GCI, Inc. is offering to exchange an aggregate principal amount of up to $250,000,000 of its new 7.25% Senior Notes Due 2014, the new notes, for a like amount of its old 7.25% Senior Notes Due 2014 issued in a private offering on February 17, 2004, the old notes. The form and terms of the new notes will be identical in all material respects to the form and terms of the old notes, except that the new notes:

The new notes, like the old notes, will be our senior unsecured obligations and will rank equally with all of our existing and future senior unsecured debt. Also like the old notes, the new notes will be structurally subordinated and effectively rank junior to any liabilities of our subsidiaries and will also be effectively subordinated to our existing and future secured debt, including our obligations under our senior secured credit facility.

As of March 31, 2004, GCI, Inc. and its subsidiaries had, on a consolidated basis, approximately $165.5 million of secured debt, and GCI, Inc.'s subsidiaries had approximately $136.8 million in liabilities, excluding intercompany liabilities and our senior secured credit facility, but including trade payables.

There are restrictions on our ability and our restricted subsidiaries to incur additional debt pursuant to the indenture governing the new notes and the terms of our senior secured credit facility.

The exchange offer expires at 5:00 p.m., New York City time, on August 5, 2004, unless we extend it.

The new notes will not be listed on any national securities exchange or the Nasdaq Stock Market.

Each broker-dealer that receives new notes for its own account in exchange for old notes must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act of 1933 in connection with any resale of the new notes. If the broker-dealer acquired the old notes as a result of market-making activities or other trading activities, such broker-dealer may use the prospectus for the exchange offer, as supplemented or amended, in connection with the resales of new securities. GCI, Inc. has agreed that, during the period ending 90 days after the consummation of the exchange offer, subject to extension in limited circumstances, it will use reasonable best efforts to keep the exchange offer registration statement effective and to make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution and Selling Restrictions."

For a discussion of certain factors that should be considered by holders prior to tendering their old notes in the exchange offer, see "Risk Factors" beginning on page 14.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

		Page
Summary		1
Selected Financial Data		12
Risk Factors		13
Forward-Looking Statements		22
Use of Proceeds		23
Capitalization		24
Description of Other Indebtedness		24
The Exchange Offer		27
Business		38
Management		80
Executive Compensation		83
Certain Relationships and Related Party Transactions		90
Security Ownership of Certain Beneficial Owners		97
Description of the New Notes		100
Material United States Federal Tax Consequences		125
Plan of Distribution and Selling Restrictions		126
Legal Matters		127
Experts		127
Where You Can Find More Information		127
Glossary		129
Index to Financial Information		F-1
Management's Discussion and Analysis of Financial Condition and Results of Operations, Three Months Ended March 31, 2004 and 2003		F-2
Unaudited Consolidated Financial Statements, March 31, 2004 and Related Notes		F-22
Management's Discussion and Analysis of Financial Condition and Results of Operations, Years Ended December 31, 2003, 2002 and 2001, and Related Notes		F-38
Audited Consolidated Financial Statements, December 31, 2003, 2002 and 2001, and Related Notes		F-70

The following summary highlights selected information from this prospectus and may not contain all of the information that is important to you. This prospectus includes the terms of the new notes we are offering, as well as information regarding our business and detailed financial data. We encourage you to read this prospectus in its entirety.

As used in this prospectus, the term (i) "GCI, Inc" refers only to GCI, Inc. and not to any of its subsidiaries; (ii) "GCI" and "we," "us," "our" and similar terms refer to GCI, Inc., the issuer of both the old notes and the new notes, its subsidiaries and its parent, General Communication, Inc.; (iii) "Parent" refers only to General Communication, Inc. and not to any of its subsidiaries; (iv) "old notes" refers to the $250 million of GCI, Inc.'s unregistered 7.25% Senior Notes due 2014 issued on February 17, 2004; (v) "new notes" refers to the $250 million of GCI, Inc.'s 7.25% Senor Notes due 2014 offered for exchange pursuant to this prospectus;(vi) "2007 notes" refers to GCI, Inc.'s 9.75% Senior Notes issued in 1997 and due 2007, which were retired with the proceeds of the offering of the old notes; and (vii) "senior secured credit facility" refers to our credit agreement providing for borrowings of up to $220 million, as further discussed below in "Description of Other Indebtedness". For your convenience, we have included a glossary of certain communications and other terms starting on page 127 of this prospectus. GCI, Inc. was incorporated in 1997 to effect the issuance of the 2007 notes.

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information, including the "Risk Factors," and the consolidated financial statements and related notes, each of which are included elsewhere in this prospectus.

On February 17, 2004, GCI, Inc. privately placed $250 million of 7.25% Senior Notes due 2014, the old notes.

Simultaneously with the private placement, GCI, Inc. entered into a registration rights agreement with the initial purchasers of the old notes. Under the registration rights agreement, GCI, Inc. must use its reasonable best efforts to file the registration statement on or before June 16, 2004, to cause such registration statement to become effective on or prior to September 14, 2004 and to complete the exchange offer on or before 30 days following the effective date of such registration statement. If the exchange offer does not meet such deadlines, we must pay liquidated damages to the holders of the old notes until such deadlines are met. You may exchange your old notes for new notes with substantially the same terms in this exchange offer. You should read the discussion under the headings "—The New Notes" and "Description of the New Notes" for further information regarding the new notes.

We believe that holders of the old notes may resell the new notes without complying with the registration and prospectus delivery provisions of the Securities Act of 1933, as amended, the Securities Act, if certain conditions are met. You should read the discussion under the headings "—The Exchange Offer" and "The Exchange Offer" for further information regarding the exchange offer and resales of the new notes.

We are the leading integrated, facilities-based communications provider in Alaska, offering local and long-distance voice, cable video, data and Internet communications services to residential and business customers under our GCI brand.

We generated consolidated revenues of $390.8 million in 2003 and $108.9 million in the first quarter of 2004. We ended the first quarter of 2004 with approximately 86,100 long-distance customers, 108,600 local access lines in service, 134,000 basic cable subscribers, and 100,600 total Internet subscribers, including 51,700 cable modem subscribers. A substantial number of our customers subscribe to product bundles that include two or more of our services.

Since our founding in 1979, we have consistently expanded our product portfolio to satisfy our customers' needs. We have benefited from the attractive and unique demographic and economic characteristics of the Alaskan market. We are pioneers of bundled communications services offerings, and believe our integrated strategy of providing innovative bundles of voice, video and data services provides us with an advantage over our competitors and will allow us to continue to attract new customers, retain existing customers and expand our addressable market. We hold leading market shares in long-distance, cable video and Internet services and have gained significant market share in local access against the incumbent provider.

Through our focus on long-term results and strategic capital investments, we have consistently grown our revenues and expanded our margins. Our integrated strategy provides us with competitive advantages in addressing the challenges of converging telephony, video and broadband markets and has been a key driver of our success. Today, using our extensive communications networks, we provide customers with integrated communications services packages that are unmatched by any other competitor in Alaska.

The chart below depicts our organizational structure and reflects our material subsidiaries.

All of our existing subsidiaries are restricted subsidiaries under the indenture relating to the old notes and the new notes. Please see "Description of the New Notes" for a description of the restrictions applicable to restricted subsidiaries.

Re-Pricing of Senior Secured Credit Facility—On May 21, 2004 GCI Holdings, Inc. reduced the margin it pays to senior bank lenders under the senior secured credit facility from Libor plus approximately 3.25 percent to Libor plus 2.25 percent. The commitment fee for the undrawn available credit on the company's revolving line of credit decreased from 1.0 percent to approximately 0.5 percent. The lenders also agreed to allow the company to increase the size of the senior secured credit facility in $5 million increments up to a maximum of $50 million. In addition the lenders agreed to allow the redemption or repurchase of General Communication, Inc.'s capital stock in an aggregate amount not to exceed $10,000,000.

Use of Proceeds from Sale of Old Notes—On February 2, 2004, GCI, Inc. commenced a tender offer and consent solicitation to purchase all of its outstanding 2007 notes for cash at 103.5% of the principal amount. Prior to the tender offer, there were $180 million aggregate principal amount of 2007 notes outstanding. Approximately $114.6 million principal amount of the 2007 notes were tendered and accepted pursuant to this offer. On March 18, 2004, GCI, Inc. redeemed the remaining outstanding 2007 notes at the redemption price of 103.25% of the principal amount. In addition to the purchase and redemption of the 2007 notes, approximately $53.8 million of proceeds received from the issuance of the old notes were used to repay indebtedness under our senior secured credit facility.

Fiber System Taken out of Service—We own a portion of the capacity of an undersea fiber optic cable system linking Alaska to the contiguous lower 48 states known as the Alaska spur of the North Pacific Cable. The Alaska spur of the North Pacific Cable was removed from service in January 2004 by PT Cable, Inc. due to a dispute over billings between PT Cable, Inc. and AT&T Corp. We determined that the recorded value for our North Pacific Cable fiber asset was impaired at December 31, 2003 and recorded a $5.4 million charge in the fourth quarter in the consolidated financial statements for the fiscal year ended December 31, 2003, which are contained elsewhere in this prospectus.

Free Cable Modem Service—On January 26, 2004, we began offering new and current customers free LiteSpeed cable modem Internet service when they sign up for certain of our other services. LiteSpeed uses cable modems and is designed for dial-up Internet access customers who want more Internet download speed and greater convenience. Cable modems transmit data reliably at a much faster rate than dial-up connections and do not tie up the telephone line. Our cable modem service is available to a high percentage of Alaska homes in Anchorage, Bethel, Cordova, Fairbanks, Homer, Juneau, Kenai, Ketchikan, Kodiak, Nome, Palmer, Petersburg, Seward, Sitka, Soldotna, Valdez, Wasilla, and Wrangell.

Alaska Supreme Court Decision—Alaska Communications Systems Group, Inc., or ACS, through subsidiary companies, provides local telephone services in Fairbanks and Juneau, Alaska. The ACS subsidiaries are classified as Rural Telephone Companies under the Telecommunications Act of 1996, or the 1996 Telecom Act, which entitles them to an exemption of certain material interconnection terms of the 1996 Telecom Act, until and unless such "rural exemption" is examined and not continued by the Regulatory Commission of Alaska, or the RCA. On October 11, 1999, the RCA issued an order terminating rural exemptions for the incumbent local exchange carriers, or ILECs, operating in the Fairbanks and Juneau markets so that we could compete with these companies in the provision of local telephone service. Upon appeal by ACS, on December 12, 2003, the Alaska Supreme Court issued a decision in which it reversed the RCA's rural exemption decision on the procedural ground that the competitor, not the incumbent, must shoulder the burden of proof. The Court remanded the matter to the RCA for reconsideration with the burden of proof assigned to us. Additionally, the Court left it to the RCA to decide as a matter of discretion whether to change the state of competition during the remand period. In accordance with the Court's ruling, the RCA re-opened the rural exemption dockets and scheduled a hearing to commence on April 19, 2004. Additionally, the RCA issued a ruling on January 16, 2004, in which the RCA determined that we can continue to rely on unbundled network

elements, or UNEs, from ACS to serve our existing customers in Juneau and Fairbanks but that we may not serve new customers through purchase of UNEs pending the completion of the remand proceeding. The RCA provided that we may serve new customers using wholesale resale until the matter is resolved. On April 19, 2004, the ACS subsidiaries and GCI filed a joint motion seeking RCA termination of the proceeding, wherein the ACS subsidiaries stipulated that they had relinquished all claims to the rural exemption in the Fairbanks and Juneau markets, and associated study areas. The RCA granted the motion on April 21, 2004 and lifted the restriction on UNEs imposed by the January 16, 2004 order. The order became final and unappealable on May 21, 2004. By agreement of the parties, ACS will reinitiate processing of UNE orders for these service areas on June 30, 2004.

On May 18, 2004, GCI and ACS filed a joint motion seeking RCA approval of voluntarily negotiated amendments to the ACS-F and ACS-AK interconnection agreements which implements the terms of the parties' joint settlement of various issues. The proposed amended interconnection agreements include new rates for unbundled loops in Fairbanks and Juneau beginning on January 1, 2005, an extension of the existing interconnection agreements until January 1, 2008, and a resolution of various unbundled network element leasing issues for the Fairbanks and Juneau markets. GCI estimates the agreed upon rates will increase its local services costs in these markets by approximately $600,000 to $700,000 during the year ended December 31, 2005. We are awaiting the RCA order on this joint motion. For additional information, please see "Business—Regulation, Franchise Authorizations and Tariffs—Communications Operations—Rural Exemption" of this prospectus.

MTA Arbitration—On May 27, 2004 we filed a Petition with the RCA requesting arbitration of interconnection rates, terms and conditions with the Matanuska Telephone Association ("MTA") for the purpose of instituting local competition in the areas served by MTA. MTA filed a qualified response to GCI's Petition on June 21, 2004.

MCI, Inc.'s Emergence from Bankruptcy Protection—On July 21, 2002 WorldCom, Inc. (now MCI, Inc. or "MCI") and substantially all of its active United States subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court. On July 22, 2003, the United States Bankruptcy Court approved a settlement agreement for pre-petition amounts owed to us by MCI and affirmed all of our existing contracts with MCI. The remaining pre-petition accounts receivable balance owed by MCI to us after this settlement was $11.1 million ("MCI credit") which we have used and will continue to use as a credit against amounts payable for services purchased from MCI.

After settlement, we began reducing the MCI credit as we utilized it for services otherwise payable to MCI. The use of the credit is recorded as a reduction of bad debt expense. The remaining unused MCI credit totaled $6.7 million and $7.9 million at March 31, 2004 and December 31, 2003, respectively. We are recognizing recovery of bad debt expense as the credit is realized.

MCI emerged from bankruptcy protection on April 20, 2004. Uncertainties exist with respect to the potential realization and the timing of our utilization of the MCI credit. We have accounted for our use of the MCI credit as a gain contingency, and, accordingly, will recognize a reduction of bad debt expense as services are provided by MCI and the credit is realized.

Fiber Optic Cable System Repair—Our undersea fiber optic cable system connecting Whittier, Valdez and Juneau, Alaska and Seattle, Washington ("AULP East") began experiencing powering irregularities during the first quarter of 2004. We expect to repair AULP East after AULP West (a new undersea fiber optic cable system under construction connecting Seward, Alaska to Warrenton, Oregon with a scheduled ready for service date of July 2004) is placed into service without any significant service disruption. Depending on the nature of the malfunction and the necessary corrective action, repair costs are expected to range between $225,000 and $950,000 excluding salvage value, if any. If AULP East must be repaired before AULP West is placed into service, we expect to lease additional

temporary transmission capacity the cost of which is not expected to have a material effect on our results of operations.

Anchorage Arbitration Decision—On June 25, 2004, the RCA issued an order setting prices for access to unbundled network elements, resale and terms and conditions of interconnection in the arbitration between GCI and ACS of Anchorage. The order increases the monthly rate for leased loops from $14.92 to $19.15, sets other rates, requires the recomputation of other rates, and requires GCI and ACS to jointly file a new interconnection agreement consistent with the determinations in the Order by July 26, 2004. GCI estimates the loop cost determination will increase its cost to provide competitive telephone services in Anchorage by approximately $265,000 per month.

Our principal executive office is located at 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503-2781, and our telephone number is (907) 868-5600. Our website is located at http://www.gci.com. Information on our website is not incorporated into or otherwise a part of this prospectus.

For additional information about us and our business, please see our Annual Report on Form 10-K for the year ended December 31, 2003 and our Quarterly Report on Form 10-Q for the three month period ended March 31, 2004, as filed with the Securities and Exchange Commission and the section entitled "Where You Can Find More Information" on page 135 of this prospectus.

On February 17, 2004, GCI, Inc. issued $250,000,000 principal amount of 7.25% Senior Notes due 2014, the old notes to which the exchange offer applies, to a group of initial purchasers in reliance on exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In connection with the initial purchasers' purchase of the old notes, we agreed to commence the exchange offer within a certain time period following the initial offering of the old notes.

The form and terms of the new notes will be identical in all material respects to the form and terms of the old notes, except that the new notes:

The new notes represent the same debt as the old notes and are governed by the same indenture, which is governed by New York law.

The summary below describes the principal terms of the new notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The "Description of the New Notes" section of this prospectus contains a more detailed description of the terms and conditions of the new notes.

The following table presents selected historical information relating to the financial condition and results of operations of GCI, Inc. over the past five years and for the first quarters of 2004 and 2003.

The Selected Financial Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and GCI, Inc.'s consolidated financial statements, including the related notes, which are included elsewhere in this prospectus.

You should carefully consider the risk factors described below together with all of the other information included in this prospectus before you make an investment decision to exchange your old notes for the new notes offered by this prospectus. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially and adversely affect our financial position, results of operations or liquidity.

We face competition that may reduce our market share and harm our financial performance.

There is substantial competition in the communications industry. The traditional dividing lines between long-distance telephone service, local telephone service, wireless telephone service, Internet services and video services are increasingly becoming blurred. Through mergers and various service integration strategies, major providers are striving to provide integrated communications services offerings within and across geographic markets.

We expect competition to increase as a result of the rapid development of new technologies, products and services. We cannot predict which of many possible future technologies, products or services will be important to maintain our competitive position or what expenditures will be required to develop and provide these technologies, products or services. Our ability to compete successfully will depend on marketing and on our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, economic conditions and pricing strategies by competitors. To the extent we do not keep pace with technological advances or fail to timely respond to changes in competitive factors in our industry and in our markets, we could lose market share or experience a decline in our revenue and net income. Competitive conditions create a risk of market share loss and the risk that customers shift to less profitable lower margin services. Competitive pressures also create challenges for our ability to grow new businesses or introduce new services successfully and execute on our business plan. Each of our business segments also faces the risk of potential price cuts by our competitors that could materially adversely affect our market share and gross margins.

Long-distance services. The long-distance industry is intensely competitive and subject to constant technological change. Competition is based upon price and pricing plans, the type of services offered, customer service, billing services, performance, perceived quality, reliability and availability. Current or future competitors could be substantially larger than we are, or have greater financial, technical and marketing resources than we do.

In the long-distance market, we compete against AT&T Alascom, a wholly-owned subsidiary of AT&T, ACS, the Matanuska Telephone Association and certain smaller rural local telephone carrier affiliates. There is also the possibility that new competitors will enter the Alaska market. In addition, wireless services continue to grow as an alternative to wireline services as a means of reaching customers.

Historically, we have competed in the long-distance market by offering discounts from rates charged by our competitors and by providing desirable packages of services. Discounts have been eroded in recent years due to lowering of prices by AT&T Alascom and entry of other competitors into the long-distance markets we serve. In addition, our competitors offer their own packages of services. If competitors lower their rates further or develop more attractive packages of services, we may be forced to reduce our rates or add additional services, which would have a material adverse effect on our financial position, results of operations or liquidity.

Cable Services. Our cable television systems face competition from alternative methods of receiving and distributing television signals, including direct broadcast satellite, or DBS, digital video

over telephone lines, and from other sources of news, information and entertainment such as off-air television broadcast programming, newspapers, movie theaters, live sporting events, interactive computer services, Internet services and home video products. Our cable television systems also face competition from potential overbuilds of our existing cable systems by other cable television operators and alternative methods of receiving and distributing television signals. The extent to which our cable television systems are competitive depends, in part, upon our ability to provide quality programming and other services at competitive prices.

We believe that the greatest source of potential competition for video services could come from the DBS industry. We also are subject to digital video over telephone line competition in the Mat-Su Valley (located in south-central Alaska, to the north of Anchorage, and include the communities of Palmer and Wasilla and the immediately surrounding areas). With the addition of Anchorage local broadcast stations, increased marketing, ILEC and DBS alliances, and emerging technologies creating new opportunities, competition from these sources has increased and will likely continue to increase. The changing nature of technology and of the DBS business may result in greater satellite coverage within the State of Alaska. The resulting increase in competition may adversely affect our market share and results of operations from our cable television segment.

Local Telephone Services. In the local telephone market, we compete against ACS (the ILEC), in Anchorage, Juneau and Fairbanks. We may provide local telephone service in other locations in the future where we would face other competitors. In the local telephone services market, the 1996 Telecom Act, judicial decisions and state legislative and regulatory developments have increased the likelihood that barriers to local telephone competition will be substantially reduced or removed. These initiatives include requirements that local exchange carriers negotiate with entities, including us, to provide interconnection to the existing local telephone network, to allow the purchase, at cost-based rates, of access to unbundled network elements, to establish dialing parity, to obtain access to rights-of-way and to resell services offered by the ILEC. We have been able to obtain interconnection, access and related services from the local exchange carriers, or LECs, at rates that allow us to offer competitive services. However, if we are unable to continue to obtain these services and access at acceptable rates, our ability to offer local telephone services, and our revenues and net income, could be materially adversely affected. To date, we have been successful in capturing a significant portion of the local telephone market in the locations where we are offering these services. However, there can be no assurance that we will continue to be successful in attracting or retaining these customers.

Internet Services. The Internet industry is highly competitive, rapidly evolving and subject to constant technological change. Competition is based upon price and pricing plans, service packages, the types of services offered, the technologies used, customer service, billing services, perceived quality, reliability and availability. We compete with several Alaska based Internet providers and other domestic, non-Alaska based providers. Several of the providers have substantially greater financial, technical and marketing resources than we do.

With respect to our high-speed cable modem service, ACS and other Alaska telephone service providers are providing competitive high-speed Internet access over their telephone lines. DBS providers and others also provide wireless high-speed Internet service in competition with our high-speed cable modem services. Competitive local fixed wireless providers are providing service in certain of our markets.

Niche providers in the industry, both local and national, compete with certain of our Internet service products, such as web hosting, list services and email.

Our business is subject to extensive governmental legislation and regulation. Applicable legislation and regulations and changes to them could adversely affect our business, financial position, results of operations or liquidity.

Local Telephone Services. Our success in the local telephone market depends on our continued ability to obtain interconnection, access and related services from local exchange carriers on terms that are just and reasonable and that are based on the cost of providing these services. Our local telephone services business faces the risk of the impact of the implementation of current regulations and legislation, unfavorable changes in regulation or legislation or the introduction of new regulations. Our ability to enter into the local telephone market depends on our negotiation or arbitration with local exchange carriers to allow interconnection to the carrier's existing local telephone network, to allow the purchase, at cost-based rates, of access to unbundled network elements, to establish dialing parity, to obtain access to rights-of-way and to resell services offered by the local exchange carrier. In most Alaska markets, it also depends on our ability to have the rural exemption for certain carriers terminated, so these carriers are obligated to provide access to unbundled network elements at economic costs. Future arbitration and rural exemption proceedings with respect to new or existing markets could result in a change in our cost of serving these markets via the facilities of the ILEC or via wholesale offerings.

Cable Services. The cable television industry is subject to extensive regulation at various levels, and many aspects of such regulation are currently the subject of judicial proceedings and administrative or legislative proposals. The law permits certified local franchising authorities to order refunds of rates paid in the previous 12-month period determined to be in excess of the reasonable rates. It is possible that rate reductions or refunds of previously collected fees may be required of us in the future. Currently, pursuant to Alaska law, the basic cable rates in Juneau are the only rates in Alaska subject to regulation by the local franchising authority, and the rates in Juneau were reviewed and approved by the RCA in October 2000.

Other existing federal regulations, currently the subject of judicial, legislative, and administrative review, could change, in varying degrees, the manner in which cable television systems operate. Neither the outcome of these proceedings nor their impact upon the cable television industry in general, or on our activities and prospects in the cable television business in particular, can be predicted at this time. There can be no assurance that future regulatory actions taken by Congress, the FCC or other federal, state or local government authorities will not have a material adverse effect on our business, financial position, results of operations or liquidity.

Proposals may be made before Congress and the FCC to mandate cable operators to provide "open access" over their cable systems to Internet service providers. As of the date of this prospectus, the FCC has declined to impose such requirements. If the FCC or other authorities mandate additional access to our cable systems, we cannot predict the effect that this would have on our Internet service offerings.

Internet Services. Changes in the regulatory environment relating to the Internet access market, including changes in legislation, FCC regulation, judicial action or local regulation that affect communications costs or increase competition from the ILEC or other communications services providers, could adversely affect the prices at which we sell Internet services.

We depend on a small number of customers for a substantial portion of our revenue and business. The loss of any of such customers would have a material adverse effect on our financial position, results of operations or liquidity.

For the year ended December 31, 2003 and the first quarter of 2004, we provided long-distance services (excluding private lines and other revenue) to MCI and to Sprint Corporation ("Sprint"), which generated combined revenues of approximately 19.5% and 17.4% of our total revenues for 2003

and the first quarter of 2004, respectively. These two customers are free to seek out long-distance communications services from our competitors upon expiration of their contracts (in July 2008 in the case of MCI, and in March 2007 in the case of Sprint) or earlier upon the occurrence of certain contractually stipulated events including a default, the occurrence of a force majeure event, or a substantial change in applicable law or regulation under the applicable contract. Additionally the contracts provide for periodic reviews to assure that the prices paid by MCI and Sprint for their services remain competitive.

Mergers and acquisitions in the communications industry are relatively common. If a change in control of MCI or Sprint were to occur, it would not permit them to terminate their existing contracts with us, but could in the future result in the termination of or a material adverse change in our relationships with MCI or Sprint.

In addition, MCI's and Sprint's need for our long-distance services depends directly upon their ability to obtain and retain their own long-distance customers and upon the needs of those customers for long-distance services.

The loss of one or both of MCI or Sprint as customers, a material adverse change in our relationships with either of them or a material loss of or reduction in their long-distance customers would have a material adverse effect on our financial position, results of operations or liquidity.

Our businesses are currently geographically concentrated in Alaska. Any deterioration in the economic conditions in Alaska could have a material adverse effect on our financial position, results of operations or liquidity.

We offer voice and data communication and video services to customers primarily in the State of Alaska. Because of this geographic concentration, our growth and operations depend upon economic conditions in Alaska. The economy of Alaska is dependent upon natural resource industries, in particular oil production, as well as tourism, and government spending including substantial amounts for the United States military. Any deterioration in these markets could have an adverse impact on the demand for communication and cable television services and on our results of operations and financial condition. In addition, the customer base in Alaska is limited. Alaska has a population of approximately 644,000 people, approximately 42% of whom are located in the Anchorage area. We have already achieved significant market penetration with respect to our service offerings in Anchorage and in other locations in Alaska. We may not be able to continue to increase our market share of the existing markets for our services and no assurance can be given that the Alaskan economy will continue to grow and increase the size of the markets we serve or increase the demand for the services we offer. As a result, the best opportunities for expanding our business may arise in other geographic areas such as the contiguous lower 48 states. There can be no assurance that we will find attractive opportunities to grow our businesses outside the State of Alaska or that we will have the necessary expertise to take advantage of such opportunities. The markets in Alaska for voice and data communications and video services are unique and distinct within the United States due to Alaska's large geographical size and its distance from the rest of the United States. The expertise we have developed in operating our businesses in the State of Alaska may not provide us with the necessary expertise to successfully enter other geographic markets.

We may not develop our wireless services, in which case we could not meet the needs of our customers who desire packaged services.

We offer wireless mobile services by reselling other providers' wireless mobile services. We offer wireless local telephone services over our own facilities, and have purchased personal communications system, or PCS, and local multipoint distribution system, or LMDS, wireless broadband licenses in FCC auctions covering markets in Alaska. We have fewer subscribers to our wireless services than to our other service offerings. The geographic coverage of our wireless services is also smaller than the

geographic coverage of our other services. Some of our competitors offer or propose to offer an integrated bundle of communications, entertainment and information services, including wireless services. If we are unable to expand and further develop our wireless services, we may not be able to meet the needs of customers who desire packaged services, and our competitors who offer these services would have an advantage. This could result in the loss of market share for our other service offerings.

Our efforts to deploy digital local phone service, or DLPS, may be unsuccessful, in which case the margins on our local telephone services business will not improve and we will not recover any capital investment that we have made in DLPS.

An element of our business strategy is to deploy voice telephone service utilizing our hybrid fiber coax cable facilities. In April 2004 we successfully launched our DLPS deployment utilizing our Anchorage coaxial cable facilities. DLPS allows us to utilize our own cable facilities to provide local access to our customers and avoid paying local loop charges to the ILEC. To continue to successfully deploy this service, we must integrate new technology with our existing facilities and modify our operating procedures to timely detect and effect repairs of our outside plant network. The long-term viability of this service depends on the adoption of industry-wide standards for the sending and receiving of voice communications over cable facilities and the availability of the equipment necessary to provide the service at a cost-effective price. The deployment of this service may require a substantial capital investment by us. If we are unable to successfully deploy DLPS to a sufficiently large portion of our customer base, we will not be able to recover all of the capital investment we may make and the margins on our local telephone services business will not improve.

We rely heavily on our network equipment, communications providers, data and software, to support all of our functions. We rely on our networks and the networks of others for substantially all of our revenues. We are able to deliver services only to the extent that we can protect our network systems against damage from power or communication failures, computer viruses, natural disasters, unauthorized access and other disruptions. While we endeavor to provide for failures in the network by providing back-up systems and procedures, we cannot guarantee that these back-up systems and procedures will operate satisfactorily in an emergency. Should we experience a prolonged failure, it could seriously jeopardize our ability to continue operations. In particular, should a significant service interruption occur, our ongoing customers may choose a different provider, and our reputation may be damaged, reducing our attractiveness to new customers.

To the extent that any disruption or security breach results in a loss or damage to our customers' data or applications, or inappropriate disclosure of confidential information, we may incur liability and suffer from adverse publicity. In addition, we may incur additional costs to remedy the damage caused by these disruptions or security breaches.

If a failure occurs in our undersea fiber optic cable, our ability to immediately restore the entirety of our service may be limited, which could lead to a material adverse effect on our business, financial position, results of operations or liquidity.

Our communications facilities include an undersea fiber optic cable that carries a large portion of our Internet voice and data traffic to and from the contiguous lower 48 states. We are currently constructing alternative communications facilities as backup facilities. If a failure of our undersea fiber optic facilities occurs before we are able to complete construction of backup facilities and we are not able to secure alternative facilities, some of the communications services we offer to our customers could be interrupted, which could have a material adverse effect on our business, financial position, results of operations or liquidity.

If a failure occurs in our satellite communications systems, our ability to immediately restore the entirety of our service may be limited.

We serve many rural and remote Alaska locations solely via satellite communications. Each of our C- and Ku-band satellite transponders is backed up on the same spacecraft with multiple backup transponders. Our primary spacecraft is PanAmSat's Galaxy 10R ("G-10R"), but we also lease capacity on two other spacecraft for services we provide, SES Americom's AMC-7 and AMC-8. On G-10R, we use 7 C-band transponders. We have arranged for backup C-band satellite capacity on another PanAmSat spacecraft, Galaxy 13 ("G-13"), for all of those satellite transponders in the unlikely event of a total primary spacecraft failure. If such a failure occurs, service may not be fully restored for up to a week or longer due to the time necessary to redirect earth station antennae. We also own one Ku-band satellite transponder on the same primary spacecraft (G-10R) that provides our C-band service. In the event of total primary spacecraft failure, we believe we would be able to restore our Ku-band transponder traffic on G-13, although no pre-arrangement for its backup is currently in place. We lease on a short-term basis an additional 9 megahertz ("MHz") of protected but un-backed up transponder capacity on another G-10R transponder. Such capacity is protected by the same satellite for transponder failure, but in the event of total spacecraft failure, this leased space segment would not be restored. We also lease approximately 11 MHz of protected and backed-up C-band capacity on SES Americom's AMC-8 spacecraft. SES Americom's AMC-7 is the backup spacecraft for AMC-8. We also lease certain C-band transponder capacity on AMC-7 that can be preempted in the case of a satellite failure. The services that are preempted would not be immediately restored should AMC-7 fail or be called up to provide restoration of another of SES Americom's spacecraft.

We depend on a limited number of third-party vendors to supply communications equipment. If we do not obtain the necessary communications equipment, we will not be able to meet the needs of our customers.

We depend on a limited number of third-party vendors to supply cable, Internet, DLPS, and telephony-related equipment. If our providers of this equipment are unable to timely supply the equipment necessary to meet our needs or provide them at an acceptable cost, we may not be able to satisfy demand for our services and competitors may fulfill this demand.

We do not have insurance to cover certain risks to which we are subject, which could lead to the incurrence of uninsured liabilities that adversely affect our financial position, results of operations or liquidity.

We are self-insured for damage or loss to certain of our transmission facilities, including our buried, under sea, and above-ground transmission lines. If we become subject to substantial uninsured liabilities due to damage or loss to such facilities, our financial position, results of operations or liquidity may be adversely affected.

Our significant debt could adversely affect our business and prevent us from fulfilling our obligations under the new notes.

We have and will continue to have a significant amount of debt. On March 31, 2004, GCI, Inc. and its subsidiaries had total debt of approximately $411.3 million (which consisted of $245.7 million of the old notes ($250.0 million net of issue discounts), $121.2 million of borrowings under our senior secured credit facility, and $44.4 million of other debt).

Our high level of debt could have important consequences to you, including the following:

In addition, a substantial portion of our debt bears interest at variable rates. If market interest rates increase, variable-rate debt will create higher debt service requirements, which would adversely affect our financial position, results of operations or liquidity.

We will require a significant amount of cash to service our debt, including the new notes. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our debt, including the new notes, and to fund planned capital expenditures and business development efforts, will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control.

Our business may not generate sufficient cash flow from operations and future borrowings may not be available to us under our senior secured credit facility or otherwise in an amount sufficient to enable us to pay our debt, including the new notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our debt, including the new notes, on or before maturity. We may not be able to refinance any of our debt, including our senior secured credit facility, or the new notes, on commercially reasonable terms or at all.

Despite our current significant level of debt, we may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial debt.

We may be able to incur substantial debt in the future. Although the indenture governing the new notes contains restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the substantial risks described above would intensify.

Our secured creditors will be entitled to be paid in full from the proceeds from the sale of our pledged assets before such proceeds will be available for payment on the new notes.

The new notes will be unsecured obligations. Holders of our secured debt will have claims that are prior to your claims as holders of the new notes to the extent of the value of the assets securing the secured debt. Notably, GCI Holdings, Inc. and its subsidiaries are parties to the senior secured credit facility, which is secured by liens on the stock and assets of substantially all of our subsidiaries and is guaranteed by substantially all of our subsidiaries. In the event that our secured creditors exercise their rights with respect to our pledged assets, our secured creditors would be entitled to be repaid in full from the proceeds of those assets before those proceeds would be available for distribution to our

other senior creditors, including the holders of the new notes. At March 31, 2004, we had $165.5 million of secured indebtedness, and approximately $41.5 million was available for additional borrowings under our senior secured credit facility. In addition, future borrowings under our senior secured credit facility as well as obligations under interest rate protection or other hedging agreements owed to our senior secured credit facility lenders and their affiliates will be secured. The indenture governing the new notes permits us to incur additional secured indebtedness provided certain conditions are met. In addition, if we are involved in a bankruptcy, foreclosure, dissolution, winding-up, liquidation, reorganization or similar proceeding or upon a default in payment on, or the acceleration of, any indebtedness under our senior secured credit facility and other secured indebtedness, our assets that secure such indebtedness will be available to pay obligations on the new notes only after all indebtedness under our senior secured credit facility and other secured indebtedness has been paid in full from those assets. Holders of the new notes will participate ratably with all holders of our unsecured debt that is deemed to be of the same class as the new notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor, in our remaining assets. We may not have sufficient assets remaining to pay amounts due on any or all of the new notes then outstanding.

The terms of our debt impose, or will impose, restrictions on us that may affect our ability to successfully operate our business and our ability to make payments on the new notes.

The indenture governing our new notes contains and/or the credit agreement governing our senior secured credit facility contains covenants that, among other things, limit our ability to:

The senior secured credit facility also requires us to comply with specified financial ratios and tests, including, but not limited to, minimum interest coverage ratio, maximum leverage ratio and maximum annual capital expenditures.

These covenants could materially and adversely affect our ability to finance our future operations or capital needs and to engage in other business activities that may be in our best interest.

All of these covenants may restrict our ability to expand or to pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, such as prevailing economic conditions and changes in regulations, and if such events occur, we cannot be sure that we will be able to comply. A breach of these covenants could result in a default under the indenture governing our new notes and/or the senior secured credit facility. If there were an event of default under the indenture for the new notes and/or the senior secured credit facility, holders of such defaulted debt could cause all amounts borrowed under these instruments to be due and payable immediately. Additionally, if we fail to repay the debt under the senior secured credit facility when it becomes due, the lenders under the senior secured credit facility could proceed against certain of our assets and capital stock of our subsidiaries that we have pledged to them as security. Our assets or cash

flow may not be sufficient to repay borrowings under our outstanding debt instruments in the event of a default thereunder.

GCI, Inc., the sole obligor of the new notes, is a holding company. We may not be able to service the new notes because of our operational structure.

The new notes are obligations solely of GCI, Inc. GCI, Inc. has no operations of its own and derives all of its revenues and cash flows from its subsidiaries. However, GCI, Inc.'s subsidiaries are separate and distinct legal entities and have no legal obligation, contingent or otherwise, to pay amounts due under the new notes or to make funds available to pay those amounts, whether by dividend, distribution, loan or otherwise.

The new notes are structurally subordinate to all debt and liabilities, including trade payables, of GCI, Inc.'s subsidiaries. You are only entitled to participate with all other holders of GCI, Inc.'s indebtedness and liabilities in the assets of GCI, Inc.'s subsidiaries remaining after GCI, Inc.'s subsidiaries have paid all of their debts and liabilities. GCI, Inc.'s subsidiaries may not have sufficient funds or assets to permit payments to GCI, Inc. in amounts sufficient to permit GCI, Inc. to pay all or any portion of its indebtedness and other obligations, including its obligations on the new notes. Although the indenture governing the new notes limits the ability of such subsidiaries to enter into any consensual restrictions on their ability to pay dividends and other payments to us, such limitations will be subject to a number of significant qualifications.

If we experience a change of control, we will be required to make an offer to repurchase the new notes. However, we may be unable to do so due to lack of funds or covenant restrictions. As a result, you may be required to continue to hold your new notes even after a change of control.

Upon certain events constituting a change of control, as that term is defined in the indenture governing the new notes, including a change of control caused by an unsolicited third party, we will be required to make an offer in cash to repurchase all or any part of each holder's new notes at a price equal to 101% of the principal thereof, plus accrued interest. The source of funds for any such repurchase would be our available cash or cash generated from operations or other sources, including borrowings, sales of equity or funds provided by a new controlling person or entity. We may not have sufficient funds at the time of any change of control event to repurchase all tendered new notes pursuant to this requirement. Our failure to offer to repurchase new notes, or to repurchase new notes tendered, following a change of control will result in a default under the indenture governing the new notes, which could lead to a cross-default under our senior secured credit facility and under the terms of our other debt. In addition, our senior secured credit facility effectively prohibits us from making any such required repurchases. Prior to repurchasing the new notes on a change of control event, we must either repay outstanding debt under our senior secured credit facility or obtain the consent of the lenders under that facility. If we do not obtain the required consents or repay our outstanding debt under our senior secured credit facility, we would remain effectively prohibited from offering to repurchase the new notes. See "Description of the New Notes—Change of Control," "—Certain Covenants" and "—Events of Default."

We may not be required, or we may not be able, to repurchase the new notes upon an asset sale.

Holders of the new notes may not have all or any of their new notes repurchased following an asset sale because:

Under the terms of the indenture governing the new notes, we are required to repurchase all or a portion of the new notes following an asset sale at a purchase price equal to 100% of the principal amount of the new notes. However, we are required to repurchase the new notes only from the excess proceeds of the asset sale that we do not use to repay other senior debt or to acquire replacement assets. We can also defer the offer to you until there are excess proceeds in an amount greater than $10 million. It is likely that the terms of our senior secured credit facility will require us to apply most, if not all, of the proceeds of an asset sale to repay that debt, in which case there may be no excess proceeds of the asset sale for the repurchase of the new notes. See "Description of New Notes—Limitation on Asset Sales."

In addition, the terms of our senior secured credit facility may prevent us from repurchasing the new notes without the consent of the senior secured credit facility lenders. In those circumstances, we would be required to obtain the consent of those senior lenders before we could repurchase the new notes with the excess proceeds of an asset sale. If we were unable to obtain any required consents, the requirement that we purchase the new notes from the excess proceeds of an asset sale would be ineffective.

No public market exists for the new notes. If an active trading market does not develop for the new notes, you may not be able to resell them.

Prior to this offering, there was no public market for the new notes and, an active trading market may never develop for the new notes. If no active trading market develops, you may not be able to resell your new notes at their fair market value or at all. Future trading prices of the new notes will depend on many factors, including, among other things, prevailing interest rates, our operating results and the market for similar securities. We have been informed by the initial purchasers that they currently intend to make a market in the new notes after this offering is completed. However, the initial purchasers may cease their market-making at any time. We do not intend to apply for listing of the new notes on any securities exchange.

If you fail to comply with the procedures described in this prospectus, you may lose your opportunity to participate in this exchange offer.

The new notes will be issued in exchange for the old notes only after timely receipt by the exchange agent of the old notes or a book-entry confirmation related thereto, or compliance with requirements for guaranteed delivery, a properly completed and executed letter of transmittal or an agent's message, and all other required documentation. If you want to tender your old notes in exchange for new notes, you should allow sufficient time to ensure timely delivery. Neither we nor the exchange agent are under any duty to give you notification of defects or irregularities with respect to tenders of old notes for exchange. If you fail to comply with the procedures described in this prospectus, you may lose your opportunity to participate in this exchange offer.

All statements other than statements of historical facts included in this prospectus, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "except", "intend", "estimate", "anticipate", "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurances that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations are disclosed under "Risk Factors" and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus.

The gross proceeds from the sale of the old notes were approximately $245 million (representing an offering price of $250 million less the initial purchasers' discount). The following table sets forth the sources and uses of funds in connection with the issuance of the old notes, the retirement of our 2007 notes and the reduction of indebtedness under our senior secured credit facility.

		(in thousands)
Sources of Funds:
Notes offered on February 17, 2004		$	245,707
	Total Sources of Funds	$	245,707

Uses of Funds:
Retire 2007 Notes(1)		$	180,000
Reduce indebtedness under senior secured credit facility			53,800
Fees and expenses(2)			11,907

	Total Uses of Funds	$	245,707

The following table sets forth the consolidated cash and cash equivalents and capitalization of GCI, Inc. as of March 31, 2004. The information set forth below is unaudited and should be read in conjunction with the audited and unaudited financial statements of GCI, Inc. and the related notes included elsewhere in this prospectus.

			March 31, 2004
			(in thousands)
Cash and cash equivalents			$	10,841

Long-term debt, including current portion:
	Senior secured credit facility:
		Revolving Credit Facility(1)		—
		Term Loan Facility	$	121,168
	Old Notes(2)		$	245,744
	2007 Notes			—
	Capital leases/other		$	44,366

		Total consolidated long-term debt	$	411,278
Total stockholders' equity(3)			$	249,213

Total capitalization			$	660,491

On October 30, 2003, GCI Holdings, Inc. and certain of its subsidiaries entered into a credit agreement in the amount of up to an aggregate $220 million with Credit Lyonnais New York Branch, as administrative agent, co-bookrunner and co-arranger; General Electric Capital Corporation, as documentation agent, co-arranger and co-bookrunner; CIT Lending Services Corporation, as syndication agent; and various lending institutions. GCI Holdings, Inc. is a wholly-owned subsidiary of GCI, Inc., the issuer of the new notes. On March 31, 2004, we had outstanding $129.7 million of borrowings under our senior secured credit facility including letters of credit totaling $8.5 million, meaning that we have the ability to borrow an additional $91.5 million, subject to certain conditions.

The following is a description of the material terms of the senior secured credit facility. A copy of the credit agreement is filed with the SEC as Exhibit 10.111 to the registration statement of which this prospectus is a part.

The Term Loan Facility is amortized quarterly from December 31, 2003 through the date of maturity according to the following schedule:

Date	Amount
	(in thousands)
Quarterly from December 31, 2003 to December 31, 2004	$	5,000
Quarterly from March 31, 2005 to December 31, 2005	$	6,000
Quarterly from March 31, 2006 to December 31, 2006	$	8,000
Quarterly from March 31, 2007 to September 30, 2007	$	10,000

The remaining balance of the senior secured credit facility will be payable in full on October 31, 2007.

For purposes of calculating interest, loans under the credit agreement are designated as Eurodollar Loans, or, in certain circumstances, Alternate Base Rate Loans.

Eurodollar Loans bear interest at the interbank Eurodollar rate plus a borrowing margin, as described below. Interest on Eurodollar Loans is payable at the end of the applicable interest period in the case of interest periods of one, two or three months and every three months in the case of interest periods of six months or longer.

Alternate Base Rate Loans bear interest at (a) the greater of (i) the rate most recently announced by Credit Lyonnais New York Branch as its "prime rate" or (ii) the Federal Funds Rate plus ¹/2 of 1% per annum; plus (b) a borrowing margin as described below. Interest on Alternate Base Rate Loans is payable quarterly in arrears.

The credit agreement provides that the borrowing margins for the Revolving Credit Facility and the Term Loan Facility are subject to the following pricing grid:

Leverage Ratio	Alternate Base Rate Loans		Eurodollar Loans
Greater than or equal to 3.75x	1.00	%	2.50	%
Less than 3.75x but greater than or equal to 3.25x	0.75	%	2.25	%
Less than 3.25x but greater than or equal to 2.75x	0.50	%	2.00	%
Less than 2.75x	0.25	%	1.75	%

We are also required to pay a commitment fee on the unused portion of the revolving credit commitment of 0.375% to 0.625% depending on the Leverage Ratio and the level of utilization of the Revolving Credit Facility.

The senior secured credit facility and any interest rate or other hedging arrangements entered into with any of the lenders are obligations of GCI Holdings, Inc. and are guaranteed by substantially all of its present and future direct and indirect subsidiaries. The senior secured credit facility is secured by a valid first priority perfected lien or pledge on 100% of the stock of GCI Holdings, Inc. and substantially all of GCI Holdings, Inc.'s present and future direct and indirect subsidiaries and a valid first priority perfected security interest in all of the assets of GCI Holdings, Inc. and the assets of substantially all of its direct and indirect subsidiaries.

The loan documentation contains customary negative covenants and financial covenants. During the term of the senior secured credit facility, the negative covenants restrict GCI, Inc., GCI Holdings, Inc. and their subsidiaries' ability to do certain things, including but not limited to:

GCI Holdings, Inc. is required to make a mandatory prepayment of the loans with, among other things

GCI Holdings, Inc. is also required to make a mandatory prepayment of the loans on February 1, 2007 if we have not successfully refinanced the 2007 notes of GCI, Inc. The redemption of the 2007 notes with the proceeds of the old notes constituted a successful refinancing of the 2007 notes.

The loan documentation for the senior secured credit facility contains customary events of default, including, but not limited to, cross defaults to other material debt of GCI, Inc., GCI Holdings, Inc., and their subsidiaries and certain change of control events.

We entered into an amendment to the senior secured credit facility that amended the indebtedness covenant to permit the incurrence of the new notes. The amendment required the excess of the proceeds of the old notes (net of transaction costs) over the redemption price of the 2007 notes be used to prepay the loans under the senior secured credit facility. Accordingly, we have used approximately $53.8 million of proceeds from the offering of the old notes to prepay the loans under our senior secured credit facility.

In March 2000, our subsidiary entered into a lease of satellite transponder capacity through a capital lease arrangement with a leasing company. The effective term of the lease expires in March 2009. As of March 31, 2004, the outstanding obligation under the satellite transponder capital lease was approximately $43.2 million. The satellite transponder lease includes covenants that require maintenance of specific levels of operating cash flow to indebtedness and limitations on additional indebtedness. As of March 31, 2004, the aggregate outstanding obligations under our other capital leases was approximately $1.2 million. Future minimum capital lease payments, including interest, for all capital leases total approximately $9.6 million, $10.2 million, $9.7 million, $8.8 million and $25.4 million for years ending December 31, 2004, 2005, 2006, 2007 and 2008 and thereafter.

Simultaneously with the issuance and sale of the old notes, we entered into a registration rights agreement with the initial purchasers of the old notes—Deutsche Bank Securities Inc., Jefferies & Company, Inc., Credit Lyonnais Securities (USA), Inc., Blaylock & Partners, L.P., Ferris, Baker Watts, Incorporated and TD Securities (USA), Inc. Under the registration rights agreement, we agreed, among other things, to use reasonable best efforts to:

We are conducting the exchange offer to satisfy our obligations under the registration rights agreement. The form and terms of the new notes are the same as the form and terms of the old notes, except that the new notes will be registered under the Securities Act; will not bear restrictive legends restricting their transfer under the Securities Act; will not entitle holders to the registration rights that apply to the old notes; and will not contain provisions relating to liquidated damages in connection with the old notes under circumstances related to the timing of the exchange offer.

The exchange offer is not extended to old note holders in any jurisdiction where the exchange offer does not comply with the securities or blue sky laws of that jurisdiction.

In the event that applicable law or SEC policy does not permit us to conduct the exchange offer, or if certain holders of the old notes notify us within 30 days following the date when such holders become aware that they did not receive freely tradable new notes in exchange for tendered old notes in the exchange offer, we will use reasonable best efforts to file and cause to become effective a shelf registration statement with respect to the resale of the notes. We also agreed to use our reasonable best efforts to keep the shelf registration statement effective for at least two years after its date of effectiveness.

If we fail to meet certain specified deadlines under the registration rights agreement, we will be obligated to pay liquidated damages to the holders of the old notes.

A copy of the registration rights agreement is filed herewith as Exhibit 4.2 to the registration statement of which this prospectus is a part.

We are offering to exchange up to $250 million total principal amount of new notes for a like total principal amount of old notes. The old notes must be tendered properly in accordance with the conditions set forth in this prospectus and the accompanying letter of transmittal on or prior to the expiration date and not withdrawn as permitted below. In exchange for old notes properly tendered and accepted, we will issue a like total principal amount of up to $250 million in new notes. The exchange offer is not conditioned upon holders tendering a minimum principal amount of old notes. As of the date of this prospectus, $250 million aggregate principal amount of old notes are outstanding.

Old notes tendered in the exchange offer must be in denominations of the principal amount of $1,000 and any integral multiple of $1,000 in excess thereof.

Holders of the old notes do not have any appraisal or dissenters' rights in connection with the exchange offer. If you do not tender your old notes or if you tender old notes that we do not accept, your old notes will remain outstanding. Any old notes will be entitled to the benefits of the indenture but will not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances. Existing transfer restrictions would continue to apply to such old notes. See "Risk Factors—Consequences of a Failure to Exchange Old Notes" for more information regarding old notes outstanding after the exchange offer.

Promptly after the expiration date, we will return to the holder any tendered old notes that we did not accept for exchange.

None of us, our board of directors or our management recommends that you tender or not tender old notes in the exchange offer or has authorized anyone to make any recommendation. You must decide whether to tender in the exchange offer and, if you decide to tender, the aggregate amount of old notes to tender.

The expiration date is 5:00 p.m., New York City time, on August 5, 2004, or such later date and time to which we extend the exchange offer. We will not extend the expiration date beyond 45 days from the date of this prospectus.

If we materially amend the exchange offer, we will as promptly as practicable distribute to the holders of the old notes a prospectus supplement or, if appropriate, an updated prospectus from a post-effective amendment to the registration statement of which this prospectus is a part disclosing the change and extending the exchange offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during the five to ten business day period.

If we exercise any of the rights listed above, we will as promptly as practicable give oral or written notice of the action to the exchange agent and will make a public announcement of such action. In the

case of an extension, an announcement will be made no later than 9:00 a.m., New York City time on the next business day after the previously scheduled expiration date.

During an extension, all old notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us.

Promptly after the expiration date, we will accept all old notes validly tendered and not withdrawn, and we will issue new notes registered under the Securities Act to the exchange agent.

The exchange agent might not deliver the new notes to all tendering holders at the same time. The timing of delivery depends upon when the exchange agent receives and processes the required documents, which include:

We will be deemed to have exchanged old notes validly tendered and not withdrawn when we give oral or written notice to the exchange agent of our acceptance of the tendered old notes, with written confirmation of any oral notice to be given promptly thereafter. The exchange agent is our agent for receiving tenders of old notes, letters of transmittal and related documents.

In tendering old notes, you must warrant in the letter of transmittal or in an agent's message (described below) that (1) you have full power and authority to tender, exchange, sell, assign and transfer old notes, (2) we will acquire good, marketable and unencumbered title to the tendered old notes, free and clear of all liens, restrictions, charges and other encumbrances, and (3) the old notes tendered for exchange are not subject to any adverse claims or proxies. You also must warrant and agree that you will, upon request, execute and deliver any additional documents requested by us or the exchange agent to complete the exchange, sale, assignment and transfer of the old notes.

When the holder of old notes tenders, and we accept, old notes for exchange, a binding agreement between us, on the one hand, and the tendering holder, on the other hand, is created, subject to the terms and conditions set forth in this prospectus and the accompanying letter of transmittal. A holder of old notes who wishes to tender old notes for exchange must, on or prior to the expiration date:

The term "agent's message" means a message transmitted to the exchange agent by DTC which states that DTC has received an express acknowledgment that the tendering holder agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such holder. The agent's message forms a part of a book-entry transfer.

We will not accept any alternative, conditional or contingent tenders. All tendering holders of old notes, by executing the letter of transmittal, waive any right to receive notice of the acceptance of old notes for exchange.

If you beneficially own old notes and those notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian and you wish to tender your old notes in the exchange offer, you should contact the registered holder as soon as possible and instruct it to tender the old notes on your behalf and comply with the instructions set forth in this prospectus and the letter of transmittal.

If you tender fewer than all of your old notes, you should fill in the amount of notes tendered in the appropriate box on the letter of transmittal. If you do not indicate the amount tendered in the appropriate box, we will assume you are tendering all old notes that you hold.

The letter of transmittal may be delivered by mail, facsimile, hand delivery or overnight carrier, to the exchange agent.

The method of delivery of the certificates for the old notes, the letter of transmittal and all other required documents is at the election and sole risk of the holders. If delivery is by mail, we recommend registered mail with return receipt requested, properly insured, or overnight delivery service. In all cases, you should allow sufficient time to assure timely delivery to the exchange agent on or prior to the expiration date. No letters of transmittal or old notes should be sent directly to us. Delivery is complete when the exchange agent actually receives the items to be delivered. Delivery of documents to DTC in accordance with DTC's procedures does not constitute delivery to the exchange agent.

Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the old notes surrendered for exchange are tendered:

An "eligible institution" is a firm or other entity which is identified as an "Eligible Guarantor Institution" in Rule 17Ad-15 under the Securities Exchange Act of 1934, the Exchange Act, including:

If signatures on a letter of transmittal or notice of withdrawal are required to be guaranteed, the guarantor must be an eligible institution.

If old notes are registered in the name of a person other than the signer of the letter of transmittal, the old notes surrendered for exchange must be endorsed or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with the holder's signature guaranteed by an eligible institution, and must also be accompanied by such opinions of counsel, certifications and other information as we or the trustee under the indenture may require in accordance with the restrictions on transfers applicable to the old notes.

For tenders by book-entry transfer of old notes cleared through DTC, the exchange agent will make a request to establish an account at DTC for purposes of the exchange offer. Any financial institution that is a DTC participant may make book-entry delivery of old notes by causing DTC to transfer the old notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC may use the Automated Tender Offer Program, or ATOP, procedures to tender old notes. Accordingly, any participant in DTC may make book-entry delivery of old notes by causing DTC to transfer those old notes into the exchange agent's account in accordance with DTC's ATOP procedures for transfer.

Notwithstanding the ability of holders of old notes to effect delivery of old notes through book-entry transfer at DTC, either:

If a holder wants to tender old notes in the exchange offer and (1) the certificates for the old notes are not immediately available or all required documents are unlikely to reach the exchange agent on or prior to the expiration date, or (2) a book-entry transfer cannot be completed on a timely basis, the old notes may be tendered if the holder complies with the following guaranteed delivery procedures:

You may deliver the notice of guaranteed delivery by hand, facsimile, mail or overnight delivery to the exchange agent and you must include a guarantee by an eligible institution in the form described above in such notice.

Our acceptance of properly tendered old notes is a binding agreement between the tendering holder and us upon the terms and subject to the conditions of the exchange offer.

We, in our sole discretion, will resolve all questions regarding the form of documents, validity, eligibility, including time of receipt, and acceptance for exchange of any tendered old notes. Our determination of these questions as well as our interpretation of the terms and conditions of the exchange offer, including the letter of transmittal, will be final and binding on all parties. A tender of old notes is invalid until all defects and irregularities have been cured or waived. Holders must cure any defects and irregularities in connection with tenders of old notes for exchange within such reasonable period of time as we will determine, unless we waive the defects or irregularities. Neither us, any of our affiliates or assigns, the exchange agent nor any other person is under any obligation to give notice of any defects or irregularities in tenders nor will they be liable for failing to give any such notice.

If any letter of transmittal, endorsement, bond power, power of attorney, or any other document required by the letter of transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person must indicate such capacity when signing. In addition, unless waived by us, the person must submit proper evidence satisfactory to us, in our sole discretion, of his or her authority to so act.

Any old notes which have been tendered for exchange but are not exchanged for any reason will be returned to the holder thereof promptly after rejection of tender or termination of the exchange offer without cost to the holder. In the case of old notes tendered by book-entry transfer through DTC, any unexchanged old notes will be credited to an account maintained with DTC.

Based on interpretive letters issued by the SEC staff to third parties in transactions similar to the exchange offer, we believe that a holder of new notes, other than a broker-dealer, may offer new notes for resale, resell and otherwise transfer the new notes without delivering a prospectus to prospective purchasers, if the holder acquires the new notes in the ordinary course of its business, is not engaged in, does not intend to engage in and has no arrangement or understanding with any person to participate in a "distribution" (as defined under the Securities Act) of the new notes and is not an "affiliate" of GCI (as defined under the Securities Act). We will not seek our own interpretive letter. As a result, we cannot assure you that the staff will take the same position on this exchange offer as it did in interpretive letters to other parties in similar transactions.

By tendering old notes, the holder, other than participating broker-dealers, as defined below, of those old notes will represent to us that, among other things:

If any holder or any such other person is an "affiliate" of GCI or is engaged in, intends to engage in or has an arrangement or understanding with any person to participate in a "distribution" of the new notes, such holder or other person:

Each broker-dealer that receives new notes for its own account in exchange for old notes must represent that the old notes to be exchanged for the new notes were acquired by it as a result of market-making activities or other trading activities and acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any offer to resell, resale or other retransfer of the new notes. Any such broker-dealer is referred to as a participating broker-dealer. However, by so acknowledging and delivering a prospectus, the participating broker-dealer will not be deemed to admit that it is an "underwriter" (as defined under the Securities Act). If a broker-dealer acquired old notes as a result of market-making or other trading activities, it may use this prospectus, as amended or supplemented, in connection with offers to resell, resales or retransfers of new notes received in exchange for the old notes pursuant to the exchange offer. We have agreed that, during the period ending 90 days after the consummation of the exchange offer, subject to extension in limited circumstances, we will use reasonable best efforts to maintain the effectiveness of the exchange offer registration statement and make this prospectus available to any broker-dealer for use in connection with any such resale. Participating broker-dealers will be required to suspend use of the prospectus included in the exchange offer registration statement under certain circumstances upon receipt of written notice to that effect from us. See "Plan of Distribution and Selling Restrictions" for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer.

You can withdraw tenders of old notes at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, you must deliver a written notice of withdrawal to the exchange agent. The notice of withdrawal must:

If you delivered or otherwise identified old notes to the exchange agent, you must submit the serial numbers of the old notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an eligible institution, except in the case of old notes tendered for the account of an eligible institution. If you tendered old notes as a book-entry transfer, the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old notes and you must deliver the notice of withdrawal to the exchange agent. You may not rescind withdrawals of tender; however, old notes properly withdrawn may again be tendered by following one of the procedures described under "—Procedures for Tendering Old Notes" above at any time prior to 5:00 p.m., New York City time, on the expiration date.

We will determine, in our sole discretion, all questions regarding the form of withdrawal, validity, eligibility, including time of receipt, and acceptance of withdrawal notices. Our determination of these questions as well as our interpretation of the terms and conditions of the exchange offer (including the letter of transmittal) will be final and binding on all parties. Neither us, any of our affiliates or assigns, the exchange agent nor any other person is under any obligation to give notice of any irregularities in any notice of withdrawal, nor will they be liable for failing to give any such notice.

Withdrawn old notes will be returned to the holder promptly after withdrawal without cost to the holder. In the case of old notes tendered by book-entry transfer through DTC, the old notes withdrawn will be credited to an account maintained with DTC.

Notwithstanding any other provision of the exchange offer, we are not required to accept for exchange, or to issue new notes in exchange for, any old notes, and we may terminate or amend the exchange offer, if at any time prior to the expiration of the exchange offer, we determine that the exchange offer violates applicable law or SEC policy.

The foregoing conditions are for our sole benefit, and we may assert them regardless of the circumstances giving rise to any such condition, or we may waive the conditions, completely or partially, as many times as we choose prior to the expiration of the exchange offer, in our reasonable discretion. The foregoing rights are not deemed waived because we fail to exercise them, but continue in effect, and we may still assert them whenever or as many times as we choose prior to the expiration of the exchange offer. If we determine that a waiver of conditions materially changes the exchange offer, the prospectus will be amended or supplemented, and the exchange offer extended, if appropriate, as described under "—Terms of the Exchange Offer."

In addition, at a time when any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or with respect to the qualification of the indenture under the Trust Indenture Act of 1939, as amended, we will not accept for exchange any old notes tendered, and no new notes will be issued in exchange for any such old notes.

If we terminate or suspend the exchange offer based on a determination that the exchange offer is not permitted by applicable law or SEC policy, the registration rights agreement requires that we use reasonable best efforts to cause a shelf registration statement covering the resale of the old notes to be filed 120 days after the date we receive notice of such determination and to be declared effective by the SEC on or prior to 210 days after the date on which we file such shelf registration statement. See "—Registration Rights; Liquidated Damages."

We appointed The Bank of New York as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal, and requests for notices of guaranteed delivery to the exchange agent at the address and phone number as follows:

If you deliver letters of transmittal and any other required documents to an address or facsimile number other than those listed above, your tender is invalid.

The registration rights agreement provides that we will bear all expenses in connection with the performance of our obligations relating to the registration of the new notes and the conduct of the exchange offer. These expenses include registration and filing fees, accounting and legal fees and printing costs, among others. We will pay the exchange agent reasonable and customary fees for its services and reasonable out-of-pocket expenses. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for customary mailing and handling expenses incurred by them in forwarding this prospectus and related documents to their clients that are holders of old notes and for handling or tendering for such clients.

We have not retained any dealer-manager in connection with the exchange offer and will not pay any fee or commission to any broker, dealer, nominee or other person, other than the exchange agent, for soliciting tenders of old notes pursuant to the exchange offer.

Holders who tender their old notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange. If, however, new notes issued in the exchange offer are to be delivered to, or are to be issued in the name of, any person other than the holder of the old notes which have been tendered, or if a transfer tax is imposed for any reason other than the exchange of old notes in connection with the exchange offer, then the holder must pay any such transfer taxes, whether imposed on the registered holder or on any other person. If satisfactory evidence of payment of, or exemption from, such taxes is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to the tendering holder.

The new notes will be recorded at the same carrying value as the old notes. Accordingly, we will not recognize any gain or loss for accounting purposes. We intend to amortize the expenses of the exchange offer and issuance of the old notes over the term of the new notes.

then, we will use reasonable best efforts to file and cause to be effective with the SEC a shelf registration statement to cover resales of the old notes or new notes, as applicable, by the holders of the notes who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement.

(1) we fail to file any of the registration statements required by the registration rights agreement on or before the date specified for such filing;

(2) any of such registration statements is not declared effective by the SEC on or prior to the date specified for such effectiveness, the effectiveness target date;

(3) we fail to consummate the exchange offer within 35 business days of the effectiveness target date with respect to the exchange offer registration statement; or

(4) the shelf registration statement or the exchange offer registration statement is filed and declared effective but thereafter ceases to be effective or usable in connection with resales of old notes during the periods specified in the registration rights agreement (each such event in clauses (1) through (4) above is referred to as a "registration default"),

then we will pay liquidated damages to each holder of the old notes, with respect to the first 90-day period immediately following the occurrence of the first registration default at a rate of 0.50% per annum of the principal amount of old notes held by such holder.

The amount of liquidated damages will increase by an additional 0.50% per annum of the principal amount of old notes with respect to each subsequent 90-day period until all registration defaults have been cured, up to a maximum amount of liquidated damages for all registration defaults of 2.0% per annum of the principal amount of old notes. Following the cure of all registration defaults, the accrual of liquidated damages will cease.

Holders of old notes will be required (1) to make certain representations to us (as described in the registration rights agreement) in order to participate in the exchange offer, (2) to deliver certain information to be used in connection with the shelf registration statement, and (3) to provide comments on the shelf registration statement within the time periods set forth in the registration rights agreement in order to have their old notes included in the shelf registration statement and benefit from the provisions regarding liquidated damages set forth above. By acquiring old notes or new notes, a holder will be deemed to have agreed to indemnify us against certain losses arising out of information furnished by such holder in writing for inclusion in any shelf registration statement. Holders of notes will also be required to suspend their use of the prospectus included in the shelf registration statement under certain circumstances upon receipt of written notice to that effect from us.

GCI, Inc. was incorporated in 1997 to effect the issuance of the 2007 notes as further described in note 8 to the accompanying audited consolidated financial statements included elsewhere in this prospectus. GCI, Inc., as a wholly-owned subsidiary of Parent, received through its initial capitalization all ownership interests in subsidiaries previously held by Parent. GCI, Inc. has its principal executive offices at 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503-2781 (telephone number 907-868-5600).

GCI, Inc. is a holding company and together with its direct and indirect subsidiaries, is a diversified communications provider with a leading position in facilities-based long-distance service in the State of Alaska and is Alaska's leading cable television and Internet services provider.

We have four reportable segments: long-distance services, cable services, local access services and Internet services. For financial information about our industry segments, you should see our Management's Discussion and Analysis of Financial Condition and Results of Operations and our audited and unaudited consolidated financial statements, each of which are included elsewhere in this prospectus.

Historical Development of our Business During the 2003 Fiscal Year and through March 31, 2004

DLPS deployment—We began notifying certain of our customers in March 2004 that we plan to move their local service plant onto our DLPS platform beginning in April 2004. The transfers are expected to begin in April 2004. To ensure the necessary equipment is available to us we entered into an agreement to purchase a certain number of outdoor, network powered multi-media adapters. The agreement has a remaining commitment at March 31, 2004 totaling $17.4 million.

New Senior Debt Securities—In February 2004 GCI, Inc. sold its new notes due in 2014, and conducted a consent solicitation and tender offer for its 2007 notes as further described in this Registration Statement.

Juneau Directory Launch—On February 22, 2004, we began our selling efforts for our inaugural edition of the GCI Juneau Directory and yellow pages to residential and business customers in Juneau, Alaska. We expect to begin delivering the completed directory to customers in August 2004. We are working with ALLTEL Publishing, a division of ALLTEL Corporation of Little Rock, Arkansas, to produce and distribute the official GCI Juneau phone directory. ALLTEL Publishing produces approximately 408 directory titles in 38 states, including directories for its own telephone operations, and was formerly the sales agent for the incumbent directories provider.

Free LiteSpeed—On January 25, 2004 we launched our Free LiteSpeed cable modem service. Customers who have, at a minimum, basic cable television service, local phone service (where or when it becomes available) and our Miles Ahead long distance plan, became eligible to sign up for our no additional cost Free LiteSpeed cable modem service at transmission speeds faster than conventional dial-up connections. This offer was made available in all of our cable services markets statewide, except in Kotzebue, and with a slightly different offer in Wrangell and Petersburg.

Rural Internet—We began a program in 2001 to bring affordable Internet access service to 150 rural Alaska communities. In addition to deploying cable modem service in all regional centers, we deployed wireless Internet access service, including service at broadband data rates, to over 70 rural communities in 2003. We now provide Internet access service to 85 communities across Alaska and expect to provide service in the remaining communities in 2004.

Rural Health Program—We completed service expansion and delivery of our Rural Health program in 2003 to several rural Alaska health corporations that included various service levels to villages in the Arctic Slope Native Association area, as well as in Chenega Bay, Kotzebue, Nanwalek, Platinum, Port Graham, Seward, and Tatitlek, and completed service expansion to Diomede Island in January 2004.

Directory Assistance—During the first quarter 2004, we began self-providing local directory assistance for our retail customers. During the fourth quarter of 2003, we began self-providing interstate directory assistance for certain wholesale customers, and for MCI, as an overflow Alaska directory assistance provider.

Cable Television Changes—We made significant changes and additions to our cable television lineup in 2003, including new networks and, in Anchorage, we introduced our first HDTV programming.

Hotel Broadband—We introduced a new hotel broadband product in 2003 which provides high-speed in-room cable modem Internet access to hotel customers.

State of Alaska Microwave System Contract—On December 31, 2003, we were awarded a time-and-materials contract from the State of Alaska to operate and maintain its statewide private microwave system.

State of Alaska Communications Contract—On December 17, 2003, we were awarded a contract from the State of Alaska to provide communications services for an initial term of 18 months, with two 12-month extensions possible thereafter. Communications services include long-distance, Internet Protocol, or IP, telephony, voice and data network management and maintenance, Internet, audio and video conferencing and help desk. The total value of the contract was approximately $10 million. This contract award followed the termination of the State of Alaska's prior contract with an ILEC due to non-performance.

Pipeline Communications—GCI Fiber Communication Co., Inc. (formerly known as Kanas Telecom, Inc.), GFCC, is our wholly-owned subsidiary that owns and operates a fiber optic cable system constructed along the trans-Alaska oil pipeline corridor extending from Prudhoe Bay to Valdez, Alaska. In December 2003, we successfully concluded a three-year effort to upgrade our GFCC network and prove the system reliable. The final stage of reliability testing and circuit conversion was completed, bringing voice, data, Internet and cable television traffic onto the fiber system serving the Alaskan oil industry. GFCC now carries a significant portion of all communications between Valdez, Anchorage and the North Slope oil fields.

New Anchorage Phone Directory—On November 24, 2003, we began distributing our inaugural edition of the GCI Anchorage Directory and yellow pages to residential and business customers in Anchorage, and launched our on-line directory product. We worked with ALLTEL Publishing to produce and distribute the official GCI Anchorage phone directory.

New Retail Stores—On March 2, 2004 we opened a new retail store serving our customers in Eagle River, Chugiak and Peters Creek, Alaska communities. On November 22, 2003, we opened a new retail store serving our south Anchorage market. The new stores allow customers to pay their bills, sign up for new services and experience our full range of products including cable modem Internet access, digital cable television, local and long distance telephone service, and cellular phone services. The new stores allow customers to purchase any of our services, pay bills and interact with customer service representatives.

Senior Secured Credit Facility—On October 30, 2003, we refinanced our senior secured credit facility. The new facility, among other things, reduced the interest rate from LIBOR plus 6.50% to LIBOR plus 3.25%. The new facility included a term loan of $170.0 million and a revolving credit facility of $50.0 million. In February, 2004, we repaid approximately $43.8 million of the term loan, which cannot be reborrowed.

GCI ConnectMD—On September 16, 2003, we introduced GCI ConnectMD, a private medical network that reaches clinics and hospitals in 110 rural Alaska communities and currently offers healthcare providers access to continuing education courses from two leading Seattle institutions. GCI ConnectMD has partnered with Seattle-based Children's Hospital and Regional Medical Center and Virginia Mason Medical Center. GCI ConnectMD links primary healthcare providers in Alaska to specialists and sub-specialists allowing them to securely share information, such as confidential patient records and lab results, diagnose and prescribe treatment for patients located in remote communities, and obtain continuing medical education credits. Using private line and secure Internet, GCI ConnectMD has created a private medical network that we believe is revolutionizing the way health care is provided in Alaska.

Airlines Mileage Program—On September 2, 2003, we announced that we have become a mileage plan partner with Alaska Airlines, offering new and existing customers opportunities to earn frequent flyer miles. Our customers can earn Alaska Airlines mileage plan miles by using qualifying local or long distance telephone, Internet, cable television, cellular, GCI directories or cable advertising services. The agreement requires the purchase of Alaska Airlines miles during the year ended December 31, 2003 and in future years. The agreement has a remaining commitment at March 31, 2004 totaling $15.9 million.

New Communications Policy for Alaska Areas—On August 6, 2003, the FCC issued a Report and Order eliminating a policy that prohibited the installation or operation of more than one satellite earth station in any Alaska rural community for competitive carriage of interstate message telephone service, or MTS, communications. The FCC found that through a series of regulatory steps, the environment that once called for restrictions on competitive facilities-based entry had changed. This policy change allows us to install facilities and provide competitive interstate MTS and other communications services over our own equipment and network in rural communities where we presently have no facilities.

Email Filter for Businesses—On August 6, 2003, we introduced our eMail Guard for screening unwanted junk emails. We estimate that more than 75% of email delivered to businesses today is spam. Our eMail Guard product keeps unwanted messages off of the customer's network, Internet connection and mail servers. Our Email Guard residential and business products filtered approximately 31,000 messages containing suspected viruses and 1,991,000 messages containing suspected junk mail during a representative 24-hour period in February 2004.

MCI Settlement—On July 24, 2003, following bankruptcy court approval, we signed a settlement and release agreement with MCI WorldCom Network Services, or MWNS. The agreement affirmed contractual terms and conditions between the two companies, settled MWNS' pre-petition liabilities, settled billing disputes between the two companies, and established a right to setoff our pre-petition payables. MWNS is a subsidiary of MCI, which had previously entered into service agreements with GCI on behalf of MCI.

Under terms of the agreement, MWNS settled its outstanding liability of $12.9 million for $12.1 million net of adjustments. In addition, the agreement reduced our pre-petition claim to $12.1 million and further allowed us the right to setoff approximately $1 million in prepetition payables owed by us to MWNS. MWNS agreed to pay the remaining $11 million to us as a credit against our future purchase of services from MWNS. Further, we agreed to pay to MWNS, and did pay, the outstanding pre-petition payables balance of approximately $649,000 in August 2003. Remaining credits available to us as of March 31, 2004 totaled approximately $6.7 million.

Extended Supply Contract—On July 24, 2003, MCI extended its Contract of Alaska Access Services for five years to July 2008. This agreement sets the terms and conditions under which we originate and terminate certain types of long distance and data services in Alaska on MCI's behalf. In exchange for extending the term of the contract, MCI receives a series of rate reductions implemented in phases over the life of the contract.

AULP West—On June 30, 2003, we announced our plan to build a second undersea fiber optic cable system between Seward, Alaska and Warrenton, Oregon. The cable will complement our existing AULP East fiber optic cable system between Whittier, Alaska and Seattle, Washington. The two systems will provide physically diverse nearly instant backup to each other in the event of an outage. Fiber production was completed in January 2004 and began to be deployed in February 2004. We expect to complete construction and testing in June, 2004. The 1,544-statute mile cable has a total design capacity of 640 Gigabits per second access speed and is expected to be fully operational by July 2004.

RCA Renewal—On May 21, 2003, the Senate of the State of Alaska passed and the Governor later signed House Bill 111 which extended the life of the RCA until 2007. We believe that renewal of the RCA is important for consumers and competition alike. The Alaska Senate voted to renew the Agency for four-years without any statutory changes that affect the manner by which utilities in Alaska are regulated.

We are the largest Alaska-based and operated integrated communications provider. A pioneer in bundled service offerings, we provide facilities-based local and long distance voice, cable video, Internet and data communications services, and resell wireless telephone services, to residential and business customers under our GCI brand.

Since GCI's founding in 1979, we have consistently expanded our product portfolio to satisfy our customers' needs. We have benefited from the attractive and unique demographic and economic characteristics of the Alaskan market. We believe our integrated strategy of providing innovative bundles of voice, video and data services provides us with an advantage over our competitors and will allow us to continue to attract new customers, retain existing customers and expand our addressable market. We hold leading market shares in long-distance, cable video and Internet services and have gained significant market share in local access against an incumbent provider.

We operate a broadband communications network that permits the delivery of a seamless integrated bundle of communications, entertainment and information services. We offer a wide array of consumer and business communications and entertainment services—including local telephone, long-distance and wireless communications, cable television, consulting services, network and desktop computing outsourced services, and dial-up, broadband (cable modem, wireless and DSL) and dedicated Internet access services at a wide range of speeds—all under the GCI brand name.

We believe that the size and growth potential of the voice, video and data market, the increasing deregulation of communications services, and the increased convergence of telephony, wireless, and cable services offer us considerable opportunities to continue to integrate our communications, Internet and cable services and expand into communications markets both within and, longer-term, possibly outside of Alaska.

Considerable deregulation has already taken place in the United States because of the 1996 Telecom Act with the barriers to competition between long-distance, local exchange and cable providers being lowered. We believe our acquisition of cable television systems and our development of local exchange service, Internet services, broadband services, and wireless services leave us well positioned to take advantage of deregulated markets.

We are Alaska's leading provider of long-distance, cable television and data and Internet services, as measured by revenues, and we are the second largest local access provider, as measured by local access lines. We attribute our leadership position to our commitment to provide our customers with high-quality products in bundled offerings that maximize their satisfaction. We maintain a strong competitive position; however there is active competition in the sale of substantially all products and services we offer.

There is substantial competition in the communications industry. The traditional dividing lines between providers offering long-distance telephone service, local telephone service, wireless telephone service, Internet services and video services are increasingly becoming blurred. Through mergers and various service integration and product bundling strategies, major providers, including us, are striving to provide integrated communications service offerings within and across geographic markets.

Market Leader. We are Alaska's leading provider of long-distance, cable television and data and Internet services, as measured by revenues, and we are the second largest local access provider, as measured by local access lines. We attribute our leadership position to our commitment to provide our customers with high-quality products in bundled offerings that maximize their satisfaction.

Advanced Infrastructure and Robust Network Assets. We own and operate advanced networks that provide integrated end-to-end solutions. Our cable network passes approximately 90% of Alaska's households and enables us to offer last-mile broadband connectivity to our customers. Our interstate and undersea fiber optic cable systems connect our major markets in Alaska to the contiguous lower 48 states. We employ satellite transmission for rural intrastate and interstate traffic in markets where terrestrial based network alternatives are not available. We have or expect to be able to obtain satellite transponders to meet our long-term satellite capacity requirements. In our local service markets, we offer services using our own facilities, unbundled network elements and wholesale/resale.

Bundled Service Offerings. Ownership and control of our network and communications assets have enabled us to effectively market bundled service offerings. Bundling facilitates the integration of operations and administrative support to meet the needs of our customers. Our product and service portfolio includes stand-alone offerings and bundled combinations of local and long-distance voice and data services, cable video, broadband (cable modem, fixed wireless and DSL), dedicated Internet access services and other services.

Well-Recognized Brand Name. Our GCI brand is the oldest brand among major communications providers in Alaska and positively differentiates our services from those of our competitors. We believe our customers associate our brand name with quality products. We continue to benefit from high name recognition and strong customer loyalty, and the majority of our customers purchase multiple services from us. We have been successful in selling new and enhanced products to our customers based on perceived quality of products and brand recognition.

Favorable Alaskan Market Dynamics. The Alaskan communications market is characterized by its large geographic size and isolated markets that include a combination of major metropolitan areas and small, dense population clusters, which create a deterrent to potential new entrants. Due to the remote nature of its communities, the state's residents and businesses rely extensively on our systems to meet their communications needs. We believe that, when compared to national averages, Alaskan households spend more on communications services. According to the United States Census Bureau, the median household income in Alaska was 28% higher than the three-year United States national average from

2000 to 2002, and according to the Alaska Department of Revenue, in 2002, federal spending in Alaska was up 18%, year over year. We believe there is a positive outlook for continued growth.

Experienced Management Team. Our experienced management team has a proven track record and has consistently expanded our business and improved our operations. Our senior management averages more than 23 years of experience in the communications industry and more than 18 years with GCI.

We intend to continue to increase revenues and cash flow using the following strategies:

Continue to Offer Bundled Products. We offer innovative service bundles to meet the needs of our residential and business customers. Bundling our services significantly improves customer retention, increases revenue per customer and reduces customer acquisition expenses. Our experience indicates that our bundled customers are significantly less likely to churn, and we experience less price erosion when we effectively combine our offerings. Bundling improves our top line growth, provides operating cost efficiencies that expand our margins and drives our overall business performance. As a measure of success to date, substantially all of our local customers subscribe to our long-distance service and approximately one-third of our cable video subscribers also purchase our high-speed Internet service.

Maximize Sales Opportunities. We successfully sell new and enhanced services and products between and within our business segments to our existing customer base to achieve increased revenues and penetration of our services. Through close coordination of our customer service and sales and marketing efforts, our customer service representatives cross sell and up sell our products. Many calls into our customer service centers result in sales of additional products and services. We actively seek to continue to encourage our existing customers to acquire higher value, enhanced services.

Deliver Industry Leading Customer Service. We have positioned ourselves as a customer service leader in the Alaska communications market. We operate our own customer service department within our marketing group and maintain and staff our own call centers. We have empowered our customer service representatives to handle most service issues and questions on a single call. We prioritize our customer services to expedite handling of our most valuable customers' issues, particularly for our largest business customers. We believe our integrated approach to customer service, including setting-up the service, programming various network databases with the customer's information, installation, and ongoing service, allows us to provide a customer experience that fosters customer loyalty.

Leverage Communications Operations. We continue to expand and evolve our integrated network for the delivery of our services. Our bundled strategy and integrated approach to serving our customers creates efficiencies of scale and maximizes network utilization. By offering multiple services, we are better able to leverage our network assets and increase returns on our invested capital. We periodically evaluate our network assets and continually monitor technological developments that we can potentially deploy to increase network efficiency and performance.

Expand Our Product Portfolio and Footprint in Alaska. Throughout our history, we have successfully added and will continue to add new products to our product portfolio. Management has a demonstrated history of evaluating potential new products for our customers, and we will continue to assess revenue-enhancing opportunities that create value for our customers. In addition to new services such as digital video recorders, HDTV and video-on-demand, we are also expanding the reach of our core products to new markets. Where feasible and where economic analysis supports geographic expansion of our network coverage, we will pursue opportunities to increase the scale of our facilities, enhance our ability to serve our existing customers' needs and attract new customers.

The market data presented throughout this prospectus is based upon estimates by our management, using various third party sources where available. While management believes that such estimates are reasonable and reliable, in certain cases, such estimates cannot be verified by information available from independent sources.

We estimate that the aggregate communications, cable television, and Internet markets in Alaska generated revenues in 2003 of approximately $1.1 billion. Of this amount, approximately $480 million was attributable to interstate and intrastate long-distance service, $348 million was attributable to local exchange services, $102 million was attributable to wireless phone service, $92 million was attributable to cable television, and $78 million was attributable to all other services, including wireless and Internet services. We report revenues from certain services, such as cable modem Internet access services, in different reporting segments as compared to those used in this market data presentation.

The Alaskan voice, video and data markets are unique within the United States. Alaska is geographically distant from the rest of the United States and is generally characterized by large geographical size and relatively small, dense population clusters (with the exception of population centers such as Anchorage, Fairbanks and Juneau). It lacks a well-developed terrestrial transportation infrastructure, and the majority of Alaska's communities are accessible only by air or water. As a result, Alaska's communication networks are different from those found in the lower 49 states.

Alaskans continue to rely extensively on satellite-based long-distance transmission for intrastate calling between remote communities where investment in a terrestrial network would be uneconomic or impractical. Also, given the geographic isolation of Alaska's communities and lack, in many cases, of major civic institutions such as hospitals, libraries and universities, Alaskans are dependent on communications services to access the resources and information of large metropolitan areas in Alaska, the rest of the United States and elsewhere. In addition to satellite-based communications, the communications services infrastructure in Alaska includes fiber optic cables between Anchorage, Valdez, Fairbanks, Prudhoe Bay, and Juneau, traditional copper wire, and digital microwave radio on the Kenai Peninsula and other locations. For interstate and international communications, Alaska is connected to the contiguous lower 48 states by three fiber optic cables, one of which was taken out of service in January 2004. See "Summary—Recent Developments" for more information.

Fiber optics is the preferred method of carrying Internet, voice, video, and data communications over long-distances, eliminating the delay commonly found in satellite connections. Widespread use of high capacity fiber optic facilities is expected to allow continued expansion of business, government, educational, and health care infrastructure in Alaska.

Industry. Until the 1970s, AT&T had a virtual monopoly on long distance service in the United States. In the 1970s, competitors such as MCI and Sprint began to offer long distance service. With the gradual emergence of competition, basic rates dropped, calling surged, and AT&T's dominance declined. More than 1,000 companies now offer wire-line long distance service. AT&T's 1984 toll revenues were approximately 90% of those reported by all long distance carriers. The FCC's regulation of AT&T as a "dominant" carrier ended in 1995. By 2002, AT&T's revenues had declined to approximately 33% of all toll revenues. The two largest market entrants, MCI and Sprint, had obtained a 30% combined market share through 2002.

The FCC reports that approximately $84 billion was derived from toll services in 2002. In 2001, residential customers generated over 45% of toll revenues, and 35% of residential toll phone calls were interstate as opposed to 47% of minutes. In 2001, approximately 30% of total toll services revenues was derived from intrastate, 51% was derived from domestic interstate, and 19% was derived from

international toll services. Interstate long distance toll revenues increased approximately 92% from $26 billion in 1984 to $50 billion in 2001, and intrastate toll revenues increased approximately 38% from $21 billion in 1984 to $29 billion in 2001, despite significant rate reductions in both categories during this period.

The FCC reports that average revenue per minute of long distance calling dropped from $0.32 in 1984, when competitive discount and promotional long distance plans were introduced, to $0.10 in 2001. This average price per minute represents a mix of international calling (an average of 35 cents per minute) and domestic interstate calling (an average of 8 cents per minute). The decline in prices since 1984 is more than 80% after adjusting for the impact of inflation. The average annual rate of change in the consumer price index for telephone services between 1990 and 2002 was reported to be 0.6% as compared to 3.6% for all services. The average revenue per minute for interstate and international calls in 1990 was $0.27 (adjusted for inflation) as compared to $0.10 in 2001.

The FCC reports that through July 2003 more than twenty-eight million households have been added to the nation's telephone system since November 1983. An estimated 3.6 million households were added between July 2002 and July 2003. As of July 2003, 106.8 million households had telephone service. The FCC reports that approximately 2% of all consumer expenditures are devoted to telephone service. This percentage has remained relatively constant over the past 15 years, despite major changes in the industry and in telephone usage. Average annual expenditures for telephone service increased from $877 per household in 2000 to $1,001 in 2002.

The FCC reports that approximately 104 million households had telephone services as of November 2002, an increase of 25 million households since 1983. An estimated 95.2% of households and virtually all businesses in the United States subscribed to telephone service in July 2003. Approximately 92.9% of households subscribed to telephone service in 1980.

The FCC reports that primary lines in service have grown over time, averaging approximately 3% per year, which has historically reflected growth in the population and the economy. The percentage of additional lines for households with telephone service has increased significantly, from approximately 3% in 1988 to approximately 25% in 2001. The total number of lines, however, has declined since 2000 because of the recession, because some consumers are substituting wireless service for wireline service, and because some households are eliminating second lines when they move from dial-up Internet service to broadband service.

International communications has become an increasingly important segment of the communications market. The FCC reports that the number of calls made from the United States to other countries increased from 200 million in 1980 to 6.3 billion in 2001, and that Americans spent approximately $11.4 billion on international calls in 2001. Consistent with domestic toll rates per minute, international toll rates per minute have decreased significantly. On average, carriers billed 34 cents per minute for international calls in 2001, a decline of more than 74% since 1980. Five markets, Canada, Mexico, the United Kingdom, Germany, and Japan, accounted for approximately 41% of the international calls billed in the United States in 2001. AT&T, MCI, and Sprint combined accounted for 88% of the international service billed in the United States in 2001.

While the 1996 Telecom Act has facilitated competition and rapid growth in the communications market, the last three years have been a tumultuous time for that marketplace. Industry analysts believe that overly optimistic projections of data growth spurred companies to invest large amounts of capital to boost network capacity. While demand for communications services grew, it did not grow at a sufficient pace to justify the substantial build-out of fiber capacity. A wide gap developed between the supply of network capacity and the demand for data transmission. Network owners refocused their efforts to demonstrate profitability over a much shorter time horizon than initially projected. A downward spiral ensued, as some communications carriers went out of business after failing to generate

sufficient revenues to service their accelerating debt loads. The resultant slowdown in capital expenditures left equipment manufacturers with surplus inventory and personnel.

Industry analysts believe that the communications industry stabilized in 2003 and has begun to show signs of recovery. Growth in data is expected to continue to be a key component of industry revenue growth. We believe that the data communications business will eventually rival and perhaps become larger than the traditional voice telephony market. The continuing migration of voice and other traffic from analog to digital transmission and the growth in data attributed to broadband applications are expected to fuel the growth in data.

The FCC issued a Report and Order (FCC 03-197) in 2003 eliminating a policy that prohibited the installation or operation of more than one satellite earth station in any Alaska rural community for competitive carriage of interstate MTS communications. The FCC found that through a series of regulatory steps, the environment that once called for restrictions on competitive facilities-based entry had changed. This policy change allows us to install facilities and provide competitive interstate MTS and other communications services over our own equipment and network in rural communities where we presently have no facilities.

We believe that federal and state legislators, courts and regulators will continue to influence the communications industry in 2004. Consummation of mergers between and spin-offs from long-distance companies, local access services companies, ISPs and cable television companies have occurred which blur the distinction between product lines and competitors.

Industry analysts believe companies will be successful in the long-term if they can achieve and maintain a superior operating cost position, minimize regulatory battles, offer a full suite of integrated services to their customers using a network that is largely under their control, and continue to offer new and enhanced services that customers wish to purchase.

See "—Regulation, Franchise Authorizations and Tariffs—Long-Distance Services" for more information.

General. We supply a full range of common carrier long-distance and other communications products and services. We operate a modern, competitive communications network employing the latest digital transmission technology based upon fiber optic facilities within and between Anchorage, Fairbanks and Juneau, Alaska. Our facilities include a self-constructed and financed digital fiber optic cable and additional owned capacity on another undersea fiber optic cable (which was taken out of service in January 2004, (see "Summary—Recent Developments"), linking our Alaska terrestrial networks to the networks of other carriers in the lower 49 states. We use satellite transponders to transmit voice and data traffic to remote areas of Alaska. We operate digital microwave systems to link Anchorage with the Kenai Peninsula, and our Prudhoe Bay Earth Station with Deadhorse. Digital microwave facilities also are used to backup our fiber facilities from Anchorage to our Eagle River earth station, and to our Fairbanks earth station from our Fairbanks distribution center. Virtually all switched services are computer controlled, digitally switched, and interconnected by a packet switched SS7 signaling network.

We provide interstate and intrastate long-distance services throughout Alaska using our own facilities or facilities leased from or swapped with other carriers. We also provide (or join in providing with other carriers) communications services to and from Alaska, Hawaii, the contiguous lower 48 states, and many foreign nations and territories.

We offer cellular services by reselling another cellular provider's services. We offer wireless local access services over our own facilities, and have purchased Personal Communications Services, or PCS, and Local Multipoint Distribution Systems, or LMDS, wireless broadband licenses in FCC auctions covering markets in Alaska.

Products. Our long-distance services industry segment is engaged in the transmission of interstate and intrastate-switched message telephone service and private line and private network communications service between the major communities in Alaska, and the remaining United States and foreign countries. Our message toll services include intrastate, interstate and international direct dial, toll-free 800, 888, 877 and 866 services, GCI calling card, operator and enhanced conference calling, Frame Relay, Software Defined Network, or SDN, Integrated Services Digital Network technology based services, or ISDN, as well as terminating northbound MTS traffic for MCI, Sprint and several large resellers who do not have facilities of their own in Alaska. We also provide origination of southbound calling card and toll-free 800, 888, 877 and 866 toll services for MCI, Sprint, and other interexchange carriers, or IXCs. We offer our message services to commercial, residential, and government subscribers. Subscribers generally may cancel service at any time. Toll, private line, broadband and related services account for approximately 49.6%, 53.5% and 53.5% of our 2003, 2002 and 2001 revenues, respectively. Broadband services include our SchoolAccess™ and Rural Health initiatives. Private line and private network services utilize voice and data transmission circuits, dedicated to particular subscribers, which link a device in one location to another in a different location.

We have positioned ourselves as a price, quality, and customer service leader in the Alaska communications market. The value of our long-distance services is generally designed to be equal to or greater than that for comparable services provided by our competitors.

In addition to providing communications services, we also design, sell, install, service and operate, on behalf of certain customers, communications and computer networking equipment and provide field/depot, third party, technical support, communications consulting and outsourcing services through our Network Solutions business. We also supply integrated voice and data communications systems incorporating interstate and intrastate digital private lines, point-to-point and multipoint private network and small earth station services. Our Network Solutions sales and services revenue totaled $11.9 million, $12.4 million, and $16.3 million in the years ended December 31, 2003, 2002 and 2001, respectively, or approximately 3.0%, 3.4% and 4.6% of total revenues, respectively. Presently, there are a number of competing companies in Alaska that actively sell and maintain data and voice communications systems. Network Solutions' managed services and product sales results are reported in the All Other category in the Consolidated Financial Statements included elsewhere in this prospectus.

Our ability to integrate communications networks and data communications equipment has allowed us to maintain our market position based on "value added" support services rather than price competition. These services are blended with other transport products into unique customer solutions, including managed services and outsourcing.

Facilities. Our communication facilities include an undersea fiber optic cable system connecting Whittier, Valdez and Juneau, Alaska and Seattle, Washington, which was placed into service in February 1999. As of the date of this prospectus we are constructing a new undersea fiber optic cable system connecting Seward, Alaska to Warrenton, Oregon that we expect to be operational by July 2004. This fiber optic cable system is designated AULP West, and the original undersea fiber optic cable system is now designated AULP East. The Seward cable landing station will connect to our network in Anchorage and the Warrenton cable landing station will connect to our network in Seattle via long-term leased capacity. The combination of AULP West and AULP East will provide us with the ability to provide fully protected geographically diverse routing of service between Alaska and the contiguous lower 48 states.

We also own a portion of the capacity on a second undersea fiber optic cable system linking Alaska to the contiguous lower 48 states known as the Alaska spur of the North Pacific Cable, which was taken out of service in January 2004. See "Summary—Recent Developments" for more information.

These undersea fiber optic cable systems allow us to carry our military base traffic and our Anchorage, Delta Junction, Eagle River, Fairbanks, Girdwood, Glenallen, Healy, Juneau, Kenai Peninsula, Ketchikan, Palmer, Prudhoe Bay, Sitka, Valdez, Wasilla, and Whittier, Alaska traffic to and from the contiguous lower 48 states and between these instate locations over terrestrial circuits, eliminating the one-quarter second delay associated with satellite circuits.

Other facilities include major earth stations at Barrow, Bethel, Cordova, Dillingham, Dutch Harbor, Eagle River, Ketchikan, King Salmon, Kodiak, Kotzebue, Nome, Prudhoe Bay, and Sitka, all in Alaska, serving the communities in their vicinity, and at Issaquah, Washington, which provides interconnection to Seattle and the contiguous lower 48 states for traffic to and from major Alaska earth stations. The Eagle River earth station is linked to the Anchorage distribution center by fiber optic facilities.

We use SONET as a service delivery method for our terrestrial metropolitan area networks as well as our long-haul terrestrial and undersea fiber optic cable networks. As of March 31, 2004 we have completed interconnection of approximately 135 businesses and co-location facilities within the Anchorage, Juneau and Fairbanks metropolitan areas, as well as the 800-mile long Alyeska pipeline right of way that connects Valdez to Prudhoe Bay, Alaska. We currently connect Anchorage, Whittier, Juneau and Seattle through our AULP East undersea fiber network. We use SONET-based next generation multi-service nodes for purposes of delivering traditional TDM services (at DS-0, DS-1 and DS-3 data rates) as well as next generation services, such as optical OC-n and Ethernet. We have expanded our digital cross-connect capacity through the addition of three large 3:1 cross connects located in Anchorage and Seattle.

We completed construction of a fiber optic cable system from the Anchorage distribution center to the Matanuska Telephone Association Eagle River Central Office and to our major hub earth station in Eagle River in the second quarter of 2000. The Issaquah earth station is connected with the Seattle distribution center by means of diversely routed leased fiber optic cable transmission systems, each having the capability to restore the other in the event of failure. The Juneau earth station and distribution centers are collocated. We have digital microwave facilities serving the Kenai Peninsula communities. We maintain earth stations in Fairbanks (linked by digital microwave to the Fairbanks distribution center), Juneau (collocated with the Juneau distribution center), Anchorage (Benson earth station), and in Prudhoe Bay as fiber network restoration earth stations. Our Benson earth station also uplinks our statewide video service; such service may be pre-empted if earth station capacity is needed to restore our fiber network between Anchorage and Prudhoe Bay.

In 2002, we constructed a 3.6-meter earth station at St. Paul, 6-meter earth stations at Unalakleet and Mountain Village, and a 9-meter earth station at Ft. Yukon, all in Alaska. These stations were constructed to support our SchoolAccess™ distance learning and telemedicine networks, and primarily serve surrounding villages.

We use our Demand Assigned Multiple Access, or DAMA, facilities to serve 57 additional locations throughout Alaska. DAMA is a digital satellite earth station technology that allows calls to be made between remote villages using only one satellite hop thereby reducing satellite delay and capacity requirements while improving quality. In 1996, GCI obtained the necessary RCA and FCC approvals waiving prohibitions against construction of competitive facilities in certain rural Alaska communities, allowing for deployment of DAMA technology in 56 sites in rural Alaska on a demonstration basis. These prohibitions were removed by the FCC on August 6, 2003 allowing us to begin deploying earth stations in more locations in Alaska (see "—Historical Development of our Business During the 2003 Fiscal Year—New Communications Policy for Alaska Areas" for more information). In addition, 69 (for a total of 126) C-band facilities provide dedicated Internet access, Telehealth and private network services to rural public schools, hospitals, health clinics, and natural resource development industries throughout Alaska and in several locations in the contiguous lower 48 states.

Our Anchorage, Fairbanks, and Juneau distribution centers contain electronic switches to route calls to and from local exchange companies and, in Seattle, to obtain access to MCI, Sprint and other carriers to distribute our southbound traffic to the remaining 49 states and international destinations. In Anchorage, a Lucent Technologies Inc. ("Lucent") 5ESS digital host switch is connected by fiber to seven remote facilities that are co-located in the ILEC switching centers, to provide both local and long-distance service. Our extensive metropolitan area fiber network in Anchorage supports cable television, Internet and telephony services. The Anchorage, Fairbanks, and Juneau facilities also include digital access cross-connect systems, Frame Relay data switches, Internet platforms, and in Anchorage and Fairbanks, co-location facilities for interconnecting and hosting equipment for other carriers. We also maintain an operator and customer service center in Wasilla, Alaska.

In 2001 we constructed a new switching center in Fairbanks and installed a new Lucent switch to enable the provisioning of local telephone access services in the Fairbanks market. The prior-existing Fairbanks long-distance toll switch was decommissioned in December 2001. Substantially all toll traffic originating in Fairbanks is now routed to Anchorage. The first ILEC collocation office was also constructed during 2001 to enable access to a portion of the Fairbanks ILEC unbundled network element, or UNE, loop facilities. Fairbanks UNE loop provisioning began in early 2002. Construction of a second collocation office was completed in 2002.

We installed a new Lucent switch in our Juneau distribution center, also enabling local services to be launched in the Juneau market in 2002. This new switch also replaced the prior-existing toll switch in Juneau, which we decommissioned in 2002. One collocation office and a second adjacent collocation facility were completed at two of the Juneau ILEC Central Offices. We placed these collocation facilities in service in 2002 enabling UNE loop access to a portion of the Juneau ILEC's loop facilities.

Our Alcatel DSC DEX toll switch in Seattle was also decommissioned in 2002 after its traffic was transitioned to our Lucent 5ESS switch in Seattle, which was placed into service in 2000. Our Alcatel DSC DEX toll switch in Anchorage was removed from service in the second quarter of 2003 and its traffic was moved to our existing Lucent 5ESS network. Installation of a second Lucent 5ESS in Anchorage began in the fourth quarter of 2003 to support network expansion and enable additional network efficiencies. We expect to complete the integration of the second switch into our network by the end of the second quarter of 2004.

Our operator services traffic was moved in early 2003 to our Lucent 5ESS switch platform as an interim step to decommission our existing digital operator switch. Our operator services traffic was moved in the fourth quarter of 2003 to an integrated services platform that hosts operator services, answering services, directory assistance and internal conferencing services.

We employ satellite transmission for rural intrastate and interstate traffic and certain other major routes. We acquired satellite transponders on PanAmSat Corporation ("PanAmSat") Galaxy XR satellite in March 2000 to meet our long-term satellite capacity requirements. We augmented capacity on Galaxy XR with the lease of a seventh C-band transponder in October, 2002. In May 2004, we further augmented capacity on Galaxy XR with the lease of nine MHz of C-band transponder capacity.

As demand for redundant, geographically diverse capacity on our network increases, we will need to further augment our facilities between Alaska and the contiguous lower 48 states. In June 2003 we began the construction of AULP West connecting Seward, Alaska and Warrenton, Oregon, with leased backhaul facilities to connect it to our switching and distribution centers in Anchorage, Alaska and Seattle, Washington. A consortium of companies was selected to design, engineer, manufacture, and install the undersea fiber optic cable system, and a contract was signed at a total cost to us of $35.6 million. The undersea portion of this system was successfully completed and accepted by GCI on May 7, 2004. We expect the total cost of the new fiber system to be approximately $51 million. We expect to fund construction of the fiber optic cable system through our operating cash flows and, to the extent necessary, with draws on our new Senior Credit Agreement. Our capital expenditures for this

project totaled approximately $16.5 million in 2003, all of which has been funded through our operating cash flows.

In 2000 we began deploying a new packet data satellite transmission technology for the efficient transport of broadband data in support of our rural health and SchoolAccess™ initiatives. We continued to deploy and upgrade this network during 2003 and 2004. An upgrade of the packet data satellite transmission equipment to a more bandwidth efficient modulation scheme is expected to occur during the second half of 2004. In addition, our SchoolAccess™ and rural wireless Internet service is partially provisioned over a satellite based digital video broadcast carrier that is scheduled to convert to a more efficient modulation scheme during the second quarter of 2004. These projects reduce the requirement for new satellite transponder bandwidth to support expected growth in rural health, distance learning and rural Internet services.

Emerging technology that facilitates more efficient transport of fixed assigned point-to-point satellite transmissions may become available during the second quarter of 2004. This technology would allow fixed point-to-point transmissions between two earth stations to transmit at the same frequency. Successful development and implementation of this new technology may reduce the requirement for new satellite bandwidth to meet our needs as expected growth in demand for our services occurs. We are investigating the possible use of this new technology to further increase the bandwidth utilization for a portion of our satellite network.

We employ advanced digital transmission technologies to carry as many voice circuits as possible through a satellite transponder without sacrificing voice quality. Other technologies such as terrestrial microwave systems, metallic cable, and fiber optics tend to be favored more for point-to-point applications where the volume of traffic is substantial. With a sparse population spread over a large geographic area, neither terrestrial microwave nor fiber optic transmission technology is considered to be economically feasible in rural Alaska in the foreseeable future.

Customers. We had approximately 85,600, 88,200 and 87,900 active Alaska long-distance message telephone service subscribers at December 31, 2003, 2002 and 2001, respectively. Approximately 11,300, 11,600 and 12,200 of these were business and government users at December 31, 2003, 2002 and 2001, respectively, and the remainder were residential customers. Reductions in our business and government customer counts were primarily attributed to continuing competitive pressures in Anchorage and other markets we serve. Message telephone service revenues (excluding broadband, operator services and private line revenues) averaged approximately $10.6 million per month during 2003.

Equal access conversions, which is a connection provided by a LEC permitting a customer to be automatically connected to the IXC of the customer's choice when the customer dials "1", have been completed in all communities we serve with owned facilities. We estimate that we carry slightly over 50% of combined business and residential traffic as a statewide average for both originating interstate and intrastate message telephone service traffic.

A summary of our switched long-distance message telephone service traffic (in minutes) follows:

GCI entered into a significant business relationship with MCI in 1993 that included the following agreements, among others.

Concurrently with these agreements, MCI purchased approximately 31% (which represented approximately 9% as of March 31, 2004) of GCI's Common Stock and presently one representative serves on GCI's Board. In conjunction with our acquisition of cable television companies in 1996, MCI purchased an additional two million shares at a premium to the then current market price for $13 million or $6.50 per share. MCI sold 4.5 million shares of GCI Class A common stock in 2002.

Revenues attributed to MCI's message telephone traffic from these agreements (excluding private line and other revenues) in 2003, 2002 and 2001 totaled $57.8 million, $54.7 million and $44.8 million, or 14.8%, 14.9% and 12.6% of total revenues, respectively. The contract was amended in March 2001 extending its term five years to March 2006. The amendment reduced the rate to be charged by us for certain traffic over the extended term of the contract.

On July 24, 2003, our contract to provide interstate and intrastate long-distance services to MCI was extended for a minimum of five years to July 2008. The agreement sets the terms and conditions under which we originate and terminate certain types of long-distance and data services in Alaska on MCI's behalf. In exchange for extending the term of this exclusive contract, MCI will receive a series of rate reductions implemented in phases over the life of the contract.

In 1993 GCI entered into a long-term agreement with Sprint, pursuant to which GCI agreed to terminate all Alaska-bound Sprint long-distance traffic and Sprint agreed to handle substantially all of GCI's international traffic. Services provided pursuant to the contract with Sprint resulted in message telephone service revenues (excluding private line and other revenues) in 2003, 2002 and 2001 of approximately $18.3 million, $23.5 million and $29.7 million, or approximately 4.7%, 6.4% and 8.3% of total revenues, respectively. The contract was amended in March 2002 extending its term five years to March 2007, with two one-year automatic extensions thereafter. The amendment reduces the rate to be charged by us for certain traffic over the extended term of the contract.

With the contracts and amendment described above, we believe that MCI and Sprint, our two largest customers, will continue to make use of our services during the extended term. MCI and Sprint are free to seek out long-distance communications services from our competitors upon expiration of their contracts or earlier upon the occurrence of certain contractually stipulated events including a default, the occurrence of a force majeure event, or a substantial change in applicable law or regulation under the applicable contract. Additionally, the contracts provide for periodic reviews to assure that the prices paid by MCI and Sprint for their services remain competitive. MCI was a major customer of our long-distance services industry segment through 2003. Sprint met the threshold for classification as a major customer through 1998, and met the threshold again in 2001.

Other common carrier traffic routed to us for termination in Alaska is largely dependent on traffic routed to our carrier customers by their customers. Pricing pressures, new program offerings, revised business plans, and market consolidation continue to evolve in the markets served by our carrier customers. If, as a result, their traffic is reduced, or if their competitors' costs to terminate or originate traffic in Alaska are reduced, our traffic will also likely be reduced, and we may have to reduce our pricing to respond to competitive pressures. We are unable to predict the effect of such changes on our business; however the loss of one or both of MCI or Sprint as customers, a material adverse change in our relationships with them or a material loss of or reduction in their long-distance customers would have a material adverse effect on our financial position, results of operations or liquidity.

We provide various services to the State of Alaska, BP Alaska, Wells Fargo Bank Alaska, and Alyeska Pipeline Service Company. Although these customers do not meet the threshold for classification as major customers, we do derive significant revenues and gross profit from them. There are no other individual customers, the loss of which would have a material impact on our revenues or gross profit.

We provided broadband, private line and private network communications products and services, including SchoolAccess™ and rural health private line facilities, to 359 commercial and government customers at the end of 2003. These products and services generated approximately 15.9%, 14.8% and 14.1% of total revenues during the years ended December 31, 2003, 2002 and 2001, respectively.

Although we have several agreements to facilitate the origination and termination of international toll traffic, we have neither foreign operations nor export sales See "—Financial Information about our Foreign and Domestic Operations and Export Sales" for more information.

Competition. The long-distance industry is intensely competitive and subject to constant technological change. Competition is based upon price and pricing plans, the type of services offered, customer service, billing services, performance, perceived quality, reliability and availability. AT&T Alascom, as a subsidiary of AT&T, has access to greater financial, technical and marketing resources

than we have. Future competitors could also be substantially larger than we are, and have greater financial, technical and marketing resources than we have.

In the long-distance market, we compete against AT&T Alascom, ACS, the Matanuska Telephone Association, and certain smaller rural local telephone carrier affiliates. There is also the possibility that new competitors will enter the Alaska market. In addition, wireless services continue to grow as an alternative to wireline services as a means of reaching customers.

Historically, we have competed in the long-distance market by offering discounts from rates charged by our competitors and by providing desirable packages of services. Discounts have been eroded in recent years due to lowering of prices by AT&T Alascom and entry of other competitors into the long-distance markets we serve. In addition, our competitors have also begun to offer their own packages of services. If competitors lower their rates further or develop more attractive packages of services, we may be forced to reduce our rates or add additional services, which would have a material adverse effect on our financial position, results of operations or liquidity.

Under the terms of the acquisition of Alascom by AT&T Corp., AT&T Alascom rates and services must mirror those offered by AT&T Corp., so changes in AT&T Corp. prices indirectly affect our rates and services. AT&T Corp.'s and AT&T Alascom's interstate prices are regulated under a price cap plan whereby their rate of return is not regulated or restricted. Price increases by AT&T Corp. and AT&T Alascom generally improve our ability to raise prices while price decreases pressure us to follow. We believe we have, so far, successfully adjusted our pricing and marketing strategies to respond to AT&T Corp. and other competitors' pricing practices. However, if competitors significantly lower their rates, we may be forced to reduce our rates, which could have a material adverse effect on our financial position, results of operations or liquidity.

ACS and other LECs have entered the interstate and international long-distance market, and pursuant to RCA authorization, entered the intrastate long-distance market. ACS and other LECs generally lease or buy long-haul capacity on long-distance carriers' facilities to provide their interstate and intrastate long-distance services.

Another carrier completed construction of fiber optic facilities connecting points in Alaska to the contiguous lower 48 states in 1999. The additional fiber system provides direct competition to services we provide on our owned fiber optic facilities, however the fiber system provides an alternative routing path for us in case of a major fiber outage in our systems. This carrier filed for Chapter 11 bankruptcy in 2001 and its assets were sold in 2002. We are currently in the process of completing the construction of the AULP West fiber optic cable system. When successfully completed, it will provide us with owned capacity for route diversity.

In the wireless communications services market, we expect our PCS business license in the future may be used to compete against Dobson Communications Corporation ("Dobson"), ACS, Alaska DigiTel LLC, and resellers of those services in Anchorage and other markets. The wireless communications industry continues to experience significant consolidation. In February 2004 Cingular Wireless was reported to have been successful in its bid to acquire AT&T Wireless for $41 billion, subject to shareholder approval. Dobson acquired its Anchorage wireless properties in a 2003 asset exchange with AT&T Wireless. Dobson has acquired wireless companies and negotiated roaming arrangements that give it a national presence. Mergers and joint ventures in the industry have created large, well-capitalized competitors with substantial financial, technical, marketing and other resources. These competitors may be able to offer nationwide services and plans more quickly and more economically than we can, and obtain roaming rates that are more favorable than those that we obtain. We currently resell Dobson analog and digital cellular services and provide limited wireless local access and Internet services using our own facilities.

Our long-distance services sales efforts are primarily directed toward increasing the number of subscribers we serve, selling bundled services, and generating incremental revenues through product and feature up-sale opportunities. We sell our long-distance communications services through telemarketing, direct mail advertising, door-to-door selling, up-selling by our customer service personnel, and local media advertising.

We expect competition to increase as new technologies, products and services continue to develop. We cannot predict which of many possible future technologies, products or services will be important to maintain our competitive position or what expenditures will be required to develop and provide these technologies, products or services. Our ability to compete successfully will depend on marketing and on our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, economic conditions, market and competitor consolidation, and pricing strategies by competitors. To the extent we do not keep pace with technological advances or fail to timely respond to changes in competitive factors in our industry and in our markets we could lose market share or experience a decline in our revenue and net income. Competitive conditions create a risk of market share loss and the risk that customers shift to less profitable lower margin services. Competitive pressures also create challenges to our ability to grow new business or introduce new services successfully and execute on our business plan. Each of our business segments also faces the risk of potential price cuts by our competitors that could materially adversely affect our long-distance segment market share and results of operations.

Industry. The programmed video services industry includes traditional broadcast television, cable television, satellite systems such as DBS, private cable operators, LEC entry, broadband service providers, wireless cable, open video systems, home video sales and rentals, Internet video, and electric and gas utilities. Cable television providers have added non-broadcast programming, utilized improved technology to digitize signals and increase channel capacity, and expanded service markets to include less densely populated areas and those communities in which off-air reception is not problematic. Broadcast television stations including network affiliates and independent stations generally serve the urban centers. One or more local television stations may serve smaller communities. Rural communities may not receive local broadcasting or have cable systems but may receive direct broadcast programming via a satellite dish. More rural communities are receiving local and regional station programming as satellite system providers obtain local and regional programming content.

During the last 50 years, the cable television industry has experienced extensive growth and transformation. From initially offering clear reception of broadcast stations, cable has grown into a broadband provider of video, Internet and voice telephone services, expanding from analog technology to an increasingly digital platform. The National Cable and Telecommunications Association ("NCTA") reports that more than 30% of U.S. cable customers were reported to have subscribed to digital cable television service at the end of 2003.

The 1996 Telecom Act enabled cable television operators to undertake a multiyear upgrade of cable system infrastructure and lead in the transition from an analog platform to a broadband digital platform. Industry progress was made in 2003 to further deploy HDTV, video-on-demand, interactive and other new consumer-driven services that rely on the broadband digital platform.

Cable television operators and programmers began providing HDTV services in 2002. HDTV has been described by some analysts as the most dramatic change for viewers since the introduction of color television. Deployment of HDTV service was reported by the NCTA to have increased approximately 90% during the first 11 months of 2003, with 70 million households passed by systems providing HDTV at December 1, 2003 as compared to 37 million at the end of 2002. In addition, the

amount of cable HDTV programming increased steadily, and now comes from a broader programming services group.

The NCTA reported that in December 2002, the consumer electronics and cable industries reached agreement on standards for the creation of digital cable ready equipment for the home. The FCC approved those standards in September 2003 and new sets are becoming available in retail outlets.

The NCTA reported that at December 31, 2003, more than 90% of all cable homes were reported to have been passed by cable plant with a capacity of at least 550MHz, and approximately 90 million cable homes were passed by systems with a capacity of 750MHz or higher. The NCTA reported further that more than 95 million households were reported to have been passed by activated two-way plant at the end of 2003. These upgrades position cable companies to compete more effectively with their DBS competitors.

The growth of DBS is still, in part, attributable to the authority granted to DBS operators to distribute local broadcast television stations in their local markets by the Satellite Home Viewer Improvement Act of 1999 ("SHVIA"). Continued DBS subscriber growth is expected as local programming is offered in more markets. The North American cable TV market was reported by the FCC to have declined in 2003, as former cable subscribers either switched to satellite services or cancelled their cable service. The FCC reports that since the introduction of DBS service, its growth rate has exceeded the growth rate of cable service by double digits in every year except in the year ended June 30, 2003, when DBS growth exceeded cable growth by approximately 9.2%. The NCTA reports that while the number of basic cable TV subscribers decreased approximately 0.2% in 2003, digital cable TV subscriber growth reached 23% during the same period. Analysts believe that cable TV subscriber growth in the future may result from cable television operators' ability to attract new subscribers to their traditional analog video services, and from ongoing deployments of digital video, voice, and data services.

As a converged platform, cable is a viable competitive alternative outside its traditional video space, not only in the broadband space as a competitor with technology such as DSL, but also in traditional telephony services as voice becomes another application that is carried on data centric networks.

The most significant convergence of service offerings over cable plant continues to be the pairing of Internet service with other service offerings. Cable operators continue to build-out the broadband infrastructure that permits them to offer high-speed Internet access. The most popular way to access the Internet over cable is still through the use of a cable modem and personal computer. Virtually all of the major multiple system operators offer Internet access via cable modems in portions of their service areas. Like cable, the DBS industry is developing ways to bring advanced services to their customers. Many Multichannel Multipoint Distributions Services (also known as wireless cable) and private cable operators also offer Internet access services. In addition, broadband services providers continue to build advanced systems specifically to offer a bundle of services, including video, voice, and high-speed Internet access. We currently offer high-speed cable modem access in Anchorage, Bethel, Cordova, Juneau, Eielson Air Force Base, Elmendorf Air Force Base, Fairbanks, Fort Richardson, Fort Wainwright, Homer, Kenai, Ketchikan, Kodiak, Nome, North Pole, Palmer, Petersburg, Seward, Sitka, Soldotna, Wasilla, Wrangell, and Valdez.

The cable industry has expanded its competitive offerings to include business and residential telephone services delivered over its fiber optic infrastructure. Cable-delivered telephone service is a natural extension of a network already capable of delivering digital and broadband services and products. Once upgraded to a two-way capability, a cable system can offer telephone service over the same cable line that already carries digital video, high speed Internet, and other advanced services to consumers. Cable operators are beginning to deploy IP telephony in addition to circuit-switched telephony offerings. Circuit-switched service requires large capital expenditures for switching equipment

in addition to facility upgrades. Voice over IP is more modular and does not require the large upfront cost needed to deploy circuit-switched service. Voice over IP utilizes the data path already built, and is expected to allow for easy software changes and additions to service packages including innovative combinations of voice, data, and fax services. The NCTA reports that cable-delivered residential telephone service subscribers totaled an estimated 2.5 million through September 2003.

With digital transmissions and compression (a method of encoding, decoding and processing signals that allows transmission (or storage) of more information than the medium would otherwise be able to support), cable operators are better able to offer a variety and quality of channels to rival DBS, with pay-per-view choices that can approximate video-on-demand. In 2000 we installed a commercial version of video-on-demand for the Anchorage hotel market and continue to evaluate the feasibility of deploying a video-on-demand product in the residential market. With this service, customers can access a wide selection of movies and other programming at any time, with digital picture quality.

Kagan World Media reported that estimated 2003 total cable industry revenue reached $51.3 billion, an estimated 3.8% increase over 2002. Operators face constant pressure to keep rate increases at a minimum. Over the past several years, the FCC reports that operators have averaged annual rate increases in the 5% range. While many public-interest groups and press reports note that cable rates have increased at factors in excess of the general rate of inflation, cable rates are reported to have lagged national inflation on a per channel basis.

The FCC reports that cable operators attributed rate increases to increased programming costs, an increase in the number of video and non-video services offered, system upgrades, and general inflationary pressures. The escalation of programming costs continues to adversely impact the economics of cable operators. Programming costs are reported to be the largest cost item for major system operators, and the fastest growing operating cost item for most. The NCTA reported that, on the basis of financial data supplied to them by nine cable operators, they found that these operators' yearly programming expenses, on a per-subscriber basis, increased from $122 in 1999 to $180 in 2002—a 48 percent increase.

The FCC reports that 63.7% of homes passed by cable television facilities were subscribers to cable television services at June 30, 2003. Our overall average penetration of homes passed was 66.4% at December 31, 2003 with individual systems ranging from 51.2% to 85.8%.

In Alaska, cable television was introduced in the 1970s to provide television signals to communities with few or no available off-air television signals and to communities with poor reception or other reception difficulties caused by terrain interference. Since that time, as on the national level, the cable television providers in Alaska have added non-broadcast programming content, and the DBS provider has added local broadcast programming content in certain locations.

The market for programmed video services in Alaska includes traditional broadcast television, cable television, wireless cable, and DBS systems. Broadcast television stations including network affiliates and independent stations serve the urban centers in Alaska. Eight, six and five broadcast stations serve Anchorage, Fairbanks and Juneau, respectively. In addition, several smaller communities such as Bethel are served by one local television station that is typically a PBS affiliate. Other rural communities without cable systems receive a single state sponsored channel of television by a satellite dish and a low power transmitter.

Advancements in technology, facility upgrades and plant expansions to enable the ongoing migration to digital programming are expected to continue to have a significant impact on cable services in the future. We expect that changing federal, state and local regulations, intense competition, and developing technologies and standards will continue to challenge the industry.

See "—Business, Regulation, Franchise Authorizations and Tariffs—Cable Services" for more information.

General. We are the largest operator of cable systems in Alaska, serving approximately 134,000 residential, commercial and government basic subscribers at March 31, 2004. Our cable television systems serve 35 communities and areas in Alaska, including the state's four largest urban areas, Anchorage, Fairbanks, the Matanuska-Susitna Valley and Juneau. Our statewide cable systems consist of approximately 2,320 miles of installed cable plant having 330 to 625 MHz of channel capacity.

Products. Programming services offered to our cable television systems subscribers differ by system (all information as of March 31, 2004).

Facilities. Our cable television businesses are located in Anchorage, Bethel, Chugiak, Cordova, Douglas, Eagle River, Eielson AFB, Elmendorf AFB, Fairbanks, Fort Greely, Fort Richardson, Fort Wainwright, Homer, Juneau, Kachemak, Kenai, Ketchikan, Kodiak, Kodiak Coast Guard Air Station, Kotzebue, Mount Edgecombe, Nome, North Pole, Palmer, Petersburg, Peters Creek, Prudhoe Bay, Saxman, Seward, Sitka, Soldotna, Valdez, Ward Cove, Wasilla, and Wrangell, Alaska. Our facilities include cable plant and head-end distribution equipment. Certain of our head-end distribution centers are co-located with customer service, sales and administrative offices.

Customers. Our cable systems passed approximately 203,400, 202,200, 196,900 and 192,200 homes at March 31, 2004 and December 31, 2003, 2002 and 2001, respectively, and served approximately 134,000, 134,400, 136,100 and 132,000 basic subscribers at March 31, 2004 and December 31, 2003, 2002 and 2001, respectively. Revenues derived from cable television services totaled $24.9 million in the first quarter of 2004, and totaled $96.0 million, $88.7 million and $76.6 million in 2003, 2002 and 2001, respectively.

Competition. The 1996 Telecom Act removed barriers to telephone company or LEC entry into the video marketplace to facilitate competition between incumbent cable operators and telephone companies. At the time of the 1996 Telecom Act, it was expected that LECs would compete in the video delivery market and that cable operators would provide local telephone exchange service. The FCC reports that the four largest ILECs have largely exited the video business. A few smaller LECs continue to offer, or are preparing to offer, multi-channel video programming distribution (the distribution of video programming over multiple platforms, such as cable and satellite).

We believe our greatest source of competition comes from the DBS industry. Two major companies, DirecTV and Echostar are currently offering nationwide high-power DBS services. In the past, the majority of Alaska DBS subscribers were required to install larger satellite dishes (generally three to six feet in diameter) because of the weaker satellite signals currently available in northern latitudes, particularly in communities surrounding, and north of, Fairbanks. In addition, the satellites had a relatively low altitude above the horizon when viewed from Alaska, making their signals subject to interference from mountains, buildings and other structures. Recent satellite placements provide Alaska and Hawaii residents with a DBS package that requires a smaller satellite dish (typically 24 to 36 inches). DBS signals are subject to degradation from atmospheric conditions such as rain and snow.

Our cable television systems face competition from alternative methods of receiving and distributing television signals, including digital video service over telephone lines, wireless and Satellite Master Antenna Television systems (also known as private cable systems), and from other sources of news, information and entertainment such as off-air television broadcast programming, newspapers, movie theaters, live sporting events, interactive computer services, Internet services and home video products, including videotape cassette and video disks. Our cable television systems also face competition from potential overbuilds of our existing cable systems by other cable television operators.

Several ILECs in the contiguous lower 48 states and the largest ILEC in Alaska have announced marketing arrangements to provide DBS services along with local telephone and other services. Similar arrangements could be extended to other ILECs in the markets we serve in Alaska. In August 2003 DBS service provider EchoStar launched Anchorage local network programming for an additional fee. We compete effectively by providing, at reasonable prices, a greater variety of communication services than are available off-air or through other alternative delivery sources. Additionally, we believe we offer superior technical performance and responsive community-based customer service.

In November 2003, the ILEC in the Mat-Su Valley launched digital video service over telephone lines in limited areas. Their product offerings and price points are similar to our product offerings.

Competitive forces will be counteracted by offering expanded programming through digital services and by providing high-speed data services. By June 30, 2003, system upgrades were completed to make our systems reverse activated, thus creating the necessary infrastructure to offer cable modem service to greater than 99% of our homes passed. Over the succeeding two years, we expect to establish a digital platform in the majority of our systems. These plant upgrades combined with local broadcast programming are expected to provide an attractive product in comparison to competitive offerings. In 2002, seven-year retransmission agreements were signed with Anchorage broadcasters. These agreements provide for the uplink/downlink of their signals into all our systems, assuring local programming is available for the foreseeable future.

High-speed data access competition takes two primary forms: cable modem access service and DSL service. DSL service allows Internet access to subscribers at data transmission speeds similar to cable modems over traditional telephone lines. Numerous companies, including telephone companies, have introduced DSL service and certain telephone companies are seeking to provide high-speed broadband services, including interactive online services, without regard to present service boundaries and other regulatory restrictions. Companies in the lower 49 states, including telephone companies and ISPs, have asked local, state and federal governments to mandate that cable communications systems operators

provide capacity on their cable infrastructure so that these companies and others may deliver Internet services directly to customers over cable facilities. The FCC determined in March 2002 that cable system operators will not be required to provide such "open access" to others. See "—Business, Regulation, Franchise Authorizations and Tariffs—Cable Services" for more information.

Other new technologies may become competitive with non-entertainment services that cable television systems can offer. The FCC has authorized television broadcast stations to transmit textual and graphic information useful to both consumers and businesses. The FCC also permits commercial and non-commercial FM stations to use their subcarrier frequencies to provide non-broadcast services including data transmissions. The FCC established an over-the-air interactive video and data service that will permit two-way interaction with commercial and educational programming along with informational and data services. LECs and other common carriers also provide facilities for the transmission and distribution to homes and businesses of interactive computer-based services, including the Internet, as well as data and other non-video services. The FCC has conducted spectrum auctions for licenses to provide PCS, as well as other services. PCS and other services will enable license holders, including cable operators, to provide voice and data services. We own a statewide license to provide PCS in Alaska.

Cable television systems generally operate pursuant to franchises granted on a non-exclusive basis. The Cable Television Consumer Protection and Competition Act of 1992, or the 1992 Cable Act, gives local franchising authorities jurisdiction over basic cable service rates and equipment in the absence of "effective competition," prohibits franchising authorities from unreasonably denying requests for additional franchises and permits franchising authorities to operate cable systems. Well-financed businesses from outside the cable industry (such as the public utilities that own certain of the poles on which cable is attached) may become competitors for franchises or providers of competing services.

Our cable services sales efforts are primarily directed toward increasing the number of subscribers we serve, selling bundled services, and generating incremental revenues through product and feature up-sale opportunities. We sell our cable services through telemarketing, direct mail advertising, door-to-door selling, up-selling by our customer service personnel, and local media advertising.

Advances in communications technology as well as changes in the marketplace are constantly occurring. We cannot predict the effect that ongoing or future developments might have on the communications and cable television industries or on us specifically.

Industry. The FCC reported that end-user customers obtained local service at June 30, 2003 by means of 156 million ILEC switched access lines, 27 million competitive local exchange carrier, or CLEC, switched access lines, and 148 million mobile wireless telephone service subscriptions.

The FCC reported that total CLEC end-user switched access lines increased by 9% during the first half of 2003, from 25 million to 27 million lines. By comparison, total CLEC lines increased by 14% during the preceding six months, from 22 to 25 million lines. For the full twelve month period ending June 30, 2003, CLEC end-user lines increased by 24%. Approximately 15% of the 183 million total end-user switched access lines were reported by CLECs, compared to 11% a year earlier.

The FCC further reported that approximately 62% of reported CLEC switched access lines serve residential and small business customers, compared to approximately 78% of ILEC lines. CLECs reported 12% of total residential and small business switched access lines, compared to 8% a year earlier.

The FCC reported that CLECs reported providing about 18% (a decline from 43% in December 1999) of their switched access lines by reselling the services of other carriers, about 58% (an

increase from 24% in December 1999) by means of UNE loops leased from other carriers, and about 23% of switched access lines over their own local loop facilities.

The FCC reports that since December 1999, the percentage of nationwide CLEC switched access lines reported to be provisioned by reselling services has declined steadily, to 18% at the end of June 2003, and the percentage provisioned over UNE loops has grown steadily, to 58% at June 30, 2003. The FCC reported that ILECs provided about 2.2 million switched access lines to unaffiliated carriers on a resale basis at the end of June 2003, down from 2.7 million six months earlier. The FCC reported that ILECS provided 17.2 million unbundled loops (with or without unbundled switching) to unaffiliated carriers at June 30, 2003, up from 14.5 million six months earlier.

UNE loops provided with ILEC switching (UNE-Platform) have increased faster than UNE loops provided without switching. The FCC reported that ILECs provided approximately 27% more UNE loops with switching to unaffiliated carriers at the end of June 2003 than they reported six months earlier (13.0 million compared to 10.2 million) and about 1% fewer UNE loops without switching (about 4.2 million compared to 4.3 million).

The FCC reports that during the first half of 2003, cable-telephony lines increased by 1% to 3 million lines, which constituted approximately 11% of switched access lines provided by CLECs and approximately 2% of total switched access lines. Cable telephony deployments in the U. S. continue to expand using proprietary, circuit switched technology. More hardware has become available that provides the quality of services necessary for voice services. Cable telephony services continue to expand as cable television operators expand their video, data, and voice service offerings. Industry analysts estimate that worldwide cable telephony subscribers reached 10 million in 2003 and are forecast to rise to over 19 million in 2007, with revenues estimated at $4 billion in 2003 and to rise to over $6 billion in 2007. A significant driver for cable telephony is the bundling of telephony services with existing digital video and high speed data services. We expect to begin deploying a cable telephony solution in the second quarter of 2004 that we expect will meet our needs and the needs of our customers.

The communications industry has been weighed down by regulatory uncertainty as a result of successive court reversals of the FCC's core local competition rules. These court actions have left providers with little guidance about the network elements that will be available at regulated cost-based rates and have put at risk current plans of some businesses that were developed based on the challenged rules.

See "—Business, Regulation, Franchise Authorizations and Tariffs—Local Access Services" for more information.

General. Our local exchange and exchange access services ("local access services") segment entered the local services market in Anchorage in 1997, providing services to residential, commercial, and government users. At March 31, 2004 we could access approximately 92%, 71%, and 48% of Anchorage, Fairbanks, and Juneau area local loops, respectively, from our collocated remote facilities and digital loop carrier, or DLC, installations.

Products. Our collocated remote facilities access the ILEC's unbundled network element loops, allowing us to offer full featured, switched-based local service products to both residential and commercial customers, and provide private line service products to commercial customers. In areas where we do not have access to ILEC loop facilities, we offer service using total service resale of the ILEC's local service in Anchorage, and either total service resale or UNE platform in Fairbanks and Juneau.

Our package offerings are competitively priced and include popular features, such as the following.

•	Enhanced call waiting	•	Caller ID
•	Caller ID on call waiting	•	Free caller ID box
•	Anonymous call rejection	•	Call forwarding
•	Call forward busy	•	Call forward no answer
•	Enhanced call waiting	•	Fixed call forwarding
•	Follow me call	•	Intercom service forwarding
•	Multi-distinctive ring	•	Per line blocking
•	Selective call forwarding	•	Selective call acceptance
•	Selective call rejection	•	Selective distinctive alert
•	Speed calling	•	Three way calling
•	Voice mail	•	Inside wire repair plan
•	Non-listed number	•	Non-published number

Facilities. In Anchorage we utilize a centrally located Lucent 5ESS host switching system, have collocated six remote facilities adjacent to or within the ILEC's local switching offices to access unbundled loop network elements, and have installed a DLC system adjacent to a smaller, seventh ILEC wire center for access to unbundled loop network elements. Remote and DLC facilities are interconnected to the host switch via our diversely routed fiber optic links. Additionally, we provided our own facilities-based services to many of Anchorage's larger business customers through further expansion and deployment of SONET fiber transmission facilities, DLC facilities, and leased HDSL and T-1 facilities.

In Fairbanks and Juneau we employ Lucent Distinctive Remote Module switching systems (5ESS) and have collocated DLC systems adjacent to the ILEC's local switching office and within the ILEC's wire center to access unbundled loop network elements.

Customers. We had approximately 106,100, 96,100 and 79,200 local lines in service from Anchorage, Fairbanks, and Juneau, Alaska subscribers at December 31, 2003, 2002 and 2001, respectively. We began providing local access services in Fairbanks in 2001 and in Juneau in 2002. The 2003 line count consists of approximately 61,900 residential access lines and 36,900 business access lines, including 7,300 Internet service provider access lines. We ended 2003 with market share gains in substantially all market segments.

Revenues derived from local access services in 2003, 2002 and 2001 totaled $39.0 million, $32.1 million and $25.2 million, respectively, representing approximately 10.0%, 8.7% and 7.1% of our total revenues in 2003, 2002 and 2001, respectively.

Competition. In the local access services market the 1996 Telecom Act, judicial decisions, and state legislative and regulatory developments have increased the likelihood that barriers to local telephone competition will be reduced or removed. These initiatives include requirements that ILECs negotiate with entities, including us, to provide interconnection to the existing local telephone network, to allow the purchase, at cost-based rates, of access to unbundled network elements, to establish dialing parity, to obtain access to rights-of-way and to resell services offered by the ILEC.

The 1996 Telecom Act also provides ILECs with new competitive opportunities. We believe that we have certain advantages over these companies in providing communications services, including awareness by Alaskan customers of the GCI brand-name, our facilities-based communications network, and our prior experience in, and knowledge of, the Alaskan market.

Data obtained from the RCA indicates that there are 23 ILECs and six CLECs certified to operate in the State of Alaska. We compete against ACS, the ILEC in Anchorage, Juneau and Fairbanks, and with AT&T in the Anchorage service area. AT&T offers local exchange service only to residential

customers through total service resale. We also compete in the business market against TelAlaska Long Distance, Inc. ("TelAlaska") in the Anchorage service area.

ACS, through subsidiary companies, provides local telephone services in Fairbanks and Juneau, Alaska. These ACS subsidiaries are classified as Rural Telephone Companies under the 1996 Telecom Act, which entitles them to an exemption of certain material interconnection terms of the 1996 Telecom Act, until and unless such "rural exemption" is examined and discontinued by the RCA. On October 11, 1999, the RCA issued an order terminating rural exemptions for the ACS subsidiaries operating in the Fairbanks and Juneau markets so that we could compete with these companies in the provision of local telephone service pursuant to the terms of Section 251(c) of the 1996 Telecom Act. These rural exemptions limited the obligation of the ILECs in these markets to provide us access to UNEs at rates under the pricing standard established by the FCC.

Upon appeal by ACS, on December 12, 2003, the Alaska Supreme Court issued a decision in which it reversed the RCA's rural exemption decision on the procedural ground that the competitor, not the incumbent, must shoulder the burden of proof. The Court remanded the matter to the RCA for reconsideration with the burden of proof assigned to us. Additionally, the Court left it to the RCA to decide as a matter of discretion whether to change the state of competition during the remand period. In accordance with the Court's ruling, the RCA has re-opened the rural exemption dockets and scheduled a hearing to commence on April 19, 2004. Additionally, the RCA issued a ruling on January 16, 2004, in which the Commission determined that we can continue to rely on UNEs from ACS to serve our existing customers in Juneau and Fairbanks but that we may not serve new customers through purchase of UNEs pending the completion of the remand proceeding. The RCA provided that we may serve new customers using wholesale resale until the matter is resolved. On April 19, 2004, the ACS subsidiaries and GCI filed a joint motion seeking RCA termination of the proceeding, wherein the ACS subsidiaries stipulated that they had relinquished all claims to the rural exemption in the Fairbanks and Juneau markets, and associated study areas. The RCA granted the motion on April 21, 2004 and lifted the restriction on UNEs imposed by the January 16, 2004 order. The order became final and unappealable on May 21, 2004. By agreement of the parties, ACS will reinitiate processing of UNE orders for these service areas on June 30, 2004.

We expect further competition in the marketplaces we serve as other companies may receive certifications. We anticipate competition in business customer telephone access, Internet access, DSL and private line markets.

We continue to offer local exchange services to substantially all consumers in the Anchorage, Juneau and Fairbanks service areas, primarily through our own facilities and unbundled local loops leased from ACS.

Our local services sales efforts continue to focus on increasing the number of subscribers we serve, selling bundled services, and generating incremental revenues through product and feature up-sale opportunities. We sell our local services through telemarketing, direct mail advertising, up selling by our customer service personnel, and door-to-door selling.

You should see "—Business, Regulation, Franchise Authorizations and Tariffs—Communications Operations" for more information.

Industry. The Internet continues to expand at a significant rate. The Internet Systems Consortium reports that approximately 233 million web sites were hosted at the end of January 2004, an increase of 35% from 172 million at the end of January 2003. The FCC reports that the percent of U. S. households with a computer grew from 39% in 1997 to 56% in 2001, and that the percent of households with Internet access increased from 19% to 50% during the same period.

Dial-up Internet service continues to be the most widely used method to access the Internet. As of year-end 2003, an estimated 57% of U. S. Internet connected households were reported by Nielsen//NetRatings to access the Internet using dial-up modems. Growth in the proportion of households accessing the Internet with broadband connections has accelerated and is expected to exceed dial-up modem access within several years. We believe high-speed Internet access will likely become the dominant access method for residential Internet users as broadband becomes more widely available, more flexibly priced, and as new kinds of entertainment, content and services emerge. Jupiter Research estimates that 50% of all United States Internet homes are forecast to use broadband connections by 2008.

The FCC reported that high-speed lines (those that provide services at speeds exceeding 200 kbps in at least one direction) connecting homes and businesses to the Internet increased by 23% during the second half of 2002, from 16.2 million to 19.9 million lines, compared to a 27% increase, from 12.8 million to 16.2 million lines, during the first half of 2002. Approximately 17.4 million of the 19.9 million total lines served residential and small business subscribers, a 24% increase from the 14.0 million lines reported six months earlier.

The FCC further reported that of the 19.9 million high-speed lines, 13.0 million provided advanced services, i.e., services at speeds exceeding 200 kbps in both directions. Advanced services lines increased 24% from 10.4 million lines to 13.0 million lines during the second half of 2002. Advanced services lines increased 41% from 7.4 million to 10.4 million lines during the first half of 2002. Approximately 10.8 million of the 13.0 million advanced services lines served residential and small business subscribers.

Cable modem Internet access continues to be the primary means of accessing the Internet in the United States over broadband networks. Industry analysts believe that a cable network upgrade is more efficient than is a DSL network upgrade, largely because of the individual local loops that must be provisioned for DSL, with Central Office proximity a severe mitigating factor. In contrast, cable networks are upgraded into smaller discrete nodes. Less costly and more efficient upgrades required for cable modem usage lead to greater scalability. Analysts believe that cable operators have more incentive to upgrade networks and have potentially higher returns due to the potential for new sources of revenue from digital cable, telephony and other products that are made possible from such upgrades.

DSL is the most significant broadband competitor to cable modem service, with an estimated 7 million United States subscribers through June 2003 according to FCC reports. Despite intense competition from DSL service providers, cable's offering of high-speed Internet access was reported by the FCC to have experienced customer growth of almost 19% during the first six months of 2003. The FCC reports that United States cable modem subscribers totaled an estimated 13.8 million through June 2003 as compared to 3.7 million in 2000. The FCC reported that high-speed asymmetric DSL lines in service increased by 19% during the first half of 2003, from 6.5 million to 7.7 million lines, compared to a 27% increase, from nearly 5.1 million to 6.5 million lines, during the preceding six months.

Satellite technologies currently have less than one percent of the market and are not expected to appreciably increase market share over the next several years.

Industry analysts believe that broadband deployment will continue to bring valuable new services to consumers and advance many other objectives, such as improving education advancing economic opportunities. With an estimated 73 million cable households in the United States and an estimated 57 million households owning a computer, broadband cable Internet access growth is expected to continue as new advanced services are deployed.

As state and local governments attempt to increase funding sources for their programs, taxes on Internet access continue to be debated and proposed. The Internet Tax Freedom Act was enacted in 1998 but expired in October 2001. A similar bill extended the moratorium until November 2003. A new bill (H.R. 49) is under review by the House of Representatives to permanently extend the tax moratorium. A similar bill (S. 52) is under review by the Senate Committee on Commerce, Science, and Transportation. The bills would make permanent the moratorium on taxes on Internet access, regardless of the speed of that access, and on multiple or discriminatory taxes on electronic commerce. Analysts believe that keeping the Internet free of such taxes will create an environment for innovation and will ensure that electronic commerce will remain a vital and growing part of the economy of the United States.

See "—Business, Regulation, Franchise Authorizations and Tariffs—Internet Services" for more information.

General. Our Internet services division entered the Internet services market in 1998, providing retail services to residential, commercial, and government users and providing wholesale carrier services to other ISPs. We were the first provider in Anchorage to offer commercially available DSL products.

Products. We primarily offer three types of Internet access for residential use: dial-up, fixed wireless and high-speed cable modem Internet access. Our residential high-speed cable modem Internet service offers up to 2.4 Mbps access speeds as compared with up to 56 kbps access through standard copper wire dial-up modem access. Our fixed wireless offers low speed 64 kbps and higher speed 256 kbps versions. We provide 24-hour customer service and technical support via telephone or online. The entry-level cable modem service also offers free data transfer up to one gigabyte per month at a rate of 64 Kbps and can be connected 24-hours-a-day, 365-days-a-year, allowing for real-time information and e-mail access. This product acts as a dialup replacement and upgrade since it is always connected and provides more efficient data transfer. Cable modems use our coaxial cable plant that provides cable television service, instead of the traditional ILEC copper wire. Coaxial cable has a much greater carrying capacity than telephone wire and can be used to simultaneously deliver both cable television (analog or digital) and Internet access services.

At the end of 2003 we launched a plan to increase the speed of our entry level broadband cable modem level service from 384 kbps to 512 kbps for new and current customers. The project was completed in January 2004. We also adjusted the speed including data transfer for all of our cable modem packages to meet the demand for higher speed access. Additional cable modem service packages tailored to both heavy residential and commercial Internet users are also available.

We currently offer several Internet service packages for commercial use: dial-up access, DSL, T-1 and fractional T-1 leased line, Frame Relay, multi-megabit and high-speed cable modem Internet access. Our business high-speed cable modem Internet service offers access speeds ranging from 512 kbps to 2.4 Mbps, free monthly data transfers of up to 30 gigabytes and free 24-hour customer service and technical support. Our DSL offering can support speeds of up to 768 kbps over the same copper line used for phone service. Business services also include a personalized web page, domain name services, and e-mail addressing.

We also provide dedicated access Internet service to commercial and public organizations in Alaska. We offer a premium service and currently support many of the largest organizations in the state such as Conoco Phillips Alaska, the State of Alaska and the Anchorage School District. We have hundreds of other enterprise customers, both large and small, using this service.

Bandwidth is made available to our Internet segment through our AULP undersea fiber cable system and our Galaxy XR transponders. Our Internet offerings are coupled with our long-distance, cable television, and local services offerings and provide free basic Internet services (both dialup and cable modem access) if certain plans are selected. Value-added Internet features are available for additional charges.

We provide Internet access for schools and health organizations using a platform including many of the latest advancements in technology. Services are delivered through a locally available circuit, our existing lines, and/or satellite earth stations.

Facilities. The Internet is an interconnected global public computer network of tens of thousands of packet-switched networks using the Internet protocol. The Internet is effectively a network of networks routing data throughout the world. We provide access to the Internet using a platform that includes many of the latest advancements in technology. The physical platform is concentrated in Anchorage and is extended into many remote areas of the state. Our Internet platform includes the following:

Dedicated Internet access is delivered to a router located at the service point. Our Internet management platform constantly monitors this router; continual communications are maintained with all of the routers in the network. The availability and quality of service, as well as statistical information on traffic loading, are continuously monitored for quality assurance. The management platform has the capability to remotely access routers, permitting changes in router configuration without the need to physically be at the service point. This management platform allows us to offer outsourced network

monitoring and management services to commercial businesses. Many of the largest commercial networks in the State of Alaska use this service, including the state government.

GCI.net offers a unique combination of innovative network design and aggressive performance management. Our Internet platform has received a certification that places it in the top one percent of all service providers worldwide and is the only Internet Service Provider in Alaska with such a designation. We operate and maintain what we believe is the largest, most reliable, and highest performance Internet network in the State of Alaska.

Customers. We had approximately 95,700, 89,500 and 72,700 total active residential and commercial Internet subscribers at December 31, 2003, 2002 and 2001, respectively. Included in these totals were approximately 46,000, 36,200 and 26,500 active residential and commercial cable modem Internet subscribers at December 31, 2003, 2002 and 2001, respectively. Revenues derived from Internet services totaled $19.8 million, $15.6 million and $12.0 million, in 2003, 2002 and 2001, respectively, representing approximately 5.1%, 4.2% and 3.4% of our total revenues in 2003, 2002 and 2001, respectively.

Our Internet services sales efforts are primarily directed toward increasing the number of subscribers we serve, selling bundled services, and generating incremental revenues through product and feature upsale opportunities. We sell our Internet services through telemarketing, direct mail advertising, door-to-door selling, up selling by our customer service and technical support personnel, and local media advertising.

Competition. The Internet industry is highly competitive, rapidly evolving and subject to constant technological change. Competition is based upon price and pricing plans, service packages, the types of services offered, the technologies used, customer service, billing services, perceived quality, reliability and availability. As of March 31, 2004, we competed with more than seven Alaska based Internet providers, and competed with other domestic, non-Alaska based providers that provide national service coverage. Several of the providers have substantially greater financial, technical and marketing resources than we do.

ACS and other Alaska telephone service providers are providing competitive high-speed DSL services over their telephone lines in direct competition with our high-speed cable modem service. DBS providers and others provide wireless high speed Internet service in competition with our high-speed cable modem services. Competitive local fixed wireless providers are providing service in certain of our markets.

Niche providers in the industry, both local and national, compete with certain of our Internet service products, such as web hosting, list services and email.

Our marketing and sales strategy hinges on our ability to leverage (i) our unique position as an integrated provider of multiple communications, Internet and cable services, (ii) our well-recognized and respected brand name in the Alaskan marketplace and (iii) our leading market positions in long-distance, Internet and cable television services. By continuing to pursue a marketing strategy that takes advantage of these characteristics, we believe we can increase our residential and commercial customer market penetration and retention rates, increase our share of our customers' aggregate voice, video and data services expenditures and achieve continued growth in revenues and operating cash flow.

We may undertake activities that, under certain circumstances may affect the environment. Accordingly, they are subject to federal, state, and local regulations designed to preserve or protect the

environment. The FCC, the Bureau of Land Management, the United States Forest Service, and the National Park Service are required by the National Environmental Policy Act of 1969 to consider the environmental impact before the commencement of facility construction.

We believe that compliance with such regulations has no material effect on our consolidated operations. The principal effect of our facilities on the environment would be in the form of construction of facilities and networks at various locations in Alaska and between Alaska, Seattle, Washington, and Warrenton, Oregon. Our facilities have been constructed in accordance with federal, state and local building codes and zoning regulations whenever and wherever applicable. Some facilities may be on lands that may be subject to state and federal wetland regulation.

Uncertainty as to the applicability of environmental regulations is caused in major part by the federal government's decision to consider a change in the definition of wetlands. Most of our facilities are on leased property, and, with respect to all of these facilities, we are unaware of any violations of lease terms or federal, state or local regulations pertaining to preservation or protection of the environment.

Our Alaska United, or AULP, projects consist, in part, of deploying land-based and undersea fiber optic cable facilities between Anchorage, Juneau, Seward, Valdez, and Whittier, Alaska, Seattle, Washington, and Warrenton, Oregon. The engineered routes pass over wetlands and other environmentally sensitive areas. We believe our construction methods used for buried cable have a minimal impact on the environment. The agencies, among others, that are involved in permitting and oversight of our cable deployment efforts are the United States Army Corps of Engineers, The National Marine Fisheries Service, United States Fish & Wildlife, United States Coast Guard, National Oceanic and Atmospheric Administration, Alaska Department of Natural Resources, and the Alaska Office of the Governor-Governmental Coordination. We are unaware of any violations of federal, state or local regulations or permits pertaining to preservation or protection of the environment.

In the course of operating the cable television and communications systems, we have used various materials defined as hazardous by applicable governmental regulations. These materials have been used for insect repellent, locate paint and pole treatment, and as heating fuel, transformer oil, cable cleaner, batteries, diesel fuel, and in various other ways in the operation of those systems. We do not believe that these materials, when used in accordance with manufacturer instructions, pose an unreasonable hazard to those who use them or to the environment.

We do not hold patents, franchises or concessions for communications services or local access services. We do hold registered service marks for the Digistar™ logo and letters GCI™, and for the term SchoolAccess™. The Communications Act of 1934 gives the FCC the authority to license and regulate the use of the electromagnetic spectrum for radio communications. We hold licenses through our long-distance services industry segment for our satellite and microwave transmission facilities for provision of long-distance services.

GCI acquired a license for use of a 30-MHz block of spectrum for providing PCS services in Alaska. We are required by the FCC to provide adequate broadband PCS service to at least two-thirds of the population in our licensed areas within 10 years of being licensed. The PCS license has an initial duration of 10 years. At the end of the license period, a renewal application must be filed. We believe renewal will generally be granted on a routine basis upon showing of compliance with FCC regulations and continuing service to the public. Licenses may be revoked and license renewal applications may be denied for cause. We expect to renew the PCS license for an additional 10-year term under FCC rules.

We acquired a LMDS license in 1998 for use of a 150-MHz block of spectrum in the 28 GHz Ka-band for providing wireless services. The LMDS license has an initial duration of 10 years. Within

10 years, licensees will be required to provide "substantial service" in their service regions. Our operations may require additional licenses in the future.

Earth stations are licensed generally for 15 years. The FCC also issues a single blanket license for a large number of technically identical earth stations (e.g., VSATs).

The following summary of regulatory developments and legislation does not purport to describe all present and proposed federal, state, and local regulation and legislation affecting our businesses. Other existing federal and state regulations are currently the subject of judicial proceedings, legislative hearings and administrative proposals that could change, in varying degrees, the manner in which these industries operate. We cannot predict at this time the outcome of these proceedings and legislation, their impact on the industries in which we operate, or their impact on us.

General. We are subject to regulation by the FCC and by the RCA as a non-dominant provider of long-distance services. We file Tariffs with the FCC for interstate access and operator services, and limited international long-distance services, subject to the FCC's mandatory detariffing policies, and with the RCA for intrastate service. Such Tariffs routinely become effective without intervention by the FCC, RCA or other third parties since we are a non-dominant carrier. Military franchise requirements also affect our ability to provide communications and cable television services to military bases.

The 1996 Telecom Act preempts state statutes and regulations that restrict the provision of competitive local communications services. State commissions can, however, impose reasonable terms and conditions upon the provision of communications services within their respective states. Because we are authorized to offer local access services, we are regulated as a CLEC by the RCA. In addition, we are subject to other regulatory requirements, including certain requirements imposed by the 1996 Telecom Act on all LECs, which requirements include permitting resale of LEC services, local number portability (the ability of an end user to change local exchange carriers while retaining the same telephone number), dialing parity, and reciprocal compensation (requiring the same compensation of a CLEC for termination of a local call by the ILEC on its network, as the new competitor pays the ILEC for termination of local calls on the ILEC network).

As a PCS and LMDS licensee, we are subject to regulation by the FCC, and must comply with certain build-out and other conditions of the license, as well as with the FCC's regulations governing the PCS and LMDS services (described above). On a more limited basis, we may be subject to certain regulatory oversight by the RCA (e.g., in the areas of consumer protection), although states are not permitted to regulate the rates or entry of PCS, LMDS and other commercial wireless service providers. PCS and LMDS licensees may also be subject to regulatory requirements of local jurisdictions pertaining to, among other things, the location of tower facilities.

Rural Exemption. ACS, through subsidiary companies, provides local telephone services in Fairbanks and Juneau, Alaska. These ACS subsidiaries are classified as Rural Telephone Companies under the 1996 Telecom Act, which entitles them to an exemption of certain material interconnection terms of the 1996 Telecom Act, until and unless such "rural exemption" is examined and discontinued by the RCA. On October 11, 1999, the RCA issued an order terminating rural exemptions for the ACS subsidiaries operating in the Fairbanks and Juneau markets so that we could compete with these companies in the provision of local telephone service pursuant to the terms of Section 251(c) of the 1996 Telecom Act. These rural exemptions limited the obligation of the ILECs in these markets to provide us with access to unbundled network elements at rates under the pricing standard established by the FCC. Upon appeal by ACS, on December 12, 2003, the Alaska Supreme Court issued a decision in which it reversed the RCA's rural exemption decision on the procedural ground that the competitor,

not the incumbent, must shoulder the burden of proof. The Court remanded the matter to the RCA for reconsideration with the burden of proof assigned to us. Additionally, the Court left it to the RCA to decide as a matter of discretion whether to change the state of competition during the remand period. In accordance with the Court's ruling, the RCA re-opened the rural exemption dockets and scheduled a hearing to commence on April 19, 2004. Additionally, the RCA issued a ruling on January 16, 2004, in which the Commission determined that we can continue to rely on unbundled network elements from ACS to serve our existing customers in Juneau and Fairbanks but that we may not serve new customers through purchase of unbundled network elements pending the completion of the remand proceeding. The RCA provided that we may serve new customers using wholesale resale until the matter is resolved. On April 19, 2004, the ACS subsidiaries and GCI filed a joint motion seeking RCA termination of the proceeding, wherein the ACS subsidiaries stipulated that they had relinquished all claims to the rural exemption in the Fairbanks and Juneau markets, and associated study areas. The RCA granted the motion on April 21, 2004 and lifted the restriction on UNEs imposed by the January 16, 2004 order. The order became final and unappealable on May 21, 2004. By agreement of the parties, ACS will reinitiate processing of UNE orders for these service areas on June 30, 2004.

Access Fees. The FCC regulates the fees that local telephone companies charge long-distance companies for access to their local networks. In 2001, the FCC adopted a plan to restructure these access charges for rate-of-return regulated carriers, which has the effect of shifting certain charges from IXCs to end users. The FCC is continuing to monitor the access charge regime and could consider other proposals that would restructure and could reduce access charges. Changes in the access charge structure or the introduction of new technologies that are not subject to the access charge structure could fundamentally change the economics of some aspects of our business.

IP—Enabled Services. On February 12, 2004, the FCC initiated a Notice of Proposed Rulemaking to consider the appropriate regulatory framework for "IP—Enabled Services." In the proceeding, the FCC must define that term and then may develop policies that may implicate access to network elements, access charges, universal service policies, and the regulation of telecommunications in general. We cannot predict at this time the outcome of this proceeding, its impact on the industries in which we operate, or its impact on us.

Access to Unbundled Network Elements. On March 2, 2004, the United States Court of Appeals for the Circuit of the District of Columbia ("D.C. Circuit Court") issued a decision affirming in part, vacating in part, and remanding in part the FCC's Triennial Review Order, in which the FCC reviewed its regulations governing access that ILECs must make available to competitors to unbundled network elements pursuant to Section 251(c) of the 1996 Telecom Act. The decision went into effect on June 15, 2004, and petitions for certiorari to the Supreme Court are due on June 30, 2004.

Prior to the D.C. Circuit Court's decision becoming effective, including vacatur of FCC rules directing state commissions to review the ongoing need for access to certain unbundled network elements, the RCA initiated a proceeding to review the extent to which ACS may not be required to continue offering access to certain unbundled network elements, in accordance with the guidelines

established by the FCC in the Triennial Review Order. The RCA stayed its proceeding on April 2, 2004, pending appeal of the March 2, 2004 D.C. Circuit Court decision. Subsequent to the RCA stay, GCI and ACS agreed upon the terms under which ACS would continue to offer access to unbundled network elements in the territories served by the ACS subsidiaries serving Fairbanks and Juneau, through January 1, 2008, including those elements at issue in the RCA proceeding. On May 18, 2004, these ACS subsidiaries and GCI stipulated to the RCA that these ACS subsidiaries would continue to provide GCI access to certain elements at issue in the RCA proceeding under specified conditions, and that all other unbundled network elements would remain available under the terms of any applicable interconnection agreement. On June 24, 2004, the RCA temporarily lifted the stay, accepted the parties' stipulated resolution of these specific issues, and reinstituted the stay, pending the outcome of appeals and any subsequent FCC action. We cannot predict the extent to which further appeals of the March 2, 2004 decision, the decision itself, and/or further FCC action on these matters will affect the RCA proceeding.

In addition, the outcome of further court appeals, the RCA proceeding, and/or further FCC actions on these matters could result in a change in our cost of serving new markets and existing markets, to the extent not addressed by the agreement between GCI and the ACS subsidiaries described in the preceding paragraph, via the facilities of the ILEC or via wholesale offerings. The ability to obtain access to unbundled network elements is an important element of our local access service business, and we believe the FCC's actions in this area historically have been generally positive. However, we cannot predict the extent to which the existing rules will be sustained in the face of additional legal and regulatory action and the scope of rules that are yet to be determined by the FCC.

The FCC has pending a notice of proposed rulemaking in which it is currently reviewing its pricing standard that governs the rates ILECs may charge competitors for access to unbundled network elements. The outcome of this regulatory proceeding could result in a change in our cost of serving new and existing markets via the facilities of the ILEC or via wholesale offerings. Recurring and non-recurring charges for telephone lines and other unbundled network elements may increase based on the rates proposed by the ILECs and approved by the RCA from time to time, which could have an adverse effect on our financial position, results of operations or liquidity.

On June 25, 2004, the RCA entered an order setting prices for access to unbundled network elements, resale and terms and conditions of interconnection, relating to Anchorage. The order sets some rates, requires the recomputation of others, and requires GCI and ACS to jointly file a new interconnection agreement consistent with the determinations in the order by July 26, 2004. For additional information, please see "Recent Developments—Anchorage Arbitration Decision" of this prospectus. In addition, ACS and GCI have agreed to the rates, terms, and conditions to govern GCI's access to unbundled network elements in Fairbanks and Juneau, and submitted the revised agreements for RCA approval on May 18, 2004. On May 27, 2004 we filed a Petition with the RCA requesting the arbitration of interconnection rates, terms, and conditions with MTA for the purpose of instituting local competition in the areas served by MTA. We have been largely successful in the prior arbitration proceedings as to the material terms, including prices and technical issues; however, the RCA's decisions in the proceeding could result in a change in our costs of serving new and existing markets via the facilities of the ILEC or via wholesale offerings.

Critics continue to ask Congress to modify, if not altogether rework, the 1996 Telecom Act, citing the level of competition in the local phone and broadband sectors. There is a lack of consensus on what changes are needed, however, or who is to blame for the 1996 Telecom Act's perceived failures. Loosened regulations on ILECs that control bottleneck facilities could diminish CLEC local phone competition.

Universal Service. We have qualified under FCC regulations as a competitive "eligible telecommunications carrier," or ETC, with respect to our provision of local telephone service in

Anchorage, Fairbanks, and Juneau. ETCs are entitled to receive subsidies paid by the Universal Service Fund. If we do not continue to qualify for this status in Anchorage, Fairbanks and/or Juneau, or if we do not qualify for this status in other rural areas where we propose to offer new services, we would not receive this subsidy and our net cost of providing local telephone services in these areas would be materially adversely affected.

In addition, the FCC has referred issues concerning the designation of ETCs, portability of support, and the basis for calculating support to a Federal-State Joint Board on Universal Service. On February 27, 2004, the Joint Board issued a recommendation on which the FCC will have 12 months to act. The FCC's decision in this proceeding could affect the subsidy and result in a change in our net costs of providing local telephone services in new and existing markets.

Local Regulation. We may be required to obtain local permits for street opening and construction permits to install and expand our networks. Local zoning authorities often regulate our use of towers for microwave and other communications sites. We also are subject to general regulations concerning building codes and local licensing. The 1996 Telecom Act requires that fees charged to communications carriers be applied in a competitively neutral manner, but there can be no assurance that ILECs and others with whom we will be competing will bear costs similar to those we will bear in this regard.

General. The FCC has adopted rules that will require cable operators to carry the digital signals of broadcast television stations. However, the FCC has decided that cable operators should not be required to carry both the analog and digital services of broadcast television stations while broadcasters are transitioning from analog to digital transmission. Carrying both the analog and digital services of broadcast television stations would consume additional cable capacity. As a result, a requirement to carry both analog and digital services of broadcast television stations could require the removal of popular programming services with materially adverse results for cable operators, including us. Should the FCC mandate dual carriage, we will carry the broadcast signals in both analog and digital formats.

Subscriber Rates. In Alaska, the RCA is the local franchising authority certified to regulate basic cable rates. Under state law, however, the cable television service is exempt from regulation unless subscribers petition the state commission for regulation under the procedures set forth in AS 42.05.712. At present, the only community where regulation of the basic rate occurs is in Juneau.

FCC regulations govern rates that may be charged to subscribers for regulated services. The FCC uses a benchmark methodology as the principal method of regulating rates. Cable operators are also permitted to justify rates using a cost-of-service methodology, which contains a rebuttable presumption of an industry-wide 11.25% rate of return on an operator's allowable rate base. Cost-of-service regulation is a traditional form of rate regulation, under which a company is allowed to recover its costs of providing the regulated service, plus a reasonable profit. Franchising authorities are empowered to regulate the rates charged for monthly Basic Service, for additional outlets and for the installation, lease and sale of equipment used by subscribers to receive the basic cable service tier, such as converter boxes and remote control units. The FCC's rules require franchising authorities to regulate these rates based on actual cost plus a reasonable profit, as defined by the FCC. Cable operators required to reduce rates may also be required to refund overcharges with interest. The FCC has also adopted comprehensive and restrictive regulations allowing operators to modify their regulated rates on a quarterly or annual basis using various methodologies that account for changes in the number of regulated channels, inflation and increases in certain external costs, such as franchise and other governmental fees, copyright and retransmission consent fees, taxes, programming fees and franchise-related obligations. We cannot predict whether the FCC will modify these "going forward" regulations in the future.

In addition, members of Congress have directed the FCC to report on the issue of "a la carte" and "themed-tier" services on cable television and direct broadcast satellite systems. This request reflects a growing intent by legislators and regulators in such service and pricing structures. We cannot predict at this time the outcome of the FCC report process or whether such services will be required to be provided, the impact on the industries in which we operate, or its impact on us.

Cable System Delivery of Internet Service. Although there is at present no significant federal regulation of cable system delivery of Internet services, and the FCC has issued several reports finding no immediate need to impose such regulation, this situation may change as cable systems expand their broadband delivery of Internet services and as a result of legislative, regulatory and judicial developments.

In particular, proposals have been advanced at the FCC and Congress that would require cable operators to provide access to unaffiliated Internet service providers and online service providers.

In an October 6, 2003 decision, the United States Court of Appeals for the Ninth Circuit reversed an FCC decision defining high-speed Internet over cable as an "information service" not subject to local cable-franchise fees, like cable service is, or any explicit requirements for "open access," as communications service is. On April 1, 2004, the request for rehearing by the full panel was denied, and on April 9, 2004, the court stayed the effective date pending further review by the Supreme Court. If Internet access requirements are imposed on cable operators, it could burden the capacity of cable systems and complicate our own plans for providing expanded Internet access services. These access obligations could adversely affect our financial position, results of operations or liquidity.

Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal carriage requirements that allow local commercial television broadcast stations to elect once every three years to require a cable system to carry the station, subject to certain exceptions, or to negotiate for "retransmission consent" to carry the station.

The FCC decided against imposition of dual digital and analog must carry in a January 2001 ruling. The ruling resolved a number of technical and legal matters, and clarified that a digital-only television station, commercial or non-commercial, can immediately assert its right to carriage on a local cable system. The FCC also said that a television station that returns its analog spectrum and converts to digital operations must be carried by local cable systems. At the same time, however, it initiated further fact gathering that ultimately could lead to a reconsideration of the conclusion.

Satellite Home Viewer Improvement Act of 1999. A major change introduced by the SHVIA was a "local into local" provision allowing satellite carriers, for the first time, to retransmit the signals of local television stations by satellite back to viewers in their local markets. The intent was to promote multichannel video competition by removing the prohibition on satellite retransmission of local signals, which cable operators already offered to their subscribers under the must-carry/retransmission consent scheme of regulation described above. Congress is considering reauthorization of this act, including possible changes to its requirements. We cannot predict at this time the outcome of this review, its impact on the industries in which we operate, or its impact on us.

Access to Programming. To spur the development of independent cable programmers and competition to incumbent cable operators, the 1992 Cable Act imposed restrictions on the dealings between cable operators and cable programmers. The Act precludes video programmers affiliated with cable companies from favoring their cable operators over new competitors and requires such programmers to sell their programming to other multichannel video distributors. The current prohibition extends until October 5, 2007.

Franchise Procedures. The Cable Communications Policy Act of 1984 contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. The 1992 Cable Act made several changes to the renewal process that could make it easier for a franchising authority to deny renewal. Moreover, even if the franchise is renewed, the franchising authority may seek to impose new and more onerous requirements such as significant upgrades in facilities and services or increased franchise fees as a condition of renewal. Similarly, if a franchising authority's consent is required for the purchase or sale of a cable system or franchise, such authority may attempt to impose more burdensome or onerous franchise requirements in connection with a request for such consent. Historically, franchises have been renewed for cable operators that have provided satisfactory services and have complied with the terms of their franchises. We believe that we have generally met the terms of our franchises and have provided quality levels of service. Furthermore, our franchises are issued by the state public utility commission (the RCA) and do not require periodic renewal.

Various courts have considered whether franchising authorities have the legal right to limit the number of franchises awarded within a community and to impose certain substantive franchise requirements (e.g. access channels, universal service and other technical requirements). These decisions have been inconsistent and, until the United States Supreme Court rules definitively on the scope of cable operators' First Amendment protections, the legality of the franchising process generally and of various specific franchise requirements is likely to be in a state of flux.

Pole Attachment. The Communications Act requires the FCC to regulate the rates, terms and conditions imposed by public utilities for cable systems' use of utility pole and conduit space unless state authorities can demonstrate that they adequately regulate pole attachment rates. In the absence of state regulation, the FCC administers pole attachment rates on a formula basis. This formula governs the maximum rate certain utilities may charge for attachments to their poles and conduit by companies providing communications services, including cable operators.

The RCA has largely retained the existing pole attachment formula that has been in state regulation since 1987. This formula could be subject to further revisions upon petition to the RCA. We cannot predict at this time the outcome of any such proceedings.

Copyright. Cable television systems are subject to federal copyright licensing covering carriage of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their revenues to a federal copyright royalty pool that varies depending on the size of the system, the number of distant broadcast television signals carried, and the location of the cable system, cable operators can obtain blanket permission to retransmit copyrighted material included in broadcast signals. The possible modification or elimination of this compulsory copyright license is the subject of continuing legislative review and could adversely affect our ability to obtain desired broadcast programming. We cannot predict the outcome of this legislative activity. Copyright clearances for nonbroadcast programming services are arranged through private negotiations.

Cable operators distribute locally originated programming and advertising that use music controlled by the two principal major music performing rights organizations, the American Society of Composers, Authors and Publishers and Broadcast Music, Inc. Such license fees are not significant to our business and operations.

Other Statutory and FCC Provisions. The Communications Act includes provisions, among others, concerning customer service, subscriber privacy, marketing practices, equal employment opportunity, regulation of technical standards and equipment compatibility.

The FCC has various rulemaking proceedings pending implementing the 1996 Telecom Act; it also has adopted regulations implementing various provisions of the 1992 Cable Act and the 1996 Telecom Act that are the subject of petitions requesting reconsideration of various aspects of its rulemaking proceedings. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities often used in connection with cable operations.

Other Regulations of the FCC. The FCC has previously initiated an inquiry to determine whether the cable industry's future provision of interactive services should be subject to regulations ensuring equal access and competition among service vendors. The inquiry is another indication of regulatory concern regarding control over cable capacity. In addition, other bills and administrative proposals pertaining to cable communications are introduced in Congress from time to time or have been considered by other governmental bodies over the past several years. It is possible that Congress and other governmental bodies will make further attempts to regulate cable communications services.

State and Local Regulation. Because our cable communications systems use local streets and rights-of-way, our systems are subject to state and local regulation. Cable communications systems generally are operated pursuant to franchises, permits or licenses granted by a municipality or other state or local government entity. In Alaska, the RCA is the franchising authority for the state. We provide cable television service throughout Alaska pursuant to various certificates of authority issued by the RCA. These certificates are not subject to terms of renewal and continue in effect until and unless the state commission were to seek to modify or revoke them for good cause.

General. With significant growth in Internet activity and commerce over the past several years the FCC and other regulatory bodies have been challenged to develop new models that allow them to achieve the public policy goals of competition and universal service. Many aspects of regulation and coordination of Internet activities and traffic are evolving and are facing unclear regulatory futures. Changes in regulations and in the regulatory environment, including changes that affect communications costs or increase competition from ILECs or other communications services providers, could adversely affect the prices at which we sell Internet Service Provider services.

Internet Governance and Standards. There is no one entity or organization that governs the Internet. Each facilities-based network provider that is interconnected with the global Internet controls operational aspects of their own network. Certain functions, such as domain name routing and the definition of the TCP/IP protocol (a suite of network protocols that allows computers with different architectures and operating system software to communicate with other computers on the Internet), are coordinated by an array of quasi-governmental, intergovernmental, and non-governmental bodies.

The legal authority of any of these bodies is unclear. Most of the underlying architecture of the Internet was developed under the auspices, directly or indirectly, of the United States government. The government has not, however, defined whether it retains authority over Internet management functions, or whether these responsibilities have been delegated to the private sector.

1996 Telecom Act. The 1996 Telecom Act provides little direct guidance as to whether the FCC has authority to regulate Internet-based services.

Given the absence of clear statutory guidance, the FCC must determine whether it has the authority or the obligation to exercise regulatory jurisdiction over specific Internet-based activities, or to decline from doing so under the appropriate standards.

FCC Regulations. The FCC does not regulate the prices charged by ISPs or Internet backbone providers. However, the vast majority of users connect to the Internet over facilities of existing communications carriers. Those communications carriers are subject to varying levels of regulation at both the federal and the state level. Thus, regulatory decisions exercise a significant influence over the economics of the Internet market. There are pending complaints and proceedings at the FCC that may affect access charges, compensation and other aspects of Internet service, and we cannot predict the effect or outcome of such proceedings.

Financial Information about our Foreign and Domestic Operations and Export Sales

Although we have several agreements to help originate and terminate international toll traffic, we do not have foreign operations or export sales. We conduct our operations throughout the western contiguous United States and Alaska and believe that any subdivision of our operations into distinct geographic areas would not be meaningful. Revenues associated with international toll traffic were $2.9 million, $3.5 million and $4.9 million for the years ended December 31, 2003, 2002 and 2001, respectively.

Our long-distance revenues have historically been highest in the summer months because of temporary population increases attributable to tourism and increased seasonal economic activity such as construction, commercial fishing, and oil and gas activities. Our cable television revenues, on the other hand, are higher in the winter months because consumers tend to watch more television, and spend more time at home, during these months. Our local service and Internet operations are not expected to exhibit significant seasonality, with the exception of SchoolAccess™ Internet services that are reduced during the summer months. Our ability to implement construction projects is also reduced during the winter months because of cold temperatures, snow and short daylight hours.

We have not expended material amounts during the last three fiscal years on customer-sponsored research activities.

As of December 31, 2003 and 2002, our long-distance services segment had a backlog of private line orders of approximately $271,000 and $318,000, respectively, which represents recurring monthly charges for private line and broadband services. As of December 31, 2003 and 2002, we had a backlog of equipment sales orders of approximately $745,000 and $601,000, respectively for services included in the All Other category described in note 13 to the audited consolidated financial statements included elsewhere in this prospectus. The increase in backlog as of December 31, 2003 can be attributed to increased outstanding sales orders at December 31, 2003 as compared to 2002. We expect that all of the private line orders and equipment sales in backlog at the end of 2003 will be delivered during 2004.

We offer voice and data communications and video services to customers primarily in the State of Alaska. Because of this geographic concentration, growth of our business and operations depend upon economic conditions in Alaska. The economy of the State of Alaska is dependent upon natural resource industries, in particular oil production, as well as investment earnings (including earnings from

the State of Alaska Permanent Fund), tourism, government, and United States military spending. Any deterioration in these markets could have an adverse impact on us. Oil revenues are now the second largest source of state revenues, following funds from federal sources. The economic stagnation in the contiguous lower 48 states appears to have dampened demand for services provided by our large common carrier customers. To the extent that these customers experience reduced demand for traffic destined for and originating in Alaska, it could adversely affect our common carrier traffic and associated revenues. See "Risk Factors—Risks Relating to Our Business and Operations—Our businesses are currently geographically concentrated in Alaska," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information about the effect of geographic concentration and the Alaska economy on us.

We employed 1,253 persons as of March 31, 2004, and are not parties to union contracts with our employees. We believe our future success will depend upon our continued ability to attract and retain highly skilled and qualified employees. We believe that relations with our employees are satisfactory.

No material portion of our businesses is subject to renegotiation of profits or termination of contracts at the election of the federal government.

General. Our properties do not lend themselves to description by character or location of principal units. Our investment in property, plant and equipment in our consolidated operations consisted of the following at December 31:

		2003		2002
Telephone distribution systems		53.5	%	56.4	%
Cable television distribution systems		24.9	%	24.4	%
Support equipment		7.1	%	6.5	%
Property and equipment under capital leases		7.9	%	8.5	%
Construction in progress		5.2	%	2.8	%
Transportation equipment		0.9	%	0.9	%
Land and buildings		0.5	%	0.5	%

	Total	100.0	%	100.0	%

These properties are divided among our operating segments at December 31, 2003 as follows: long-distance services, 48.7%; cable services, 26.2%; local access services, 7.8%; Internet services, 5.8%; and all other, 11.5%.

These properties consist primarily of switching equipment, satellite earth stations, fiber-optic networks, microwave radio and cable and wire facilities, cable head-end equipment, coaxial distribution networks, routers, servers, transportation equipment, computer equipment and general office equipment. Substantially all of our properties secure our new senior secured credit facility. You should see note 5 to the audited consolidated financial statements included elsewhere in this prospectus for more information.

Our construction in progress totaled $33.6 million at December 31, 2003, consisting of $16.5 million for AULP West with the remainder consisting of long-distance, cable, local and Internet services, and support systems projects that were incomplete at December 31, 2003. Our construction in

progress totaled $17.0 million at December 31, 2002, consisting of long-distance, cable and local services, and support systems projects that were incomplete at December 31, 2002.

Long-Distance Services. We operate a modern, competitive communications network employing the latest digital transmission technology based upon fiber optic and digital microwave facilities within and between Anchorage, Fairbanks and Juneau, Alaska. Our network includes digital fiber optic cables linking Alaska to the contiguous lower 48 states and providing access to other carriers' networks for communications around the world. We use satellite transmission to remote areas of Alaska and for certain interstate and intrastate traffic, and to provide backup facilities for certain portions of our long-haul fiber networks.

Our long-distance services segment owns properties and facilities including satellite earth stations, and distribution, transportation and office equipment. Additionally, in December 1992 GCI acquired capacity on an undersea fiber optic cable from Seward, Alaska to Pacific City, Oregon which was taken out of service in January 2004. See "Summary—Recent Developments" for more information. We completed construction of AULP East linking Alaska to Seattle, Washington in February 1999. In June 2003, we began the construction of AULP West connecting Seward, Alaska and Warrenton, Oregon, with leased backhaul facilities to connect it to our switching and distribution centers in Anchorage, Alaska and Seattle, Washington. We expect to complete this project by July 2004.

GCI entered into a purchase and lease-purchase option agreement in August 1995 for the acquisition of satellite transponders on the PanAmSat Galaxy XR satellite to meet our long-term satellite capacity requirements. We use the satellite transponders pursuant to a long-term capital lease arrangement with a leasing company. The purchase and lease- purchase option agreement provided for the interim lease of transponder capacity on the PanAmSat Galaxy IX satellite through the delivery of the purchased transponders on Galaxy XR in March 2000.

Effective June 30, 2001, we acquired, through GCI's issuance of its preferred stock, a controlling interest in the corporation owning the 800-mile fiber optic cable system that extends from Prudhoe Bay, Alaska to Valdez, Alaska via Fairbanks.

We lease our long-distance services industry segment's executive, corporate and administrative facilities in Anchorage, Fairbanks and Juneau, Alaska. Our operating, executive, corporate and administrative properties are in good condition. We consider our properties suitable and adequate for our present needs and they are being fully utilized.

Cable Services. The cable systems serve 35 communities and areas in Alaska including Anchorage, Fairbanks, the Mat-Su Valley, and Juneau, the state's four largest urban areas. As of March 31, 2004, the Cable Systems consisted of approximately 2,300 miles of installed cable plant having between 330 to 625 MHz of channel capacity. Our principal physical assets consist of cable television distribution plant and equipment, including signal receiving, encoding and decoding devices, headend reception facilities, distribution systems and customer drop equipment for each of our cable television systems.

Our cable television plant and related equipment are generally attached to utility poles under pole rental agreements with local public utilities and telephone companies, and in certain locations are buried in underground ducts or trenches. We own or lease real property for signal reception sites and business offices in many of the communities served by our systems and for our principal executive offices.

We own the receiving and distribution equipment of each system. In order to keep pace with technological advances, we are maintaining, periodically upgrading and rebuilding the physical components of our cable communications systems. Such properties are in good condition. We own all of our service vehicles. We consider our properties suitable and adequate for our present and anticipated future needs.

Local Access Services. We operate a modern, competitive local access communications network employing analog and the latest digital transmission technology based upon fiber optic facilities within Anchorage, Fairbanks and Juneau, Alaska. Our outside plant consists of connecting lines (aerial, underground and buried cable), the majority of which is on or under public roads, highways or streets, while the remainder is on or under private property. Central office equipment primarily consists of digital electronic switching equipment and circuit carrier transmission equipment. Operating equipment consists of motor vehicles and other equipment.

Substantially all of our local access services' Central Office equipment, administrative and business offices, and customer service centers are in leased facilities. Such properties are in good condition. We consider our properties suitable and adequate for our present and anticipated future needs.

Internet Services. We operate a modern, competitive Internet network employing the latest available technology. We provide access to the Internet using a platform that includes many of the latest advancements in technology. The physical platform is concentrated in Anchorage and is extended into many remote areas of Alaska. Our Internet platform includes trunks connecting our Anchorage, Fairbanks, and Juneau facilities to Internet access points in Seattle through multiple, diversely routed upstream Internet networks, and various other routers, servers and support equipment.

We lease our Internet services industry segment's operating facilities, located primarily in Anchorage. Such properties are in good condition. We consider our properties suitable and adequate for our present and anticipated future needs.

Capital expenditures consist primarily of (a) gross additions to property, plant and equipment having an estimated service life of one year or more, plus the incidental costs of preparing the asset for its intended use, and (b) gross additions to capitalized software.

The total investment in property, plant and equipment has increased from $417.5 million at January 1, 1999 to $646.7 million at December 31, 2003, including construction in progress and not including deductions of accumulated depreciation. Significant additions to property, plant and equipment will be required in the future to meet the growing demand for communications, Internet and entertainment services and to continually modernize and improve such services to meet competitive demands.

We project capital expenditures of $90 million to $100 million for 2004, including approximately $34 million additional for AULP West. We have made purchase commitments totaling approximately $40 million at December 31, 2003, including approximately $25 million for AULP West. A majority of the expenditures are expected to expand, enhance and modernize our current networks, facilities and operating systems, to develop other businesses, and to complete the construction of AULP West. You should see note 16 to the accompanying audited consolidated financial statements included elsewhere in this prospectus for more information.

During 2003, we funded our normal business capital requirements substantially through internal sources and, to the extent necessary, from external financing sources. We expect expenditures for 2004,

including amounts necessary to construct the AULP West undersea fiber optic cable system, to be financed in the same manner.

We have insurance to cover risks incurred in the ordinary course of business, including general liability, property coverage, director and officers and employment practices liability, auto, crime, fiduciary, aviation, and business interruption insurance in amounts typical of similar operators in our industry and with reputable insurance providers. Central office equipment, buildings, furniture and fixtures and certain operating and other equipment are insured under a blanket property insurance program. This program provides substantial limits of coverage against "all risks" of loss including fire, windstorm, flood, earthquake and other perils not specifically excluded by the terms of the policies. As is typical in the communications industry, we are self-insured for damage or loss to certain of our transmission facilities, including our buried, under sea, and above-ground transmission lines. We self-insure with respect to employee health insurance and workers compensation, subject to stop-loss insurance with other parties that caps our liability at specified limits. We believe our insurance coverage is adequate, however if we become subject to substantial uninsured liabilities due to damage or loss to such facilities, our financial results may be adversely affected.

Except as set forth above, neither GCI, its property nor any of its subsidiaries or their property is a party to or subject to any material pending legal proceedings. We are parties to various claims and pending litigation as part of the normal course of business. We are also involved in several administrative proceedings and filings with the FCC, Department of Labor and state regulatory authorities. In the opinion of management, the nature and disposition of these matters are considered routine and arising in the ordinary course of business. Even if resolved unfavorably to us, management believes these matters would not have a materially adverse affect on our business or financial position, results of operations or liquidity.

The board of Parent currently consists of seven director positions, divided into three classes of directors serving staggered three-year terms. The board of GCI, Inc. currently consists of three director positions, the terms of which are not staggered. A director on the board of Parent or GCI, Inc. is elected at an annual meeting of shareholders and serves until the earlier of his or her resignation or removal, or his or her successor is elected and qualified. The executive officers of Parent and GCI, Inc. generally are appointed at their respective board's first meeting after each annual meeting of shareholders and serve at the discretion of the board.

The following table sets forth certain information about the directors and executive officers of GCI, Inc. and Parent as of the date of this prospectus.

Name	Age	Position
Donne F. Fisher(1,2,3,4,5)	65	Chairman and Director of Parent
Ronald A. Duncan(2,4)	51	President, Chief Executive Officer, and Director of Parent and GCI, Inc.
John M. Lowber(1)	54	Senior Vice President, Chief Financial Officer, Secretary, and Treasurer of Parent; Chief Financial Officer, Secretary, Treasurer, and Director of GCI, Inc.
G. Wilson Hughes	58	Executive Vice President and General Manager of Parent; Vice President and Director of GCI, Inc.
William C. Behnke	46	Senior Vice President—Strategic Initiatives of Parent
Gina R. Borland	41	Vice President—General Manager, Local Services of Parent
Marsha E. Burns	51	Vice President—General Manager, Network Solutions of Parent
Richard P. Dowling	60	Senior Vice President—Corporate Development of Parent
Paul E. Landes	46	Vice President—Marketing and Sales, Chief Marketing Officer of Parent
Terry J. Nidiffer	43	Vice President—General Manager, Internet Services of Parent
William R. Snell	54	Vice President—General Manager, Cable and Entertainment Services of Parent
Dana L. Tindall	42	Senior Vice President—Legal, Regulatory and Governmental Affairs of Parent
Richard D. Westlund	60	Vice President—General Manager, Long Distance and Wholesale Services of Parent
Stephen M. Brett(2,3,5)	63	Director of Parent
Jerry A. Edgerton(2)	62	Director of Parent
William P. Glasgow(1,2,3,4,5)	45	Director of Parent
Stephen R. Mooney(2,3,4,5,6)	44	Director of Parent
Stephen A. Reinstadtler(1,2,3,5,6)	37	Director of Parent

Donne F. Fisher. Mr. Fisher has served as Chairman of the Board of Parent since June 2002 and has served as a director of Parent since 1980. Mr. Fisher had been a consultant to Tele-Communications, Inc. ("TCI") since January 1996, and a director of TCI from 1980, to March 1999 when TCI merged into AT&T. From 1982 until 1996, he held various executive officer positions with TCI and its subsidiaries. Mr. Fisher had served on the board of directors of most of TCI's subsidiaries through the years. He has served on the Compensation Committees and the Audit Committees of both Liberty Media Corporation and Sorrento Networks, Inc. Since 1999 he has managed his personal assets.

Ronald A. Duncan. Mr. Duncan is a co-founder of Parent and has been a director of Parent since 1979 and a director of GCI, Inc. since May 1997. Mr. Duncan has served as President and Chief Executive Officer of Parent since January 1, 1989 and has served as President and Chief Executive Officer of GCI, Inc. since May 1997. From 1979 through December 1988 he was the Executive Vice President of Parent.

John M. Lowber. Mr. Lowber has served as Chief Financial Officer of Parent since January 1987, as Secretary and Treasurer since July 1988 and as Senior Vice President since December 1989. Mr. Lowber has served as Chief Financial Officer and as a director of GCI, Inc. since May 1997. He was Vice President—Administration for Parent from 1985 to December 1989. Prior to joining Parent, Mr. Lowber was a senior manager and certified public accountant at Peat Marwick Mitchell and Co. (presently named KPMG LLP).

G. Wilson Hughes. Mr. Hughes has served as Executive Vice President and General Manager of Parent since June 1991. Mr. Hughes has served as Vice President and as a director of GCI, Inc. since May 1997. He previously held engineering or management positions with Northern Air Cargo, Enserch, Ebasco, Frank Moolin and Associates and Alascom, Inc. Mr. Hughes has served as Chairman of the Anchorage Economic Development Corporation and the Alaska Industrial Development and Export Authority.

William C. Behnke. Mr. Behnke has served as Senior Vice President—Strategic Initiatives for Parent since January 2001 and, prior to that, had served as Senior Vice President—Marketing and Sales for Parent from January 1994. He was Vice President of Parent and President of GCI Network Systems, Inc., a former subsidiary of Parent, from February 1992 to January 1994. From June 1989 to February 1992, Mr. Behnke was Vice President of Parent and General Manager of GCI Network

Systems, Inc. From August 1984 to June 1989, he was Senior Vice President for TransAlaska Data Systems, Inc.

Gina R. Borland. Ms. Borland has served as the Vice President—General Manager, Local Services of Parent since January 2001. Prior to that, she was a member of our Corporate Development Department serving in various capacities generally involving business development from September 1996 through December 2000. She has been employed by us since 1988 serving in various capacities.

Marsha E. Burns. Ms. Burns has served as Vice President—General Manager, Network Solutions of Parent since 1998. From 1997 to 1998 she served as Vice President—Enterprise Services of Parent. Prior to joining us, Ms. Burns held several management positions with IBM.

Richard P. Dowling. Mr. Dowling has served as Senior Vice President—Corporate Development for Parent since December 1990. He was Senior Vice President—Operations and Engineering for Parent from December 1989 to December 1990. From 1981 to December 1989, Mr. Dowling served as Vice President—Operations and Engineering for Parent.

Paul E. Landes. Mr. Landes has served as Vice President—Marketing and Sales, Chief Marketing Officer of Parent since 2002. Prior to that, he was the Vice President—Marketing of Parent from 1999 to 2002. Prior to joining us, he was part of the management team at Carr Gottstein Foods, an Alaska based retail food and merchandise company, from 1992 to 1999. Previous to that work, he was a part of the management team at Pay n Save Drug Store, a retail merchandise company, from 1987 to 1992.

Terry J. Nidiffer. Mr. Nidiffer has served as Vice President—General Manager, Internet Services of Parent since February 2000. Prior to that he was our Director, Internet Network Services, from July 1999 to January 2000.

William R. Snell. Mr. Snell has served as Vice President—General Manager, Cable and Entertainment Services of Parent since November 1996. Prior to that, he was Executive Director for the Alaska Industrial Development and Export Authority from July 1992 until November 1996. Mr. Snell has served as a trustee (including acting as the chair) of the Alaska State Pension Investment Board from July 1999 until September 2003.

Dana L. Tindall. Ms. Tindall has served as Senior Vice President—Regulatory, Legal and Governmental Affairs of Parent since January 1994. She was Vice President—Regulatory Affairs for Parent from January 1991 to January 1994. From October 1989 through December 1990, Ms. Tindall was Director of Regulatory Affairs for Parent, and she served as Manager of Regulatory Affairs for Parent from 1985 to October 1989. In addition, Ms. Tindall was an adjunct professor of telecommunications economics at Alaska Pacific University from September through December 1995.

Richard D. Westlund. Mr. Westlund has served as Vice President—General Manager, Long Distance and Wholesale Services of Parent since January 2001. Prior to that he was Vice President—General Manager, Wholesale and Carrier Services of Parent from January 1999 through December 2000. Prior to that, Mr. Westlund was our Vice President—Director, Carrier Relations and Marketing from April 1988 to December 1998.

Stephen M. Brett. Mr. Brett has served as a director of Parent since his appointment by the Board in January 2001. He has been of counsel to Sherman and Howard L.L.C., a law firm, since January 2001. He served as Senior Executive Vice President for AT&T Broadband from March 1999 to April 2000. Prior to that Mr. Brett served as Executive Vice President, General Counsel and Secretary to TCI from 1991 to March 1999.

Jerry A. Edgerton. Mr. Edgerton has served as a director of Parent since his appointment by the Board in June 2004. He has been Senior Vice President of Government Markets for MCI Communications Corporation since November 1996.

William P. Glasgow. Mr. Glasgow has served as a director of Parent since 1996. From 1999 to the present, he has been President/CEO of Security Broadband Corp. From 2000 to the present Mr. Glasgow has been President of Diamond Ventures, L.L.C., a Texas limited liability company and sole general partner of Prime II Management, L.P. and Prime II Investments, L.P., both of which are Delaware limited partnerships. Since 1996, he has been President of Prime II Management, Inc., a Delaware corporation, which was formerly the sole general partner of Prime II Management, L.P. From 1989 to 1991, he held positions of Vice President—Finance and Senior Vice President—Finance with Prime II Management, Inc. Mr. Glasgow is presently a managing director of the general partner of Prime VIII, L.P. He is also managing director of Prime New Ventures. He joined Prime Cable Corp. (an affiliate of Prime II Management, Inc.) in 1983 and served in various capacities until that corporation was liquidated in 1987. He currently serves on the boards of directors of Prime Cellular Corp., Prime II Management Group, Inc., Prime Comm, Inc., SKA Management, Inc., Infrasafe, Inc. and Security Broadband Corp., none of which are publicly held.

Stephen R. Mooney. Mr. Mooney has served as a director of Parent since his appointment by the Board in January 1999. He has been Vice President of MCI since February 1999. Prior to that, he held various corporate development positions with MCI Communications Corporation and MCImetro, Inc.

Stephen A. Reinstadtler. Mr. Reinstadtler has served as a director of Parent since his appointment by the Board in December 2002. From January 2002 to the present, he has been Managing Director of TD Capital, an affiliate of Toronto-Dominion Bank Financial Group. He has held various positions with TD Capital since July 1995. Prior to joining TD Capital, he was a member of Toronto-Dominion Bank's media, telecommunications and technology group from April 1994 to June 1995 where he was responsible for executing highly leveraged debt transactions for leading media and communications companies. Mr. Reinstadtler has 10 years of private equity and investment banking experience.

James M. Schneider. Mr. Schneider has served as a director of Parent since July 1994. He has been Senior Vice President and Chief Financial Officer for Dell Computer Corporation since March 2000. Prior to that, he was Senior Vice President—Finance for Dell Computer Corporation from September 1998 to March 2000. Prior to that, from September 1996 to September 1998 he was Vice President—Finance for that corporation. From September 1993 to September 1996, he was Senior Vice President for MCI Communications Corporation in Washington, D.C. Mr. Schneider was with the accounting firm of Price Waterhouse from 1973 to September 1993 and was a partner in that firm from October 1983 to September 1993.

The following table sets forth certain information concerning the cash and non-cash compensation earned during fiscal years 2001, 2002 and 2003 by the Chief Executive Officer of Parent and by each of Parent's four other most highly compensated executive officers whose individual combined salary and bonus each exceeded $100,000 during 2003 (collectively, "Named Executive Officers") for services they provided to Parent and its subsidiaries, on a consolidated basis.

	Annual Compensation	Long-Term Compensation Awards
Name and Principal Position with Parent	Year	Salary ($)	Bonus ($)	Other Annual Compensation ($)	Restricted Stock Awards ($)	Securities Underlying Options/SARs(#)		All Other Compensation ($)(1,2)
Ronald A. Duncan President and Chief Executive Officer	2003 2002 2001	295,000 295,000 295,000	105,000 99,750 105,000	-0- -0- -0-	-0- -0- -0-	-0- 450,000 250,000	(3)	21,338 21,338 18,790
G. Wilson Hughes Executive Vice President and General Manager	2003 2002 2001	175,000 173,959 150,000	53,682 75,177 129,162	-0- -0- -0-	-0- -0- -0-	-0- 200,000 -0-		162,773 155,957 128,226
John M. Lowber Senior Vice President, Chief Financial Officer and Secretary/Treasurer	2003 2002 2001	222,050 220,090 175,000	53,682 75,177 64,162	-0- -0- -0-	-0- -0- -0-	-0- 200,000 -0-		129,257 116,245 103,087
Dana L. Tindall Senior Vice President—Regulatory, Legal and Governmental Affairs	2003 2002 2001	250,000 247,917 200,000	63,682 75,177 54,162	-0- -0- -0-	-0- -0- -0-	-0- 200,000 -0-		21,521 25,792 76,629
Richard D. Westlund Senior Vice President and General Manager Long Distance & Wholesale Services	2003 2002 2001	135,000 135,000 134,792	388,894 90,141 194,881	-0- -0- -0-	-0- -0- -0-	-0- -0- 100,000		68,641 58,171 63,898

At Parent's 2004 annual meeting of shareholders, Parent's shareholders authorized an increase in the number of shares of common stock authorized and allocated to its Amended and Restated 1986 Stock Option Plan by 2.5 million shares of Parent's Class A common stock (the "Plan Amendment"). In 2003, Parent's Compensation Committee had granted options to purchase an additional 616,500 shares at exercise prices of $5.00-$9.25 per share, subject to approval of the Plan Amendment by Parent's shareholders ("Pending Options"). The Plan Amendment was approved by Parent's shareholders at its annual meeting on June 10, 2004. These options are allocated to the Named Executive Officers and others as follows:

Name and Position with Parent(1)	Dollar Value(2) ($)	Number of Shares
Ronald A. Duncan President and Chief Executive Officer	277,500	250,000
G. Wilson Hughes Executive Vice President and General Manager	—	-0-
John M. Lowber Senior Vice President, Chief Financial Officer and Secretary/Treasurer	111,000	100,000
Dana L. Tindall Senior Vice President—Legal, Regulatory and Governmental Affairs	—	-0-
Richard D. Westlund Vice President and General Manager Long Distance and Wholesale Services	—	-0-
All Current Executive Officers as a Group (12 Persons)	388,500	350,000
All Current Non-Executive Directors as a Group (6 persons)	—	-0-
All Current Non-Executive Officer Employees as a Group (54 persons)	82,584	166,500

We did not grant any other individual stock options or stock appreciation rights to the Named Executive Officers during 2003.

The following table sets forth information concerning each exercise of Parent stock options during 2003 by each of the Named Executive Officers and the fiscal year-end value of unexercised options held by each of them.

AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES

						Number of Securities Underlying Unexercised Options/SARs at Fiscal Year-End (#)		Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End ($)(1)
		Shares Acquired on Exercise (#)
Name		Value Realized ($)
	Exercisable		Unexercisable		Exercisable		Unexercisable
Ronald A. Duncan		-0-		-0-		250,000	(2)	150,000	578,750	234,750
G. Wilson Hughes		-0-		-0-		100,000		300,000	231,500	544,500
John M. Lowber		-0-		-0-		355,425		300,000	1,040,440	544,500
Dana L. Tindall		-0-		-0-		165,787		240,000	352,605	405,600
Richard D. Westlund		-0-		-0-		57,366		100,000	195,492	181,500

In February 1995, we established a non-qualified, unfunded, deferred compensation plan to provide a means by which certain of our employees may elect to defer receipt of designated percentages or amounts of their compensation and to provide a means for certain other deferrals of compensation. Employees eligible to participate in the plan are determined by our board. We may, at our discretion, contribute matching deferrals in amounts as we select.

Participants immediately vest in all elective deferrals and all income and gain attributable to that participation. Matching contributions and all income and gain attributable to them vest on a case-by-case basis as determined by us. Participants may elect to be paid in either a single lump-sum payment or annual installments over a period not to exceed ten years. Vested balances are payable upon termination of employment, unforeseen emergencies, death or total disability of the participant, or change of control of us or our insolvency. Participants become our general unsecured creditors with respect to deferred compensation benefits of the plan.

During 2003 and up through April 12, 2004, none of the Named Executive Officers had participated in this plan.

Except as disclosed in this prospectus, as of the end of 2003 and through April 12, 2004, there were no compensatory plans or arrangements, including payments to be received from us, with respect to the Named Executive Officers for that year. This statement is limited to situations where such a plan or arrangement resulted in or may result from the resignation, retirement, or any other termination of a Named Executive Officer's employment with us, or from a change of control of us or a change in that officer's responsibilities following such a change in control, and where the amount involved, including all periodic payments or installments, exceeded $100,000.

In 2002, we adopted a Performance Based EBITDA (earnings before interest, taxes, depreciation, and amortization) Incentive Compensation Plan ("Incentive Compensation Plan") to encourage

increasing EBITDA, i.e., earnings before income taxes, depreciation and amortization (as defined in the plan), of our Alaska operations to a specified target by the end of 2006. Participants are granted units which are valued in terms of a share of Parent's Class A common stock. If the target EBITDA is achieved on or before the end of 2006, the awards vest. In this instance, each participant will be entitled to receive, for each unit, the market value of a share of Parent's Class A common stock on the date that such payment is made. Under the Incentive Compensation Plan, 40% of the payment will be made in cash. The remaining 60% may, at our option, be paid either in cash or in Parent's restricted Class A common stock. However, if stock is to be issued in payment to participants, we are required to obtain Parent's shareholder approval of the Incentive Compensation Plan prior to any such payment. Participants must be employed by us on the date of payment in order to receive any compensation pursuant to the plan. The EBITDA target will be adjusted for any material acquisitions within the Alaska market. The award may be paid out earlier if we are sold prior to the earlier of the end of 2006 or achievement of the EBITDA target.

Specified individuals of three groups of employees are eligible to participate in the plan. They are Parent's Chief Executive Officer, Parent's general managers and its senior officers. Any payments to the general manager group pursuant to the plan are included in EBITDA for purposes of determining whether the EBITDA target for the senior officer group has been met. One-half of the vested amount is valued and paid on the last day of the first quarter of the year following vesting, with the balance paid one year later.

The provisions of the Incentive Compensation Plan pertaining to the chief executive officer are the same as for the other two groups, except any payments to the general manager and senior officer groups under the plan are included in EBITDA for purposes of determining whether the EBITDA target for the chief executive officer has been met. One-half of the total amount earned will be valued and paid on the last day of the first quarter of the year following achievement of the target EBITDA goal. The remaining one-half will be paid as deferred compensation. This amount will vest one-half on each of the first and second anniversaries of the initial award. However, in the case of Parent's Chief Executive Officer, the individual must be employed by us on such dates for vesting to be effective. We charged $682,559 to expense during 2003 under the Incentive Compensation Plan.

During 2003 Messrs. Hughes and Westlund and Ms. Tindall were the only Named Executive Officers who participated in the Incentive Compensation Plan. For that year and as of April 12, 2004, units with respect to approximately 245,000 shares of Parent's Class A common stock were to be granted pursuant to the Incentive Compensation Plan, of which were allocated 100,000 units to Mr. Hughes, 10,000 units to Mr. Westlund and 50,000 units to Ms. Tindall.

In December 1986, we adopted a Qualified Employee Stock Purchase Plan which has been subsequently amended from time to time and is in its present form the Stock Purchase Plan. The plan is qualified under Section 401 of the Internal Revenue Code. All of our employees who have completed at least one year of service are eligible to participate in the plan. Eligible employees may elect to reduce their taxable compensation in any even dollar amount up to 12% of such compensation for employees earning more than $90,000 per year and up to 50% of such compensation, both up to a maximum per employee of $13,000 for 2004. Employees may contribute up to an additional 10% of their compensation with after-tax dollars. Starting in 2002, participants over the age of fifty may make additional elective contributions to their accounts in the plan pursuant to a schedule set forth in the Internal Revenue Code.

Subject to certain limitations, we may make matching contributions of common stock for the benefit of employees. Such a contribution will vest in increments over the first six years of employment. Thereafter, they are fully vested when made. No more than 10% of any one employee's compensation

will be matched in any year. Except for additional elective contributions made by participants over age 50, the combination of salary reductions, after-tax contributions and our matching contributions for any employee cannot exceed the lesser of $41,000 or 25% of such employees' compensation (determined after salary reduction) for any year.

Under the terms of the Stock Purchase Plan, participating eligible employees may direct their contributions to be invested in common stock of Parent, AT&T Corp., AT&T Wireless Services, Inc., and Comcast Corporation, and shares of various identified mutual funds.

The Stock Purchase Plan, on our behalf, may each year pay to the plan's trust fund an amount up to 100% of each participating eligible employee's elective deferral and voluntary contributions to the plan as determined by our board. This employer contribution on behalf of the participating eligible employee is to equal a stated percentage of each employee's contributions (both voluntary contributions and elective deferrals) during any payroll period. However, no such employee's elective deferral or voluntary contribution is to be matched in an amount exceeding 10% of that employee's compensation during any payroll period the employee participates in the plan. With limited exception, the amount of our contribution under the plan must not exceed either 10% of the aggregate compensation of all participating eligible employees under the plan in the year for which the contribution is being determined or the annual addition limitations of the Internal Revenue Code as provided in the plan.

The Stock Purchase Plan is administered through a plan administrator (currently Alfred J. Walker, one of Parent's Vice Presidents and its Chief Accounting Officer), and the plan's committee is appointed by Parent's board. The assets of the plan are invested from time to time by the trustee at the direction of the plan's committee, except that participants have the right to direct the investment of their contributions to the Stock Purchase Plan. The plan administrator and members of the plan's committee are all our employees. The plan's committee has broad administrative discretion under the terms of the plan.

As of April 12, 2004, there remained 2,683,138 shares of Class A and 464,036 shares of Class B common stock of Parent allocated to the plan and available for issuance by us or otherwise acquisition by the plan for the benefit of participants in the plan.

In December 1986, we adopted a stock option plan which has been amended from time to time and presently is the Stock Option Plan, i.e., our Amended and Restated 1986 Stock Option Plan.

Under the Stock Option Plan, we are authorized to grant non-qualified options to purchase shares of Class A common stock of Parent to selected officers, directors and other employees of, and consultants or advisors to, Parent and its subsidiaries. The number of shares of Class A common stock of Parent allocated to the Stock Option Plan was last increased by 2 million shares to 10.7 million shares at our 2002 annual meeting. The number of shares for which options may be granted is subject to adjustment upon the occurrence of stock dividends, stock splits, mergers, consolidations and certain other changes in corporate structure or capitalization.

As of April 12, 2004, 6,476,064 shares were subject to outstanding options under the Stock Option Plan, 4,189,579 shares had been issued upon the exercise of options under the plan and 34,357 shares remained available for additional grants under the plan.

The Stock Option Plan is administered by Parent's Compensation Committee composed of six members of its board. The members of that committee are identified elsewhere in this prospectus. See "Management—Directors and Executive Officers."

The Compensation Committee selects optionees and determines the terms of each option, including the number of shares covered by each option, the exercise price and the option exercise

period which, under the Stock Option Plan, may be up to ten years from the date of grant. Options granted that have not become exercisable terminate upon the termination of the employment or directorship of the optionholder. Exercisable options terminate from one month to one year after such termination, depending on the cause of such termination. If an option expires or terminates, the shares subject to such option become available for additional grants under the Stock Option Plan.

The Stock Option Plan was initially approved by Parent's shareholders in 1986. We do not have any current equity compensation plans approved by Parent's shareholders other than the Stock Option Plan.

The following table sets forth information regarding the number of shares of Parent's common stock that may be issued pursuant to our equity compensation plans or arrangements as of December 31, 2003. The recipients of these grants are selected officers, directors and employees of, and consultants or advisors to, us in exchange for consideration in the form of goods or services (as described in Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation).

Plan Category	Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (#) (a)	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($) (b)	Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders(1)	6,476,064	6.46	34,357
Equity compensation plans not approved by security holders(2)	250,000	6.50	-0-
Total:(3)	6,726,064	6.46	34,357

In consideration for agreeing to continue his employment until December 31, 2004, in December 2002 we granted Mr. Hughes the right to use certain of our real estate for two weeks each year from January 1, 2005 to December 31, 2034. Mr. Hughes may elect at any time to receive a cash bonus in lieu of the foregoing equal to $275,000 plus interest accrued at the rate of 3% per annum for the period between January 1, 2002 and the date on which the option to elect such cash payment is exercised. The bonus vests on December 31, 2004, provided Mr. Hughes has continued full-time employment with us until that date or should he die, become disabled or terminate his employment for health reasons prior to that date. Should we intend to convey such real estate to a third party, Mr. Hughes would have the right to acquire certain property adjoining that real estate or, unless he should exercise the cash option previously described, be paid an amount equal to $275,000 plus accrued interest at the rate of 3% per annum for the period from January 1, 2002 to the date on which that option is exercised. During 2003, $137,500 was accrued pursuant to this agreement.

On April 30, 1999, Parent issued and sold shares of its Series B preferred stock for $20 million, i.e., a total of 20,000 convertible, redeemable, accreting shares of preferred stock. Prior to that issuance, Parent's board, by resolution, approved the Statement of Stock Designation for the issuance of Series B preferred stock and a Series B preferred stock agreement in anticipation of the issuance and sale of the stock (that designation and agreement are referred to collectively as, "Series B Agreement").

As of the date of this prospectus, Toronto Dominion Investments, Inc. ("Toronto Dominion") was the sole holder of outstanding Series B preferred stock. In April 2002 we agreed with Toronto Dominion to several amendments to, or waiver of rights in, the Series B Agreement. These changes are noted in the following description of the Series B Agreement ("Amended Series B Agreement"). The Amended Series B Agreement expressly provides that, except for the amendments set forth in that amendment, the Series B Agreement remains unchanged and in full force and effect.

The Series B Agreement includes specific rights of holders of the Series B preferred stock, including dividend rights, liquidation rights, redemption rights, voting rights, and conversion rights. It also sets forth the terms of the sale of the stock and representations and warranties of the parties, and includes other rights of the holders of the stock, including registration rights granted to the investors.

The Series B Agreement provides that the shares of Series B preferred stock must be ranked senior to all other of Parent's classes of equity securities. Under that agreement, as amended, the holders of the Series B preferred stock will receive dividends at the rate of 8.5% of a liquidation preference payable semiannually, in cash, or, prior to May 1, 2003, in additional fully-paid shares of Series B preferred stock. The Series B Agreement also includes that, should Parent be permitted to issue equity redeemable at the option of the holder, the parties to the agreement would agree to enter into appropriate amendments to the offering to permit the holders to demand redemption at any time after the fourth anniversary of the issuance of the Series B preferred stock. The liquidation preference specified in the Series B Agreement is $1,000 per share, plus accrued but unpaid dividends and fees. In 2000, the Alaska legislature enacted revisions to the Alaska Corporations Code to allow an Alaska corporation, e.g., Parent, to issue such redeemable equity. As of the date of this prospectus, the Series B Agreement had not been amended to include these redemption provisions.

The Series B Agreement provides for mandatory redemption twelve years from the date of closing on the sale of stock or upon the occurrence of certain "triggering events." These events include an acceleration of certain of Parent's obligations having an outstanding balance in excess of $5 million, a

change in control of Parent, commencement of bankruptcy or insolvency proceedings against Parent, a breach of the limitations on certain of Parent's long term debt set forth in the offering, a liquidation or dissolution of Parent, or a merger, consolidation or sale of all or substantially all of Parent's assets which would significantly and adversely affect the rights and preferences of the outstanding Series B preferred stock. The terms also include redemption of those shares at Parent's option any time after the fourth anniversary of the closing. The redemption price is the amount paid plus accrued and unpaid dividends. The Amended Series B Agreement provides that Parent is not obligated to provide notice to the holders of Series B preferred stock upon the occurrence of a triggering event which results from a change of control caused by any change in ownership of us resulting in MCI owning our voting stock with less than 18% but at least 15% of the total combined voting power of our outstanding stock.

The Series B Agreement provides that the Series B preferred stock is convertible at any time into shares of Parent's Class A common stock with a conversion price of $5.55 per share. The terms include, in the event Parent shall be unable or unwilling to redeem the Series B preferred stock subject to the terms of the mandatory redemption, the investors will have the option to convert their Series B preferred stock into Parent's Class A common stock. The terms further include that the shares of Series B preferred stock are exchangeable, in whole but not in part, at our option into subordinated debt with terms and conditions comparable to those governing the Series B preferred stock.

The Series B Agreement provides that holders of the Series B preferred stock will have the right to vote on all matters presented for vote to holders of Parent common stock on an as-converted basis. Additionally, the agreement requires, as long as shares of Series B preferred stock are outstanding and unconverted, that its holders have the right to vote, as a class, and we must obtain the written consent of holders of a majority (at least 80% for the first three items) of that stock to take any of the following actions:

Of these seven specific actions, the Alaska Corporations Code, to which we are subject, generally requires shareholder approval of actions one (article amendment), three (merger and other reorganization), and four (dissolution). The Alaska Corporations Code requires an affirmative vote by at least a simple majority of the outstanding shares to approve an amendment to corporate articles. The code further provides that holders of outstanding shares of a class may vote as a class on such

proposed amendment where the amendment addresses certain specific changes, including changes to the designations, preferences, limitations or relative rights of the shares of the class or changes which increase the rights and preference of a class having rights and preferences prior or superior to the shares of the class. In this instance at least a simple majority of the outstanding shares, by class, would be required to approve the article amendment.

The Alaska Corporations Code further requires an affirmative vote by at least two-thirds of the outstanding shares (and by at least two-thirds of the outstanding shares per class, if a class of shares is entitled to vote) to approve a merger, consolidation, sale of assets not in the regular course of business, or dissolution of a corporation. The code allows a corporation to specify in its articles of incorporation that its board shall have the exclusive right to adopt, alter, amend or repeal its bylaws. The Articles of Parent provide that the board has that exclusive right with respect to the Bylaws. The other four specific actions, i.e., two (issuance of additional shares), five (declaration of dividends), six (purchase of capital stock), and seven (action adverse to taxation position regarding the Series B preferred stock), typically do not require shareholder approval. That is, under the present Articles, these four actions, normally, are matters upon which our board has authority to act.

At the 2000 annual meeting, Parent's shareholders approved an amendment to the Articles, allowing it to enter into agreements for the sale of preferred stock with no restriction on voting rights by class. These amendments to the Articles were subsequently filed with the State of Alaska and became effective July 31, 2000. With this change, Parent could call-in and reissue the Series B preferred stock to eliminate from the triggering events a reorganization of Parent. As of the date of this prospectus, we had not yet negotiated such terms with the present holders of Series B preferred stock.

Under the terms of the issuance and sale of Parent's Series B preferred stock, so long as any shares of that stock remain outstanding, Parent must cause its board to include one seat, the nominee for which is to be designated under terms of that sale. As of the date of this prospectus, those specific terms were not effective, although they could in the future become effective with the issuance of additional shares of Parent's Series B preferred stock to another holder or should the present holder of the outstanding Series B preferred stock, Toronto Dominion, not be prohibited from participation in the designation of that board member by law or regulation, including the federal Bank Holding Company Act.

The Series B Agreement provides that, upon designation of an individual by the holders of Parent's Series B preferred stock, Parent's board must cause that individual to be nominated for approval by the holders of Parent's common stock at each meeting of shareholders at which directors are to be elected. Parent's board is then expected, upon that nomination, to recommend approval of that designated individual. In the event the holders of Parent's common stock shall fail to elect that designated individual, the holders of Series B preferred stock will have the right to appoint an observer to attend the meetings of our board. Independent of that observer right, if at any time the designee to Parent's board is not an employee of Toronto Dominion or its affiliates, then that investor would have an additional right to appoint an observer to attend all meetings of our board.

The Series B Agreement provides that the holders of the Series B preferred stock will have a right of first refusal to acquire up to a total of $5 million in the next private financing that Parent might choose to initiate.

The Series B preferred stock is convertible at any time into Parent's Class A common stock with registration rights. See "—Registration Rights Agreements."

As of the date of this prospectus, we continued to have a significant business relationship with MCI, including the following:

On July 21, 2002 MCI and substantially all of its active U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court. We established a bad debt reserve for uncollected balances due from MCI as of July 21, 2002. On July 22, 2003 the United States Bankruptcy Court approved the settlement of pre-petition amounts owed to us by MCI and affirmed all of our existing contracts with MCI. As a part of that settlement, a portion of the pre-petition accounts receivable balance owed by MCI to us is to be used as a credit against amounts payable for future services purchased from MCI. The MCI settlement and release agreement are further discussed in our annual Report. As of the date of this prospectus, MCI was current on payments under those agreements subsequent to that date.

The stock issued by Parent in the Kanas Transaction is convertible, redeemable accreting Series C preferred stock valued at $10 million. The Series C preferred stock is convertible at $12 per share into Parent's Class A common stock, is non-voting and pays a 6% per annum quarterly cash dividend. Each share of the Series C preferred stock is convertible into a number of shares of Class A common stock equal to the liquidation preference divided by the conversion price. Parent may redeem the Series C preferred stock at any time in whole but not in part. Redemption is required at any time after the fourth anniversary date at the option of holders of 80% of the outstanding shares of the Series C preferred stock. The redemption price is $1,000 per share plus the amount of all accrued and unpaid dividends, whether earned or declared, through the redemption date. In the event of a liquidation of Parent, the holders of Series C preferred stock are entitled to be paid an amount equal to the redemption price before any distribution or payment is made upon Parent's common stock or shares of preferred stock issued subsequent to the issuance of the Series C preferred stock which by the terms of its issuance is junior to the Series C preferred stock. Parent's Series B preferred stock is senior to the

Series C preferred stock. As of April 12, 2004, the redemption amount for the Series C preferred stock was $1,001.97 per share.

Revenues attributed to the MCI Traffic Carriage Agreement in 2003 were approximately $82 million, or approximately 21% of total revenues. Payments by us to MCI under the Company Traffic Carriage Agreement in 2003 were approximately $5.1 million, or approximately 4.1% of total cost of sales and services. The MCI Traffic Carriage Agreement provides for a term to July 2008.

Parent entered into a long-term capital lease agreement ("Duncan Lease") in 1991 with a partnership in which Mr. Duncan, Parent's President and Chief Executive Officer and one of Parent's directors, held a 50% ownership interest. Mr. Duncan sold his interest in the partnership in 1992 to Janice I. Bowman, who later became Mr. Duncan's spouse. However, Mr. Duncan remains a guarantor on the note which was used to finance the acquisition of the property subject to the Duncan Lease. That property consists of a building presently occupied by us. The original Duncan Lease term was 15 years with monthly payments of $14,400, increasing in $800 increments at each two-year anniversary of the lease, beginning in 1993.

As of April 12, 2004, the monthly payments were $18,400 plus $1,600 as described below. The Duncan Lease provided that if the property was not sold prior to the end of the tenth year of the lease, the partnership would pay to us the greater of one-half of the appreciated value of the property over $1,035,000, or $500,000. We received payment of $500,000 in the form of a note in February 2002. The property subject to the Duncan Lease was capitalized in 1991 at the partnership's cost of $900,000, and the Duncan Lease obligation was recorded in the consolidated financial statements of Parent.

On September 11, 1997, we purchased, for $150,000, a parcel of property adjoining the property subject to the Duncan Lease. The parcel was purchased to provide space for additional parking facilities for our use of the adjoining property under the Duncan Lease. A portion of the parcel, valued at $87,900, was simultaneously deeded to Janice I. Bowman in order to accommodate the platting requirements of the Municipality of Anchorage necessary to allow use of the parcel for parking facilities. In June 1999, we agreed, in exchange for a payment of $135,000, to extend the lease term for an additional five-year term expiring September 30, 2011 at a rental rate of $20,000 per month and to incorporate the adjoining property into the lease agreement. The lease was further amended in February 2002 to provide for additional monthly rents of $1,600 per month beginning on October 1, 2001 and through the end of the lease term.

In January 2001 we entered into an aircraft operating lease agreement with a company owned by Mr. Duncan. The lease agreement is month-to-month and may be terminated at any time upon 120 days written notice. Upon executing the lease agreement, the lessor was granted an option to purchase 250,000 shares of Parent's Class A common stock at $6.50 per share, all of which were fully exercisable as of April 12, 2004. We paid a deposit of $1.5 million to the lessor in connection with the lease agreement. The deposit will be repaid to us upon the earlier of six months after the lease terminates or nine months after the date of a termination notice as provided in the lease agreement. Effective in January 2002 the lease payment was increased to $50,000 per month and the lessor agreed to repay the deposit upon termination of the lease. We agreed to allow the lessor, at its option, to repay the deposit with Parent common stock, assuming such repayment did not violate any covenants in our preferred stock agreements or credit facilities.

Federal securities law prohibits public companies, e.g., Parent, from extending, maintaining or arranging credit to, for, or on behalf of its executive officers and directors. Loans made before July 29, 2002 are grandfathered, i.e., allowed to remain effective. However, material modifications of

grandfathered loans are prohibited. The several existing loans to the Named Executive Officers are subject to these provisions of the act and must be paid off in accordance with their terms.

A significant portion of the compensation paid to our executive officers is in the form of stock options. Because insider sales of our capital stock upon exercise of such options might have a negative impact on the price of our common stock, our board had encouraged our executive officers not to exercise stock options and sell the underlying stock to meet personal financial requirements. We had instead extended loans to such executive officers. As of April 12, 2004, total indebtedness of management was $9,728,025 (including accrued interest of $1,463,526), $1,069,861 in principal amount of which was secured by shares or options, $531,115 of which was otherwise secured by collateral of the borrowers, and $6,663,523 of which was unsecured.

The largest aggregate principal amount of indebtedness owed by executive officers since the beginning of 2003 through April 12, 2004, and the amount of principal and accrued interest that remained outstanding as of April 12, 2004 were as follows (executive officers not listed had no indebtedness to us during that period):

Name	Largest Aggregate Principal Amount Outstanding ($)	Principal Amount Outstanding as of April 12, 2004 ($)	Interest Amount Outstanding as of April 12, 2004 ($)
Ronald A. Duncan	4,922,500	4,333,278	576,044
G. Wilson Hughes	1,486,763	1,486,763	195,408
William C. Behnke	933,426	933,426	213,754
Richard P. Dowling	1,275,981	760,859	304,386
John M. Lowber	369,058	369,058	66,440
Richard D. Westlund	621,381	381,115	107,494

Mr. Duncan's loans were made for his personal use and to exercise rights under stock option agreements. The loans accrue interest at the prime rate as published in the Wall Street Journal and are unsecured. The first repayment installment became due on December 31, 2003 in the amount of $750,000. Subsequent installments become due in that amount on each of December 31, 2004 through 2007, with any remaining balance due on February 8, 2007, together with accrued interest. The loan agreement included a provision that allowed a $500,000 payment, that would otherwise have been due on December 31, 2002, to be extended to February 8, 2007 in exchange for a payment of $25,000. The payment date was extended in return for Mr. Duncan's payment of $25,000 to us on December 31, 2002. The amounts due may be paid in either cash or stock. Payments in stock will be valued at the closing price of the stock on the date of payment. Payments in stock are subject to the covenants in our preferred stock agreements and credit facilities.

In addition to the previously described indebtedness of Mr. Duncan, during 2001 and 2002 we made payments to others on behalf of Mr. Duncan in the amount of $348,605 and $6,373, respectively. The cumulative amount of these payments by us during 2003 and through April 12, 2004 totaled $3,077. The payments bear no interest, and we were reimbursed by Mr. Duncan for them. A credit balance of $9,929 due Mr. Duncan remained outstanding as of April 12, 2004.

Mr. Hughes' loans were made for his personal use and to exercise rights under stock option agreements with us. The loans accrue interest at our variable rate under our senior secured credit facility, are unsecured, and become due together with accrued interest through December 3, 2006.

Mr. Behnke's loans were made for his personal use and to exercise rights under stock option agreements with us. Mr. Behnke's notes in the amount of $474,424 are unsecured, while the balance of

the notes are secured by Class A common stock held by Mr. Behnke. Mr. Behnke's loans bear interest at our variable rate under our senior secured credit facility and, in one case, at 9% per annum. The notes are due, together with accrued interest, in November and December 2006.

Should we elect to terminate Mr. Behnke's employment, other than for cause, prior to November 1, 2004, we would forgive any remaining balance of principal and interest associated with the September and November 1999 borrowings totaling $300,000 in principal amount.

Of the amount owed by Mr. Dowling at April 12, 2004, all but $150,000 in principal amount is secured by 160,297 shares of Parent Class A common stock and 74,028 shares of Parent Class B common stock. On May 17, 2000, we advanced $150,000 to Mr. Dowling for his personal requirements. The loan was secured by a second deed of trust on real property. Mr. Dowling's loans are payable in full through December 31, 2006 and bear interest at our variable rate under our senior secured credit facility.

The loans to Mr. Lowber were made for his personal use and to exercise rights under stock option agreements with us. Notes in the principal amount of $184,058 bear interest at our variable rate under our senior secured credit facility, and the remaining principal amount of $185,000 bears interest at a rate of 6.49% per annum. So long as Mr. Lowber remains in our employ, the accrued interest on the $185,000 note is to be waived at the beginning of each year. The loans are unsecured and are due through June 30, 2006.

Mr. Westlund's loans were made for his personal use and to exercise rights under stock option agreements with us. The loans accrue interest at our variable rate under our senior secured credit facility. One note was paid off at the end of last year, and the other is secured by proceeds under a life insurance policy. The note is due, together with accrued interest, on December 31, 2004.

Parent is a party to registration rights agreements ("Registration Rights Agreements") with the following:

MCI and Toronto Dominion are significant shareholders of the indicated classes or series of Parent stock. For example, Toronto Dominion is the holder of all 12,637 shares outstanding of the Series B preferred stock. For holdings of other classes and series see, "Security Ownership of Certain Beneficial Owners." As of the date of this prospectus, none of these persons or their affiliates, other than those identified elsewhere in this prospectus, were our directors, officers, nominees for election as directors, or members of the immediate family of such directors, officers, or nominees.

The terms of the Registration Rights Agreements with MCI and Toronto Dominion share several common terms. The basic terms are as follows. In the case of either agreement, Parent proposes to register any of our securities under the Securities Act of 1933, as amended ("Securities Act") for its own account or for the account of one or more of its shareholders, Parent must notify all of the holders under the agreement of that intent. In addition, Parent must allow the holders an opportunity to include their shares ("Registerable Shares") in that registration.

Under both the MCI and Toronto Dominion Registration Rights Agreements, each holder also has the right, under certain circumstances, to require Parent to register all or any portion of such holder's Registerable Shares under the Securities Act. These agreements are both subject to certain limitations and restrictions, including, in cases other than the Series B preferred stock, Parent's right to limit the number of Registerable Shares included in the registration. Generally, Parent is required to pay all

registration expenses in connection with each registration of Registerable Shares pursuant to these agreements.

The Registration Rights Agreement between MCI and Parent, dated June 30, 2001, specifically requires Parent to effect no more than four demand registrations at the request of MCI and an unlimited number of opportunities to include its Registerable Shares in other of Parent's security registrations. However, each registration request by MCI must include Registerable Shares having an aggregate market value equal to or more than $1.5 million. The agreement between Toronto Dominion and Parent, dated April 30, 1999 pertains to Class A common stock which is issued by us upon the holder's exercise of rights to convert the preferred stock to Class A common stock. The agreement specifically requires Parent to effect no more than two registrations at the request of holders of at least 15% of the registerable securities.

The following table sets forth, as of April 12, 2004, certain information regarding the beneficial ownership of Parent's Class A common stock and Class B common stock and Parent's Series B preferred stock (Series C preferred stock is not included in the table in that it did not as of April 12, 2004 have voting rights exercisable at our Parent's annual meeting) by each of the following:

All information with respect to beneficial ownership has been furnished to us by the respective shareholders.

Name and Address of Beneficial Owner(1)	Title of Class(2)	Amount and Nature of Beneficial Ownership		% of Class(2)	% of Total Shares Outstanding (Class A & B)(2)	% Combined Voting Power (Class A & B)(2)
					I	II	I	II
Stephen M. Brett	Class A Class B Series B	25,000 — —	(3)	* — —	*	*	*	*
Ronald A. Duncan	Class A Class B Series B	1,425,032 460,021 —	(4) (4)	2.7 11.9 —	3.3	3.2	6.6	6.4
Jerry A. Edgerton	Class A Class B Series B	— — —		— — —	—	—	—	—
Donne F. Fisher	Class A Class B Series B	62,135 212,688 —	(3,5) (5)	* 5.5 —	*	2.4	*	2.3
William P. Glasgow	Class A Class B Series B	99,944 — —	(6)	* — —	*	*	*	*
G. Wilson Hughes	Class A Class B Series B	721,012 2,765 —	(7) (7)	1.4 * —	1.3	1.2	*	*
John M. Lowber	Class A Class B Series B	617,411 6,286 —	(8) (8)	1.2 * —	1.1	1	*	*
Stephen R. Mooney	Class A Class B Series B	— — —		— — —	—	—	—	—
Stephen A. Reinstadtler	Class A Class B Series B	— — —		— — —	—	—	—	—
James M. Schneider	Class A Class B Series B	55,000 — —	(3)	* — —	*	*	*	*
Dana L. Tindall	Class A Class B Series B	307,611 3,835 —	(9) (9)	* * —	*	*	*	*
Richard D. Westlund	Class A Class B Series B	229,560 3,618 —	(10)	* — —	*	*	*	*
GCI Qualified Employee Stock Purchase Plan 2550 Denali St., Ste. 1000 Anchorage, AK 99503	Class A Class B Series B	5,937,259 109,063 —		11.1 2.8 —	10.6	10.2	7.7	7.5
Estate of Kim Magness c/o Raymond L. Sutton, Jr. 303 East 17th Ave., Ste. 1100 Denver, CO 80203-1264	Class A Class B Series B	170,330 745,628 —	(11) (11)	* 19.3 —	1.6	1.5	8.3	8.1

GCI, Inc. will issue the new notes under an indenture (the "Indenture"), between itself and The Bank of New York, as Trustee (the "Trustee"). The following is a summary of the material provisions of the Indenture. It does not include all of the provisions of the Indenture. We urge you to read the Indenture because it defines your rights. The terms of the new notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"). A copy of the Indenture may be obtained from GCI, Inc. or the initial purchasers. You can find definitions of certain capitalized terms used in this description under "—Certain Definitions."

GCI, Inc. will issue the new notes in fully registered form in denominations of $1,000 and integral multiples thereof. The Trustee will initially act as Paying Agent and Registrar for the new notes. The new notes may be presented for registration or transfer and exchange at the offices of the Registrar. GCI, Inc. may change any Paying Agent and Registrar without notice to holders of the new notes (the "Holders"). GCI, Inc. will pay principal (and premium, if any) on the new notes at the Trustee's corporate office in New York, New York. At GCI, Inc.'s option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of Holders. Any old notes that remain outstanding after the completion of the Exchange Offer, together with the new notes issued in connection with the exchange offer, will be treated as a single class of securities under the Indenture.

The new notes will mature on February 15, 2014, and will be initially issued in an aggregate principal amount of $250 million. Additional new notes may be issued from time to time, subject to the limitations set forth under "—Certain Covenants—Limitation on Indebtedness." The new notes will bear interest at the rate of 7.25% per annum and will be payable semiannually in cash on February 15 and August 15 of each year, beginning on August 15, 2004, to the persons who are registered holders of the new notes at the close of business on the preceding February 1 or August 1, as the case may be. Interest on the new notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including the date of issuance to but excluding the date of payment.

The new notes will be senior unsecured obligations of GCI, Inc., will rank pari passu in right of payment with all other existing and future senior indebtedness of GCI, Inc. and will be senior in right of payment to all future subordinated indebtedness of GCI, Inc. As of March 31, 2004, the total consolidated indebtedness of GCI, Inc. is $512.6 million. At such date, GCI, Inc. had no indebtedness subordinated to the new notes.

In addition, all existing and future indebtedness and other liabilities and obligations of GCI, Inc.'s Subsidiaries, including borrowings under the senior secured credit facility, will be effectively senior in right of payment to the new notes and could be material. As of March 31, 2004, the total balance sheet liabilities of GCI, Inc.'s Subsidiaries, are $264.6 million, of which $165.5 million was indebtedness.

Although the Indenture contains limitations on the amount of additional Indebtedness which GCI, Inc. and its Restricted Subsidiaries may Incur, the amounts of such Indebtedness could be substantial and, in any case, significant amounts of such Indebtedness may be Indebtedness of Subsidiaries (which will be effectively senior in right of payment to the new notes). See "—Certain Covenants." Moreover, claims of creditors of GCI, Inc.'s Subsidiaries, including trade creditors, and holders of Preferred Stock of GCI, Inc.'s Subsidiaries (if any), will generally have a priority as to the assets of such Subsidiaries over the claims of GCI, Inc.

The new notes are obligations exclusively of GCI, Inc. Since the operations of GCI, Inc. are conducted through Subsidiaries, GCI, Inc.'s cash flow and the consequent ability to service debt of GCI, Inc., including the new notes, are dependent upon the earnings of its Subsidiaries and the distribution of those earnings to, or upon loans or other payments of funds by those Subsidiaries to, GCI, Inc. The payment of dividends and the making of loans and advances to the Issuer by its Subsidiaries are subject to statutory and contractual restrictions, are dependent upon the earnings of those Subsidiaries and are subject to various business considerations. See "Risk Factors—Risk Relating to the New Notes—GCI, Inc., the sole obligor of the new notes, is a holding company. We may not be able to service the new notes because of our operational structure."

The new notes are not redeemable prior to February 15, 2009. At any time on or after February 15, 2009, the new notes are redeemable at the option of GCI, Inc., in whole or in part, on not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest (if any) to the date of redemption:

If redeemed during the 12-month period commencing February 1 of the year indicated:

Year	Redemption Price
2009	103.625	%
2010	102.417	%
2011	101.208	%
2012 and thereafter	100.000	%

Notwithstanding the foregoing, on or prior to February 17, 2007, GCI, Inc. may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem up to a maximum of 35% of the initially outstanding aggregate principal amount of new notes at a redemption price equal to 107.25% of the principal amount of the new notes(determined at the redemption date), together with accrued and unpaid interest thereon to the date of redemption; provided that not less than 65% of the principal amount of the new notes issued under the Indenture remain outstanding following any such redemption.

As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Stock of Parent or GCI, Inc. pursuant to a registration statement filed with the Commission in accordance with the Securities Act; provided that in the event of a Public Equity Offering by Parent, Parent contributes to the capital of GCI, Inc. as common equity the portion of the net cash proceeds of such Public Equity Offering necessary to pay the aggregate redemption price (plus accrued and unpaid interest thereon to the redemption date) of the new notes to be redeemed pursuant to the preceding paragraph.

In the event that less than all of the new notes are to be redeemed at any time, selection of such new notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such new notes are listed or, if such new notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no new notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the new notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to procedures of the DTC), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of new notes to be redeemed at its registered address. If any new note is to be redeemed in part only, the notice of redemption that related to such new notes shall state the portion of the principal amount thereof to be redeemed. Another new note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original new notes. On and after the redemption date, interest will cease to accrue on new notes or portions thereof called for redemption as long as GCI, Inc. has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture.

Upon the occurrence of a Change of Control, each holder of new notes shall have the right to require GCI, Inc. to purchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's new notes pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the purchase date (the "Change of Control Payment"). A Change of Control will not occur if the persons obtaining control of GCI, Inc. are one or more of the Permitted Holders.

Within 30 days following any Change of Control, GCI, Inc. shall (i) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) mail a notice to each holder of new notes stating: (1) that a Change of Control has occurred and a Change of Control Offer is being made pursuant to this section and that all new notes timely tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be, subject to any contrary requirements of applicable law, no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any new notes (or portion thereof) accepted for payment (and duly paid on the Change of Control Payment Date) pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (4) that any new notes (or portions thereof) not tendered will continue to accrue interest; (5) a description of the transaction or transactions constituting the Change of Control; and (6) the procedures that holders of new notes must follow in order to tender their new notes (or portions thereof) for payment and the procedures that holders of new notes must follow in order to withdraw an election to tender new notes (or portions thereof) for payment.

GCI, Inc. will comply with the requirements of Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase of new notes in connection with a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions relating to the "Change of Control" provisions of the Indenture, GCI, Inc. will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof.

Except as described above with respect to a Change of Control, the Indenture does not contain any provisions that permit the holders of the new notes to require that GCI, Inc. purchase or redeem the new notes in the event of a takeover, recapitalization or similar restructuring.

The Change of Control purchase feature is a result of negotiations between GCI, Inc. and the initial purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that GCI, Inc. would decide to do so in the future. Subject to the limitations discussed below, GCI, Inc. could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect GCI, Inc.'s capital structure or credit ratings. Restrictions on the ability of GCI, Inc. to Incur additional Indebtedness are contained in the covenants described under "—Certain Covenants—Limitation on Indebtedness" and "—Certain Covenants—Limitation on Liens." Such restrictions can only be waived with the consent of the registered holders of a majority in principal amount of the new notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture will not contain any covenants or provisions that may afford holders of the new notes protection in the event of a highly leveraged transaction.

The senior secured credit facility imposes restrictions on the ability of GCI, Inc.'s Subsidiaries to pay dividends or make distributions to GCI, Inc. Such restrictions may limit the ability of GCI, Inc. to

fund any purchase of the new notes upon a Change of Control. There can be no assurance that GCI, Inc. will be able to fund any purchase of the new notes upon a Change of Control.

Limitation on Indebtedness. GCI, Inc. shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness; provided, however, that (a) if after giving pro forma effect to the application of the proceeds thereof, no Default or Event of Default would occur as a consequence of such Incurrence or be continuing following such Incurrence, GCI, Inc. may Incur Indebtedness and Restricted Subsidiaries may borrow or Guarantee borrowings under the senior secured credit facility, or incur Indebtedness that is Vendor Financing, if on the date of the Incurrence of such Indebtedness, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the proceeds thereof, the Leverage Ratio of GCI, Inc. and the Restricted Subsidiaries (on a consolidated basis) would not exceed 6.0 and (b) Permitted Indebtedness may be Incurred."

"Permitted Indebtedness" is defined to include any and all of the following: (i) Indebtedness pursuant to the senior secured credit facility incurred under this clause (i) in an aggregate principal amount outstanding at any time not to exceed the greater of (a) $250 million, reduced by the amount of any prepayments made on the Indebtedness incurred under the senior secured credit facility pursuant to "—Limitation on Asset Sales" or (b) 3.0 times Trailing EBITDA of GCI, Inc. and its Restricted Subsidiaries; provided, however, that the amount of Indebtedness permitted to be incurred pursuant to either clause (a) or (b) is reduced by the amount of then outstanding Vendor Financing, or refinancing thereof, secured by a Lien, incurred pursuant to clause (xii), or pursuant to clause (iii) in the case of a refinancing, of the definition of Permitted Liens; (ii) Indebtedness of GCI, Inc. evidenced by the new notes issued on the Issue Date; (iii) Indebtedness of GCI, Inc. owing to and held by a Restricted Subsidiary and Indebtedness of a Restricted Subsidiary owing to and held by GCI, Inc. or any Restricted Subsidiary; provided, however, that any event that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of any such Indebtedness (except to GCI, Inc. or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; provided, further, that any Indebtedness of GCI, Inc. owing to and held by a Restricted Subsidiary shall be expressly subordinated to the new notes; (iv) Indebtedness (other than Indebtedness permitted by the immediately preceding paragraph or elsewhere in this paragraph) in an aggregate principal amount outstanding at any time not to exceed $15 million; (v) Indebtedness under Interest99Rate Agreements entered into for the purpose of limiting interest rate risks, provided, that the obligations under such agreements are related to payment obligations on Indebtedness otherwise permitted by the terms of this covenant; (vi) Indebtedness in connection with one or more standby letters of credit or performance bonds issued in the ordinary course of business or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances or credit; (vii) Indebtedness outstanding on the Issue Date other than under the senior secured credit facility (after giving effect to the application of the proceeds of the sale of the new notes); and (viii) Permitted Refinancing Indebtedness Incurred in respect of Indebtedness Incurred pursuant to clause (a) of the immediately preceding paragraph and clauses (ii) and (vii) above.

Limitation on Restricted Payments. GCI, Inc. shall not make, and shall not permit any Restricted Subsidiary to make, directly or indirectly, any Restricted Payment if at the time of, and after giving effect to, such proposed Restricted Payment, (a) a Default or an Event of Default shall have occurred and be continuing, (b) GCI, Inc. could not Incur at least $1.00 of additional Indebtedness pursuant to clause (a) of the first paragraph of "—Limitation on Indebtedness" or (c) the aggregate amount of such Restricted Payment and all other Restricted Payments made since August 1, 1997 (the amount of any Restricted Payment, if made other than in cash, to be based upon Fair Market Value) would exceed

an amount equal to the sum of (i) the excess of (A) Cumulative EBITDA over (B) the product of 1.5 and Cumulative Interest Expense, (ii) Capital Stock Sale Proceeds, (iii) the amount by which Indebtedness of GCI, Inc. or any Restricted Subsidiary is reduced on GCI, Inc.'s balance sheet upon the conversion or exchange (other than by a Subsidiary of GCI, Inc.) subsequent to the Issue Date of any Indebtedness of GCI, Inc. or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) of GCI, Inc. (less the amount of any cash or other Property distributed by GCI, Inc. or any Restricted Subsidiary upon conversion or exchange) and (iv) an amount equal to the net reduction in Investments made by GCI, Inc. and its Restricted Subsidiaries subsequent to the Issue Date in any Person resulting from (A) dividends, repayment of loans or advances, or other transfers or distributions of Property (but only to the extent GCI, Inc. excludes such transfers or distributions from the calculation of Cumulative EBITDA for purposes of clause (c)(i)(A) above), in each case to GCI, Inc. or any Restricted Subsidiary from any Person or (B) the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary, not to exceed, in the case of (A) or (B) of this subclause (iv), the amount of such Investments previously made by GCI, Inc. and its Restricted Subsidiaries in such Person or such Unrestricted Subsidiary, as the case may be, which were treated as Restricted Payments.

Notwithstanding the foregoing limitation, GCI, Inc. and its Restricted Subsidiaries, may (a) pay dividends on its Capital Stock within 60 days of the declaration thereof if, on the declaration date, such dividends could have been paid in compliance with the Indenture, (b) redeem, repurchase, defease, acquire or retire for value, any Indebtedness subordinate(whether pursuant to its terms or by operation of law) in right of payment to the new notes with the proceeds of any Indebtedness that is Permitted Refinancing Indebtedness in respect of such subordinated Indebtedness, (c) acquire, redeem or retire Capital Stock of GCI, Inc. or Indebtedness subordinate (whether pursuant to its terms or by operation of law) in right of payment to the new notes in exchange for, or in connection with a substantially concurrent issuance of, Capital Stock of GCI, Inc. (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of GCI, Inc. or an employee stock ownership plan or other trust established by GCI, Inc. or any Subsidiary of GCI, Inc.), (d) when GCI, Inc. could incur at least one dollar of additional indebtedness pursuant to clause (a) of the first paragraph of "Limitation on Indebtedness," make Investments in Persons the primary businesses of which are Related Businesses (other than Investments in the Capital Stock of GCI, Inc.) in an amount at any time outstanding not to exceed in the aggregate for all such Investments made in reliance upon this clause (d), the sum of (i) $35 million and (ii) an amount equal to the net reduction in Investments made by GCI, Inc. and its Restricted Subsidiaries subsequent to the Issue Date in any Person resulting from payments of dividends, repayment of loans or advances, or other transfers or distributions of Property (to the extent not included in EBITDA) to GCI, Inc. or any Restricted Subsidiary from any Person (but only to the extent such net reduction in Investments has not been utilized to permit a Restricted Payment pursuant to clause (c)(i) or (c)(iv) in the immediately preceding paragraph) not to exceed, in the case of clause (d)(ii), the amount of such Investments previously made by GCI, Inc. and its Restricted Subsidiaries in such Person which were treated as Restricted Payments, (e) purchase or redeem Capital Stock in connection with the repurchase provisions under employee stock option or stock purchase agreements or other agreements to compensate management employees of Parent, GCI, Inc. or one of its Subsidiaries; provided, however, that the amount paid in connection with all such redemptions or repurchases pursuant to this clause (e) shall not exceed in any fiscal year $2 million in the aggregate, and (f) additional Restricted Payments up to an aggregate amount of $65 million if at the time of making any such Restricted Payment, the Leverage Ratio of GCI, Inc. and its Restricted Subsidiaries (on a consolidated basis) is less than 5.0 to 1.0.

Any payments made pursuant to clauses (b) and (c) of the immediately preceding paragraph shall be excluded from the calculation of the aggregate amount of Restricted Payments made after the Issue Date; provided, however, that the proceeds from the issuance of Capital Stock pursuant to clause (c) of the immediately preceding paragraph shall not constitute Capital Stock Sale Proceeds for purposes of

clause (c)(ii) of the first paragraph of this covenant. GCI, Inc. may, at the time of any Restricted Payment, designate, by delivery to the Trustee of an Officers' Certificate referencing this covenant and such designation, whether such Restricted Payment is being made in accordance with the second preceding paragraph or, if applicable, the clause of the preceding paragraph pursuant to which such Restricted Payment is being made.

Limitation on Liens. GCI, Inc. shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any Lien (other than Permitted Liens) upon any of its Property, whether now owned or hereafter acquired, or any interest therein, or any income or profits there from, unless (a) with respect to any Restricted Subsidiary, such Lien secures Indebtedness other than Guarantees of Indebtedness of GCI, Inc. or (b) effective provision has been or will be made whereby the new notes will be secured by such Lien equally and ratably with all other Indebtedness of GCI, Inc. or any Restricted Subsidiary secured by such Lien; provided, however, that no Lien may be granted with respect to Indebtedness of GCI, Inc. that is subordinated to the new notes.

Limitation on Asset Sales. GCI, Inc. shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale after the Issue Date unless (i) GCI, Inc. or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the Property subject to such Asset Sale and (ii) (A) at least 80% of the consideration paid to GCI, Inc. or such Restricted Subsidiary in connection with such Asset Sale is in the form of cash or cash equivalents or (B) the consideration paid to GCI, Inc. or such Restricted Subsidiary is determined in good faith by the board of directors of GCI, Inc., as evidenced by a board resolution, to be substantially comparable in type to the assets being sold; provided, however, this clause (ii) shall not apply to any sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of GCI, Inc. or any Restricted Subsidiary, as the case may be.

The Net Available Cash (or any portion thereof) from Asset Sales may be applied by GCI, Inc. or a Restricted Subsidiary, (A) to prepay, repay or purchase Indebtedness under the senior secured credit facility or Indebtedness of a Restricted Subsidiary (excluding Indebtedness owed to GCI, Inc. or an Affiliate of GCI, Inc.); or (B) to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by GCI, Inc. or another Restricted Subsidiary).

Any Net Available Cash from an Asset Sale not applied in accordance with the preceding paragraph within one year from the date of such Asset Sale or the receipt of such Net Available Cash shall constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million (taking into account income earned on such Excess Proceeds), GCI, Inc. will be required to make an offer to purchase (the "Prepayment Offer") the new notes, and any other Indebtedness, if any, that ranks pari passu with the new notes and contains similar provisions requiring an Asset Sale prepayment offer, on a pro rata basis, at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon (if any) to the date of purchase in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture (or, in the event of Indebtedness that is discounted, at a price of the then accreted value thereof); provided, however, if any other such Indebtedness that ranks pari passu with the new notes does not contain similar Asset Sale prepayment offer provisions with regard to the pro rata repayment of such other Indebtedness and the new notes, GCI, Inc. will be required to purchase the new notes before purchasing any other such Indebtedness from such Excess Proceeds. If the aggregate principal amount of new notes surrendered for purchase by holders thereof exceeds the amount of Excess Proceeds allocated to the new notes, then the Trustee shall select the new notes to be purchased pro rata according to principal amount or by lot with such adjustments as may be deemed appropriate by GCI, Inc. so that only new notes in denominations of $1,000, or integral multiples thereof, shall be purchased. To the extent that any portion of the amount of Net Available Cash remains after compliance with the preceding sentence

and, provided that all holders of new notes have been given the opportunity to tender their new notes for purchase as described in the following paragraph in accordance with the Indenture, GCI, Inc. or such Restricted Subsidiary may use such remaining amount for general corporate purposes and the amount of Excess Proceeds will be reset to zero.

Within five Business Days after one year from the date of an Asset Sale or the receipt of Net Available Cash therefrom, GCI, Inc. shall, if it is obligated to make a Prepayment Offer, send a written notice, by first-class mail, to the holders of the new notes (the "Prepayment Offer Notice"), accompanied by such information regarding GCI, Inc. and its Subsidiaries as GCI, Inc. in good faith believes will enable such holders of the new notes to make an informed decision with respect to the Prepayment Offer. The Prepayment Offer Notice will state, among other things, (a) that GCI, Inc. is offering to purchase new notes pursuant to the provisions of the Indenture described herein under "—Limitation on Asset Sales," (b) that any new notes (or any portion thereof) accepted for payment (and duly paid on the Purchase Date (defined below)) pursuant to the Prepayment Offer shall cease to accrue interest after the Purchase Date, (c) the purchase price and purchase date, which shall be, subject to any contrary requirements of applicable law, no less than 30 days nor more than 60 days from the date the Prepayment Offer Notice is mailed (the "Purchase Date"), (d) the aggregate principal amount of new notes (or portions thereof) to be purchased and (e) a description of the procedure which holders of new notes must follow in order to tender their new notes (or portions thereof) and the procedures that holders of new notes must follow in order to withdraw an election to tender their new notes (or portions thereof) for payment.

GCI, Inc. will comply, to the extent applicable, with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws or regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase of new notes as described above. To the extent that the provisions of any securities laws or regulations conflict with the provisions relating to the Prepayment Offer, GCI, Inc. will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations described above by virtue thereof.

Limitation on Restrictions on Distributions from Restricted Subsidiaries. GCI, Inc. shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective, or enter into any agreement with any Person that would cause to become effective, any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, or pay any Indebtedness or other obligation owed, to GCI, Inc. or any other Restricted Subsidiary, (b) make any loans or advances to GCI, Inc. or any other Restricted Subsidiary or (c) transfer any of its Property to GCI, Inc. or any other Restricted Subsidiary. Such limitation will not apply (1) with respect to clauses (a), (b) and (c), to encumbrances and restrictions (i) in existence under or by reason of any agreements (not otherwise described in clause (iii)) in effect on the Issue Date, (ii) relating to Indebtedness of a Restricted Subsidiary and existing at such Restricted Subsidiary at the time it became a Restricted Subsidiary if such encumbrance or restriction was not created in connection with or in anticipation of the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by GCI, Inc., (iii) any encumbrance or restriction pursuant to (x) the senior secured credit facility as in effect on the Issue Date and (y) any agreement which amends, extends, renews, refinances, replaces or refunds the senior secured credit facility, provided, however, that in the case of this subclause (y), such restrictions or encumbrances are no less favorable to the holders of the new notes than those restrictions or encumbrances pursuant to the senior secured credit facility as in effect on the Issue Date except that provisions in the senior secured credit facility permitting excess cash flow to be used for up to $15 million in restricted payments or investments may be deleted; provided, further, however, that in the case of subclauses (x) and (y), the provisions of the senior secured credit facility (A) permit (whether explicitly or as a result of the relative maturities of the senior secured credit facility and the

new notes) distributions to the Issuer for the purpose of, and in an amount sufficient to fund, the payment of principal due at stated maturity and interest in respect of the new notes (provided, in either case, that such payment is due or to become due within 30 days from the date of such distribution) at a time when there does not exist an event which after notice or passage of time or both would permit the lenders under the senior secured credit facility to declare all amounts thereunder due and payable, and (B) provide that in no event shall any encumbrance or restriction pursuant to the senior secured credit facility prohibit distributions for Indebtedness on the new notes for more than 180 days in any consecutive 360 day period, unless (1) there exists a default under the senior secured credit facility resulting from any payment default under the senior secured credit facility when due or (2) the maturity of the senior secured credit facility has been accelerated, or (iv) which result from the extension, renewal, refinancing, replacement, refunding or amendment of an agreement referred to in the immediately preceding clauses (1)(i) and (ii) above and in clauses (2)(i) and (ii) below, provided, such encumbrance or restriction is no more restrictive to such Restricted Subsidiary and is not materially less favorable to the holders of new notes than those under or pursuant to the agreement evidencing the Indebtedness so extended, renewed, refinanced, replaced, refunded or amended, and (2) with respect to clause (c) only, to (i) any encumbrance or restriction relating to Indebtedness that is permitted to be Incurred and secured pursuant to the provisions under "—Limitation on Indebtedness" and "—Limitation on Liens" that limits the right of the debtor to dispose of the assets or Property securing such Indebtedness, (ii) any encumbrance or restriction in connection with an acquisition of Property, so long as such encumbrance or restriction relates solely to the Property so acquired and was not created in connection with or in anticipation of such acquisition, (iii) customary provisions restricting subletting or assignment of leases of GCI, Inc. or any Restricted Subsidiary and customary provisions in other agreements that restrict assignment of such agreements or rights thereunder or (iv) customary restrictions contained in asset sale agreements limiting the transfer of such assets pending the closing of such sale.

Limitation on Transactions with Affiliates. GCI, Inc. shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, conduct any business or enter into or suffer to exist any transaction or series of transactions (including the purchase, sale, transfer, lease or exchange of any Property or the rendering of any service) with, or for the benefit of, any Affiliate of GCI, Inc. (an "Affiliate Transaction") unless (a) the terms of such Affiliate Transaction are (i) set forth in writing, (ii) in the best interest of GCI, Inc. or such Restricted Subsidiary, as the case may be, and (iii) no less favorable to GCI, Inc. or such Restricted Subsidiary, as the case may be, than those that could be obtained in a comparable arm's-length transaction with a Person that is not an Affiliate of GCI, Inc. or such Restricted Subsidiary, (b) with respect to an Affiliate Transaction involving aggregate payments or value in excess of $15 million, the board of directors of GCI, Inc. (including a majority of the disinterested members of the board of directors of GCI, Inc.) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (a)(ii) and (iii) of this paragraph as evidenced by a board resolution and (c) with respect to an Affiliate Transaction involving aggregate payments or value in excess of $25 million, GCI, Inc. obtains a written opinion from an independent appraisal firm to the effect that such Affiliate Transaction is fair, from a financial point of view to GCI, Inc. or such Restricted Subsidiary, as applicable.

Notwithstanding the foregoing limitation, GCI, Inc. may enter into or suffer to exist the following: (i) any transaction pursuant to any contract in existence on the Issue Date on the terms of such contract as in effect on the Issue Date; (ii) any transaction or series of transactions between GCI, Inc. and one or more of its Restricted Subsidiaries or between two or more of its Restricted Subsidiaries; (iii) any Restricted Payment permitted to be made pursuant to "—Limitation on Restricted Payments"; (iv) the payment of compensation(including, amounts paid pursuant to employee benefit plans) for the personal services of officers, directors and employees of Parent, GCI, Inc. or any of its Restricted Subsidiaries, so long as the board of directors of GCI, Inc. in good faith shall have approved the terms thereof and deemed the services theretofore or thereafter to be performed for such compensation or fees to be fair consideration therefor; and (v) loans and advances to employees of Parent, GCI, Inc. or a Restricted Subsidiary made in the ordinary course of business and consistent with past practice of Parent, GCI, Inc. or such Restricted Subsidiary, as the case may be, provided, that such loans and advances do not exceed in the aggregate $6 million at any one time outstanding.

Ownership of Significant Subsidiaries. GCI, Inc. will at all times maintain, either directly or indirectly, 100% ownership of the Capital Stock of any Person that is or becomes a Significant Subsidiary of GCI, Inc.; provided, however, that (i) GCI, Inc. may, directly or indirectly, acquire after the Issue Date and thereafter maintain ownership comprising less than 100% of the Capital Stock of such Person provided such acquisition is otherwise effected in accordance with the terms of the Indenture and (ii) GCI, Inc. may transfer, convey, sell or otherwise dispose of all or substantially all of the assets of a Significant Subsidiary as permitted pursuant to "—Limitation on Asset Sales."

Operation of Unrestricted Subsidiaries. GCI, Inc. shall cause each of its Unrestricted Subsidiaries (i) to maintain continuously articles or a certificate of incorporation or, in the case of a partnership, a partnership agreement, (ii) to maintain separate books and records including, without limitation, separate financial statements; (iii) not to commingle any of its properties or assets with the properties or assets of GCI, Inc. or any Restricted Subsidiary; (iv) to pay its liabilities, the salaries of its employees and all consultant and advisor fees and expenses directly out of funds that do not comprise in whole or in part the funds of GCI, Inc. or any of its Restricted Subsidiaries and (v) otherwise to hold itself out as a separate entity.

Prohibition on Incurrence of Certain Indebtedness. GCI, Inc. shall not incur any Indebtedness that is subordinated to any other Indebtedness of GCI, Inc. unless such Indebtedness is subordinated on the same basis to the new notes.

Merger, Consolidation and Sale of Assets. GCI, Inc. will not merge or consolidate with or into any other entity (other than a merger of a wholly-owned Restricted Subsidiary into GCI, Inc.) or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all of its Property in any one transaction or series of transactions unless: (a) the entity formed by or surviving any such consolidation or merger (if GCI, Inc. is not the surviving entity) or the Person to which such sale, transfer, assignment, lease, conveyance or other disposition is made (the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America or a State thereof or the District of Columbia and such corporation expressly assumes, by supplemental indenture in form satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, the due and punctual payment of the principal of, and interest on, all the new notes, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of the Indenture to be performed by GCI, Inc.; (b) immediately before and after giving effect to such transaction or series of transactions, no Default or Event of Default shall have occurred and be continuing; (c) immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness Incurred or anticipated to be Incurred in connection with such transaction or series of transactions), GCI, Inc. or the Surviving Entity, as the case may be, would be able to Incur at least $1.00 of additional Indebtedness under clause (a) of the first paragraph

of "—Certain Covenant—Limitation on Indebtedness"; and (d) in the case of a sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all of GCI, Inc.'s Property, such Property shall have been transferred as an entirety or virtually as an entirety to one Person.

In connection with any consolidation, merger or transfer contemplated by this provision, GCI, Inc. shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, transfer, assignment, lease, conveyance or other disposition and the supplemental indenture in respect thereof comply with this provision and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with.

SEC Reports. Notwithstanding that GCI, Inc. may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, GCI, Inc. shall file with the Commission and provide the Trustee and holders of the new notes with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections; such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections.

Conduct of Business. GCI, Inc. and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar, ancillary or reasonably related to the businesses in which GCI, Inc. and its Restricted Subsidiaries are engaged on the Issue Date.

Payments for Consent. GCI, Inc. will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of new notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the new notes unless such consideration is offered to be paid and is paid to all Holders of the new notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

Events of Default in respect of the new notes as set forth in the Indenture include: (i) failure to make any payment of any principal of any of the new notes when the same becomes due and payable at maturity, upon acceleration, redemption, optional redemption, required purchase or otherwise; (ii) failure to make the payment of any interest on the new notes when the same becomes due and payable, and such failure continues for a period of 30 days; (iii) failure to comply with any other covenant or agreement in the new notes or in the Indenture and such failure continues for 30 days after written notice from the Trustee or the registered holders of not less than 25% in aggregate principal amount of the new notes then outstanding; (iv) a default under any Indebtedness for borrowed money by GCI, Inc. or any Restricted Subsidiary which results in acceleration of the maturity of such Indebtedness, or failure to pay any such Indebtedness when due within any applicable grace period, in a total amount greater than $15 million (the "Cross Acceleration Provisions"); (v) any judgment or judgments for the payment of money in an uninsured aggregate amount in excess of $15 million shall be rendered against GCI, Inc. or any Restricted Subsidiary and shall not be waived, satisfied or discharged for any period of30 consecutive days during which a stay of enforcement shall not be in effect (the "Judgment Default Provisions"); and (vi) certain events involving bankruptcy, insolvency or reorganization of GCI, Inc. or any Restricted Subsidiary (the "Bankruptcy Provisions"). The Indenture provides that the Trustee may withhold from the holders of the new notes notice of any Default (other than payment Defaults) if the Trustee considers it to be in the best interest of the holders of the new notes to do so.

The Indenture will provide that if an Event of Default with respect to the new notes (other than an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization with respect to GCI, Inc. or any Restricted Subsidiary) shall have occurred and be continuing, the Trustee or the registered holders of not less than 25% in aggregate principal amount of the new notes then outstanding may declare to be immediately due and payable the principal amount of all the new notes then outstanding, plus accrued but unpaid interest to the date of acceleration; provided, however, that after such acceleration but before a judgment or decree based on acceleration is obtained by the Trustee, the registered holders of a majority in aggregate principal amount of the new notes then outstanding, may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal or interest, have been cured or waived as provided in the Indenture. Incase an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization with respect to GCI, Inc. or a Restricted Subsidiary shall occur, such amount with respect to all of the new notes shall be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of the new notes.

The registered holders of a majority in principal amount of the new notes then outstanding shall have the right to waive any existing Default, other than payment Defaults, with respect to the new notes or compliance with any provision of the Indenture and to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, subject to certain limitations specified in the Indenture.

No holder of the new notes will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless (i) such holder shall have previously given to the Trustee written notice of a continuing Event of Default, (ii) the registered holders of at least 25% in aggregate principal amount of the new notes then outstanding shall have made written request and offered reasonable indemnity to the Trustee to institute such proceeding as a trustee, (iii) the Trustee shall not have received from the registered holders of a majority in aggregate principal amount of the new notes then outstanding a direction inconsistent with such request, and (iv) the Trustee shall have failed to institute such proceeding within 60 days; provided, however, such limitations do not apply to a suit instituted by a holder of any new notes for enforcement of payment of the principal of, premium, if any, or interest on such new notes on or after the respective due dates expressed in such new notes.

The Indenture may be amended with the consent of the registered holders of a majority in principal amount of the new notes to be affected then outstanding (including consents obtained in connection with a tender offer or exchange offer for the new notes) and any past Default, other than payment Defaults, or compliance with any provisions may also be waived with the consent of the registered holders of a majority in principal amount of the new notes to be affected then outstanding; provided, however, without the consent of each holder of an outstanding new note to be affected, no amendment may, among other things, (i) reduce the amount of new notes whose holders must consent to an amendment, (ii) reduce the rate of or extend the time for payment of interest on any new notes, (iii) reduce the principal of or extend the Stated Maturity of any new notes, (iv) make any new notes payable in money other than that stated in the new notes, (v) impair the right of any holder of the new notes to receive payment of principal of and interest on such holder's new notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's new notes, (vi) modify or change any provision of the Indenture or the related definitions affecting the ranking of the new notes in a manner which adversely affects the holders of the new notes, (vii) make any change in the amendment provisions which require each holder's consent or in the waiver provisions, (viii) reduce the premium payable upon the redemption of any new notes or change the time at which any new notes may or shall be redeemed as described under "Optional Redemption," or (ix) after GCI, Inc.'s obligation to purchase new notes arises thereunder, amend,

change or modify in any material respect the obligation of GCI, Inc. to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or, after such Change of Control has occurred or such Asset Sale has been consummated, modify any of the provisions or definitions with respect thereto.

Without the consent of any holder of the new notes, GCI, Inc. and the Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor corporation of the obligations of GCI, Inc. under the Indenture, to provide for uncertificated new notes in addition to or in place of certificated new notes (provided that the uncertificated new notes are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as amended (the "Code"), or in a manner such that the uncertificated new notes are described in Section 163(f)(2)(B) of the Code), to add Guarantees with respect to the new notes, to secure the new notes, to add to the covenants of GCI, Inc. for the benefit of the holders of the new notes or to surrender any right or power conferred upon GCI, Inc., to make any change that does not adversely affect the rights of any holder of the new notes or to comply with any requirement of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act.

The consent of the holders of the new notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.

After an amendment under the Indenture becomes effective, GCI, Inc. is required to mail to registered holders of the new notes affected a notice briefly describing such amendment. However, the failure to give such notice to all holders of the new notes, or any defect therein, will not impair or affect the validity of the amendment.

GCI, Inc. may, at its option and at any time, elect to have its obligations discharged with respect to the outstanding new notes ("Legal Defeasance"). Such Legal Defeasance means that GCI, Inc. shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding new notes, except for:

In addition, GCI, Inc. may, at its option and at any time, elect to have the obligations of GCI, Inc. released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the new notes. In the event Covenant Defeasance occurs, certain events (not including non-payment and bankruptcy, receivership, reorganization and insolvency events relating to GCI, Inc.) described under "Events of Default" will no longer constitute an Event of Default with respect to the new notes.

Notwithstanding the foregoing, the opinion of counsel required by clause (2) above with respect to a Legal Defeasance need not be delivered if all new notes not theretofore delivered to the Trustee for cancellation (1) have become due and payable or (2) will become due and payable on the maturity date within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of GCI, Inc.

The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the new notes, as expressly provided for in the Indenture) as to all outstanding new notes when:

Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided.

"Additional Assets" means (i) any Property (other than cash, cash equivalents or securities) to be owned by GCI, Inc. or a Restricted Subsidiary and used in a Related Business, (ii) the costs of improving or developing any Property owned by GCI, Inc. or a Restricted Subsidiary which is used in a Related Business and (iii) Investments in any other Person engaged primarily in a Related Business (including the acquisition from third parties of Capital Stock of such Person) as a result of which such other Person becomes a Restricted Subsidiary or is merged or consolidated with or into GCI, Inc. or any Restricted Subsidiary.

"Affiliate" of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person or (ii) any other Person who is a director or executive officer (a) of such specified Person, (b) of any Subsidiary of such specified Person or (c) of any Person described in clause (i) above. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Affiliate" shall also mean any beneficial owner of shares representing 10% or more of the

total voting power of the Voting Stock (on a fully diluted basis) of GCI, Inc. or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof.

"Asset Sale" means, with respect to any Person, any transfer, conveyance, sale, lease or other disposition (including, without limitation, dispositions pursuant to any consolidation or merger or a Sale and Leaseback Transaction) by such Person or any of its Subsidiaries (or, in the case of GCI, Inc., its Restricted Subsidiaries) in any single transaction or series of transactions of (a) shares of Capital Stock or other ownership interests in another Person(including, with respect to GCI, Inc. and its Restricted Subsidiaries, Capital Stock of Unrestricted Subsidiaries) or (b) any other Property of such Person or any of its Restricted Subsidiaries; provided, however, that the term "Asset Sale" shall not include: (i) the sale or transfer of Temporary Cash Investments, inventory, accounts receivable or other Property (including, without limitation, the sale or lease of excess satellite transponder capacity and the sale or lease of excess fiber capacity) in the ordinary course of business; (ii) the liquidation of Property received in settlement of debts owing to such Person or any of its Restricted Subsidiaries as a result of foreclosure, perfection or enforcement of any Lien or debt, which debts were owing to such Person or any of its Restricted Subsidiaries in the ordinary course of business; (iii) when used with respect to GCI, Inc., any asset disposition permitted pursuant to "—Merger, Consolidation and Sale of Assets" which constitutes a disposition of all or substantially all of GCI, Inc.'s Property; (iv) the sale or transfer of any Property by such Person or any of its Restricted Subsidiaries to such Person or any of its Restricted Subsidiaries; (v) a disposition in the form of a Restricted Payment permitted to be made pursuant to "—Certain Covenants—Limitation on Restricted Payments"; or (vi) a disposition (taken together with any other dispositions in a single transaction or series of related transactions) with a Fair Market Value and a sale price of less than $5 million.

"Attributable Indebtedness" means Indebtedness deemed to be incurred in respect of a Sale and Leaseback Transaction and shall be, at the date of determination, the present value (discounted at the actual rate of interest implicit in such transaction, compounded annually), of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended).

"Average Life" means, as of the date of determination, with respect to any security, the quotient obtained by dividing (i) the sum of the products of the numbers of years (rounded to the nearest one-twelfth of one year) from the date of determination to the dates of each successive scheduled principal or other redemption payment of such security multiplied by the amount of such payment by (ii) the sum of all such payments.

"Capital Lease Obligations" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP.

"Capital Stock" means, with respect to any Person, any and all shares or other equivalents (however designated) of corporate stock, partnership interests or any other participation, right, warrant, option or other interest in the nature of an equity interest in such Person, but excluding any debt security convertible or exchangeable into such equity interest.

"Capital Stock Sale Proceeds" means the aggregate Net Cash Proceeds received by GCI, Inc. from the issue or sale (other than to a Subsidiary of GCI, Inc. or an employee stock ownership plan or trust established by GCI, Inc. or any Subsidiary of GCI, Inc.) by GCI, Inc. of any class of its Capital Stock (other than Disqualified Stock) after the Issue Date.

"Change of Control" means the occurrence of one or more of the following events:

"Consolidated Interest Expense" means, for any Person, for any period, the amount of interest in respect of Indebtedness (including amortization of original issue discount, fees payable in connection with financings, including commitment, availability and similar fees, and amortization of debt issuance costs, non-cash interest payments on any Indebtedness and the interest portion of any deferred payment obligation and after taking into account the effect of elections made under, and the net costs associated with, any Interest Rate Agreement, however denominated, with respect to such Indebtedness), the amount of dividends in respect of Disqualified Stock paid by such person, the amount of Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of such Person held other than by such Person or a Subsidiary (other than any Unrestricted Subsidiary) of such Person, commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, and the interest component of rentals in respect of any Capital Lease Obligation or Sale and Leaseback Transaction paid, accrued or scheduled to be paid or accrued by such Person during such period, determined on a consolidated basis for such Person and its Subsidiaries (or, in the case of GCI, Inc., its Restricted Subsidiaries) in accordance with GAAP consistently applied. For purposes of this definition, interest on a Capital Lease Obligation or a Sale and Leaseback Transaction shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capital Lease Obligation or Sale and Leaseback Transaction in accordance with GAAP consistently applied.

"Consolidated Net Income" of a Person means for any period, the net income (loss) of such Person and its Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income (i) with respect to GCI, Inc., any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (a) subject to the limitations contained in clause (iii) below, GCI, Inc.'s equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to GCI, Inc. or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in

clause (ii) below) and (b) GCI, Inc.'s equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income, (ii) with respect to GCI, Inc., any net income (loss) of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to GCI, Inc., except that (a) subject to the limitations contained in clause (iii) below, GCI, Inc.'s equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to GCI, Inc. or another Restricted Subsidiary as a dividend (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause) and (b) GCI, Inc.'s equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income, (iii) any gains or losses realized upon the sale or other disposition of any Property of such Person or its consolidated Subsidiaries (including pursuant to any Sale and Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business, (iv) any extraordinary gain or loss and (v) the cumulative effect of a change in accounting principles.

Notwithstanding the provisions of clause (ii) in the preceding paragraph, in the event that Consolidated Net Income is being calculated with respect to GCI, Inc. or any Surviving Entity (a) for purposes of determining whether GCI, Inc. or any Surviving Entity could incur at least $1.00 of additional Indebtedness pursuant to clause (a) of the first paragraph of "—Certain Covenants—Limitation on Indebtedness" for purposes of (i) clause (b) of the first sentence under "—Certain Covenants—Limitation on Restricted Payments," (ii) clause (c) under "—Merger, Consolidation and Sale of Assets," (iii) the definition of "Unrestricted Subsidiary", or (iv) clause (d) of the second paragraph of "Certain Covenants—Limitation on Restricted Payments", (b) for purposes of calculating Cumulative EBITDA for purposes of clause (c) of the first sentence of "—Certain Covenants—Limitation on Restricted Payments," (c) for purposes of calculating the Leverage Ratio for purposes of clause (f) of the second paragraph of "—Certain Covenants—Limitations on Restricted Payments," then such clause (ii) shall be disregarded.

Notwithstanding the provisions of clause (ii) in the first paragraph of this definition, in the event that Consolidated Net Income is being calculated with respect to GCI, Inc. for purposes of determining whether the Incurrence of Indebtedness proposed to be Incurred is permissible under clause (a) of the first paragraph of "—Certain Covenants—Limitation on Indebtedness," clause (i)(b) of the definition of Permitted Indebtedness and clause (f) of the second paragraph of "—Certain Covenants—Limitation on Restricted Payments," then restrictions on the payment of dividends or the making of distributions to GCI, Inc. by GCI Holdings referred to in clause (1)(iii) of the first sentence under "—Certain Covenants—Limitation on Restrictions on Distributions From Restricted Subsidiaries" shall be disregarded.

"Cumulative EBITDA" means at any date of determination the cumulative EBITDA of GCI, Inc. from and after the last day of the fiscal quarter of GCI, Inc. immediately preceding August 1, 1997 to the end of the fiscal quarter immediately preceding the date of determination or, if such cumulative EBITDA for such period is negative, the amount (expressed as a negative number) by which such cumulative EBITDA is less than zero.

"Cumulative Interest Expense" means at any date of determination the aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to be paid or accrued by GCI, Inc. and its Restricted Subsidiaries from the last day of the fiscal quarter of GCI, Inc. immediately preceding August 1, 1997 to the end of the fiscal quarter immediately preceding the date of determination.

"Default" means any event which is, or after notice or passage of time or both would be, an Event of Default.

"Disqualified Stock" means, with respect to any Person, any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is exchangeable for Indebtedness at the option of the holder thereof, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the final maturity date of the new notes.

"EBITDA" means, for any Person, for any period, an amount equal to (A) the sum of(i) Consolidated Net Income for such period, plus, to the extent deducted in arriving at Consolidated Net Income for such period, (ii) the provision for taxes for such period based on income or profits to the extent such income or profits were included in computing Consolidated Net Income and any provision for taxes utilized in computing net loss under clause (i) hereof, (iii) Consolidated Interest Expense for such period, (iv) depreciation for such period on a consolidated basis, (v) amortization of intangibles for such period on a consolidated basis, and (vi) any other non-cash items reducing Consolidated Net Income for such period, minus (B) all non-cash items increasing Consolidated Net Income for such period, all for such Person and its Subsidiaries determined in accordance with GAAP consistently applied, except that with respect to GCI, Inc. each of the foregoing items shall be determined on a consolidated basis with respect to GCI, Inc. and its Restricted Subsidiaries only.

"Fair Market Value" means, with respect to any Property, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value will be determined, except as otherwise provided, (i) if such property or asset has a Fair Market Value of less than or equal to $15 million, by any Officer of GCI, Inc. or (ii) if such property or asset has a Fair Market Value in excess of $15 million, by a majority of the board of directors of GCI, Inc. and evidenced by a board resolution, dated within 30 days of the relevant transaction.

"GAAP" means accounting principles generally accepted in the United States of America as in effect on the Issue Date, unless stated otherwise.

"Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning.

"Hedging Obligation" of any Person means any obligation of such Person pursuant to any Interest Rate Agreement, foreign exchange contract, currency swap agreement, currency option or any other similar agreement or arrangement.

"Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by merger, conversion, exchange or otherwise), extend, assume, Guarantee or become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or obligation on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings correlative to the foregoing); provided, however, that a change in GAAP that results in an obligation of such Person that exists at such time, and is not theretofore classified as Indebtedness, becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness; provided, further, that solely for purposes of determining compliance with "Certain Covenants—Limitation on Indebtedness," amortization of debt

discount shall not be deemed to be the Incurrence of Indebtedness, provided that in the case of Indebtedness sold at a discount, the amount of such Indebtedness Incurred shall at all times be the aggregate principal amount at Stated Maturity.

"Indebtedness" means (without duplication), with respect to any Person, any indebtedness, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding any balances that constitute customer advance payments and deposits, accounts payable or trade payables, and other accrued liabilities arising in the ordinary course of business) if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included (i) any Capital Lease Obligations, (ii) Indebtedness of other Persons secured by a Lien to which the Property owned or held by such first Person is subject, whether or not the obligation or obligations secured thereby shall have been assumed (the amount of such Indebtedness being deemed to be the lesser of the value of such property or assets or the amount of the Indebtedness so secured), (iii) Guarantees of Indebtedness of other Persons, (iv) any Disqualified Stock, (v) any Attributable Indebtedness, (vi) all reimbursement obligations of such Person in respect of letters of credit, bankers' acceptances or other similar instruments or credit transactions issued for the account of such Person, (vii) in the case of GCI, Inc., Preferred Stock of its Restricted Subsidiaries, and (viii) to the extent not otherwise included in clauses (i) through (vii) of this paragraph, any payment obligations of any such Person at the time of determination under any Hedging Obligation. For purposes of this definition, the maximum fixed repurchase price of any Disqualified Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were repurchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture; provided, however, that if such Disqualified Stock is not then permitted to be repurchased, the repurchase price shall be the book value of such Disqualified Stock. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of any contingent obligations in respect thereof at such date. For purposes of this definition, the amount of the payment obligation with respect to any Hedging Obligation shall be an amount equal to (i) zero, if such obligation is an Interest Rate Agreement permitted pursuant to clause (v) of the second paragraph of "—Certain Covenants—Limitation on Indebtedness" or (ii) the notional amount of such Hedging Obligation, if such Hedging Obligation is not an Interest Rate Agreement so permitted.

"Interest Rate Agreement" means, for any Person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement.

"Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by GCI, Inc. and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of GCI, Inc. or such Restricted Subsidiary, as the case may be.

"Leverage Ratio" means the ratio of (i) the outstanding Indebtedness of a Person and its Subsidiaries (or in the case of GCI, Inc., the outstanding Indebtedness of GCI, Inc. and its Restricted Subsidiaries) divided by (ii) the Trailing EBITDA of such Person (or in the case of GCI, Inc., the Trailing EBITDA of GCI, Inc. and its Restricted Subsidiaries).

"Lien" means, with respect to any Property of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such Property (including any Capital Lease Obligation, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing or any Sale and Leaseback Transaction). "Net Available Cash" from an Asset Sale means cash payments received therefrom(including any cash payments received by way of deferred payment of principal pursuant to a new note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to such Properties or assets or received in any other noncash form)in each case net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Sale, and in each case net of all payments made on any Indebtedness (a) which is secured by any assets subject to such Asset Sale, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or (b) which must (1) by its terms, or in order to obtain a necessary consent to such Asset Sale (except, in the case of this clause (b), Indebtedness that is pari passu with or subordinated to the new notes), or (2) by applicable law be repaid out of the proceeds from such Asset Sale, and net of all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale.

"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale, net of attorney's fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof.

"Officer" means the Chief Executive Officer, the President, the Chief Financial Officer, the Chief Accounting Officer and the Vice-President of Finance of GCI, Inc.

"Officers' Certificate" means a certificate signed by two Officers of GCI, Inc., at least one of whom shall be the principal executive officer or principal financial officer of GCI, Inc., and delivered to the Trustee.

"Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be counsel to Parent, GCI, Inc. or the Trustee.

"Permitted Holders" means (i) Ronald Duncan and his estate, spouse, ancestors, lineal descendants and the trustee of any bona fide trust of which the foregoing are the sole beneficiaries, (ii) Worldcom, Inc., d/b/a MCI, and its Affiliates and (iii) the General Communication, Inc. Employee Stock Purchase Plan.

"Permitted Investment" means an Investment by GCI, Inc. or any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to (after which such other Person shall cease to exist or shall remain a "shell" corporation), GCI, Inc. or a Restricted Subsidiary; (iii) Temporary Cash Investments; (iv) accounts receivable owing to GCI, Inc. or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (v) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to GCI, Inc. or any Restricted Subsidiary or in satisfaction of judgments; and (vii) loans and advances to

employees of Parent, GCI, Inc. or a Restricted Subsidiary made in the ordinary course of business consistent with past practice of Parent, GCI, Inc. or such Restricted Subsidiary, as the case may be, provided, that such loans and advances do not exceed in the aggregate $6 million at any one time outstanding."

"Permitted Liens" means (i) Liens on the Property of GCI, Inc. or any Restricted Subsidiary existing on the Issue Date; (ii) Liens under the senior secured credit facility relating to Indebtedness incurred pursuant to clause (i) of the definition of Permitted Indebtedness; (iii) Liens on the Property of GCI, Inc. or any Restricted Subsidiary to secure any extension, renewal, refinancing, replacement or refunding (or successive extensions, renewals, refinancings, replacements or refundings), in whole or in part, of any Indebtedness secured by Liens referred to in any of clauses (i), (ii), (vii), (x) or (xii); provided, however, that any such Lien will be limited to all or part of the same Property that secured the original Lien (plus improvements on such Property) and the aggregate principal amount of Indebtedness that is secured by such Lien will not be increased to an amount greater than the sum of (A) the outstanding principal amount, or, if greater, the committed amount, of the Indebtedness secured by Liens described under clauses (i), (ii), (vii), (x) or (xii), as applicable, at the time the original Lien became a Permitted Lien under the Indenture and (B) an amount necessary to pay any premiums, fees and other expenses incurred by GCI, Inc. in connection with such extension, renewal, refinancing, replacement or refunding; (iv) Liens for taxes, assessments or governmental charges or levies on the Property of GCI, Inc. or any Restricted Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings; (v) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens and other similar Liens on the Property of GCI, Inc. or any Restricted Subsidiary arising in the ordinary course of business and securing payment of obligations which are not more than 60 days past due or are being contested in good faith and by appropriate proceedings; (vi) Liens on the Property of GCI, Inc. or any Restricted Subsidiary Incurred in the ordinary course of business to secure performance of obligations with respect to statutory or regulatory requirements, performance or return-of-money bonds, surety bonds or other obligations of a like nature and Incurred in a manner consistent with industry practice; (vii) Liens on Property at the time GCI, Inc. or any Restricted Subsidiary acquired such Property, including any acquisition by means of a merger or consolidation with or into GCI, Inc. or any Restricted Subsidiary; provided such Lien shall not have been Incurred in anticipation of or in connection with such transaction or series of related transactions pursuant to which such Property was acquired by GCI, Inc. or any Restricted Subsidiary; (viii) other Liens on the Property of GCI, Inc. or any Restricted Subsidiary incidental to the conduct of their respective businesses or the ownership of the irrespective Properties which were not created in anticipation of or in connection with the Incurrence of Indebtedness or the obtaining of advances or credit and which do not in the aggregate materially detract from the value of their respective Properties or materially impair the use thereof in the operation of their respective businesses; (ix) pledges or deposits by GCI, Inc. or any Restricted Subsidiary under worker's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which GCI, Inc. or any Restricted Subsidiary is party, or deposits to secure public or statutory obligations of GCI, Inc. or any Restricted Subsidiary, or deposits for the payment of rent, in each case Incurred in the ordinary course of business; (x) Liens on the Property of a Person at the time such Person becomes a Restricted Subsidiary; provided any such Lien does not extend to any other Property of GCI, Inc. any or any Restricted Subsidiary; and provided, further, that any such Lien was not Incurred in anticipation of or in connection with the transaction or series of related transactions pursuant to which such Person became a Restricted Subsidiary; (xi) utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character; and (xii) Liens on Property securing Vendor Financing permitted to be Incurred under clause (a) of the first paragraph of Limitations on Indebtedness, provided, however, that any such Lien will be limited to all or any part of

the same Property purchased or acquired directly with such Vendor Financing and provided further, however, that, after giving effect to the Incurrence of Indebtedness that is secured by such Lien, the sum of (A) the outstanding principal amount of Indebtedness under the senior secured credit facility at that time and (B) the aggregate outstanding amount of Indebtedness secured by Liens permitted under this clause (xii) at such time, will not be greater than the amount of Indebtedness that could be Incurred under the senior secured credit facility pursuant to clause (i)(b) of the definition of Permitted Indebtedness at such time.

"Permitted Refinancing Indebtedness" means any extensions, renewals, refinancings, replacements or refundings of any Indebtedness, including any successive extensions, renewals, substitutions, refinancings, replacements or refundings so long as (i) the aggregate amount of Indebtedness represented thereby is not increased by such extension, renewal, refinancing, replacement or refunding (other than to finance fees and expenses, including any premium and defeasance costs, incurred in connection therewith), (ii) the Average Life of such Indebtedness is equal to or greater than the Average Life of the Indebtedness being extended, renewed, refinanced, replaced or refunded, (iii) the Stated Maturity of such Indebtedness is no earlier than the Stated Maturity of the Indebtedness being extended, renewed, refinanced, replaced or refunded and (iv) the new Indebtedness shall not be senior in right of payment to the Indebtedness that is being extended, renewed, refinanced, replaced or refunded; provided, that Permitted Refinancing Indebtedness shall not include (a) Indebtedness of a Subsidiary that extends, renews, refinances, replaces or refunds, Indebtedness of GCI, Inc. or (b) Indebtedness of GCI, Inc. or a Restricted Subsidiary that extends, renews, refinances, replaces or refunds Indebtedness of an Unrestricted Subsidiary.

"Person" means any individual, corporation, company (including any limited liability company), partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.

"Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person.

"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of such Person as determined on a consolidated basis in accordance with GAAP consistently applied after giving effect to the following: (i) if, during or after such period, such Person or any of its Subsidiaries shall have made any disposition of any Person or business, Pro Forma EBITDA of such Person and its Subsidiaries shall be computed so as to give pro forma effect to such disposition and (ii) if, during or after such period, such Person or any of its Subsidiaries completes an acquisition of any Person or business which immediately after such acquisition is a Subsidiary of such Person or whose assets are held directly by such Person or a Subsidiary of such Person, Pro Forma EBITDA shall be computed so as to give pro forma effect to the acquisition of such Person or business; provided, however, that, with respect to GCI, Inc., all of the foregoing references to "Subsidiary or "Subsidiaries" shall be deemed to refer only to the "Restricted Subsidiaries" of GCI, Inc.

"Property" means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, Capital Stock in, and other securities of, any other Person (but excluding Capital Stock or other securities issued by such first mentioned Person).

"Related Business" means the business of (i) transmitting, or providing services related to the transmission of voice, video or data through owned or leased wireline or wireless transmission facilities, (ii) creating, developing, constructing, installing, repairing, maintaining or marketing communications-

related systems, network equipment and facilities, software and other products or (iii) pursuing any other business that is related to those identified in the foregoing clauses (i) or (ii).

"Restricted Payment" means (i) any dividend or distribution (whether made in cash, Property or securities) declared or paid on or with respect to any shares of Capital Stock of GCI, Inc. or Capital Stock of any Restricted Subsidiary except for any dividend or distribution which is made solely by a Restricted Subsidiary to GCI, Inc. or another Restricted Subsidiary (and, if such Restricted Subsidiary is not wholly-owned, to the other shareholders of such Restricted Subsidiary on a pro rata basis) or dividends or distributions payable solely in shares of Capital Stock (other than Disqualified Stock) of GCI, Inc.; (ii) a payment made by GCI, Inc. or any Restricted Subsidiary to purchase, redeem, acquire or retire any Capital Stock of GCI, Inc. or Capital Stock of any Affiliate of GCI, Inc. (other than a Restricted Subsidiary) or any warrants, rights or options to directly or indirectly purchase or acquire any such Capital Stock or any securities exchangeable for or convertible into any such Capital Stock; (iii) a payment made by GCI, Inc. or any Restricted Subsidiary to redeem, repurchase, defease or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled sinking fund or mandatory redemption payment (other than the purchase, repurchase, or other acquisition of any Indebtedness subordinate in right of payment to the new notes purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), Indebtedness of GCI, Inc. which is subordinate (whether pursuant to its terms or by operation of law) in right of payment to the new notes; or (iv) an Investment (other than Permitted Investments) in any Person.

"Restricted Subsidiary" means (i) any Subsidiary of GCI, Inc. on or after the Issue Date unless such Subsidiary shall have been designated an Unrestricted Subsidiary as permitted or required pursuant to the definition of "Unrestricted Subsidiary" and (ii) an Unrestricted Subsidiary which is redesignated as a Restricted Subsidiary as permitted pursuant to the definition of "Unrestricted Subsidiary."

"Sale and Leaseback Transaction" means, with respect to any Person, any direct or indirect arrangement pursuant to which Property is sold or transferred by such Person or a Subsidiary of such Person (or, in the case of GCI, Inc., its Restricted Subsidiaries) and is thereafter leased back from the purchaser or transferee thereof by such Person or one of its Subsidiaries (or, in the case of GCI, Inc., its Restricted Subsidiaries)."

"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of Regulation S-X under the Securities Act as in effect on the Issue Date; provided, however, that for purposes of this definition only, (i) subclause (3) of such Rule 1.02(w) shall be disregarded and (ii) "Significant Subsidiary" shall include any Subsidiary (and its Subsidiaries) whose EBITDA comprises more than 10% of the EBITDA of GCI, Inc. for the most recently completed fiscal year.

"Stated Maturity" means, with respect to any Indebtedness, the date specified in such Indebtedness as the final date on which the payment of principal of such Indebtedness is due and payable."

"Subsidiary" of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which at least a majority of the total voting power of the Voting Stock is held by such first-named Person or any of its Subsidiaries and such first-named Person or any of its Subsidiaries has the power to direct the management, policies and affairs thereof; or (ii) in the case of a partnership, joint venture, association, or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to director cause the direction of the management and policies of such entity by contract or otherwise if in accordance with accounting principles generally accepted in the United States of America such entity is consolidated with the first-named Person for financial statement purposes.

"Temporary Cash Investments" means any of the following: (i) Investments in U.S. Government Obligations maturing within 90 days of the date of acquisition thereof, (ii) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 90 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America or any state thereof having capital, surplus and undivided profits aggregating in excess of $500,000,000 and whose long-term debt is rated "A-3" or "A" or higher according to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)) and shall, in any event, include National Bank of Alaska or First National Bank of Anchorage, (iii) repurchase obligations with a term of not more than 7 days for underlying securities of the types described in clause (i) entered into with a bank meeting the qualifications described in clause (ii) above, and (iv) Investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than GCI, Inc. or an Affiliate of GCI, Inc.) organized and in existence under the laws of the United States of America with a rating at the time as of which any Investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard & Poor's Ratings Group (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)).

"Trailing EBITDA" means, with respect to any Person, such Person's Pro Forma EBITDA for the four most recent full fiscal quarters for which financial statements are available.

"Unrestricted Subsidiary" means Subsidiaries of GCI, Inc. designated as Unrestricted Subsidiaries pursuant to the procedures below. GCI, Inc.'s board of directors may designate any Person that becomes a Subsidiary of GCI, Inc. or any Restricted Subsidiary to be an Unrestricted Subsidiary if (i) the Subsidiary to be so designated does not own any Capital Stock or Indebtedness of, or own or hold any Lien on any Property of, GCI, Inc. or any other Restricted Subsidiary, (ii) the Subsidiary to be so designated is not obligated under any Indebtedness or other obligation that, if in default, would result (with the passage of time or notice or otherwise) in a default on any Indebtedness of GCI, Inc. or any Restricted Subsidiary and (iii) either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) such designation is effective immediately upon such entity becoming a Subsidiary of GCI, Inc. or any Restricted Subsidiary. Unless so designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary of GCI, Inc. or of any Restricted Subsidiary will be classified as a Restricted Subsidiary; provided, however, that such Subsidiary shall not be designated a Restricted Subsidiary and shall be automatically classified as an Unrestricted Subsidiary if GCI, Inc. would be unable to Incur at least $1.00 of additional Indebtedness pursuant to clause (a) of the first paragraph of "—Certain Covenants—Limitation on Indebtedness." Except as provided in the second sentence of this paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. GCI, Inc.'s board of directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if, immediately after giving pro forma effect to such designation, (x) GCI, Inc. could Incur at least $1.00 of additional indebtedness pursuant to clause (a) of the first paragraph of "—Certain Covenants—Limitation on Indebtedness" and (y) no Default or Event of Default shall have occurred and be continuing or would result therefrom. Any such designation by GCI, Inc.'s board of directors will be evidenced to the Trustee by filing with the Trustee a copy of the board resolution giving effect to such designation and an Officers' Certificate certifying (i) that such designation complies with the foregoing provisions and (ii) giving the effective date of such designation, such filing with the Trustee to occur within 75 days after the end of the fiscal quarter of GCI, Inc. in which such designation is made (or in the case of a designation made during the last fiscal quarter of GCI, Inc.'s fiscal year, within 120 days after the end of such fiscal year).

"U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality

thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option.

"Vendor Financing" means the financing entered into with any vendor or supplier (or any financial institution acting on behalf of or for the purpose of directly financing purchases from such vendor or supplier) to the extent the Indebtedness thereunder is incurred for the purpose of financing the cost (including the cost of design, development, site acquisition, construction, integration, manufacture or acquisition) or maintenance of personal property (tangible or intangible) used, or to be used, in a Related Business."

"Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors.

Notices to holders of new notes will be sent by mail to the addresses of such holders as they may appear in the Security Register.

The Indenture and the new notes are governed by and construed in accordance with the internal laws of the State of New York without reference to principles of conflict of laws.

The following is a discussion of the material federal income tax considerations relevant to the exchange of the old notes for the new notes. The discussion is based upon the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. We cannot assure you that the Internal Revenue Service (the "IRS") will not take a contrary view, and no ruling from the IRS has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including, without limitation, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, persons holding notes as a part of a hedging or conversion transaction or a straddle, persons whose functional currency is not the U.S. dollar, and persons who are not citizens or residents of the United States or who are foreign corporations, foreign partnerships or foreign estates or trusts as to the United States) may be subject to special rules not discussed below. In addition, the discussion does not consider the effect of any applicable state, local, foreign or other tax laws. We did not receive an opinion of tax counsel with respect to these material United States federal income tax consequences.

Each holder should consult its own tax advisor as to the particular tax consequences of exchanging old notes for new notes, including the applicability and effect of any state, local or foreign tax laws.

The exchange of the old notes for the new notes in the exchange offer will not be treated as an "exchange" for federal income tax purposes, because the old notes will not be considered to differ materially in kind or extent from the new notes. The holder will have a basis for the new notes equal to the basis of the old notes and the holder's holding period for the new notes will include the period during which the old notes were held. Accordingly, no material federal income tax consequences will result to holders on account of an exchange of old notes for new notes pursuant to the exchange offer.

The exchange offer is not being made to, nor will we accept surrenders of old notes for exchange from, holders of old notes in any jurisdiction in which the exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction.

The distribution of this prospectus and the offer and sale of the new notes may be restricted by law in certain jurisdictions. Persons who come into possession of this prospectus or any of the new notes must inform themselves about and observe any such restrictions. You must comply with all applicable laws and regulations in force in any jurisdiction in which you purchase, offer or sell the new notes or possess or distribute this prospectus and, in connection with any purchase, offer or sale by you of the new notes, must obtain any consent, approval or permission required under the laws and regulations in force in any jurisdiction to which you are subject or in which you make such purchase, offer or sale.

In reliance on interpretations of the staff of the SEC set forth in no-action letters issued to third parties in similar transactions, we believe that the new notes issued in the exchange offer in exchange for the old notes may be offered for resale, resold and otherwise transferred by holders without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the new notes are acquired in the ordinary course of such holders' business and the holders are not engaged in and do not intend to engage in and have no arrangement or understanding with any person to participate in a "distribution" (within the meaning of the Securities Act) of new notes. This position does not apply to any holder that is

All broker-dealers receiving new notes in the exchange offer are subject to a prospectus delivery requirement with respect to resales of the new notes. Each broker-dealer receiving new notes for its own account in the exchange offer must represent that the old notes to be exchanged for the new notes were acquired by it as a result of market-making activities or other trading activities and acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any offer to resell, resale or other retransfer of the new notes. Any such broker-dealer is referred to as a participating broker-dealer. However, by so acknowledging and by delivering a prospectus, the participating broker-dealer will not be deemed to admit that it is an "underwriter" (as defined under the Securities Act). If a broker-dealer acquired old notes as a result of market-making or other trading activities, it may use this prospectus, as amended or supplemented, in connection with offers to resell, resales or retransfers of new notes received in exchange for the old notes pursuant to the exchange offer. We have agreed that, for a period of 90 days after the consummation of the exchange offer, subject to extension under limited circumstances, we will use reasonable best efforts to keep the exchange offer registration statement effective and make this prospectus available to any broker-dealer for use in connection with such resales. To date, the SEC has taken the position that broker-dealers may use a prospectus such as this one to fulfill their prospectus delivery requirements with respect to resales of new notes received in an exchange such as the exchange pursuant to the exchange offer, if the old notes for which the new notes were received in the exchange were acquired for their own accounts as a result of market-making or other trading activities.

A broker-dealer intending to use this prospectus in the resale of new notes must so notify us on or prior to the expiration date. This notice may be given in the space provided in the letter of transmittal or may be delivered to the exchange agent.

We may, in certain cases, issue a notice suspending use of the registration statement of which this prospectus forms a part. If we do so, the period during which the registration statement must remain

effective will be extended for a number of days equal to the number of days the registration statement was in suspense.

We will not receive any proceeds from any sale of the new notes by broker-dealers. Broker-dealers acquiring new notes for their own accounts may sell the notes in one or more transactions in the over-the-counter market, in negotiated transactions, through writing options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of such new notes.

Any broker-dealer that held old notes acquired for its own account as a result of market-making activities or other trading activities, that received new notes in the exchange offer, and that participates in a distribution of new notes may be deemed to be an "underwriter" within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the new notes. Any profit on these resales of new notes and any commissions or concessions received by a broker-dealer in connection with these resales may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not admit that it is an "underwriter" within the meaning of the Securities Act.

We have agreed to pay all expenses incident to our participation in the exchange offer, other than underwriting discounts and commissions and transfer taxes if any, of holders and will indemnify holders of the old notes, including any broker-dealers, against specified types of liabilities, including liabilities under the Securities Act.

Sherman & Howard L.L.C., 633 Seventeenth Street, Denver, Colorado 80202, has passed on the validity of the issuance of the new notes. Certain matters of Alaska law will be passed upon by Bonnie J. Paskvan, Corporate Counsel to GCI, Inc. Stephen M. Brett, who is a member of the board of directors of General Communication, Inc., is of counsel to Sherman & Howard L.L.C. As of the date of this prospectus, Mr. Brett has the present right to acquire 25,000 shares of Class A common stock of Parent for $7.50 per share pursuant to outstanding stock options. Sherman & Howard L.L.C. will receive fees at its standard rates for legal services rendered to GCI, Inc. in connection with this offering.

The consolidated financial statements of GCI, Inc. as of December 31, 2003 and 2002, and for each of the years in the three-year period ended December 31, 2003, included elsewhere in this prospectus, have been so included in reliance on the report dated February 20, 2004 of KPMG, LLP, registered public accounting firm, and upon the authority of said form as experts in accounting and auditing.

We file annual, quarterly and special reports, as well as proxy statements and other information with the SEC (File No. 000-05890). We make available on the http://www.gci.com/ website, free of charge, access to our annual report, quarterly reports, current reports, proxy statement and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically submit such material to the SEC. You may also read and copy any document we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain further information about the operation of

the Public Reference Room by calling the SEC at (800) SEC-0330. Our SEC filings are also available to the public over the Internet at the SEC's web site at http://www.sec.gov, which contains reports, proxy statements and other information regarding registrants like us that file electronically with the SEC. Information contained on any web site referenced in this prospectus is not incorporated by reference herein. Our SEC filings are also available to the public from commercial document retrieval services.

ACS—Alaska Communications Systems Group, Inc., previously ALEC Holdings, Inc.—ACS, one of our competitors, includes acquired properties from Century Telephone Enterprises, Inc. and the Anchorage Telephone Utility ("ATU"). ATU provided local telephone and long distance services primarily in Anchorage and cellular telephone services in Anchorage and other Alaska markets.

AULP—Alaska United Fiber System Partnership or Alaska United—An Alaska partnership, indirectly wholly-owned by GCI, Inc. Alaska United was organized to construct and operate fiber optic cable systems connecting various locations in Alaska and the lower 49 states and foreign countries through Seattle, Washington. AULP is comprised of AULP East and AULP West.

AULP East—An undersea fiber optic cable system connecting Whittier, Valdez and Juneau, Alaska and Seattle, Washington, which was placed into service in February 1999.

AULP West—A new undersea fiber optic cable system under construction connecting Seward, Alaska to Warrenton, Oregon with a scheduled ready for service date of July 2004.

Basic Service—The basic service tier includes, at a minimum, signals of local television broadcast stations, any public, educational, and governmental programming required by the franchise to be carried on the basic tier, and any additional video programming service added to the basic tier by the cable operator.

Backbone—A centralized high-speed network that interconnects smaller, independent networks.

Bandwidth—A range or band of the frequency spectrum, measured in Hertz (Hz). It has become vogue, though strictly a misuse of the term, to say bandwidth is the number of bits of data per second that can move through a communications medium.

Broadband—A high-capacity communications circuit/path, usually implying speeds of 256 kilobits per second ("kbps") or better.

CAP—Competitive Access Provider—A company that provides its customers with an alternative to the LEC for local transport of private line and special access communications services.

Central Offices—The switching centers or central switching facilities of the LECs.

CLEC—Competitive Local Exchange Carrier—A company that provides its customers with an alternative to the ILEC for local transport of communications services, as allowed under the 1996 Telecom Act.

Collocation—The ability of a CAP or CLEC to connect its network to the LEC's Central Offices. Physical collocation occurs when a connecting carrier places its network connection equipment inside the LEC's Central Offices. Virtual collocation is an alternative to physical collocation pursuant to which the LEC permits a CAP or CLEC to connect its network to the LEC's Central Offices on comparable terms, even though the CAP's or CLEC's network connection equipment is not physically located inside the Central Offices.

DAMA—Demand Assigned Multiple Access—GCI, Inc.'s digital satellite earth station technology that allows calls to be made between remote villages using only one satellite hop thereby reducing satellite delay and capacity requirements while improving quality.

DBS—Direct Broadcast Satellite—Subscription television service obtained from satellite transmissions using frequency bands that are internationally allocated to the broadcast satellite services. Direct-to-home service such as DBS has its origins in the large direct-to-home satellite antennas that were first introduced in the 1970's for the reception of video programming transmitted via satellite. Because these first-generation direct-to-home satellites operated in the C-band frequencies at low power, direct-to-home satellite antennas, or dishes, as they are also known, generally needed to be

seven to ten feet in diameter in order to receive the signals being transmitted. More recently, licensees have been using the Ku and extended Ku-bands to provide direct-to-home services enabling subscribers to use a receiving home satellite parabolic dish typically less than one meter in diameter. The major providers of DBS are currently DirecTV and EchoStar (marketed as the DISH Network).

DS-1—A data communications circuit that carries data at the rate of 1.544 Megabits per second (Mb/s), often interchangeably referred to as a T-1.

DS-3—A data communications circuit that is equivalent to 28 multiplexed T-1 channels capable of transmitting data at 44.736 Mbps (sometimes called a T-3).

Dedicated—Communications lines dedicated or reserved for use by particular customers.

Digital—A method of storing, processing and transmitting information through the use of distinct electronic or optical pulses that represent the binary digits 0 and 1. Digital transmission and switching technologies employ a sequence of these pulses to represent information as opposed to the continuously variable analog signal. Digital transmission is advantageous in that it is more resistant to the signal degrading effects of noise (such as graininess or snow in the case of video transmission, or static or other background distortion in the case of audio transmission).

DLC—Digital Loop Carrier—A digital transmission system designed for subscriber loop plant. Multiplexes a plurality of circuits onto very few wires or onto a single fiber pair.

DLPS—Digital Local Phone Service—A term we use referring to our deployment of voice telephone service utilizing our hybrid-fiber coax cable facilities.

DSL—Digital Subscriber Line—Technology that allows Internet access and other high-speed data services at data transmission speeds greater than those of modems over conventional telephone lines.

Frame Relay—A wideband (64 kilobits per second to 1.544 Mbps) packet-based data interface standard that transmits bursts of data over WANs. Frame-relay packets vary in length from 7 to 1024 bytes. Data oriented, it is generally not used for voice or video.

HDTV—High-Definition Television—A digital television format delivering theater-quality pictures and CD-quality sound. HDTV offers an increase in picture quality by providing up to 1,920 active horizontal pixels by 1,080 active scanning lines, representing an image resolution of more than two million pixels. In addition to providing improved picture quality with more visible detail, HDTV offers a wide screen format and Dolby® Digital 5.1 surround sound.

ILEC—Incumbent Local Exchange Carrier—With respect to an area, the LEC that—(A) on the date of enactment of the Telecommunications Act of 1996, provided telephone exchange service in such area; and (B)(i) on such date of enactment, was deemed to be a member of the exchange carrier association pursuant to section 69.601(b) of the FCC's regulations (47 C.F.R. 69.601(b)); or (ii) is a person or entity that, on or after such date of enactment, became a successor or assign of a member described in clause (i).

IP—Internet Protocol—The method or protocol by which data is sent from one computer to another on the Internet. Each computer (known as a host) on the Internet has at least one IP address that uniquely identifies it from all other computers on the Internet.

ISDN—Integrated Services Digital Network—A set of standards for transmission of simultaneous voice, data and video information over fewer channels than would otherwise be needed, through the use of out-of-band signaling. The most common ISDN system provides one data and two voice circuits over a traditional copper wire pair, but can represent as many as 30 channels. Broadband ISDN extends the ISDN capabilities to services in the Gigabit per second range.

IXC—Interexchange Carrier—A long-distance carrier providing services between local exchanges.

LEC—Local Exchange Carrier—A company providing local telephone services. Each BOC is a LEC.

LMDS—Local Multipoint Distribution System—LMDS uses microwave signals (millimeterwave signals) in the 28 GHz spectrum to transmit voice, video, and data signals within small cells 3-10 miles in diameter. LMDS allows license holders to control up to 1.3 GHz of wireless spectrum in the 28 GHz Ka-band. The 1.3 GHz can be used to carry digital data at speeds in excess of one gigabit per second. The extremely high frequency used and the need for point to multipoint transmissions limits the distance that a receiver can be from a transmitter. This means that LMDS will be a "cellular" technology, based on multiple, contiguous, or overlapping cells. LMDS is expected to provide customers with multichannel video programming, telephony, video communications, and two-way data services. ILECs and cable companies may not obtain the in-region 1150 MHz license for three years following the date of the license grant. Within 10 years following the date of the license grant, licensees will be required to provide 'substantial service' in their service regions.

Local Exchange—A geographic area generally determined by a PUC, in which calls generally are transmitted without toll charges to the calling or called party.

OC-n—An optical communications circuit that optically signals at a data rate of n times 51.84 Mbps, where n can be 1, 3, 12, 24, 48, 96, or 192.

PCS—Personal Communication Services—PCS encompasses a range of advanced wireless mobile technologies and services. It promises to permit communications to anyone, anywhere and anytime while on the move. The Cellular Telecommunications Industry Association (CTIA) defines PCS as a "wide range of wireless mobile technologies, chiefly cellular, paging, cordless, voice, personal communications networks, mobile data, wireless PBX, specialized mobile radio, and satellite-based systems." The FCC defines PCS as a "family of mobile or portable radio communications services that encompasses mobile and ancillary fixed communications services to individuals and businesses and can be integrated with a variety of competing networks."

PBX—Private Branch Exchange—A customer premise communication switch used to connect customer telephones (and related equipment) to LEC Central Office lines (trunks), and to switch internal calls within the customer's telephone system. Modern PBXs offer numerous software-controlled features such as call forwarding and call pickup. A PBX uses technology similar to that used by a Central Office switch (on a smaller scale). (The acronym PBX originally stood for "Plug Board Exchange.")

Private Line—Uses dedicated circuits to connect customer's equipment at both ends of the line. Does not provide any switching capability (unless supported by customer premise equipment). Usually includes two local loops and an IXC circuit.

Private Network—A communications network with restricted (controlled) access usually made up of private lines (with some PBX switching).

RCA—Regulatory Commission of Alaska—A state regulatory body empowered to establish and enforce rules and regulations governing public utility companies and others, such as the Company, within the State of Alaska (sometimes referred to as Public Service Commissions, or PSCs, or Public Utility Commissions, or PUCs). Previously known as the Alaska Public Utilities Commission (APUC).

SchoolAccess™—The Company's Internet and related services offering to schools in Alaska, and some sites in Arizona, Montana and New Mexico. The federal mandate through the 1996 Telecom Act to provide universal service resulted in schools across Alaska qualifying for varying levels of discounts to support the provision of Internet services. The Universal Service Administrative Company through its Schools and Libraries Division administers this federal program.

SDN—Software Defined Network—A switched long-distance service for very large users with multiple locations. Instead of putting together their own network, large users can get special usage rates for calls carried on regular switched long-distance lines.

SONET—Synchronous Optical Network—A 1984 standard for optical fiber transmission on the public network. 51.84 Mbps to 9.95 Gigabits per second, effective for ISDN services including asynchronous transfer mode.

Tariff—The schedule of rates and regulations set by communications common carriers and filed with the appropriate federal and state regulatory agencies; the published official list of charges, terms and conditions governing provision of a specific communications service or facility, which functions in lieu of a contract between the subscriber or user and the supplier or carrier.

TDM—Time Division Multiplex—A means by which multiple signals are combined and carried on one transport medium by sequentially sharing the medium in slices of time (time slots) for each of the various signals.

UNE—Unbundled Network Element—A discrete piece part of a telephone network. Unbundled network elements are the basic network functions, i.e., the piece parts needed to provide a full range of communications services. They are physical facilities as well as all the features and capabilities provided by those facilities.

VSAT—Very Small Aperture Terminal—A small, sometimes portable satellite terminal that allows connection via a satellite link.

WAN—Wide Area Network—A remote computer communications system. WANs allow file sharing among geographically distributed workgroups. WANs typically use common carriers' circuits and networks. WANs may serve as a customized communication backbone that interconnects all of an organization's local networks with communications trunks that are designed to be appropriate for anticipated communication rates and volumes between nodes.

1992 Cable Act—The Cable Television Consumer Protection and Competition Act of 1992.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, THREE MONTHS ENDED MARCH 31, 2004 and 2003

(Unaudited)

In the following discussion, GCI, Inc. and its direct and indirect subsidiaries are referred to as "we," "us" and "our." For your convenience, we have included a glossary of certain communications and other terms starting on page 127 of the accompanying prospectus.

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to unbilled revenues, cost of sales and services accruals, allowance for doubtful accounts, depreciation, amortization and accretion periods, intangible assets, income taxes, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See also "Forward-Looking Statements" in the accompanying prospectus.

Through our focus on long-term results, acquisitions, and strategic capital investments, we strive to consistently grow our revenues and expand our margins. We have historically met our cash needs for operations, regular capital expenditures and maintenance capital expenditures through our cash flows from operating activities. Historically, cash requirements for significant acquisitions and major capital expenditures have been provided largely through our financing activities. We are funding the construction of a new fiber optic cable system through our operating cash flows and, to the extent necessary, with draws on our new Senior Credit Facility, as further discussed in Liquidity and Capital Resources in this report.

The following table sets forth selected Statement of Operations data as a percentage of total revenues for the periods indicated (underlying data rounded to the nearest thousands):

		Three Months Ended March 31,		Percentage Change(1) 2004 vs. 2003
		2004		2003
		(Unaudited)
Statement of Operations Data:
	Revenues:
		Long-distance services		47.7	%	52.2	%	7.0	%
		Cable services		22.8	%	25.3	%	6.0	%
		Local access services		10.8	%	9.1	%	39.9	%
		Internet services		5.9	%	4.9	%	39.6	%
		All other services		12.8	%	8.5	%	78.3	%
			Total revenues		100.0	%	100.0	%	17.4	%
	Cost of sales and services		35.6	%	32.6	%	28.1	%
	Selling, general and administrative expenses		32.5	%	35.6	%	7.3	%
	Bad debt expense (recovery)		(0.4	)%	0.6	%	(166.5	)%
	Depreciation, amortization and accretion expense		14.5	%	14.6	%	16.7	%
			Operating income		17.8	%	16.6	%	25.7	%
			Net income before income taxes and cumulative effect of a change in accounting principle in 2003		3.0	%	5.8	%	(39.9	)%
			Net income before cumulative effect of a change in accounting principle in 2003		1.8	%	3.3	%	(37.8	)%
			Net income		1.8	%	2.7	%	(24.5	)%
Other Operating Data:
Long-distance services operating income(2)		41.3	%	46.6	%	(5.3	)%
Cable services operating income(3)		25.5	%	24.8	%	9.1	%
Local access services operating income(4)		(3.2	)%	(20.5	)%	78.0	%
Internet services operating income (loss)(5)		14.3	%	(18.8	)%	205.8	%

Three Months Ended March 31, 2004 ("2004") Compared To Three Months Ended March 31, 2003 ("2003")

Total revenues increased 17.4% from $92.8 million in 2003 to $108.9 million in 2004. All of our segments and All Other Services contributed to the increase in total revenues. See the discussion below for more information by segment.

Total cost of sales and services increased 28.1% from $30.2 million in 2003 to $38.7 million in 2004. As a percentage of total revenues, total cost of sales and services increased from 32.6% in 2003 to 35.6% in 2003. All of our segments and All Other Services contributed to the increase in total cost of sales and services. See the discussion below for more information by segment.

Long-distance services revenue in 2004 represented 47.7% of consolidated revenues. Our provision of interstate and intrastate long-distance services, Private Line and leased dedicated capacity services, and broadband services accounted for 94.0% of our total long-distance services revenues during 2004.

Factors that have the greatest impact on year-to-year changes in long-distance services revenues include the rate per minute charged to customers, usage volumes expressed as minutes of use, and the number of Private Line, leased dedicated service and broadband products in use.

Due in large part to the favorable synergistic effects of our bundling strategy, the long-distance services segment continues to be a significant contributor to our overall performance, although the migration of traffic from voice to data and from fixed to mobile wireless continues.

Our long-distance services segment faces significant competition from AT&T Alascom, long-distance resellers, and local telephone companies that have entered the long-distance market. We believe our approach to developing, pricing, and providing long-distance services and bundling different business segment services will continue to allow us to be competitive in providing those services.

On July 21, 2002 MCI and substantially all of its active United States subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court. On July 22, 2003, the United States Bankruptcy Court approved a settlement agreement for pre-petition amounts owed to us by MCI and affirmed all of our existing contracts with MCI. The remaining pre-petition accounts receivable balance owed by MCI to us after this settlement was $11.1 million ("MCI credit") which we have used and will continue to use as a credit against amounts payable for services purchased from MCI.

After settlement, we began reducing the MCI credit as we utilized it for services otherwise payable to MCI. The use of the credit is recorded as a reduction of bad debt expense. During the three months ended March 31, 2004 and 2003 we realized approximately $1.2 million and $0, respectively, of the MCI credit against amounts payable for services received from MCI.

MCI emerged from bankruptcy protection on April 20, 2004. We have accounted for our use of the MCI credit as a gain contingency, and, accordingly, will recognize a reduction of bad debt expense as services are provided by MCI and the credit is realized.

Other common carrier traffic routed to us for termination in Alaska is largely dependent on traffic routed to MCI and Sprint by their customers. Pricing pressures, general economic deterioration, new program offerings, business failures, and market and business consolidations continue to evolve in the markets served by MCI and Sprint. If, as a result, their traffic is reduced, or if their competitors' costs to terminate or originate traffic in Alaska are reduced, our traffic will also likely be reduced, and our pricing may be reduced to respond to competitive pressures. Additionally, a protracted economic malaise in the 48 contiguous states south of or below Alaska ("Lower 48 States") or a further disruption in the economy resulting from terrorist attacks and other attacks or acts of war could affect our carrier customers. We are unable to predict the effect on us of such changes, however given the materiality of other common carrier revenues to us, a significant reduction in traffic or pricing could have a material adverse effect on our financial position, results of operations and liquidity.

Total long-distance services segment revenues increased 7.0% to $51.9 million in 2004. The components of long-distance services segment revenues are as follows (amounts in thousands):

The 2004 increase in message telephone service revenues from other common carriers (principally MCI and Sprint) resulted from a 20.5% increase in wholesale minutes carried to 225.5 million minutes. The increase in message telephone service revenues from other common carriers in 2004 was partially off-set by the following:

Selected key performance indicators for our offering of message telephone service to residential, commercial and governmental customers follow:

	2004			Percentage Change
Retail minutes carried		76.2 million		71.9 million	6.0	%
Average rate per minute	$	0.130	$	0.139	(6.5	)%
Number of active residential, commercial and governmental customers(1)		86,100		87,300	(1.4	)%

The decrease in message telephone service revenues from residential, commercial, and governmental customers in 2004 is primarily due to the following:

The decrease in message telephone service to residential, commercial and governmental customers in 2004 is partially off-set by an increase in minutes carried for these customers. The increase in minutes is primarily a result of our contract to provide services to the State of Alaska starting in the first quarter of 2004.

The increase in revenues from our packaged telecommunications offering to rural hospitals and health clinics and our SchoolAccess™ offering to rural school districts in 2004 is primarily due to the following:

Long-distance services segment cost of sales and services increased 18.6% to $14.3 million in 2004. Long-distance services segment cost of sales and services as a percentage of long-distance services segment revenues increased from 24.9% in 2003 to 27.6% in 2004 primarily due to the following:

The increase in the long-distance services segment cost of sales and services as a percentage of long-distance services segment revenues is partially off-set by the following:

Cable television revenues in 2004 represented 22.8% of consolidated revenues. Our cable systems serve 35 communities and areas in Alaska, including the state's four largest population centers, Anchorage, Fairbanks, the Matanuska-Susitna Valley and Juneau.

We generate cable services revenues from four primary sources: (1) digital and analog programming services, including monthly basic and premium subscriptions, pay-per-view movies and other one-time events, such as sporting events; (2) equipment rentals and installation; (3) cable modem services (shared with our Internet services segment); and (4) advertising sales. During 2004 programming services generated 73.5% of total cable services revenues, cable services' allocable share of cable modem services accounted for 13.3% of such revenues, equipment rental and installation fees accounted for 9.4% of such revenues, advertising sales accounted for 3.0% of such revenues, and other services accounted for the remaining 0.8% of total cable services revenues.

Effective February 2003, we increased rates charged for certain cable services and premium packages in six communities, including three of the state's four largest population centers, Anchorage, Fairbanks and Juneau. Rates increased approximately 4% for those customers who experienced an adjustment.

The primary factors that contribute to year-to-year changes in cable services revenues include average monthly subscription and pay-per-view rates, the mix among basic, premium and pay-per-view services and digital and analog services, the average number of cable television and cable modem subscribers during a given reporting period, and revenues generated from new product offerings.

In 2002 we signed seven-year retransmission agreements with the five local Anchorage broadcasters and began up-linking and distributing the local Anchorage programming to all of our cable systems. This local programming provides additional value to our cable subscribers that not all our Direct Broadcast Satellite ("DBS") competitors can provide. In the third quarter of 2003 DBS service provider Dish Network (EchoStar Communications Corporation) began providing, for an additional fee, Anchorage based broadcaster programming in Anchorage and in other Alaska communities where there is not a similar local broadcast affiliate.

	2004	2003	Percentage Change
Basic subscribers	134,000	136,300	(1.7	)%
Digital special interest subscribers	34,000	30,200	12.6	%
Cable modem subscribers	51,700	38,600	33.9	%
Homes passed	203,400	198,400	2.5	%

Total cable services segment revenues increased 6.0% to $24.9 million and average gross revenue per average basic subscriber per month increased $2.87 or 4.8% in 2004.

The increase in cable services segment revenues is primarily due to a 32.8% increase in its share of cable modem revenue (offered through our Internet services segment) to $3.3 million in 2004 due to an increased number of cable modems deployed. Approximately 99% of our cable homes passed are able to subscribe to our cable modem service. In the second quarter of 2003 we completed our upgrade of the Ketchikan cable system. Customers in this system are now able to subscribe to cable modem service.

We now offer digital programming service in Anchorage, the Matanuska-Susitna Valley, Fairbanks, Juneau, Ketchikan, Kenai, and Soldotna, representing approximately 88% of our total homes passed at March 31, 2004. We launched digital programming services in the Matanuska-Susitna Valley cable system during the first and second quarters of 2003 and launched such services in the Ketchikan cable system in the third quarter of 2003.

Cable services cost of sales and services increased 9.4% to $7.1 million in 2004 due to programming cost increases for most of our cable programming services offerings. Cable services cost of sales and services as a percentage of cable services revenues increased from 27.6% in 2003 to 28.4% in 2004 primarily due to rate increases in 2004 by programming vendors exceeding our rate adjustments. Cost of sales increases are partially off-set by increasing amounts of cable modem services sold that generally have higher margins than do cable programming services.

Our operating statistics include capital expenditures and customer information from our cable services segment and the components of our local access services and Internet services segments which offer services utilizing our cable services' facilities.

Our capital expenditures by standard reporting category for the three month periods ending March 31, 2004 and 2003 follows (amounts in thousands):

	2004		2003
Customer premise equipment	$	3,438	1,276
Commercial		47	68
Scalable infrastructure		1,755	135
Line extensions		44	88
Upgrade/rebuild		1,770	72
Support capital		181	77

Sub-total		7,235	1,716
Remaining reportable segments and All Other capital expenditures		17,966	4,758

	$	25,201	6,474

The standardized definition of a customer relationship is the number of customers that receive at least one level of service, encompassing voice, video, and data services, without regard to which services customers purchase. At March 31, 2004 and 2003 we had 122,100 and 124,000 customer relationships, respectively.

The standardized definition of a revenue generating unit is the sum of all primary analog video, digital video, high-speed data, and telephony customers, not counting additional outlets. At March 31, 2004 and 2003 we had 185,800 and 173,300 revenue generating units, respectively.

We generate local access services revenues from three primary sources: (1) business and residential basic dial tone services; (2) business Private Line and special access services; and (3) business and residential features and other charges, including voice mail, caller ID, distinctive ring, inside wiring and subscriber line charges. During 2004 local access services revenues represented 10.8% of consolidated revenues.

The primary factors that contribute to year-to-year changes in local access services revenues include the average number of business and residential subscribers to our services during a given reporting period, the average monthly rates charged for non-traffic sensitive services, the number and type of additional premium features selected, and the traffic sensitive access rates charged to carriers and the Universal Service Program.

Our local access services segment faces significant competition in Anchorage, Fairbanks, and Juneau from ACS, which is the largest ILEC in Alaska, and from AT&T Alascom, Inc. We believe our approach to developing, pricing, and providing local access services and bundling different business segment services will allow us to be competitive in providing those services.

At March 31, 2004, 108,600 lines were in service as compared to approximately 98,900 lines in service at March 31, 2003. At March 31, 2004 approximately 1,200 additional lines were awaiting connection. We estimate that our 2004 lines in service represents a statewide market share of approximately 23%.

Approximately 85% of our lines are provided on our own facilities and leased local loops. Approximately 5% of our lines are provided using UNE platform.

In April 2004 we successfully launched our DLPS deployment utilizing our Anchorage coaxial cable facilities. This service delivery method allows us to utilize our own cable facilities to provide local access to our customers and avoid paying local loop charges to the ILEC. To ensure the necessary equipment is available to us we have committed to purchase a certain number of outdoor, network powered multi-media adapters.

Local access services segment revenues increased 39.9% in 2004 to $11.8 million primarily due to the following:

Local access services segment cost of sales and services increased 15.9% to $6.5 million in 2004. Local access services segment cost of sales and services as a percentage of local access services segment revenues decreased from 67.0% in 2003 to 55.5% in 2004, primarily due to the following:

The local access services segment operating results are negatively affected by the allocation of the benefit of access cost savings to the long-distance services segment. If the local access services segment received credit for the access charge reductions recorded by the long distance services segment, the local access services segment operating results would have improved by approximately $1.7 million and the long distance services segment operating results would have been reduced by an equal amount in 2004. Avoided access charges totaled approximately $1.8 million in 2003.

The local access services segment operating results were affected by our evaluation and testing of DLPS technology. We successfully launched our DLPS deployment in April 2004.

We generate Internet services revenues from three primary sources: (1) access product services, including commercial, Internet service provider, and retail dial-up access; (2) network management services; and (3) Internet services' allocable share of cable modem revenue (a portion of cable modem revenue is also recognized by our cable services segment). During 2004 Internet services segment revenues represented 5.9% of consolidated revenues.

The primary factors that contribute to year-to-year changes in Internet services revenues include the average number of subscribers to our services during a given reporting period, the average monthly subscription rates, the amount of bandwidth purchased by large commercial customers, and the number and type of additional premium features selected.

Marketing campaigns continue to be deployed targeting residential and commercial customers featuring bundled products. Our Internet offerings are bundled with various combinations of our long-distance, cable, and local access services offerings and provide free or discounted basic or premium Internet services. Value-added premium Internet features are available for additional charges.

We compete with a number of Internet service providers in our markets. We believe our approach to developing, pricing, and providing Internet services allows us to be competitive in providing those services.

	2004	2003	Percentage Change
Total Internet subscribers	100,600	91,800	9.6	%
Cable modem subscribers	51,700	38,600	33.9	%
Dial-up subscribers	48,900	53,500	(8.6	)%

Total Internet services segment revenues increased 39.6% to $6.4 million in 2004 primarily due to the 34.3% increase in its allocable share of cable modem revenues to $2.7 million in 2004 as compared to 2003. The increase in cable modem revenues is primarily due to growth in cable modem subscribers. Additionally, cable modem revenue growth is affected by the level of service our subscribers select. In 2004 and 2003, 7.4% and 6.7%, respectively, of our subscribers selected our highest level of cable

modem service resulting in a 29.7% or approximately $1.3 million increase in revenue in 2004 as compared to 2003.

We previously reported a total of 71,600 Internet subscribers at March 31, 2003. This subscriber count was based upon the total number of active dial-up subscribers at March 31, 2003. Not all cable modem subscribers paying for a dial-up plan had activated their dial-up service. When we first started selling cable modem service it was packaged in a way that almost all cable modem subscribers were also dial up subscribers. As we introduced new packages and plans and started promoting our cable modem LiteSpeed service the number of cable modem subscribers without a dial up plan increased substantially. An internal review during the second quarter of 2003 revealed that these subscriber counts had risen substantially enough that they are now being reported separately.

Internet services cost of sales and services increased 25.3% to $1.8 million in 2004, and as a percentage of Internet services revenues, totaled 27.5% and 30.6% in 2004 and 2003, respectively. The 2004 decrease as a percentage of Internet services revenues is primarily due to the increase in Internet's portion of cable modem revenue which generally has higher margins than do other Internet services products. As Internet services revenues increase, economies of scale and more efficient network utilization continue to result in reduced Internet cost of sales and services as a percentage of revenues.

Revenues reported in the All Other category as described in note 6 in the accompanying "Notes to Interim Condensed Consolidated Financial Statements" include our managed services, product sales, and cellular telephone services.

Revenues included in the All Other category represented 12.8% of total revenues in 2004.

All Other revenues increased 78.3% to $14.0 million in 2004. The increase in revenues is primarily due to the following:

The increase described above is partially off-set by a $840,000 decrease in product sales revenue to $786,000 in 2004. The decrease is due to sales of product to two customers in 2003 that were not repeated in 2004.

All Other costs of sales and services increased 94.3% to $9.1 million in 2004, and as a percentage of All Other revenues, totaled 64.8% and 59.5% in 2004 and 2003, respectively. The increase in All Other costs of sales and services as a percentage of All Other revenues is primarily due to the recognition of $5.5 million in costs associated with special project revenue earned from our GCI Fiber system in 2004. The cost of sales and services as a percentage of revenue was 89.7% for this project, which is a higher percentage than we realize for the regular monthly revenue in All Other revenues.

The increase in the cost of sales and services as a percentage of revenue is partially off-set by increased monthly revenue earned from our recurring service contracts in 2004 which exceeds the corresponding increase in costs of sales or services.

Selling, general and administrative expenses increased 7.3% to $35.4 million in 2004 primarily due to a $1.5 million increase in labor and health insurance costs. As a percentage of total revenues, selling, general and administrative expenses decreased to 32.5% in 2004 from 35.6% in 2003, primarily due to an increase in revenues without a corresponding increase in selling, general and administrative expenses.

Marketing and advertising expenses as a percentage of total revenues increased from 2.7% in 2003 to 2.8% in 2004.

Bad debt expense (recovery) decreased 166.5% to ($397,000) in 2004. The 2004 decrease is primarily due to realization of approximately $1.2 million of the MCI credit through a reduction to bad debt expense in 2004, as further discussed in the "Long Distance Service Overview" above.

Depreciation, amortization and accretion expense increased 16.7% to $15.8 million in 2004. The increase is primarily attributed to our $45.8 million investment in equipment and facilities placed into service during 2003 for which a full year of depreciation will be recorded in 2004, and the $7.0 million investment in equipment and facilities placed into service during 2004 for which a partial year of depreciation will be recorded in 2004.

Other expense, net of other income, increased 60.7% to $16.2 million in 2004. The increase is primarily due to the following:

Partially offsetting the increases described above was a $2.3 million decrease in interest expense in 2004 on our new Senior Credit Facility due to a decrease in the average outstanding balance owed and a decreased interest rate as compared to 2003.

Income tax expense was $1.3 million in 2004 and $2.3 million in 2003. The change was due to decreased net income before income taxes and cumulative effect of a change in accounting principle in 2004 as compared to 2003. Our effective income tax rate decreased from 42.4% in 2003 to 40.5% in 2004 due to the decreasing proportion of items that are nondeductible for income tax purposes in 2004.

At March 31, 2004, we have (1) tax net operating loss carryforwards of approximately $188.6 million that will begin expiring in 2005 if not utilized, and (2) alternative minimum tax credit carryforwards of approximately $1.9 million available to offset regular income taxes payable in future years. Our utilization of certain net operating loss carryforwards is subject to limitations pursuant to Internal Revenue Code section 382.

Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through future reversals of existing taxable temporary differences and future taxable income exclusive of reversing temporary differences and carryforwards. The amount of deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced which would result in additional income tax expense. We estimate that our effective annual income tax rate for financial statement purposes will be 38% to 41% in 2004.

On January 1, 2003 we adopted SFAS No. 143, "Accounting for Asset Retirement Obligations," and recorded the cumulative effect of accretion and depreciation expense as a cumulative effect of a change in accounting principle of approximately $544,000, net of income tax benefit of $367,000.

Cash flows from operating activities totaled $14.8 million in 2004 as compared to $14.3 million in 2003. The 2004 increase is primarily due to increased cash flow from all of our reportable segments and All Other Services partially off-set by a $4.3 million payment of our company-wide success sharing bonus in 2004 and a $2.3 million refund in 2003 from a local exchange carrier in respect of its earnings that exceeded regulatory requirements.

Other sources of cash during 2004 include $245.7 million from the issuance of our new Senior Notes and a $10.0 million draw under the revolving credit portion of our new Senior Credit Facility. Uses of cash during 2004 included expenditures of $25.2 million for property and equipment, including construction in progress, the $180.0 million repayment of our old Senior Notes, the $53.8 million repayment of the term and revolving credit portions of our new Senior Credit Facility, payment of $6.4 million in fees associated with the new Senior Notes and new Senior Credit Facility, and payment of redemption premiums totaling $6.1 million to redeem our old Senior Notes.

Net receivables decreased $6.2 million from December 31, 2003 to March 31, 2004 primarily due to the February 2004 receipt of $5.6 million on a trade receivable for broadband services provided to hospitals and health clinics.

Working capital totaled $13.4 million at March 31, 2004, a $11.3 million increase as compared to $2.1 million at December 31, 2003. The increase is primarily due to the January 2004 draw on our new Senior Credit Facility which we used to fund our old Senior Notes interest payment in February 2004.

In February 2004 GCI, Inc. sold $250 million in aggregate principal amount of senior debt securities due in 2014. The new Senior Notes are an unsecured senior obligation. We pay interest of 7.25% on the new Senior Notes. The new Senior Notes were sold at a discount of $4.3 million. The Senior Notes are carried on our Consolidated Balance Sheet net of the unamortized portion of the discount, which is being amortized to Interest Expense over the life of the new Senior Notes.

The net proceeds of the offering were primarily used to repay our existing $180.0 million 9.75% Senior Notes and to repay approximately $43.8 million of the term portion and $10.0 million of the revolving portion of our new Senior Credit Facility. Semi-annual interest payments of approximately $9.1 million will be due beginning August 15, 2004. In connection with the issuance, we paid fees and other expenses of approximately $6.3 million which are being amortized over the life of the new Senior Notes.

The new Senior Notes were offered only to qualified institutional buyers pursuant to exemptions from registration under the Securities Act. The new Senior Notes have not been registered under the Securities Act and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and

applicable state securities laws. We plan to register our new Senior Notes during the second quarter of 2004.

The new Senior Notes are not redeemable prior to February 15, 2009. At any time on or after February 15, 2009, the new Senior Notes are redeemable at our option, in whole or in part, on not less than thirty days nor more than sixty days notice, at the following redemption prices, plus accrued and unpaid interest (if any) to the date of redemption:

If redeemed during the twelve month period commencing February 1 of the year indicated:	Redemption Price
2009	103.625	%
2010	102.417	%
2011	101.208	%
2012 and thereafter	100.000	%

We may, on or prior to February 17, 2007, at our option, use the net cash proceeds of one or more underwritten public offerings of our qualified stock to redeem up to a maximum of 35% of the initially outstanding aggregate principal amount of our new Senior Notes at a redemption price equal to 107.25% of the principal amount of the new Senior Notes, together with accrued and unpaid interest, if any, thereon to the date of redemption, provided that not less than 65% of the principal amount of the new Senior Notes originally issued remain outstanding following such a redemption.

The new Senior Notes restrict GCI, Inc. and certain of its subsidiaries from incurring debt in most circumstances unless the result of incurring debt does not cause our leverage ratio to exceed 6.0 to one. The new Senior Notes do not allow debt under the new Senior Credit Facility to exceed the greater of (and reduced by certain stated items):

We conducted a Consent Solicitation and Tender Offer for the old Senior Notes. Through February 13, 2004 we accepted for payment $114.6 million principal amount of notes which were validly tendered. Such notes accepted for payment received additional consideration as follows:

The remaining principal amount of $65.4 million was redeemed on March 18, 2004 for additional consideration as follows:

The total redemption cost was $186.1 million. The premium to redeem our old Senior Notes was $6.1 million (excluding interest cost of $1.3 million) and was recognized as a component of Other Income (Expense) during the three months ended March 31, 2004.

Compliance with the redemption notice requirements in the Indenture resulted in a delay before final payment of some of the old Senior Notes. As a result of such delay, our total debt increased during the overlap period between the redemption of the old Senior Notes and the issuance of the new Senior Notes making us out of compliance with Section 6.11 of our Credit, Guaranty, Security and Pledge Agreement, dated as of October 30, 2003. We received a waiver from compliance with Section 6.11 until April 30, 2004. After the final redemption payment on March 18, 2004 we were in compliance with Section 6.11.

In January 2004 we drew $10.0 million under the revolving portion of our new Senior Credit facility. Our ability to draw down on the revolver portion of our new Senior Credit Facility could be diminished if we are not in compliance with all new Senior Credit Facility covenants or have a material adverse change at the date of the request for the draw. In February 2004 we used a portion of the proceeds from the issuance of our new Senior Notes to repay approximately $43.8 million of the term portion and $10.0 million of the revolving portion of our new Senior Credit Facility.

Our expenditures for property and equipment, including construction in progress, totaled $25.2 million and $6.5 million during 2004 and 2003, respectively. Our capital expenditures requirements in excess of approximately $25 million per year, excluding the new fiber optic cable system construction costs, are largely success driven and are a result of the progress we are making in the marketplace. We expect our 2004 expenditures for property and equipment for our core operations, including construction in progress and excluding the new fiber optic cable system construction costs and other special projects described below, to total $45 million to $55 million, depending on available opportunities and the amount of cash flow we generate during 2004.

We are constructing a fiber optic cable system connecting Seward, Alaska and Warrenton, Oregon, with leased backhaul facilities to connect it to our switching and distribution centers in Anchorage, Alaska and Seattle, Washington. The 1,544-statute mile cable system has a total design capacity of 960 Gigabits per second access speed and is planned to be operational in May 2004. The cable will complement our existing fiber optic cable system between Whittier, Alaska and Seattle, Washington. The two cables will provide physically diverse backup to each other in the event of an outage. We expect to fund construction costs that are expected to total approximately $50 million through our operating cash flows and, to the extent necessary, with draws on our new Senior Credit Facility. During 2004 our capital expenditures for this project have totaled approximately $10.3 million and from inception have totaled $28.4 million, most of which have been funded through our operating cash flows.

Planned capital expenditures over the next five years include those necessary for continued expansion of our long-distance, local exchange and Internet facilities, supplementing our existing network backup facilities, continuing development of our PCS network to meet the requirements of our license, continuing deployment of DLPS, upgrades to our cable television plant, and potential development of a wireless network.

In April 2004 we successfully launched our DLPS service delivery method. To ensure the necessary equipment is available to us we have entered into an agreement to purchase a certain number of outdoor, network powered multi-media adapters. The agreement has a remaining outstanding commitment at March 31, 2004 of $17.4 million.

A migration of MCI's or Sprint's traffic off our network without it being replaced by other common carriers that interconnect with our network could have a materially adverse impact on our financial position, results of operations and liquidity.

regulatory environment and by our ability to fund and implement new or enhanced technologies. We are unable to determine how competition, economic conditions, and regulatory and technological changes will affect our ability to obtain financing under acceptable terms and conditions.

We believe that we will be able to meet our current and long-term liquidity and capital requirements and fixed charges through our cash flows from operating activities, existing cash, cash equivalents, short-term investments, credit facilities, and other external financing and equity sources. Should cash flows be insufficient to support additional borrowings and principal payments scheduled under our existing credit facilities, capital expenditures will likely be reduced.

Our accounting and reporting policies comply with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company's financial condition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under accounting principles generally accepted in the United States of America. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Management has discussed the development and the selection of critical accounting policies with the Company's Audit Committee.

Those policies considered to be critical accounting policies for the three months ended March 31, 2004 are described below.

Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial statements. Polices related to revenue recognition and financial instruments require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. Certain of these matters, including but not limited to the requirement to account for the fair value of stock options as compensation expense, are among topics currently under reexamination by accounting standards setters and regulators. With the exception of accounting for the cost of stock options, no specific conclusions reached by these standard setters appear likely to cause a material change in our accounting policies, although outcomes cannot be predicted with confidence. A complete discussion of our significant accounting policies can be found in note 1 in the accompanying "Notes to Consolidated Financial Statements." A condensed discussion of our significant accounting policies can be found in note 1 in the accompanying "Notes to Interim Condensed Consolidated Financial Statements."

We offer voice and data telecommunication and video services to customers primarily throughout Alaska. Because of this geographic concentration, growth of our business and of our operations depends upon economic conditions in Alaska. The economy of Alaska is dependent upon the natural resource industries, and in particular oil production, as well as investment earnings, tourism, government, and United States military spending. Any deterioration in these markets could have an adverse impact on us. All of the federal funding and the majority of investment revenues are dedicated for specific purposes, leaving oil revenues as the primary source of general operating revenues. In fiscal 2003 the State's actual results indicate that Alaska's oil revenues, federal funding and investment revenues supplied 36%, 30% and 21%, respectively, of the state's total revenues. In fiscal 2004 state economists forecast that Alaska's oil revenues, federal funding and investment revenues will supply 23%, 25% and 44%, respectively, of the state's total projected revenues.

The volume of oil transported by the TransAlaska Oil Pipeline System over the past 20 years has been as high as 2.0 million barrels per day in fiscal 1988. Production has been declining over the last several years with an average of 0.991 million barrels produced per day in fiscal 2003. The state forecasts the production rate to decline from 0.985 million barrels produced per day in fiscal 2004 to 0.843 million barrels produced per day in fiscal 2015.

Market prices for North Slope oil averaged $28.15 in fiscal 2003 and are forecasted to average $31.13 in fiscal 2004. The closing price per barrel was $36.12 on April 19, 2004. To the extent that actual oil prices vary materially from the state's projected prices the state's projected revenues and deficits will change. When the price of oil is greater than $23.00 per barrel, every $1 change in the price per barrel of oil is forecasted to result in a $40.0 to $70.0 million change in the state's fiscal 2004 revenue. The production policy of the Organization of Petroleum Exporting Countries and its ability to continue to act in concert represents a key uncertainty in the state's revenue forecast.

The State of Alaska maintains the Constitutional Budget Reserve Fund that is intended to fund budgetary shortfalls. If the state's current projections are realized, the Constitutional Budget Reserve Fund will be depleted in 2008. The date the Constitutional Budget Reserve Fund is depleted is highly influenced by the price of oil. If the fund is depleted, aggressive state action will be necessary to increase revenues and reduce spending in order to balance the budget. The governor of the State of Alaska and the Alaska legislature continue to pursue cost cutting and revenue enhancing measures.

Should new oil discoveries or developments not materialize or the price of oil become depressed, the long term trend of continued decline in oil production from the Prudhoe Bay area is inevitable with a corresponding adverse impact on the economy of the state, in general, and on demand for telecommunications and cable television services, and, therefore, on us, in particular. Periodically there are renewed efforts to allow exploration and development in the Arctic National Wildlife Refuge ("ANWR"). The United States Energy Information Agency estimates it could take nine years to begin oil field drilling after approval of ANWR exploration.

Deployment of a natural gas pipeline from the State of Alaska's North Slope to the Lower 48 States has been proposed to supplement natural gas supplies. A competing natural gas pipeline through Canada has also been proposed. The economic viability of a natural gas pipeline depends upon the price of and demand for natural gas. Either project could have a positive impact on the State of Alaska's revenues and the Alaska economy. In January 2004, two competing groups submitted applications to the State of Alaska to negotiate tax and other financial terms for the construction of a natural gas pipeline. One of the groups has since abandoned their plan to build a natural gas pipeline. In April 2004, the State of Alaska and TransCanada Corporation signed a memorandum of understanding which could lead to the construction of a natural gas pipeline. The governor of the State of Alaska and certain natural gas transportation companies continue to support a natural gas pipeline from Alaska's North Slope by trying to reduce the project's costs and by advocating for federal tax incentives to further reduce the project's costs.

Development of the ballistic missile defense system project may have a significant impact on Alaskan telecommunication requirements and the Alaska economy. The proposed system would be a fixed, land-based, non-nuclear missile defense system with a land and space based detection system capable of responding to limited strategic ballistic missile threats to the United States. The preferred alternative is deployment of a system with up to 100 ground-based interceptor silos and battle management command and control facilities at Fort Greely, Alaska.

The United States Army Corps of Engineers awarded a construction contract in 2002 for test bed facilities. The contract is reported to contain basic requirements and various options that could amount to $250 million in construction, or possibly more, if all items are executed. Site preparation has been underway at Fort Greely since August of 2001 and construction began on the Fort Greely test bed shortly after the June 15, 2002 groundbreaking. The test bed is due to be operational by September 30, 2004, though it may be operational in the summer of 2004.

Tourism, air cargo, and service sectors have helped offset the prevailing pattern of oil industry downsizing that has occurred during much of the last several years.

We have, since our entry into the telecommunication marketplace, aggressively marketed our services to seek a larger share of the available market. The customer base in Alaska is limited, however, with a population of approximately 644,000 people. The State of Alaska's population is distributed as follows:

No assurance can be given that the driving forces in the Alaska economy, and in particular, oil production, will continue at appropriate levels to provide an environment for expanded economic activity.

No assurance can be given that oil companies doing business in Alaska will be successful in discovering new fields or further developing existing fields which are economic to develop and produce oil with access to the pipeline or other means of transport to market, even with a reduced level of royalties. We are not able to predict the effect of changes in the price and production volumes of North Slope oil on Alaska's economy or on us.

Long-distance revenues (primarily those derived from our other common carrier customers) have historically been highest in the summer months because of temporary population increases attributable to tourism and increased seasonal economic activity such as construction, commercial fishing, and oil and gas activities. Cable television revenues are higher in the winter months because consumers spend more time at home and tend to watch more television during these months. Local access and Internet services do not exhibit significant seasonality. Our ability to implement construction projects is also hampered during the winter months because of cold temperatures, snow and short daylight hours.

The following table details future projected payments associated with our certain known contractual obligations as of December 31, 2003, the date of our most recent fiscal year-end balance sheet. Our schedule of certain known contractual obligations has been updated to reflect our issuance of new Senior Notes and redemption of our old Senior Notes.

For long-term debt included in the above table, we have included principal payments on our new Senior Credit Facility and on our new Senior Notes. Interest on amounts outstanding under our new Senior Credit Facility is based on variable rates and therefore the amount is not determinable. Our old Senior Notes required semi-annual interest payments of approximately $8.8 million through February 2004, after which they were repaid using funds from the issuance of our new Senior Notes. Our new Senior Notes require semi-annual interest payments of approximately $9.1 million through February 2014. For a discussion of our long-term debt, including the redemption of our old Senior Notes, issuance of new Senior Notes and the use of proceeds from the issuance of new Senior Notes to pay down our new Senior Credit Facility, see note 5 to the accompanying "Notes to Interim Condensed Consolidated Financial Statements."

For a discussion of our capital and operating leases, see note 16 to the accompanying "Notes to Consolidated Financial Statements."

Purchase obligations at December 31, 2003 are further described in note 16 to the accompanying "Notes to Consolidated Financial Statements" and include the following:

The contracts associated with these commitments are non-cancelable. Purchase obligations also include other commitments for goods and services for capital projects and normal operations which are not included in our Consolidated Balance Sheets at December 31, 2003, because the goods had not been received or the services had not been performed at December 31, 2003.

GCI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 2004 AND 2003

(Unaudited)

GCI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2004 AND 2003

(Unaudited)

GCI, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

The accompanying unaudited interim condensed consolidated financial statements include the accounts of GCI, Inc. and its subsidiaries and have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. They should be read in conjunction with the accompanying audited consolidated financial statements for the year ended December 31, 2003. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for an entire year or any other period.

In the following discussion, GCI, Inc. and its direct and indirect subsidiaries are referred to as "we," "us" and "our".

We were incorporated in Alaska in 1997 to effect the issuance of senior notes. As a wholly-owned subsidiary of General Communication, Inc. ("GCI"), we received through our initial capitalization all ownership interests in subsidiaries previously held by GCI.

The consolidated financial statements include the consolidated accounts of GCI, Inc. and its wholly owned subsidiaries with all significant intercompany transactions eliminated.

We are a wholly owned subsidiary of GCI and, accordingly, are not required to present earnings per share. Our common stock is not publicly traded.

Upon adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations," we recorded the cumulative effect of accretion and depreciation expense as a cumulative effect of a change in accounting principle of approximately $544,000, net of income tax benefit of $367,000, during the three months ended March 31, 2003.

Following is a reconciliation of the beginning and ending aggregate carrying amount of our asset retirement obligations at March 31, 2004 and 2003 (amounts in thousands):

Balance at December 31, 2002	$	—
Liability recognized upon adoption of SFAS No. 143		1,565
Accretion expense for the three months ended March 31, 2003		128

Balance at March 31, 2003	$	1,693

Balance at December 31, 2003	$	2,005
Accretion expense for the three months ended March 31, 2004		43
Other		(11	)

Balance at March 31, 2004	$	2,037

At March 31, 2004, we had one stock-based employee compensation plan. We account for this plan under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. We use the intrinsic-value method and compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. We have adopted SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." We have elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure as required by SFAS No. 148.

2003, if we had applied the fair-value recognition provisions of SFAS No. 123 to stock-based employee compensation (amounts in thousands):

	Three Months Ended March 31,
	2004			2003
Net income, as reported	$	1,925		2,551
Total stock-based employee compensation expense included in reported net income, net of related tax effects		45		23
Total stock-based employee compensation expense under the fair-value based method for all awards, net of related tax effects		(523	)	(474	)

Pro forma net income	$	1,447		2,100

The calculation of total stock-based employee compensation expense under the fair-value based method includes weighted-average assumptions of a risk-free interest rate, volatility and an expected life.

In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. ("FIN") 46 (revised December 2003), "Consolidation of Variable Interest Entities," which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R, which was issued in January 2003, replaces FIN 46. We will be required to apply FIN 46R to variable interests in Variable Interest Entities ("VIEs") created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the VIE. At December 31, 2003, we did not have VIEs. Adoption of this statement on January 1, 2004 did not have a material effect on our results of operations, financial position and cash flows.

Reclassifications have been made to the 2003 financial statements to make them comparable with the 2004 presentation.

Three month periods ended March 31,	2004			2003
Decrease in accounts receivable	$	6,146		5,066
(Increase) decrease in inventories		529		(688	)
Decrease in prepaid and other current assets		5,902		630
Decrease in accounts payable		(10,562	)	(6,075	)
Decrease in deferred revenues		(6,539	)	(1,662	)
Increase (decrease) in accrued payroll and payroll related obligations		(3,234	)	1,002
Decrease in accrued interest		(5,725	)	(3,119	)
Increase in due to related party		1,012		—
Decrease in accrued liabilities		(985	)	(752	)
Decrease in subscriber deposits		(74	)	(64	)
Decrease in components of other long-term liabilities		(29	)	12

	$	(13,559	)	(5,651	)

We paid interest totaling approximately $13,658,000 and $12,273,000 during the three months ended March 31, 2004 and 2003, respectively.

Cable certificates are allocated to our cable services segment. Goodwill is primarily allocated to the cable services segment and the remaining amount is not allocated to a reportable segment, but is included in the All Other category as described in note 6.

Amortization expense for amortizable intangible assets was $159,000 and $173,000 during the three months ended March 31, 2004 and 2003, respectively.

Amortization expense for amortizable intangible assets for each of the five succeeding fiscal years is estimated to be (amounts in thousands):

Years Ending December 31,
2004	$	712
2005		595
2006		590
2007		529
2008		279

No indicators of impairment have occurred since the impairment testing was performed as of December 31, 2003.

agreement for pre-petition amounts owed to us by MCI and affirmed all of our existing contracts with MCI. The remaining pre-petition accounts receivable balance owed by MCI to us after this settlement was $11.1 million ("MCI credit") which we have used and will continue to use as a credit against amounts payable for services purchased from MCI.

The remaining unused MCI credit totaled $6.7 million and $7.9 million at March 31, 2004 and December 31, 2003, respectively. The credit balance is not recorded on the Consolidated Balance Sheet as we are recognizing recovery of bad debt expense as the credit is realized. We have accounted for our use of the MCI credit as a gain contingency, and, accordingly, will recognize a reduction of bad debt expense as services are provided by MCI and the credit is realized. MCI emerged from bankruptcy protection in April 2004; see note 8.

In January 2004 we drew $10.0 million under the revolving credit portion of our new Senior Credit Facility. The draw was re-paid in February 2004 from proceeds of our new Senior Notes offering discussed below.

In February 2004 GCI, Inc. sold $250 million in aggregate principal amount of senior debt securities due in 2014 ("new Senior Notes"). The new Senior Notes are an unsecured senior obligation. We pay interest of 7.25% on the new Senior Notes. The new Senior Notes were sold at a discount of $4.3 million. The Senior Notes are carried on our Consolidated Balance Sheet net of the unamortized portion of the discount, which is being amortized to Interest Expense over the life of the new Senior Notes.

The net proceeds of the offering were primarily used to repay our existing $180.0 million 9.75% Senior Notes ("old Senior Notes") and to repay approximately $43.8 million of the term portion and $10.0 million of the revolving portion of our new Senior Credit Facility. Semi-annual interest payments of approximately $9.1 million will be due beginning August 15, 2004. In connection with the issuance, we paid fees and other expenses of approximately $6.3 million which are being amortized over the life of the new Senior Notes.

The new Senior Notes are not redeemable prior to February 15, 2009. At any time on or after February 15, 2009, the new Senior Notes are redeemable at our option, in whole or in part, on not less

than thirty days nor more than sixty days notice, at the following redemption prices, plus accrued and unpaid interest (if any) to the date of redemption:

If redeemed during the twelve month period commencing February 1 of the year indicated:	Redemption Price
2009	103.625	%
2010	102.417	%
2011	101.208	%
2012 and thereafter	100.000	%

The remaining principal amount of $65.4 million was redeemed on March 18, 2004 for additional consideration as follows:

Compliance with the redemption notice requirements in the Indenture resulted in a delay before final payment of some of the old Senior Notes. As a result of such delay, our total debt increased

during the overlap period between the redemption of the old Senior Notes and the issuance of the new Senior Notes making us out of compliance with Section 6.11 of our Credit, Guaranty, Security and Pledge Agreement, dated as of October 30, 2003. We received a waiver from compliance with Section 6.11 until April 30, 2004. After the final redemption payment on March 18, 2004 we were in compliance with Section 6.11.

Our reportable segments are business units that offer different products. The reportable segments are each managed separately and offer distinct products with different production and delivery processes.

Long-distance services. We offer a full range of common carrier long-distance services to commercial, government, other telecommunications companies and residential customers, through our networks of fiber optic cables, digital microwave, and fixed and transportable satellite earth stations and our SchoolAccess™ offering to rural school districts and a similar offering to rural hospitals and health clinics.

Cable services. We provide cable television services to residential, commercial and government users in the State of Alaska. Our cable systems serve 35 communities and areas in Alaska, including the state's four largest urban areas, Anchorage, Fairbanks, the Matanuska-Susitna Valley, and Juneau. We offer digital cable television services in Anchorage, the Matanuska-Susitna Valley, Fairbanks, Juneau, Ketchikan, Kenai and Soldotna and retail cable modem service (through our Internet services segment) in all of our locations in Alaska except Kotzebue.

Local access services. We offer facilities based competitive local exchange services in Anchorage, Fairbanks and Juneau and plan to provide similar competitive local exchange services in other locations pending regulatory approval and subject to availability of capital. Revenue, costs of sales and service and operating expenses for our new phone directory are included in the local access services segment.

Internet services. We offer wholesale and retail Internet services to both consumer and commercial customers. We offer cable modem service as further described in Cable services above. Our undersea fiber optic cable system allows us to offer enhanced services with high-bandwidth requirements.

Included in the "All Other" category in the tables that follow are our managed services, product sales and cellular telephone services. None of these business units has ever met the quantitative thresholds for determining reportable segments. Also included in the All Other category are corporate related expenses including information technology, accounting, legal and regulatory, human resources and other general and administrative expenses.

We evaluate performance and allocate resources based on (1) earnings or loss from operations before depreciation, amortization and accretion expense, net other expense and income taxes, and (2) operating income or loss. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in note 1. Intersegment sales are recorded at cost plus an agreed upon intercompany profit.

We earn all revenues through sales of services and products within the United States. All of our long-lived assets are located within the United States of America, except approximately 84% of our undersea fiber optic cable system which transits international waters.

Summarized financial information for our reportable segments for the three months ended March 31, 2004 and 2003 follows (amounts in thousands):

A reconciliation of reportable segment revenues to consolidated revenues follows (amounts in thousands):

A reconciliation of reportable segment earnings from operations before depreciation, amortization and accretion expense, net other expense and income taxes to consolidated net income before income taxes and cumulative effect of a change in accounting principle follows (amounts in thousands):

Three months ended March 31,	2004		2003
Reportable segment earnings from operations before depreciation, amortization and accretion expense, net other expense and income taxes	$	42,415	38,114
Less All Other loss from operations before depreciation, amortization and accretion expense, net other expense and income taxes		12,609	8,550
Less intersegment contribution eliminated in consolidation		778	625

Consolidated earnings from operations before depreciation, amortization and accretion expense, net other expense and income taxes		29,028	28,939
Less depreciation, amortization and accretion expense		15,758	13,501
Add loss on early extinguishment of debt		6,136	—

Consolidated operating income		19,406	15,438
Less other expense, net		16,172	10,061

Consolidated net income before income taxes and cumulative effect of a change in accounting principle	$	3,234	5,377

A reconciliation of reportable segment operating income to consolidated net income before income taxes and cumulative effect of a change in accounting principle follows (amounts in thousands):

Three months ended March 31,	2004		2003
Reportable segment operating income	$	28,998	26,593
Less All Other operating loss		8,814	10,530
Less intersegment contribution eliminated in consolidation		778	625

Consolidated operating income		19,406	15,438
Less other expense, net		16,172	10,061

Consolidated net income before income taxes and cumulative effect of a change in accounting principle	$	3,234	5,377

We are routinely involved in various lawsuits, billing disputes, legal proceedings and regulatory matters that have arisen in the normal course of business. While the ultimate results of these items cannot be predicted with certainty we do not expect at this time the resolution of them to have a material adverse effect on our financial position, results of operations or liquidity.

In June 2003 we began work on the construction of a fiber optic cable system connecting Seward, Alaska and Warrenton, Oregon, with leased backhaul facilities to connect it to our switching and

distribution centers in Anchorage, Alaska and Seattle, Washington ("AU West"). A consortium of companies was selected to design, engineer, manufacture and install the undersea fiber optic cable system and a contract has been signed at a total cost to us of $35.2 million. From inception through March 31, 2004 our capital expenditures for this project have totaled approximately $28.4 million, most of which have been funded through our operating cash flows and are classified as Construction in Progress in our Consolidated Balance Sheets. We expect to fund the remaining construction costs of the fiber optic cable system through our operating cash flows and, to the extent necessary, with draws on our new Senior Credit Facility. We expect to place AULP West into service during the second quarter of 2004.

Our undersea fiber optic cable system connecting Whittier, Valdez and Juneau, Alaska and Seattle, Washington ("AULP East") began experiencing powering irregularities during the first quarter of 2004. We expect to repair AU East after AULP West is placed into service without any significant service disruption. Depending on the nature of the malfunction and the necessary corrective action, repair costs are expected to range between $225,000 and $950,000 excluding salvage value, if any. If AULP East must be repaired before AULP West is placed into service, we expect to lease additional temporary transmission capacity the cost of which is not expected to have a material effect on our results of operations.

GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled group of corporations, files its income tax returns as part of the consolidated group of corporations under GCI. Accordingly, the following discussion reflects the consolidated group's activity. Our United States income tax return for 2000 was selected for examination by the Internal Revenue Service during 2003. The examination began during the fourth quarter of 2003. We believe this examination will not have a material adverse effect on our financial position, results of operations or our liquidity.

We are currently involved in arbitration to revise the rates, terms, and conditions that govern our access to unbundled network elements in Anchorage, and a RCA decision is pending. The RCA's decisions in these proceedings could result in a change in our costs of serving new and existing markets via the facilities of the ILEC or via wholesale offerings.

Alaska Communications Systems Group, Inc. ("ACS"), through subsidiary companies, provides local services in Fairbanks and Juneau, Alaska. These ACS subsidiaries are classified as Rural Telephone Companies under the 1996 Telecom Act, which entitles them to an exemption of certain

material interconnection terms of the 1996 Telecom Act, until and unless such "rural exemption" is examined and discontinued by the RCA. An April 2004 proceeding to decide the matter of rural exemption was canceled upon GCI's and ACS' joint settlement. The settlement agreement includes the following terms, among others:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to unbilled revenues, cost of sales and services accruals, allowance for doubtful accounts, depreciation, amortization and accretion periods, intangible assets, income taxes, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See also our "Cautionary Statement Regarding Forward-Looking Statements."

GCI, Inc. was incorporated in 1997 to effect the issuance of senior notes. GCI, Inc., a wholly-owned subsidiary of General Communication, Inc., received through its initial capitalization all ownership interests in subsidiaries previously held by General Communication, Inc. Shares of General Communication, Inc.'s Class A common stock are traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol GNCMA. Shares of General Communication, Inc.'s Class B common stock are traded on the Over-the-Counter market. Shares of GCI, Inc.'s common stock are not publicly traded.

Through our focus on long-term results, acquisitions, and strategic capital investments, we have consistently grown our revenues and expanded our margins. We have historically met our cash needs for operations, regular capital expenditures and maintenance capital expenditures through our cash flows from operating activities. Historically, cash requirements for significant acquisitions and major capital expenditures have been provided largely through our financing activities. We are funding the construction of a new fiber optic cable system through our operating cash flows and, to the extent necessary, with draws on our new Senior Credit Facility, as further discussed in Liquidity and Capital Resources in this report.

The following table sets forth selected Statement of Operations data as a percentage of total revenues for the periods indicated (underlying data rounded to the nearest thousands):

Year Ended December 31, 2003 ("2003") Compared To Year Ended December 31, 2002 ("2002")

Total revenues increased 6.2% from $367.8 million in 2002 to $390.8 million in 2003. The cable services, local access services and Internet services segments and All Other Services contributed to the increase in total revenues, partially off-set by decreased revenues in the long-distance services segment. See the discussion below for more information by segment.

Total cost of sales and services increased 1.5% to $125.4 million in 2003. As a percentage of total revenues, total cost of sales and services decreased from 33.6% in 2002 to 32.1% in 2003. The cable services, local access services and Internet services segments and All Other Services contributed to the increase in total cost of sales and services, partially off-set by decreased cost of sales and services in the long-distance services segment. See the discussion below for more information by segment.

Long-distance services revenue in 2003 represented 52.3% of consolidated revenues. Our provision of interstate and intrastate long-distance services, Private Line and leased dedicated capacity services, and broadband services accounted for 94.7% of our total long-distance services revenues during 2003.

Our contract to provide interstate and intrastate long-distance services to Sprint was replaced in March 2002 extending its term to March 2007 with two one-year automatic extensions to March 2009. Beginning in April 2002 the new contract reduced the rate to be charged by us for certain Sprint traffic over the extended term of the contract. Additional contractual rate reductions occur annually through the end of the initial term of the contract.

On July 21, 2002 MCI and substantially all of its active United States subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court. Chapter 11 allows a company to continue operating in the ordinary course of business in order to maximize recovery for the company's creditors and shareholders. On July 22, 2003, the United States Bankruptcy Court approved a settlement agreement for pre-petition amounts owed to us by MCI and affirmed all of our existing contracts with MCI. On July 24, 2003, our contract to provide interstate and intrastate long-distance services to MCI was extended for a minimum of five years to July 2008. The agreement sets the terms and conditions under which we originate and terminate certain types of long distance and data services in Alaska on MCI's behalf. In exchange for extending the term of this exclusive contract, MCI will receive a series of rate reductions implemented in phases over the life of the contract.

Other common carrier traffic routed to us for termination in Alaska is largely dependent on traffic routed to MCI and Sprint by their customers. Pricing pressures, general economic deterioration, new program offerings, business failures, and market and business consolidations continue to evolve in the markets served by MCI and Sprint. If, as a result, their traffic is reduced, or if their competitors' costs to terminate or originate traffic in Alaska are reduced, our traffic will also likely be reduced, and our pricing may be reduced to respond to competitive pressures. Additionally, a protracted economic malaise in the Lower 48 States or a further disruption in the economy resulting from terrorist attacks and other attacks or acts of war could affect our carrier customers. We are unable to predict the effect on us of such changes, however given the materiality of other common carrier revenues to us, a significant reduction in traffic or pricing could have a material adverse effect on our financial position, results of operations and liquidity.

At the time of MCI's petition for bankruptcy, we had approximately $12.9 million in receivables outstanding from MCI. At December 31, 2002 the bad debt reserve for uncollected amounts due from MCI ("MCI reserve") totaled $11.6 million and consisted of all billings for services rendered prior to July 21, 2002 that were not paid or deemed recoverable as of December 31, 2002.

The settlement agreement approved by the United States Bankruptcy Court on July 22, 2003 settled unpaid balances due from MCI for services rendered prior to their bankruptcy filing date, settled billing disputes between us, and established a right to set-off certain of our pre-petition accounts payable to MCI. Under the terms of the agreement, we reduced the pre-petition amounts receivable from MCI by $800,000 and off-set our pre-petition accounts payable by $1.0 million. The majority of the difference reduced the MCI reserve with the remainder recorded as bad debt expense.

The remaining pre-petition accounts receivable balance owed by MCI to us after this settlement was $11.1 million ("MCI credit") which we have and will use as a credit against amounts payable for services purchased from MCI. At settlement, all of the remaining pre-petition amounts receivable due from MCI, which were fully reserved, were removed from accounts receivable in our Consolidated Balance Sheets.

After settlement, we began reducing the MCI credit as we utilized it for services otherwise payable to MCI. The use of the credit is recorded as a reduction of bad debt expense. During 2003 we utilized approximately $2.8 million of the MCI credit against amounts payable for services received from MCI.

The remaining unused MCI credit totaled $7.9 million at December 31, 2003. The credit balance is not recorded on the Consolidated Balance Sheets as we are recognizing recovery of bad debt expense as the credit is utilized.

On October 31, 2003, MCI's reorganization plan was approved by the United States Bankruptcy Court. The court order provided for a February 28, 2004 deadline for MCI to emerge from bankruptcy. In February 2004 MCI asked the Court for a 60-day extension to the February 28 deadline to allow it to complete financial filings with the SEC. The financial filings are reported to be the last major task left for MCI to emerge from bankruptcy. We expect to evaluate the likelihood that we will receive full recovery of bad debt expense for our remaining credit balance when MCI exits bankruptcy proceedings and may change our recognition method at that time.

Total long-distance services segment revenues decreased 0.2% to $204.6 million in 2003. The components of long-distance services segment revenues are as follows (amounts in thousands):

The 2003 decrease in message telephone service revenues from other common carriers (principally MCI and Sprint) results from the following:

The decrease in message telephone service revenues from other common carriers in 2003 was off-set by a 6.7% increase in wholesale minutes carried to 875.0 million minutes.

Selected key performance indicators for our offering of message telephone service to residential, commercial and governmental customers follow:

The decrease in message telephone service revenues from residential, commercial, and governmental customers in 2003 is primarily due to the following:

The increase in revenues from our packaged telecommunications offering to rural hospitals and health clinics and our SchoolAccess™ offering to rural school districts in 2003 is primarily due to the following:

Long-distance services segment cost of sales and services decreased 11.1% to $53.4 million in 2003. Long-distance services segment cost of sales and services as a percentage of long-distance services segment revenues decreased from 29.3% in 2002 to 26.1% in 2003 primarily due to the following:

The decrease in the long-distance services segment cost of sales and services as a percentage of long-distance services segment revenues is partially off-set by the following:

Cable television revenues in 2003 represented 24.6% of consolidated revenues. Our cable systems serve 35 communities and areas in Alaska, including the state's four largest population centers, Anchorage, Fairbanks, the Matanuska-Susitna Valley and Juneau.

We generate cable services revenues from four primary sources: (1) digital and analog programming services, including monthly basic and premium subscriptions, pay-per-view movies and other one-time events, such as sporting events; (2) equipment rentals and installation; (3) cable modem services (shared with our Internet services segment); and (4) advertising sales. During 2003 programming services generated 76.3% of total cable services revenues, cable services' allocable share of cable modem services accounted for 11.4% of such revenues, equipment rental and installation fees accounted for 8.1% of such revenues, advertising sales accounted for 3.4% of such revenues, and other services accounted for the remaining 0.8% of total cable services revenues.

The primary factors that contribute to year-to-year changes in cable services revenues include average monthly subscription and pay-per-view rates, the mix among basic, premium and pay-per-view

services and digital and analog services, the average number of cable television and cable modem subscribers during a given reporting period, and revenues generated from new product offerings.

In the second quarter of 2002 we signed seven-year retransmission agreements with the five local Anchorage broadcasters and began up-linking and distributing the local Anchorage programming to all of our cable systems. This local programming provides additional value to our cable subscribers that not all our DBS competitors can provide. In 2003 DBS service provider Dish Network (EchoStar Communications Corporation) began providing, for an additional fee, Anchorage based broadcaster programming in Anchorage and in other Alaska communities where there is not a similar local broadcast affiliate.

Total cable services segment revenues increased 8.2% to $96.0 million and average gross revenue per average basic subscriber per month increased $4.35 or 7.8% in 2003.

Programming services revenues increased 7.4% to $73.2 million in 2003 resulting from the following:

The increase in programming services revenue is partially off-set by a decrease in basic subscribers due to increased competition from DBS.

The cable services segment's share of cable modem revenue (offered through our Internet services segment) increased 37.2% to $11.0 million in 2003 due to an increased number of cable modems deployed. Approximately 99% of our cable homes passed are able to subscribe to our cable modem service. In the second quarter of 2003 we completed our upgrade of the Ketchikan cable system. Customers in this system are now able to subscribe to cable modem service.

We now offer digital programming service in Anchorage, the Matanuska-Susitna Valley, Fairbanks, Juneau, Ketchikan, Kenai, and Soldotna, representing approximately 89% of our total homes passed at December 31, 2003. We launched digital programming services in the Matanuska-Susitna Valley and Ketchikan cable systems in 2003.

Cable services cost of sales and services increased 9.9% to $26.0 million in 2003 due to programming cost increases for most of our cable programming services offerings. Cable services cost of sales and services as a percentage of cable services revenues increased from 26.7% in 2002 to 27.1% in 2003 primarily due to rate increases by programming vendors exceeding our rate adjustments. Cost of sales increases are partially off-set by increasing amounts of cable modem services sold that generally have higher margins than do cable programming services.

In October 2002 we, along with the other largest publicly traded MSOs, signed a pledge to support and adhere to new voluntary reporting guidelines on common operating statistics to provide investors and others with a better understanding of our operations. Our operating statistics include capital expenditures and customer information from our cable services segment and the components of our local access services and Internet services segments which offer services utilizing our cable services' facilities.

Our capital expenditures by standard reporting category for the year ending December 31, 2003 and 2002 follows (amounts in thousands):

	2003		2002
Customer premise equipment	$	10,713	10,609
Commercial		705	597
Scalable infrastructure		2,221	3,082
Line extensions		1,270	866
Upgrade/rebuild		3,800	4,567
Support capital		503	5,413

Sub-total		19,212	25,134
Remaining reportable segments and All Other capital expenditures		43,267	40,006

	$	62,479	65,140

The standardized definition of a customer relationship is the number of customers that receive at least one level of service, encompassing voice, video, and data services, without regard to which services customers purchase. At December 31, 2003 and 2002 we had 121,900 and 124,400 customer relationships, respectively.

The standardized definition of a revenue generating unit is the sum of all primary analog video, digital video, high-speed data, and telephony customers, not counting additional outlets. At December 31, 2003 and 2002 we had 180,400 and 172,200 revenue generating units, respectively.

We generate local access services revenues from three primary sources: (1) business and residential basic dial tone services; (2) business Private Line and special access services; and (3) business and residential features and other charges, including voice mail, caller ID, distinctive ring, inside wiring and subscriber line charges. During 2003 local access services revenues represented 10.0% of consolidated revenues.

Our local access services segment faces significant competition in Anchorage, Fairbanks, and Juneau from ACS, which is the largest ILEC in Alaska, and from AT&T Alascom, Inc. We began providing service in the Juneau market in the first quarter of 2002. We believe our approach to developing, pricing, and providing local access services and bundling different business segment services will allow us to be competitive in providing those services.

We have been testing the deployment of voice telephone service utilizing our coaxial cable facilities. If we are able to deploy this service, we will be able to utilize our own cable facilities to provide local access to our customers and avoid paying local loop charges to the ILEC. To successfully deploy this service, we must integrate new technology with our existing facilities and the industry must adopt standards for the sending and receiving of voice communications over cable facilities. To ensure the necessary equipment is available to us we have committed to purchase a certain number of outdoor, network powered multi-media adapters, as further disclosed below in "Liquidity and Capital Resources." We expect to begin implementing this service delivery method in the second quarter of 2004.

At December 31, 2003, 106,100 lines were in service as compared to approximately 96,100 lines in service at December 31, 2002. At December 31, 2003 approximately 1,940 additional lines were awaiting connection. We estimate that our 2003 lines in service total represents a statewide market share of approximately 22%.

Approximately 86% of our lines are provided on our own facilities and leased local loops. Approximately 5% of our lines are provided using UNE platform.

In December 2003 we distributed our new phone directory and began recognizing revenue and costs of sales and service in the local access services segment. We recognized one month of revenue and cost of sales and service in the fourth quarter of 2003 and we plan to recognize the remaining eleven months in 2004. Operating expenses incurred and recognized throughout 2003 to prepare our new phone directory are reported in the local access services segment.

Local access services segment revenues increased 21.6% in 2003 to $39.0 million primarily due to the following:

Local access services segment cost of sales and services increased 17.6% to $23.8 million in 2003. Local access services segment cost of sales and services as a percentage of local access services segment revenues decreased from 63.0% in 2002 to 60.9% in 2003, primarily due to the $1.9 million of support from the Universal Service Program and reductions in access costs attributed to our conversion of service provided on a wholesale basis to service provided through our own facilities.

the long distance services segment operating results would have been reduced by an equal amount in 2003. Avoided access charges totaled approximately $7.0 million in 2002.

The local access services segment operating results are affected by our continued evaluation and testing of digital local phone service and Internet protocol-based technology to deliver phone service through our cable facilities.

We generate Internet services revenues from three primary sources: (1) access product services, including commercial, Internet service provider, and retail dial-up access; (2) network management services; and (3) Internet services' allocable share of cable modem revenue (a portion of cable modem revenue is also recognized by our cable services segment). During 2003 Internet services segment revenues represented 5.1% of consolidated revenues.

Marketing campaigns continue to be deployed targeting residential and commercial customers featuring bundled products. Our Internet offerings are bundled with our long-distance and/or local access services offerings and provide free basic Internet services or discounted premium Internet services if certain long-distance and local access services plans are selected. In 2004 we have added cable service to our bundled offering. Value-added premium Internet features are available for additional charges.

During 2003 we upgraded the download speeds of all of our cable modem Internet service offerings. These enhancements have proven to be popular with our customers which we believe is helping to further solidify our customer relationships.

Total Internet services segment revenues increased 27.3% to $19.8 million in 2003 primarily due to the 39.1% increase in its allocable share of cable modem revenues to $9.1 million in 2003 as compared to 2002. The increase in cable modem revenues is primarily due to growth in cable modem subscribers and the termination in the first quarter of 2003 of our offering in which customers received up to two months of free cable modem service. Additionally, the growth in cable modem revenues is affected by the level of service our subscribers select. In 2003 and 2002, 8.1% and 6.0%, respectively, of our subscribers selected our highest level of cable modem service resulting in increased revenue of approximately $897,000 in 2003 as compared to 2002.

We previously reported a total of 71,700 Internet subscribers at December 31, 2002. This subscriber count was based upon the total number of active dial-up subscribers at December 31, 2002.

Not all cable modem subscribers paying for a dial-up plan have activated their dial-up service. When we first started selling cable modem service it was packaged in a way that almost all cable modem subscribers were also dial up subscribers. As we introduced new packages and plans and started promoting our cable modem LiteSpeed service the number of cable modem subscribers without a dial up plan increased substantially. An internal review during the second quarter of 2003 revealed that these subscriber counts had risen substantially enough that they are now being reported separately.

Internet services cost of sales and services increased 22.3% to $5.9 million in 2003, and as a percentage of Internet services revenues, totaled 29.6% and 30.8% in 2003 and 2002, respectively. The 2003 decrease as a percentage of Internet services revenues is primarily due to the increase in Internet's portion of cable modem revenue which generally has higher margins than do other Internet services products. As Internet services revenues increase, economies of scale and more efficient network utilization continue to result in reduced Internet cost of sales and services as a percentage of revenues.

Revenues reported in the All Other category as described in note 13 in the accompanying "Notes to Consolidated Financial Statements" include our managed services, product sales, and cellular telephone services.

Revenues included in the All Other category represented 8.0% of total revenues in 2003.

All Other revenues increased 18.1% to $31.4 million in 2003. The increase in revenues is primarily due to the following:

All Other costs of sales and services increased 10.3% to $16.4 million in 2003, and as a percentage of All Other revenues, totaled 52.2% and 56.0% in 2003 and 2002, respectively. The decrease in All Other costs of sales and services as a percentage of All Other revenues is primarily due to the following:

Selling, general and administrative expenses increased 7.5% to $138.7 million in 2003 and, as a percentage of total revenues, increased to 35.5% in 2003 from 35.1% in 2002. The 2003 increase in selling, general and administrative expenses is primarily due to a $4.9 million increase in labor and health insurance costs and a $4.3 million increase in the accrual for company-wide success sharing bonus costs.

Marketing and advertising expenses as a percentage of total revenues decreased from 3.3% in 2002 to 2.5% in 2003.

Bad debt expense (recovery) decreased 101.4% to ($178,000) in 2003. The 2003 decrease is primarily due to the following:

In 2003, we reported an impairment charge of $5.4 million which equaled the remaining net book value recorded for our North Pacific Cable asset. In 1991 GCI purchased one DS-3 of capacity on a fiber optic cable system owned by AT&T. This fiber optic cable system is a spur off of a trans-Pacific fiber optic cable system owned by another group. We used our owned capacity to carry traffic to and from Alaska and the Lower 48 States. The section of the North Pacific Cable in which we own capacity was taken out of service in January 2004 due to a billing dispute between AT&T and the owner of the trans-Pacific cable system causing us to re-route certain of our traffic. We believe it is probable that we will not return our traffic to the North Pacific Cable even if it is placed back into service. We have requested in writing to be relieved of all future obligations required by our purchase agreement. Should our request be accepted, we expect to cease payment of maintenance and vessel standby costs totaling approximately $324,000 per year that would otherwise be payable over the remaining life of the system. The fiber optic cable system we are building is scheduled for completion in May 2004 and will provide us with route diversity and redundancy far in excess of that previously provided by the North Pacific Cable.

Depreciation, amortization and accretion expense decreased 5.6% to $53.4 million in 2003. The decrease is primarily attributed to a reduction in the depreciable value of Property and Equipment due to a basis adjustment of $18.5 million which was recorded in 2002 associated with the Kanas Telecom, Inc. acquisition, and a 2003 reduction of $1.3 million in depreciation expense which was also associated with the acquisition.

The decrease in depreciation, amortization and accretion expense described above was partially off-set by an increase in depreciation expense due to our $59.2 million investment in equipment and facilities placed into service during 2002 for which a full year of depreciation was recorded in 2003, and the $45.8 million investment in equipment and facilities placed into service during 2003 for which a partial year of depreciation was recorded in 2003.

Other expense, net of other income, increased 25.5% to $41.9 million in 2003. The increase is primarily due to the following:

Partially offsetting these increases was a decrease in the average outstanding indebtedness in 2003 and decreased interest expense in November and December 2003 due to the decreased interest rate paid on our new Senior Credit Facility.

Income tax expense was $10.1 million in 2003 and $5.7 million in 2002. The change was due to increased net income before income taxes and cumulative effect of a change in accounting principle in 2003 as compared to 2002. Our effective income tax rate decreased from 45.9% in 2002 to 38.5% in 2003 due to the effect of items that are nondeductible for income tax purposes and adjustments made to ending temporary difference balances in 2003.

At December 31, 2003, we have (1) tax net operating loss carryforwards of approximately $188.6 million that will begin expiring in 2005 if not utilized, and (2) alternative minimum tax credit carryforwards of approximately $1.9 million available to offset regular income taxes payable in future years. Our utilization of certain net operating loss carryforwards is subject to limitations pursuant to Internal Revenue Code section 382.

Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through future reversals of existing taxable temporary differences and future taxable income exclusive of reversing temporary differences and carryforwards. The amount of deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced which would result in additional income tax expense. We estimate that our effective income tax rate for financial statement purposes will be 40% to 43% in 2004.

Year Ended December 31, 2002 ("2002") Compared To Year Ended December 31, 2001 ("2001").

Total revenues increased 3.0% from $357.3 million in 2001 to $367.8 million in 2002. Excluding revenues from the fiber optic cable system capacity sale of $19.5 million in 2001 as described in note 1(p) in the accompanying "Notes to Consolidated Financial Statements," total revenues increased 8.9% in 2002. The long-distance services, cable services, local access services and Internet services segments contributed to the increase in total revenues, partially off-set by decreased revenues from All Other Services. See the discussions below for more information by segment.

Total cost of sales and services decreased 11.6% to $123.6 million in 2002. As a percentage of total revenues, total cost of sales and services decreased from 39.1% in 2001 to 33.6% in 2002. Excluding the 2001 fiber optic cable system capacity sale, total cost of sales and services as a percentage of total revenues totaled 38.2% in 2001 as compared to 33.6% in 2002. The long-distance services segment and All Other Services contributed to the decrease in total cost of sales and services, partially off-set by increases in cost of sales and services in the cable services, local access services and Internet services segments. See the discussions below for more information by segment.

Long-distance services segment revenues increased 2.1% to $204.9 million in 2002. The components of long-distance services segment revenues are as follows (amounts in thousands):

Message telephone service revenues from other common carriers (principally MCI and Sprint) increased 10.9% to $88.8 million in 2002 resulting from a 14.7% increase in wholesale minutes carried to 819.8 million minutes. After excluding certain 2001 low-margin wholesale minutes no longer carried for other common carriers, comparable wholesale minutes carried for other common carriers increased 19.5% over the prior year. Revenue increases resulting from increased wholesale minutes carried for other common carriers was partially off-set by a 3.5% decrease in the average rate per minute on minutes carried for other common carriers. The increase is also due to the reclassification of approximately 12.0 million minutes of traffic generated by a certain customer from retail in 2001 to wholesale in 2002. The average rate per minute decrease is primarily due to a reduced rate charged by us for certain Sprint traffic due to a new contract commencing April 2002. After excluding certain 2001 low-margin wholesale minutes not carried in 2002 for other common carriers, the comparable average rate per minute decreased 6.5% from the prior year.

Selected key performance indicators for our offering of message telephone service to residential, commercial and governmental customers follow:

Message telephone service revenues from residential, commercial, and governmental customers decreased 12.2% to $53.3 million in 2002 primarily due to the following:

Through May 2001 discounts recognized on revenue from certain Private Line and Private Network customers totaling $2.8 million off-set 2001 message telephone service revenue from residential, commercial and governmental customers. Beginning June 2001 these discounts off-set revenue earned from Private Line and Private Network customers. If these discounts had not been recognized in the 2001 message telephone service revenue from residential, commercial and governmental customers through May 2001, revenues would have decreased 16.1% to $53.3 million in 2002 as compared to 2001.

Private line and Private Network transmission services revenues increased 4.2% to $36.2 million in 2002. The increase is partially off-set by the effect of a reclassification of discounts recognized on revenue from certain Private Line and Private Network customers, discussed above in "Residential, Commercial and Governmental Message Telephone Services Revenue". If the discounts had been recognized in revenue from Private Line and Private Network customers during all of 2001 the increase in revenue would be 13.4% to $36.2 million. The increase in revenue from Private Line and Private Network customers in 2002 is primarily due to an increased number of circuits leased by governmental customers.

Revenues from our packaged telecommunications offering to rural hospital and health clinic service and our SchoolAccess™ offering to rural school districts increased 17.4% in 2002 to $18.4 million. The increase is primarily due to the addition in the second quarter of 2001 of two new subscribers to our rural hospital and health clinic service for which we recognized a full year of revenue in 2002, and our new SchoolAccess™ product offering called Distance Learning that started in late 2002. Distance Learning is a video-conference based service and is used by six school districts in Alaska in 2002.

Long-distance services segment cost of sales and services decreased 18.0% to $60.1 million in 2002. Long-distance services segment cost of sales and services as a percentage of long-distance services segment revenues decreased from 36.5% in 2001 to 29.3% in 2002 primarily due to the following:

Long-distance services cost of sales and services in 2001 included a reversal of $2.0 million in accrued costs upon the conclusion of a dispute with ACS and a $450,000 non-recurring refund from ACS in respect of its earnings that exceeded regulatory requirements.

Cable services segment revenues increased 15.9% to $88.7 million and average gross revenue per average basic subscriber per month increased $3.38 or 6.4% in 2002. The increases in revenues and rates per subscriber were accomplished without any meaningful rate increases during 2002 and are due primarily to continued deployment of our high value services including digital cable television and cable modems.

Programming services revenues increased 11.9% to $68.2 million in 2002 due to an increase in basic and digital subscribers.

The cable services segment's share of cable modem revenue (offered through our Internet services segment) increased $3.1 million to $8.0 million in 2002 due to an increased number of cable modems deployed. Approximately 96% of our cable homes passed are able to subscribe to our cable modem service in 2002.

At December 31, 2002 we offered digital programming in Anchorage, Fairbanks, Juneau, Kenai, and Soldotna, which markets represented approximately 80% of our homes passed.

Homes passed increased at December 31, 2002 as compared to December 31, 2001 due to new facility construction efforts.

In the second quarter of 2002 we signed new seven-year retransmission agreements with the five local Anchorage broadcasters and began up linking and distributing the local Anchorage programming to all of our cable systems. This was done to provide additional value to our cable subscribers and to allow us to differentiate our programming from that of our DBS competitors.

Cable services cost of sales and services increased 13.5% to $23.6 million in 2002. Cable services cost of sales and services as a percentage of cable services revenues, which is less as a percentage of revenues than are long-distance, local access and Internet services cost of sales and services, decreased from 27.2% in 2001 to 26.7% in 2002.

Revenues earned from equipment rental and installation, cable services' allocable share of cable modem services and advertising sales do not have significant corresponding costs of sales and services. The decrease in cable services cost of sales and services as a percentage of cable services revenues is primarily due to an increase in the percentage of cable services revenues earned from equipment rental and installation, cable services' allocable share of cable modem services and advertising sales from 20.4% in 2001 to 23.1% in 2002.

The decrease in cable services cost of sales and services as a percentage of cable services revenues described above is off-set by an increase in cable programming services cost of sales and services as a

percentage of cable programming services revenue from 34.2% in 2001 to 34.7% in 2002. Cable services rate increases did not keep pace with programming cost increases in 2002. Programming costs increased for most of our cable services offerings, and we incurred additional costs on new programming introduced in 2001 and 2002.

Local access services segment revenues increased 27.1% in 2002 to $32.1 million primarily due to growth in the average lines in service. At December 31, 2002 an estimated 96,100 lines were in service as compared to approximately 79,200 lines in service at December 31, 2001. At December 31, 2002 approximately 1,700 additional lines were awaiting connection. The increase in local access services revenues described above was partially off-set by the following:

We estimate that our 2002 lines in service total represented a statewide market share of approximately 20%.

Our access line mix continued to hold steady in 2002, with residential lines representing approximately 55% of our lines, business customers representing approximately 37%, and Internet access customers representing approximately 8%. Approximately 86% of our lines are provided on our own facilities or using leased local loops.

Local access services cost of sales and services increased 43.9% to $20.2 million in 2002. Local access services cost of sales and services as a percentage of local access services revenues increased from 55.6% in 2001 to 63.0% in 2002, primarily due to the following:

The increases in local access services cost of sales and services as a percentage of local access services revenues described above are partially offset by further economies of scale and more efficient network utilization as the number of local access services subscribers and resulting revenues increase.

The size of the local access services segment operating loss is exacerbated by the allocation of the benefit of access cost savings to the long-distance services segment. If the local access services segment received credit for the access charge reductions recorded by the long distance services segment, the local access services segment operating loss would have decreased by approximately $7.0 million and the long distance services segment would be reduced by an equal amount in 2002. Avoided access charges totaled approximately $6.3 million in 2001.

The local access services segment operating loss was affected by the expected start-up losses we experienced in the new Fairbanks and Juneau markets and our continued evaluation and testing of DLPS technology.

Internet services segment revenues increased 29.9% to $15.6 million in 2002 primarily due to growth in the number of customers served and the 60.3% increase in its allocable share of cable modem revenues in 2002 as compared to 2001. The increase in cable modem revenue is primarily due to growth in the number of cable modem subscribers from 2001 to 2002 and our subscribers' more frequent selection of our highest level of cable modem service.

Internet services cost of sales and services increased 0.9% to $4.8 million in 2002, and as a percentage of Internet services revenues, totaled 30.8% and 39.6% in 2002 and 2001, respectively. The decrease as a percentage of Internet services revenues is primarily due to the increase in Internet's portion of cable modem revenue which generally has higher margins than do other Internet services products. As Internet services revenues increase, economies of scale and more efficient network utilization continue to result in reduced Internet cost of sales and services as a percentage of revenues.

We enhanced the value of our Internet offerings in 2002 through the addition of electronic billing and presentment capabilities and the rollout of a product called e-mail guard, which filters out e-mail spam and viruses. In 2002 we upgraded the download speeds of all of our cable modem Internet service offerings. These new services and enhancements have proven to be very popular with our customers and are helping to further solidify our customer relationships.

The 37.9% decrease in All Other revenues to $26.6 million in 2002 is primarily due to the $19.5 million fiber optic cable system capacity sale in 2001, as described in note 1(p) in the accompanying "Notes to Consolidated Financial Statements." The decrease in revenues is partially offset by a $3.0 million increase in managed services revenue to $22.0 million in 2002 primarily due to the provision of additional services to and increased revenues from a certain customer as performance criteria was met.

All Other costs of sales and services decreased 44.8% to $14.9 million in 2002 primarily due to $10.9 million in costs of sale for the fiber optic cable system capacity sale in 2001.

As a percentage of All Other revenues, All Other costs of sales and services totaled 56.0% and 62.9% in 2002 and 2001, respectively. Excluding revenues from the 2001 fiber optic cable system capacity sale, cost of sales and services as a percentage of revenues totaled 56.0% and 68.9% in 2002 and 2001, respectively. The decrease is primarily due to the provision of additional services to and increased revenues from a certain customer as performance criteria was met without a corresponding increase in cost of sales and services.

Selling, general and administrative expenses increased 10.7% to $129.0 million in 2002 and, as a percentage of total revenues, increased to 35.1% in 2002 from 32.6% in 2001. Excluding the fiber optic cable system capacity sale in 2001, selling, general and administrative expenses, as a percentage of total revenues, increased from 34.1% in 2001 to 35.1% in 2002. The 2002 increase in selling, general and administrative expenses is primarily due to increased labor and health insurance costs, incremental new costs to operate GCI Fiber Communication Co., Inc. and Rogers American Cablesystems, Inc. (a cable television service provider in Palmer and Wasilla, Alaska, that we acquired in 2001), and costs incurred for our unsuccessful bid to purchase certain of the assets of WCI Cable, Inc., partially offset by a decreased accrual for company-wide success sharing bonus costs.

Marketing and advertising expenses as a percentage of total revenues decreased from 3.4% in 2001 to 3.3% in 2002. Excluding revenues from the fiber optic cable system capacity sale in 2001, marketing and advertising expenses as a percentage of total revenues were 3.6% in 2001.

Bad debt expense increased 206.7% to $13.1 million in 2002 and, as a percentage of total revenues, increased to 3.6% in 2002 from 1.2% in 2001. Excluding revenues from the fiber optic cable system capacity sale in 2001, bad debt expense as a percentage of total revenues was 1.3% in 2001. The 2002 increase is primarily due to the $11.0 million bad debt expense for uncollected accounts due from MCI.

Depreciation and amortization expense increased 1.3% to $56.4 million in 2002. The increase is primarily attributable to an increase of 15.1% to $55.6 million in depreciation expense due to our $68.0 million investment in equipment and facilities placed into service during 2001 for which a full year of depreciation was recorded in 2002, and the $59.2 million investment in equipment and facilities placed into service during 2002 for which a partial year of depreciation will be recorded in 2002.

Partially offsetting the depreciation expense increase described above is the discontinuation of amortization of Goodwill and Cable Certificates upon the adoption of SFAS 142, "Goodwill and Other Intangible Assets" on January 1, 2002, resulting in a decrease in 2002 amortization expense of approximately $6.5 million as compared to 2001.

Other expense, net of other income, increased 3.4% to $33.4 million in 2002. The increase is primarily due to the following:

Partially offsetting these increases were decreased 2002 interest rates on our Senior Credit Facility and Fiber Facility through November 1, 2002.

Income tax expense was $5.7 million in 2002 and $4.1 million in 2001. The increase was due to increased net income before income taxes in 2002 as compared to 2001. Our effective income tax rate

decreased from 47.0% in 2001 to 45.9% in 2002 due to the effect of items that are nondeductible for income tax purposes.

The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2003 and 2002 (amounts in thousands):

The following describes unusual or infrequently occurring items recognized in the following quarters of 2002 and 2003:

Cash flows from operating activities totaled $85.7 million in 2003 as compared to $74.5 million in 2002. The 2003 increase is primarily due to increased cash flow from all of our reportable segments, a $2.3 million refund from a local exchange carrier in respect of its earnings that exceeded regulatory requirements, and a $1.7 million refund from an intrastate access cost pool that previously overcharged us for access services. Uses of cash during 2003 included expenditures of $62.5 million for property and equipment, including construction in progress, principal payments on long-term debt and capital lease obligations of $14.6 million, payment of $6.2 million to purchase other assets and intangible assets, and payment of $3.5 million in fees associated with the amended and new Senior Credit Facility.

Net receivables increased $15.7 million from December 31, 2002 to December 31, 2003 primarily due to increases in the following:

Working capital totaled $2.9 million at December 31, 2003, a $3.3 million increase as compared to deficit of ($400,000) at December 31, 2002. The increase is primarily attributed to the following:

In February 2004 GCI, Inc. sold $250 million in aggregate principal amount of senior debt securities due February 15, 2014 ("new Senior Notes"). The new Senior Notes are an unsecured senior obligation. We will pay interest of 7.25% on the new Senior Notes, which were sold at a discount of $4.3 million. The new Senior Notes will be carried on our balance sheet net of the unamortized portion of the discount, which will be amortized to interest expense over the life of the new Senior Notes.

The net proceeds of the offering were primarily used to repay our existing $180 million 9.75% Senior Notes ("old Senior Notes") and to repay approximately $43.8 million of the term portion and $10.0 million of the revolving portion of our new Senior Credit Facility. Semi-annual interest payments of approximately $9.1 million will be due beginning August 15, 2004. In connection with the issuance, we paid fees and other expenses of approximately $6.3 million which will be amortized over the life of the new Senior Notes.

The new Senior Notes were offered only to qualified institutional buyers pursuant to Rule 144A and non-United States persons pursuant to Regulation S. The new Senior Notes have not been registered under the Securities Act and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. We plan to register our new Senior Notes by June 16, 2004.

The new Senior Notes are not redeemable prior to February 15, 2009. At any time on or after February 15, 2009, the new Senior Notes are redeemable at our option, in whole or in part, on not less

than thirty days nor more than sixty days notice, at the following redemption prices, plus accrued and unpaid interest (if any) to the date of redemption:

We are conducting a Consent Solicitation and Tender Offer for the old Senior Notes. Through February 13, 2004 we accepted for payment $114.6 million principal amount of notes which were validly tendered. Such notes accepted for payment received additional consideration as follows:

The remaining principal amount of $65.4 million will be redeemed by March 18, 2004 for additional consideration as follows:

The total estimated redemption cost is expected to be $186.1 million. The premium to redeem our old Senior Notes is expected to be $6.1 million (excluding estimated interest cost of $1.3 million), which will be recognized as a component of Other Income (Expense) during the three months ended March 31, 2004.

Compliance with the redemption notice requirements in the Indenture will result in a delay of up to sixty days before final redemption of some of the old Senior Notes. As a result of such delay, our total debt will increase during the overlap period between the redemption of the outstanding old Senior Notes and the issuance of the new Senior Notes making us out of compliance with Section 6.11 of our Credit, Guaranty, Security and Pledge Agreement, dated as of October 30, 2003. We have received a waiver from compliance with Section 6.11 until April 30, 2004.

On April 22, 2003 we amended our $225.0 million Senior Credit Facility. On October 30, 2003 we closed a new $220.0 million Senior Credit Facility to replace the April 22, 2003 amended Senior Credit Facility. The new Senior Credit Facility reduced the interest rate from LIBOR plus 6.50% to LIBOR plus 3.25%. The new Senior Credit Facility includes a term loan of $170.0 million and a revolving credit facility of $50.0 million.

The repayment schedule for the term loan portion of the new Senior Credit Facility, after considering repayments from our new Senior Notes offering proceeds, is as follows (amounts in thousands):

The remaining balance of the new Senior Credit Facility will be payable in full on October 31, 2007.

We are required to pay a commitment fee on the unused portion of the commitment. We may not permit the Total Leverage Ratio (as defined), the Senior Secured Leverage Ratio (as defined), and the Interest Coverage Ratio (as defined) to exceed certain amounts over the life of the new Senior Credit Facility.

Capital expenditures, excluding up to $58.0 million incurred to build or acquire additional fiber optic cable system capacity between Alaska and the Lower 48 States, in any of the years ended December 31, 2004, 2005 and 2006 may not exceed:

If the revolving credit facility exceeds $25.0 million, we may not incur capital expenditures, other than those incurred to build or acquire additional fiber optic cable system capacity, in excess of $25.0 million.

The new Senior Credit Facility requirement that we must either have repaid in full or successfully refinanced our old Senior Notes by February 1, 2007 was met with the refinancing of our old Senior Notes, as previously discussed.

$3.5 million of the new Senior Credit Facility has been used to provide a letter of credit to secure payment for our contract for the design, engineering, manufacture and installation of the new undersea fiber optic cable system. The letter of credit will be reduced to $1.8 million after a contract payment estimated to be made in March 2004. The letter of credit will be cancelled after the final contract payment date estimated to be in April 2004.

In connection with the April 22, 2003 amended Senior Credit Facility, we paid bank fees and other expenses of approximately $2.6 million during the year ended December 31, 2003. In connection with the new Senior Credit Facility, we paid bank fees and other expenses of $912,000 during the three

months ended December 31, 2003 which will be amortized over the life of the new Senior Credit Facility.

Because a portion of the new Senior Credit Facility was a substantial modification of the April 22, 2003 amended Senior Credit Facility, we recognized approximately $5.0 million in Amortization of Loan and Senior Notes Fees during the three months ended December 31, 2003. The remaining $2.2 million in amended Senior Credit Facility Deferred Loan Costs will continue to be amortized over the life of the new Senior Credit Facility.

The term loan is fully drawn and we have letters of credit totaling $6.5 million, which left $43.5 million available at December 31, 2003 to draw under the revolving credit facility if needed. In January 2004 we drew $10.0 million under the revolving credit facility. Our ability to draw down on the revolver portion of our new Senior Credit Facility could be diminished if we are not in compliance with all new Senior Credit Facility covenants or have a material adverse change at the date of the request for the draw. In September and December 2003 we made scheduled principal payments on our term loan totaling $10.0 million. In April 2003, we made a $2.7 million principal payment on the revolving credit facility. As described above, we issued new Senior Notes in February 2004 and used a portion of the proceeds to repay approximately $43.8 million of the term portion and $10.0 million of the revolving portion of our new Senior Credit Facility.

Our expenditures for property and equipment, including construction in progress, totaled $62.5 million and $65.1 million during 2003 and 2002, respectively. Our capital expenditures requirements in excess of approximately $25 million per year are largely success driven and are a result of the progress we are making in the marketplace. We expect our 2004 expenditures for property and equipment for our core operations, including construction in progress and excluding the new fiber system construction costs and other special projects described below, to total $45 million to $55 million, depending on available opportunities and the amount of cash flow we generate during 2004.

We are constructing a fiber optic cable system connecting Seward, Alaska and Warrenton, Oregon, with leased backhaul facilities to connect it to our switching and distribution centers in Anchorage, Alaska and Seattle, Washington. The 1,544-statute mile cable system has a total design capacity of 960 Gigabits per second access speed and is planned to be operational by May 2004. The cable will complement our existing fiber optic cable system between Whittier, Alaska and Seattle, Washington. The two cables will provide physically diverse backup to each other in the event of an outage. We expect to fund construction costs that are expected to total $50 million through our operating cash flows and, to the extent necessary, with draws on our new Senior Credit Facility. During 2003 our capital expenditures for this project have totaled approximately $16.5 million, all of which has been funded through our operating cash flows.

Planned capital expenditures over the next five years include those necessary for continued expansion of our long-distance, local exchange and Internet facilities, supplementing our existing network backup facilities, continuing development of our PCS network to meet the requirements of our license, digital local phone service, and upgrades to our cable television plant.

We are testing the deployment of DLPS. We expect to begin implementing this service delivery method in the second quarter of 2004. To ensure the necessary equipment is available to us we have entered into an agreement to purchase a certain number of outdoor, network powered multi-media adapters. The agreement has a remaining outstanding commitment at December 31, 2003 of $18.3 million.

We believe that payment for services provided to MCI subsequent to their bankruptcy filing date will continue to be made timely, consistent with our status in MCI's filing as a key service provider or

utility to MCI. See "Long Distance Services Overview" for a discussion of the settlement of the uncollected amounts due from MCI.

A migration of MCI's traffic off our network without it being replaced by other common carriers that interconnect with our network could have a materially adverse impact on our financial position, results of operations and liquidity.

The long-distance, local access, cable, Internet and wireless services industries continue to experience substantial competition, regulatory uncertainty, and continuing technological changes. Our future results of operations will be affected by our ability to react to changes in the competitive and regulatory environment and by our ability to fund and implement new or enhanced technologies. We are unable to determine how competition, economic conditions, and regulatory and technological changes will affect our ability to obtain financing.

The telecommunications industry in general has been depressed due to high levels of competition in the long-distance market resulting in pressures to reduce prices, an oversupply of long-haul capacity, excessive debt loads, several high-profile company failures and potentially fraudulent accounting practices by some companies. Our ability to obtain new debt under acceptable terms and conditions in the future may be diminished as a result.

Those policies considered to be critical accounting policies for the year ended December 31, 2003 are described below.

Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial statements. Polices related to revenue recognition and financial instruments require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. Certain of these matters, including but not limited to the requirement to account for the market value of stock options as compensation expense, are among topics currently under reexamination by accounting standards setters and regulators. Although no specific conclusions reached by these standard setters appear likely to cause a material change in our accounting policies, outcomes cannot be predicted with confidence. A complete discussion of our significant accounting policies can be found in Note 1 in the accompanying "Notes to Consolidated Financial Statements."

In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. ("FIN") 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FIN 46, Consolidation of Variable Interest Entities, which was issued in January 2003. We will be required to apply FIN 46R to variable interests in Variable Interest Entities ("VIEs") created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the VIE. At December 31, 2003, we do not have VIEs. We will adopt this statement January 1, 2004 and do not expect it to have a material effect on our results of operations, financial position and cash flows.

We offer voice and data telecommunication and video services to customers primarily throughout Alaska. Because of this geographic concentration, growth of our business and of our operations

depends upon economic conditions in Alaska. The economy of Alaska is dependent upon the natural resource industries, and in particular oil production, as well as investment earnings, tourism, government, and United States military spending. Any deterioration in these markets could have an adverse impact on us. All of the federal funding and the majority of investment revenues are dedicated for specific purposes, leaving oil revenues as the primary source of general operating revenues. In fiscal 2003 the State's actual results indicate that Alaska's oil revenues, federal funding and investment revenues supplied 36%, 31% and 20%, respectively, of the state's total revenues. In fiscal 2004 state economists forecast that Alaska's oil revenues, federal funding and investment revenues will supply 28%, 32% and 30%, respectively, of the state's total projected revenues.

The volume of oil transported by the TransAlaska Oil Pipeline System over the past 20 years has been as high as 2.0 million barrels per day in fiscal 1988. Production has been declining over the last several years with an average of 0.990 million barrels produced per day in fiscal 2003. The state forecasts the production rate to decline from 0.996 million barrels produced per day in fiscal 2004 to 0.844 million barrels produced per day in fiscal 2015. The state reports that its forecast has been adjusted since the last forecast reported in April 2003 due to the reexamination of field reservoir performance and potential.

Market prices for North Slope oil averaged $28.15 in fiscal 2003 and are forecasted to average $27.70 in fiscal 2004. The closing price per barrel was $31.53 on February 6, 2004. To the extent that actual oil prices vary materially from the state's projected prices the state's projected revenues and deficits will change. Every $1 change in the price per barrel of oil is forecasted to result in a $50.0 to $60.0 million change in the state's fiscal 2004 revenue. The production policy of the Organization of Petroleum Exporting Countries and its ability to continue to act in concert represents a key uncertainty in the state's revenue forecast.

The State of Alaska maintains the Constitutional Budget Reserve Fund that is intended to fund budgetary shortfalls. If the state's current projections are realized, the Constitutional Budget Reserve Fund will be depleted in 2007. The date the Constitutional Budget Reserve Fund is depleted is highly influenced by the price of oil. If the fund is depleted, aggressive state action will be necessary to increase revenues and reduce spending in order to balance the budget. The governor of the State of Alaska and the Alaska legislature continue to pursue cost cutting and revenue enhancing measures.

Deployment of a natural gas pipeline from the State of Alaska's North Slope to the Lower 48 States has been proposed to supplement natural gas supplies. A competing natural gas pipeline through Canada has also been proposed. The economic viability of a natural gas pipeline depends upon the price of and demand for natural gas. Either project could have a positive impact on the State of Alaska's revenues and the Alaska economy. In January 2004, two competing groups submitted applications to the State of Alaska to negotiate tax and other financial terms for the construction of a natural gas pipeline. The governor of the State of Alaska and certain natural gas transportation companies continue to support a natural gas pipeline from Alaska's North Slope by trying to reduce the project's costs and by advocating for federal tax incentives to further reduce the project's costs.

capable of responding to limited strategic ballistic missile threats to the United States. The preferred alternative is deployment of a system with up to 100 ground-based interceptor silos and battle management command and control facilities at Fort Greely, Alaska.

In 2003 the Alaska Legislature passed and the Governor signed legislation that extended the life of the RCA until 2007.

Tourism, air cargo, and service sectors have helped offset the prevailing pattern of oil industry downsizing that has occurred during much of the last several years.

Long-distance revenues (primarily those derived from our other common carrier customers) have historically been highest in the summer months because of temporary population increases attributable to tourism and increased seasonal economic activity such as construction, commercial fishing, and oil and gas activities. Cable television revenues, on the other hand, are higher in the winter months because consumers spend more time at home and tend to watch more television during these months. Local access and Internet services do not exhibit significant seasonality. Our ability to implement construction projects is also hampered during the winter months because of cold temperatures, snow and short daylight hours.

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated

into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources.

The following table details future projected payments associated with our certain known contractual obligations as of December 31, 2003.

For long-term debt included in the above table, we have included principal payments on our new Senior Credit Facility and on our old Senior Notes. Interest on amounts outstanding under our new Senior Credit Facility is based on variable rates and therefore the amount is not determinable. Our old Senior Notes require semi-annual interest payments of approximately $8.8 million through August 2007. For a discussion of our long-term debt, including the redemption of our old Senior Notes, issuance of new Senior Notes and the use of proceeds from the issuance of new Senior Notes to pay down our new Senior Credit Facility, see notes 8 and 17 to the accompanying "Notes to Consolidated Financial Statements."

For a discussion of our capital and operating leases, see note 16 to the accompanying "Notes to Consolidated Financial Statements."

Purchase obligations include the remaining construction commitment for our fiber optic cable system of $24.6 million, the remaining DLPS equipment purchase commitment of $18.3 million and the remaining $16.0 million commitment for our Alaska Airlines agreement as further described in note 16 to the accompanying "Notes to Consolidated Financial Statements." The contracts associated with these commitments are non-cancelable. Purchase obligations also include other commitments for goods and services for capital projects and normal operations which are not included in our Consolidated Balance Sheets at December 31, 2003, because the goods had not been received or the services had not been performed at December 31, 2003.

You should see "Part I—Item 1—Business, Regulation, Franchise Authorizations and Tariffs" for more information about regulatory developments affecting us.

GCI's Audit Committee, composed entirely of independent directors, meets periodically with our independent auditors and management to review the Company's financial statements and the results of audit activities. The Audit Committee, in turn, reports to GCI's Board of Directors on the results of its review and recommends the selection of independent auditors.

The Audit Committee has approved the independent auditor to provide the following services:

We have audited the accompanying consolidated balance sheets of GCI, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholder's equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GCI, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1(n) to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards, No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003.

GCI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

GCI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

GCI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

In the following discussion, GCI, Inc. and its direct and indirect subsidiaries are referred to as "we," "us" and "our".

The consolidated financial statements include the consolidated accounts of GCI, Inc. and its wholly owned subsidiaries with all significant intercompany transactions eliminated.

We are a wholly owned subsidiary of GCI and, accordingly, are not required to present earnings per share. Our common stock is not publicly traded.

Cash equivalents consist of repurchase interest investments which are short-term and readily convertible into cash.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our

existing accounts receivable. We determine the allowance based on historical write-off experience by industry and regional economic data. We review our allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance when we feel it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to our customers.

Inventory of merchandise for resale and parts is stated at the lower of cost or market. Cost is determined using the average cost method.

Property and equipment is stated at cost. Construction costs of facilities are capitalized. Equipment financed under capital leases is recorded at the lower of fair market value or the present value of future minimum lease payments. Construction in progress represents distribution systems and support equipment not placed in service on December 31, 2003; management intends to place this equipment in service during 2004.

Depreciation is computed on a straight-line basis based upon the shorter of the estimated useful lives of the assets or the lease term, if applicable, in the following ranges:

Asset Category		Asset Lives
Telephony distribution and fiber optic cable systems		10-20 years
Cable television distribution systems		10 years
Support equipment		3-10 years
Transportation equipment		5-10 years
Property and equipment under capital leases		3-20 years

Repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments are capitalized. Gains or losses are recognized at the time of retirements, sales or other dispositions of property.

Effective January 1, 2002, we adopted Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Since our adoption of SFAS No. 142, goodwill and cable certificates (certificates of convenience and public necessity) are no longer amortized. Cable certificates represent certain perpetual operating rights to provide cable services and were amortized on a straight-line basis over 20 to 40 years in the year ended December 31, 2001. Goodwill represents the excess of cost over fair value of net assets acquired and was amortized on a straight-line basis over periods of 10 to 40 years in the year ended December 31, 2001. Cable certificates are allocated to our cable services reportable segment. Goodwill is primarily allocated to the cable services segment and the remaining amount is not allocated to a reportable segment, but is included in the All Other Category in note 13.

The cost of our Personal Communication Services license and related financing costs were capitalized as an amortizable intangible asset. The associated assets were placed into service during 2000 and the recorded cost of the license and related financing costs are being amortized over a 40-year period using the straight-line method. All other amortizable intangible assets are being amortized over 2-20 year periods using the straight-line method.

Cable certificates are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of the cable certificates asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the asset is its new accounting basis.

Goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. This determination is made at the reporting unit level and consists of two steps. First, we determine the fair value of a reporting unit and compare it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141, "Business Combinations." The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Debt issuance costs are deferred and amortized using the straight-line method, which approximates the interest method, over the term of the related debt and notes. Amortization costs are reported as a component of Other Income (Expense) in the Consolidated Statements of Operations.

Other Assets primarily include long-term deposits and non-trade accounts receivable.

We record derivatives on the balance sheet as assets or liabilities, measured at fair value consistent with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended.

On July 1, 2003 we adopted SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Adoption of SFAS No. 149 did not have a material effect on our results of operations, financial position and cash flows.

On July 1, 2003 we adopted SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer

classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Adoption of SFAS No. 150 did not have a material effect on our results of operations, financial position and cash flows.

On January 1, 2003 we adopted SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 provides accounting and reporting standards for costs associated with the retirement of long-lived assets. This statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Upon adoption, we recorded the cumulative effect of accretion and depreciation expense as a cumulative effect of a change in accounting principle of approximately $544,000, net of income tax benefit of $367,000.

Following is a reconciliation of the beginning and ending aggregate carrying amount of our asset retirement obligations at December 31, 2003 (amounts in thousands):

Following is the amount of the liability for asset retirement obligations as if SFAS No. 143 had been applied at December 31, 2001 (amounts in thousands):

At the date of adoption we recorded additional capitalized costs of $654,000 in Property and Equipment in Service, Net of Depreciation. During the year ended December 31, 2003 we recorded additional capitalized costs of $278,000 in Property and Equipment in Service, Net of Depreciation.

All revenues are recognized when the earnings process is complete in accordance with Securities and Exchange Commission ("SEC") Staff Accounting Bulletins No. 101 and No. 104, "Revenue Recognition." Revenues generated from long-distance and managed services are recognized when the services are provided. Cable television service, local access service, Internet service and private line telecommunication revenues are billed in advance, recorded as Deferred Revenue on the balance sheet, and are recognized as the associated service is provided. Revenues from the sale of equipment are recognized at the time the equipment is delivered or installed. Technical services revenues are derived primarily from maintenance contracts on equipment and are recognized on a prorated basis over the term of the contracts. Revenues from telephone and yellow-page directories are recognized ratably during the period following publication, which typically begins with distribution and is complete in the month prior to publication of the next directory. Other revenues are recognized when the service is

provided. We recognize unbilled revenues when the service is provided based upon minutes of use processed or established rates, net of credits and adjustments.

During the first quarter of 2001 we completed a $19.5 million sale of long-haul capacity in the Alaska United undersea fiber optic cable system ("fiber capacity sale") in a cash transaction. The sale included both capacity within Alaska, and between Alaska and the contiguous 48 states. We used the proceeds from the fiber capacity sale to repay $11.7 million of the debt and to fund capital expenditures and working capital.

The fiber capacity sale was pursuant to a contract giving the purchaser an indefeasible right to use a certain amount of fiber system capacity expiring on February 4, 2024. The term may be extended if the actual useful life of the fiber system capacity extends beyond the estimated useful life of twenty-five years. The fiber system capacity sold is integral equipment because it is attached to real estate. Because all of the benefits and risks of ownership have been transferred to the purchaser upon full receipt of the purchase price and other terms of the contract meet the requirements of SFAS No. 66, "Accounting for Sales of Real Estate" we accounted for the fiber capacity sale as a sales-type lease. We recognized $19.5 million in revenue from the fiber capacity sale. We recognized $10.9 million as cost of sales during the year ended December 31, 2001.

The accounting for the sale of fiber system capacity is currently evolving and accounting guidance may become available in the future which could require us to change our policy. If we are required to change our policy, it is likely the effect would be to recognize the gain from future sales of fiber capacity, if any, over the term the capacity is provided.

On March 20, 2003 the Financial Accounting Standards Board issued Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Reseller for Cash Consideration Received from a Vendor" ("EITF No. 02-16"). We have applied EITF No. 02-16 prospectively for arrangements entered into or modified after December 31, 2002. Our cable services segment occasionally receives reimbursements for costs to promote suppliers' services, called cooperative advertising arrangements. The supplier payment is classified as a reduction of selling, general and administrative expenses if it reimburses specific, incremental and identifiable costs incurred to resell the suppliers' services. Excess consideration, if any, is classified as a reduction of cost of sales and services.

Occasionally our cable services segment enters into a binding arrangement with a supplier in which we receive a rebate dependent upon us meeting a specified goal. We recognize the rebate as a reduction of cost of sales and services systematically as we make progress toward the specified goal, provided the amounts are probable and reasonably estimable. If earning the rebate is not probable and reasonably estimable, it is recognized only when the goal is met.

We expense advertising costs in the fiscal year during which the first advertisement appears. Advertising expenses were approximately $3,727,000, $2,967,000 and $3,168,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Interest costs incurred during the construction period of significant capital projects, such as construction of an undersea fiber optic cable system, are capitalized. During the year ended

December 31, 2003, $403,000 in interest cost was capitalized during the construction of the fiber optic cable system discussed further in note 16. No interest was capitalized during the years ended December 31, 2002 and 2001.

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for their future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable earnings in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized to the extent that the benefits are more likely to be realized than not. GCI, Inc. and its wholly-owned subsidiaries file corporate income tax returns as part of the GCI consolidated group of companies.

On January 1, 2003 we adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Upon adoption of SFAS No. 146, enterprises may only record exit or disposal costs when they are incurred and can be measured at fair value. The recorded liability will be subsequently adjusted for changes in estimated cash flows. SFAS 146 revises accounting for specified employee and contract terminations that are part of restructuring activities. Adoption of SFAS No. 146 did not have a material effect on our results of operations, financial position and cash flows.

We receive refunds from time to time from ILECs with which we do business in respect of their earnings that exceed regulatory requirements. Telephone companies that are rate regulated by the Federal Communications Commission ("FCC") using the rate of return method are required by the FCC to refund earnings from interstate access charges assessed to long-distance carriers when their earnings exceed their authorized rate of return. Such refunds are computed based on the regulated carrier's earnings in several access categories. Uncertainties exist with respect to the amount of their earnings, the refunds (if any), their timing, and their realization. We account for such refundable amounts as gain contingencies, and, accordingly, do not recognize them until realization is a certainty upon receipt.

At December 31, 2003, we had one stock-based employee compensation plan, which is described more fully in note 12. We account for this plan under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. We use the intrinsic-value method and compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. We have adopted SFAS 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows entities to continue to apply the provisions of APB Opinion No. 25.

We have adopted SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." This Statement amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent

disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure as required by SFAS 148.

Stock-based employee compensation cost is reflected over the options' vesting period of generally five years and compensation cost for options granted prior to January 1, 1996 is not considered. The following table illustrates the effect on net income for the years ended December 31, 2003, 2002 and 2001, if we had applied the fair-value recognition provisions of SFAS 123 to stock-based employee compensation (amounts in thousands):

We account for stock options and warrants issued in exchange for non-employee services pursuant to the provisions of SFAS 123, Emerging Issues Task Force ("EITF") 96-3 and EITF 96-18, wherein such transactions are accounted for at the fair value of the consideration or services received or the fair value of the equity instruments issued, whichever is more reliably measurable.

When a stock option or warrant is issued for non-employee services where the fair value of such services is not stated, we estimate the value of the stock option or warrant issued using the Black Scholes method.

The fair value determined using these principles is charged to operating expense over the shorter of the term for which non-employee services are provided, if stated, or the stock option or warrant vesting period.

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include allowance for doubtful receivables, valuation allowances for deferred income tax assets, depreciable lives of assets, the carrying value of long-lived assets including goodwill, and the accrual of cost of sales and services. Actual results could differ from those estimates.

Financial instruments that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents and accounts receivable. Excess cash is invested in high quality short-term liquid

money instruments issued by highly rated financial institutions. At December 31, 2003 and 2002, substantially all of our cash and cash equivalents were invested in short-term liquid money instruments at one highly rated financial institution.

We have one major customer, MCI (see note 15). Additionally, Sprint was a major customer during the year ended December 31, 2001 (see note 13). There is increased risk associated with these customers' accounts receivable balances. Our remaining customers are located primarily throughout Alaska. Because of this geographic concentration, our growth and operations depend upon economic conditions in Alaska. The economy of Alaska is dependent upon the natural resources industries, and in particular oil production, as well as tourism, government, and United States military spending. Though limited to one geographical area and except for MCI and Sprint, the concentration of credit risk with respect to our receivables is minimized due to the large number of customers, individually small balances, and short payment terms.

Internally used software, whether purchased or developed, is capitalized and amortized using the straight-line method over an estimated useful life of five years. In accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," we capitalize certain costs associated with internally developed software such as payroll costs of employees devoting time to the projects and external direct costs for materials and services. Costs associated with internally developed software to be used internally are expensed until the point the project has reached the development stage. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. The capitalization of software requires judgment in determining when a project has reached the development stage.

Effective January 1, 2003, we adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Accordingly, unamortized bank fees and other expenses totaling approximately $2.3 million associated with the November 2002 refinancing of debt instruments were not classified as an extraordinary item and were charged to Amortization of Loan and Senior Notes Fees during the year ended December 31, 2002.

On January 1, 2003 we adopted FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation does not prescribe a specific approach for subsequently measuring the guarantor's recognized liability over the term of the related guarantee. This Interpretation also incorporates, without change, the guidance in FIN No. 34, "Disclosure of Indirect Guarantees of Indebtedness of Others," which is being superseded. Adoption of FIN No. 45 did not have a material effect on our results of operations, financial position and cash flows.

Reclassifications have been made to the 2001 and 2002 financial statements to make them comparable with the 2003 presentation.

We paid interest totaling approximately $34,441,000, $29,427,000 and $32,415,000 during the years ended December 31, 2003, 2002 and 2001, respectively.

GCI, Inc., as a wholly-owned subsidiary and member of the GCI controlled group of corporations, files its income tax returns as part of the consolidated group of corporations under GCI. Accordingly, the following discussion of an income tax payment and refund reflects the consolidated group's activity. We paid income taxes totaling $112,000 during the year ended December 31, 2001. We paid no income taxes during the years ended December 31, 2003 and 2002. Net income tax refunds received totaled $283,700 during the year ended December 31, 2002. We received no income tax refunds during the years ended December 31, 2003 and 2001.

We recorded $538,000, $319,000 and $2,317,000 during the years ended December 31, 2003, 2002 and 2001, respectively, in paid-in capital in recognition of the income tax effect of excess stock compensation expense for tax purposes over amounts recognized for financial reporting purposes.

Effective March 31, 2001 we acquired the assets and customer base of G.C. Cablevision, Inc. Upon acquisition the seller received shares of GCI Class A common stock with a future payment in additional shares contingent upon the market price of GCI's common stock on March 31, 2003. At March 31, 2003 the market price condition was not met and GCI issued approximately 222,600 shares of its Class A common stock were issued.

During the year ended December 31, 2002 we funded the employer match portion of Employee Stock Purchase Plan contributions by GCI's issuance of its Class A common stock valued at $791,000 and by purchasing GCI Class A common stock on the open market. During the years ended December 31, 2003 and 2001 all employer match shares were purchased on the open market.

We financed the acquisition of approximately $1.0 million of telephony distribution equipment pursuant to a long-term capital lease arrangement with a leasing company during the year ended December 31, 2002.

We acquired all minority shareholders' ownership interests in GFCC by GCI's issuance of 15,000 shares of its Class A common stock in 2002.

Effective June 30, 2001 GCI issued $10.0 million of Series C preferred stock in exchange for MCI's 85% controlling interest in Kanas (renamed GFCC, see note 3).

Effective March 31, 2001 we acquired the assets and customer base of G.C. Cablevision, Inc. of Fairbanks. The seller received 238,199 unregistered shares of GCI Class A common stock with a future payment in additional shares contingent upon certain conditions (see note 2). The property and equipment was valued at $2,088,000 on the date of acquisition. The value of the remaining assets and liabilities acquired was not material.

Effective June 30, 2001 we completed the acquisition of MCI's 85 percent controlling interest in Kanas, which owns the 800-mile fiber optic cable system that extends from Prudhoe Bay to Valdez via Fairbanks. The corporation owning the fiber optic system was renamed and is now operated as GFCC. The fiber optic cable system was valued at approximately $21,198,000 on the date of acquisition. On June 30, 2001 GCI issued to MCI, a related party, shares of Series C preferred stock valued at $10.0 million. The balance of the carrying value consisted of payments to and services performed on behalf of Kanas to maintain its operations prior to June 30, 2001. The value of the remaining assets and liabilities acquired was not material. We acquired the remaining 15 percent ownership interest of GFCC by GCI's issuance of 15,000 shares of its Class A common stock in 2002.

Effective November 19, 2001 we acquired all of the stock of Rogers, a cable television service provider in Palmer and Wasilla, Alaska for $18.5 million in cash. Per the acquisition agreement $467,000 was withheld from the original payment to account for the amount by which Rogers' current liabilities exceeded current assets and for certain capital expenditures incurred by the previous owners of Rogers through May 2001. The final settlement of $345,000 was paid in the first quarter of 2003. This acquisition was funded through a $19.0 million draw on our then existing Senior Holdings Loan. The results of Roger's operations have been included in the consolidated financial statements in the cable services segment since the acquisition date. This acquisition added approximately 10,000 homes passed and approximately 7,000 subscribers to our cable services segment in 2001.

The following table, updated to reflect refinements of original estimates, summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the Rogers acquisition (amounts in thousands):

Receivables consist of the following at December 31, 2003 and 2002 (amounts in thousands):

Following are the changes in the allowance for doubtful receivables during the years ended December 31, 2003, 2002 and 2001 (amounts in thousands):

As further described in note 15, during the year ended December 31, 2003 we reached a settlement agreement for pre-petition amounts owed to us by MCI. The remaining pre-petition accounts receivable balance owed by MCI after this settlement was removed from our Consolidated Balance Sheets in 2003. During the year ended December 31, 2003 we utilized approximately $2.8 million of the MCI credit against amounts otherwise payable for services received from MCI.

As further described in note 15, the Allowance for Doubtful Receivables at December 31, 2002 includes the provision of $11.6 million of bad debt expense for estimated uncollectible accounts due from MCI.

Net property and equipment in service consists of the following at December 31, 2003 and 2002 (amounts in thousands):

		2003		2002
Land and buildings		$	3,151	2,982
Telephony distribution systems			345,984	344,566
Cable television distribution systems			161,054	149,415
Support equipment			46,219	39,807
Transportation equipment			5,500	5,687
Property and equipment under capital leases			51,214	51,770

			613,122	594,227
Less accumulated depreciation and amortization			244,083	212,833

	Net property and equipment in service	$	369,039	381,394

As of December 31, 2003 cable certificates and goodwill were tested for impairment and the fair values were greater than the carrying amounts, therefore these intangible assets were determined not to

be impaired at December 31, 2003. The remaining useful lives of our cable certificates and goodwill were evaluated as of December 31, 2003 and events and circumstances continue to support an indefinite useful life. The following pro forma financial information reflects net income as if goodwill and cable certificates were not subject to amortization for the year ended December 31, 2001 (amounts in thousands):

Amortization expense for amortizable intangible assets for the years ended December 31, 2003, 2002 and 2001 follow:

Amortization expense for amortizable intangible assets for each of the five succeeding fiscal years is estimated to be (amounts in thousands):

No intangible assets have been impaired based upon impairment testing performed as of December 31, 2003 (see note 1(h)) and no indicators of impairment have occurred since the impairment testing was performed.

Notes receivable from related parties consist of the following (amounts in thousands):

		December 31,
		2003		2002
Notes receivable from officers bearing interest up to 6.5% or at the rate paid by us on our senior indebtedness, unsecured, due through February 8, 2007		$	3,029	3,479
Notes receivable from officers bearing interest up to 9.0% or at the rate paid by us on our senior indebtedness, secured by GCI common stock and a personal residence, due through August 26, 2004			919	469
Notes receivable from other related parties bearing interest up to 8.4% or at the rate paid by us on our senior indebtedness, unsecured and secured by property, due through December 31, 2007			606	660
Interest receivable			1,612	1,231

	Total notes receivable from related parties		6,166	5,839
Less current portion, including current interest receivable			2,723	697

	Long-term portion, including long-term interest receivable	$	3,443	5,142

The repayment schedule for the term loan portion of the new Senior Credit Facility, after consideration of the $43.8 million term loan prepayment from the new Senior Notes issuance proceeds as described in note 17, is as follows (amounts in thousands):

The remaining balance of the new Senior Credit Facility will be payable in full on October 31, 2007.

We are required to pay a commitment fee on the unused portion of the commitment as follows:

Total Leverage Ratio (as defined)	Commitment fee if the outstanding revolving credit facility is > 50% of the average revolving credit facility commitments by the lenders during such period		Commitment fee if the outstanding revolving credit facility is < 50% of the average revolving credit facility commitments by the lenders during such period
>3.75	1.00	%	1.25	%
>3.25 but <3.75	0.75	%	1.00	%
>2.75 but <3.25	0.50	%	0.75	%
< 2.75	0.50	%	0.75	%

Period		Total Leverage Ratio
October 30, 2003 through December 30, 2003		4.25:1
December 31, 2003 through December 30, 2004		4.00:1
December 31, 2004 through December 30, 2005		3.75:1
December 31, 2005 through June 29, 2006		3.50:1
June 30, 2006 through June 29, 2007		3.25:1
June 30, 2007 through September 29, 2007		3.00:1
September 30, 2007 through October 31, 2007		2.75:1

Period		Senior Secured Leverage Ratio
October 30, 2003 through December 30, 2004		2.00:1
December 31, 2004 through September 29, 2006		1.75:1
September 30, 2006 through June 29, 2007		1.50:1
June 30, 2007 through September 29, 2007		1.25:1
September 30, 2007 through October 31, 2007		1.00:1

The Interest Coverage Ratio (as defined) may not be less than 2.50:1 at any time.

Capital expenditures, excluding up to $58.0 million incurred to build or acquire additional fiber optic cable system capacity between Alaska and the lower forty-eight states, in any of the years ended December 31, 2004, 2005 and 2006 may not exceed:

The new Senior Credit Facility requirement that we must either have repaid in full or successfully refinanced our Senior Notes by February 1, 2007 was met with the refinancing of our Senior Notes, as discussed in note 17.

We were in compliance with all new Senior Credit Facility covenants through December 31, 2003.

Our ability to draw down the revolver portion of our new Senior Credit Facility could be diminished if we are not in compliance with all new Senior Credit Facility covenants or have a material adverse change at the date of the request for the draw.

In connection with the new Senior Credit Facility, we paid bank fees and other expenses of $912,000 during the year ended December 31, 2003 which will be amortized over the life of the new Senior Credit Facility.

In connection with the April 22, 2003 amended Senior Credit Facility, we paid bank fees and other expenses of approximately $2.6 million during the year ended December 31, 2003. Because a portion of the new Senior Credit Facility was a substantial modification of the April 22, 2003 amended Senior Credit Facility we recognized approximately $5.0 million in Amortization of Loan and Senior Notes Fees during the three months ended December 31, 2003. The remaining $2.2 million in amended Senior Credit Facility deferred loan costs will continue to be amortized over the life of the new Senior Credit Facility.

As of December 31, 2003 maturities of long-term debt, after considering a $10.0 million draw on the revolving credit portion of our new Senior Credit Facility in January 2004 and the new Senior Notes issuance in February 2004, as discussed in note 17, were as follows (amounts in thousands):

Years ending December 31, 2004	$	—
2005		170
2006		32,000
2007		89,000
2008		—
2009 and thereafter		250,000

		371,170
Additional principal portion after issuance of our new Senior Notes		(70,000	)
Use of new Senior Notes proceeds to pay down new Senior Credit Facility		53,830
Draw on the revolving credit portion of our new Senior Credit Facility		(10,000	)

Long-term debt, at December 31, 2003	$	345,000

In 2003 we reported an impairment charge of $5.4 million which equaled the remaining net book value recorded for our North Pacific Cable asset. In 1991 GCI purchased one DS-3 of capacity on a fiber optic cable system owned by AT&T. This fiber optic cable system is a spur off of a trans-Pacific fiber optic cable system owned by another group. We used our owned capacity to carry traffic to and from Alaska and the Lower 48 states. The section of the North Pacific Cable in which we own capacity was taken out of service in January 2004 due to a billing dispute between AT&T and the owner of the trans-Pacific cable system causing us to re-route certain of our traffic. We believe it is probable that we will not return our traffic to the North Pacific Cable even if it is placed back into service. We have requested in writing to be relieved of all future obligations required by our purchase agreement. Should

our request be accepted, we expect to cease payment of maintenance and vessel standby costs totaling approximately $324,000 per year that would otherwise be payable over the remaining life of the system. The fiber optic cable system we are building (see note 16) is scheduled for completion in May 2004 and will provide us with route diversity and redundancy far in excess of that previously provided by the North Pacific Cable.

SFAS No. 130, "Reporting Comprehensive Income" requires us to report and display comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. During the years ended December 31, 2003, 2002 and 2001 we had other comprehensive income (loss) of approximately $232,000, ($548,000) and $8,000, respectively. Total comprehensive income at December 31, 2003, 2002 and 2001 was $15,774,000, $6,115,000 and $4,597,000, respectively.

GCI, Inc., as a wholly owned subsidiary and member of the GCI controlled group of corporations, files its income tax returns as part of the consolidated group of corporations under GCI. Accordingly, the following discussions of net operating loss carryforwards and income tax benefit reflect the consolidated group's activity and balances.

Total income tax (expense) benefit was allocated as follows (amounts in thousands):

Total income tax expense differed from the "expected" income tax expense determined by applying the statutory federal income tax rate of 35% for 2003 and 34% for 2002 and 2001 as follows (amounts in thousands):

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2003 and 2002 are presented below (amounts in thousands):

			December 31,
			2003		2002
Current deferred tax assets:
	Accounts receivable, principally due to allowance for doubtful accounts		$	4,117	5,649
	Compensated absences, accrued for financial reporting purposes			2,062	1,914
	Workers compensation and self insurance health reserves, principally due to accrual for financial reporting purposes			801	805
	Other			215	141

		Total current deferred tax assets	$	7,195	8,509

			December 31,
			2003		2002
Long-term deferred tax assets:
	Net operating loss carryforwards		$	77,534	76,855
	Alternative minimum tax credits			1,892	1,892
	Deferred compensation expense for financial reporting purposes in excess of amounts recognized for tax purposes			1,531	1,239
	Employee stock option compensation expense for financial reporting purposes in excess of amounts recognized for tax purposes			727	411
	Sweepstakes award in excess of amounts recognized for tax purposes			179	184
	State income taxes			—	1,555
	Charitable contributions expense for financial reporting in excess of amount recognized for tax purposes			672	586
	Cost of sales and services for financial reporting in excess of amounts recognized for tax purposes			185	181
	Cash flow hedge expense for financial reporting purposes in excess of amounts recognized for tax purposes			212	464
	Asset retirement obligations in excess of amounts recognized for tax purposes			825	—
	Other			—	360

		Total long-term deferred tax assets		83,757	83,727

Long-term deferred tax liabilities:
	Plant and equipment, principally due to differences in depreciation			93,928	90,522
	Amortizable assets			13,997	8,920
	Other			—	346

		Total gross long-term deferred tax liabilities		107,925	99,788

		Net combined long-term deferred tax liabilities	$	24,168	16,061

We recorded net deferred tax assets of $15.8 million in 2002 associated with the Rogers and Kanas acquisitions (see note 3), resulting in adjustments to the recorded financial statement cost basis of associated goodwill and property and equipment.

In conjunction with the 1996 Cable Companies acquisition, GCI incurred a net deferred income tax liability of $24.4 million and acquired net operating losses totaling $57.6 million. GCI determined that approximately $20 million of the acquired net operating losses would not be utilized for income tax purposes, and elected with its December 31, 1996 income tax returns to forego utilization of such acquired losses under Internal Revenue Code section 1.1502-32(b)(4). Deferred tax assets were not recorded associated with the foregone losses and, accordingly, no valuation allowance was provided. At December 31, 2003, the Company has (1) tax net operating loss carryforwards of approximately $188.6 million that will begin expiring in 2005 if not utilized, and (2) alternative minimum tax credit carryforwards of approximately $1.9 million available to offset regular income taxes payable in future years.

The following schedule shows our tax net operating loss carryforwards by year of expiration (amounts in thousands):

Years ending December 31,	Federal		State
2005	$	292	—
2006		393	—
2007		4,017	3,006
2008		8,077	7,509
2009		11,767	11,482
2010		9,134	8,935
2011		6,919	6,685
2018		19,995	19,390
2019		27,910	27,905
2020		45,403	45,400
2021		30,973	31,922
2022		15,320	15,002
2023		8,361	8,187

Total tax net operating loss carryforwards	$	188,561	185,423

Our utilization of remaining acquired net operating loss carryforwards is subject to annual limitations pursuant to Internal Revenue Code section 382 which could reduce or defer the utilization of these losses.

Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through taxable income earned in carry back years, future reversals of existing taxable temporary differences, and future taxable income exclusive of reversing temporary differences and carryforwards. The amount of deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

Our United States income tax return for 2000 was selected for examination by the Internal Revenue Service during 2003. The examination began during the fourth quarter of 2003. We believe this examination will not have a material adverse effect on our financial position, results of operations or our liquidity.

We were incorporated in 1997 and issued 100 shares of our no par Class A common stock to GCI in our initial capitalization. We received all ownership interests in subsidiaries previously held by GCI and proceeds from GCI's August 1, 1997 common stock offering. We recorded $206,622,000 associated with our initial capitalization. All of our issued and outstanding Class A common stock is owned by GCI.

In December 1986, GCI adopted a Stock Option Plan (the "Option Plan") in order to provide a special incentive to our officers, non-employee directors, and employees by offering them an opportunity to acquire an equity interest in GCI. The Option Plan, as amended, provides for the grant of options for a maximum of 10.7 million shares of GCI Class A common stock, subject to adjustment upon the occurrence of stock dividends, stock splits, mergers, consolidations or certain other changes in corporate structure or capitalization. If an option expires or terminates, the shares subject to the option will be available for further grants of options under the Option Plan. The Option Committee of GCI's Board of Directors administers the Option Plan.

The Option Plan provides that all options granted under the Option Plan must expire not later than ten years after the date of grant. If at the time an option is granted the exercise price is less than the market value of the underlying common stock, the difference in these amounts at the time of grant is expensed ratably over the vesting period of the option. Options granted pursuant to the Option Plan are only exercisable if at the time of exercise the option holder is our employee, non-employee director, or a consultant or advisor working on our behalf.

Our employees and employees of our subsidiaries are eligible to participate in the Option Plan. Expenses associated with the grant of options to employees are recorded pursuant to the provisions of APB Number 25 and Interpretative Releases 1 and 2 of SAB Topic 1B1, which amounts were not material in 2003, 2002 and 2001. We believe the allocation method used is reasonable.

Information for the years 2001, 2002 and 2003 with respect to the Option Plan follows:

		Shares		Weighted Average Exercise Price
	Outstanding at December 31, 2000	5,413,565		$	5.54
Granted		755,277		$	7.34
Exercised		(1,044,511	)	$	4.01
Forfeited		(24,200	)	$	6.53

	Outstanding at December 31, 2001	5,100,131		$	6.11
Granted		1,995,700		$	6.90
Exercised		(583,888	)	$	5.78
Forfeited		(223,177	)	$	7.42

	Outstanding at December 31, 2002	6,288,766		$	6.34
Granted		963,200		$	6.24
Exercised		(377,487	)	$	4.95
Forfeited		(98,200	)	$	5.93

	Outstanding at December 31, 2003	6,776,279		$	6.41

	Available for grant at December 31, 2003	22,757

We entered into a stock warrant agreement in exchange for services in December 1998 with certain of our legal counsel which provides for the purchase of 16,667 shares of GCI Class A common stock, vesting in December 1999, with an exercise price of $3.00 per share, and expiring December 2003. The fair value of the stock warrant when issued was approximately $23,000. The warrant was exercised in November 2003 prior to its expiration.

We entered into a stock warrant agreement in exchange for services in June 1999 with certain of our legal counsel which provides for the purchase of 25,000 shares of GCI Class A common stock, vesting through December 2001, with an exercise price of $3.00 per share, and expiring December 2003. The fair value of the stock warrant when issued was approximately $94,000. The warrant was exercised in October 2003 prior to its expiration.

Our stock options and warrants expire at various dates through December 2013. At December 31, 2003, 2002, and 2001, the weighted-average remaining contractual lives of options outstanding were 6.47, 6.93, and 6.95 years, respectively.

At December 31, 2003, 2002, and 2001, the number of exercisable shares under option was 3,495,361, 3,187,618, and 2,837,361, respectively, and the weighted-average exercise price of those options was $6.11, $5.87, and $5.75, respectively.

The per share weighted-average fair value of stock options granted during 2003 was $4.30 per share for compensatory and $2.99 for non-compensatory options; for 2002 was $3.05 per share for compensatory and $0.61 for non-compensatory options; and for 2001 was $6.99 per share for compensatory and $10.58 for non-compensatory options. The amounts were determined as of the options' grant dates using a Black-Scholes option-pricing model with the following weighted-average assumptions: 2003—risk-free interest rate of 3.45%, volatility of 0.53 and an expected life of 5.26 years; 2002—risk-free interest rate of 3.08%, volatility of 0.68 and an expected life of 6.18 years; and 2001—risk-free interest rate of 4.67%, volatility of 0.62 and an expected life of 6.67 years.

Summary information about our stock options outstanding at December 31, 2003 follows:

In 2003 we acquired a total of 21,700 shares of GCI Class A common stock for approximately $81,000 to fund a deferred compensation agreement for an employee. In 2002 we acquired a total of 20,000 shares of GCI Class A common stock for approximately $177,000 to fund a deferred compensation agreement for an officer.

In December 1986, GCI adopted an Employee Stock Purchase Plan ("Plan") qualified under Section 401 of the Internal Revenue Code of 1986 ("Code"). The Plan provides for acquisition of GCI's Class A and Class B common stock at market value. The Plan permits each employee who has completed one year of service to elect to participate in the Plan. Through December 31, 2003, eligible employees could elect to reduce their compensation in any even dollar amount up to 50 percent of such compensation (subject to certain limitations) up to a maximum of $12,000. Beginning January 1, 2004, eligible employees can elect to reduce their compensation in any even dollar amount up to 50 percent of such compensation (subject to certain limitations) up to a maximum of $13,000. Eligible employees may contribute up to 10 percent of their compensation with after-tax dollars, or they may elect a combination of salary reductions and after-tax contributions.

Eligible employees were allowed to make catch-up contributions of no more than $2,000 during the year ended December 31, 2003 and will be able to make such contributions limited to $3,000 during the year ended December 31, 2004. We do not match employee catch-up contributions.

We may match employee salary reductions and after tax contributions in any amount, elected by GCI's Board of Directors each year, but not more than 10 percent of any one employee's compensation will be matched in any year. Matching contributions vest over the initial six years of employment. For the years ended December 31, 2002 and 2003 the combination of salary reductions, after tax contributions and matching contributions cannot exceed the lesser of 100 percent of an employee's compensation or $40,000 (determined after salary reduction) for any year. For the year ended December 31, 2004, the combination of salary reductions, after tax contributions and matching contributions cannot exceed the lesser of 100 percent of an employee's compensation or $41,000 (determined after salary reduction).

Employee contributions may be invested in GCI class A common stock, AT&T common stock, Comcast Corporation common stock, AT&T Wireless Services common stock, or various mutual funds.

Employee contributions invested in GCI common stock receive up to 100% matching, as determined by GCI's Board of Directors each year, in GCI common stock. Employee contributions invested in other than GCI common stock receive up to 50% matching, as determined by GCI's Board of Directors each year, in GCI common stock.

Our matching contributions allocated to participant accounts totaled approximately $4,035,000, $3,665,000, and $3,194,000 for the years ended December 31, 2003, 2002, and 2001, respectively. The Plan may, at its discretion, purchase shares of GCI common stock from GCI at market value or may purchase GCI's common stock on the open market. In 2002 we funded a portion of our employer-matching contributions through the issuance of new shares of GCI common stock rather than market purchases. In 2003 and 2001 we funded all of our employer-matching contributions through market purchases.

Effective January 1, 2003 we allowed participating employees to diversify 100 percent of their holdings of GCI common stock at December 31, 2002 in other investments offered by the Plan.

The Plan was amended in the first quarter of 2004 resulting in the following changes beginning in the second quarter of 2004:

We earn all revenues through sales of services and products within the United States. All of our long-lived assets are located within the United States of America, except approximately 72% of our undersea fiber optic cable system which transits international waters.

Summarized financial information for our reportable segments for the years ended December 31, 2003, 2002 and 2001 follows (amounts in thousands):

Long-distance services, local access services and Internet services are billed utilizing a unified accounts receivable system and are not reported separately by business segment. All such accounts receivable are included above in the long-distance services segment for all periods presented.

A reconciliation of reportable segment revenues to consolidated revenues follows (amounts in thousands):

A reconciliation of reportable segment operating income to consolidated net income before income taxes and cumulative effect of a change in accounting principle follows (amounts in thousands):

We provide long-distance services to MCI (see note 15), a major customer, and to Sprint. We earned revenues from Sprint, net of discounts, included in the long-distance segment, totaling approximately $36,899,000 during the year ended December 31, 2001. As a percentage of total revenues, Sprint revenues totaled 10.3% for the year ended December 31, 2001. Sprint was a major customer for segment disclosure purposes for the year ended December 31, 2001, but was not a major customer for the years ended December 31, 2003 and 2002.

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts and estimated fair values of our financial instruments at December 31, 2003 and 2002 follows (amounts in thousands):

Short-term assets: The fair values of cash and cash equivalents, net receivables and current portion of notes receivable from related parties approximate their carrying values due to the short-term nature of these financial instruments.

Notes receivable from related parties: The carrying value of notes receivable from related parties is estimated to approximate fair values. Although there are no quoted market prices available for these instruments, the fair value estimates were based on the change in interest rates and risk related interest rate spreads since the note origination dates.

Short-term liabilities: The fair values of current maturities of capital lease obligations, accounts payable, payroll and payroll related obligations, accrued interest, accrued liabilities, and subscriber deposits approximate their carrying value due to the short-term nature of these financial instruments.

Long-term debt and capital lease obligations: The fair value of long-term debt is based primarily on discounting the future cash flows of each instrument at rates currently offered to us for similar debt instruments of comparable maturities by investment bankers.

Other Liabilities: Deferred compensation liabilities have no defined maturity dates therefore the fair value is the amount payable on demand as of the balance sheet date. Asset retirement obligations are recorded at their fair value and, over time, the liability is accreted to its present value each period.

Effective January 3, 2001, we entered into an interest rate swap agreement to convert $50 million of 9.75% fixed rate debt to a variable interest rate equal to the 90 day LIBOR rate plus 334 basis points. This interest rate swap was cancelled by the counterparty on August 1, 2002. The differential paid to us was recorded as a decrease in Interest Expense in the Consolidated Statements of Operations in the period in which it was recognized. During the years ended December 31, 2002 and 2001 we recognized approximately $1.2 million and $1.1 million, respectively, as a reduction of interest expense.

Effective September 21, 2001, we entered into an interest rate swap agreement to convert $25 million of variable interest rate debt equal to the 90 day LIBOR rate plus 334 basis points to 3.98% fixed rate debt plus applicable margins. Terms of the interest rate swap mirror the underlying variable rate debt, except the interest rate swap terminates on September 21, 2004. We entered into the transaction to help insulate us from future increases in interest rates. Under SFAS No. 133, the interest

rate swap is accounted for as a cash flow hedge. The change in the fair value of the interest rate swap net of income taxes is recorded as an increase or decrease in Accumulated Other Comprehensive Loss in the Consolidated Statements of Stockholder's Equity. The associated cost is recognized in Interest Expense in the Consolidated Statements of Operations. During the years ended December 31, 2003, 2002 and 2001 we recognized approximately $681,000, $555,000 and $112,000, respectively, in incremental interest expense resulting from this transaction.

We earned revenues from MCI, a major shareholder of GCI, net of discounts, of approximately $81,996,000, $84,641,000 and $68,863,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Revenues earned from MCI include approximately $11,004,000 and $10,638,000 for the years ended December 31, 2002 and 2001, respectively, earned from a certain MCI customer who considered itself to be a third party obligor that was ultimately liable for services provided by GCI to the third party under a contract that had been assigned to MCI. Beginning January 1, 2003 we have billed this customer directly for services provided. Revenues earned from MCI net of amounts earned from the third party obligor were approximately $73,637,000 and $58,225,000 for the years ended December 31, 2002 and 2001, respectively. As a percentage of total revenues, MCI revenues, net of amounts earned from the third party obligor, totaled 21.0%, 20.0% and 16.3% for the years ended December 31, 2003, 2002 and 2001, respectively.

Amounts receivable, net of accounts payable, from MCI totaled $25,585,000 and $21,677,000 at December 31, 2003 and 2002, respectively. We paid MCI to distribute our traffic in the contiguous 48 states and Hawaii approximately $5,100,000, $6,413,000 and $7,289,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

At the time of the petition for bankruptcy, we had approximately $12.9 million in receivables outstanding from MCI. At December 31, 2002 the bad debt reserve for uncollected amounts due from MCI ("MCI reserve") totaled $11.6 million and consisted of all billings for services rendered prior to July 21, 2002 that were not paid or deemed recoverable as of December 31, 2002. During the year ended December 31, 2002 we recognized $11.0 million in bad debt expense for uncollected amounts due from MCI.

On July 22, 2003, the United States Bankruptcy Court approved a settlement agreement for pre-petition amounts owed to us by MCI and affirmed all of our existing contracts with MCI. The agreement settled unpaid balances due from MCI for services rendered prior to their bankruptcy filing date, settled billing disputes between us, and established a right to set-off certain of our pre-petition accounts payable to MCI. Under the terms of the agreement, we reduced the pre-petition amounts receivable from MCI by $800,000 and off-set our pre-petition accounts payable by $1.0 million. The majority of the difference reduced the MCI reserve with the remainder recorded as bad debt expense.

After settlement, we began reducing the MCI credit as we utilized it for services otherwise payable to MCI. The use of the credit is recorded as a reduction of bad debt expense. During 2003 we utilized approximately $2.8 million of the MCI credit against amounts payable for services received from MCI.

The remaining unused MCI credit totaled $7.9 million at December 31, 2003. The credit balance is not recorded on the Consolidated Balance Sheet as we are recognizing recovery of bad debt expense as the credit is utilized.

GCI entered into a long-term capital lease agreement in 1991 with the wife of our president for property occupied by us. The leased asset was capitalized in 1991 at the owner's cost of $900,000 and the related obligation was recorded in the accompanying financial statements. The lease agreement was amended in September 2002. The amended lease terminates on September 30, 2011. Through September 30, 2003 our monthly payment was $20,000, increasing to $20,860 per month October 1, 2003 through September 30, 2006 and increasing to $21,532 per month October 1, 2006 through September 30, 2011. Since the property was not sold prior to the tenth year of the lease, the owner was required to pay us the greater of one-half of the appreciated value of the property over $900,000, or $500,000. Accordingly, we received $500,000 in the form of a note in 2002. The owner paid us $135,000 in 2002 in the form of a note as additional consideration for the execution of the September 2002 amendment.

During the six-month period ended June 30, 2001 we provided management services to Kanas. Effective June 30, 2001 we completed the acquisition of MCI's 85% controlling interest in Kanas (see note 3). During the six-month period ended June 30, 2001 we earned revenues of approximately $618,000 for management services and long-distance services provided to Kanas. We paid approximately $372,000 to Kanas for the lease and maintenance of fiber optic cable capacity during the six-month period ended June 30, 2001. We advanced approximately $4.9 million to Kanas to partially fund its operations during the six-month period ended June 30, 2001. During the year ended December 31, 2002, we acquired the remaining 15% interest in Kanas in exchange for a total of 15,000 shares of GCI Class A common stock.

In January 2001 we entered into an aircraft operating lease agreement with a company owned by GCI's president. The lease was amended effective January 1, 2002. The lease is month-to-month and may be terminated at any time upon one hundred and twenty days written notice. The monthly lease rate is $50,000. Upon signing the lease, the lessor was granted an option to purchase 250,000 shares of GCI Class A common stock at $6.50 per share, all of which are exercisable. We paid a deposit of $1.5 million in connection with the lease. The deposit will be repaid to us upon the earlier of six months after the agreement terminates, or nine months after the date of a termination notice. The lessor may sell to us the stock arising from the exercise of the stock option or surrender the right to purchase all or a portion of the stock option to repay the deposit, if allowed by our debt and GCI's preferred stock instruments in effect at such time.

Operating Leases as Lessee. We lease business offices, have entered into site lease agreements and use satellite transponder capacity and certain equipment pursuant to operating lease arrangements. Rental costs under such arrangements amounted to approximately $14,788,000, $13,445,000 and $9,292,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

We lease satellite transponder capacity through a capital lease arrangement with a leasing company. The capital lease was entered into in March 2000. The effective term of the lease is nine years from the closing date. The capital lease includes certain covenants requiring maintenance of specific levels of operating cash flow to indebtedness and limitations on additional indebtedness. We were in compliance with all covenants during the year ending December 31, 2003.

We began operating the satellite transponders on April 1, 2000. The satellite transponders are recorded at a cost of $48.0 million and are being depreciated over twelve years. We have financed $43.5 million and $44.9 million under this capital lease at December 31, 2003 and 2002, respectively.

A summary of future minimum lease payments for all leases follows (amounts in thousands):

			Operating		Capital
2004			$	12,384		8,448
2005				11,253		9,923
2006				9,599		9,278
2007				6,998		8,385
2008				6,270		7,390
2009 and thereafter				23,351		18,478

	Total minimum lease payments		$	69,855		61,902

	Less amount representing interest					(17,127	)
	Less current maturities of obligations under capital leases					(5,139	)

	Subtotal—long-term obligations under capital leases					39,636
	Less long-term obligations under capital leases due to related party, excluding current maturities					(677	)

		Long-term obligations under capital leases, excluding related party, excluding current maturities			$	38,959

The leases generally provide that we pay the taxes, insurance and maintenance expenses related to the leased assets. We expect that in the normal course of business leases that expire will be renewed or replaced by leases on other properties.

We lease a portion of our 800-mile fiber optic system capacity that extends from Prudhoe Bay to Valdez via Fairbanks, and provide management and maintenance services for this capacity to a customer. The telecommunications service agreement is for fifteen years and may be extended for up to two successive three-year periods and, upon expiration of the extensions, one additional year.

A summary of minimum future service revenues, assuming the agreement is not terminated pursuant to contract provisions, follows (amounts in thousands):

In December 2001 we signed a letter of agreement with our customer in which we agreed, amongst other things, to upgrade the 800-mile fiber optic system, install multiple earth stations, and potentially provide other services. We have completed the projects outlined in the letter of agreement and expect testing and acceptance to be completed in the first half of 2004. We expect the contract to be amended in 2004 consistent with the terms of the letter of agreement. We expect the following additional minimum future service revenues, assuming the agreement is amended and is not terminated pursuant to contract provisions (amounts in thousands):

In June 2003 we began work on the construction of a fiber optic cable system connecting Seward, Alaska and Warrenton, Oregon, with leased backhaul facilities to connect it to our switching and distribution centers in Anchorage, Alaska and Seattle, Washington. A consortium of companies has been selected to design, engineer, manufacture and install the undersea fiber optic cable system and a contract has been signed at a total cost to us of $35.2 million. We expect to fund construction of the fiber optic cable system through our operating cash flows and, to the extent necessary, with draws on our new Senior Credit Facility. During the year ended December 31, 2003 our capital expenditures for

this project have totaled approximately $16.5 million, all of which has been funded through our operating cash flows and are classified as Construction in Progress in our Consolidated Balance Sheets.

We are testing the deployment of DLPS. We expect to begin implementing this service delivery method in the second quarter of 2004. To ensure the necessary equipment is available to us we have entered into an agreement to purchase a certain number of outdoor, network powered multi-media adapters. The agreement has a remaining commitment at December 31, 2003 totaling $18.3 million.

In August 2003 we entered into an agreement with Alaska Airlines, Inc. ("Alaska Airlines") to offer our residential and business customers who make qualifying purchases from us the opportunity to accrue mileage awards in the Alaska Airlines Mileage Plan. The agreement requires the purchase of Alaska Airlines miles during the year ended December 31, 2003 and in future years. The agreement has a remaining commitment at December 31, 2003 totaling $16.0 million.

During 1995, GCI adopted a non-qualified, unfunded deferred compensation plan to provide a means by which certain employees may elect to defer receipt of designated percentages or amounts of their compensation and to provide a means for certain other deferrals of compensation. We may contribute matching deferrals at a rate selected by us. Participants immediately vest in all elective deferrals and all income and gain attributable thereto. Matching contributions and all income and gain attributable thereto vest over a six-year period. Participants may elect to be paid in either a single lump sum payment or annual installments over a period not to exceed 10 years. Vested balances are payable upon termination of employment, unforeseen emergencies, death and total disability. Participants are general creditors of us with respect to deferred compensation plan benefits. Compensation deferred pursuant to the plan totaled approximately $0, $82,000 and $39,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

During 2002 we adopted a non-qualified, performance based incentive compensation plan. The incentive compensation plan provides additional compensation to certain officers and key employees based upon the Company's achievement of specified financial performance goals. The Compensation Committee of GCI's Board of Directors establishes goals on which executive officers are compensated, and management establishes the goals for other covered employees. Awards may be payable in cash or GCI's Class A common stock. Under this plan we recognized expenses of $672,000 and $0 during the years ended December 31, 2003 and 2002, respectively.

Certain customers have guaranteed levels of service. In the event we are unable to provide the minimum service levels we may incur penalties or issue credits to customers.

We are self-insured for losses and liabilities related primarily to health and welfare claims up to predetermined amounts above which third party insurance applies. A reserve of $1.7 million and $1.6 million was recorded at December 31, 2003 and 2002, respectively, to cover estimated reported losses, estimated unreported losses based on past experience modified for current trends, and estimated expenses for investigating and settling claims. Beginning January 1, 2003, we were self-insured for losses

and liabilities related to workers' compensation claims up to predetermined amounts above which third party insurance applies. A reserve of $141,000 was recorded at December 31, 2003 to cover estimated reported losses and estimated expenses for investigating and settling claims. Actual losses will vary from the recorded reserves. While we use what we believe is pertinent information and factors in determining the amount of reserves, future additions to the reserves may be necessary due to changes in the information and factors used.

We are routinely involved in various lawsuits, billing disputes, legal proceedings and regulatory matters that have arisen in the normal course of business.

ACS, through subsidiary companies, provides local services in Fairbanks and Juneau, Alaska. These ACS subsidiaries are classified as Rural Telephone Companies under the 1996 Telecom Act, which entitles them to an exemption of certain material interconnection terms of the 1996 Telecom Act, until and unless such "rural exemption" is examined and discontinued by the RCA. On October 11, 1999, the RCA issued an order terminating rural exemptions for the ACS subsidiaries operating in the Fairbanks and Juneau markets so that we could compete with the companies in the provision of local services pursuant to the 1996 Telecom Act. These rural exemptions limited the obligation of the ILECs in these markets to provide us access to unbundled network elements at rates under the pricing standard established by the Federal Communication Commission. Upon appeal by ACS on December 12, 2003, the Alaska Supreme Court issued a decision in which it reversed the RCA's rural exemption decision on the procedural ground that the competitor, not the incumbent, must shoulder the burden of proof. The Court remanded the matter to the RCA for reconsideration with the burden of proof assigned to us. Additionally, the Court left it to the RCA to decide as a matter of discretion whether to change the state of competition during the remand period. In accordance with the Court's ruling, the RCA has re-opened the rural exemption dockets and scheduled a hearing to take place on April 19, 2004. Additionally, the RCA issued a ruling on January 16, 2004, in which they determined that we can continue to rely on unbundled network elements from ACS to serve our existing customers in Juneau and Fairbanks but that we may not serve new customers through purchase of unbundled network elements pending the completion of the remand proceeding. Until this matter is resolved, we may serve new customers using wholesale resale. The outcome of this proceeding could result in a change in our cost of serving these markets via the facilities of ACS or via wholesale offerings and could adversely impact our ability to offer local service in these markets. We believe it is unlikely that the rural exemptions will be restored in these markets; however, if they are restored, we could be forced to discontinue providing service to residential customers and perhaps to commercial customers in these locations.

While the ultimate results of these items cannot be predicted with certainty, except for the rural exemption proceedings described above, we do not expect at this time the resolution of them to have a material adverse effect on our financial position, results of operations or liquidity.

Federal law permits regulation of basic cable programming services rates. However, Alaska law provides that cable television service is exempt from regulation by the RCA unless 25% of a system's subscribers request such regulation by filing a petition with the RCA. At December 31, 2002, only the Juneau system is subject to RCA regulation of its basic service rates. No petition requesting regulation

has been filed for any other system. (The Juneau system serves 7.1% of our total basic service subscribers at December 31, 2003.) A cable rate increase in the Juneau system effective February 1, 2003, did not affect basic programming service and therefore did not require RCA approval.

In January 2004 we drew $10.0 million under the revolving credit portion of our new Senior Credit Facility. The draw was re-paid in February 2004 from our new Senior Notes offering proceeds.

In February 2004 GCI, Inc. sold $250 million in aggregate principal amount of senior debt securities due in 2014 ("new Senior Notes"). The new Senior Notes are an unsecured senior obligation. We will pay interest of 7.25% on the new Senior Notes. The new Senior Notes were sold at a discount of $4.3 million. The Senior Notes will be carried on our balance sheet net of the unamortized portion of the discount, which will be amortized to Interest Expense over the life of the new Senior Notes.

The net proceeds of the offering were primarily used to repay our existing $180.0 million 9.75% Senior Notes and to repay approximately $43.8 million of the term portion and $10.0 million of the revolving portion of our new Senior Credit Facility. Semi-annual interest payments of approximately $9.1 million will be due beginning August 15, 2004. In connection with the issuance, we paid fees and other expenses of approximately $6.3 million which will be amortized over the life of the new Senior Notes.

The new Senior Notes were offered only to qualified institutional buyers pursuant to Rule 144A and non- United States persons pursuant to Regulation S. The new Senior Notes have not been registered under the Securities Act and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. We plan to register our new Senior Notes by May 14, 2004.

The new Senior Notes do not allow debt under the new Senior Credit Facility to exceed the greater of (and reduced by certain stated items):

We are conducting a Consent Solicitation and Tender Offer for the Senior Notes. Through February 13, 2004 we accepted for payment $114.6 million principal amount of notes which were validly tendered. Such notes accepted for payment received additional consideration as follows:

The remaining principal amount of $65.4 million will be redeemed by March 18, 2004 for additional consideration as follows:

The total estimated redemption cost is expected to be $186.1 million. The premium to redeem our Senior Notes is expected to be $6.1 million (excluding estimated interest cost of $1.3 million), which will be recognized as a component of Other Income (Expense) during the three months ended March 31, 2004.

Compliance with the redemption notice requirements in the Indenture will result in a delay of up to sixty days before final payment of some of the Senior Notes. As a result of such delay, our total debt will increase during the overlap period between the redemption of the outstanding Senior Notes and the issuance of the new Senior Notes making us out of compliance with Section 6.11 of our Credit, Guaranty, Security and Pledge Agreement, dated as of October 30, 2003. We have received a waiver from compliance with Section 6.11 until April 30, 2004.

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus does not offer to sell or ask for offers to buy any securities other than those to which this prospectus relates and it does not constitute an offer to sell or ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who cannot legally be offered the securities. The information contained in this prospectus is current only as of its date.

Until October 5, 2004, all dealers that effect transactions in these securities, whether or not participating in the offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Registration Rights Agreement	GCI, Inc. sold the old notes on February 17, 2004 to the initial purchasers—Deutsche Bank Securities Inc., Jefferies & Company, Inc., Credit Lyonnais Securities (USA), Inc., Blaylock & Partners, L.P., Ferris, Baker Watts Incorporated and TD Securities (USA), Inc. Simultaneously with the sale of the old notes, GCI, Inc. entered into a registration rights agreement which provides for the exchange offer.
	You may exchange your old notes for new notes, which have substantially identical terms. The exchange offer satisfies your rights under the registration rights agreement. After the exchange offer is over, you will not be entitled to any registration rights with respect to your old notes.
The Exchange Offer	GCI, Inc. is offering new 7.25% Senior Notes due 2014, all of which new notes will have been registered under the Securities Act, in exchange for your old notes.
	To exchange your old notes, you must properly tender them, and we must accept them. We will exchange all old notes that you validly tender and do not validly withdraw. We will issue registered new notes promptly after the expiration of the exchange offer.
Resale of New Notes	We believe that, if you are not a broker-dealer, you may offer for resale, resell or otherwise transfer the new notes without complying with the registration and prospectus delivery requirements of the Securities Act if you:
	•	acquire the new notes in the ordinary course of your business;
	•	are not engaged in, do not intend to engage in and have no arrangement or understanding with any person to participate in a "distribution" of the new notes; and
	•	are not an "affiliate" of GCI within the meaning of Rule 405 of the Securities Act.

	If any of these conditions is not satisfied and you transfer any new notes issued to you in the exchange offer without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. Moreover, our belief that transfers of new notes would be permitted without registration or prospectus delivery under the conditions described above is based on SEC interpretations given to other, unrelated issuers in similar exchange offers. We cannot assure you that the SEC would make a similar interpretation with respect to our exchange offer. We will not be responsible for or indemnify you against any liability you may incur under the Securities Act.
	Any broker-dealer that acquires new notes for its own account in exchange for old notes must represent that the old notes to be exchanged for the new notes were acquired by it as a result of market-making activities or other trading activities and acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any offer to resell, resale or other retransfer of the new notes. However, by so acknowledging and by delivering a prospectus, such participating broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. During the period ending 90 days after the consummation of the exchange offer, subject to extension in limited circumstances, a participating broker-dealer may use this prospectus for an offer to sell, a resale or other retransfer of new notes received in exchange for old notes which it acquired through market-making activities or other trading activities.
Expiration Date	The exchange offer will expire at 5:00 p.m., New York City time, on August 5, 2004, unless we extend the expiration date. We will not extend the expiration date beyond 45 days from the date of this prospectus.
Withdrawal	You may withdraw your tender of old notes under the exchange offer at any time before the exchange offer expires. Any withdrawal must be in accordance with the procedures described in "The Exchange Offer—Withdrawal Rights."
Procedures for Tendering Old Notes	Each holder of old notes that wishes to accept the exchange offer must either:
	•	complete, sign and date the accompanying letter of transmittal or a facsimile copy of the letter of transmittal, have the signatures on the letter of transmittal guaranteed, if required, and deliver the letter of transmittal, together with any other required documents (including the old notes), to the exchange agent; or

	•	if old notes are tendered pursuant to book-entry procedures, the tendering holder must deliver a completed and duly executed letter of transmittal or arrange with the Depository Trust Company, or DTC, to cause an agent's message to be transmitted with the required information (including a book-entry confirmation) to the exchange agent; or
	•	comply with the procedures set forth below under "—Guaranteed Delivery."
	Holders of old notes that tender old notes in the exchange offer must represent that the following are true:
	•	the holder is acquiring the new notes in the ordinary course of its business;
	•	the holder is not engaged in, does not intend to engage in and has no arrangement or understanding with any person to participate in a "distribution" of the new notes; and
	•	the holder is not an "affiliate" of GCI within the meaning of Rule 405 of the Securities Act.
	Do not send letters of transmittal, certificates representing old notes or other documents to us or DTC. Send these documents only to the exchange agent at the appropriate address given in this prospectus and in the letter of transmittal.
Special Procedures for Tenders by Beneficial Owners of Old Notes	If
	•	you beneficially own old notes;
	•	those notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee; and
	•	you wish to tender your old notes in the exchange offer;
	please contact the registered holder as soon as possible and instruct it to tender on your behalf and comply with the instructions set forth in this prospectus and the letter of transmittal.
Guaranteed Delivery	If you hold old notes in certificated form or if you own old notes in the form of a book-entry interest in a global note deposited with the trustee, as custodian for DTC, and you wish to tender those old notes but
	•	your old notes are not immediately available;
	•	time will not permit you to deliver the required documents to the exchange agent by the expiration date; or
	•	you cannot complete the procedure for book-entry transfer on time;

		you may tender your old notes pursuant to the procedures described in "The Exchange Offer—Procedures for Tendering Old Notes—Guaranteed Delivery."
Consequences of Not Exchanging Old Notes		If you do not tender your old notes or we reject your tender, your old notes will remain outstanding and will be entitled to the benefits of the indenture governing the notes. Under such circumstances, you would not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances. Existing transfer restrictions would continue to apply to the old notes.
		We could reject your tender of old notes if you tender them in a manner that does not comply with the instructions provided in this prospectus and the accompanying letter of transmittal.
Appraisal or Dissenters' Rights		You do not have any appraisal or dissenters' rights in connection with the exchange offer.
Material United States Federal Tax Consequences		Your exchange of old notes for new notes will not be treated as a taxable event for United States federal income tax purposes. See "Material United States Federal Tax Consequences."
Conditions		The exchange offer is subject to the conditions that it not violate applicable law or any SEC policy. In addition, the exchange offer is conditioned on the tender of the old notes to us by the holders in accordance with the exchange offer.
Use of Proceeds		We will not receive any proceeds from the exchange offer or the issuance of the new notes. The net proceeds from the issuance of the old notes were used to redeem our $180 million principal amount of 2007 notes and to pay down indebtedness under our senior secured credit facility.
Acceptance of Old Notes and Delivery of New Notes		We will accept for exchange any and all old notes properly tendered prior to the expiration of the exchange offer. We will complete the exchange offer and issue the new notes promptly after the expiration date.
Exchange Agent		The Bank of New York is serving as exchange agent for the exchange offer. The address and telephone number of the exchange agent are provided in this prospectus under "The Exchange Offer—Exchange Agent" and in the letter of transmittal.

Issuer	GCI, Inc.
Securities Offered	$250,000,000 principal amount of 7.25% senior notes due 2014.
Maturity	February 15, 2014.
Interest Rate	7.25% per year (calculated using a 360-day year).
Interest Payment Dates	February 15 and August 15, beginning on August 15, 2004. Interest will accrue from the issue date of the old notes.
Ranking	The new notes will be unsecured senior obligations of GCI, Inc., and will rank equally with existing and future senior unsecured debt of GCI, Inc. and senior to all existing and future subordinated debt of GCI, Inc. The new notes will be structurally subordinated and effectively rank junior to any liabilities of GCI Holdings, Inc. and our other subsidiaries. As of March 31, 2004, GCI Holdings, Inc. and its subsidiaries had approximately $165.5 million of debt outstanding, excluding approximately $42.1 million which we had the ability to borrow, subject to certain conditions, under our senior secured credit facility.
Optional Redemption	We cannot redeem the new notes until February 15, 2009. Thereafter we may redeem some or all of the new notes at the redemption prices listed in the "Description of the New Notes—Optional Redemption," plus accrued interest.
Optional Redemption After Public Equity Offerings	At any time (which may be more than once) before the third anniversary of the issue date of the new notes, we can choose to redeem up to 35% of the outstanding new notes with net cash proceeds from one or more public equity offerings, as long as:
	•	we pay 107.25% of the face amount of the new notes, plus interest;
	•	we redeem the new notes within 180 days of completing the public equity offering; and
	•	at least 65% of the aggregate principal amount of new notes issued remains outstanding afterwards.

Change of Control Offer	If a change in control occurs, we must give holders of the new notes the opportunity to sell us their notes at 101% of their face amount, plus accrued interest. However, we may be unable to do so because: (1) we might not have enough available funds, particularly since a change of control could cause part or all of our other indebtedness to become due; and (2) the agreements governing our senior secured credit facility and other secured indebtedness would prohibit us from repurchasing the notes, unless we were able to obtain a waiver or refinance such indebtedness. See "Description of the New Notes—Change of Control."
Asset Sale Proceeds	If we or our subsidiaries engage in asset sales, we generally must either invest the net cash proceeds from such sales in our business within a period of time, prepay secured debt under our senior secured credit facility or make an offer to purchase a principal amount of the new notes equal to the excess net cash proceeds. The purchase price of the new notes will be 100% of their principal amount, plus accrued interest.
Certain Indenture Provisions	The indenture governing the new notes contains covenants limiting our (and all of our existing subsidiaries') ability to:
	•	incur additional debt or enter into sale and leaseback transactions; pay dividends or distributions on our capital stock or repurchase our capital stock;
	•	issue stock of subsidiaries;
	•	make certain investments;
	•	create liens on our assets to secure debt;
	•	enter into transactions with affiliates;
	•	merge or consolidate with another company; and
	•	transfer and sell assets.
	These covenants are subject to a number of important limitations and exceptions.
Risk Factors	Investing in the new notes involves substantial risks. See "Risk Factors" for a description of certain of the risks you should consider before investing in the notes.
Absence of a Public Market for the New Notes	The new notes will be new securities for which there is currently no market. We do not intend to apply for a listing of the new notes on any securities exchange. Accordingly, a liquid market for the new notes may never develop or be maintained.

By Facsimile: (212) 298-1915 Attention: Ms. Carolle Montreuil Reorganization Unit Confirm by Telephone: (212) 815-5920		By Registered or Certified Mail: The Bank of New York Corporate Trust Operations Reorganization Unit 101 Barclay Street—7 East New York, NY 10286		By Hand or Overnight Delivery: The Bank of New York Corporate Trust Operations Reorganization Unit 101 Barclay Street—7 East New York, NY 10286
		Attention: Ms. Carolle Montreuil		Attention: Ms. Carolle Montreuil

		Interstate Minutes
		Interstate Minutes				Combined Interstate and International Minutes
For Quarter ended		South- bound(1)	North- bound	Calling Card	International Minutes	Combined Interstate and International Minutes	Intrastate Minutes	Total Minutes
		(Amounts in thousands)
March 31, 2001		126,681	74,252	2,087	1,424	204,444	38,763	243,207
June 30, 2001		141,091	76,256	1,926	1,530	220,803	40,407	261,210
September 30, 2001		160,600	87,230	1,961	1,634	251,425	39,355	290,780
December 31, 2001		130,638	90,812	1,946	1,362	224,758	39,246	264,004

	Total 2001	559,010	328,550	7,920	5,950	901,430	157,771	1,059,201

March 31, 2002		133,455	91,061	1,683	1,413	227,612	40,781	268,393
June 30, 2002		144,143	105,001	1,582	1,462	252,188	44,528	296,716
September 30, 2002		159,564	90,839	1,463	1,527	253,393	46,860	300,253
December 31, 2002		138,735	78,483	1,341	1,506	220,065	43,595	263,660

	Total 2002	575,897	365,384	6,069	5,908	953,258	175,764	1,129,022

March 31, 2003		132,172	78,882	1,186	1,487	213,727	45,345	259,072
June 30, 2003		142,333	83,749	1,107	1,508	228,697	52,489	281,186
September 30, 2003		159,439	96,512	1,055	1,514	258,520	55,918	314,438
December 31, 2003		144,829	107,620	1,013	1,546	255,008	49,553	304,561

	Total 2003	578,773	366,763	4,361	6,055	955,952	203,305	1,159,257

Gary Magness c/o Raymond L. Sutton, Jr. 303 East 17th Ave., Ste. 1100 Denver, CO 80203-1264	Class A Class B Series B	176,330 744,228 —	(12) (12)	* 19.3 —	1.6	1.6	8.3	8.1
Toronto Dominion Investments, Inc. 31 West 52nd Street New York, NY 10019-6101	Class A Class B Series B	19,176 — 12,637	(13) (13)	* — 100	*	3.9	*	2.4
Robert M. Walp 804 P St., Apt. 4 Anchorage, AK 99501	Class A Class B Series B	294,767 303,457 —	(14) (14)	* 7.9 —	1	1	3.6	3.5
Westport Asset Management, Inc. 253 Riverside Avenue Westport, CT 06880	Class A Class B Series B	3,032,351 — —		5.7 — —	5.3	5.1	3.3	3.2
MCI 2201 Loudoun County Parkway Ashburn, VA 20147	Class A Class B Series B	4,622,342 1,275,791 —	(15)	8.5 33.0 —	10.1	9.8	18.8	18.3
All Directors and Executive Officers as a Group (18 Persons)	Class A Class B Series B	4,744,083 767,997 —	(16) (16) (16)	8.6 19.9 —	9.3	8.9	13.3	13.0

		Page Number
HISTORICAL FINANCIAL INFORMATION
GCI, Inc.
	Management's Discussion and Analysis of Financial Condition and Results of Operations, three months ended March 31, 2004 and 2003	F-2
	Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003	F-22
	Consolidated Statements of Income for the three months ended March 31, 2004 (unaudited) and 2003 (unaudited)	F-24
	Consolidated Statements of Stockholder's Equity for the three months ended March 31, 2004 (unaudited) and 2003 (unaudited)	F-25
	Consolidated Statements of Cash Flows for the three months ended March 31, 2004 (unaudited) and 2003 (unaudited)	F-26
	Notes to Interim Condensed Consolidated Financial Statements	F-27
	Management's Discussion and Analysis of Financial Condition and Results of Operations, years ended December 31, 2003, 2002 and 2001	F-38
	Report of Independent Registered Public Accounting Firm	F-69
	Consolidated Balance Sheets as of December 31, 2003 and 2002	F-70
	Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001	F-72
	Consolidated Statements of Stockholder's Equity for the years ended December 31, 2003, 2002 and 2001	F-73
	Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001	F-74
	Notes to Consolidated Financial Statements	F-75

	2004		2003	Percentage Change
Common carrier message telephone services	$	21,171	21,062	0.5	%
Residential, commercial and governmental message telephone services		9,893	10,211	(3.1	)%
Private line and private network services		10,366	8,838	17.3	%
Broadband services		7,369	5,747	28.2	%
Lease of fiber optic cable system capacity		3,097	2,628	17.8	%

Total long-distance services segment revenue	$	51,896	48,486	7.0	%

		Payments Due by Period
		Total		Less than 1 Year	1 to 3 Years	4 to 5 Years	More Than 5 Years
		(Amounts in thousands)
Long-term debt		$	366,914	—	32,168	89,002	245,744
Interest on long-term debt			190,026	17,838	36,250	36,250	99,688
Capital lease obligations, including interest			61,902	8,448	19,201	15,775	18,478
Operating lease commitments			69,473	12,357	20,787	13,230	23,099
Purchase obligations			71,038	45,024	20,303	5,711	—

	Total contractual obligations	$	759,353	83,667	128,709	159,968	387,009

ASSETS				(Unaudited) March 31, 2004		December 31, 2003
				(Amounts in thousands)
Current assets:
	Cash and cash equivalents			$	10,841	10,435

	Receivables				64,089	70,235
	Less allowance for doubtful receivables				2,018	1,954

		Net receivables			62,071	68,281
	Deferred income taxes, net				6,726	7,195
	Prepaid and other current assets				6,257	12,159
	Notes receivable from related parties				1,673	1,885
	Property held for sale				1,176	2,173
	Inventories				984	1,513

		Total current assets			89,728	103,641

Property and equipment in service, net of depreciation					360,361	369,039
Construction in progress					51,802	33,618

		Net property and equipment			412,163	402,657

Cable certificates					191,241	191,241
Goodwill					41,972	41,972
Other intangible assets, net of amortization of $1,815 and $1,656 at March 31, 2004 and December 31, 2003, respectively					4,136	3,895
Deferred loan and senior notes costs, net of amortization of $1,438 and $5,308 at March 31, 2004 and December 31, 2003, respectively					9,559	5,757
Notes receivable from related parties					3,903	3,443
Other assets					9,147	9,576

		Total other assets			259,958	255,884

			Total assets	$	761,849	763,020

LIABILITIES AND STOCKHOLDER'S EQUITY			(Unaudited) March 31, 2004			December 31, 2003
			(Amounts in thousands)
Current liabilities:
	Current maturities of obligations under capital leases		$	6,293		5,139
	Accounts payable			23,571		34,133
	Deferred revenue			14,736		21,275
	Accrued payroll and payroll related obligations			14,311		17,545
	Due to related party			7,120		6,258
	Accrued liabilities			6,811		7,933
	Accrued interest			2,920		8,645
	Subscriber deposits			577		651

		Total current liabilities		76,339		101,579
Long-term debt				366,912		345,000
Obligations under capital leases, excluding current maturities				37,378		38,959
Obligation under capital lease due to related party, excluding current maturity				695		677
Deferred income taxes, net of deferred income tax benefit				24,805		24,168
Other liabilities				6,507		6,366

		Total liabilities		512,636		516,749

Stockholder's equity:
	Class A common stock. Authorized 10 shares; issued 0.01 shares at March 31, 2004 and December 31, 2003			206,622		206,622
	Paid-in capital			45,826		44,904
	Retained deficit			(3,022	)	(4,947	)
	Accumulated other comprehensive loss			(213	)	(308	)

		Total stockholder's equity		249,213		246,271

Commitments and contingencies
		Total liabilities and stockholder's equity	$	761,849		763,020

			Shares of Class A Common Stock	Class A Common Stock		Paid-in Capital	Retained Deficit		Accumulated Other Comprehensive Income (Loss)		Total
			(Amounts in thousands, except share amounts)
Balances at December 31, 2002			100	$	206,622	44,904	(20,489	)	(540	)	230,497
Components of comprehensive income:
	Net income		—		—	—	2,551		—		2,551
	Change in fair value of cash flow hedge, net of change in income tax benefit of $70		—		—	—	—		(38	)	(38	)

		Comprehensive income									2,513
Contribution from General Communication, Inc.			—		—	1,348	—		—		1,348
Balances at March 31, 2003			100	$	206,622	46,252	(17,938	)	(578	)	234,358

Balances at December 31, 2003			100	$	206,622	44,904	(4,947	)	(308	)	246,271

	Net income		—		—	—	1,925		—		1,925
	Change in fair value of cash flow hedge, net of change in income tax effect of $58		—		—	—	—		95		95

		Comprehensive income									2,020
Contribution from General Communication, Inc.			—		—	922	—		—		922

Balances at March 31, 2004			100	$	206,622	45,826	(3,022	)	(213	)	249,213

1999	$	36.6
2000	$	50.9
2001	$	65.6
2002	$	65.1
2003	$	62.5

				2004			2003
				(Amounts in thousands)
Cash flows from operating activities:
	Net income			$	1,925		2,551
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, amortization and accretion expense			15,758		13,501
		Loss on early extinguishment of debt			6,136		—
		Deferred income tax expense			1,309		2,282
		Amortization of loan and senior notes fees			2,627		1,073
		Compensatory stock options			77		114
		Bad debt expense (recovery), net of write-offs			64		(81	)
		Deferred compensation			127		133
		Cumulative effect of a change in accounting principle, net			—		544
		Other noncash income and expense items			311		(118	)
		Change in operating assets and liabilities			(13,559	)	(5,651	)

			Net cash provided by operating activities		14,775		14,348

Cash flows from investing activities:
	Purchases of property and equipment, including construction period interest				(25,201	)	(6,474	)
	Proceeds from sales of assets				859		—
	Purchases of other assets and intangible assets				(672	)	(922	)
	Refund of deposit				699		—
	Payments received on notes receivable from related parties				662		22
	Additions to property held for sale				(81	)	—
	Notes receivable issued to related parties				—		(22	)

		Net cash used in investing activities			(23,734	)	(7,396	)

Cash flows from financing activities:
	Issuance of new Senior Notes				245,720		—
	Repayment of old Senior Notes				(180,000	)	—
	Borrowing on new Senior Credit Facility				10,000		—
	Repayment of new Senior Credit Facility				(53,832	)	—
	Repayments of capital lease obligations				(409	)	(478	)
	Payment of debt issuance costs				(6,429	)	(12	)
	Payment of bond call premiums				(6,136	)	—
	Contribution (to) from General Communication, Inc.				451		(229	)

		Net cash provided by (used in) financing activities			9,365		(719	)

		Net increase in cash and cash equivalents			406		6,233
		Cash and cash equivalents at beginning of period			10,435		11,940

		Cash and cash equivalents at end of period		$	10,841		18,173

			Reportable Segments
			Long- Distance Services		Cable Services	Local Access Services	Internet Services	Total Reportable Segments	All Other		Total
2004
Revenues:
	Intersegment		$	3,434	617	2,340	926	7,317	186		7,503
	External			51,896	24,852	11,792	6,406	94,946	13,970		108,916

		Total revenues	$	55,330	25,469	14,132	7,332	102,263	14,156		116,419

Earnings (loss) from operations before depreciation, amortization, accretion, net interest expense and income taxes			$	26,733	11,645	2,314	1,723	42,415	(12,609	)	29,806

Operating income (loss)			$	19,811	6,966	1,422	799	28,998	(8,814	)	20,184

Three months ended March 31,	2004		2003
Reportable segment revenues	$	102,263	94,876
Plus All Other revenues		14,156	8,023
Less intersegment revenues eliminated in consolidation		7,503	10,122

Consolidated revenues	$	108,916	92,777

										Percentage Change(1)
				Year Ended December 31,						Percentage Change(1)
				Year Ended December 31,						2003 vs. 2002		2002 vs. 2001
				2003		2002		2001		2003 vs. 2002		2002 vs. 2001
Statement of Operations Data:
	Revenues:
		Long-distance services		52.3	%	55.7	%	56.2	%	(0.2	)%	2.1	%
		Cable services		24.6	%	24.1	%	21.4	%	8.2	%	15.9	%
		Local access services		10.0	%	8.7	%	7.1	%	21.6	%	27.1	%
		Internet services		5.1	%	4.3	%	3.3	%	27.3	%	29.9	%
		All other services		8.0	%	7.2	%	12.0	%	18.1	%	(37.9	)%

			Total revenues	100.0	%	100.0	%	100.0	%	6.2	%	3.0	%
	Cost of sales and services			32.1	%	33.6	%	39.1	%	1.5	%	(11.6	)%
	Selling, general and administrative expenses			35.5	%	35.1	%	32.6	%	7.5	%	10.7	%
	Bad debt expense			0.0	%	3.6	%	1.2	%	(101.4	)%	206.7	%
	Impairment charge			1.4	%	0.0	%	0.0	%	NA		0.0	%
	Depreciation and amortization			13.6	%	15.3	%	15.6	%	(5.6	)%	1.3	%

			Operating income	17.4	%	12.4	%	11.5	%	49.2	%	11.6	%
			Net income before income taxes and cumulative effect of a change in accounting principle	6.7	%	3.3	%	2.4	%	112.3	%	42.3	%
			Net income before cumulative effect of a change in accounting principle	4.1	%	3.3	%	2.4	%	141.4	%	42.3	%
			Net income	4.0	%	1.8	%	1.3	%	133.3	%	45.2	%
Other Operating Data:
Long-distance services operating income(2)				40.8	%	38.6	%	34.0	%	9.6	%	16.0	%
Cable services operating income(3)				28.6	%	28.8	%	18.1	%	7.5	%	84.2	%
Local access services operating income (loss)(4)				3.8	%	(2.3	)%	5.8	%	301.5	%	(150.2	)%
Internet services operating loss(5)				(2.2	)%	(117.2	)%	(125.2	)%	97.6	%	(21.6	)%

	2003		2002	Percentage Change
Common carrier message telephone services	$	91,700	95,947	(4.4	)%
Residential, commercial and governmental message telephone services		39,701	46,169	(14.0	)%
Private line and Private Network services		37,123	36,157	2.7	%
Broadband services		25,167	18,432	36.5	%
Lease of fiber optic cable system capacity		10,876	8,225	32.2	%

Total long-distance services segment revenue	$	204,567	204,930	(0.2	)%

	2003		2002		Percentage
Retail minutes carried		284.3 million		309.2 million	(8.1	)%
Average rate per minute	$	0.138	$	0.142	(2.8	)%
Number of active residential, commercial and governmental customers(1)		85,600		88,200	(2.9	)%

	2003	2002	Percentage Change
Basic subscribers	134,400	136,100	(1.2	)%
Digital special interest subscribers	34,900	30,500	14.4	%
Cable modem subscribers	46,000	36,200	27.1	%
Homes passed	202,200	196,900	2.7	%

	2003	2002	Percentage Change
Total Internet subscribers	95,700	89,500	6.9	%
Cable modem subscribers	46,000	36,200	27.1	%
Dial-up subscribers	49,600	53,300	(6.9	)%

	2002		2001	Percentage Change
Common carrier message telephone services	$	95,947	86,577	10.8	%
Residential, commercial and governmental message telephone services		46,169	54,225	(14.9	)%
Private line and Private Network services		36,157	34,694	4.2	%
Broadband services		18,432	15,696	17.4	%
Lease of fiber optic cable system capacity		8,225	9,502	(13.4	)%

Total long-distance services segment revenue	$	204,930	200,694	2.1	%

	2002		2001		Percentage Change
Retail minutes carried		309.2 million		344.2 million	(10.2	)%
Average rate per minute	$	0.142	$	0.151	(6.0	)%
Number of active residential, commercial and governmental customers(1)		88,200		87,900	0.3	%

	2002	2001	Percentage Change
Basic subscribers	136,100	132,000	3.1	%
Digital special interest subscribers	30,500	24,600	24.0	%
Cable modem subscribers	36,200	26,500	36.6	%
Homes passed	196,900	192,200	2.4	%

	2002	2001	Percentage Change
Total Internet subscribers	89,500	72,700	23.1	%
Cable modem subscribers	36,200	26,500	36.6	%
Dial-up subscribers	53,300	46,000	15.9	%

Date	Amount
Quarter ended December 31, 2005	$	170
Quarterly from March 31, 2006 to December 31, 2006	$	8,000
Quarterly from March 31, 2007 to September 30, 2007	$	10,000

				2003			2002		2001
				(Amounts in thousands)
Revenues				$	390,797		367,842		357,258
Cost of sales and services					125,383		123,564		139,793
Selling, general and administrative expenses					138,693		129,029		116,536
Bad debt expense (recovery)					(178	)	13,124		4,279
Impairment charge					5,434		—		—
Depreciation, amortization and accretion expense					53,388		56,400		55,675

	Operating income				68,077		45,725		40,975

Other income (expense):
	Interest expense				(34,745	)	(29,316	)	(31,208	)
	Amortization of loan and senior notes fees				(7,732	)	(4,612	)	(1,402	)
	Interest income				560		525		294

		Other expense, net			(41,917	)	(33,403	)	(32,316	)

	Net income before income taxes and cumulative effect of a change in accounting principle				26,160		12,322		8,659
Income tax expense					10,074		5,659		4,070

		Net income before cumulative effect of a change in accounting principle			16,086		6,663		4,589
Cumulative effect of a change in accounting principle, net of income tax benefit of $367					(544	)	—		—

			Net income	$	15,542		6,663		4,589

			Shares of Class A Common Stock	Class A Common Stock		Paid-in Capital	Retained Deficit		Accumulated Other Comprehensive Income (Loss)		Total
			(Amounts in thousands, except share amounts)
Balances at December 31, 2000			100	$	206,622	29,941	(31,741	)	—		204,822
Components of comprehensive income:
	Net income		—		—	—	4,589		—		4,589
	Fair value of cash flow hedge, net of change in income tax effect of $5		—		—	—	—		8		8

		Comprehensive income									4,597
Contribution from General Communication, Inc.			—		—	14,961	—		—		14,961

Balances at December 31, 2001			100		206,622	44,902	(27,152	)	8		224,380
Components of comprehensive income:
	Net income		—		—	—	6,663		—		6,663
	Change in fair value of cash flow hedge, net of change in income tax effect of $459		—		—	—	—		(548	)	(548	)

		Comprehensive income									6,115
Contribution from General Communication, Inc.			—		—	2	—		—		2

Balances at December 31, 2002			100		206,622	44,904	(20,489	)	(540	)	230,497
Components of comprehensive income:
	Net income		—		—	—	15,542		—		15,542
	Change in fair value of cash flow hedge, net of change in income tax effect of $175		—		—	—	—		232		232

		Comprehensive income									15,774

Balances at December 31, 2003			100	$	206,622	44,904	(4,947	)	(308	)	246,271

Balance at December 31, 2001	$	1,350

Balance at December 31, 2002	$	1,565

Year ended December 31,	2003			2002		2001
Increase in accounts receivable	$	(16,549	)	(5,476	)	(10,229	)
Increase in prepaid and other current assets		(2,988	)	(6,005	)	(487	)
(Increase) decrease in inventories		(1,113	)	446		(88	)
Increase (decrease) in accounts payable		2,465		(2,859	)	5,701
Increase in deferred revenue		2,985		6,161		1,519
Increase (decrease) in accrued payroll and payroll related obligations		5,724		(3,468	)	4,872
Increase (decrease) in accrued interest		707		(111	)	(1,207	)
Increase in accrued liabilities		1,927		825		1,091
Decrease in subscriber deposits		(238	)	(232	)	(253	)
Increase (decrease) in components of other long-term liabilities		(297	)	65		(104	)

	$	(7,377	)	(10,654	)	815

Current assets	$	556
Property and equipment, net of accumulated depreciation		5,160
Franchise agreement		10,976
Goodwill		3,324

Total assets		20,016
Current liabilities		642
Long-term deferred tax liability		374

Net assets acquired	$	19,000

		2003		2002
Trade		$	67,186	63,111
Employee			284	391
Other			2,765	3,093

	Total receivables	$	70,235	66,595

			Additions		Deductions
Description	Balance at beginning of year		Charged to costs and expenses	Charged to Other Accounts	Write-offs net of recoveries	Balance at end of year
December 31, 2003	$	14,010	2,996	—	15,052	1,954

December 31, 2002	$	4,166	13,124	—	3,280	14,010

December 31, 2001	$	2,864	4,076	—	2,774	4,166