7 increased 2007 for billings Gross agement fee of$6.4million. man- and million, $9.6 of adjustments and credits less million, $3.0 of revenue wholesale and million $88.4 of billings gross revenuewireless service $75.5 totaled million and consisted of fee of $7.7 million and net feeservice of $8.5 million. For 2006, management million, $6.9 $11.1of write-offs allocated million, of adjustments and credits less 2006, to related million $0.1 of sisted of gross billings of $114.1 million and wholesale revenue For 2007, wireless service revenue totaled $80.1 million and con- Operating Revenues subscribers compared added to in 30,528 2006. net retail 2007 2006. in customers retail net The33,800 added operation PCS subscribers compared to 153,503 subscribers at December 31, PCS 187,303 retail had Company 2007, the 31, December of As ratings. credit subscriber new and efforts collection ables, receiv monitor to continues Management 2006. in revenues service PCS of percent a write-offsas debt bad 4.2% to pared revenues,com- service PCS of 6.1% write-offswere allocated 2007, In 2006. 1.9% in to 2007, compared in 2.0% was rate, TheCompany’s turnover,customer averageretail PCS churnor coverage market incertain areas. ily the result of supplementing network at capacity and expanding service in stations base 2006. 31, December was Theprimar stations base in increase 332 to compared 2007, 31, ber Decem- at service in stations base PCS The346 Companyhad customers intheCompany’s area. localPCSservice iDEN Nextel Sprint to support service customer local provide to cost the of net be to set was Fee Service Net The billing). and activation customer bureau, service costs, customer (i.e., services CPGA and CCPU and travel for pricing new reflect to adjusted settlements Fee prior Service the approximate Net to The designed was agreement. management the Nextel Sprint under by retained adjustments) billing other and offs write- account credits, customer of (net revenue billed Management on Fee 8% the to addition in is Fee Service Net 8.8% adjustments). This billing other and write-offs account credits, customer of (net revenue billed of 8.8% to equal Fee Service for use on each other’s networks, Sprint Nextel will retain a Net expenses and revenuessettling of the suchand feesof lieu In new each subscriber added. for fee a or subscriber per fee a Nextel Sprint pay Company the does nor amounts; suchsettle longer no Nextel Sprint and Company the amendments, the of result a As fied. national distribution and product development, has been simpli- - - Annual Report

Equipment revenue increased $0.8 million in 2007 over 2006 as attributable to the elimination of $16.8 million in 2006 costs due a result of increased sales of handsets to both new and upgrad- to the 2007 Amendment, principally $11.1 million of customer ing customers. service and billing provided by Sprint Nextel, and $5.7 million in commissions paid to third party and national retailers who acti- Other revenue increased $0.5 million for 2007 compared to vate customers in the Company’s PCS service area. The 2007 2006. The increase resulted from revenue collected from Sprint Amendment also impacted bad debt expense. The PCS seg- Nextel associated with new customer activations. ment recorded $3.3 million in bad debt expense during 2006; under the 2007 Amendment, bad debts are reflected as an Cost of goods and services offset against billed revenues (allocated write-offs). Allocated Cost of PCS goods and services decreased $24.4 million, or write-offs, at $6.9 million for 2007, have increased substantially. 46.4% in 2007, principally as a result of the effects of the 2007 Due to the change in handling bad debts, the PCS segment Amendment. The 2007 Amendment eliminated $27.1 million reversed in 2007 the $0.5 million reserve for bad debts as of in net costs, primarily travel and long distance costs of $27.3 December 31, 2006. million and other costs totaling $3.0 million, offset by lost handset subsidies of $3.2 million. The PCS segment also recorded Other components of selling, general and administrative $0.6 million of net credits in 2007 to true-up 2006 accruals for expenses increased approximately $2.9 million over 2006. expenses previously settled with Sprint Nextel. Significant increases included $1.0 million in commissions, $1.7 million in costs related to the 13 retail locations acquired Cost of goods and services experienced increases due to the from Sprint Nextel, and the PCS segment’s $0.7 million share cost of the PCS phones sold to new and existing customers. The of the cost of the December stock award. These increases cost of end user equipment increased $1.7 million from 2006. were partially offset by $0.6 million in lower marketing and Network costs increased $1.3 million in 2007 as the PCS seg- advertising costs. ment added EVDO capability for high speed data transmission such as internet access to 52 tower sites during the fourth quar- Depreciation and amortization ter of 2007, as well as adding 14 additional cell sites to expand Depreciation and amortization expense increased $0.8 million, our capacity and coverage footprint. The Company anticipates or 5.5%, over 2006, due to capital investments to expand our significant additional expenses in 2008 for additional cell sites network coverage and capacity, as well as for adding EVDO and EVDO capability on additional tower sites. All other costs capability. of goods and services increased $0.4 million over 2006.

Selling, general and administrative Selling, general and administrative costs decreased $17.7 million, or 53.8%, compared to 2006. The decrease was primarily Management’s Discussion & Analysis Discussion & Management’s 51 ~ Telecommunications Shenandoah 52

Management’s Discussion & Analysis Company

~ Segment operating revenues Service revenueService -wireline in thousands Results:Segment declined by 294, or 1.2%. Based on industry experience, the experience, industry on Based 1.2%. or 294, by declined service), lines 2007, access voice In trend. or this mitigated have internet to appeared offer not does (which franchise cable overlapping the of ownership Shentel’s with County,combined Shenandoah within homes new of construction The ser vices eliminating and secondary often DSL the access primary lines. and wireless to migration consumer and providers, competitive other companies, cable from competition to due principally subscribers, in decline a been has providers service telephone local regulated amongst trend the years, recent In the northern Virginia suburbsof Washington, DC. into Valley,Shenandoah and northern the throughout primarily facilities optic fiber leases and services telephone unregulated and regulated both providesShenandoah TelephoneCompany operating expenses Total segment Depreciation andamortization separately below tion andamortizationshown trative, exclusive ofdeprecia- generalandadminis- Selling, separately below and amortizationshown exclusive ofdepreciation Cost ofgoodsandservices, Segment operating expenses operating revenues Total segment Other revenue Equipment revenue Facilities leaserevenue Access revenue Segment operating income Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports Telephone $ $ 30,535 19,228 11,307 12,476 6,782 6,258 3,716 5,217 7,753 7,533 2007 December 31, 28

Year Ended $ $ 30,470 14,356 16,114 13,163 6,856 4,755 6,868 3,585 6,838 4,491 2006 28

$ $ (3,049) 1,767 3,114 (687) 462 885 695 131 (74) 65 $

- Change (21.2) 39.3 19.3 12.9 10.2 (5.2) (1.1) 9.7 0.2 3.7 %

- - network capacity during2008. upgrade network capacity to replaced be will that network fiber its of ponents over com- certain on 9.7%, depreciation accelerated Company The2006. or million, $0.5 increased expense Depreciation Depreciation expense the costofDecemberstock award. of plus Telephone’sshare million), million $2.2 $0.5 was costs retirement early the of share total segment’sTelephone (the costs retirement early the of share segment’sTelephonethe $1.3of remaining million the to due 39.3%, $1.8or by million, 2007 in increased expense administrative and general Selling, Selling, general andadministrative retirement costs. or 12.9%, due to part of the Telephone million, segment’s$0.9 by share of 2007 early in increased services and goods of Cost Cost ofgoods andservices revenue 2007,due tosmallincreasesindirectory andbuildingrent. in million $3.7 to million $0.1 increased revenue Other distance long Company’s the affiliate. with 2007 in andadditional initiated circuits 2007, during initiated affiliate televisionthe Company’s cable with lease fiber new a to due primarily 2007 in $7.5million to million $0.7 increased revenue lease Facility $0.1 millioninlower carrier accessrevenues. sal of accruals for disputed charges for handling 1-800 calls; and the of 2007 during NECA wholesale rate for DSL adoption$0.2 service, million for the rever the to due revenue DSL lower million $0.3 included components Significant 2006. to pared com- 2007 Accessin revenue5.2%, or million, $0.7 decreased 1.2% dropinaccesslinesduringtheyear. 1.1%,the decreased with revenue consistent service Wireline Operating Revenues future. foreseeable the for continue will counts subscriber telephone towarddeclining trend long-term the that anticipates Company - Annual Report

Segment Results: Converged Services adding contracts with larger properties, while terminating con- in thousands Year Ended Change tracts with smaller, less profitable properties. Four properties December 31, that the Company had expected to renew their expiring con- 2007 2006 $ % tracts chose not to do so during second quarter of 2006. Segment operating revenues Service revenue - wireline $ 10,255 $ 9,976 $ 279 2.8 Operating Revenues Equipment and other revenue 959 691 268 38.8 Service revenue increased $0.3 million for 2007. Video revenue Total segment increased by $0.7 million and internet revenue increased $0.2 operating revenues 11,214 10,667 547 5.1 million, compared to 2006, while voice revenue declined by $0.6 million as college students migrate to wireless phone service. Segment operating expenses Cost of goods and services, Equipment and other revenue increased $0.3 million principally exclusive of depreciation due to one-time revenues on projects where the Company and amortization shown installed certain equipment as a convenience to the property separately below 8,712 8,662 50 0.6 owners and billed the properties for the installations. The cost Selling, general and administrative, exclusive of deprecia- of the projects is included in cost of goods and services. The tion and amortization shown Company recognized minimal gross profit on these projects. separately below 4,802 4,347 455 10.5 Depreciation and amortization 5,923 5,103 820 16.1 Selling, general and administrative Total segment Selling, general and administrative expenses increased $0.5 operating expenses 19,437 18,112 1,325 7.3 million, or 10.5%, in 2007 over 2006, due to increases in bad debt expense and legal costs. Segment operating (loss) $ (8,223) $ (7,445) $ (778) 10.4 Depreciation and amortization The Converged Services segment provides local and long Depreciation and amortization expense increased $0.8 million, distance voice, data and video services on an exclusive and or 16.1%, in 2007 over 2006. The increase reflects deprecia- non-exclusive basis to MDU communities throughout the tion on additional capital spending for new properties in 2006 southeastern United States including Virginia, North Carolina, and 2007, the increase in 2007 expense over 2006 related to Maryland, South Carolina, Georgia, Florida, Tennessee, Missis- shortened lives on certain phone system assets initiated in late sippi and Delaware. 2006, offset by the absence of accelerated depreciation in 2006 relating to four MDU’s that elected not to renew their contracts The number of MDU properties served increased by ten during for service. 2007 to 112 at December 31, 2007. The Company has been Management’s Discussion & Analysis Discussion & Management’s 53 ~ Telecommunications Shenandoah 54

Management’s Discussion & Analysis Company

~ Segment operating revenues Segment operating revenues in thousands Results:Segment hnnoh ony Vrii. s f eebr 1 20, it 2007, 31, December of As Virginia. County, Shenandoah within franchise agreements under signals television definition TheCable Televisionhigh- and digital providessegment analog, in thousands Results:Segment four the Company’s throughout companies non-affiliated and affiliated to space rental tower provides segment Mobile The Service revenueService Tower leaserevenue-affiliate Equipment andotherrevenue non-affiliate Tower leaserevenue- expenses Total segmentoperating Depreciation andamortization separately below tion andamortizationshown trative, exclusive ofdeprecia- generalandadminis- Selling, separately below and amortizationshown exclusive ofdepreciation Cost ofgoodsandservices, Segment operating expenses revenues Total segmentoperating Other revenue Segment operating (loss) Depreciation andamortization operating revenues Total segment separately below tion andamortizationshown trative, exclusive ofdeprecia- generalandadminis- Selling, separately below and amortizationshown exclusive ofdepreciation Cost ofgoodsandservices, Segment operating expenses Segment operating income operating expenses Total segment Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports Cable Television Mobile $ $ $ $ (1,812) 4,573 3,704 6,870 1,050 1,659 5,058 1,867 6,163 3,552 2,216 4,161 2,611 2007 2007 485 243 923 762 December 31, December 31,

Year Ended Year Ended $ $ $ $ 1,200 1,656 3,241 5,545 4,997 1,595 5,251 3,159 2,092 3,412 1,104 4,611 2006 2006 (548) 386 878 686 183

$ $ $ $ (1,264) 1,325 560 920 459 292 272 912 393 519 (38) (54) 99 61 60 45 76 $ $

Change Change 230.7 33.8 28.4 25.6 38.3 23.9 32.8 12.4 24.8 17.4 11.1 17.1 (0.8) (4.9) 8.6 5.1 1.2 % %

by charged arefundofsalestax inprioryears ontower rents. higher levels of activity at Mobile (see above comments), offset reflecting costs internal of allocations increased reflects marily The increase in selling, general and administrative expenses pri- maintenance andrepaircosts($0.1million). higher and million) ($0.1 sites tower for costs power and rent increased reflects services and goods of cost in increase The Operating expenses similar costsbilledtopotentialtenants. The increase in other revenue resulted from site application and leases enteredintoduring2007. toadditional due increased non-affiliate revenue lease Tower The offsetting expense iswithinthePCSsegment. leases.for tower conditions market reflect better 2007, to of quarter second the during implemented rates changeslease in from resulted affiliate – revenue lease tower in increase The Operating revenues non-affiliate tenantsatDecember31,2006. to 151 and towers compared 112 tenants non-affiliate 167 and 114 towers had segment Mobile 2007, the 31, December At Shenandoah Valley. state PCS market, and paging throughout services the northern of earlyretirementcosts. segment’sCable share the of portion remaining the for million $0.2 to year,and the of beginning the in out roll hi-def the for $0.3 million in additional marketingcosts and customer service to due increased expenses administrative and general Selling, Selling, general andadministrative expenses retirement costsincurred during2007. segment’s Cable costs Theincluded $0.2 million for a portion of its share of the early network. the over signals transmit to costs network pro- additional for million on $0.2 and costs, million gramming $0.2 additional an signals), hi-def the receive to subscriber the allow (that boxesconverterfor 2007 in more ated at the beginning of 2007. The Company spent $0.3 million initi- service television high-definition costs new the with to associated due primarily increased services and goods of Cost Cost ofgoods andservices advertising in increase revenue. an from resulted revenue other and equipment in increase The subscribers. in decline overall the to due 2006 from 2007 in slightly decreased revenue Service Operating revenues customers. basic in losses by offset were subscribers digital in Increases 8,303 subscribers, served down 137 from December 31, 2006. Annual Report

2006 Compared to 2005 Consolidated Results

The Company’s consolidated results for the years ended Operating expenses December 31, 2006 and 2005 are summarized as follows: For the year ended December 31, 2006, operating expenses increased $21.0 million, or 16.5%, primarily due to the growth in thousands Year Ended Change in the Company’s PCS and Converged Services segments. For December 31, the year ended December 31, 2006, PCS operating expenses 2006 2005 $ % increased $15.1 million, or 17.8%, and Converged Services operating expenses increased $4.4 million, or 31.9%, compared Operating revenues $ 169,195 $ 146,391 $ 22,804 15.6 to 2005. Operating expenses 148,021 127,015 21,006 16.5 Operating income 21,174 19,376 1,798 9.3 Other income (expense) Other income (expense) 9,195 (1,925) 11,120 n/m For the year ended December 31, 2006, other income (expense) Income tax provision 12,370 6,716 5,654 84.2 increased $11.1 million, primarily due to a $10.5 million pre-tax gain Net income $ 17,922 $ 10,735 $ 7,187 66.9 on the sale of RTB stock recorded in the first quarter of 2006.

Operating revenues Income tax provision For the year ended December 31, 2006, operating revenue The Company’s effective tax rate increased from 38.5% in increased $22.8 million, or 15.6%, primarily due to the growth 2005 to 40.7% in 2006, due to the tax treatment of the incen- in the Company’s PCS and Telephone segments. For the year tive stock options awarded by the Company to its employees, ended December 31, 2006, PCS operating revenues increased including the effect on deferred taxes of the reclassification of $21.0 million, or 22.3%, and Telephone operating revenues certain option awards from liability classified awards to equity increased $1.5 million, or 5.1%, compared to 2005. classified awards during 2006.

Segment Results: PCS Through Sprint Nextel prior to the 2007 Amendments, the in thousands Year Ended Change Company received revenue from wholesale resellers of wire- December 31, less PCS service. These resellers paid a flat rate per minute of 2006 2005 $ % use for all traffic their subscribers generate on the Company’s Segment operating revenues network. The Company’s cost to handle this traffic is the incre- Wireless service revenue $ 75,509 $ 61,606 $ 13,903 22.6 mental cost to provide the necessary network capacity. Travel and roaming revenue 34,048 27,220 6,828 25.1 Equipment revenue 4,210 3,459 751 21.7 The Company’s average PCS retail customer turnover, or churn Other revenue 1,688 2,134 (446) (20.9) rate, was 1.9% in 2006, compared to 2.0% in 2005. In 2006, Total segment there was an increase in PCS bad debt expense to 4.2% of PCS operating revenues 115,455 94,419 21,036 22.3 service revenues compared to 4.0% in 2005.

Segment operating expenses Operating Revenues Cost of goods and services, As of December 31, 2006, the Company had 153,503 retail PCS exclusive of depreciation subscribers compared to 122,975 subscribers at December 31, and amortization shown sepa- 2005. The PCS operation added 30,528 net retail customers in rately below 52,511 43,149 9,362 21.7 2006 compared to 20,362 net retail subscribers added in 2005. In Selling, general and adminis- addition, net wholesale users increased by 10,652 in 2006 com- trative, exclusive of depreciation and amortization shown pared to 11,389 added in 2005. In 2006, wireless service rev- separately below 32,958 28,848 4,110 14.2 enues from retail customers increased $13.9 million, or 22.6%. Depreciation and amortization 14,326 12,692 1,634 12.9 PCS travel and roaming revenues increased $6.8 million, or Total segment 25.1% in 2006. The travel and roaming revenue increase resulted operating expenses 99,795 84,689 15,106 17.8 from an increase in travel data usage, which increased $4.3 million to $7.7 million in 2006, and to a $2.4 million increase in Segment operating income $ 15,660 $ 9,730 $ 5,930 60.9 travel usage primarily from the increase in customers, as rates did not change during 2006 compared to 2005.

The Company had 332 PCS base stations in service at December PCS equipment revenue increased $0.8 million, or 21.7%. The 31, 2006, compared to 311 base stations in service at Decem- increase was primarily due to the addition of new PCS subscrib- ber 31, 2005. The increase in base stations was primarily the ers in 2006 and more subscribers upgrading their handsets result of supplementing network capacity and further extending to access new features provided with the service. The effect coverage along more heavily traveled secondary roads in the of these factors was offset in part by a lower average price Company’s market areas. received for telephone equipment in 2006. During 2006, as Management’s Discussion & Analysis Discussion & Management’s 55 ~ Telecommunications Shenandoah 56

Management’s Discussion & Analysis Company

~ Segment operating revenues Service revenueService -wireline the growth insubscribers. support and capacity expand to 2006 in million $2.1 increased 14,731 more gross new PCS subscribers than in Network 2005. costs added Company the 2006, During $1.5 2005. increased from equipment million user end of cost existing The and customers. new to sold phones PCS the of cost the to due increases additional experienced services and goods of Cost ated by theCompany. on the Sprint Nextel or Sprint Nextel affiliate networks not oper averagethe travel byCompany’sused the minutes subscribers in decrease a byoffset partially Company’ssubscribers, the in increase an and 2006) in million $4.9 to million $3.5 (up costs data additional to due increased million. costs $23.4 travelThe to 32.7%, or million, $5.8 increased costs travel PCS 2006. in Cost of PCS goods and services increased $9.4 million, or 21.7% Cost ofgoods andservices $0.9 million recognizedto$0.3in2006. in2005 from revenues Fund Service Universal in decrease a to due primarily 20.9%, or million, $0.4 revenuedecreased Other pared to13,999 in2005. com- 2006 15,766in sold Companyhandsets the upgrades, of result a as addition, In 2005. in 36,179 to compared handsets 44,386 sold Company the subscribers, new adding of result a uig 06 nw osn sat i te opn’ local Company’s lines, access the 90 of increase in net a in starts resulted area telephone housing new 2006, During primarily throughoutthenorthern Shenandoah Valley. facilities optic fiber leases and services telephone unregulated and regulated both providesShenandoah TelephoneCompany in thousands Results:Segment Access revenue Facilities leaserevenue Segment operating income operating expenses Total segment Depreciation andamortization separately below tion andamortizationshown trative, exclusive ofdeprecia- generalandadminis- Selling, separately below and amortizationshown exclusive ofdepreciation Cost ofgoodsandservices, Segment operating expenses operating revenues Total segment Other revenue Equipment revenue Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports Telephone $ $ 14,356 30,470 16,114 13,163 6,856 6,838 4,755 4,491 6,868 3,585 2006 December 31, 28

Year Ended $ $ 16,363 28,994 12,631 12,801 6,850 4,430 6,620 6,155 5,313 3,171 2005 17

$ $ 1,725 1,476 (249) (822) 362 683 325 248 414 11 $

6 Change (15.5) 64.7 13.7 13.1 (1.5) 11.1 0.1 2.8 3.7 5.1 7.3 %

- r 29, vr 05 de o pnig n 05 n 20 to 2006 and 2005 ournetwork andexpandmaintain capacity. in spending to due 2005, over 12.9%, or $1.6million, increased expense amortization and Depreciation Depreciation andamortization NTC’s activitiesduring2006. to emphasis in change the reflecting million, $2.8 of overhead million. $0.9 of expense debt allocated in wereoffset,byThesereductions increases part, in bad in increase an as well as retailers; third-party local and national to paid commissions for million $3.3 of increase an and employees, our to $1.2million of commissions in increase an $1.6million, of base customer the of administration the for Nextel Sprint to paid amount the in increase an to due base, subscriber the in growth to utable or 14.2%, compared to 2005. The increase was primarily attrib- Selling, general and administrative costs increased $4.1 million, Selling, general andadministrative for thisreport additional information. in elsewhere appearing statements financial ment of a claim from Verizon. See Note 17 to the consolidated by the Company’s of $0.8 receipt million in for2005 the settle- part in offsetwas services and goods of cost in increase The y 08 ilo, r 55, u t lwr loae overhead allocated lower to costs. due 15.5%, or million, $0.8 by 2006 in decreased expenseadministrative and general Selling, Selling, general andadministrative largely duetoareductioninallocated costs. (up $0.6 million), offset costs by lower network costs (down $0.3 million) repair and maintenance increased to due 3.7%, or million, $0.2 by 2006 in increased services and goods of Cost Cost ofgoods andservices revenue andbuildingrent. due to increases of approximately $0.2 million each in directory 2006, in million $3.6 to million $0.4 increased revenue Other duetoacircuitleasecontractinitiatedinlate2005. 2006 in million $6.8 to million $0.7 increased revenue lease Facility lion to$1.2 millionfor 2006. DSL revenue, included in “access revenue,” increased $0.4 mil- shifted from50.8%to51.4%. minutes total to compared carriers wireless to terminate that minutes of mix network. The Company’stelephone the siting was primarily attributable to the increase in wireless traffic tran- 7.2%byminutes increased in 2005. increase to The compared network telephone local the on use of Totalminutes switched Operating Revenues fromtraditionaltelephoneservices. DSL services and wireless to migration consumer to due principally scribers, overtrend the although sub- in decline a been has periods past Annual Report

Segment Results: Converged Services Operating Expenses in thousands Year Ended Change The Company records its employee costs and other shared December 31, expenses in a subsidiary, Shentel Management Company. 2006 2005 $ % These costs and expenses are then allocated to each of the Segment operating revenues respective subsidiaries under an arrangement approved by the Service revenue - wireline $ 9,976 $ 9,631 $ 345 3.6 Virginia State Corporation Commission. Between 2005 and Equipment revenue 146 12 134 n/m 2006, due to semi-annual changes in the allocation formulas; Other revenue 545 179 366 204.5 additional direct labor allocated to Converged Services projects Total segment operating (such as the customer interface/billing system project, roll-out revenues 10,667 9,822 845 8.6 of new properties, and equipment upgrades and maintenance issues); and additional management focus on the Converged Segment operating expenses Services segment, $1.0 million in additional expenses have Cost of goods and services, been allocated to Converged Services in 2006 compared to exclusive of depreciation 2005. Total allocated costs declined by $1.1 million in 2006 from and amortization shown 2005. The PCS segment was the largest beneficiary of this separately below 8,662 7,275 1,387 19.1 change in allocation, as it has been allocated $2.4 million less Selling, general and adminis- in 2006 than 2005. These costs are reflected in cost of goods trative, exclusive of depreciation and amortization shown and services and selling, general and administrative expenses separately below 4,347 3,886 461 11.9 in the table above. Depreciation and amortization 5,103 2,575 2,528 98.2 Total segment operating Cost of goods and services expenses 18,112 13,736 4,376 31.9 Cost of goods and services reflects the cost of purchasing video and voice services, the network costs to provide Internet ser- Segment operating (loss) $ (7,445) $ (3,914) $ (3,531) 90.2 vices to customers and network maintenance and repair. Costs of goods and services increased $1.4 million, or 19.1%, in 2006 The number of Converged Services properties served declined compared to 2005. Major components of the increase included by seven during 2006 to 102 at December 31, 2006, as the $0.4 million in losses on asset disposals; allocated costs of $0.4 Company focused on integrating NTC’s operations by eliminat- million; and $0.4 million in other network costs. ing smaller unprofitable properties, while signing new contracts for properties that offer a better profit potential. Four proper- Selling, general and administrative ties that the Company had expected to renew their expiring Selling, general and administrative expenses increased $0.5 mil- contracts chose not to do so during second quarter of 2006. lion, or 11.9%, in 2006 over 2005, primarily reflecting increased The Company also capitalized approximately $0.9 million during allocated costs, offset by a reduction of $0.1 million in net bad 2006 in connection with capital projects to improve its customer debt expenses. service interface and billing systems to support future growth in the Converged Services segment. Depreciation and amortization Depreciation and amortization expense increased $2.5 mil- Operating Revenues lion, or 98.2%, in 2006 over 2005. The Company shortened Service revenues consist of voice, video and data services at the depreciable lives of certain assets in the fourth quarter of MDU properties in the southeastern United States. Average 2005, increasing depreciation in 2006 and future years com- monthly revenue increased $70 thousand or 8.6% in 2006, pared to 2005 amounts; shortened the lives of certain phone compared to 2005. While data service increased $0.8 million, system assets in the third quarter of 2006, significantly increas- or 19.3% in 2006 over 2005, voice service decreased $0.5 mil- ing depreciation expense in the second half of 2006; and during lion, or 30.6%, over the same time period, reflecting a decline in the second quarter of 2006, accelerated depreciation expense wireline telephone service use amongst college students due of $820,000 for four MDU’s that elected not to renew their con- to increased wireless telephone usage. tracts for service. Management’s Discussion & Analysis Discussion & Management’s 57 ~ Telecommunications Shenandoah 58

Management’s Discussion & Analysis Company

~ Segment operating revenues in thousands Results:Segment in thousands Results:Segment Service revenueService Segment operating revenues Tower leaserevenue-affiliate Equipment andotherrevenue operating revenues Total segment operating expenses Total segment Depreciation andamortization separately below tion andamortizationshown trative, exclusive ofdeprecia- generalandadminis- Selling, separately below and amortizationshown exclusive ofdepreciation Cost ofgoodsandservices, Segment operating expenses Segment operating (loss) non-affiliate Tower leaserevenue- Other revenue separately below and amortizationshown exclusive ofdepreciation Cost ofgoodsandservices, Segment operating expenses operating revenues Total segment Depreciation andamortization separately below tion andamortizationshown trative, exclusive ofdeprecia- generalandadminis- Selling, operating expenses Total segment Segment operating income Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports Cable Television Mobile $ $ $ $ 1,200 1,656 4,997 5,545 3,241 1,595 5,251 2,092 3,159 3,412 1,104 4,611 2006 2006 (548) 386 878 686 183 December 31, December 31,

Year Ended Year Ended $ $ $ $ 5,032 4,675 1,052 5,287 1,386 4,679 2,687 1,992 3,121 3,147 1,414 1,114 2005 2005 (255) 357 560 146 713

$ $ $ $ (293) 258 120 (35) (64) 270 265 572 472 181 100 126 165 29 52 86 37

$ $

Change Change (114.9) 12.2 25.3 22.5 23.1 19.5 12.8 (0.7) 17.6 (1.4) 8.1 4.9 3.8 4.9 8.4 5.0 7.7 % %

higher baddebtandlicensefees in 2006. to due increased expenses administrative and general Selling, network costs. lower by part in offset 2006, in expenditures repair and nance mainte- to due primarily increased services and goods of Cost Operating expenses and other revenue resulted from an increase in equipment sold. equipment in increase The subscribers. in decline overall the to due 2005 from 2006 in slightly decreasedrevenue Service Operating revenues losses inbasiccustomers. by offset were subscribers digital and economy segment in Increases Television Cable the 2006, 8,440 served subscribers, down 244 from December 31, 2005. 31, December of As of towers andtenants. nue and expenses are directly related to changes in the number reve- in Changes 2005. 31, December at tenants non-affiliate 151 and towers 99 to compared tenants non-affiliate 152 and 113towers had segment Mobile the 2006, 31, December At Annual Report

Financial Condition, Liquidity and Capital Resources The Company has four principal sources of funds available to Discontinued operations generated cash of $5.0 million in 2005, meet the financing needs of its operations, capital projects, debt the result of the settlement of the escrow account established service, investments and potential dividends. These sources in 2003, in the sale of the Virginia 10 RSA Cellular Partnership include cash flows from operations, cash and cash equivalents, interest. the liquidation of investments and borrowings. Management routinely considers the alternatives available to determine what Indebtedness. At December 31, 2007, the Company’s indebt- mix of sources are best suited for the long-term benefit of the edness totaled $21.9 million and the annualized overall weighted Company. average rate of such indebtedness was approximately 7.6%.

Sources and Uses of Cash. The Company generated $43.7 mil- On November 30, 2004, the Company amended the terms of lion of net cash from operations in 2007, a $9.4 million increase its Master Loan Agreement with CoBank, ACB to provide for a from $34.4 million generated in 2006. The primary change in $15 million revolving reducing credit facility. Under the terms of cash from operations was the absence of the $10.5 million the amended credit facility, the Company was able to borrow non-operating gain from the sale of RTB stock in 2006. Materi- up to $15 million for use in connection with the acquisition als and supplies increased in 2007 to support the addition of of NTC Communications LLC and other corporate purposes. 13 additional retail PCS stores. Accounts receivable growth The revolving credit facility has a 12-year term with scheduled slowed in 2006 as increased receivables at PCS were offset quarterly payments beginning June 2006. Availability under this by declines at Converged Services and Telephone. Changes facility decreased each quarter by $312,500 since December between 2005 and 2006 in prepaids, deferrals and accruals 31, 2004; as of December 31, 2007, availability totaled $11.3 mil- relate to increases in pension liabilities offset by decreases in lion. Borrowings under the facility accrue interest at an adjust- accrued compensation. able rate that can be converted to a fixed rate at the Company’s option. Repayment of the revolving credit facility is secured by In 2007, the Company used $30.6 million of cash in investing a pledge of the stock of all of the subsidiaries of the Company. activities. Purchase and construction of plant and equipment In May 2005, the Company made an unscheduled $12.0 million increased to $29.1 million in 2007, as the Company increased payment on the revolving debt facility, from funds invested in capital spending in its PCS segment following the resolution short-term cash investments, to reduce interest expense; the of uncertainties concerning the status of our relationship with remaining balance of $1.2 million was re-paid in the first quarter Sprint Nextel. The Company added EVDO data carrying capacity of 2006. to 52 PCS sites during 2007, and added 14 cell sites to expand our coverage footprint. The 2007 increase in purchases of The outstanding balance of the CoBank term loan is $21.7 mil- investment securities results from the decision to fund a rabbi lion at December 31, 2007, all of which is at fixed rates ranging trust in connection with the Executive Supplemental Retire- from approximately 6.67% to 8.05%. The stated rate excludes ment Plan. In 2006, the Company used $9.8 million in invest- patronage credits that are received from CoBank. These patron- ing activities, including $21.2 million used for the purchase and age credits are a distribution of profits from CoBank, which construction of plant and equipment for the operation of the is a cooperative required to distribute its profits to its mem- Company’s businesses, offset by $11.3 million received on the bers. During the first quarter of 2007 and 2006, the Company sale of the RTB stock. Capital spending in 2006 was $8.9 mil- received patronage credits of approximately 100 basis points lion lower than 2005 spending of $30.1 million, which included each on its outstanding CoBank debt balance. The CoBank $29.5 million for the purchase and construction of plant and term facility matures in 2013 and requires monthly payments of equipment. The Company reduced certain capital expenditures approximately $350 thousand plus interest. in the PCS segment during 2006 due to uncertainty as to any potential changes in the status of the PCS subsidiary. The CoBank loan agreements have three financial covenants that are measured on a trailing 12-month basis and are calcu- Net cash used in financing was $9.3 million in 2007, compared lated on continuing operations. At December 31, 2007, the ratio to $13.6 million in 2006 and $18.7 million in 2005. In 2007, of total debt to operating cash flow, which must be 2.5 or lower, the Company made $4.1 million in scheduled debt payments, was 0.4; the equity to total assets ratio, which must be 35% and increased the dividend over 2006. In 2005, the Company or higher, was 68.22%; and the ratio of operating cash flow to made an unscheduled payment on the revolving debt facility of scheduled debt service, which must exceed 2.0, was 7.54. The $12 million, in addition to the scheduled principal payments of Company was in compliance with all covenants at December $4.4 million on the term debt facilities. In 2006, the Company 31, 2007. paid down the remaining $1.2 million outstanding balance of the revolving debt facility, paid off $4.7 million in borrowings with As of December 31, 2005, the Company had loans from the the RTB and Rural Utilities Service (“RUS”), and made approxi- RTB and the RUS totaling $4.7 million at fixed rates ranging mately $4.0 million in scheduled principal payments on the out- from 5.0% to 6.0%. During September 2006, the Company standing CoBank debt. The dividend increased by $1.8 million re-paid approximately $4.5 million of the outstanding RUS and in 2006 over 2005 as the Company paid a special dividend from RTB loans. The remaining RUS Economic Development loan the gain on the sale of the RTB stock. does not bear interest and has no stated maturity.

In 2007, the Company received $1.0 million in cash for the exer- On August 4, 2005, the board of directors of the Rural Telephone cise of incentive stock options, compared to $1.4 million in 2006 Bank adopted resolutions for the purpose of dissolving RTB as and $1.2 million in 2005. The Company also recognized $156 of October 1, 2005. The Company held 10,821,770 shares of thousand and $228 thousand in excess tax benefits on stock Class B and Class C RTB Common Stock ($1.00 par value) which option exercises during 2007 and 2006, respectively. was reflected on the Company’s books at $796,000 under the Analysis Discussion & Management’s 59 ~ Telecommunications Shenandoah 60

Management’s Discussion & Analysis Company

~ the aggregateatDecember31,2007, areasfollows: next in fivefor the and obligations contractual years cash mum mini- future Expected sites. cell and towerspace space, retail for agreements lease operating non-cancelable and facilities, debt long-term various its to pursuant amounts including into, entered has it contracts various under payments future make Commitments. Contractual received afinaldistributionfromthe RTB of$0.1million. 2007,in and stock, the of redemption the and RTB the of dissolution the to related tax, of net million, $6.4 of approximately gain a recognized and proceeds, in $11.3 million received Company the 2006, In 2005. 31, December at method cost payments assistance Marketing ewr, e twr i or oie emn t spot the support to segment Mobile our in towers new network, PCS our to coverage network and capacity add to spending of approximately total $64.7 million. 2008 The increase over 2007 spending largely forconsists budgeted expenditures Capital the PCS subsidiary. of status the in change potential the to as uncertainty to Company postponed certain PCS related spending in 2006, due in 2006, but comparable to the $29.5 million spent in 2005. The capital projects in 2007, an increase from the $21.2 million spent on million $29.1 spent Company Commitments. The Capital contracts. limited purposeentitiesorcommodity anyinto entered involvingnot transactions has unconsolidated, The Company has no other off-balance sheet arrangements and will comefromtheassetsofplan. sion plan during 2008. Funds to settle the accumulated benefits The Company expects to settle its qualified defined benefit pen- 4] 3] 2] 1] obligations Total obligations Purchase investments callson Capital leases Operating in thousands principal Long-term debt contributions Retirement plan long–term debt Interest on Shareholder Information Management’s Discussion& Analysis Notes toConsolidatedFinancialStatements Consolidated FinancialStatements Management’s & Auditor’s Reports Represents openpurchase ordersatDecember31,2007. to approximately $473thousandannually. variableinclude not Does up revenuecommunities. MDU total could that certain amounts sharing to services provide to Services Convergedfor owners property to payments required Represents appearingelsewherefinancial statements inthisreport for additionalinformation. consolidated the to 13 Note See renewals. assured reasonably over payments include Amounts Represents expected contributionstothequalifiedpensionplan. 2] 3] 4] 1] $ $ 21,907 46,769 77,320 1,271 2,424 4,245 Total 500 204 Less than $ $ 16,363 1 year 1,271 6,358 2,424 4,248 1,494 500 h Cmay s biae to obligated is Company The 68

$ $ 22,771 11,712 8,960 1,985 years 114 1-3 - - -

$ $ 15,111 6,623 years 7,750 717 4-5 21 - - -

$ $ 5 years 20,949 23,075 2,076 After 49 1 - - -

the Company’s historicalfinancialstatements. upon impact no have statements these acquisitions, prior any for accounting the change not does SFASRevised141 as and SFASto subject 160,interests non-controlling no has currently Company the As business interests). prior minority (formerly, in combinations acquired not interests ownership those of presentation and forSFAS accounting changethe also 160will substantial portion of, the ownership interests in another entity. a or all, acquires entity one where transactions for accounting the change 2009, 1, January effective become which ments, – an Amendment of ARB No. 51 (“SFAS 160”). These two - state Statements Financial Consolidated in Interests Non-Controlling SFAS160,and (“SFAS Revised”), 141 Combinations Business 2007), (Revised 141 SFAS statements, two issued (“FASB”) Board Standards Accounting Financial 2007,the December In Recently Issued Accounting Standards could affect theCompany’s collectively results. or individually events foregoing The tions. a positive to maintain cash flowcritical to its ability from opera- to attractability a sufficient customer base is also and maintain the Company’s agreements with Sprint Nextel. The Company’s tively and economically manage other operating activities under and new products and and services, the subsidiary’s programs ability to effec- marketing successful implement and develop to ability subsidiary’s the collections; and care, customer ing, bill- as such functions certain execute to Nextel’s ability Sprint upon dependent are operations subsidiary’s PCS The ditions. con- other and contracts Services Converged of non-renewal or Company’scancellations Nextel,the Sprint with relationship in changes capital, and resources labor of availability nologies, economic conditions, regulatory requirements, changes in tech- changesoverallto; in limited not are but eventsTheseinclude, on cashflows fromoperations. impact adverse havean could that Company the of control the outside events are there although borrowings, with and tions opera- from cash with primarily expenditures capital future its fund will it that newexpects opportunities.currently Company The products, its for economic general demand and opportunitiesdevelopments marketand the on depending estimate Company’sthe differfrom may materially requirements capital futureCompany’s the of timing and ser amount actual and vices. The products its for demand in growth expected pany’s Com- the meet to capacity increased provide to required be to continue likely months. 12will expendituresThereafter, capital compliance maintain agreements financing its of terms the nextwith the least at for and requirements cash other its meet expenditures, make scheduled principal and interest payments,capital planned its fund to Company the enable to cash cient suffi- provide will facility credit revolving existing Company’s from flow cash the under available hand, be to expected borrowings and on operations cash that believes Company The our Telephone segment,amongmany otherprojects. upgrade our fiber networks, and construct a new warehouseand for capabilities cable digital our expand to spending on-going to addition in segment, Services Converged our in complexes MDU for buildouts and coverage, network PCS of expansion - Annual Report

Quantitative And Qualitative Disclosures About Market Risk The Company’s market risks relate primarily to changes in inter- Management does not view market risk as having a significant est rates on instruments held for other than trading purposes. impact on the Company’s results of operations, although future The Company’s interest rate risk generally involves three com- results could be adversely affected if interest rates were to ponents. The first component is outstanding debt with variable increase significantly for an extended period and the Company rates. As of December 31, 2007, the Company had no variable were to require external financing. The Company’s invest- rate debt outstanding. All of the Company’s outstanding debt ments in publicly traded stock and bond mutual funds under has fixed rates through maturity. A 10.0% increase in interest the rabbi trust, which are subject to market risks and could rates would decrease the fair value of the Company’s total debt experience significant swings in market values, are offset by by approximately $0.4 million, while the estimated fair value corresponding changes in the liabilities owed to participants of the fixed rate debt was approximately $22.5 million asof in the Executive Supplemental Retirement Plan. General eco- December 31, 2007. nomic conditions affected by regulatory changes, competition or other external influences may pose a higher risk to the Com- The second component of interest rate risk consists of tempo- pany’s overall results. rary excess cash, which can be invested in various short-term investment vehicles such as overnight repurchase agreements As of December 31, 2007, the Company has $7.3 million and Treasury bills with a maturity of less than 90 days. The cash invested in privately held companies directly or through invest- is currently invested in an institutional cash management fund ments with portfolio managers. Most of the companies are that has limited interest rate risk. Management continues to in an early stage of development and significant increases in evaluate the most beneficial use of these funds. interest rates could have an adverse impact on their results, ability to raise capital and viability. The Company’s market risk The third component of interest rate risk is marked increases is limited to the funds previously invested and an additional $0.5 in interest rates that may adversely affect the rate at which the million committed under contracts the Company has signed Company may borrow funds for growth in the future. Man- with portfolio managers. agement does not believe that this risk is currently significant because the Company’s existing sources of liquidity are adequate to provide cash for operations, payment of debt and near- term capital projects. Management’s Discussion & Analysis Discussion & Management’s 61 Shenandoah Telecommunications Shareholder Information ~ Company ~

Our Business Shenandoah Telecommunications Company is a diversified tele- Valley; resale of long distance services; operation and mainte- communications holding company that provides a broad range nance of an interstate fiber optic network; wireless personal of telecommunications services through its operating subsidiar- communications services (PCS) and wireless broadband series. These services include: wireline telephone service, primarily vices; a tower network in a four-state region from Harrisonburg, in Shenandoah County and small service areas in Rockingham, Virginia, to the Harrisburg, York and Altoona, Pennsylvania, Frederick and Warren counties, all in Virginia; cable television markets; Fiber-to-the-Home (FTTH) and Fiber-to-the-Premises service in Shenandoah County; unregulated telecommunica- (FTTP) solutions for builders and developers in the Middle Atlan- tions equipment sales and services; Internet access provided tic United States; and bundled video, voice and data services to the multi-state region surrounding the northern Shenandoah to multi-tenant unit housing and off-campus student housing in Valley of Virginia; paging services in the northern Shenandoah the Middle Atlantic and southeastern United States.

The Company files periodic reports with the Securities and Exchange Commission. The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, along with any amendments to these reports, are available to shareholders through the Company’s Web site, www.shentel.com. This Web site also has recent news releases and other information potentially of interest to shareholders.

A copy of the Company’s Annual Report on Form 10-K, without exhibits, may be obtained, without charge, by writ- ing to Shenandoah Telecommunications Company, 500 Shentel Way, P.O. Box 459, Edinburg, Virginia, 22824, Attention: Shareholder Information Secretary. 62 Annual Report

Market and Dividend Information The Company’s stock is traded on the Nasdaq Global Select Shenandoah Telecommunications Company historically has Market under the symbol “SHEN.” The following table shows paid annual cash dividends on or about December 1 of each the closing high and low sales prices per share of common year. The regular cash dividend was $0.27 per share in 2007 stock as reported by the Nasdaq Global Select Market for each and $0.16 per share in 2006. In 2006, in conjunction with the quarter during the last two years, adjusted for the three for one payment of the annual cash dividend, the Company also paid a stock split issued by the Company in August 2007: special cash dividend of $0.09 per share, representing a distribution of a portion of the gain on the liquidation of the RTB stock in the first quarter of 2006. Dividends are paid to Shenandoah Telecommunications Company shareholders from accumulated dividends paid to it by its operating subsidiaries.

2007 High Low Share Price

Fourth Quarter $ 25.53 $ 22.15 $26 Third Quarter 22.56 15.51 24 Second Quarter 17.21 14.73 22 First Quarter 15.82 14.41 20 18 2006 High Low 16 14 Fourth Quarter $ 16.66 $ 14.18 12 Third Quarter 15.67 13.55 Second Quarter 15.67 13.42 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 First Quarter 15.98 13.28 2006 2007

As of February 28, 2008, there were approximately 4,231 holders of record of the Company’s common stock. Shareholder Information 63 Management’s & Auditor’s Report Shenandoah Consolidated Financial Statements Telecommunications Notes to Consolidated Financial Statements ~ Company ~ Management’s Discussion Shareholder Information

Corporate Headquarters Shareholders’ Questions & Independent Auditor Shenandoah Telecommunications Company Stock Transfers KPMG LLP 500 Shentel Way Call (540) 984-5200 1021 East Cary Street PO Box 459 Transfer Agent – Common Stock Richmond, Virginia 23219 Edinburg, Virginia 22824 Shenandoah Telecommunications Company PO Box 459 Edinburg, Virginia 22824

This Annual Report to the Shareholders contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Fac- tors that might cause such a difference include, but are not limited to: changes in the interest rate environment; management’s business strategy; national, regional and local market conditions; and legislative and regulatory conditions. Readers should not place undue reliance on forward-looking statements which reflect management’s view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances, Shareholder Information except as required by law. 64 ®

Shenandoah Telecommunications Shenandoah Personal Communications Company Company & Subsidiaries Shenandoah Telephone Company Shentel Converged Services, Inc. Shenandoah Mobile Company Shenandoah Cable Television Company Shenandoah Long Distance Company Shenandoah Network Company ShenTel Communications Company ShenTel Service Company Shentel Converged Services of West Virginia, Inc. Shentel Management Company

This list comprises all subsidiaries of Shenandoah Telecommunications Company, and all are incorporated in the Commonwealth of Virginia. 500 Shentel Way PO Box 459 Edinburg, VA 22824 1.800.SHENTEL www.shentel.com We must serve well to prosper – We must prosper to serve well