Back to GetFilings.com

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number: 0-19179

CT COMMUNICATIONS, INC.

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

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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes x  No o

The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 30, 2003 (based on the closing price of $10.70 per share as quoted on The Nasdaq Stock Market as of such date) was $187,132,000. As of February 27, 2004, there were 18,875,635 shares of the registrant’s Common Stock outstanding.

Documents Incorporated by Reference

CT COMMUNICATIONS, INC.

Form 10-K for the Fiscal Year ended December 31, 2003

TABLE OF CONTENTS

PART I

Item 1.     Business

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

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

General

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

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

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

      Since 1999, we have pursued our Greenfield operations in high growth communities, including those in the Charlotte and Raleigh, North Carolina markets. We are working with developers and builders to become the telecommunications provider for their developments. Under agreements with these developers, we provide the telecommunications infrastructure within these developments. By clustering our projects, we are able to gain capital and operating efficiencies.

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

      We offer Internet and data services to ILEC, CLEC and Greenfield business and residential customers. These services include dial-up and high speed dedicated Internet access and digital subscriber line (“DSL”) services. Between May 1998 and December 2000, we significantly expanded this business through strategic acquisitions.

      We offer our own branded digital wireless services through our ongoing agreement with Cingular Wireless (“Cingular”). In June 2001, we completed the partitioning of our area of the Cingular digital

2

      Additional business, financial and competitive information about our operations is discussed below. For other information regarding our business segments, see the Note entitled “Segment Information” in the notes to consolidated financial statements included elsewhere in this report.

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

Operations

      Concord Telephone offers integrated telecommunications services as an ILEC to customers served by over 115,000 access lines in Cabarrus, Stanly and Rowan counties in North Carolina. Our ILEC network facilities include nearly 18,500 fiber optic conductor miles, serving nine exchanges in a host-remote switch architecture.

      The operations of Concord Telephone are our primary business segment. Concord Telephone accounted for approximately 60%, 64% and 70% of our operating revenue in the years 2003, 2002 and 2001, respectively. This percentage has decreased over the past three years as we have grown our non-ILEC businesses into significant operations. Nevertheless, we continue to expect Concord Telephone to account for a significant portion of our revenue and earnings in 2004.

      Concord Telephone ended 2003 with 115,538 access lines in service, a 3.5% decrease from year-end 2002. Of those lines, 84,714 selected Concord Telephone as their long distance provider, compared with 84,591 lines at year-end 2002.

      The Company’s ILEC derives revenue from providing local telephone services, network access services and other related services. Local service revenue is derived from the provision of local exchange telephone services in the Company’s service areas and includes primarily revenue from local service charges and calling features.

      Network access revenue primarily relates to services provided by the Company to long distance carriers, wireless carriers and other customers in connection with the use of the Company’s facilities to originate and terminate interstate, intrastate and local telephone calls. Certain of the Company’s interstate network access revenue is based on tariffed access charges prescribed by the Federal Communications Commission (“FCC”). The remainder of such interstate revenue is derived from revenue pooling arrangements with other local exchange carriers (“LECs”) administered by the National Exchange Carrier Association (“NECA”), a quasi-governmental non-profit organization formed by the FCC in 1983 for such purpose. The Company’s ILEC participates in the NECA Carrier Common Line pool and is the recipient of long-term support. In addition, the ILEC receives Interstate Common Line Support (“ICLS”) funds, which are administered by NECA. The ICLS support mechanism was established in July 2003.

      Other revenue includes revenue related to leasing, selling, installing, maintaining and repairing customer premise telecommunications equipment and wiring, and publication of local directories.

      The Company believes the decline in the number of access lines is primarily due to declines in second lines, soft general economic conditions in the Company’s markets and the displacement of traditional telephone services by other competitive service providers.

3

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

      Our sales efforts in 2004 will focus on increasing revenue per customer through continued development of bundled service offerings and an emphasis on incremental calling features. Eligible access lines with at least one calling feature increased from 46.2% in 2002 to 48.3% in 2003. The average number of calling features per line increased from 2.7 in 2002 to 3.6 in 2003.

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

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

      Our core ILEC network is comprised of modern digital switching equipment and fiber optic cable with self-healing SONET ring topology. We continue to upgrade our distribution network by moving fiber and electronics closer to the customer through the use of remote switching units. The customer care service center operations are supported by an AS400-based service order, trouble-ticketing, billing and collection system and a Mitel private branch exchange with automated call distribution capabilities. We also have a network operations center that identifies problems as they occur and diagnoses potential network problems before customers are impacted.

      Telecommunications equipment providers have been impacted by the economic slowdown and market conditions. While we have some diversity among our suppliers, the difficult financial conditions may affect their ability to provide product enhancements and ongoing support.

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

      Our ILEC is subject to competition from a variety of other companies such as competitive local exchange carriers, wireless companies, cable television companies, Internet service providers and newer Voice over Internet Protocol (“VoIP”) companies.

      The FCC governs our ILEC’s rates for interstate access services under a rate-of-return form of regulation at the interstate level. The FCC has been studying intercarrier compensation since 2001. There are certain parties that are advocating elimination of switched access charges and other access charges that have traditionally been imposed on other carriers that use the ILEC network for call completion. Some current proposals appear to encourage a revenue neutral impact of the elimination of these charges for

4

      In August 2003, the FCC released its Triennial Review Order addressing unbundled network elements. State commissions are required to address several issues regarding the level of competition in the state and the need for ILECs to continue providing certain unbundled network elements. In addition, numerous lawsuits and petitions contesting various aspects of the Triennial Review Order have been filed in various forums, including the FCC. While many of these proceedings are now underway, the impact of these issues on our business cannot yet be determined. We believe that the impact to our ILEC will be minimal.

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

      Since September 1997, our ILEC’s rates for local exchange services have been established under a price regulation plan approved by the NCUC. Under the price regulation plan, our charges are no longer subject to rate-base, rate-of-return regulation. Instead, the revenues for most of our local exchange services may be adjusted to reflect changes in inflation reduced by a 2% assumed productivity offset. The price regulation plan also allows flexibility for adjustments based on certain external events outside of our control, such as jurisdictional cost shifts or legislative mandates. In previous years, we have rebalanced certain rates under the price regulation plan. The price rebalancing arrangement allows us to continue adjusting revenues to keep them in line with related costs. The primary result has been an increase in the monthly basic service charges paid by residential customers, a decrease in access charges paid by interexchange carriers and a decrease in rates paid by end users for an expanded local calling scope. Previously, we believed the NCUC would review our price regulation on or about the fifth anniversary (2002) as required by the plan. The review has been delayed and we are uncertain as to when the NCUC will conduct such a review. In the meantime, state legislation was enacted in North Carolina in May 2003 that removed the ability of the NCUC to consider past or present rates of return in evaluating whether a price regulation plan is in the public interest.

      The FCC required wireline companies in the top 100 metropolitan statistical areas (“MSAs”) to begin intermodal porting (from wireline to wireless) beginning November 24, 2003. In areas of the country below the top 100 MSAs, wireline to wireless porting is scheduled to begin May 24, 2004. Local number portability (“LNP”) could result in increased customer churn over time, but has not yet had any significant impact on our business.

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

	•	growing customer demand for alternative products and services including wireless and Internet services,
	•	technological advances in transmitting voice, data and video services such as cable telephony and VoIP services,
	•	development of fiber optics and digital electronic technology,

5

	•	the advent of competitors in the yellow pages market,
	•	a decline in the level of access charges paid by interexchange carriers to local telephone companies to access their local networks, and
	•	legislation and regulations designed to promote competition.

      We agreed to open our traditional service area to competition for local dial tone service in 1997, in exchange for rate rebalancing, pricing flexibility and simplification of rate plans in our price regulation plans. We have entered into eight interconnection agreements with companies such as Time Warner Telecom of North Carolina, L.P. (“Time Warner”), US LEC of North Carolina, L.L.C., Cat Communications, Inc. and North Carolina Telcom, L.L.C. to provide access to our local telephone service market.

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

          CLEC Services

      Our CLEC business was certified by the NCUC in 1997, the South Carolina Public Service Commission in 2000, and the Georgia Public Service Commission (“GPSC”) in 2001. Operation began late in 1997 in Salisbury and northern Charlotte, North Carolina, through an interconnection agreement with BellSouth. Since 1998, we have entered into interconnection agreements with Verizon Communications, Inc. (“Verizon”), Sprint Corporation (“Sprint”), Alltel Corporation (“Alltel”) and The Concord Telephone Company, our ILEC affiliate.

      At December 31, 2003, we were providing competitive local access to customers served by more than 29,000 access lines in select markets in North Carolina. We will maintain our focus in 2004 on achieving increased market penetration and higher revenue per customer in the markets where we currently provide service. The CLEC accounted for 12%, 10% and 8% of our operating revenue in the years 2003, 2002 and 2001, respectively.

      Our CLEC business employs the same sales strategy as our ILEC business, using locally based account executives that meet face-to-face with business customers. Our CLEC offers an integrated combination of communications services, including local service, long distance service and enhanced voice services, and Internet and data services. Our CLEC uses the same billing platform as our ILEC.

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

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

6

      Regulation. In general, our CLEC establishes its own rates and charges for local services and is subject to less regulation as compared to our ILEC. However, like our ILEC, our CLEC must comply with various rules of the NCUC and the GPSC governing quality of service, consumer protection and similar matters. The FCC has jurisdiction over our CLEC interstate services, such as access service. In 2001, the FCC adopted rules that set interstate switched access charges at declining rates. The next rate reduction is scheduled to be effective June 20, 2004, at which time the rate will be reduced from $0.012 to the prevailing ILEC rate. Although the switched access rates will decline, there is an expected certainty of payment by interexchange carriers; however, certain interexchange carriers, such as AT&T, have been deploying VoIP technology in an effort to avoid payment of access charges. This issue is currently before the FCC. It is expected that this issue will receive significant attention at the FCC in 2004.

      In August 2003, the FCC released its Triennial Review Order addressing unbundled network elements (“UNE”). State commissions are required to address several issues regarding the level of competition in the state and the need for ILECs to continue providing certain unbundled network elements. In addition, numerous lawsuits and petitions contesting various aspects of the Triennial Review Order have been filed with courts and the FCC. While many of these proceedings are now underway, the impact of these issues on our business cannot yet be determined.

      Currently, many state commissions approve UNE rates charged by ILECs based on a Total Element Long-Run Incremental Cost (“TELRIC”) costing methodology established by the FCC in 1996. There have been numerous legal and regulatory battles over the use of TELRIC, which is based on forward looking costs versus historical costs. The Triennial Review potentially allows ILECs to increase their cost of capital and accelerate depreciation used in TELRIC rate calculations, which may result in an increase in UNE rates. In addition, the FCC has initiated a separate docket on TELRIC. At this time, it is estimated that the impact on our business may be higher rates to obtain UNEs. Our CLEC relies significantly on network elements supplied by the incumbent local carrier.

      Competition. Our CLEC competes primarily with local incumbent telephone companies and, to a lesser extent, with other CLECs. Competition for small to medium sized businesses is intense with knowledgeable customers that demand low cost, highly dependable service. We will continue to face competition from potential future market entrants, including other CLECs, cable television companies, electric utilities, microwave carriers, wireless telecommunications providers, Internet service providers, long distance providers, and private networks built by large end-users.

      Our Greenfield business provides comprehensive wireline telecommunications services to commercial and residential developments outside of our ILEC serving area. While most of these developments are located in North Carolina, we also provide competitive local access in Georgia. At December 31, 2003, we were providing service to more than 10,000 access lines in select markets in North Carolina and Georgia.

      Our Greenfield business develops relationships with builders and developers to provide integrated telecommunications service in their new developments. We enter into telecommunications provider agreements with those developers and builders prior to construction to offer local service, long distance, enhanced voice services, and Internet and data services to businesses and residents who populate the development. As of December 31, 2003, we had signed more than 90 agreements with a potential 48,000 access lines available upon completion. Our Greenfield business uses the same billing platform as our ILEC.

      In our Greenfield markets, Charlotte and Raleigh, North Carolina, and northern Georgia, we built a distribution system that interconnects to our remote switching equipment in order to become the telecommunications provider for each new development. We continue to focus on the fastest growing areas in the Charlotte and Raleigh markets. By clustering several projects, we expect to gain capital and operating efficiencies that should contribute to increased profitability.

7

      Regulation. The Greenfield business is generally regulated in the same manner as our CLEC business. The Greenfield business establishes its own rates and charges for local services and is subject to less extensive regulation as compared to our ILEC. Like the CLEC, our Greenfield business must comply with various rules of the NCUC and GPSC governing quality of service, consumer protection and similar matters. The FCC has jurisdiction over our Greenfield interstate services, such as access service. In 2001, the FCC adopted rules that set interstate switched access charges at declining rates. The next rate reduction is scheduled to be effective June 20, 2004, at which time the rate will be reduced from $0.012 to the prevailing ILEC rates.

      In 2002, the NCUC determined that exclusive easement rights (i.e. where a developer is contractually precluded from granting private easements to other providers) and exclusive provider arrangements (where one company is designated as the only company permitted to provide service to end users within a development) are anti-competitive. While our agreements with developers do not contain an exclusive provider provision, some of our agreements did contain an exclusive easement provision. The Company has notified its developers of the NCUC’s ruling and has formally waived any rights to enforce these provisions. Further, we have removed any such references from all new contracts since the NCUC’s ruling. As part of a more comprehensive review, on June 6, 2003, the NCUC initiated a general inquiry involving all certificated telecommunications providers regarding preferred provider contracts. The NCUC is examining all preferred provider contracts filed by CLECs and ILECs as directed by the NCUC. Our Greenfield business currently has over 90 such contracts with developers, and has filed copies as required. Hearings were held on the matter in late January 2004. At this time, further impact of this inquiry on our business cannot be determined.

      Competition. Our Greenfield business competes primarily with local incumbent telephone companies and, to a lesser extent, with other CLECs. Local telephone companies may increase competition in our Greenfield areas by overbuilding our network with their own facilities. Cable telephony could be a direct competitor in the developments where we provide service since cable companies have a network within those developments. Wireless and Internet providers also compete for our wireline customers.

      We offer digital wireless services in Cabarrus, Stanly, Rowan and Iredell counties in North Carolina. We sell digital wireless services and products, including service packages, long distance, features, handsets, prepaid plans, and accessories, through seven company owned retail outlets and over 15 indirect retail outlets in North Carolina. We have company owned retail stores in Concord (2), Kannapolis, Statesville, Mooresville, Salisbury and Albemarle. Digital wireless products and services are also sold through our ILEC business offices and our direct sales force. At December 31, 2003, we served over 38,000 digital wireless customers. Our digital wireless business accounted for 18%, 17% and 13% of our operating revenue in the years 2003, 2002 and 2001, respectively.

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

8

      Cingular recently announced its plan to merge with AT&T Wireless, which has cellsites in our partitioned area. At this time, we are unable to determine how this will affect the Company.

      In 2003, we completed the construction of two additional cell sites. We expect to add an additional four locations in 2004. These additional cell sites should increase coverage and capacity throughout our service area.

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

      Regulation. The construction, operation, management and transfer of digital wireless systems in the United States is regulated by the FCC. Digital wireless carriers are exempt from regulation by the NCUC. Because of our affiliation with Cingular, Cingular assumes the responsibility for many of the regulatory issues. The regulation of wireless services is discussed in more detail under “Legislative and Regulatory Developments” in Item 1 of this Annual Report on Form 10-K. The FCC required wireless carriers in the top 100 MSAs to implement LNP beginning on November 24, 2003. A portion of our service area is within the designated top 100 MSAs. In addition, the FCC also required wireline companies to begin intermodal porting (from wireline to wireless) on the same date. In areas of the country below the top 100 MSAs, wireless to wireless and wireline to wireless porting is scheduled to begin May 24, 2004. LNP could result in increased customer churn over time, but has not yet had any significant impact on our business.

      Wireless service carriers are required by FCC rules to provide enhanced 911 emergency service (“E-911”) in a two phase approach. Phase one has been completed and involves delivery of the caller’s number and the location of the cell site serving the customer to the Public Safety Answering Point (“PSAP”). Phase two will involve triangulation to allow PSAPs the ability to more accurately locate a calling party. Because of our affiliation with Cingular, they have responsibility for directing the implementation of E-911. We have been working with Cingular as well as applicable PSAPs in the roll out of E-911. We have included approximately $2 million in our 2004 capital budget for this deployment.

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

      In 1995, we began providing dial-up Internet access to residential and business customers. Since that time, we have grown our business through internal growth and several acquisitions, the largest of which were Vnet, a business-oriented Internet service provider based in Charlotte, North Carolina and WebServe, Inc. (“WebServe”), a Charlotte, North Carolina based provider of web design, hosting, and programming services. We also acquired several smaller local Internet service providers. Since late 1999, we have seen a shift in customers away from the dial-up access service and into the higher revenue DSL access service. In the third quarter of 2002 we announced the downsizing of our web design services but continue to offer all other products. At December 31, 2003, we had over 21,000 Internet customers.

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

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

9

	•	DSL Access. In late 1999, we began to offer high-speed Internet access service using DSL technology. DSL technology permits high speed digital transmission over the existing copper wiring of regular telephone lines. Our DSL services are available at speeds from 256 Kbps up to 1.54 Mbps. Our DSL services are designed for residential users and small-to-medium sized businesses to provide high quality Internet access at speeds faster than an integrated services digital network (“ISDN”) and at flat-rate prices that are lower than traditional dedicated access charges. Our DSL lines increased from 6,664 in 2002 to 10,183 in 2003.
	•	Dial-up Access. Our dial-up services provide access to the Internet through ordinary telephone lines at speeds up to 56 Kbps and through digital ISDN lines at speeds up to 64 Kbps. Our dial-up customers declined 14% in 2003 and 11% in 2002 as customers continue to demand higher speed broadband products.

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

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

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

      Regulation. Internet and data services have been determined by the FCC to be “information services” and are therefore, not subject to regulation in the same manner as telecommunications services are regulated.

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

	•	access and content providers, such as Time Warner and Microsoft,
	•	local, regional and national Internet service providers, such as EarthLink,
	•	the Internet services of regional, national and international telecommunications companies, such as AT&T, BellSouth, and MCI,
	•	online services offered by direct broadcast satellite providers and
	•	online services offered by incumbent cable providers, such as Time Warner.

      We began offering long distance services to our ILEC customers in 1992 and now provide that service to approximately 84,700 access lines within our ILEC, approximately 15,300 access lines within our CLEC, and more than 4,800 lines within our Greenfield markets. In our ILEC service area, over 73% of the total lines have selected our own branded long distance service.

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

10

      Strong competition in the market forced significant declines across many of our price plans during 2001, 2002 and 2003 that resulted in lower prices to customers. This trend is expected to continue as competition increases from other sources such as Internet telephony.

      VoIP is a new competitor for low cost telephone service that could adversely affect ILEC, CLEC and Greenfield access revenue, as well as long distance revenues. In addition, wireless substitution has become a viable threat to our long distance customer base. Increased competition within the digital wireless segment will continue to provide customers with more and lower cost opportunities to replace their long distance service.

      Wavetel, L.L.C. (“Wavetel”) ceased its wireless broadband commercial trial operations in Fayetteville, North Carolina effective December 9, 2002. The commercial trial was initiated in July 2001. The decision to conclude operations was based on several factors including the limited coverage area provided by the technology available at the time, our inability to obtain outside investment, and the downturn in the telecommunications and financial markets.

      Wavetel’s operations have been reflected as discontinued operations in the Company’s Consolidated Financial Statements included in Part IV.

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

      Palmetto MobileNet. In 1998, we combined our cellular telephone investments with Palmetto MobileNet, L.P. (“Palmetto MobileNet”). We have a 22.4% limited partnership interest in Palmetto MobileNet, which holds a 50% general partnership interest in 10 rural service areas covering more than two million people in North Carolina and South Carolina. Alltel is the managing partner of the 10 cellular rural service area general partnerships and we are dependent on their management of the partnerships. During 2000, Alltel signed a roaming agreement with Verizon Wireless that decreased roaming fees paid to the partnership. During 2003, the partnership purchased the equity interest of one of the participating partners thereby increasing our partnership interest from 19.8% to 22.4%. The partnership will continue to face heavy competition from other digital wireless competitors in its serving areas and anticipates a reduction in roaming rates in 2004.

      Maxcom. In 1996, we participated with Grupo Radio Centro in forming Maxcom Telecomunicaciones, S.A. de C.V. (formerly Amaritel) (“Maxcom”), a competitive telecommunications company offering local, long distance and network telecommunications services in Mexico. During 1998, we participated in an additional $49 million private equity financing of Maxcom. Maxcom began offering commercial services in Mexico City and Puebla, Mexico in April 1999.

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

      In December 2001, we wrote down $13.4 million of our investment in Maxcom to reflect management’s best estimate of the net realizable value of our investment. In December 2003, the Company sold its investment in Maxcom. The sale price was lower than our carrying value, which resulted in additional losses on the investment totaling $1.2 million.

      Wireless One. In 1995, we participated with Wireless One, Inc. in forming Wireless One of North Carolina, L.L.C (“WONC”) to develop and launch wireless cable systems in North Carolina. WONC entered into contracts with approximately 45 community colleges, several private schools in North Carolina and the University of North Carolina system to provide wireless cable services and held the majority of the

11

      In September 2001, we entered into a Limited Liability Company Interest Purchase Agreement (the “Purchase Agreement”) with Wireless One, Inc. and WorldCom Broadband Solutions, Inc., each of which was a subsidiary of WorldCom, Inc., and WONC. Under the Purchase Agreement, WONC purchased the entire fifty percent (50%) interest of Wireless One, Inc. in WONC. After this transaction was completed the Company owned, through our subsidiary CT Wireless Cable, 100% of the interests in WONC. The total purchase price was approximately $20.7 million, consisting of $3.0 million in cash at closing and an interest bearing promissory note of WONC for the remainder. The promissory note was payable over the 10-year period following the closing, with a $7.0 million payment due in year one, which payment could be deferred for up to an additional two years, and the remainder payable in equal annual installments beginning after six years. In the event the $7.0 million payment was not made when due, either we, or Wireless One, Inc., could cause WONC to transfer certain of its licensed frequencies to Wireless One, Inc. in payment of the outstanding principal amount of the promissory note. The promissory note was secured by a pledge of WONC’s channel rights.

      In July 2002, the Company delivered a “Split-Up Notice” to Wireless One, Inc. pursuant to the Purchase Agreement. This notice set into motion a process under the Purchase Agreement pursuant to which WONC would transfer to Wireless One, Inc. certain of WONC’s licensed frequencies. On April 22, 2003, WONC executed an agreement that resulted in the payment of accrued interest due under the promissory note and the agreement to transfer certain licensed frequencies to Wireless One, Inc. in exchange for the cancellation of the $17.7 million promissory note payable to Wireless One, Inc. At December 31, 2003, WONC, through its ownership of Wavetel NC License Corporation, held certain MMDS and ITFS spectrum rights. At December 31, 2003, CT Wireless Cable held 100% of the equity interest in WONC.

      Passive Investments. During 2003, our passive investments consisted of equity interests in several private and public companies. These investments primarily consisted of the following: ITC Holding Company, Inc. (“ITC Holding”), Magnolia Holding Company (“Magnolia”), and ITC Financial Services, LLC (“ITC Financial”).

      At December 31, 2002 we held a 4.4% equity ownership interest in ITC Holding. The primary assets of ITC Holding included InterCall, a company that provided conference calling services and certain other smaller holdings. During May 2003, ITC Holding was acquired by West Corporation for the purpose of merging InterCall into West Corporation’s existing operations. Prior to the West Corporation purchase, other assets of ITC Holding were sold to Magnolia. We received total proceeds of $17.1 million during 2003 from the sale of ITC Holding and invested approximately $3.0 million to acquire a 4.6% ownership interest in Magnolia. The primary asset of Magnolia is Knology, a public company that provides data and Internet connectivity to small and mid-size businesses.

      In December 2003 we acquired a 4.0% interest in ITC Financial Services, LLC, a company formed to provide prepaid debit card services.

      From time to time we may invest in other public and private securities of companies. We continually evaluate the investments in our portfolio and may make changes as we deem appropriate.

12

Legislative and Regulatory Developments

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

      Legislative. Various pieces of state and federal legislation may, from time to time, have potential consequences on our operations. In North Carolina, legislation was enacted in 2003 that deregulated intraLATA long distance service, interLATA long distance service and long distance operator services as well as providing other regulatory flexibility. This legislation has provided our ILEC greater flexibility in offering service bundles and promotions. On January 2, 2004, the NCUC released an order detailing its findings regarding the legislation and adopting implementation requirements. The Company is now in the process of analyzing and implementing the requirements of the NCUC order.

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

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

	•	updating and expanding telecommunications service guarantees,
	•	removing certain restrictions relating to former AT&T operating companies (the Regional Bell Operating Companies) resulting from the federal court antitrust consent decree issued in 1984,
	•	reform of universal service,
	•	the entry of telephone companies into video services,
	•	the entry of cable television operators into other telecommunications industries,
	•	changes in the rules for ownership of broadcasting and cable television operations and
	•	changes in the regulations governing cable television.

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

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

13

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

      The FCC has the task of reforming universal service to ensure funding is adequate and disbursements are proper. Our ILEC currently receives long-term support and interstate common line support from the universal service fund.

      One unresolved area in terms of regulation that has received significant attention recently is the treatment of VoIP services. The FCC has announced several high profile inquiries into VoIP services being offered. Certain VoIP providers are seeking to avoid payment of access charges to ILECs and CLECs through the use of such technology. At least three companies, AT&T, Pulver.com, and Level 3, have filed petitions with the FCC seeking a ruling allowing them to avoid payment of access charges for VoIP traffic. On February 12, 2004, the FCC, in ruling on Pulver.com’s petition, held that strictly computer-to-computer VoIP service that does not utilize the public switched telephone network is not a regulated telecommunications service. On the same date, the FCC also announced a rulemaking to examine whether certain regulatory requirements, such as 911 services, universal service, disability access and access charges, should be applicable to VoIP services. It is unclear what impact any ruling will have on the Company.

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

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

      The FCC has decided to re-examine their spectrum allocation policies. This includes potential reallocations of existing spectrum and unused spectrum.

      State and Local Regulation. We are regulated by the NCUC and the GPSC because we provide intrastate telephone services within North Carolina and Georgia. As a result, we must comply with North Carolina and Georgia pricing regulations, file periodic reports, pay various fees and comply with rules governing quality of service, consumer protection and similar matters. The rules and regulations are designed primarily to promote the public’s interest in receiving quality telephone service at reasonable

14

Risk Factors

      In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, set forth below are cautionary statements identifying important factors that could cause actual events or results to differ materially from any forward-looking statements made by or on behalf of us, whether oral or written. We wish to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to maximize to the fullest extent possible the protections of the safe harbor provisions established in the Private Securities Litigation Reform Act of 1995. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause actual events or results to differ materially from our forward-looking statements. For additional information regarding forward-looking statements, please read the “Cautionary Note Regarding Forward-Looking Statements” section included elsewhere in this report.

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

	•	acquire necessary equipment, software, and facilities, and integrate them into our systems,
	•	evaluate markets,
	•	monitor operations,
	•	control costs,
	•	maintain effective quality controls,
	•	hire, train, and retain key personnel,
	•	expand internal management,
	•	obtain sufficient capital funding to support our business plan,
	•	enhance operating and accounting systems, and
	•	obtain any required government authorizations.

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

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

      The efforts of a small number of key management and operating personnel will largely determine our success. Our success also depends in part upon our ability to hire and retain highly skilled and qualified operating, marketing, sales, financial and technical personnel. If we lose the services of key personnel or if we are unable to attract additional qualified personnel, our business and the price of our Common Stock could be materially and adversely affected.

15

      We expect to continue to face significant competition in the telecommunications industry.

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

	•	incumbent local exchange carriers,
	•	competitive local exchange carriers,
	•	interexchange carriers,
	•	Internet service providers,
	•	wireless telecommunications providers,
	•	cable television companies,
	•	local and regional system integrators and
	•	resellers of telecommunications services and enhanced services providers.

      Cable operators are entering the local exchange and high speed Internet markets. Time Warner currently offers cable television and high-speed Internet service and is expected to offer cable telephony to customers in our ILEC, CLEC and Greenfield service areas. Other sources of competition include wireless service providers and VoIP service providers.

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

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

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

      Sophisticated information and processing systems are vital to our growth and our ability to monitor costs, bill customers, process customer orders and achieve operating efficiencies. Billing and information systems have historically been produced by outside vendors. These systems have generally met our needs.

16

      The telecommunications industry is subject to rapid and significant changes in technology, and we rely on third parties for the development of and access to new technology. The effect of technological changes on our business cannot be predicted. We believe our future success will depend, in part, on our ability to anticipate or react appropriately to such changes and to offer, on a timely basis, services that meet customer demands. We cannot assure you that we will obtain access to new technology on a timely basis or on satisfactory terms. Our failure to obtain access to or properly utilize this new technology could have a material adverse effect on our business and the price of our Common Stock.

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

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

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

17

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

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

	•	sales by our current shareholders of large amounts of our Common Stock,
	•	new legislation or regulation,
	•	variations in our revenue, net income and cash flows,
	•	the difference between our actual results and the results expected by investors and analysts,
	•	announcements of unfavorable financial or operational performance for other telecommunications companies,
	•	announcements of new service offerings, marketing plans or price reductions by us or our competitors,
	•	technological innovations and
	•	mergers, acquisitions or strategic alliances.

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

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

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

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

	•	difficulties assimilating acquired operations and personnel,
	•	disruptions of our ongoing businesses,
	•	diversion of resources and management time,
	•	the possibility that uniform management and operating systems and procedures may not be maintained,
	•	increased regulatory burdens,

18

	•	new markets in which we may have limited or no experience and
	•	possible impairment of relationships with employees or customers.

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

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

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

Employees

      At December 31, 2003, we had approximately 630 employees. None of our employees is represented by a labor union, and we consider relations with our employees to be good.

Available Information

      The Company’s Internet address is www.ctc.net. The Company makes available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, filed with or furnished to the Securities and Exchange Commission (“SEC”), as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. The information on the Company’s website is not incorporated by reference into this report.

Executive Officers of the Registrant

      The following is a list of our executive officers who serve at the pleasure of the board of directors, including such person’s name, age, positions and offices held with CT Communications, the period served in such positions or offices and, if such person served in such position or office for less than five years, the prior employment of such person.

      Michael R. Coltrane, age 57, has been President, Chief Executive Officer and a director since 1988. During 2001, he succeeded L.D. Coltrane, III as Chairman of the Board. Prior to joining us in 1988, Mr. Coltrane served as Executive Vice President of First Charter National Bank (now, First Charter Bank) for more than six years and as Vice President of a large regional bank for more than 10 years. Mr. Coltrane is a director of the general partner of Palmetto MobileNet, L.P., a director of Northeast Medical Center, a director of First Charter Bank and Vice Chairman of its parent company, First Charter Corporation. Mr. Coltrane has been a director of the United States Telecom Association since 1991 and served as its Chairman from October 2000 to October 2001.

19

      Matthew J. Dowd, age 41, has been a Senior Vice President since May 2002 and has primary responsibility for sales and marketing and customer service. From May 2001 until December 2003, Mr. Dowd served as Chief Executive Officer of Wavetel. From 1997 to 2000, he was a General Manager of Omnipoint Communications, Inc., a wireless telecommunications provider.

      James E. Hausman, age 47, has been Senior Vice President, Chief Financial Officer and Treasurer since May 2002. From 2000 to 2002, he served as Chief Financial Officer for three emerging telecommunications companies: American Lightwave Communications, Inc., Crescent Communications, Inc. and Prepaid Telecom Corporation. From 1988 to 1999, he was Chief Financial Officer of Houston Cellular Telephone Company.

      Michael R. Nash, age 52, has been a Senior Vice President since January 1999 and has primary responsibility for our network technology and network operations. He is Chairman of the board of directors of the Cabarrus Economic Development Corporation and serves on the boards of the Alliance for Telecommunications Industry Solutions and Access/ On Multimedia.

      Ronald A. Marino, age 40, has been Vice President of Finance and Chief Accounting Officer since November 2002. From August 2001 to November 2002, he was Chief Financial Officer of Wavetel. From 2000 to 2001, he was the Chief Financial Officer, Secretary and Treasurer of Datatec Systems, Inc., an information technology services company. From 1997 to 2000, he was the Senior Director of Finance of Omnipoint Communications, Inc., a wireless telecommunications provider.

      Our properties consist of land, buildings, central office equipment, exchange and toll switches, data transmission equipment, underground conduits and cable, aerial cable, poles, wires, radio transmitting equipment and other equipment.

      We own approximately 16 acres of land on Copperfield Boulevard in Concord, North Carolina. Our principal executive offices are in our Corporate Center located on this property. Construction of this four-story, 118,000 square foot building began in 2000 and was completed in March 2002. Two additional buildings totaling approximately 25,000 square feet were constructed at this site between 1996 and 1998.

      We also own a building on Cabarrus Avenue East in Concord. This facility was built in 1956 and expanded in 1967. It serves as our business office, switching and computing center. This building has approximately 53,000 square feet of floor space.

      We own a 12,300 square foot general warehouse located in Concord and a one-third interest in 22.4 acres of undeveloped property located on Weddington Road Extension and Speedway Boulevard in the King’s Grant Development. This property may be used for future development if needed.

      In connection with our wireless operations, we have entered into seven real property leases to house our retail outlets in Concord (Concord Parkway and Concord Mills Mall), Kannapolis, Mooresville, Statesville, Albemarle and Salisbury, North Carolina. In addition to our Cabarrus Avenue facility, we maintain business offices and switching equipment in Kannapolis, China Grove, and Albemarle, North Carolina. We also lease office space on University Executive Drive in Charlotte, North Carolina. Our CLEC operations lease space in Greensboro, Hickory and Raleigh, North Carolina. These leases are not material to our operations or financial condition.

      We utilize approximately 150 motor vehicles in our operations, all but two of which we own.

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

20

      No matters were submitted to a vote of security holders during the fourth quarter of 2003.