UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2003

OR

For the transition period from           to           

Commission file number 333-82363

Alaska Communications Systems Holdings, Inc.

(907) 297-3000
(Registrant’s telephone number, including area code)

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

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

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

     Indicate by check mark if whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)

Yes [   ]                No [X]

     State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity as of as of the last business day of the registrant’s most recently completed second fiscal quarter. (Not Applicable)

     All of the Registrant’s securities are wholly owned by Alaska Communications Systems Group, Inc. (File No. 000-28167) which files reports and proxy materials pursuant to the Securities Exchange Act of 1934, as amended. Alaska Communications Systems Holdings, Inc. meets the conditions set forth in General Instruction (I) (1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format authorized by General Instruction I of Form 10-K. Items 4, 10, 11, 12 and 13 have been omitted in accordance with Instruction I(2)(c).

Documents Incorporated by Reference

ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2003

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PART I

Item 1. Business

Forward Looking Statements and Analysts’ Reports

     This Form 10-K and future filings by Alaska Communications Systems Holdings, Inc. (“ACS Holdings” or the “Company”) on Forms 10-K, 10-Q and 8-K and future oral and written statements by the Company and its management may include certain “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995, including (without limitation) statements with respect to anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, pricing plans, acquisition and divestitive opportunities, business prospects, strategic alternatives, business strategies, regulatory and competitive outlook, investment and expenditure plans, financing needs and availability, and other similar forecasts and statements of expectation. Words such as “aims,” “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” and “will,” and variations of these words and similar expressions, are intended to identify these forward-looking statements. These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and its present expectations or projections. Forward-looking statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.

     Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of important factors. Examples of these factors include (without limitation) rapid technological developments and changes in the telecommunications industries; ongoing deregulation (and the resulting likelihood of significantly increased price and product/service competition) in the telecommunications industry as a result of the Telecommunications Act of 1996 (the “1996 Act”) and other similar federal and state legislation and the federal and state rules and regulations enacted pursuant to that legislation; regulatory limitations on the Company’s ability to change its pricing for communications services; the possible future unavailability of Statement of Financial Accounting Standards (“SFAS”) No. 71, Accounting for the Effects of Certain Types of Regulation, to the Company’s wireline subsidiaries; and possible changes in the demand for the Company’s products and services. In addition to these factors, actual future performance, outcomes and results may differ materially because of other, more general, factors including (without limitation) changes in general industry and market conditions and growth rates; changes in interest rates or other general national, regional or local economic conditions; governmental and public policy changes; changes in accounting policies or practices adopted voluntarily or as required by accounting principles generally accepted in the United States of America; and the continued availability of financing in the amounts, at the terms and on the conditions necessary to support the Company’s future business.

     Investors should also be aware that while the Company does, at various times, communicate with securities analysts, it is against the Company’s policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that the Company agrees with any statement or report issued by an analyst irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.

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Introduction

     ACS Holdings is a wholly owned subsidiary of Alaska Communications Systems Group, Inc. (“ACS Group”). The Company is the leading facilities-based telecommunications services provider and largest local exchange carrier (“LEC”) in Alaska and the 13^th largest LEC in the United States. The Company offers consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using its own network, as well as video entertainment through its partnership arrangement with DISH Network, a leading satellite service provider. The Company offers its telecommunications services under a single brand name, Alaska Communications Systems.

     The Company began operations in May 1999 when it completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses the Company purchased had been operating in their local markets for over 50 years. Since 1999, the Company has invested in upgrading its network and service capabilities.

     The consolidated financial statements for the Company represent the operations principally of the following entities:

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Alaska Communications Systems Holdings, Inc.

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ACS of Alaska, Inc. (“ACSAK”)

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ACS of the Northland, Inc. (“ACSN”)

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ACS of Fairbanks, Inc. (“ACSF”)

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ACS of Anchorage, Inc. (“ACSA”)

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ACS Wireless, Inc. (“ACSW”)

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ACS Internet, Inc. (“ACSI”)

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ACS Long Distance, Inc. (“ACSLD”)

     On May 8, 2003, the Company completed the sale of a majority interest (87.42%) in the newly formed ACS Media, LLC (the “Directories Business”). Subsequently, on August 27, 2003, the Company disposed of substantially all of its remaining interest in the Directories Business. As a result of this transaction, the Company now owns less than 0.1% of the Directories Business. See Note 10 “Gain on Disposal of Assets” in the footnotes to the financial statements for additional information on this transaction.

     At various times, the Company evaluates opportunities for establishing or acquiring other telecommunications businesses through acquisitions or otherwise in Alaska and elsewhere in the United States, and may make investments in such businesses in the future. The Company has focused its attention on local telephone, wireless, Internet, and interexchange businesses.

Service Offerings

     Local Telephone. The Company provides local telephone service to approximately 314,000 access lines, representing over two-thirds of the local access lines in Alaska. The Company generates local telephone revenue from providing local telephone service to consumer and business customers and by providing access to the Company’s network and back office functions to other telecommunications providers. At December 31, 2003, approximately 52% of the Company’s retail access lines served consumers and 48% served business customers.

     Wireless. The Company provides statewide mobile and fixed voice and data communications services to approximately 87,000 wireless subscribers throughout Alaska. The Company’s wireless network has a covered population of approximately 480,000, representing over 70% of the state’s population according to the most recent U.S. Census Bureau estimates. The Company’s wireless customers represent approximately 18.1% penetration of the Company’s covered population. Currently, the Company provides its wireless services using a digital TDMA network and later this year the Company will deploy a next generation CDMA 1xRTT network capable of offering advanced mobile and fixed data services to the Company’s customers.

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     Internet. The Company provides Internet access services to approximately 46,000 subscribers, including high-speed digital subscriber line (“DSL”) service to approximately 18,000 subscribers. The Company is currently able to offer DSL service to approximately 72% of its local access lines in its four major LEC service territories – Anchorage, Fairbanks, Juneau and the Kenai Peninsula. The Company is also a single-source provider of advanced IP-based private networks to large enterprise and governmental customers in Alaska.

     Long Distance. The Company offers long distance and interexchange private-line services primarily as a facilities-based carrier to approximately 43,000 long distance customers in Alaska.

     Video Entertainment. In the third quarter of 2003 the Company began offering customers in Alaska satellite video entertainment through a partnership arrangement with DISH Network.

Competitive Strengths

     The Company enjoys strong operating margins and attractive growth prospects due to the following competitive strengths:

     Leading Competitive Position. The Company is the leading facilities-based telecommunications services provider in Alaska. The Company believes its strong brand name recognition within Alaska provides it with a solid local market position.

     The Company is the incumbent local telephone company in Anchorage, Fairbanks, Juneau, the Kenai Peninsula and more than 70 other communities.

     The Company is the second-largest wireless communications services provider in Alaska and the Company’s statewide wireless network covers over 70% of the population.

     The Company is the second-largest provider of Internet access services and the largest provider of DSL services in Alaska.

     Integrated Portfolio of Service Offerings. The Company offers a variety of bundled service packages to its consumer and business customers, which include local telephone services, wireless, Internet, long distance, messaging, video entertainment and other services. The Company believes that bundled offerings are popular with customers because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling the Company’s bundled service packages, the Company believes it can grow its customer base, improve customer loyalty and increase its share of its customers’ telecommunications purchases.

     Advanced Networks and Facilities. Since 1999, the Company has invested over $356 million in the Company’s telecommunications networks and facilities, increasing the total investment in these facilities to approximately $1.0 billion. As a result of these investments, the Company believes it has substantially built out its networks and facilities, allowing it to offer a full range of reliable telecommunications services. For example, the Company is able to offer DSL service to approximately 72% of its local access lines in its four major LEC service territories. Over the next few years the Company expects to augment its existing networks and facilities, including the completion of the build out of its statewide CDMA 1xRTT wireless network, which will allow the Company to expand its covered population and offer a range of wireless voice and broadband services to its customers.

     Favorable Alaskan Market Conditions. The Company believes it has an attractive and growing potential customer base. For the three year period 2000 to 2002, the median household income in Alaska was 28% higher than the average in the rest of the United States, and Alaskans spent 33% more on communications services than other Americans. According to the U.S. Census Bureau, over the past 20 years, the Alaskan population has increased by more than 2% per year - nearly triple the national average. From 2000 to 2002, federal government expenditures in Alaska increased by a total of 38% while the national average increased by only 21%. The Company believes these factors will continue to contribute to its stability and growth, and

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provide it with an advantage relative to comparable communications companies located in other states. The Company believes that the Alaskan communications market’s combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new integrated facilities-based service providers.

     Strong Management Team. The Company’s management team has a proven track record of operating and managing telecommunications companies. During the last nine months, the Company has added a number of key individuals to its executive management team who have a wealth of knowledge in the telecommunications industry and understand the dynamics of the Alaskan markets and the Company’s customers. Liane Pelletier joined the Company in October 2003 as CEO and President and also became Chairman of the Company’s Board of Directors on January 1, 2004. Before joining the Company, Ms. Pelletier worked for 17 years at Sprint Corporation, most recently as a member of the Executive Management Committee and as Chief Integration Officer. David Wilson, who was previously CFO of Triumph Communications, joined the Company as its CFO. In addition to Ms. Pelletier and Mr. Wilson, David C. Eisenberg and Sheldon Fisher recently joined the Company from Sprint as Senior Vice President, Corporate Strategy and Development and Senior Vice President, Sales and Product Marketing, respectively. Andy Coon has also joined the Company as Director of Business Sales and Services from General Communications Inc., the Company’s principal competitor, where he was Director, Major Strategic Accounts and former Vice President of Sales. Under the leadership of the Company’s senior management team, the Company has refocused itself to better serve the needs of consumer and business customers in Alaska.

Business Strategy

     The Company’s goal is to be the premier telecommunications services provider in its markets and to maintain and grow its cash flow by capitalizing on:

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its ability to provide a broad array of communications services;

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its extensive facilities-based network; and

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its long history of meeting the communications needs of the customers of its unique state.

     The Company considers the following strategies to be integral to achieving its goal:

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maintaining and increasing the number of loyal consumer, business and wholesale customers that the Company serves and having its customers buy more of the Company’s services and regularly refer new customers to the Company;

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offering the Company’s customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment;

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capitalizing on the Company’s significant existing investment in its technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to its customers;

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increasing the Company’s margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and

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exploring profitable strategic acquisitions of other telecommunications businesses.

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Products, Services and Revenue Sources

     The Company offers a broad portfolio of telecommunications services to consumer, business and wholesale customers in its markets. The Company believes that, as the communications marketplace continues to converge and competition continues to enter the market, the ability to offer an integrated package of communications products will provide a distinct competitive advantage, as well as increase customer loyalty, and thereby decrease customer turnover. The Company complements its local telephone services by actively marketing its wireless, Internet, interexchange and other service offerings.

     Profit or loss and total assets for each of the Company’s segments is disclosed in Note 17 “Business Segments” of the Alaska Communications Systems Holdings, Inc. Consolidated Financial Statements. The following table sets forth the components of the Company’s consolidated revenues for the years ended December 31, 2003, 2002 and 2001 (dollars in millions).

     (1) On May 8, 2003, the Company completed the sale of a majority interest (87.42%) in its Directories Business. Subsequently, on August 27, 2003, the Company disposed of substantially all of its remaining interest in the Directories Business. As a result of these disposals, the Company owns less than 0.1% of the Directories Business and accordingly no longer records the revenue and expense of the Directories Business.

     Local Telephone

     The Company provides local telephone service through its four LECs. Local telephone revenue consists of local network service, network access (including universal service revenue), and deregulated and other revenue, each of which is described below.

     Local Network Service

     Local network service consists of basic local network service and competitive local network service.

     Basic Local Network Service. Basic local network service enables customers to originate and receive telephone calls within a defined “exchange” area. The Company provides basic local services on a retail basis to consumer and business customers, generally for a fixed monthly charge. The maximum amount that can be charged to a customer for basic local services is determined by rate proceedings involving the Regulatory Commission of Alaska (“RCA”). The Company charges business customers higher rates to recover a portion of the costs of providing local service to consumer customers, as is customary in the industry. Basic local service also includes non-recurring charges to customers for the installation of new products and services and recurring charges for enhanced features such as call waiting and caller identification.

     At December 31, 2003, approximately 52% of the Company’s retail access lines served consumer customers and 48% served business customers. Currently, monthly charges for basic local service for residential

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customers range from $9.42 to $16.30 in the Company’s service areas compared to the U.S. national average for urban areas of $14.59 for 2002. Monthly charges for business customers range from $17.65 to $35.00 in the Company’s service areas compared to the U.S. national average for urban areas of $33.64 for 2002. See “Business — Regulation” for further discussion of regulatory matters including the Company’s local network service rate proceedings.

     The table below sets forth the change in access lines for the Company from December 31, 1999 to December 31, 2003. The number of access lines shown represents all revenue producing access lines connected to both retail and wholesale customers.

     Management believes that future access line growth is dependent on, among other things, the economic outlook in Alaska and the United States, the impact of technology and competition on line demand and population growth in the Company’s service areas.

     Competitive Local Network Service. The Company also provides interconnection through wholesale access to its basic local service and through leasing unbundled network elements (“UNEs”) to its competitors as required by federal Telecommunications Act of 1996 (“the 1996 Act”). Revenues for these services are included in local network service revenues. In November of 2001, the Company was authorized by the RCA to implement an interim and refundable rate increase of $1.07 per UNE loop for its Anchorage service area, increasing the total rate to $14.92 from $13.85. The RCA awarded a competitor UNE loop rates of $19.19 and $16.71, for Fairbanks and Juneau, respectively. However, because of a decision by the Alaska Supreme Court, the availability of the UNEs in Fairbanks and Juneau is limited to existing users pending the outcome of the RCA’s rural exemption remand proceedings. The Company provided 93,403 lines to competitors in the Anchorage, Fairbanks and Juneau service areas on either a wholesale or UNE basis as of December 31, 2003. The Company believes the UNE rates in place in all of its markets are below its embedded and forward looking cost and are therefore non-compensatory. See “Business — Regulation” for further discussion of regulatory matters, including interconnection under the 1996 Act.

     While there is some seasonality in local network service, represented primarily by reduced line demand in the Alaskan winter as tourists and seasonal residents seek warmer climates and seasonal businesses close for the winter, operating results for local telephone services are not materially impacted by seasonal factors.

     Network Access

     Network access services arise in connection with the origination and termination of long distance, or toll, calls and typically involve more than one company in the provision of such long distance service on an end-to-end basis. Since toll calls are generally billed to the customer originating the call, a mechanism is required to compensate each company providing services relating to the call. This mechanism is the access charge, which the Company bills to each interexchange carrier for the use of its facilities to access the customer. The Company also receives universal service revenue, which it includes in its reported network access revenue. These components of network access revenue are described below.

     Intrastate Access Charges. The Company generates intrastate access revenue when an intrastate long distance call that involves one of the Company’s LECs and an interexchange carrier is originated and terminated within Alaska. The interexchange carrier pays the Company an intrastate access charge for either terminating or originating the call. The Company records the details of the call through its carrier access billing system and

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receives the access payment from the interexchange carrier. The Company also provides billing and collection (“B&C”) services for interexchange carriers through negotiated B&C agreements for certain types of toll calls placed by the Company’s local customers. ACSA, ACSAK, and ACSF are under their own stand-alone tariffs for intrastate access. ACSN participates in a mandatory statewide tariff and access charge pooling arrangement that is administered by the Alaska Exchange Carriers Association (“AECA”). The access charges for the Company’s intrastate service are regulated by the RCA.

     Interstate Access Charges. The Company generates interstate access revenue when an interstate long distance call is originated from a local calling area in Alaska that is served by an the Company’s local telephone operations and is terminated in a local calling area in another state, and vice versa. The Company bills interstate access charges in a manner similar to intrastate access charges. However, interstate access charges are regulated by the Federal Communications Commission (“FCC”) rather than the RCA. The Company’s local telephone companies participate in a nationwide tariff and access charge pooling arrangement that is administered by the National Exchange Carrier Association (“NECA”) for all the Company’s local telephone companies, except ACSA. ACSA participates in the NECA common line tariff, but has its own interstate access tariff for traffic sensitive and special access services. Common line revenues billed to the end user for the FCC-mandated interstate “Subscriber Line Charge” are also categorized as interstate access revenue.

     Universal Service Revenue. The Company is required to contribute to the Federal Universal Service Fund. In general, these funds are created to subsidize telecommunications services in rural and high-cost service areas of the United States, including Alaska. The Company currently receives federal Universal Service revenue in certain of its local telephone service areas. Universal service revenue supplements the amount of local service revenue the Company receives to ensure that basic local service rates for customers in high cost rural areas are not significantly higher than rates charged in lower cost urban and suburban areas. The 1996 Act prescribed new standards applicable to universal service, including mechanisms for defining the types of services to be provided as part of a universal service program, specific goals or criteria applicable to universal service programs, new qualifications for receipt of universal service funding and new requirements for contributions to universal service funding. The FCC, in conjunction with a federal-state joint board composed of FCC and state commission members, has been working since passage of the 1996 Act to implement these new statutory provisions. While new cost-identification models for non-rural local carriers were adopted effective on January 1, 2000, similar models for rural carriers were rejected by the FCC, leaving previous Universal Service Fund (“USF”) calculations based on embedded costs in place for the Federal High-Cost Fund. In accordance with the 1996 Act’s requirement to eliminate implicit subsidies, the FCC has specifically identified and renamed certain support mechanisms that had previously been provided implicitly through access revenue. It also made all support portable to competitive local exchange carriers (“CLECs”) on a per-line basis. A joint board recently recommended to the FCC some changes to the Federal USF and the FCC will examine modifications to the universal service funding.

     Interstate access, intrastate access, and universal service funding are all influenced by both LEC cost levels and by competitive local market penetration. Toll traffic originating or terminating on a competitors network does not generate access billings to interexchange carriers for the Company. Many of the underlying factors in jurisdictional cost separations studies that allow network costs to be recovered through access charges are diminished as competitive market penetration increases. Universal service funding may also diminish as a result of competitive local market penetration. Under FCC rules, when a CLEC is named an “eligible telecommunications carrier” as General Communication, Inc. (“GCI”) has been in Anchorage, Fairbanks and Juneau, universal service funding becomes portable to the CLEC on a per-line basis, further eroding the incumbent local exchange carriers (“ILECs”) revenue.

     Operating results for network access services are not materially impacted by seasonal factors.

     Deregulated and Other Revenue

     Deregulated and other revenues consist of B&C contracts, space and power rents, pay telephone service, customer premise equipment (“CPE”) sales, and other miscellaneous revenues generated by the Company’s local telephone operations. The Company seeks to capitalize on its local presence and network

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infrastructure by offering these additional services to customers and interexchange carriers. Deregulated and other revenue is generally not subject to seasonal impacts on operating results.

     Wireless

     The Company provides statewide mobile and fixed voice and data communications services throughout Alaska under the ACS brand name. The Company’s wireless segment generates revenue through subscriber access charges, airtime usage, toll charges, connection fees, roaming revenues, and enhanced features, such as short messaging services and voice mail. A subscriber may purchase services separately or may purchase rate plans that package these services in different ways to fit different calling patterns and desired features.

     The table below sets forth the annual growth in the number of wireless subscribers served and total covered population for the Company from December 31, 1999 to December 31, 2003.

     Management believes there are opportunities to improve the penetration rates of its wireless operations throughout Alaska, and in particular, Southeast Alaska. Management also believes that the market for wireless services will continue to grow with the expansion of the wireless industry as a whole, and its planned deployment of data services on its new CDMA 1XRTT and EVDO Network. CDMA 1xRTT will provide wireless voice and data services for the Company’s customers while EVDO will provide broadband wireless data services.

     The Company owns 800 megahertz B side cellular licenses that cover the major population centers in Alaska, including Anchorage, Fairbanks, Juneau and the Kenai Peninsula. Today, these B side frequencies support the Company’s TDMA network. The Company also owns 10 megahertz E Block PCS licenses covering the entire state, including Anchorage, Fairbanks and Juneau and the Kenai Peninsula. During 2002, the Company purchased 10 megahertz F Block PCS licenses covering Fairbanks and Juneau. The Company is currently building a commercial network using CDMA 1xRTT with plans to launch during the second quarter of 2004, which will initially be supported on the Company’s PCS spectrum.

     Wireless revenue declines slightly in the winter months and increases in the summer months due to Alaska’s northern latitude and the wide swing in available daylight and changes in weather patterns between summer and winter and their effect on business, tourism and subscriber calling patterns. However, operating results for wireless services are not materially impacted by seasonal factors.

     Internet

     The Company provides Internet access services to approximately 46,000 customers. In order to offer Internet access, the Company provides local dial-up telephone numbers for its customers. The Company is currently able to offer high speed DSL service to approximately 72% of its local access lines in its major local telephone service territories. These local dial-up numbers and dedicated DSL connections allow customers access, through a modem connection on their computer, to a series of computer servers The Company owns and maintains. These servers allow customers to access their e-mail accounts and to be routed to local access points that connect customers to the Internet. The Company charges customers either a flat rate for unlimited use or a usage sensitive rate. Operating results for Internet access services are not materially impacted by seasonal factors.

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     Interexchange

     The Company currently has approximately 43,000 long distance customers which the Company believes represents less than 5% of total interexchange revenues in Alaska. The Company owns fiber capacity for high-speed links within Alaska and for termination of traffic outside Alaska. The Company also resells the services of other long distance carriers.

     The Company is subject to numerous conditions imposed by the RCA and, to a lesser degree, by the FCC on the manner in which the Company conducts its long distance operations. Among the conditions applied to the Company’s long distance affiliate are those which:

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require the Company to hold all books and records, management, employees and administrative services separate, except that services may be provided among affiliates through arm’s length affiliated interest agreements,

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prohibit ACSA, ACSAK, ACSN and ACSF from bundling local and intra-state long distance services until competition develops in their local markets and

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prevent ACSLD from joint ownership of telephone transmission or switching facilities with the LECs and from using the LEC’s assets as collateral for ACSLD’s own indebtedness.

     Although there is some seasonal impact on customer usage patterns for long distance, operating results are not materially impacted by seasonal factors.

     Video Entertainment

     In the third quarter of 2003, the Company began offering customers in Alaska satellite video entertainment through a partnership arrangement with DISH Network.

Sales and Marketing

     The Company markets its product and service offerings under the “Alaska Communications Systems” and “ACS” brands, subject to regulatory and strategic business considerations. Recently, the Company has reorganized to more effectively sell and service all of its product offerings through single points of customer contact.

     Key components of the Company’s sales and marketing strategy include:

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establishing name recognition of the ACS brand across all product and service offerings,

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making buying and using ACS products and services easier than ever,

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marketing the Company’s offerings to each consumer to obtain a greater percentage of each consumer’s telecommunications services expenditures,

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providing convenient and valuable bundles of products and services,

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centralizing marketing functions to optimize impact and efficiency,

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improving quality and reliability of customer service,

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developing and delivering to the market new products and services driven by a view of total customer needs,

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driving greater productivity from direct sales efforts, and

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teaming sales and service for a complete and seamless customer experience.

     The Company believes that it can leverage its position as an integrated, one-stop provider of telecommunications services with strong positions in local access, wireless, Internet, and interexchange long distance and data markets. By pursuing a marketing strategy that takes advantage of these characteristics and that facilitates cross-selling and packaging of its products and services, the Company believes it can increase

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penetration of new product offerings, improve customer retention rates, increase its share of its customers’ overall telecommunications expenditures, and achieve continued revenue and operating cash flow growth.

Network Facilities

     As of December 31, 2003, the Company owned 65 host switches serving over 314,000 access lines. All of the Company’s access lines are served by digital switches provided predominately by Nortel Networks Corporation. The Company’s switches are linked through a combination of extensive aerial, underground and buried cable, including 640 sheath miles of fiber optic cable and digital microwave and satellite links. The Company has 100% single-party services (one customer per access line), and believes substantially all of its major switches have current generic software upgrades installed which allows for the full range of enhanced customer features, such as call waiting, caller identification and call forwarding.

     The Company has integrated numerous network elements to offer a variety of services and applications that meet the increasingly sophisticated needs of customers. These elements include Signal System 7 signaling networks, voice messaging platforms, digital switching, DSL and, in some communities, integrated service digital network access. As the telecommunications industry experiences significant changes in technology, customer demand and competition, the Company intends to introduce additional enhancements.

     Network operations and monitoring are provided by the Company’s network operating control center located in Anchorage. The network operating control center has technicians staffed seven days a week, 24 hours a day and monitors both wireline and wireless switching. The Company also has customer care call center and walk in facilities in Anchorage and Fairbanks along with additional walk in customer care facilities in Juneau, Sitka, Kenai/Soldotna, Kodiak, North Pole and Homer. These customer care facilities sell and service all of the Company’s product lines. All of these facilities offer extended business hours to efficiently handle customer inquiries and orders for service.

     The Company has enhanced its network to accommodate developing products and technology. The Company completed its Multi-Protocol Label Switching over Asynchronous Transfer Mode network or MPLS/ATM network in early 2002. Core MPLS/ATM nodes were installed in Anchorage, Fairbanks, Kenai, Juneau, the Mat-Su valley and Seattle. The Company believes the MPLS/ATM network enhances its capability to provide a complete suite of converged telecommunications, data and video services and achieve significant operating efficiencies. The Company currently offers a variety of enhanced products and services and is able to converge them all over its MPLS core network, including the following:

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virtual private networks and lines,

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voice over Internet Protocol (“IP”) services,

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transparent local area networks (LAN) and proprietary LANs and wide area networks (WAN),

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high speed Internet access,

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managed services and

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video conferencing.

     The Company’s wireless operations consist of four digital switches, 140 cell sites and three repeaters covering over 70% of Alaska’s population and substantially all major population centers and highway corridors in the State plus one analog switch and cell site covering Barrow, Alaska. The Company’s switching and cell site infrastructure is linked by fiber, wireline and digital microwave, primarily owned by the Company. The Company’s TDMA wireless voice network consists of three Ericsson digital switches, one analogue switch and 105 cell sites using the Company’s 800 megahertz B side cellular licenses. The Company’s TDMA network covers the major population centers in Alaska, including Anchorage, Fairbanks, Juneau and the Kenai Peninsula. The Company is currently building a commercial wireless voice and data CDMA 1xRTT network with plans to launch during the second quarter of 2004. To support this planned launch, the Company has installed one Nortel digital CDMA switch and over 35 cell sites as of March 2004. The Company also has installed EVDO capabilities on this CDMA network, primarily in Anchorage, which the Company expects to launch in the

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second half of 2004. Over time, the Company plans to continue to expand its CDMA network and migrate its TDMA customer onto its CDMA network. The Company’s CDMA network will initially be supported on the Company’s 10 megahertz E and F Block PCS spectrum, but the Company expects to eventually deploy CDMA technology over the Company’s 800 megahertz B side cellular licenses and phase out TDMA service at some time in the future.

     The Company’s facilities based long distance network connects the major population centers of Anchorage, Fairbanks, Juneau and the Kenai Peninsula to each other primarily over owned fiber optic facilities or IRU capacity. The Company also owns undersea IRU fiber optic capacity connecting Alaska to the rest of the world via Seattle, Washington and lease undersea fiber optic capacity over a redundant route connecting Alaska to the rest of the world via Portland, Oregon.

Customers

     The Company has three basic types of customers for the services of its LECs:

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consumer and business customers located in their local service areas that pay for local phone service,

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interexchange carriers that pay for access to long distance calling customers located within the Company’s local service areas and

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CLECs that pay for wholesale access to the Company’s network in order to provide competitive local service on either a wholesale or UNE basis as prescribed under the 1996 Act.

     As of December 31, 2003, approximately 52% of the Company’s retail access lines served consumers, while 48% served business customers.

     The Company also has approximately 87,000 wireless subscribers, 46,000 Internet subscribers and 43,000 long-distance subscribers consisting substantially of retail consumer and business customers.

     GCI accounted for 10% of consolidated 2003 revenues and no other customers accounted for more than 10% of consolidated revenue.

Competition

     Local Telephone Service

     ILECs may be subject to any of several types of competition:

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facilities-based competition from providers with their own local service network,

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resale competition from resale interconnection, or providers who purchase local service from the ILEC at wholesale rates and resell these services to their customers,

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competition from UNE interconnection, that is, providers who lease UNEs from the ILEC, and

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alternatives to local service networks, including wireless, IP, satellite, and cable telephony.

     In September 1997, GCI and AT&T Alascom, the two largest long distance carriers in Alaska, began providing competitive local telephone services in Anchorage. GCI competes principally through UNE interconnection with ACSA facilities, while AT&T Alascom competes primarily by reselling ACSA’s services. Competition is based upon price and pricing plans, types of services offered, customer service, billing services, and quality and reliability of service. GCI has focused principally on advertising discount plans for bundled services. AT&T Alascom’s strategy has been to resell ACSA’s service as part of a package of local and long distance services. As a result, ACSA now has approximately 49% competitive market penetration as of

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December 31, 2003. The Company expects GCI and AT&T Alascom to continue to compete for local telephone business.

     As of December 31, 2003, the Company estimates that it now has approximately 76% market share in Fairbanks. GCI has competed in Fairbanks primarily through reselling services and through UNE interconnection. Similar trends are being experienced by ACSAK in its Juneau market where, as of December 31, 2003, the Company have approximately 77% market share.

     The Company expects increasing competition from providers of various services that provide users the means to bypass its network. Long distance companies may construct, modify or lease facilities to transmit traffic directly from a user to a long distance company. Cable television companies also may be able to modify their networks to partially or completely bypass the Company’s local network. GCI, the dominant cable operator in Alaska and a CLEC, is currently testing cable telephony service and recently announced plans to start switching its local phone service customers in Anchorage over to its cable system in 2004.

     In addition, while wireless telephone services have historically complemented traditional LEC services, the Company anticipates that existing and emerging wireless technologies may increasingly compete with LEC services. For example, ACS is deploying CDMA 1xRTT and EVDO wireless services in its markets and its principal wireless competitor, Dobson Communications, Inc., is deploying GSM wireless services. Both CDMA and GSM technologies may serve as a satisfactory wireless alternative to traditional LEC wireline services. At this time it is not possible to predict the impact of the growth in wireless networks on the Company’s share of the local market. Technological developments in wireless telephone features, digital microwave, local number portability and other wireless technologies are expected to further permit the development of alternatives to traditional wireline services. The FCC’s requirement that ILEC’s offer wireline-to-wireless number portability may increase the competition our ILEC’s face from wireless carriers.

     Wireless Services

     The wireless telecommunications industry is experiencing significant technological change, as evidenced by the increasing pace of improvements in the capacity and quality of digital technology, shorter cycles for new products and enhancements, and changes in consumer preferences and expectations. The Company believes that the demand for wireless telecommunications services is likely to increase significantly as equipment costs and service rates continue to decline and equipment becomes more convenient and functional. Competition is based on price, quality, network coverage, packaging features and brand reputation. There are six PCS licensees in each of the Company’s wireless service areas. The Company holds B side cellular licenses for Alaska’s major communities and PCS licenses covering the entire state, including Anchorage, Fairbanks and Juneau and the Kenai Peninsula. The Company currently competes with at least one other wireless provider in each of its wireless service areas, including Dobson Communications and Alaska DigiTel. The Company believes that the unique and vast terrain and the high cost of a PCS system buildout make additional competitive entrance into markets outside of Anchorage uneconomical at this time.

     As the market for simple wireless voice services approaches maturity, providers are experiencing downward pressure on price. The Company is positioning itself to offset this impact by bringing new higher margin services to market. By developing products for targeted market segments, the Company is leveraging the advantage in market share and geographical coverage to attract new customers and increase monthly revenues from existing customers. The Company continuously evaluates new service offerings in order to differentiate it from its competitors, produce additional revenues and increase margins. The FCC’s requirement that wireless carriers implement number portability may decrease customer loyalty and increase wireless competition.

     Internet Services

     The market for Internet access services is highly competitive in most markets in the state. There are few significant barriers to entry, and the Company expects that competition will intensify in the future. The Company currently competes with a number of established online services companies, interexchange carriers,

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LECs with Internet subsidiaries, satellite service providers and cable television companies. The Company believes that its ability to compete successfully will depend upon a number of factors, including the reliability and security of its network infrastructure, the ease of access to the Internet, the availability of broadband ISP access and the pricing policies of its competitors. During 2003, the Company continued to deploy its DSL services in Anchorage, Fairbanks, Juneau, Kenai/Soldotna, Homer and Sitka, Alaska for both consumer and business applications.

     Long Distance Services

     The long distance telecommunications market is highly competitive. Competition in the long distance business is based primarily on price, although service bundling, branding, customer service, billing services and quality play a role in customer’s choices to some extent. The Company currently offers long distance service to customers located primarily in the more populous communities within its service territory. AT&T Alascom and GCI are currently the two major competing long distance providers in Alaska. The Company believes it currently has less than 5% of total interexchange revenues in Alaska. The Company provides traditional “1+” direct distance dialing (DDD), toll-free services, calling cards and private line services for data and voice applications. The Company has introduced flat-fee long distance programs. These programs allow customers to purchase interstate minutes of use in blocks of time for a single monthly fee. The Company expects to continue offering innovative products of this nature in the future.

     Video Entertainment

     Currently the Companies only major competitor to the satellite provider, DISH Network, in providing video entertainment is GCI.

Employees

     As of December 31, 2003, the Company employed a total of 1,087 regular full-time employees, 873 of whom were represented by the International Brotherhood of Electrical Workers, Local 1547 (“IBEW”). Management considers employee relations to be good with both the represented and non-represented workforce. On November 2, 1999, the IBEW membership for the Company ratified the terms of a master collective bargaining agreement that governs the terms and conditions of employment for all IBEW represented employees working for the Company in the State of Alaska. The master agreement embraces a labor-management relationship that is founded on trust, cooperation and shared goals. The November 1999 agreement, which expires December 31, 2006, provides for wage increases up to 4% in specified years based on the annual increases in the consumer price index for Anchorage as reported by the U.S. Department of Labor CPI-U. The last wage increase under the agreement was implemented in January 2004 and the next scheduled wage review is in November 2004. The master agreement also limits the Company’s health and welfare contributions for represented employees to 4% annually.

     Non-represented employees qualify for wage increases based on individual and Company performance, and key employees are also eligible for performance-based incentives. The Company provides a total benefits package, including health, welfare, and retirement components that are competitive in the Company’s market.

Website Access to Reports

     The Company makes its periodic and current reports available, free of charge, on its investor website, www.ALSK.com, as soon as practicable after such material is electronically filed with, or furnished to, the SEC.

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Regulation

     The following summary of the regulatory environment in which the Company’s business operates does not describe all present and proposed federal, state and local legislation and regulations affecting the telecommunications industry in Alaska. Some legislation and regulations are currently the subject of judicial review, legislative hearings and administrative proposals which could change the manner in which this industry operates. The Company cannot predict the outcome of any of these matters or their potential impact on the Company’s business. Regulation in the telecommunications industry is subject to rapid change, and any such change may have an adverse effect on the Company in the future.

     Overview

     The telecommunications services the Company provides and from which the Company derives a large majority of its revenue are subject to extensive federal, state and local regulation. The Company’s LEC subsidiaries are regulated common carriers and have the right to set maximum rates at a level that allows the Company to recover the reasonable costs incurred in the provision of regulated telecommunications services and to earn a reasonable rate of return on the investment required to provide these services. Because they face competition, however, most of the Company’s LEC subsidiaries may not be able to realize their allowed rates of return.

     In conjunction with the recovery of costs and establishment of rates for regulated services, the Company’s LEC subsidiaries must first determine their aggregate costs and then allocate those costs between regulated and nonregulated services; then between state and federal jurisdictions; and finally among their various interstate and intrastate services. This process is referred to as “separations” and is governed primarily by the FCC’s rules and regulations. The FCC is considering whether to modify or eliminate the current separations process. This decision could indirectly increase or reduce earnings of carriers subject to separations rules by reallocating costs between the federal and state jurisdictions. Maximum rates for regulated services and the amount of high-cost support are set by the FCC with respect to interstate services and by the RCA with respect to intrastate services.

     At the federal level, the FCC generally exercises jurisdiction over services of telecommunications common carriers, such as the Company, used to provide, originate or terminate interstate or international communications as well as related facilities. The FCC does not directly regulate enhanced services and has preempted inconsistent state regulation of enhanced services. The Company’s wireless services use FCC radio-frequency licenses and are subject to various FCC regulations, including 911 and number portability requirements. The RCA generally exercises jurisdiction over services used to provide, originate or terminate communications between points in Alaska as well as related facilities. In addition, pursuant to the 1996 Act, federal and state regulators share responsibility for implementing and enforcing certain policies intended to foster competition in local telecommunications services. In particular, state regulatory agencies have substantial oversight over the provision by ILECs of interconnection and non-discriminatory network access to CLECs. Local governments often regulate the public rights-of-way necessary to install and operate networks, may require communications services providers to obtain licenses or franchises regulating their use of public rights-of-way, and may require carriers to obtain construction permits and abide by building codes.

     Federal Regulation

     The Company must comply with the Communications Act of 1934, as amended, (“Communications Act”), and regulations promulgated there under which require, among other things, that communications carriers offer interstate services at just, reasonable and nondiscriminatory rates and terms. The amendments to the Communications Act contained in the 1996 Act significantly changed and are expected to continue to change the telecommunications industry. Among other changes, the 1996 Act promotes competition in local telecommunications services by removing barriers to entry and through interconnection and network access requirements, and makes universal service support explicit and portable. The Company must obtain FCC approval before it can transfer control of any of its common carrier subsidiaries or its radio frequency licenses or authorizations, make such an acquisition or discontinue an interstate service.

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     Interconnection with Local Telephone Companies and Access to Other Facilities

     In order to ensure access to local facilities and services at reasonable rates, the 1996 Act imposes a number of access and interconnection requirements on LECs. Generally, a LEC must:

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not prohibit or unreasonably restrict the resale of its services;

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provide for telephone number portability, so customers may keep the same telephone number if they switch service providers;

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ensure that customers are able to route their calls to telecommunications service providers without having to dial additional digits;

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provide access to their poles, ducts, conduits and rights-of-way on a reasonable, non-discriminatory basis; and

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when a call originates on its network, compensate other telephone companies for terminating or transporting the call.

     Most ILECs have the following additional obligations under the 1996 Act:

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negotiate in good faith with any carrier requesting interconnection;

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provide interconnection for the transmission and routing of telecommunications at any technically feasible point in its network on just, reasonable and nondiscriminatory rates, terms and conditions;

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provide access to UNEs, such as local loops, switches and trunks, or combinations of UNEs at nondiscriminatory, cost-based rates;

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offer retail local telephone services to resellers at discounted wholesale rates;

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provide notice of changes in information needed for another carrier to transmit and route services using its facilities; and

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provide physical collocation, which allows a CLEC to install and maintain its network termination equipment in an ILEC’s central office, or to obtain functionally equivalent forms of interconnection.

     Because the Company’s ILEC subsidiaries other than ACSA qualify as rural LECs, (“RLECs”), under the 1996 Act, a statutory exemption from the interconnection requirements for those carriers applies until the Company receive a bona fide request for interconnection and the RCA lifts the exemption. The RCA must continue an exemption until it determines that interconnection is technically feasible, not unduly economically burdensome and consistent with universal service. Wit