What can we expect in 2002 from regulators and policy-makers? Probably more of the same as we have seen over the past several years.

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2 Dear Friends, As we conclude a year of economic upheaval, new regulatory puzzles and changing legislative agendas, the one constant for our industry is the commitment to quality service that we, as Minnesota's telecommunications companies, provide to our customers was a year of challenges for nearly every sector of the economy. On a national basis, the telecommunications industry suffered another year of lackluster growth and saw several more companies file for Chapter 11 bankruptcy protection. Changes to our companies' bottom lines came from many sources. With the FCC adoption of the Universal Service Order, the Rural Task Force Order and the MAG Order, came changes in federal regulation and with those changes the expected drop in access revenues from long distance providers. For many of us, access revenues remain an important component of our company's financial picture. However, offsetting this loss is the growth many MTA members are starting to see in nontraditional revenue sources such as broadband and video. We've all heard leading economists predict that the current recession will probably end sometime in late 2002 or early At the same time the national economy improves, we hope that our local, rural economies will improve along with it, which in turn should help drive increases in sales and revenue. What can we expect in 2002 from regulators and policy-makers? Probably more of the same as we have seen over the past several years. Certain departments of our state government seem bent on making it difficult for us to provide the service our customers want at a price that allows us to invest funds back into the communities we serve. Since this is an election year for the governor, plus the entire Minnesota House of Representatives and Senate, I would encourage all of us to become involved not only with local politics, but meet with the candidates for the Legislature and make our issues known to them. It is only with their help that we can put an end to proposals developed by career regulators. Through our association, we will work together to champion balanced proposals for fair legislation that govern the delivery of phone, cable TV, and broadband service to all Minnesotans. We expect the telecommunications marketplace to be even more competitive and challenging in the future and we can expect the MTA to be there for Minnesota's telecommunications industry. Anthony V. Mayer President, Minnesota Telephone Association Manager, West Central Telephone Association

3 In planning for the 2001 Legislative session, the MTA Legislative Committee prepared for a number of different scenarios that may have been played out in the State House and Senate. One of the scenarios involved the passage of a bill to rewrite the state legislation (Chapters 237 & 238) that governs the provision of telephone and cable TV services. But whose bill? A special member meeting was held in February to allow members an opportunity to provide feedback on the MTA's proposal to rewrite Chapter 237, the state law governing telephone company operations. The meeting was announced as a "must attend for all companies big and small." In addition to MTA's bill, a number of other groups interested in telecom legislation had drafted proposals to rewrite Chapters 237 & 238. However, as the 2001 Legislative session approached its end, it was clear that no telecom proposal was going to go anywhere this year. Congratulations to the following members on reaching these milestones in their history. In 2001, four members celebrated anniversaries: 50 years Albany Mutual Telephone Association, Albany 50 Years Red River Rural Telephone Association, Abercrombie, ND 100 years Barnesville Telephone Company, Barnesville 100 years KM Telecom, Kasson In addition to MTA's bill, the Department of Commerce had a bill that would have drastically changed the way business is done. As a result of member feedback received at a special member meeting, it was recommended that legislators not propose passage of a telecom reform bill this year, but instead wait until a single bill could be introduced that would address the diverse needs of a broad industry. Our association lobbying efforts resulted in a great success story this year at the Legislature. MTA's four-year effort to exempt certain types of telecommunications equipment from the state sales tax was finally rewarded with the passage of the omnibus tax bill. The Department of Revenue estimates that the exemption will save the state's telecommunications industry over $72 million in the next biennium. Another area where MTA worked for members' rights was in the recovery of reimbursable costs associated with 911 service provision. Prior to MTA's involvement, the Department of Administration chose not to pay CLECs for costs related to 911 service. By the end of the year, an agreement was in place that would reimburse CLECs for their 911 costs. At the Public Utilities Commission, MTA met with PUC staff to discuss the Federal Communications Commission Order that requires state commissions to file annual certification with the FCC. The filing states that telecommunications carriers will use universal service support only for intended purposes. In addition to local issues, MTA updated its members on new laws and regulations that came out of Washington, D.C. The MTA co-sponsored a meeting in July with Minnesota Association for Rural Telecommunications and the Minnesota Independent Coalition to help explain the MAG Plan and Rural Task Force Plan and their implications to member companies.

4 Each year we offer seminars and conferences designed to hone the industry knowledge and expertise of our members. Technical Conference The Industry Planning Committee sponsored the 2001 Technical Conference, The Drive Towards Broadband. The one-day conference was rescheduled from its original date due to logistic issues that resulted from the terrorist attacks of Sept. 11. The goal of the Technical Conference is to provide members with a better understanding of emerging technical issues. Plans are already underway for the next conference. MTA University The Education & Safety Committee introduced a new seminar to MTA members this year: MTA University. A multi-subject workshop was offered in December in response to member inquiries about additional training opportunities. The two-day program offered topics for individuals from all levels of an organization, and based on the positive feedback, will be offered again in Each year, the MTA hosts several events for member companies and their staff. Our Convention, State Government Conference, Golf Day, and Communications Seminar-Fall Conference are the main programs we work on each year. Additional educational opportunities are occasionally added to our programming schedule in response to member's needs. MTA 92nd Annual Convention The yearly MTA convention was again held at the Hyatt Regency and Millennium (formerly Regal) Hotels in Minneapolis. Once again we sold all of the 238 booths in the exhibit area this year to 151 associate and active members. The attendance total of 2,420 set an all-time record for our annual event. Convention exhibitors have an opportunity each year to display a product or service in the "Innovations" area. Awards are presented to the top three most innovative products as voted on by telephone company employees. The Rock-Ped distributed by Terry-Durin Co. of Cedar Rapids, Iowa was awarded first place. Second place was awarded to Optical Solutions of Plymouth for their FiberPath Digital Access Platform. Santa Clara, California-based Turnstone received third place for their Smart Splitter SX500 in the annual contest. State Government Conference The State Government Conference is held each year following the adjournment of the Legislative session. The 2001 conference was held at the Hotel Sofitel in Bloomington and featured a recap of the session and a presentation on what redistricting will mean to member companies. Other speakers included incoming Public Utilities Commissioner Phyllis Reha, Department of Commerce Commissioner Jim Bernstein, and Commissioner David Fisher from the Department of Administration. Golf Day The MTA Golf Day was held in July at the Crow River Country Club in Hutchinson. The Golf Day is always a popular event for members. Over 200 golfers enjoyed a perfect summer day to relax and network with other industry professionals. Communications Seminar & Fall Conference Our fall gathering was again held at the St. Cloud Holiday Inn. Topics included programs to establish effective employee relations; the impact of Minnesota's economy on the telecom sector; what telcos can expect from recent FCC regulatory changes; and tips on getting your community "e-ready."

5 " $% % & ' "% ( )" (%*" ' " ) + State Of Telecommunications The Public Relations Committee prepared an industry presentation to help MTA members promote their companies in their communities. The presentation State of Telecommunications: An Industry's Viewpoint was distributed to active members to help them "tell their story." The PowerPoint presentation highlighted the investment that Minnesota's telephone companies have made in infrastructure, economic development and addressed issues of education, competition and the "digital divide." Members were able to customize the presentation with their own company information. Other customer communications information made available to members last year included: Commentary and talking points to explain inadequacies of Department of Commerce's bill that would rewrite Minnesota's telecommunications legislation Example article to help explain the FCC-mandated increase in the Subscriber Line Charge Opinion/Editorial that explained the difference between our local telephone companies and the national independent DSL service providers that were filing for bankruptcy Educating Legislators During the 2001 Legislative session, the Wireless Committee in cooperation with the Minnesota Safety Council sponsored a special training opportunity for Minnesota's legislators. The training was presented by NETS (Network of Employers for Traffic Safety) and helped explain the role that inattentive driving has in traffic crashes. Several causes of driver distraction were cited including adjusting radio controls, eating and drinking while driving, and unfamiliarity with a car's controls. Members Honored With Awards In its second year of recognizing MTA members, the 21st Century Leadership Awards were presented to the following recipients in 2001: Humanitarian - The employees of Lakedale Telephone Co. Public Service - Don Swenson, Arvig Communication Systems Industry Leadership - Dee Ryberg, AT&T Wireless Services Economic Development - George (Shorty) Revering, Midwest Telephone Co.

6 "" $ %, - $.,, / "-" $ % "% " 0 + % * " 1 &2 "% " 0 " % 2001 Committee Chairpersons 911 Committee Kevin T. Larson, Consolidated Telephone Company, Brainerd Associate Members Convention Committee Keith Carlson, Optical Solutions, Minneapolis Associate Members Golf Committee Thomas R. Farm, Olsen Thielen & Co., Ltd. Auditing Committee Bill Otis, NU-Telecom, New Ulm Budget, Dues & Bylaws Committee Craig Gunderson, Frontier Communications, Burnsville CLEC Committee Paavo Pyykkonen, NorthStar Access, Elk River Compensation, Contracts & Tariffs Committee Bill VanderSluis, HickoryTech, Mankato Convention Planning Committee Anthony V. Mayer, West Central Telephone Association, Sebeka Directors Nominating Committee Anthony V. Mayer, West Central Telephone Association, Sebeka EAS Committee Robert K. Eddy, Connections, Etc., Big Lake Education and Safety Committee Richard D. Keane, Pine Island Telephone Co., Pine Island Executive Committee Anthony V. Mayer, West Central Telephone Association, Sebeka Fall Conference Program Committee Walter S. Clay, Hutchinson Telephone Co., Hutchinson Industry Planning Committee Jeff Gilbert, Paul Bunyan Telephone, Bemidji Internal Human Resources Committee Bill Otis, NU-Telecom, New Ulm Legislative Committee Will Bartley, Lakedale Communications, St. Paul Officers Nominating Committee George W. Wikstrom, Wikstrom Telephone Co., Karlstad Public Relations Committee Katie Johnson, Park Region Telephone, Underwood Rewrite Committee Paul Hoff, Park Region Telephone, Underwood Small Companies Committee Gene R. South, Sr., Lakedale Telephone Co., Annandale Wireless Technology Committee Dee Ryberg, AT&T Wireless Services, Bloomington Women's Convention Committee Christine Mayer, West Central Telephone Association, Sebeka

7 2001 Officers & Board of Directors President Anthony V. Mayer West Central Telephone Association, Sebeka Vice-President Craig Gunderson Frontier Communications of Minn., Burnsville Executive Secretary-Treasurer Michael J. Nowick MTA, St. Paul Directors Janice Aune Onvoy, Plymouth Scott Bohler Citizens Communications, Mound Keith Carlson Optical Solutions, Plymouth Walter S. Clay Hutchinson Telephone Co., Hutchinson Victor E. Dobras Sprint, Saint Paul Robert K. Eddy Connections, Etc., Big Lake John Finke HickoryTech, Mankato George W. Fish Garden Valley Telephone Co., Erskine David F. Freeman Ace Communications Group, Houston Paul Hoff Park Region Telephone, Underwood Richard D. Keane Pine Island Telephone Co., Pine Island Kenneth Knuth Woodstock Telephone Co., Slayton Kevin T. Larson Consolidated Telephone Co., Brainerd Ronald D. Nelson TDS Telecom, New London Bill Otis NU-Telecom, New Ulm John Rose, Jr. Albany Mutual Telephone Association, Albany Dee Ryberg AT&T Wireless Services, Bloomington Gene R. South, Sr. Lakedale Telephone Co., Annandale George W. Wikstrom Wikstrom Telephone Co., Karlstad $34 (As of December 31, 2001) WIRELESS 6 ASSOCIATE 308 ' " AFFILIATE 45 ACTIVE 96 TELECOM CARRIER was a challenging year for many professional associations across the nation and for the MTA. Membership level for the year decreased in some areas and increased in others. Compared to the previous 12-month period, the Active category lost six members due to mergers, acquisitions and withdrawals. We gained two Affiliate and 15 Associate members and lost two Wireless members. The Telecommunications Carrier category had no change. The worsening economic conditions of last year affected certain companies more sharply than others and these companies needed to make hard decisions on their financial conditions and their participation in industry associations. Due to the loss of our largest Active member, MTA experienced a loss in our membership dues for The MTA Board of Directors voted to recover the lost revenue through an increase in membership dues for For the complete financial picture please refer to the financial statement that was mailed to MTA members.

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