PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SUREWEST COMMUNICATIONS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; Amounts in thousands, except per share amounts)

	Quarter Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007

Operating revenues:
Broadband	$	35,600		$	17,193		$	62,642		$	33,718
Telecom	24,650			27,249			49,228			53,610
Total operating revenues	60,250			44,442			111,870			87,328

Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)	22,994			13,566			41,962			28,420
Customer operations and selling	8,754			6,552			16,324			13,316
General and administrative	8,416			8,777			18,673			17,217
Depreciation and amortization	14,192			11,447			26,376			22,522
Total operating expenses	54,356			40,342			103,335			81,475

Income from operations	5,894			4,100			8,535			5,853

Other income (expense):
Interest income	224			1,131			558			1,628
Interest expense	(3,186		)	(1,716		)	(5,941		)	(3,144		)
Other, net	(44		)	(100		)	(43		)	(151		)
Total other income (expense), net	(3,006		)	(685		)	(5,426		)	(1,667		)

Income from continuing operations before income taxes	2,888			3,415			3,109			4,186

Income tax expense	1,191			745			1,423			904

Income from continuing operations	1,697			2,670			1,686			3,282

Discontinued operations, net of tax:
Income (loss) from discontinued operations	211			(885		)	505			(445		)
Gain (loss) on sale of discontinued operations	18,977			(279		)	18,977			59,902
Total discontinued operations	19,188			(1,164		)	19,482			59,457

Net income	$	20,885		$	1,506		$	21,168		$	62,739

Basic earnings per common share:
Income from continuing operations	$	0.12		$	0.18		$	0.12		$	0.22
Discontinued operations, net of tax	1.35			(0.08		)	1.37			4.12
Net income per basic common share	$	1.47		$	0.10		$	1.49		$	4.34

Diluted earnings per common share:
Income from continuing operations	$	0.12		$	0.18		$	0.12		$	0.22
Discontinued operations, net of tax	1.35			(0.08		)	1.37			4.11
Net income per diluted common share	$	1.47		$	0.10		$	1.49		$	4.33

Dividends per share	$	0.25		$	0.25		$	0.50		$	0.50

Shares of common stock used to calculate earnings per share:
Basic	14,141			14,440			14,226			14,432
Diluted	14,149			14,492			14,234			14,482

See accompanying notes.

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SUREWEST COMMUNICATIONS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; Amounts in thousands)

	June 30,			December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	11,836		$	31,114
Short-term investments	641			21,151
Accounts receivable, net	21,933			19,223
Income tax receivable	5,318			1,786
Inventories	7,748			4,251
Prepaid expenses	4,412			3,462
Deferred income taxes	4,604			9,480
Other current assets	4,754			1,309
Assets of discontinued operations	—			41,147
Total current assets	61,246			132,923

Property, plant and equipment, net	509,730			346,740

Intangible and other assets:
Customer relationships, net	6,224			—
Goodwill	55,340			2,171
Deferred charges and other assets	6,898			2,933
	68,462			5,104
	$	639,438		$	484,767

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	30,000		$	—
Current portion of long-term debt and capital lease obligations	15,643			3,642
Accounts payable	5,696			2,544
Other accrued liabilities	22,896			19,661
Current portion of contractual shareable earnings obligations	770			1,597
Advance billings and deferred revenues	9,012			7,288
Accrued compensation and pension benefits	9,349			8,755
Liabilities of discontinued operations	—			8,969
Total current liabilities	93,366			52,456

Long-term debt and capital lease obligations	186,185			118,189
Deferred income taxes	64,006			26,030
Other liabilities and deferred revenues	17,072			17,089

Commitments and contingencies

Shareholders’ equity:
Common stock, without par value; 100,000 shares authorized, 14,003 and 14,514 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively	147,541			158,870
Accumulated other comprehensive loss	(4,133		)	(3,530		)
Retained earnings	135,401			115,663
Total shareholders’ equity	278,809			271,003
	$	639,438		$	484,767

See accompanying notes.

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SUREWEST COMMUNICATIONS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

	Six Months Ended June 30,
	2008			2007

Net cash provided by continuing operations	$	26,179		$	21,679
Net cash provided by (used in) discontinued operations	307			(41,771		)
Net cash provided by (used in) operating activities	26,486			(20,092		)

Cash flows from investing activities:
Business acquisition, net of cash acquired	(181,646		)	—
Proceeds from sale of discontinued operations	66,391			110,123
Capital expenditures for property, plant and equipment	(43,635		)	(21,424		)
Purchases of available-for-sale securities	—			(121,275		)
Proceeds from sale of available-for-sale securities	16,650			91,525
Net cash (used in) provided by continuing operations	(142,240		)	58,949
Net cash used in discontinued operations	(280		)	(1,079		)
Net cash (used in) provided by investing activities	(142,520		)	57,870

Cash flows from financing activities:
Proceeds from issuance of long-term debt	96,000			—
Principal payments of long-term debt and capital lease obligations	(16,003		)	(3		)
Proceeds from short-term borrowings	60,000			—
Repayment of short-term borrowings	(30,000		)	—
Dividends paid	(7,124		)	(7,233		)
Repurchase of common stock	(6,117		)	—
Net cash provided by (used in) financing activities	96,756			(7,236		)

(Decrease) increase in cash and cash equivalents	(19,278		)	30,542

Cash and cash equivalents at beginning of period	31,114			6,371

Cash and cash equivalents at end of period	$	11,836		$	36,913

See accompanying notes.

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The following table summarizes the Company’s financial assets (cash equivalents and investments) measured at fair value on a recurring basis:

	As of June 30, 2008,
	Total		Level 1		Level 2		Level 3
Money market funds	$	3,244	$	3,244	$	—	$	—
Equity securities	641		641		—		—
Auction rate securities	2,846		—		—		2,846
	$	6,731	$	3,885	$	—	$	2,846

The following table provides a reconciliation of the beginning and ending balances for the assets measured at fair value using significant unobservable inputs (Level 3):

	Auction Rate Securities
Beginning Balance at December 31, 2007	$	—
Transfers in and/or out of Level 3	3,700
Unrealized losses included in other comprehensive income	(854		)
Ending Balance at June 30, 2008	$	2,846

At June 30, 2008, the Company held one auction rate security (“ARS”) with an estimated fair value of $2,846, which was measured using Level 3 inputs. The ARS is collateralized by student loans that are guaranteed primarily by an insurance company and partially by the Federal Family Education Loan Program (“FFELP”). The monthly auctions have historically provided a liquid market for these securities. The ARS in the Company’s portfolio had a successful auction in January 2008 and as such, its fair value would have been measured using Level 1 inputs at January 1, 2008. However, since February 2008, there has not been a successful auction for this ARS, therefore the Company transferred this ARS from the Level 1 to the Level 3 category.

The Company obtained a Level 3 valuation from an investment advisor, which used a discounted cash flow model to estimate the fair value of the ARS at June 30, 2008. The significant inputs that were used in the model were the credit quality of the issuer, the percentage and the types of guarantees (such as an insurance company and FFELP), interest rates, expected holding period of the ARS and an illiquidity discount factor. Changes in the assumptions of the model based on dynamic market conditions could have a significant impact on the valuation of this security, which may lead the Company in the future to take an impairment charge for this security. Based on the Company’s review of the model, the inputs to the model and the assessment of fair value, as of June 30, 2008, the Company determined there was a decline in the fair value of its ARS investment of $854, which was deemed temporary as the Company currently has the ability and intent to hold this ARS investment until a successful auction, we sell the security in a secondary market which currently is not active, or it is redeemed by the issuer. As a result, the Company reclassified the entire ARS investment balance from short-term investments to long-term other assets on its condensed consolidated balance sheet. The Company will continue to analyze its auction rate security each reporting period for impairment and may be required to record an impairment charge in the statement of operations if the decline in fair value is determined to be other than temporary.

Intangible Assets

Goodwill and intangible assets that are not subject to amortization are tested for impairment at least annually or when events or changes in circumstances indicate that the asset might be impaired in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Normally, the Company performs the annual impairment test as of November 30. However, as a result of recent declines in the market price of the Company’s common stock, at June 30, 2008, the Company concluded that this was an indicator of potential impairment of goodwill and therefore, the Company performed an interim goodwill impairment test.

The Company completed the first step of its interim impairment test, which indicated that the estimated fair value of the reporting units was greater than the net carrying value of the reporting units. As such, the Company concluded that its goodwill was not impaired as of June 30, 2008 and the Company was not required to perform the second step of the evaluation.

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Stock-based Compensation

Stock Plans

The Company has two Equity Incentive Plans (the “Stock Plans”) for certain employees, outside directors and consultants of the Company, which were approved by shareholders. The Company authorized for future issuance under the Stock Plans approximately 1.9 million shares (subject to upward adjustment based upon the Company’s issued and outstanding shares) of authorized, but unissued, common stock. The Stock Plans permit issuance by the Company of awards in the form of restricted common stock (“RSAs”), restricted common stock units (“RSUs”), performance shares, stock options and stock appreciation rights. The exercise price per share of the Company’s common stock to be purchased under any incentive stock option shall not be less than 100% of the fair market value of a share of the Company’s common stock on the date of the grant, and the exercise price under a non-qualified stock option shall not be less than 85% of the fair market value of the Company’s common stock at the date of the grant. The term of any stock option shall not exceed 10 years.

The Company accounts for stock-based compensation for both RSAs and RSUs in accordance with the provisions of SFAS No. 123(R), Share-Based Payments (“SFAS 123(R)”), which requires the Company to measure the cost of employee services received in exchange for all equity awards granted, including stock options, RSUs and restricted shares, based on the fair market value of the award as of the grant date. The Company will continue to recognize stock-based compensation on RSAs and RSUs granted prior to the adoption of SFAS 123(R) using the graded vesting method. In accordance with the provisions of SFAS 123(R), the Company has estimated expected forfeitures based on historical experience and is recognizing compensation expense only for those RSAs and RSUs expected to vest.

Restricted Common Stock Awards and Units

The following table summarizes the RSAs and RSUs granted to certain eligible participants during the quarters and six-month periods ended June 30, 2008 and 2007:

	Quarter Ended June 30,						Six Months Ended June 30,
	2008	Grant Date Fair Value		2007	Grant Date Fair Value		2008	Grant Date Fair Value		2007	Grant Date Fair Value

RSAs Granted	—	$	—	—	$	—	7,056	$	15.59	1,338	$	23.97
RSUs Granted	22,240	$	8.43	5,000	$	26.21	22,240	$	8.43	5,000	$	26.21
RSU Dividends	802	$	8.88	—	$	—	802	$	8.88	—	$	—
Total	23,042			5,000			30,098			6,338

Stock-based compensation expense for both RSAs and RSUs of $345 and $486 was recorded during the quarter and six-month period ended June 30, 2008, respectively. During the same prior year periods, the Company recorded stock based compensation expense of $477 and $654, respectively. RSAs and RSUs are amortized over their respective vesting periods, which range from immediate vesting to a five-year vesting period.

The following table summarizes the RSAs activity during the six-month period June 30, 2008:

Nonvested Shares	Shares		Weighted Average Grant Date Fair Value

Nonvested-January 1, 2008	144,935		$21.85
Granted	30,098		$10.12
Vested	(28,489	)	$11.85
Forfeited	(18,470	)	$24.08
Nonvested-June 30, 2008	128,074

As of June 30, 2008, total unrecognized compensation cost related to nonvested restricted stock was $1,866 and will be recognized over a weighted-average period of approximately two years. The total fair value of RSAs and RSUs vested during the six-month period ended June 30, 2008 was $338.

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Stock Options Expense

The Company issues new shares of common stock upon exercise of stock options. The following table summarizes stock option activity for the Company’s stock option plans for the six-month period ended June 30, 2008:

			Weighted	Weighted
			Average	Average
			Exercise	Remaining
Options	Shares		Price	Contractual Life

Outstanding-January 1, 2008	362,039		$40.38
Forfeited	(24,400	)	$40.57
Outstanding-June 30, 2008	337,639		$40.36	3

Vested and Exercisable at June 30, 2008	337,639		$40.36	3

There were no stock options granted, exercised or expired during the six-month period ended June 30, 2008. In addition, there were no stock options with an exercise price below the market price of the Company’s stock at that date.

Per Share Amounts

Shares used in the computation of basic earnings (loss) per share are based on the weighted average number of common shares and RSUs outstanding, excluding unvested restricted common shares and unvested RSUs. Shares used in the computation of diluted earnings per share are based on the weighted average number of common shares, restricted common shares and RSUs outstanding, along with other potentially dilutive securities outstanding in each period. Shares used in the computation of diluted loss per share are based on the weighted average number of vested common shares and vested RSUs and exclude potential dilutive common shares, unvested restricted common shares and unvested RSUs outstanding, as the effect is anti-dilutive.

Cash dividends per share are based on the actual dividends per share, as declared by the Company’s Board of Directors. On each date that the Company pays a cash dividend to the holders of the Company’s common stock, the Company credits to the holders of RSUs an additional number of RSUs equal to the total number of whole RSUs and additional RSUs previously credited to the holders, multiplied by the dollar amount of the cash dividend per share of common stock. Any fractional RSUs resulting from such calculation are included in the additional RSUs.

Comprehensive Income

Significant components of the Company’s comprehensive income are as follows:

	Quarter Ended June 30,					Six Months Ended June 30,
	2008			2007		2008			2007
Net income	$	20,885		$	1,506	$	21,168		$	62,739
Unrealized (loss) gain on investment, net of income taxes	(257		)	35		(603		)	46
Comprehensive income	$	20,628		$	1,541	$	20,565		$	62,785

Accumulated other comprehensive loss consists of adjustments, net of tax related to unrealized gains and losses on available-for-sale securities and minimum pension and post-retirement benefits.

Statements of Cash Flows Information

During the six months ended June 30, 2008 and 2007, the Company made income tax payments of $1,500 and $45,815, respectively. The decrease in income taxes paid (and corresponding increase in net cash provided by operating activities) was due to additional estimated income tax payments in 2007 primarily as a result of the gain on the sale of SureWest Directories, as discussed in Note 2 below.

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Reclassifications

2. ACQUISITION & DIVESTITURES

Acquisition

Everest Broadband, Inc.

Effective February 13, 2008, the Company acquired 100% of the issued and outstanding stock of Everest Broadband, Inc. (“Everest”) for a total purchase price of $182,100, including estimated transactions costs. Everest is a competitive provider of high-speed data, video and voice services in the greater Kansas City area.

The acquisition has been accounted for using the purchase method in accordance with SFAS No. 141, Business Combinations. Accordingly, net assets acquired were recorded at their estimated fair values, and operating results are included in our financial statements from the date of acquisition.

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition. These values are derived from a preliminary purchase price allocation, which is subject to change based on the final valuations of the acquired real and intangible assets, final working capital adjustments and the completion of final tax returns. During the second quarter of 2008, the Company increased its valuation of goodwill by $4,100. The increase was the result of a decreased valuation of property, plant and equipment of $6,500 and the deferred tax asset of $400, offset by a decrease of the deferred tax liability of $2,800. The Company expects to complete its purchase accounting relating to the Everest acquisition in the fourth quarter of 2008.

Current assets	$	10,400
Property, plant and equipment	146,800
Intangible assets	6,700
Goodwill	53,200
Other long-term assets	1,200
Total assets acquired	218,300

Current liabilities	9,700
Long-term liabilities	1,400
Deferred income taxes	25,100
Total liabilities acquired	36,200
Net assets acquired	$	182,100

The acquired intangible assets of approximately $6,700 were derived from the associated value of a significant number of residential and business customers. The intangible assets are being amortized over the estimated useful life of 5 years. During the quarter and six-month period ended June 30, 2008, the Company recorded amortization expense of approximately $337 and $507, respectively, relating to the customer relationships. Goodwill of $53,200 has been accounted for as an indefinite lived asset and will be tested annually for impairment at November 30 or at interim dates if potential impairment indicators arise. For further discussion regarding the June 30, 2008 goodwill impairment testing, see the Intangible Assets section in Note 1 above.

The Company accrued in its preliminary purchase accounting a liability of $1,200 relating to the termination (the “Severance Plan”) of certain members of management of Everest. The Severance Plan calls for payments to be made over a course of nine to eighteen months and is expected to be completed by August 2009. For the quarter and six-month period ended June 30, 2008, $0 and $362, respectively, was paid relating to the Severance Plan.

Unaudited Pro Forma Results

The following unaudited pro forma information presents the results of operations of the Company as if the acquisition of Everest occurred at the beginning of the fiscal periods presented. The pro forma information below

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does not purport to present what the actual results would have been if the acquisition had in fact occurred at the beginning of the fiscal periods presented, nor does the information project results for any future period.

	Quarter Ended
	March 31,				June 30,		Six Months Ended June 30,
	2008		2007		2007		2008		2007
Operating revenues	$	59,177	$	57,165	$	59,404	$	119,427	$	116,569
Income from operations	4,287		3,741		5,730		10,181		9,471
Income from continuing operations	343		1		1,988		2,040		1,989
Net income	$	637	$	60,623	$	824	$	21,522	$	61,447

Basic earnings per common share:
Income from continuing operations	$	0.02	$	—	$	0.14	$	0.14	$	0.14
Net income	$	0.04	$	4.20	$	0.06	$	1.51	$	4.26

Diluted earnings per common share:
Income from continuing operations	$	0.02	$	—	$	0.14	$	0.14	$	0.14
Net income	$	0.04	$	4.18	$	0.06	$	1.51	$	4.24

Discontinued Operations

SureWest Wireless

On May 9, 2008, the Company completed the sale of the operating assets of its Wireless business, SureWest Wireless, to Verizon Wireless (“Verizon”) for an aggregate cash purchase price of $69,841, resulting in a gain of $31,829, less estimated income taxes of $12,852. Under the agreement, Verizon acquired the spectrum licenses and operating assets of SureWest Wireless, excluding the Company’s owned communication towers.

A portion of the purchase price equal to $3,450 was placed in escrow, half of which will be available after twelve months and the balance of which will be available twenty-four months following the closing, less the amount of any pending claims, in each case, to be held as security for certain losses, if any, incurred by Verizon in the event of (i) any breach of the representations and warranties set forth in the agreement, (ii) any breach or nonperformance of covenants set forth in the agreement and (iii) certain other specified events. The actual gain on sale could vary based on future claims, if any, made against the amounts held in escrow.

The results of SureWest Wireless are reported as a discontinued operation in the Company’s condensed consolidated financial statements for all periods presented. The operations of the Company’s owned communication towers to be retained are included within the Broadband business segment.

At December 31, 2007, the major components of SureWest Wireless’ assets and liabilities to be sold were as follows:

	December 31, 2007
Accounts receivable, net	$	3,422
Inventories	894
Prepaid expenses	816
Property, plant and equipment, net	27,090
Wireless licenses, net	8,925
Total assets	$	41,147

Accounts payable and other accrued liabilities	$	2,209
Accrued compensation	259
Advance billings and deferred revenues	2,805
Deferred income taxes	3,696
Total liabilities	$	8,969

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The following table summarizes the financial information for SureWest Wireless’ operations:

	Period Ended						Six Months Ended June 30,
	May 9, 2008			June 30, 2007			2008			2007
Operating revenues	$	2,928		$	7,991		$	10,055		$	16,089
Operating expenses including depreciation and amortization	2,585			9,669			9,277			18,530
Income (loss) from operations	343			(1,678		)	778			(2,441		)
Other income (expense)	(11		)	74			(7		)	(43		)
Income tax expense (benefit)	121			(719		)	266			(1,040		)
Income (loss) from discontinued operations	$	211		$	(885	)	$	505		$	(1,444	)

Gain on sale of discontinued operations, net of tax	$	18,977		$	—		$	18,977		$	—

In connection with the sale, the Company entered into a short-term Transition Services Agreement (“TSA”) with Verizon to provide certain operating services during the transition of the Wireless business to Verizon. The TSA is expected to conclude in the latter part of 2008. During the transition period, the Company’s Telecom and Broadband segments will provide certain services such as long distance and interconnect services to Verizon. Such services provided to SureWest Wireless prior to the sale and eliminated in the condensed consolidated financial statements were $545 and $1,869 for the quarter and six-month period ended June 30, 2008, respectively, and $1,466 and $3,008 for the same prior year periods. The Company anticipates that the services provided to Verizon and related revenues will diminish as Verizon migrates customers onto its network at the conclusion of the transition period.

SureWest Directories

In February 2007, GateHouse Media acquired 100% of the stock of SureWest Directories (previously included in the Telecom segment), its directory publishing business, for an aggregate cash purchase price of $110,123, resulting in a gain as of December 31, 2007 of $101,286, less estimated income taxes of $41,130. As part of the transaction, GateHouse Media became the publisher of the official directory of SureWest Telephone. The results of SureWest Directories are reported as a discontinued operation in the consolidated financial statements for all years presented.

As part of the sale agreement with GateHouse Media, the Company performed certain administrative and other functions on behalf of GateHouse Media for a period following the sale date, pursuant to a TSA. The services rendered by the Company pursuant to the TSA concluded on December 31, 2007, and an invoice for $2,200 owed to the Company pursuant to the TSA has been submitted to GateHouse Media for payment. Gatehouse Media is currently disputing the amount and is performing an independent analysis. In the event that the amount ultimately paid by GateHouse Media differs from the amount owed to the Company under the terms of the TSA, the gain on the sale will be adjusted accordingly. Management believes that the Company is in compliance with the terms of the TSA and does not believe that the amount of any such adjustment will be material to the gain on sale reflected in the 2007 consolidated statement of income.

The following table summarizes the financial information for SureWest Directories’ operations for the quarters and six-month periods ended June 30, 2008 and 2007:

	Three Months Ended June 30,					Six Months Ended June 30,
	2008		2007			2008		2007
Directory advertising revenues	$	—	$	—		$	—	$	2,939
Income before income taxes	—		—			—		1,682
Income tax expense	—		—			—		683
Income from discontinued operations	—		—			—		999
(Loss) gain on sale of discontinued operations, net of taxes	$	—	$	(279	)	$	—	$	59,902

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3. BUSINESS SEGMENTS

The Company has two reportable business segments: Broadband and Telecommunications (“Telecom”). The Company has aggregated certain of its operating segments within the Broadband and Telecom segments because it believes that such operating segments share similar economic characteristics. We measure and evaluate the performance of our segments based on income (loss) from operations. Corporate Operations are allocated to the appropriate segment, except for cash; investments; certain property, plant, and equipment; and miscellaneous other assets, which are not allocated to the segments. However, the investment income associated with cash and investments held by Corporate Operations is included in the results of the operations of the Company’s segments.

The Broadband segment utilizes fiber-to-the-premise and fiber-to-the-node networks to offer bundled residential and commercial services that include IP-based digital and high-definition television, high-speed internet, Voice over IP, and local and long distance telephone in the greater Sacramento, California and greater Kansas City area.

The Telecom segment offers landline telecommunications services, Digital Subscriber Line (“DSL”) service, long distance services and certain non-regulated services operating only in the greater Sacramento area. SureWest Telephone, which is the principal operating subsidiary of the Telecom segment, provides local services, toll telephone services, network access services and certain non-regulated services. SureWest Long Distance is a reseller of long distance services.

As discussed in Note 2, in May 2008, the Company sold the operating assets of its Wireless business, SureWest Wireless, which was previously reported as a separate reportable segment. The Wireless business sold has been presented as a discontinued operation for all periods presented. The operations of the Company’s owned communication towers to be retained are included within the Broadband business segment.

These segments are strategic business units that offer different products and services. The Company accounts for intersegment revenues and expenses at prevailing market rates. The Company’s business segment information is as follows:

						Corporate		Discontinued		Intercompany
	Broadband			Telecom		Operations		Operations		Eliminations			Consolidated
For the three months ended June 30, 2008:
Operating revenues from external customers	$	35,600		$	24,650	$	—	$	—	$	—		$	60,250
Intersegment revenues	141			4,566		—		—		(4,707		)	—
Operating expenses*	31,351			13,520		—		—		(4,707		)	40,164
Depreciation and amortization	10,446			3,746		—		—		—			14,192
Income (loss) from operations	(6,056		)	11,950		—		—		—			5,894
Income (loss) from continuing operations	$	(5,462	)	$	7,159	$	—	$	—	$	—		$	1,697

*Exclusive of depreciation and amortization

						Corporate		Discontinued		Intercompany
	Broadband			Telecom		Operations		Operations		Eliminations			Consolidated
For the three months ended June 30, 2007:
Operating revenues from external customers	$	17,193		$	27,249	$	—	$	—	$	—		$	44,442
Intersegment revenues	162			4,633		—		—		(4,795		)	—
Operating expenses*	17,765			15,925		—		—		(4,795		)	28,895
Depreciation and amortization	5,679			5,768		—		—		—			11,447
Income (loss) from operations	(6,089		)	10,189		—		—		—			4,100
Income (loss) from continuing operations	$	(4,459	)	$	7,129	$	—	$	—	$	—		$	2,670

*Exclusive of depreciation and amortization

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						Corporate		Discontinued		Intercompany
	Broadband			Telecom		Operations		Operations		Eliminations			Consolidated
As of and for the six months ended June 30, 2008:
Operating revenues from external customers	$	62,642		$	49,228	$	—	$	—	$	—		$	111,870
Intersegment revenues	281			8,909		—		—		(9,190		)	—
Operating expenses*	57,613			28,536		—		—		(9,190		)	76,959
Depreciation and amortization	18,962			7,414		—		—		—			26,376
Income (loss) from operations	(13,652		)	22,187		—		—		—			8,535
Income (loss) from continuing operations	$	(11,314	)	$	13,000	$	—	$	—	$	—		$	1,686
Total Assets	$	802,599		$	994,372	$	614,809	$	—	$	(1,772,342	)	$	639,438

*Exclusive of depreciation and amortization

						Corporate		Discontinued		Intercompany
	Broadband			Telecom		Operations		Operations		Eliminations			Consolidated
As of and for the six months ended June 30, 2007:
Operating revenues from external customers	$	33,718		$	53,610	$	—	$	—	$	—		$	87,328
Intersegment revenues	321			9,067		—		—		(9,388		)	—
Operating expenses*	36,864			31,477		—		—		(9,388		)	58,953
Depreciation and amortization	11,104			11,418		—		—		—			22,522
Income (loss) from operations	(13,929		)	19,782		—		—		—			5,853
Income (loss) from continuing operations	$	(9,721	)	$	13,003	$	—	$	—	$	—		$	3,282
Total Assets	$	453,228		$	802,382	$	784,994	$	46,313	$	(1,593,245	)	$	493,672

*Exclusive of depreciation and amortization

4. REGULATORY MATTERS AND ESTIMATED SHAREABLE EARNINGS OBLIGATIONS

Certain of the Company’s rates are subject to regulation by the Federal Communications Commission (“FCC”) and the State Commissions. Intrastate service rates are subject to regulation by State Commissions. With respect to toll calls initiated by interexchange carriers’ customers, the interexchange carriers are assessed access charges based on tariffs filed by the Company. Interstate access rates and resultant earnings are subject to regulation by the FCC. With respect to interstate services, SureWest Telephone has detariffed its DSL services and files its own tariff with the FCC for switched and special access services. For interstate common line (“CL”) charges, SureWest Telephone concurs with tariffs filed by the National Exchange Carrier Association (“NECA”). Pending and future regulatory actions may have a material impact on the Company’s consolidated financial position and results of operations.

FCC Matters

The FCC monitors SureWest Telephone’s interstate earnings through the use of annual cost separation studies prepared by SureWest Telephone, which utilize estimated cost information and projected demand usage. The FCC establishes rules that carriers must follow in the preparation of the annual studies. Additionally, under current FCC rules governing rate making, SureWest Telephone is required to establish interstate rates based on projected demand usage for its various services and determine the actual earnings from these rates once actual volumes and costs are known.

As a result of periodic cost separation studies required by the FCC, SureWest Telephone changed its estimates for certain NECA CL accounts receivable balances related to current and prior year monitoring periods. During the quarter and six-month period ended June 30, 2007, these changes in estimates increased the Company’s consolidated revenues by $688 and $806 and net income by $473 ($0.03 per share) and $555 ($0.04 per share), respectively. The Company did not record any significant changes in estimates during the quarter and six-month period ended June 30, 2008.

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California Public Utility Commission (“CPUC”) Matters

In 2004, the Company entered into a settlement agreement (the “Settlement Agreement”), which was ultimately approved by the CPUC, to resolve an ongoing regulatory proceeding with various parties. The Settlement Agreement resolved past sharing liabilities and suspended future sharing requirements in the intrastate jurisdiction. In accordance with the Settlement Agreement, SureWest Telephone is returning approximately $6,500 (“Dividend A”), plus interest at the 90-day commercial paper rate for non-financial institutions, which was 2.21% as of June 30, 2008, and an imputed rate of 3.15%, to its end users through a consumer dividend and is recorded as a reduction of the Company’s contractual shareable earnings obligations over a period of approximately four years, which began January 1, 2005. In addition, SureWest Telephone paid a one-time consumer dividend of $2,600 (“Dividend B”) to consumers to settle the monitoring periods 2000 to 2004 payable over approximately two years, which began January 1, 2005 and was completed in March 2007. At June 30, 2008, the aggregate contractual shareable earnings obligation for Dividend A was $770 (which is net of an unamortized discount pertaining to imputed interest of $8 at that date).

The following table summarizes the amounts returned to end users through consumer dividends for the quarters and six-month periods ended June 30, 2008 and 2007:

	Quarter Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Dividend A	$	418	$	475	$	849	$	961
Dividend B	—		—		—		210
Total	$	418	$	475	$	849	$	1,171

As part of the Settlement Agreement, SureWest Telephone was to implement an additional annual consumer dividend of $1,300 on January 1, 2007 to end-users receiving SureWest Telephone services subject to sharing on or after that date. However, this consumer dividend was subject to reduction based upon the results of other pending regulatory proceedings. Pursuant to a CPUC order in December 2006, beginning in 2007 this dividend was offset by a reduction in the Company’s interim draw from the California High Cost Fund (“CHCF”). The interim draw from the CHCF was previously authorized by a CPUC decision in August 2005 which allowed SureWest Telephone to continue receiving $11,500 annually from the CHCF to offset its intrastate regulated operating expenses on an interim basis. In August 2006, the Company requested permission from the CPUC to implement a graduated phase-down of its annual $11,500 interim draw. In December 2006, the CPUC authorized the Company to offset its interim draw from the CHCF with the aforementioned $1,300 consumer dividend. In September 2007, the CPUC issued Decision 07-09-002 which provides for SureWest Telephone to phase-down its annual CHCF draw over a five-year period, to end on January 1, 2012. The phase-down of the interim draw began in January 2007, initially reducing the annual $11,500 interim draw by the aforementioned $1,300 consumer dividend to $10,200. Starting in 2008, the interim CHCF draw is being incrementally reduced by approximately $2,000 annually.

In 2006, the CPUC initiated a Rulemaking pursuant to Senate Bill 1276 commencing a review of the CHCF-B program. The goals of this review included, but were not limited to, adjusting universal service rate support payments to reflect updated operating costs, evaluating whether CHCF-B support levels can be reduced and made more predictable and making the current administration of the program more efficient. In September 2007, the CPUC approved a decision reforming the industry CHCF-B program which significantly reduced the CHCF-B program fund and its associated surcharge. The decision reduces the current industry CHCF-B funding level by approximately 74% and orders the reduction to be transitioned over an 18-month period, which began in January 2008 and will end in July 2009. The Company received approximately $600 in 2007. Based on this level of receipts and the threshold transition schedule outlined in the decision, the Company’s CHCF-B fund will be reduced approximately 91% and 100% in July 2008 and January 2009, respectively. Accordingly, the Company’s general CHCF-B fund draw will be approximately $323 and $0 in 2008 and 2009, respectively. Furthermore, the decision lifts the freeze on basic residential rates beginning in January 2009; however, the decision establishes a Phase II of the proceeding in which the CPUC may determine the amount by which the Company may increase basic residential rates over time, among other issues. The Company will continue to evaluate this matter and the potential effects on its consolidated financial position and results of operations.

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In an ongoing proceeding relating to the New Regulatory Framework (under which SureWest Telephone has been regulated since 1996), the CPUC adopted decision 06-08-030 in 2006, which grants carriers broader pricing freedom in the provision of telecommunications services, bundling of services, promotions and customer contracts. This decision adopted a new regulatory framework, the Uniform Regulatory Framework, which among other things (i) eliminates price regulation and allows full pricing flexibility for all new and retail services except lifeline and basic residential services which will remain capped at current levels until January 1, 2009, (ii) allows new forms of bundles and promotional packages of telecommunication services, (iii) allocates all gains and losses from the sale of assets to shareholders and (iv) eliminates almost all elements of rate of return regulation, including the calculation of shareable earnings.

5. INCOME TAXES

On January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB No. 109, Accounting for Income Taxes. Specifically, the pronouncement prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of uncertain tax positions.

The Company had a liability for unrecognized tax benefits of approximately $334 and $305 at June 30, 2008 and December 31, 2007, respectively. The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits during the six-month period ended June 30, 2008:

Balance as of December 31, 2007	$	305
Increases based on tax positions prior to 2008	29
Unrecognized tax benefits as of June 30, 2008	$	334

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate were $118 and $121 at January 1, 2008 and June 30, 2008, respectively. It is reasonably possible that a reduction of up to $192 of unrecognized tax benefits related to state deduction and credit issues and associated interest may occur within twelve months as a result of the expiration of the statute of limitations and payment of taxes and interest with amended returns expected to be filed prior to the end of 2008.

The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company did not accrue significant amounts of interest and penalties related to unrecognized tax benefits during the quarter or six-month period ended June 30, 2008. As of June 30, 2008, the Company had approximately $101 of accrued interest and penalties in the unrecognized tax benefits above.

As of June 30, 2008, the following tax years and related taxing jurisdictions were open:

Tax Year		Taxing Jurisdiction
2002		Federal
2003 - 2007		Federal and California
2006-2007		Kansas and Missouri

For the quarter and six-month period ended June 30, 2008, the Company’s actual tax expense differed from the federal statutory rate due to state taxes, the benefit of certain permanent tax deductions and an increase to state deferred tax expense due to changes in the Company’s state tax apportionment factors, interest and penalties. For the quarter and six-month period ended June 30, 2007, the Company’s actual tax expense differed from the federal statutory rate due to state taxes and the benefit of certain permanent tax deductions.

6. PENSION AND OTHER POST-RETIREMENT BENEFITS

The Company sponsors a noncontributory defined benefit pension plan (the “Pension Plan”) which covers certain eligible employees. Benefits are based on years of service and the employee’s average compensation during the five highest consecutive years of the last ten years of credited service. The Company’s funding policy is to contribute

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annually an actuarially determined amount consistent with applicable federal income tax regulations. Contributions are intended to provide for benefits attributed to service to date. Pension Plan assets are primarily invested in domestic equity securities, United States government and agency securities and international equity securities.

The Company also has an unfunded Supplemental Executive Retirement Plan (“SERP”), which provides supplemental retirement benefits to certain retired executives of the Company. The SERP provides for incremental pension payments to partially offset the reduction in amounts that would have been payable under the Pension Plan if it were not for limitations imposed by federal income tax regulations.

In addition, the Company provides certain post-retirement benefits other than pensions (“Other Benefits”) to certain eligible employees, including life insurance benefits and a stated reimbursement for Medicare supplemental insurance.

In recent years, the Company’s management substantially modified its employee compensation structure in order to attract and retain the right mix of talent necessary to successfully support a company which is significantly expanding and growing. For that reason, the Company amended its Pension Plan, SERP and Other Benefits (collectively the “Plans”). The Plans amendments, effective April 1, 2007, froze the Pension Plan so that no person is eligible to become a new participant in the Plans on or following that date and all future benefit accruals for existing participants under the Plans cease. The amendments to the Plans were accounted for as plan curtailments, resulting in the recognition of a $574 non-cash pretax curtailment loss ($0.04 per share) reflected in operating expenses in the Company’s consolidated statement of income during the year ended December 31, 2006.

The Company accounts for its Pension Plan in accordance with SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No’s 87, 88, 106 and 132(R) (“SFAS 158”). SFAS 158 requires an employer to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The Statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position.

Components of Net Periodic Pension Cost

Net periodic pension costs recognized in the condensed consolidated statements of income for the quarters and six-month periods ended June 30, 2008 and 2007 under the Pension Plan and SERP included the following components:

Quarter ended June 30,	2008			2007
Service cost	$	—		$	(107	)
Interest cost on projected benefit obligation	1,769			1,829
Expected return on plan assets	(2,282		)	(2,330		)
Amortization of:
Prior service cost	—			1
Net actuarial loss	5			10
Net periodic pension (income)	$	(508	)	$	(597	)

Six months ended June 30,	2008			2007
Service cost	$	—		$	1,093
Interest cost on projected benefit obligation	3,577			3,629
Expected return on plan assets	(4,532		)	(4,630		)
Amortization of:
Prior service cost	1			1
Net actuarial loss	11			10
Net periodic pension (income)/cost	$	(943	)	$	103

Net periodic benefit costs related to the Other Benefits were not significant to the condensed consolidated financial statements of the Company for the quarters and six-month periods ended June 30, 2008 or 2007.

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7. COMMITMENTS AND CONTINGENCIES

Credit Arrangements

In May 2007, the Company entered into an Amended and Restated Credit Agreement (“Old Credit Agreement”) to restate and replace the May 2006 credit agreement. The Old Credit Agreement revised both the Term Loan facility and the Revolving Loan facility (collectively “Loan Facilities”) to principal amounts of $40,000 and up to $60,000, respectively. Principal payments on the outstanding amounts borrowed under the Loan Facilities were due and payable on May 1, 2012. There were no material changes to interest calculations, interest payments or financial covenants as a result of the Old Credit Agreement.

In February 2008, the Company entered into a Second Amended and Restated Credit Agreement (“Credit Agreement”) to restate and replace the Old Credit Agreement. The Credit Agreement terms, among other things: (i) revised the amount available under the Term Loan A facility from $40,000 to $120,000, (ii) issued a 1-year $60,000 Term Loan B facility and (iii) modified certain financial covenants. No significant changes were made to the existing Revolving Loan facility. The credit facilities were used in part to acquire Everest and are available for general corporate purposes. The Term Loan A facility and the Revolving Loan facility are due and payable on May 1, 2012.

The Term Loan A facility, prior to this new agreement, which had $40,000 outstanding, was extinguished resulting in a loss on extinguishment of debt of $607, which was recorded in the first quarter of 2008. $40,000 of the new borrowings bears interest at a fixed rate of 6.29%. The remaining $80,000 of the new borrowings bears interest based, at the Company’s election, on the London Interbank Offered Rate (“LIBOR”) or the bank’s Prime Rate plus, in either case, an applicable margin. The Term Loan B facility is due and payable on February 12, 2009 and includes an automatic increase to the applicable interest margins on August 12, 2008 to LIBOR or the bank’s Prime Rate plus, in either case, an applicable margin plus 75 basis points. On May 14, 2008, the Company repaid $30,000 of the Term Loan B and $16,000 of the Revolving facility with proceeds from the sale of SureWest Wireless. As of June 30, 2008, $120,000, $30,000, and $0 were outstanding on the Term Loan A, Term Loan B, and Revolving facilities, respectively. As of December 31, 2007, $40,000 was outstanding on the Term Loan A facility and no amounts were outstanding under the Revolving facility.

The Company’s Series A and Series B Senior Notes and the Credit Agreement contain financial and operating covenants that may restrict, among other things, repurchase of the Company’s capital stock, the making of certain other restricted payments and the incurrence of additional indebtedness. The covenants also require the Company to maintain certain financial ratios and minimum levels of tangible net worth. At June 30, 2008 and December 31, 2007, retained earnings of $118,809 and $111,003, respectively, were available for the payments.

Litigation, Regulatory Proceedings and Other Contingencies

The Company is subject to certain legal proceedings, Internal Revenue Service examinations and other income tax exposures, and other claims arising in the ordinary course of its business. In the opinion of management, the ultimate outcome of these matters will not materially affect the consolidated financial position, results of operations or cash flows of the Company.

The Company is also subject to a number of regulatory proceedings occurring at the federal and state levels that may have a material impact on its operations. These regulatory proceedings include, but are not limited to, consideration of changes to the jurisdictional separations process, the interstate universal service fund, intercarrier compensation access charge reform, broadband deployment, the regulation of local exchange carriers and their competitors, including providers of Internet protocol-enabled services, and the provision of video services and competition in the market. The outcomes and impact on the Company’s operations of these proceedings and related court matters cannot be determined at this time.

The FCC continues to promulgate rules and regulations on competition, interconnection, access charges, broadband deployment and universal service reform, and the various on-going legal challenges considering the validity of these FCC orders and it is not yet possible to determine fully the impact of the related FCC regulations on the Company’s operations.

The regulatory proceedings occurring at the state and federal levels described above may also authorize new competition in the provision of regulated services and change the rates and rate structure for regulated services furnished by the Company, the effects of which on the Company cannot yet be determined.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

(Amounts in thousands, except select operating metrics and share and per share amounts)

Certain statements included in this report, including that which relates to the impact on future revenue sources and potential sharing obligations of pending and future regulatory orders, continued expansion of the telecommunications network and expected changes in the sources of the Company’s revenue and its cost structure resulting from its entrance into new communications markets, are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These forward looking statements generally are identified by the words “believe”, “expect”, “anticipate”, “estimate”, “intend”, “should”, “may”, “will”, “would”, “will be”, “will continue” or similar expressions. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of SureWest Communications to be different from those expressed or implied in the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward—looking statements is included in the Company’s 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). We disclaim any intention or obligation to update or revise publicly any forward-looking statements.

Corporate Structure

SureWest Communications (the “Company”, “we” or “our”) is one of the nation’s leading integrated communications providers and is the bandwidth leader in the markets we serve. We classify our operations in two reportable segments: Broadband and Telecommunications (“Telecom”).

The Broadband segment, which generated approximately 56% and 39% of our consolidated revenue for the six-month periods ended June 30, 2008 and 2007, respectively, utilizes fiber-to-the-premise and fiber-to-the-node networks to offer bundled residential and commercial services that include IP-based digital and high-definition television, high-speed internet, Voice over Internet Protocol (“VoIP”), and local and long distance telephone in the greater Sacramento, California and greater Kansas City, Kansas and Missouri areas (“Kansas City area”).

In December 2007, the Company entered into a definitive agreement to purchase Everest Broadband, Inc. (“Everest” or “Kansas City”). On February 13, 2008, the Company acquired 100% of the issued and outstanding stock of Everest for a total purchase price of $182,100, including estimated transaction costs. Subsequent to the acquisition, the Kansas City operations have been included in the Company’s Broadband segment. Everest is a competitive provider of high-speed data, video and voice services in the greater Kansas City area. The acquisition of Everest accelerates the Company’s growth strategy and builds on its status as a leading provider of network services to residential and business customers.

In May 2008, the Company sold the operating assets of its Wireless business, SureWest Wireless, to Verizon Wireless (“Verizon”) for an aggregate cash purchase price of $69,841, resulting in a gain of $31,829, less estimated income taxes of $12,852. Under the agreement, Verizon acquired the spectrum licenses and operating assets of SureWest Wireless, excluding the Company’s owned communication towers. SureWest Wireless was previously reported as a separate reportable segment.

The Company expects that the sources of its revenues and its cost structure may be different in future periods, as a result of its entry into new communications markets, the disposition of non-strategic investments and regulatory and competitive forces in each of the markets in which the Company has operations.

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Results of Operations

Consolidated Overview

The tables below reflect certain financial data (on a consolidated and segment basis) and select operating metrics for each of our reportable segments as of and for the quarters and six months ended June 30, 2008 and 2007.

Financial Data

	Quarter Ended June 30,											Six Months Ended June 30,
							$			%								$			%
	2008			2007			Change			Change		2008			2007			Change			Change
Operating revenues (1)
Broadband	$	35,600		$	17,193		$	18,407		107	%	$	62,642		$	33,718		$	28,924		86	%
Telecom	24,650			27,249			(2,599		)	(10	)	49,228			53,610			(4,382		)	(8	)
Operating revenues	60,250			44,442			15,808			36		111,870			87,328			24,542			28

Income (loss) from operations
Broadband	(6,056		)	(6,089		)	33			1		(13,652		)	(13,929		)	277			2
Telecom	11,950			10,189			1,761			17		22,187			19,782			2,405			12
Income from operations	5,894			4,100			1,794			44		8,535			5,853			2,682			46

Income (loss) from continuing operations
Broadband	(5,462		)	(4,459		)	(1,003		)	(22	)	(11,314		)	(9,721		)	(1,593		)	(16	)
Telecom	7,159			7,129			30			0		13,000			13,003			(3		)	0
Income from continuing operations	$	1,697		$	2,670		$	(973	)	(36	)%	$	1,686		$	3,282		$	(1,596	)	(49	)%

(1) External customers only

Select Operating Metrics

	As of June 30,
	2008	2007	Change		% Change
Broadband
Total residential subscribers (1)	99,000	56,500	42,500		75	%
Broadband residential Revenue-generating units (2)	207,700	93,300	114,400		123
Data	94,000	54,000	40,000		74
Video	57,100	19,800	37,300		188
Voice	56,600	19,500	37,100		190
Total business customers (3)	6,200	4,000	2,200		55

Telecom
Voice Revenue-generating units (4)	62,900	74,500	(11,600	)	(16	)
Total business customers (3)	9,600	9,900	(300	)	(3	)%

(1) Total residential subscribers are customers who receive one or more residential data, video or voice services from SureWest Broadband.

(2) The Company can deliver multiple services to a customer. Accordingly, the Company maintains statistical data regarding Revenue-generating units (“RGUs”) for digital video, voice and data, in addition to the number of subscribers. For example, a single customer who purchases digital video, voice and data services would be reflected as three Revenue-generating units.

(3) Total business customers are customers who receive business data, voice or video services and represent a unique customer account.

(4) Voice RGUs are residential customers who subscribe to one or more voice access lines.

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Operating revenues for the Broadband segment increased $18,407 and $28,924 during the quarter and six-month period ended June 30, 2008, respectively, compared to the same periods in 2007. The Broadband segment results of operations and select operating metrics in the current year compared to the same prior year periods have been impacted by the effects of the Everest acquisition, as described above, in February 2008. The Kansas City operations contributed approximately $16,191and $24,541 of operating revenues during the quarter and six-month period ended June 30, 2008, respectively. At June 30, 2008, the Kansas City operations accounted for 38,100, 103,300 and 1,800 of the residential subscribers, residential RGUs and business customers, respectively.

At June 30, 2008, the Broadband segment experienced a 75% annual increase in the number of residential subscribers compared to the same date in the prior year. In the Sacramento market, both data and video RGUs increased 9% and 14%, respectively, which was reflective of the Company’s ability to offer subscribers high-speed data, HDTV, HD DVR and other enhanced services. In addition, Broadband operating revenues increased due to the continued expansion of the broadband network and growth in the demand for digital video, voice and data offered as a bundled triple-play package.

In March 2008, the Company launched its new VoIP Digital Phone product in the Sacramento market, including the Telecom segment service territory. The Company anticipates that this offering will result in elevated take rates and an increase in broadband residential triple-play RGUs, while successfully mitigating access line losses in the Telecom segment by migrating these customers to voice RGUs in the Broadband segment.

The Company will continue to invest in success-based capital and building and deploying the broadband infrastructure while focusing on the generation of new customers and increasing residential penetration on existing marketable homes.

Operating revenues in the Telecom segment decreased $2,599 and $4,382 during the quarter and six-month period ended June 30, 2008, respectively, compared to the same periods in 2007. Residential revenues accounted for nearly all of the decrease in operating revenues in the current year. Residential services were largely impacted by customer’s migration toward alternative communication services, including those offered by the Company’s Broadband segment, such as VoIP, which contributed to an approximate 16% decline in voice RGUs as of June 30, 2008 compared to June 30, 2007. The decrease in operating revenues was also impacted by continued scheduled reductions in California High Cost Fund subsidies of approximately $510 and $1,020 during the quarter and six-month period ended June 30, 2008, respectively, compared to the same prior year periods. As well, some competitors initiated marketing campaigns to include voice services targeted directly to residential subscribers within SureWest Telephone’s service area. In an effort to mitigate future operating revenue and voice RGU declines, the Company now offers various flat-rate and bundled service packages and has introduced a broadband VoIP service to customer’s residing within SureWest Telephone’s service area.

Consolidated operating expenses, excluding depreciation and amortization, increased $11,269 and $18,006 during the quarter and six-month period ended June 30, 2008, respectively, compared to the same periods in 2007. The Company’s Broadband segment accounted for substantially all of the increases in the Company’s consolidated operating expenses primarily as a result of the Kansas City operations, which accounted for $11,445 and $16,838 of the quarter and six-month period increase, respectively. Cost of services and products expense increased $9,428 and $13,542 during the quarter and six-month period ended June 30, 2008, respectively, compared to the same periods in 2007 primarily as a result of the Kansas City operations as well as increases in programming and vehicle costs related to the growth in Broadband subscribers. Customer operations and selling expense increased $2,202 and $3,008 during the quarter and six-month period ended June 30, 2008, respectively, compared to the same periods in 2007 due primarily to an increase in sales and advertising costs to promote subscriber growth and new product offerings within the Broadband segment. General and administrative expenses decreased $361 and increased $1,456 during the quarter and six-month period ended June 30, 2008, respectively, compared to the same periods in 2007. Excluding the addition of the operations for Kansas City, general and administrative expenses decreased $1,236 and increased $69 from the respective prior year periods primarily as a result of (i) a decline in legal fees due to additional fees incurred in the prior year period related to new regulatory framework matters and (ii) a decline in salaries and wages due to a reduction in headcount and overhead costs.

The Company’s consolidated depreciation and amortization expense increased $2,745 and $3,854 during the quarter and six-month period ended June 30, 2008, respectively, compared to the same periods in 2007 due to the continued network build-out and success-based capital projects undertaken within the residential broadband service territories and the Kansas City operations.

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Reclassification

Certain amounts in the Company’s 2007 condensed consolidated financial statements have been reclassified to conform to the presentation of the Company’s 2008 condensed consolidated financial statements, which consist of the effects of reclassifications from presentation of the Company’s Wireless business as a discontinued operation. In addition, the calculation of certain select operating metrics has been revised over time to reflect the current view of the Company’s business. Accordingly, where necessary, prior period metric calculations have been revised to conform to current practice.

Effects of Strategic Corporate Actions

The Company’s acquisition of Everest and divestiture of SureWest Wireless will yield various impacts to the Company’s financial statements and results of operations in 2008.

As discussed above, the Company purchased Everest in February 2008. As a result, the Broadband segment operating revenues and income from operations increased approximately $24,541 and $2,028, respectively, during the six-month period ended June 30, 2008 compared to the same period in 2007. The Everest acquisition has facilitated the rapid expansion of our geographic footprint and overall services targeted to businesses, while more than doubling the number of our triple-play residential subscribers, as evidenced by the increase in RGUs of nearly 123% at June 30, 2008 compared to the same period last year. The acquisition was largely financed by the Second Amended and Restated Credit Agreement entered into by the Company in February 2008. Accordingly, subsequent to the closing of the transaction the Company experienced increased interest expense resulting from the financing agreement. The Company’s ability to successfully integrate the Kansas City operations will depend on a number of factors, including our ability to devote adequate personnel to the integration process while still managing our current operations effectively. The Company does not anticipate difficulties integrating the acquired business; however such difficulties could increase our costs or adversely impact our ability to operate our business.

The sale of the operating assets of the Company’s Wireless business, SureWest Wireless, has also affected our financial statements and results of operations subsequent to the closing of the transaction, which occurred on May 9, 2008. The results of SureWest Wireless are reported as a discontinued operation in the Company’s condensed consolidated financial statements for all periods presented. Income (loss) from discontinued operations was $211 and $505 for the quarter and six-month period ended June 30, 2008, respectively, and $(885) and $(1,444) for the same prior year periods. See Note 2 for a summary of the Wireless business operating results included in discontinued operations.

In connection with the sale, the Company entered into a short-term Transition Services Agreement with Verizon to provide certain operating services during the transition of the Wireless business to Verizon. During the transition period, the Company’s Telecom and Broadband segments will record additional business revenues in association with the operating services provided to Verizon. The Company anticipates that the services provided to Verizon and related revenues will diminish as Verizon migrates customers onto its network at the end of the transition period, which is expected to conclude during the latter part of 2008.

The Company amended its defined benefit pension plan (the “Pension Plan”), Supplemental Executive Retirement Plan and certain post-retirement benefits other than pensions (“Other Benefits”) (collectively the “Plans”). The Plans amendments, effective April 1, 2007, froze the Pension Plan so that no person is eligible to become a new participant in the Plans on or following that date and all future benefit accruals for existing participants under the Plans cease. The Company’s decision to freeze the Pension Plan also affected its financial statements and results of operations beginning in 2007. The freeze reduced the Company’s operating expenses by approximately $4,100 for the year ended December 31, 2007. For the quarters ended June 30, 2008 and 2007, the Company recorded income of $486 and $662 respectively, and for the six-month periods ended June 30, 2008 and 2007, the Company recorded $838 in income and $64 in expense, respectively, related to the Plans. In addition, the Company did not make any contributions to the Pension Plan in 2007 and does not expect to make any contributions during 2008. Historically, for the fiscal years 2004 through 2006, the Company’s cash contributions to the Pension Plan ranged from $3,000 to $5,000, and the annual service cost averaged approximately $4,000 over the same time period. See Note 6 for more information on the Plans.

Recently, the Company’s management substantially modified its employee compensation structure in order to attract and retain the right mix of talent necessary to successfully support a company which is significantly expanding and growing. The program encourages employees to achieve the Company’s financial, operational and strategic targets by fostering superior employee performance and job satisfaction.

California		68-0365195
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification No.)

200 Vernon Street, Roseville, California		95678
(Address of principal executive offices)		(Zip Code)

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Submission of Matters to a Vote of Security Holders	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

SIGNATURES		39

PART I - FINANCIAL INFORMATION

PART II - OTHER INFORMATION