rccc_form10-k.htm

10-K 1 rccc_form10-k.htm RURAL CELLULAR CORPORATION FORM 10-K rccc_form10-k.htm

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2007.

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____________________ TO ____________________.

Commission File Number 0-27416

RURAL CELLULAR CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota 41-1693295

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

3905 Dakota Street SW

Alexandria, Minnesota 56308

(320) 762-2000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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

Class A Common Stock, par value $.01 per share

Series A Preferred Share Purchase Rights

(Title of class)

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

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES [ ] NO [X]

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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check One.)

Large Accelerated Filer [ ] Accelerated Filer [X]

Non-Accelerated Filer [ ] Smaller Reporting Company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

Aggregate value of shares of common stock held by nonaffiliates of the Registrant based upon the closing price on June 30, 2007 (only shares held by directors, officers and their affiliates are excluded): $660,020,300

Number of shares of common stock outstanding as of the close of business on February 20, 2008:

Class A			15,553,819
Class B			237,120

Documents incorporated by reference:

None

TABLE OF CONTENTS

	Page
PART I
ITEM 1. BUSINESS	4
ITEM 1A. RISK FACTORS	28
ITEM 1B. UNRESOLVED STAFF COMMENTS	37
ITEM 2. PROPERTIES	38
ITEM 3. LEGAL PROCEEDINGS	39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	39

PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	40
ITEM 6. SELECTED FINANCIAL DATA.	42
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	66
ITEM 9A. CONTROLS AND PROCEDURES	67
ITEM 9B. OTHER INFORMATION	67

PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	68
ITEM 11. EXECUTIVE COMPENSATION	70
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	82
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	85
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES	86

PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	87
SIGNATURES	88

PART I

ITEM 1. BUSINESS

References in this Form 10-K to “Rural Cellular,” “RCC,” “we,” “our,” and “us” refer to Rural Cellular Corporation and its subsidiaries as a combined entity, except where it is clear that those terms mean only the parent company.

We file with, or furnish to, the Securities and Exchange Commission (the “SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as various other information. RCC makes these reports and other information available free of charge on the Investor Relations page of our website as soon as reasonably practicable after providing such reports to the SEC. In addition, in the Corporate Governance section of the Investor Relations page of our website, we make available the Financial Code of Ethics and the charters for the Audit, Compensation, and Nominating Committees. The internet address for our website is www.unicel.com.

Forward-Looking Information

This Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. All statements regarding us and our expected financial position, business, and financing plans are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “will,” “should,” “seeks,” “anticipates,” “intends,” or the negative or other variations of any such term or comparable terminology, or by discussions of strategy or intentions. Although we believe that the expectations reflected in such forward-looking statements are reasonable, our expectations may prove not to be correct. A number of factors could cause our actual results, performance, and achievements or industry results to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. See risks and uncertainties relating to our business under “Item 1A. Risk Factors” of this document.

In addition, such forward-looking statements are necessarily dependent upon assumptions, estimates, and data that may be incorrect or imprecise and involve known and unknown risks, uncertainties, and other factors. Accordingly, forward-looking statements included in this report do not purport to be predictions of future events or circumstances and may not be realized. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements contained in this report to reflect future events or developments.

(a) General Development of Business

We are a wireless communications service provider focusing primarily on rural markets in the United States. Our principal operating objective is to increase revenue and achieve profitability through increased penetration in our existing wireless markets.

Our operating territories include portions of five states in the Northeast, three states in the Northwest, four states in the Midwest, two states in the South, and the western half of Kansas (Central Territory). Within each of our five territories, we have deployed a strong local sales and customer service presence in the communities we serve.

RCC Acquisition of Southern Minnesota Markets. On April 3, 2007, we completed the $48.5 million cash purchase of southern Minnesota wireless markets. These markets include 28 counties in southern Minnesota and, as of April 3, 2007, supported a postpaid customer base of approximately 32,000 and a wholesale customer base of approximately 16,000. We purchased network assets and A-block cellular licenses covering Minnesota Rural Service Areas, or RSA, 7, 8, 9, and 10. The southern Minnesota RSAs acquired utilize code division multiple access (“CDMA”) technology consistent with our northern Minnesota networks.

With the addition of the southern Minnesota properties, the population covered by RCC’s marketed networks increased by approximately 621,000 to 7.2 million. Our marketed networks served approximately 667,000 postpaid and prepaid customers as of December 31, 2007.

National Carrier Roaming Agreements. We have national roaming agreements in our markets with AT&T (effective through December 2009) and Verizon Wireless (effective through December 2009). Under these agreements, we have been able to attain preferred roaming status by overlaying our existing Time Division Multiple Access (“TDMA”), networks in our Central, South, Northeast and Northwest networks with Global System for Mobile Communications (“GSM”)/ General Packet Radio Services (“GPRS”)/ Enhanced Data rates for Global Evolution (“EDGE”) technology and our Midwest network with CDMA technology. We also have various agreements with T-Mobile.

RCC Markets and Networks. The following chart summarizes our wireless systems as of December 31, 2007:


	Service Area POPs (1)		Customers		Square Miles		States

Cellular Territories:
Central		313,000		17,515		40,000	KS
Midwest		2,164,000		192,861		82,000	MN, ND, SD, WI
Northeast		2,210,000		269,902		46,000	MA, ME, NH, NY, VT
Northwest		868,000		119,797		77,000	ID, OR, WA
South		1,687,000		67,299		39,000	AL, MS
Total		7,242,000		667,374		284,000
Wholesale		N/A		123,331		N/A
Total		7,242,000		790,705		284,000

__________

(1)	Reflects 2000 U.S. Census Bureau population data updated for December 2005

We believe our markets have favorable characteristics for the deployment of wireless networks. Because of the rural demographics of our markets, which typically have lower population densities, we face fewer competitors than more urban markets. Also, in a number of our service areas, we are entitled to federal support funds that subsidize our expansion into high-cost territories that otherwise would not have telephone service, including wireless services.

We believe that our extensive network of local distribution channels provides us with a competitive advantage over larger wireless providers. We have tailored our marketing and distribution strategy to rely on local distributors and agents in areas where locating a direct retail store might not be cost-effective based on the demographic characteristics of those areas.

Our coverage areas have a large number of vacation destinations, substantial highway miles and long distances between population centers, all of which we believe contribute to frequent roaming on our network by customers of other wireless providers. As a result, we have been able to negotiate long-term roaming agreements with several of the country’s largest wireless carriers that do not have a significant presence in our markets. Our roaming agreements with other carriers help to provide us with a base of roaming revenue, which generates higher margins than local service revenue.

Our networks utilize both 850 MHz and 1900 MHz spectrum in our service areas. As of December 31, 2007, approximately 95% of our wireless customers were using either CDMA or GSM devices with advanced features that can be utilized throughout their respective service areas. With our networks, we are well equipped to offer our customers regional and local wireless coverage, and we manage our networks with the goal of providing high quality service, with minimal call blocking and dropped calls and seamless call delivery and hand-off.

Our 2007 operating results reflect the following:

·	A 10.4% increase in service revenue, primarily reflecting the increase of postpaid customers in addition to higher Local Service Revenue (“LSR”) and Universal Service Fund (“USF”) support.

The increase in service revenue for the year ended December 31, 2007 primarily reflects a 11.2% increase in postpaid customers as compared to December 31, 2006 together with an increase in LSR to $53 per month during the year ended December 31, 2007 compared to $52 per month during the year ended December 31, 2006. The 2007 increase in LSR was primarily due to an increase in monthly data revenue per customer, which increased to approximately $4 as compared to $2 in 2006.

We are currently receiving USF support in the states of Alabama, Kansas, Maine, Minnesota, Mississippi, New Hampshire, Oregon, South Dakota, Vermont, and Washington. USF support payments were $46.4 million and $43.8 million for the years ended December 31, 2007 and 2006, respectively.

Total customers increased to 790,705 at December 31, 2007 as compared to 705,658 at December 31, 2006 reflecting increases in all of our customer groups which included approximately 32,000 additional postpaid and approximately 16,000 wholesale customers from the April 2007 acquisition of markets in 28 southern Minnesota counties. Accordingly, postpaid customers increased 11.2% to 651,624 at December 31, 2007. Wholesale customers increased 12.0% to 123,331 at December 31, 2007. Prepaid customers increased 67.0% to 15,750 at December 31, 2007.

·	Continued progress in migrating our legacy customers to 2.5G devices. As of December 31, 2007, approximately 95% of our postpaid customers were using new technology devices as compared to 82% at December 31, 2006.

Improved roaming minutes and revenue over the previous year. The 18.8% increase in roaming revenue during the year ended December 31, 2007 primarily reflects a 21% increase in outcollect minutes and a substantial increase in data traffic, which together were partially offset by a decline in voice and data roaming yields. Our outcollect yield for the year ended December 31, 2007 was $0.10 per minute as compared to $0.11 per minute in the year ended December 31, 2006. Declines in TDMA outcollect minutes were offset by increases in new technology GSM and CDMA outcollect minutes. Data roaming for the year ended December 31, 2007 was $19.2 million as compared to $9.2 million in the prior year.

At December 31, 2007, all of our 1,322 cell sites were equipped with 2.5G technology. For the year ended December 31, 2007 and 2006, 2.5G outcollect minutes accounted for 98% and 95%, respectively, of our total outcollect minutes.

·	Increased costs required to market and support 2.5G networks, products, and customers.

Network cost, as a percentage of total revenues, increased to 25.2% for the year ended December 31, 2007 as compared to 24.5% for the year ended December 31, 2006. This change reflects an increased number of cell sites, higher variable costs due to an increase in outcollect roaming minutes of use and higher outsourced data service costs. Cell sites increased to 1,322 at December 31, 2007 as compared to 1,158 at December 31, 2006.

Incollect cost increased 31.9% for the year ended December 31, 2007 as compared to the year ended December 31, 2006. Incollect cost per minute for the year ended December 31, 2007 was approximately $0.08 as compared to approximately $0.09 for the year ended December 31, 2006.

Other developments in 2007:

Purchase of Southern Minnesota Wireless Markets. In April 2007, we completed the $48.5 million cash purchase of southern Minnesota wireless markets. These markets include 28 counties in southern Minnesota and, as of April 3, 2007, supported a postpaid customer base of approximately 32,000 and a wholesale customer base of approximately 16,000. RCC purchased network assets and A-block cellular licenses covering Minnesota RSAs 7, 8, 9, and 10. The southern Minnesota RSAs acquired utilize CDMA technology consistent with our northern Minnesota networks.

Amendment to Credit Agreement. In April 2007, we negotiated an amendment to our revolving credit facility explicitly permitting the below mentioned dividend payments and replacing all financial covenant ratios with one new senior secured first lien debt covenant, under which the ratio as of the last day of any quarter of Senior Secured First Lien Debt outstanding to Adjusted EBITDA (as defined in the credit agreement) for the applicable Reference Period cannot exceed 1.00 to 1.00.

·	Exchange of 11 3/8% Senior Exchangeable Preferred Stock for 11 3/8% Senior Subordinated Debentures. On May 15, 2007, we exchanged all outstanding shares of our 11 3/8% Senior Exchangeable Preferred Stock for 11 3/8% Senior Subordinated Debentures, due May 15, 2010.

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Payment of Dividends on 11 3/8% Senior Exchangeable Preferred Stock. To remove the then existing Voting Rights Triggering Event under the Senior Preferred stock, we paid nine Senior Preferred stock accrued dividends. These dividend payments, which totaled approximately $355.40 per share, including accrued interest, were made on May 15, 2007. The aggregate dividends, which totaled approximately $41.7 million, were paid from existing cash.

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Payment of Dividends on 12 ¼% Junior Exchangeable Preferred Stock. To remove the then existing Voting Rights Triggering Event under the 12 ¼% Junior Exchangeable Preferred Stock, we also paid four dividends, representing the quarterly dividends payable on August 15, 2006, November 15, 2006, February 15, 2007, and May 15, 2007. The dividend payments totaled approximately $128.24 per share, including accrued interest. These dividends were paid on May 15, 2007. The aggregate total dividends of approximately $32.8 million were paid from existing cash. The payment of these dividends reduced the number of unpaid quarterly dividends on the junior preferred stock to five as of that date.

Issuance of Senior Subordinated Floating Rate Notes Due 2013. On May 25, 2007 we issued $425 million aggregate principal amount of Senior Subordinated Floating Rate Notes due June 1, 2013 (“2013 notes”) and used the proceeds to redeem our 11 3/8% Senior Subordinated Debentures and our 9 3/4% Senior Subordinated Notes. The 2013 notes mature on June 1, 2013.

Redemption of 9 3/4% Notes and 11 3/8% senior subordinated debentures. On June 29, 2007, we redeemed all $300.0 million aggregate principal of our 9 3/4% senior subordinated notes and all $115.5 million aggregate principal amount of our 11 3/8% senior subordinated debentures and paid accrued and unpaid interest thereon and related fees and expenses with the net proceeds from the original issuance of the Senior Subordinated Floating Rate, together with cash on hand.

The Verizon Merger. On July 29, 2007, we entered into a merger agreement with Cellco Partnership, a general partnership doing business as Verizon Wireless, AirTouch Cellular, an indirect wholly-owned subsidiary of Verizon Wireless, and Rhino Merger Sub, a wholly-owned subsidiary of AirTouch Cellular, pursuant to which Rhino Merger Sub will merge with and into RCC with RCC continuing as the surviving corporation and becoming a subsidiary of Verizon Wireless. At the effective time of the merger, each issued and outstanding share of our Class A and Class B common stock will be cancelled and converted into the right to receive $45.00 in cash, without interest. Each outstanding option to acquire our common stock will be cancelled in exchange for an amount equal to the product of $45.00 minus the exercise price of each option and the number of shares underlying the option. The merger agreement includes customary representations, warranties and covenants of us, Verizon Wireless and AirTouch Cellular. The merger was approved by our shareholders on October 4, 2007. The consummation of the merger remains subject to receipt of necessary approvals from the Federal Communications Commission and under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions. The merger agreement contains certain termination rights for both Verizon Wireless and us and provides that upon a termination of the merger agreement under specified circumstances, we may be required to pay Verizon Wireless a termination fee of $55.0 million. We currently anticipate that the merger will be completed during the second quarter of 2008.

Amendment to Rights Plan. On July 29, 2007, prior to the execution of the merger agreement with Verizon Wireless, our board of directors approved an amendment to our rights plan, dated as of April 30, 1999, as amended on March 31, 2000, between us and Wells Fargo Bank, N.A., as successor rights agent. The amendment to the rights plan, among other things, renders the rights plan inapplicable to Verizon Wireless, AirTouch Cellular and Rhino Merger Sub solely by virtue of (i) the approval, execution or delivery of the merger agreement, (ii) the public or other announcement of the merger agreement or the transactions contemplated thereby, (iii) the consummation of the merger or (iv) the consummation of any other transaction contemplated by the merger agreement. The amendment also provides that the rights plan shall expire immediately prior to the effective time of the merger, if the rights plan has not otherwise terminated. If the merger agreement is terminated, the changes to the rights agreement pursuant to the amendment will be of no further force and effect.

Junior Exchangeable Preferred Stock Voting Rights Triggering Event. The holders of our junior exchangeable preferred stock have the right to elect two members of our board of directors until all of the dividends in arrears have been paid. The Certificate of Designation provides that at any time dividends on the outstanding exchangeable preferred stock are in arrears and unpaid for six or more quarterly dividend periods (whether or not consecutive), the holders of a majority of the outstanding shares of the junior exchangeable preferred stock, voting as a class, will be entitled to elect the lesser of two directors or that number of directors constituting 25% of the members of RCC’s Board of Directors. The voting rights continue until such time as all dividends in arrears on the affected class of exchangeable preferred stock are paid in full, at which time the terms of any directors elected pursuant to such voting rights will

terminate. Voting rights may also be triggered by other events described in the Certificates of Designation. We did not pay the quarterly dividends payable on our junior exchangeable preferred stock on August 15 or November 15, 2007 or February 15, 2008. Because we have failed to pay six quarterly dividends, a “Voting Rights Triggering Event,” as defined in the certificate of designation for the junior exchangeable preferred stock, exists. Accordingly, while such Voting Rights Triggering Event exists, certain terms of our junior exchangeable preferred stock may prohibit incurrence of additional indebtedness, including borrowing under our revolving credit facility and the refinancing of existing indebtedness. As of December 31, 2007, the Junior Exchangeable preferred stock shareholders had not elected directors to serve on RCC’s board.

(b) Financial Information about Segments

Our business consists of one reportable operating segment, the operation of wireless communication systems in the United States.

Marketing of Products and Services

Local Service

We have developed our marketing strategy on a market-by-market basis and offer service plan options to our customers tailored to address their specific needs and to encourage cellular usage. In general, because our customers typically live in rural areas, they are more likely to purchase plans that provide a regional footprint than a national one. Most of our service plans have a fixed monthly access fee, which includes a specified number of minutes both peak and off peak, free incoming calling, and incremental fees for enhanced services. As a result of our focus on marketing strategies as well as the upgrade of our networks, we are able to offer our customers an array of services on an individual or bundled basis, including:

·	Short Message Service – allows a customer to receive and send text messages or content messages.

·	Voicemail – allows a customer to receive and retrieve voicemail.

·	Multimedia Messaging – allows customers to receive and send pictures to another wireless handset or PC.

·	Data Services – includes email, Internet accessibility, and Brew and Java Services which allow customers to download ring-tones, games, graphics, entertainment and information.

·	Mobile Web – allows customers to access the Internet from a laptop computer through our wireless network.

In addition to tailoring our service plans based on features and minutes of use, we also offer our customers regional calling plans and national plans that allow our customers to pay home usage rates while traveling within specified regional zones, both within and outside of our cellular service areas. We have also established preferred roaming contracts and developed system integration with adjacent cellular carriers, which permit our customers to receive calls, access voice mail and use other data features while roaming.

Roaming

We have roaming agreements in our markets with various carriers. Under most of our roaming agreements, the roaming yield per minute we receive from outcollect calling minutes, in addition to the cost per minute we pay for our customers’ incollect activity, declines over time. We have structured our roaming agreements to enable us to provide expanded network access to our customers both regionally and nationally and provide roaming rates based upon factors such as network coverage, feature functionality, and number of customers. Under our agreements with AT&T and Verizon Wireless, we have been able to attain preferred roaming status by overlaying our existing Central, Northeast, Northwest, and South networks with GSM/GPRS/EDGE and our Midwest territory with CDMA/2000/1XRTT technology.

A substantial portion of our roaming revenue has been derived from agreements with three national wireless providers, AT&T, Verizon Wireless and T-Mobile. For the years ended December 31, 2007, 2006,

and 2005, AT&T (on a pro forma basis giving effect to AT&T’s November 2007 purchase of Dobson Cellular), Verizon Wireless, and T-Mobile together accounted for approximately 95%, 93%, and 92%, respectively, of our total outcollect roaming minutes. For the years ended December 31, 2007, 2006, and 2005, AT&T (on a pro forma basis giving effect to AT&T’s November 2007 purchase of Dobson Cellular) accounted for approximately 14.8%, 14.5%, and 12.2% of our total revenue.

Our agreements with our three most significant roaming partners are as follows:

·	AT&T, which is effective through December 2009,

·	Verizon Wireless, which is effective through December 2009, and

·	T-Mobile, which was effective through December 2007 and is continuing on a month to month basis.

Customer Equipment

We currently sell wireless devices manufactured by several companies including LG Electronics, Inc., Motorola, Inc., Nokia Telecommunications, Inc., and Palm, Inc. and accessories manufactured by a number of sources.

Distribution and Sales

We market our wireless products and services through direct sales distribution channels, which include Company-owned retail stores, website, and account executives. We also utilize indirect sales distribution channels, including independent sales agents. All distribution channels are managed on a territorial basis.

Our distribution channels include the following:

·	direct sales through:

o	retail stores and kiosks that we operate and staff with our employees. We have approximately 107 retail stores, primarily located in our more densely populated markets. Our retail locations help us establish our local presence and promote customer sales and service;

o	account executives who are our employees and focus on business and major account sales and service;

o	telesales, which are conducted by customer service representatives, internet, and toll-free phone services; and

indirect sales through approximately 322 independent sales agents. Our independent sales agents are established businesses in their communities and include retail electronics stores, farm implement dealers, automobile dealers, automotive parts suppliers, college and university bookstores, video and music stores, and local telephone companies. Most of the agents sell our services in conjunction with their principal business. We provide cellular equipment to the agents for sale to customers, and the agents market our services utilizing a cooperative advertising program.

Customer Base

At December 31, 2007, our customer base consisted of three customer categories: postpaid, wholesale, and prepaid.

(1)

Postpaid customers accounted for the largest portion of our customer base as of that date, at 82.4%. These customers pay a monthly access fee for a wireless service plan that generally includes a fixed number of minutes and certain service features. In addition to the monthly access fee, these customers are typically billed in arrears for data usage, roaming charges, and minutes of use exceeding the rate plans.

(2)

Wholesale customers are similar to our postpaid customers in that they pay monthly fees to utilize our network and services; however, the customers are billed by a third party (reseller), who has effectively resold our service to the end user (customer). We in turn bill the third party for the monthly usage of the end user. Wholesale customers accounted for 15.6% of our total customer base as of December 31, 2007.

(3)

Prepaid customers pay in advance to utilize our network and services and allow us to minimize bad debt, billing and collection costs. Typically, prepaid customers produce lower LSR and higher churn than postpaid customers. Our prepaid customers accounted for 2.0% of our customer base as of December 31, 2007.

Customer Service

To provide consistent customer service in our service centers, we have implemented local monitoring and control systems and maintain customer service departments consisting of trained personnel who are aware of the needs of the customers in our local markets. Our customer service centers are located in Alexandria, Minnesota; Bangor, Maine; Enterprise, Alabama; and Bend, Oregon. Our customer service centers can be accessed 24 hours a day, 365 days a year, and are responsible for processing new service orders and service changes for existing customers and maintaining customer records.

Service Marks

In 2007, all of our existing territories used the UNICEL® brand, which we own.

Network Operations

We develop and build our wireless service areas in response to customer demand by adding channels to existing cell sites, building new cell sites to increase coverage and capacity, and upgrading entire networks with advanced technology and services. Where appropriate, we also upgrade acquired properties to enable us to provide similar quality service over our entire network. We expect to continue our wireless system expansion where necessary to add and retain customers, enhance customer usage on our systems, and increase roaming traffic. We also enhance our systems through scalable network equipment, cell site splitting, cell site sectorization, and digital upgrades of our systems. In addition to improving service quality, these enhancements generally provide improved network system performance and efficiency of operations. Our network consisted of 1,322 cell sites as of December 31, 2007.

Technology

As of December 31, 2007, our networks are all 2.5G compatible. 2.5G refers to wireless technology and capability usually associated with General Packet Radio Services (“GPRS”), Enhanced Data rates for Global Evolution (“EDGE”), and Code Division Multiple Access / 1x Radio Transmission Technology (“CDMA2000/1XRTT”).

Technology	Territory Deployment	Description
CDMA2000/1XRTT	Midwest –commercially launched in August 2004.	CDMA2000/1XRTT is an evolution of CDMA technology and represents a step towards 3G technology and allows data transmission at approximately 50 kilobits per second (“Kbps”).
GSM/GPRS	Central, Northeast, Northwest and South - commercially launched throughout the first half of 2005.	GSM/GPRS facilitates certain applications that have not previously been available over GSM networks due to the limitations in speed of Circuit Switched Data and message length of the Short Message Service. Dataspeeds of up to approximately 35 Kbps are expected.
EDGE	Central, Northeast, Northwest and South – commercially launched throughout the first half of 2005.	EDGE is an evolution of GPRS technology and is a system designed to increase the speed of data transmission via cell phone, creating broadband capability. EDGE technology data speeds are expected to be approximately 70-135 Kbps.

Commercial introduction of CDMA/2000/1XRTT services in our Midwest territory began in August 2004, and commercial introduction of GSM/GPRS/EDGE services began in our Northeast and Northwest territories in January 2005 and in our Central and South territories in the summer of 2005. Our 2.5G technology networks utilize existing 850 MHz and 1900 MHz spectrum. As of December 31, 2007, approximately 95% of our postpaid customers were using new technology wireless devices as compared to 82% at December 31, 2006.

At December 31, 2007, all of our cell sites incorporated 2.5G technology. Throughout 2007, we enhanced coverage within the boundaries of our network through additional cell sites while also integrating our recently acquired southern Minnesota network.

National competitors have made substantial progress updating their networks with 3.0G technologies including 1xEV−DO, HSDPA, and UMTS which will provide greater data capacity than our existing 2.5G networks. Additionally, national competitors are exploring 4.0G technologies that will support even higher data speeds.

Our 2.5G CDMA/2000/1XRTT services in our Midwest territory are compatible with Verizon Wireless customers using 3.0G 1xEV−DO devices. Additionally, our 2.5G GSM/GPRS/EDGE services in our Central, Northeast, South, and Northwest territories are compatible with AT&T’s customers using 3.0G HSDPA and UMTS devices.

Licenses

Our reasons for building out our licenses can vary. We build out many of our licenses primarily to market our wireless services directly to that territory’s population and to capture outcollect roaming minutes. We build out other licenses to minimize incollect cost and capture outcollect roaming minutes while not marketing our services to that territory’s population. In some cases, we have chosen not to build out licensed areas, usually because of insufficient current financial incentive.

Suppliers and Equipment Partners

We do not manufacture any customer or network equipment. The high degree of compatibility among different manufacturers' models of wireless devices and network facilities equipment allows us to design, supply, and operate our systems without being dependent upon a single source of equipment. Our networks use equipment manufactured by Northern Telecom, Inc., Lucent Technologies Inc., Harris, Inc., Alcatel, Ericsson, Inc., and Motorola, Inc.

Competition

We compete against wireless carriers in each of our markets and also compete with a number of enhanced specialized mobile radio service providers. We compete for customers based on numerous factors, including wireless system coverage and quality, service value equation (minutes and features over price), local market presence, digital voice and features, customer service, distribution strength, and brand name recognition. Some competitors also market other services, such as landline local exchange and internet access service, with their wireless service offerings. Many of our competitors have been operating for a number of years, currently serve a substantial customer base, and have significantly greater financial, personnel, technical, marketing, sales, and distribution resources than we do.

The following table lists our major competitors by territory:

	Spectrum	Alltel	AT&T	Sprint	T-Mobile	US Cellular	Verizon Wireless	Other (*)

Central:
Kansas RSA 1, 2, 6, 7, 12 and 13	25 MHz Cellular	X						Westlink Communications
Kansas RSA 11	25 MHz Cellular	X						Panhandle Telecommunications

Midwest:
Minnesota RSA 1 and 2	25 MHz Cellular	X	X	X
Minnesota RSA 3, 5 and 6	25 MHz Cellular		X	X	X			Qwest
Minnesota RSA 7, 8, 9 and 10	25 MHz Cellular	X		X	X
South Dakota RSA 4	25 MHz Cellular	X		X

Northeast:
Maine, Bangor MSA, RSA 1, 2 and 3	25 MHz Cellular		X		X	X
Massachusetts RSA 1	25 MHz Cellular		X	X	X
New Hampshire, Portsmouth, MSA	25 MHz Cellular		X	X	X	X	X
New Hampshire RSA 1	25 MHz Cellular			X		X
New York RSA 2	25 MHz Cellular			X			X
Vermont, Burlington MSA, RSA 1	25 MHz Cellular			X	X	X	X
Vermont RSA 2	25 MHz Cellular			X		X	X

Northwest:
Lewiston-Moscow, ID BTA 250	30 MHz PCS		X	X	X			Inland Cellular
Oregon RSA 3	25 MHz Cellular		X	X	X	X	X	Qwest, Inland Cellular, Snake River Wireless
Oregon RSA 6	25 MHz Cellular			X	X	X	X
Washington RSA 2	25 MHz Cellular		X	X	X		X
Washington RSA 3	25 MHz Cellular		X	X			X
Washington RSA 8	25 MHz Cellular		X	X	X			Qwest, Inland Cellular

South:
Alabama RSA 3	25 MHz Cellular	X	X	X	X			Southern Linc
Alabama RSA 4	25 MHz Cellular	X		X	X			Pine Belt Wireless, Southern Linc
Alabama RSA 5	25 MHz Cellular	X	X	X	X			Public Service Telephone, Southern Linc
Alabama RSA 7	25 MHz Cellular	X	X	X	X		X	Southern Linc
Mississippi RSA 1 and 4	25 MHz Cellular		X		X			Cellular South
Mississippi RSA 3	25 MHz Cellular				X			Cellular South
Dothan, AL BTA	25 MHz PCS	X	X	X	X		X	Southern Linc,
Tupelo, MS BTA	30 MHz PCS	X	X	X	X		X	Cellular South
Columbus-Starkville, MS BTA	30 MHz PCS		X	X	X		X	Cellular South

Wireless Alliance:
Duluth, Minnesota/Superior, Wisconsin	20 MHz PCS			X			X
Fargo, North Dakota/Moorhead, Minnesota, Grand Forks, North Dakota	20 MHz PCS	X		X			X
Sioux Falls, South Dakota	20 MHz PCS	X		X			X

(*) National Third Party Resellers. We also compete with national third party resellers including Virgin Mobile USA, LLC. , and TracFone Wireless, Inc. These resellers purchase bulk wireless services from wireless providers and resell through mass-market retail outlets, including Wal-Mart, Target, Radio Shack, and Best Buy. TracFone purchases bulk wireless services from RCC in selected markets.

We also compete to a lesser extent with resellers, landline telephone service providers, fixed wireless services, specialized mobile radio, private radio systems and satellite-based telecommunications systems. A reseller provides wireless services to customers but does not hold an FCC license and might not own facilities. Instead, the reseller buys blocks of wireless telephone numbers and capacity from a licensed carrier and resells service through its own distribution network to the public. Thus, a reseller is both a customer of a wireless licensee's service and a competitor of that licensee.

Cable companies are providing telecommunications services to the home, and of these, some carriers are providing local and long distance voice services using Voice over Internet Protocol, or VoIP. In particular circumstances, these carriers may be able to avoid payment of access charges to local exchange carriers for the use of their networks on long distance calls. Cost savings for these carriers could result in lower prices to customers and increased competition for wireless services.

The wireless communications industry is experiencing significant technological change, as evidenced by the ongoing improvements in data capacity and quality. National competitors are updating their networks with 3.0G technologies including 1xEV−DO, HSDPA, and UMTS, which will provide greater data capacity than our existing 2.5G networks. Additionally, national competitors are exploring 4.0G technologies which will support even higher data speeds. Competitors may also seek to provide competing wireless telecommunications service through the use of developing technologies, such as Wi−Fi and Wi−Max. The cost of implementing or competing against future technological innovations may be prohibitive to us, and we may lose customers if we fail to keep up with these changes.

With the entry of new competitors and the development of new technologies, products, and services, competition in the wireless telecommunications industry has been intense. Our ability to compete successfully is dependent, in part, on our ability to anticipate and respond to various competitive factors affecting the industry. Our marketing and sales organization monitors and analyzes competitive products and service offerings, changes in consumer preferences, changes in demographic trends and economic conditions, and pricing strategies by competitors that could adversely affect our operations or present strategic opportunities.

We believe that we are strategically positioned to compete with other communications technologies that now exist. Continuing technological advances in telecommunications and FCC policies that encourage the development of new spectrum-based technologies make it difficult, however, to predict the extent of future competition.

Legislation and Regulation

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 the telecommunications industry. Many existing federal, state, and local laws and regulations are currently the subject of judicial proceedings, legislative hearings, and administrative proposals that could change, in varying degrees, the manner in which the telecommunications industry operates. Neither the outcome of these proceedings nor their impact upon the telecommunications industry or us can be predicted.

Overview

Our business is subject to varying degrees of federal, state, and local regulation. The FCC has jurisdiction over all facilities of, and services offered by, wireless licensees such as us, to the extent those facilities are used to provide, originate, or terminate interstate or international communications. The Communications Act of 1934, as amended (the “Communications Act”), preempts state and local regulation of the entry of, or the rates charged by, any provider of commercial mobile radio service (“CMRS”), which includes our cellular service and broadband personal communications service. Otherwise, state and local regulatory commissions may exercise jurisdiction over most of the same facilities and services to the extent they are used to originate or terminate intrastate or intra-Major Trading Area communications and with respect to zoning and similar matters. The manner in which we are regulated is subject to change in ways we cannot predict.

Legislation and Regulation Update

Congress is considering bills that would set new consumer protection standards for wireless service contracts and that would afford consumers a variety of other new rights. On February 27, 2008, the House Commerce Telecommunications Subcommittee held a hearing on a draft bill that would require the FCC to conduct rulemaking proceedings and adopt, within 120 days, rules that cover, among other things: (1) disclosure of terms and conditions of service plans, including early termination fees (“ETFs”), for new wireless service plans, modifications to existing service plans and before renewing existing service plans; (2) preparation and disclosure by wireless carriers of coverage maps that show signal strength and coverage gaps; (3) billing policies that would prohibit charges other than those that are (a) for services provided, (b) for nonpayment, early termination of service, or other lawful penalty, (c) for federal, state, or local sales or excise taxes, or (d) expressly authorized by a federal, state or local statute, rule, regulation, or order to appear on a bill as a separately stated charge; (4) new, semi-annual reports from carriers on matters that include percentage of license area served, assessment of outdoor signal strength, assessment of dropped calls, disclosure of known coverage gaps and miscellaneous other matters that the FCC may specify; and (5) a 30-day penalty free trial period for subscribers and advance notice of service plan changes coupled with a subscriber’s right to terminate service and return equipment. Both the FCC and states would have enforcement authority, with states permitted to file claims on behalf of state residents in federal district court or use administrative procedures. The draft bill provides that state laws would be preempted only if inconsistent with the federal law. Wireless carriers would have the right to petition to the FCC to challenge state consumer protection measures believed to be inconsistent with rules adopted according to federal law.

Several FCC proceedings and initiatives are underway that may affect the availability of spectrum used or useful in the provision of commercial wireless services, which may allow new competitors to enter the wireless market or allow existing competitors to expand services or otherwise compete more effectively against us. For instance, the FCC auctioned several blocks of 1.7 and 2.1 GHz spectrum in 2006 and also commenced an auction in January 2008 of 700 MHz spectrum. As the FCC continues to allocate spectrum to existing and potential competitors, we may face increased competition for our services from new competitors and from existing competitors with greater spectrum resources. In addition, the implementation of wideband technologies such as “WiFi” and “WiMAX,” which do not necessarily rely on FCC-licensed spectrum, could cause the technology used on our wireless networks to become less competitive or obsolete.

The FCC is considering imposing new requirements on wireless communications service providers to provide consumers with greater flexibility in making use of wireless communications networks. Similar proposals are being considered in Congress. These proposals revolve around the concept of “net neutrality,” which could limit the ability of network operators (like us) to manage and control our networks. The proposals might prevent network owners, for example, from charging bandwidth intensive content providers, such as certain online gaming, music, and video service providers, an additional fee to ensure quality delivery of their services to consumers. Wireless carriers could be required to permit consumers to use the equipment of their choice to view the content of their choice.

Wireless carriers could also be required to improve the interoperability of equipment across their networks. In particular, in February 2007, Skype petitioned the FCC to prohibit commercial wireless radio service providers from limiting subscribers’ right to run software communications applications of their choosing over wireless networks. If the FCC grants the petition, wireless carriers would be required to permit VoIP technology access to their networks. The FCC has opened a proceeding to review Skype’s request; we cannot predict if or when the FCC will rule on Skype’s petition, or the effect of such a ruling or of similar initiatives on our results of operations.

The FCC has been petitioned by a public interest group named “Public Knowledge” and other entities to declare that text messaging services, including short-code based services sent from and received by mobile phones, are “commercial mobile services” governed by Title II of the Communications Act, such that wireless carriers that provide the services are subject to the anti-discrimination provisions of Title II of the Communications Act. The FCC has responded with an invitation for public comments on the petition. In addition to deriving outcollect revenue from roaming agreements, we also rely on roaming agreements to provide roaming capability to our customers in areas of the U.S. outside our service areas and to improve coverage within selected areas of our network footprint. Some competitors may be able to obtain lower roaming rates than we receive because they have larger call volumes or because of their affiliations with, or ownership of, wireless carriers, or may be able to reduce roaming charges by providing service principally over their own networks. In addition, the quality of service that a wireless carrier delivers during a roaming call may be inferior to the quality of service we provide, the price of a roaming call may not be competitive with prices of other wireless carriers for such call, and our customers may not be able to use some of the features that they enjoy when making calls on our network. In addition, certain of our technologies are not compatible with certain other technologies used by certain other carriers, limiting our ability to enter into roaming agreements with such other carriers. The FCC has refused to impose such conditions on the FCC’s approval of those mergers. However, the FCC recently adopted a regulation that requires each wireless carrier, upon receipt of a reasonable request of another technologically compatible wireless carrier, to provide automatic roaming services to customers of that other wireless carrier on reasonable and nondiscriminatory terms and conditions. Certain conditions and limitations apply to the new regulation. The FCC also adopted a further rulemaking notice to consider whether wireless carriers should be obligated to provide automatic roaming service for non-interconnected services or features, including services that are classified as information services, or to services that are not classified as CMRS. We cannot predict if or when the FCC will act on this matter, nor the effect of the adopted or proposed regulations on our results of operations.

On May 1, 2007, the Federal-State Joint Board on Universal Service, or the Joint Board, recommended that the FCC take immediate action to restrict USF payments, by imposing an interim, emergency cap on the amount of high-cost support that competitive eligible telecommunications carriers (“ETCs”) (including wireless carriers) may receive for each state. Those caps could be based on the average level of competitive ETC support distributed in that state in 2006, although a number of alternatives for determining a cap have been proposed. The FCC has received public comment on the proposal and may act in the near future. On November 20, 2007, the Joint Board made recommendations for long-term reform of the federal universal service high-cost program. The Joint Board’s recommendations were put out for public comment on January 29, 2008. On the same date, and in addition to the Joint Board’s recommendations, the FCC released two additional Notices of Proposed Rulemaking. One would eliminate the “identical support” rule and the other asks for comment on the use of reverse auctions as a means of distributing high-cost support. The comment cycle for each of these three items has not been completed and we cannot predict if or when the FCC will act on any of the recommendations.

The comment cycle for each of these three items has not been completed and we cannot predict if or when the FCC will act on any of the recommendations.

In addition, legislation has been repeatedly introduced in both the U.S. House of Representatives and Senate which, if approved, could affect USF support. For example, on February 16, 2007, Congress passed legislation prohibiting the FCC from enacting a primary connection restriction on universal service support. We cannot predict if or when the Congress will pass new legislation affecting the USF, or the effect of any such actions on our results of operations.

Federal Licensing of Wireless Systems

Geographic Market Area Licenses. CMRS providers operate under licenses granted by the FCC within a specified geographic market area. For cellular systems, those market areas are typically Metropolitan Statistical Areas (“MSAs”) or Rural Service Areas (“RSAs”) as defined by the FCC. PCS systems are normally licensed within market areas known as Major Trading Areas (“MTAs”) or Basic Trading Areas (“BTAs”), although it is possible to obtain, and we currently hold, some PCS licenses that are for market areas smaller than an entire MTA or BTA, known as a partitioned area.

While the FCC has used an assortment of methods in the past to grant licenses, most if not all new CMRS licenses granted by the FCC are by auction. The FCC determines the availability of licenses in particular frequency ranges, as well as the terms under which license auctions are conducted. Our ability to introduce advanced “third generation” wireless services may depend upon our success in future FCC license auctions and/or our ability to secure additional licenses or spectrum leases in secondary market transactions.

Construction and Operation. Most cellular licensees, including RCC, have substantially constructed their systems and have license rights in their Cellular Geographic Service Areas that cut off rights of others to obtain licenses on the same frequencies in the same areas. We do not need to perform additional construction under our cellular licenses to retain those licenses. If we were to discontinue operation of a cellular system for a period of at least 90 continuous days, our license for such area would be automatically forfeited. However, we have no intention of allowing any discontinuance of service that may occur to last as long as 90 continuous days.

In order to retain licenses, PCS licensees, including RCC, are required by the FCC’s rules to construct facilities in the geographic areas authorized under their PCS licenses. That construction must result in a signal level adequate to permit an offering of services to a certain percentage of the population covered by those licenses within specified periods, based on the date of the grant of the licenses. Our PCS licenses are subject to revocation or nonrenewal by the FCC, as are all similar licenses held by other companies, if these build-out requirements are not satisfied in a timely manner. Build-out requirements apply as to certain PCS licenses we have acquired from other entities. We believe that our construction will progress at a pace that allows for timely compliance with the construction requirements. Because we hold PCS licenses, we must comply with FCC microwave relocation rules. A block of spectrum licensed for PCS may be encumbered by a previously licensed microwave system. In such a case, if the PCS licensee cannot avoid interference with the microwave system, the FCC requires the PCS licensee to provide six months’ advance notice that interference may occur upon simultaneous operation of the PCS and microwave facilities and direct the microwave licensee to cease operation or move to other, non-interfering frequencies after such period of time. A PCS licensee is also obligated to participate in cost-sharing if a previous relocation of a microwave incumbent benefits more than one PCS licensee. However, PCS licensees no longer trigger any new cost-sharing obligations due to the termination of the FCC’s cost-sharing plan as of April 4, 2005. We believe that we are in compliance with applicable FCC microwave relocation and cost-sharing rules.

CMRS providers also must satisfy a variety of FCC requirements relating to technical and reporting matters, including coordination of proposed frequency usage with adjacent systems in order to avoid electrical interference between adjacent systems. The FCC also requires licensees to secure FCC consent to system modifications in specified instances.

Entities such as RCC that own towers used for radio systems are subject to Federal Aviation Administration and FCC regulations respecting the location, marking, lighting, and construction of towers and are subject to the requirements of the National Environmental Policy Act, National Historic Preservation Act, and other environmental statutes enforced by the FCC. The FCC has also adopted guidelines and methods for evaluating human exposure to radio frequency emissions from radio equipment. We believe that all wireless devices we currently provide to our customers, and all our radio systems on towers that we own or occupy, comply with these requirements, guidelines, and methods.

We use, among other facilities, common carrier point-to-point microwave facilities to connect cell sites and to link the cell sites to the main switching office. These facilities are separately licensed by the FCC and are subject to regulation as to technical parameters, frequency protection, and service.

Renewal of Licenses. Near the conclusion of the generally ten-year term of a spectrum license, a licensee must file an application for renewal of the license to obtain authority to operate for up to an additional ten-year term. An application for license renewal may be denied if the FCC determines that the renewal would not serve the public interest, convenience, or necessity. The FCC also may revoke a license prior to the end of its term in extraordinary circumstances. In addition, at license renewal time, other parties may file competing applications for the authorization. The FCC has adopted specific standards stating renewal expectancy will be awarded to a spectrum licensee that has provided substantial service during its license term and has substantially complied with applicable FCC rules and policies and the Communications Act. If the FCC awards the licensee a renewal expectancy, its license renewal application generally is granted and the competing applications are dismissed.

Although we are unaware of any circumstances that would prevent the approval of any future renewal application, no assurance can be given that the FCC will renew any of our licenses. Moreover, the FCC has the authority to restrict the operation of a licensed facility or revoke or modify licenses. None of our licenses has ever been revoked or involuntarily modified.

Assignment of Licenses or Transfer of Control of Licensees. FCC licenses generally may be transferred and assigned, subject to specified limitations prescribed by the Communications Act and the FCC. The FCC’s prior approval is required for the assignment or transfer of control of a license for a wireless system. Before we can complete a purchase or sale, we must file appropriate applications with the FCC, and the public is by law granted a period of time, typically 30 days or less, to oppose or comment on the proposed transaction. In addition, the FCC has established transfer disclosure requirements that require licensees who assign or transfer control of a license acquired through an auction within the first three years of their license terms to file associated sale contracts, option agreements, management agreements, or other documents disclosing the total consideration that the licensee would receive in return for the transfer or assignment of its license. In any instance where a proposed transaction would result in an entity holding attributable ownership interests in both the frequency Block A and frequency Block B cellular carriers in the same MSA or RSA, or where the acquiring entity would add to its own spectrum holdings in the same area, the FCC conducts a case-by-case analysis of the potential effect upon competition and may disapprove of the transaction or issue approval subject to conditions that may or may not be acceptable to the parties. Non-controlling minority interests in an entity that holds a FCC license generally may be bought or sold without FCC approval, subject to any applicable FCC notification requirements. In two recent cases, the FCC has conditioned the grant of authority to an assignment of licenses or transfer of control of a licensee so as to require the assignee (or transferee) to agree to a temporary “cap” on universal service support. In other cases, the FCC has not conditioned the grant of its authority in such a manner. At this time, we do not know whether the FCC will seek to impose such a condition as a condition of our pending applications for transfer of control to Cellco Partnership d/b/a Verizon Wireless.

Limitation on Foreign Ownership. Ownership of our capital stock by non-U.S. citizens is subject to limitations under the Communications Act and FCC regulations. Under existing law, no more than 20% of a licensee’s capital stock may be directly owned or voted by non-U.S. citizens or their representatives, by a foreign government or its representatives, or by a foreign corporation. If an FCC licensee is controlled by another entity, up to 25% of that entity’s capital stock may be owned or voted by non-U.S. citizens or their representatives, by a foreign government or its representatives, or by a foreign corporation. Indirect foreign ownership above the 25% level may be allowed should the FCC find such higher levels not inconsistent with the public interest.

Regulatory Matters and Developments

Enhanced 911 Services. 850 MHz and 1900 MHz licensees must comply with the FCC’s rules regarding emergency 911 service. There is a staged process for the required deployment of enhanced 911 services, referred to by the FCC as Phase I and Phase II.

Under Phase I, cellular and PCS licensees were required as of April 1, 1998, or within six months of a request from the designated Public Safety Answering Point (“PSAP”), whichever is later, to be able to provide, if available to the serving carrier, the telephone number of the originator of a 911 call and to provide to the designated PSAP the location of the cell site or base station receiving a 911 call from any mobile handset accessing their systems through the use of Automatic Number Identification and Pseudo-Automatic Number Identification. We are in substantial compliance with Phase I requirements.

Under Phase II, cellular and PCS licensees must be able to provide to the designated PSAP the location of all wireless 911 callers, by longitude and latitude, in conformance with particular accuracy requirements. To comply, licensees may elect either network-based or mobile radio handset-based location technologies and thereafter meet, according to a phased-in schedule, the enhanced 911 service standards stated in the FCC’s rules. We notified the FCC of our intention to utilize network-based location technologies to provide Phase II enhanced 911 service and amended the notification to indicate that, where we utilize CDMA network technology, we will rely upon a handset-based Phase II solution. Pursuant to terms and conditions of an FCC “Order to Stay” adopted in July 2002, granting us an extension of the compliance deadlines, we are subject to requirements of the FCC that, where we have deployed a network-based Phase II solution, we provide Phase II enhanced 911 service to at least 50% of a requesting PSAP’s coverage area or population beginning March 1, 2003, or within six months of a PSAP request, whichever is later, and to 100% of a requesting PSAP’s coverage area or population by March 1, 2004 or within 18 months of such a request, whichever is later.

We have received requests from PSAPs for deployment of Phase II enhanced 911 service that relate to various areas where we provide cellular or PCS service and we have met the applicable 50%-coverage benchmark. Nevertheless, if the FCC finds that the accuracy results produced by any of our Phase II deployments are not in compliance with FCC rules, the FCC could issue enforcement orders and impose monetary forfeitures upon us. We have filed with the FCC a request for waiver of the applicable FCC rule concerning field test results in the State of Vermont which may not be compliant with FCC location accuracy requirements if averaged only with results from the State of Vermont. To the extent that we are not meeting the FCC’s E911 Phase II location accuracy requirements in Vermont and other states we may need to file one or more additional petitions with the FCC to request a waiver of those requirements. The FCC has issued notices of apparent liability requiring other CMRS providers to pay fines based upon violations of enhanced 911 service requirements. The implementation of enhanced 911 obligations may have a financial impact on us. We are not yet able to predict the extent of that impact.

On September 11, 2007, the FCC adopted a Report and Order which clarifies that wireless carriers must meet the E911 Phase II location accuracy requirements at the Public Safety Answering Point (PSAP) service-area level. To accomplish this, the rules adopted by the Report and Order require wireless carriers to meet interim, annual benchmarks over a five-year period in order to ensure that they achieve PSAP-level compliance no later than September 11, 2012. These annual benchmarks include interim progress reports, as well as requirements to measure the FCC’s accuracy requirements on progressively smaller geographic levels until the PSAP-level is met. This includes: (1) fulfilling the FCC location accuracy requirements within each Economic Area (of which there are 176 nationwide) in which a carrier operates by September 11, 2008; (2) satisfying the location accuracy requirements within each MSA and RSA that the carrier serves and demonstrating significant progress toward compliance at the PSAP-level, including achieving this requirement within at least 75 percent of the PSAPs the carrier serves, by September 11, 2010; and (3) achieving full compliance with the PSAP-level location accuracy requirements by September 11, 2012. Several nationwide wireless carriers as well as the Rural Cellular Association, of which we are a member, have petitioned the U.S. Court of Appeals, D.C. Circuit, for a stay of the rule changes adopted September 11, 2007 and have asked the same court to review the FCC’s decision. If the rule changes are permitted to take effect, our compliance with the new E911 location accuracy standards may have a financial impact on us. We are not yet able to predict the extent of that impact.

In an ongoing rulemaking proceeding the FCC is continuing to consider other changes to its E911 location accuracy rules, including (1i) whether or not a single, technology-neutral location accuracy requirement for wireless E911 service should be used, rather than the separate accuracy requirements for network-based and handset-based location technologies that are currently in place; (2) methods for carriers to improve in-building location accuracy; and (3) the use of hybrid technology solutions to increase location accuracy and address shortcomings of current technologies. We are not yet able to evaluate the financial implications that any new regulations on these matters would have upon us.

Interconnection. FCC rules provide that a local exchange carrier (“LEC”) must provide CMRS providers interconnection within a reasonable time after it is requested, unless such interconnection is not technically feasible or economically reasonable, and that CMRS providers are entitled to compensation from LECs for terminating wireline-to-wireless traffic that originates and terminates within the same MTA. The FCC has a rulemaking proceeding in progress to consider whether, and possibly how, to replace the current system of reciprocal compensation for termination of local telecommunications traffic, and access charges for inter-MTA traffic, with a uniform intercarrier compensation plan. That proceeding could result in changes to compensation arrangements we have with LECs and interexchange carriers for the exchange of telecommunications traffic. Additionally, although key provisions of FCC orders implementing the Communications Act’s interconnection requirements have been affirmed by the courts, certain court challenges to the FCC rules are pending.

Universal Service. The Communications Act mandates that telecommunications carriers, such as us, contribute to the federal USF, the purpose of which is to ensure that basic telephone services are available and affordable for all citizens and that consumers in rural areas have similar choices in telecommunications services as consumers living in urban areas. The USF is intended to promote telecommunications infrastructure development in high cost areas and to provide subsidies to low income persons, schools, libraries, and rural health care providers. We also are required to contribute to state universal service programs administered by some states. The federal USF is administered jointly by the FCC, the fund administrator, and state regulatory authorities. Because we are a collection agent for customer contributions, we expect that our obligation to remit USF contributions will have a minimal financial impact on us.

1996 amendments to the Communications Act allow wireless carriers such as us to pursue eligibility to receive USF funding for constructing, maintaining and improving our facilities and services in high-cost areas. When declared eligible for USF funding, we are also obligated to offer discounts to low-income customers, which amounts are reimbursed to us through the federal Lifeline and Link-up programs. We must be designated as an eligible telecommunications carrier (“ETC”) by the state where we provide service (or, in some cases, the FCC) and the state (or, in some cases, we) must certify our eligibility to the FCC so that we may ultimately receive USF support. We have received ETC designation in the states of Alabama, Kansas, Maine, Minnesota, Mississippi, New Hampshire, Oregon, South Dakota, Vermont and Washington. We are currently receiving USF support in each of these states. To be eligible from year-to-year to receive USF support, our ETC certifications must be renewed each year. Our ability to receive USF support, and our obligations to pay into state and federal universal service funds, are subject to change based upon pending regulatory proceedings, court challenges, and marketplace conditions.

The federal universal service program is under legislative, regulatory and industry scrutiny as a result of growth in the fund and structural changes within the telecommunications industry. The structural changes include an increase in the number of ETCs receiving support from the USF and a migration of customers from wireline service providers to providers using alternative technologies that, today, are not required to contribute to the universal service program. There are several FCC proceedings underway that are likely to change the way universal service programs are funded and the way these funds are disbursed to program recipients. The specific proceedings are discussed in greater detail below.

On March 17, 2005, the FCC issued an order strengthening the conditions for telecommunications carriers to receive and maintain ETC designation. The new standards are mandatory when the FCC is responsible for evaluating ETC applications and recommended when state regulatory agencies are responsible for evaluating ETC applications. Effective October 1, 2006, the new standards require ETCs to: (1) provide a five-year plan demonstrating how support will be used to improve coverage, service quality or capacity, including annual progress reports; (2) demonstrate the network’s ability to remain functional in emergencies; (3) demonstrate how they will satisfy consumer and quality standards; (4) offer a “local-usage” plan comparable to the ILEC; and (5) acknowledge that they may be required to provide equal access to interexchange carriers in the event they become the sole ETC within a designated service area. The new standards are not expected to affect our universal service receipts. Further, additional certification

requirements were imposed on ETC recipients. Some states have adopted, or are considering adopting, the same or similar requirements. The new FCC requirements are subject to reconsideration requests pending at the FCC.

On June 14, 2005, the FCC issued a notice of proposed rulemaking initiating a broad inquiry into the management and administration of the universal service programs. The notice of proposed rulemaking sought comment on ways to streamline the application process for federal support and whether and how to increase audits of fund contributors and fund recipients to deter waste and fraud. The FCC also announced it would consider proposals regarding the contribution methodology, which could change the category of service providers that contribute to the fund and the basis upon which they contribute. In a decision released June 27, 2006, the FCC announced interim changes intended to secure the viability of the federal universal service program at least in the near-term. One such change involves the “safe harbor” percentage used to estimate interstate revenue, on which contributions are made by wireless carriers, from 28.5 percent to 37.1 percent of total end-user telecommunications revenue, to better reflect growing demand for wireless services. Another change was to establish universal service contribution obligations for providers of interconnected Voice over Internet Protocol service. Because the decision involves changes of an interim nature and does not address all issues under consideration, we cannot at this time estimate the impact that the interim changes and the potential changes, if any, would have on our operations.

The FCC mandated that, effective October 1, 2004, the Universal Service Administrative Company (“USAC”) begin accounting for the USF program in accordance with generally accepted accounting principles for federal agencies, rather than the accounting rules that USAC formerly used. This change in accounting method subjected USAC to the Anti-Deficiency Act (the “ADA”), the effect of which could have caused delays in payments to USF program recipients and significantly increased the amount of USF regulatory fees charged to wireline and wireless consumers. In December 2004, Congress passed legislation to exempt USAC from the ADA for one year to allow for a more thorough review of the impact the ADA would have on the universal service program. In April 2005, the FCC tentatively concluded that the high-cost and low-income programs of the universal service fund comply with ADA requirements and has asked the Office of Management and Budget (“OMB”) to make a final determination on this issue. In November 2005 Congress extended the exemption for an additional year and is contemplating a permanent solution to alleviate the ADA issues and the related negative impact to the universal service program.

In August 2006, the Federal-State Joint Board for Universal Service (“Joint Board”) issued a Public Notice to invite comments on whether the use of “reverse auctions” to distribute USF high cost support and the amount of support received. In a reverse auction, the lowest bidder or bidders would be successful in the auction. If, upon the recommendation of the Joint Board, the FCC were to decide to utilize reverse auctions in the award of USF support, we may not be successful in our efforts to continue participation in the federal universal service program.

Local Number Portability. The FCC has adopted rules on telephone number portability in an effort to achieve more efficient number utilization. Cellular and PCS licensees are required to provide number portability, which enables customers to change providers and services without changing their telephone number. By November 24, 2003, CMRS providers in the top 100 markets were required to offer number portability without impairment of quality, reliability, or convenience when customers switch wireless service providers, including the ability to support roaming throughout their networks. Providers in other markets were to comply by May 24, 2004 if they received a “bona fide request” to be open for porting-out of customer numbers at least six months prior from another wireless service provider. Where our operations are subject to the FCC mandate we are in compliance. In other areas any failure to comply with this obligation could result in a fine or revocation of our licenses.

In a decision released November 8, 2007, the FCC amended its rules to extend local number portability (“LNP”) obligations and numbering administration support obligations to encompass interconnected voice over Internet Protocol (“VoIP”) services. As a result, users of interconnected VoIP services have the ability to port their telephone numbers when changing service providers to or from an interconnected VoIP provider. At the same time, the FCC issued a declaratory ruling to clarify that no entities obligated to provide LNP may obstruct or delay the porting process by demanding from the porting-in entity information in excess of the minimum information needed to validate a customer’s request. The FCC explained that LNP validation should be based on no more than four fields of information for simple ports, and those fields should be (1) 10-digit telephone number; (2) customer account number; (3) 5-digit zip code, and (4) pass code (if applicable). Subsequently the FCC deferred until July 31, 2008 the deadline for compliance with the Commission’s declaratory ruling that the validation process for local number portability (LNP) requests should be based on no more than four fields.

Wireline carriers must port numbers to wireless carriers where the wireless carrier’s “coverage area” overlaps the geographic location of the rate center in which the customer’s wireline number is provisioned, provided that the porting-in carrier maintains the number’s original rate center designation following the port. The wireless “coverage area” is defined by the FCC as the area in which wireless service can be received from the wireless carrier. The obligation of small wireline carriers to port numbers to wireless carriers was delayed by judicial action, but it is scheduled to take effect on March 23, 2008, provided that the FCC or a federal court does not stay the effectiveness of the rule’s applicability to small wireline carriers as has been requested in motions filed by at least one organization representing small landline carriers. State public utility commissions have authority under the Communications Act to suspend or extend FCC number portability requirements faced by wireline carriers that serve fewer than two percent of the nation’s customer lines.

Meanwhile, the FCC invited and has received written comments on issues that bear upon wireless carriers’ obligations to port numbers to wireline carriers upon customer request. We expect to face obligations that will allow our customers to port their numbers to wireline carriers.

CALEA. Telecommunications carriers also are subject to the Communications Assistance for Law Enforcement Act (“CALEA”), which is administered by the Department of Justice, Federal Bureau of Investigation (“FBI”) and the FCC. CALEA requires carriers to have a specific number of open ports available for law enforcement personnel with the appropriate legal authority to perform wiretaps on each carrier’s network. Full implementation of CALEA’s assistance capability requirements was previously required by June 30, 2000. However, because the FCC found that there was a lack of equipment available to meet these requirements, it accepted petitions for a two-year extension of this deadline on a carrier-by-carrier basis. We submitted such a petition and were granted a two-year extension, until June 30, 2002, to comply with CALEA’s assistance capability requirements. We petitioned the FCC for another two-year extension and received from the FBI a letter of support for our petition for extension. We also petitioned for additional time, through September 30, 2005, to complete final installation of CALEA features on a switch located in Alexandria, Minnesota. We received from the FBI a letter of support for our petition for extension. At this time CALEA features are installed and operational at all of our switching facilities. Additional requirements have been adopted to require cellular and PCS licensees, as well as other types of service providers, to accommodate interception of digital packet mode telecommunications and of communications over facilities-based broadband Internet access systems and Voice-over-Internet Protocol systems. We will become obligated to comply with these requirements only if and when we commence to offer these types of services. If we are not able to comply with CALEA prior to the applicable deadlines, we could be subject to substantial fines that, under existing law, could be as much as $11,000 per day. We cannot predict yet whether we will be able to comply with CALEA requirements prior to the applicable deadlines.

Other FCC-Mandated Payments. We also are required to contribute annually to the Telecommunications Relay Service Fund and the North American Numbering Plan Administration Fund and to remit regulatory fees to the FCC with respect to our licenses and operations. We do not expect that these financial obligations will have a material impact on us.

Access by the Disabled. The FCC has adopted rules that determine the obligations of telecommunications carriers to make their services accessible to individuals with disabilities. The rules require wireless and other providers to offer equipment and services that are accessible to and useable by persons with disabilities. While the rules exempt telecommunications carriers from meeting general disability access requirements if these results are not readily achievable, it is not clear how the FCC will construe this exemption. Accordingly, the FCC occasionally adopts rules that may require us to make material changes to our network, product line, or services at our expense. By the regulatory deadline of September 15, 2005, we began to offer hearing aid compatible CDMA and GSM handsets. By September 18, 2006, we suspended all of our offerings of TDMA handsets because no hearing aid compatible TDMA handsets were available to us.

By September 18, 2006 we began to offer CDMA and GSM handsets meeting the T3 performance level for acoustic coupling to accommodate hearing aid compatible functions. Because we did not begin to offer a second GSM handset model rated T3 until May 8, 2007, we filed with the FCC a petition for temporary waiver, through that date, of the FCC rule requiring two T3 handsets to be offered per air interface by September 18, 2006. We presented circumstances of temporary unavailability in the marketplace of GSM T3 handsets that tested successfully on our GSM system. On February 27, 2008, the FCC released a Memorandum Opinion and Order that denied our petition for temporary waiver and that also referred the matter of our non-compliance with the rule to the FCC’s Enforcement Bureau for review. We have not yet made a decision on whether to petition the FCC for reconsideration of its decision. If the denial of our waiver request is not reversed the FCC is likely to impose a monetary penalty upon us for the rule violation, but the amount will not have a significant impact upon us.

To accommodate hearing aid compatible functions, we will be required to offer during 2008 a minimum number of compliant phone models (eight models or one-half of total offerings with M3 performance level for reduced radiofrequency interference, and three models or one-third of total offerings with T3 performance level for inductive coupling) with differing levels of functionality (features, prices, operating capabilities). Lack of availability of sufficient numbers of GSM M3 and T3 handset models may cause us to either request a waiver of the benchmark or reduce the number of GSM handset models we offer our customers. We are required to file and we do file with the FCC periodic reports on implementation of these handset offering requirements.

Health and Safety. Various media reports and plaintiffs’ attorneys in lawsuits not involving us have suggested that radio frequency emissions from wireless handsets may be linked to an assortment of health concerns, including cancer, and may interfere with some electronic medical devices, including hearing aids and pacemakers. The FCC and foreign regulatory agencies have updated and may continue to update the guidelines and methods they use for evaluating radio frequency emissions from radio equipment, including wireless handsets. In addition, interest groups have requested that the FCC investigate claims that wireless technologies pose health concerns and cause interference with airbags, hearing aids, and medical devices. The FDA has issued guidelines for the use of wireless phones by pacemaker wearers. Safety concerns have also been raised with respect to the use of wireless handsets while driving. Federal, state, and local legislation has been proposed and, in some instances, enacted in response to these issues. Concerns over radio frequency emissions may have the effect of discouraging the use of wireless handsets, and thus decrease demand for wireless products and services.

Regulatory Oversight. The rapid growth and penetration of wireless services has prompted the interest of the FCC, state legislatures, and state public utility commissions to oversee certain practices by the wireless industry, generally in the form of efforts to regulate service quality, customer billing, termination of service arrangements, advertising, filing of “informational” tariffs, certification of operation, and other matters such as deterrence of spam messaging to wireless devices. While the Communications Act generally preempts state and local governments from regulating the entry of, or the rates charged by, wireless carriers, a state has authority to regulate “other terms and conditions” of service offerings by CMRS providers and may petition the FCC to allow it to regulate the rates of CMRS providers. Several states have proposed or imposed consumer protection regulations on CMRS providers. Moreover, in securing ETC status, we may become subject to such rules (as we already are in Maine and Vermont), may be required to offer a specific “universal service” rate plan, as we have in Maine, or may become subject to other state-imposed requirements as a condition of their granting ETC status. In some states, we are or expect to be required annually to demonstrate that funds we collect from the high-cost fund are used for the required purpose of constructing, maintaining, or improving our facilities and services. These additional regulatory obligations can be expected to increase our costs of doing business.

The FCC has rules that require CMRS providers to report to the FCC network outages of at least 30 minutes duration that potentially affect at least 900,000 user minutes.

New FCC rules require CMRS providers with more than 500,000 subscribers to maintain emergency backup power for a minimum of eight hours at cell sites, unless compliance is precluded by: (1) federal, state, tribal or local law; (2) risk to safety of life or health; or (3) private legal obligation or agreement. Within six months of the effective date of the requirement, which has not been announced, we will be required to file with the FCC a report listing cell sites in compliance, cell sites precluded from compliance, and cell sites not in compliance but not precluded, along with supporting facts. Within twelve months of the effective date of the requirement, we will be required to file with the FCC an updated report, along with a compliance plan for non-compliant sites. The backup plan for any noncompliant cell site likely will include a combination of (1) coverage of 100% of the area served by the non-compliant site from another cell that does have installed backup power, and (2) availability to the non-compliant cell of a portable generator, cell-on-wheels or other such device to restore or replace a cell site.

On October 13, 2006, President Bush signed the Security and Accountability For Every Port (SAFE Port) Act into law. Title VI of the SAFE Port Act, the Warning, Alert, and Response Network (WARN) Act, establishes a process for CMRS providers to voluntarily elect to transmit emergency alerts. Consistent with Section 603 of the WARN Act, the FCC appointed persons to serve on a Commercial Mobile Service Alert Advisory Committee and received from that committee recommendations for certain technical standards and protocols to facilitate the voluntary transmission of emergency alerts by CMRS providers. After the FCC adopts rules, we may consider it appropriate for competitive or other reasons to implement the capability to transmit emergency alerts. We do not expect the financial aspect of developing this capability to have a material impact upon us.

At the local level, wireless facilities typically are subject to zoning and land use regulation and may be subject to fees for use of public rights of way. Although local and state governments cannot categorically prohibit the construction of wireless facilities in any community, or take actions that have the effect of prohibiting construction, securing state and local government approvals for new tower sites may become a more difficult and lengthy process.

The FCC has expanded the flexibility of cellular, PCS, and other CMRS providers to provide fixed as well as mobile services. Such fixed services include, but need not be limited to, “wireless local loop” services to apartment and office buildings and wireless backup services to private business exchanges and local area networks to be used in the event of interruptions due to weather or other emergencies. The FCC has determined that fixed services provided as ancillary services to a carrier’s mobile service will be regulated as commercial mobile radio services.

The FCC authorizes spectrum leasing for a variety of wireless services. Such rules may provide us with opportunities to expand our services into new areas, or provide us with access to additional spectrum, without need for us to purchase licenses, but the same rules also have the potential to induce new competitors to enter our markets. In addition, proceedings relating to human exposure to radio frequency emissions, the feasibility of making additional spectrum available for unlicensed devices, and the provision of spectrum-based services in rural areas are pending before the FCC. All of these initiatives could have an effect on the way we do business and the spectrum that is available to us and our competitors.

The FCC does not currently specify the rates CMRS carriers may charge for their services, nor does it require the filing of tariffs for wireless operations. However, the FCC has the authority to regulate the rates, terms, and conditions under which we provide service because CMRS carriers are statutorily considered to be common carriers and thus are required to charge just and reasonable rates and are not allowed to engage in unreasonable discrimination. The FCC has adopted rules and has proposed further rules relating to the use of customer proprietary network information (“CPNI”) and to require filing with the FCC of certification of carrier compliance with rules that concern CPNI. Additionally, the FCC has adopted rules governing billing practices. While none of these existing requirements has a material impact on our operations, there is no assurance that future regulatory changes will not materially impact us. The FCC has ruled that the Communications Act does not preempt state damages claims as a matter of law, but whether a specific damage award is prohibited would depend upon the facts of a particular case. This ruling may affect the number of class action suits brought against CMRS providers and the amount of damages awarded by courts.

Employees and Sales Agents

As of December 31, 2007, we had 1,132 employees, including 523 in sales and marketing, 294 in customer service, 199 in network and systems operations, 73 in administration, and 43 in finance and accounting. Approximately 31 of our employees were part-time. None of our employees is represented by a labor organization, and we believe we have excellent relations with our employees.

ITEM 1A. RISK FACTORS.

We encourage you to read the risk factors below in connection with the other sections of this Annual Report on Form 10-K.

Our future operating results could fluctuate significantly.

We believe that our future operating results and cash flows may fluctuate due to many factors, some of which are outside our control. These factors include the following:

·	increased costs we may incur in connection with our networks and the further development, expansion, and upgrading of our wireless systems;

·	fluctuations in the demand for our services and equipment and wireless services in general;

·	increased competition, including price competition;

·	changes in our roaming revenue and expenses due to renegotiation of our roaming agreements and the development of neighboring or competing networks, or overbuild our existing networks;

·	changes in the regulatory environment;

·	changes in the level of support provided by the Universal Service Fund (“USF”);

·	the cost and availability of equipment components;

·	seasonality of roaming revenue;

·	changes in travel trends;

·	acts of terrorism, political tensions, unforeseen health risks, unusual weather patterns, and other catastrophic occurrences that could affect travel and demand for our services; and

·	changes in general economic conditions that may affect, among other things, demand for our services and the creditworthiness of our customers.

We incurred net losses applicable to common shares of approximately $30.7 million, $130.7 million, and $71.3 million, in the years ended December 31, 2007, 2006, and 2005, respectively. We may continue to incur significant net losses as we seek to increase our customer base in existing markets. We may not generate profits in the short-term or at all. If we fail to achieve profitability, that failure could have a negative effect on the market value of our common stock.

We may not be able to grow our customer base, which would force us to change our business plan and financial outlook.

Our current business plans assume that we will increase our customer base over time, providing us with increased economies of scale. If we are unable to attract and retain a growing customer base, we would be forced to change our current business plans and financial outlook.

We have required substantial amounts of capital to maintain various obligations to maintain our 2.5G technologies and to meet various obligations under our financing arrangements. We also expect to eventually upgrade our 2.5G networks. Our ability to generate the required capital depends on many factors, including some that are beyond our control.

We have required substantial capital to maintain our wireless network and for other operating needs. Including the cost of our 2.5G technology overlays and our network improvement efforts in our newly acquired southern Minnesota markets, our total capital expenditures for 2007 were $61.5 million. We believe that we have sufficient funds to finance our planned capital expenditures for network construction, but we may require additional capital in the event of significant departures from our current business plan, unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, engineering design changes, and other technological issues or if we acquire additional licenses.

Any failure to upgrade could also have a negative effect on our roaming revenues, since most of our roaming partners’ customers will likely use the latest technology wireless devices as our roaming partners upgrade their networks. Our ability to meet our debt service requirements and our customers’ needs may also be impaired, which would have a material adverse effect on our business. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

We have committed a substantial amount of capital to maintain and to increase the capacity of our wireless networks data services. If the demand for wireless data services does not grow, or if we fail to capitalize on such demand, it could have an adverse effect on our growth.

We have committed significant resources to wireless data services and our business plan assumes increasing demand for such services. Although demand for wireless data services is growing, it is currently a small portion of our revenues. Continued growth in demand for wireless data services is dependent on development and availability of popular applications and availability of wireless devices and other wireless devices with features, functionality, and pricing desired by customers. If applications and devices are not developed or do not become commercially acceptable, our revenues could be adversely affected. Even if such demand does develop, our ability to deploy and deliver wireless data services relies, in many instances, on new and unproven technology. Existing technology may not perform as expected, and we may not be able to obtain new technology to effectively and economically deliver these services. We cannot give assurance that there will be widespread demand for advanced wireless data services, that revenues from data services will constitute a significant portion of our total revenues in the near future, or that we can provide such services on a profitable basis.

Our business could be materially and adversely affected by our failure to anticipate and react to frequent and significant technological changes.

The telecommunications industry is subject to rapid and significant changes in technology that are evidenced by:

·	the introduction of new digital wireless devices and applications;

·	evolving industry standards;

·	the availability of new radio frequency spectrum allocations for wireless services;

·	ongoing improvements in the capacity and quality of digital technology;

·	shorter development cycles for new products and enhancements;

·	developments in emerging wireless transmission technologies; and

·	changes in end-user requirements and preferences.

It is possible that we may select a technology that does not achieve widespread commercial success or that is not compatible with the technology selected by one or more of our roaming partners, and as a result, our business, results of operations and financial condition could be materially and adversely affected. Moreover, one or more of the technologies that we currently utilize may become inferior or obsolete at some time in the future.

A significant portion of our revenue is from roaming charges. Outcollect roaming yields have been declining over the last few years and are expected to continue to decline in the future. As a result, our future operating results could be adversely affected if increases in roaming minutes do not offset anticipated decreases in roaming yield.

In 2007, 2006, and 2005, approximately 29%, 27%, and 23%, respectively, of our revenue was derived from roaming charges incurred by other wireless providers for use of our network by their customers who traveled within our coverage areas. A substantial portion of our roaming revenue is derived from AT&T, Verizon Wireless, and T-Mobile. Changes in their operations or a significant decline in the number of their customers could adversely affect our business. For the years ended December 31, 2007, 2006, and 2005, AT&T (on a pro forma basis giving effect to AT&T’s November 2007 purchase of Dobson Cellular), Verizon Wireless, and T-Mobile together accounted for approximately 95%, 93%, and 92%, respectively, of our total outcollect roaming minutes. For the years ended December 31, 2007, 2006, and 2005, AT&T(on a pro forma basis giving effect to AT&T’s November 2007 purchase of Dobson Cellular) accounted for approximately 14.8%, 14.5%, and 12.2%, of our total revenue. Changes in the network footprints of these providers could have a material adverse effect on our outcollect revenue and incollect expenses. For example, if a roaming partner from which we derive a significant amount of revenue in one of our service areas were to build its own network in that service area, our outcollect revenue derived from our roaming relationship with that partner in that service area might decrease or even cease altogether, and our ability to negotiate favorable incollect rates in that partner's other service areas could suffer as well.

Any overbuild of our service areas by our roaming partners would also result in increased competition, which could have a negative impact on our outcollect roaming revenues, business, operating results, and retention.

Our roaming agreements have varying terms, from month-to-month to up to five years, and some are terminable with 30 days’ written notice. When these agreements expire or are terminated, we may be unable to renegotiate these roaming agreements or to obtain roaming agreements with other wireless providers upon acceptable terms. Failure to obtain acceptable roaming agreements could lead to a substantial decline in our revenue and operating income.

Our roaming revenue is subject to some effects of seasonality, and as a result, our overall revenue and operating income are also subject to seasonal fluctuations.

In 2007, 2006, and 2005, a substantial amount of our revenue was derived from roaming charges incurred by other wireless providers for use of our network by their customers who traveled within our service areas. Our service areas include a number of resort destinations. As a result, our roaming revenue increases during vacation periods, introducing a measure of seasonality to our revenue and operating income. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Matters — Seasonality.”

We operate in a very competitive business environment, which can adversely affect our business and

operations. Competitors who offer more services than we do may attract our targeted customers.

We operate in highly competitive markets, and there is substantial and increasing competition in all aspects of the wireless communications business. Some competitors may market services we do not offer, such as cable television, internet access, landline local exchange, or long distance services, which may make their services more attractive to customers. Competition for customers is based primarily upon services and features offered, system coverage, technical quality of wireless systems, price, customer service, capacity, and strength of distribution channels.

In each of our markets we compete with several other wireless licensees. To a lesser extent, we also compete with wireless internet, dispatch services, resellers, and landline telephone service providers in some of our service areas. Increasingly, cellular services have become a viable alternative to landline voice services for certain customers, putting cellular licensees in direct competition with traditional landline telephone service providers.

Cable and other companies are providing telecommunications services to the home, and of these, some carriers are providing local and long distance voice services using Voice over Internet Protocol, or VoIP. In particular circumstances, these carriers may be able to avoid payment of access charges to local exchange carriers for the use of their networks on long distance calls. Cost savings for these carriers could result in lower rates for customers and increased competition for wireless service providers such as RCC.

Several of our competitors also operate in multiple segments of the industry. In the future, we expect to face increased competition from entities providing similar services using other communications technologies. Given the rapid advances in the wireless communications industry, it is possible that new technologies will evolve that will compete with our products and services. In addition, a number of our competitors have substantially greater financial, technical, marketing, sales, and distribution resources. Further, the FCC has begun auction process of licenses in the 39 GHz spectrum and 700 MHz spectrum that may be used for wireless communications that would compete with our services.

With so many companies targeting many of the same customers, we may not be able to successfully attract and retain customers and grow our customer base and revenues, which could have a materially adverse effect on our future business, strategy, operations, and financial condition.

Market prices for wireless service may decline in the future.

We expect significant price competition among wireless providers that may lead to increasing movement of customers between operators, resulting in reductions in our average monthly service revenue per customer. While we will try to maintain or grow our customer base and average monthly service revenue per customer, we cannot assure you that we will be able to do so. A significant decline in the pricing of services could adversely affect our financial condition and results of operations.

Regulation or potential litigation relating to the use of wireless phones while driving could adversely affect our results of operations. Further, if wireless devices are perceived to pose health and safety risks, we may be subject to new regulations, and demand for our services may decrease.

Some studies have indicated that using wireless phones while driving may distract drivers’ attention, making accidents more likely. These concerns could lead to litigation relating to accidents, deaths, or serious bodily injuries, or to new restrictions or regulations on wireless phone use, any of which also could have material adverse effects on our results of operations. A number of U.S. states and local governments are considering or have recently enacted legislation that would restrict or prohibit the use of a wireless handset while driving or, alternatively, require the use of a hands-free telephone. Legislation of this sort, if enacted, would require wireless service providers to provide hands-free enhanced services, such as voice activated dialing and hands-free speaker phones and headsets. If we are unable to provide hands-free services and products to customers in a timely and adequate fashion, our ability to generate revenues could suffer.

It has been suggested that certain radio frequency emissions from wireless devices may be linked to various health concerns, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers. Concerns over the effect of radio frequency emissions may discourage the use of wireless devices, which would decrease demand for our services.

Our business is subject to extensive government regulation, which could adversely affect our business by increasing our expenses. We also may be unable to obtain or retain regulatory approvals necessary to operate our business, which would negatively affect our results of operations.

The FCC regulates many aspects of our business, including the licensing, construction, interconnection, operation, acquisition, and sale of our wireless systems, as well as the number of wireless licenses issued in each of our markets. State and local regulatory authorities, to a lesser extent, also regulate aspects of our business and services. In addition, the Federal Aviation Administration regulates aspects of construction, marking, and lighting of communications towers on which we place our wireless transmitters. Changes in legislation and regulations governing wireless activities, wireless carriers, and availability of USF support, our failure to comply with applicable regulations, or our loss of or failure to obtain any license or licensed area could have a material adverse effect on our operations.

The FCC and state authorities are increasingly looking to the wireless industry to fund various initiatives, including federal and state universal service programs, telephone number administration, services to the hearing-impaired, and emergency 911 services. In addition, many states have imposed significant taxes on providers in the wireless industry and have adopted or are considering adoption of regulatory requirements regarding customer billing and other matters. These initiatives have imposed and will continue to impose increased costs on us and other wireless carriers and may otherwise adversely affect our business. Under Phase II of its emergency 911 service rules, for example, the FCC has mandated that wireless providers supply the geographic coordinates of a customer’s location, by means of network-based or handset-based technologies, to public safety dispatch agencies.

We have received requests from PSAPs for deployment of Phase II enhanced 911 service that relate to various areas where we provide cellular or PCS service and we have met the applicable 50%-coverage benchmark. Nevertheless, if the FCC finds that the accuracy results produced by any of our Phase II deployments are not in compliance with FCC rules, the FCC could issue enforcement orders and impose monetary forfeitures upon us. We have filed with the FCC a request for waiver of the applicable FCC rule concerning field test results in the State of Vermont, which may not be compliant with FCC location accuracy requirements if averaged only with results from the State of Vermont. To the extent that we are not meeting the FCC’s E911 Phase II location accuracy requirements in Vermont and other states we may need to file one or more additional petitions with the FCC to request a waiver of those requirements. The FCC has issued notices of apparent liability requiring other CMRS providers to pay fines based upon violations of enhanced 911 service requirements. The implementation of enhanced 911 obligations may have a financial impact on us. We are not yet able to predict the extent of that impact.

Each of our wireless licenses is subject to renewal upon expiration of its current term, which is generally ten years. Grants of wireless license renewals are governed by FCC rules establishing a presumption in favor of incumbent licensees that have complied with their regulatory obligations during the ten-year license period. However, we cannot provide assurance that the FCC will grant us any future renewal applications or that our applications will be free from challenge. In addition, FCC rules require wireless licensees to meet build-out requirements with respect to particular licenses, and failure to comply with these and other requirements in a given licensed area could result in revocation or nonrenewal of our license for that area or the imposition of fines by the FCC.

Our designation or certification as an Eligible Telecommunications Carrier (“ETC”) in any state where we conduct business could be refused, conditioned, or revoked due to circumstances beyond our control, thus depriving us of financial support in that state from the Universal Service Fund (“USF”). In addition, we cannot be certain that we will continue to receive payments at the current levels.

In order to receive financial support from the USF in any state, we must receive ETC certification in that state. Currently, we are ETC certified in ten of the states in which we offer wireless services. If designation or certification in any of these states were revoked or conditioned, our financial results could be adversely affected. Further, there are several FCC proceedings underway that are likely to change the way universal service programs are funded and the ways these funds are disbursed to program recipients. At this time, it is not clear what impact changes in the rules, if any, will have on our continued eligibility to receive USF support. Loss of USF revenues could adversely affect our future financial performance.

If we are unable to comply with obligations imposed by the Communications Assistance for Law Enforcement Act (‘‘CALEA’’), our financial results could be adversely affected.

CALEA requires us to make services accessible to law enforcement for surveillance purposes. Additional requirements have been adopted to require cellular and PCS licensees to accommodate interception of digital packet mode telecommunications. We will become obligated to comply with these requirements only if and when we commence to offer services that make use of digital packet mode technology. If we are not able to comply with CALEA prior to the applicable deadlines, we could be subject to substantial fines. We cannot predict yet whether we will be able to comply with CALEA requirements prior to the applicable deadlines.

Equipment failure and natural disasters may adversely affect our operations.

A major equipment failure or a natural disaster affecting any of our central switching offices, microwave links, or cell sites could have a material adverse effect on our operations. Our inability to operate any portion of our wireless system for an extended time period could result in a loss of customers or impair our ability to attract new customers, which would have a material adverse effect on our business, results of operations, and financial condition.

Difficulties in the continued upgrade or replacement of our wireless systems could increase our planned capital expenditures, delay the continued build-out of our networks, and negatively impact our roaming arrangements.

Whenever we upgrade our networks, we need to:

·	select appropriate equipment vendors;

·	select and acquire appropriate sites for our transmission equipment, or cell sites;

·	purchase and install low-power transmitters, receivers, and control equipment, or base radio equipment;

·	build out any required physical infrastructure;

·	obtain interconnection services from local telephone service carriers; and

·	test cell sites.

Our ability to perform these necessary steps successfully may be hindered by, among other things, any failure to:

·	obtain necessary zoning and other regulatory approvals;

·	lease or obtain rights to sites for the location of our base radio equipment;

·	obtain any necessary capital;

·	acquire any additional necessary spectrum from third parties; and

·	commence and complete the construction of sites for our equipment in a timely and satisfactory manner.

In addition, we may experience cost overruns and delays not within our control caused by acts of governmental entities, design changes, material and equipment shortages, delays in delivery, and catastrophic occurrences. Any failure to upgrade our wireless systems on a timely basis may affect our ability to provide the quality of service in our markets consistent with our current business plan, and any significant delays could have a material adverse effect on our business. Failure to meet upgrade milestones or to comply with other requirements under our roaming agreements could have an adverse effect on our roaming revenue.

Our future financial results could be adversely impacted by asset impairments or other charges.

Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). As a result, we are required to test both goodwill and other indefinite-lived intangible assets, consisting primarily of our spectrum licenses, for impairment on an annual basis based upon a fair value approach, rather than amortizing them over time. We are also required to test goodwill for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce our enterprise fair value below its book value. Additionally, the value of our licenses must be tested between annual tests if events or changes in circumstances indicate that the value might be impaired. The amount of any such annual or interim impairment charge could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken. See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Goodwill and Other Indefinite-Lived Intangible Assets.”

Pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), we are required to assess the impairment of our long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable as measured by the sum of the expected future undiscounted cash flows. See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Impairment of Long-Lived Assets.”

Any operating losses resulting from impairment charges under SFAS No. 142 or SFAS No. 144 could have an adverse effect on the market price of our securities.

We may not be able to successfully integrate acquired or exchanged properties, which could have an adverse effect on our financial results.

We seek to improve our networks and service areas through selective acquisitions of other providers’ properties and other assets, and in some instances, we may exchange our properties or assets for the properties and assets of another carrier.

We will be required to integrate with our operations any properties we acquire, which may have billing systems, customer care systems, and other operational characteristics that differ significantly from those of our networks. We may be unsuccessful in those efforts, and customer retention in acquired properties and surrounding areas may suffer as a result, which could have an adverse effect on our business and results of operations.

The cellular systems we acquire may not perform as we expect. The operating results of cellular systems we acquire may not support cost of the acquisition or the capital expenditures needed to develop and integrate those systems. The expansion of our operations may place a significant strain on our management, financial and other resources. In addition, telecommunications providers generally experience higher customer and employee turnover rates during and after an acquisition. We cannot assure you that we will be able to integrate successfully the cellular systems or businesses we acquire. Our failure to integrate and manage our acquired cellular systems could have a material adverse effect on our business, operating results, and financial condition.

Failure to complete the Verizon merger could adversely impact the market price of our common stock as well as our business and operating results.

If the Verizon merger is not completed for any reason, the price of our common stock may decline to the extent that the current market price of our common stock reflects positive market assumptions that the merger will be completed and the related benefits that will be realized. We may also be subject to additional risks if the merger is not completed, including:

·	depending on the reasons for termination of the merger agreement, the requirement that we pay Verizon Wireless a termination fee of $55.0 million;

·	substantial costs related to the merger, such as legal, accounting, filing and printing fees, that must be paid regardless of whether the merger is completed; and

·	potential disruption of our business and the distraction of our workforce and management team.

Our common stock price has been and may continue to be volatile. Litigation instituted against us and our officers and directors as a result of changes in the price of our securities could materially and adversely affect our business, financial condition, and operating results.

The trading price of our Class A common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response to factors such as:

·	actual or anticipated variations in operating results;

·	our ability to finance our operations and meet obligations under our financing arrangements;

·	conditions or trends in the wireless communications industry and changes in the economic performance and/or market valuation of other wireless communications companies;

·	our strategic partnerships, joint ventures, or capital commitments; and

·	additions or departures of key personnel.

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the affected companies. These broad market and industry factors may materially and adversely affect the market price of our securities, regardless of our actual operating performance.

Often a drop in a company’s stock price is followed by lawsuits against the company and its officers and directors alleging securities fraud. The defense and eventual settlement of or judgment rendered in any such actions could result in substantial costs. Also, the defense of any such actions could divert management’s attention and resources. Both the costs and the diversion of management could materially and adversely affect our business, financial condition, and operating results. In addition, any material adverse judgment could trigger an event of default under our indebtedness.

We have a significant amount of debt and preferred stock, which may limit our ability to meet our debt service and dividend obligations, obtain future financing, make capital expenditures in support of our business plan, react to a downturn in our business, or otherwise conduct necessary corporate activities.

As of December 31, 2007, we had approximately $1.845 billion of long-term liabilities (which includes $326.2 million of junior exchangeable preferred stock), $201.5 million of Class M preferred stock, and shareholders’ deficit of approximately $791.2 million. Of the outstanding preferred stock, $365.6 million can be exchanged, at our option, subject to compliance with certain leverage ratios under our credit facility and the indentures related to our outstanding notes, for senior subordinated indebtedness.

The current levels of our debt and preferred stock entail a number of risks, including the following:

·	we must use a substantial portion of our cash flows from operations to make interest payments on our debt, thereby reducing funds that would otherwise be available to us for working capital, capital expenditures, future business opportunities, and other purposes;

·	we may not be able to obtain additional financing for working capital, capital expenditures, and other purposes on terms favorable to us or at all;

·	borrowings under our floating rate notes and our revolving credit facility are at variable interest rates, making us vulnerable to increases in interest rates;

·	we may have more debt than many of our competitors, which may place us at a competitive disadvantage;

·	we may have limited flexibility to react to changes in our business; and

·	we may not be able to refinance our indebtedness or preferred stock on terms that are commercially reasonable or at all.

Our ability to generate sufficient cash flow from operations to pay the principal or liquidation preference of, and interest or preferred dividends on, our indebtedness and preferred stock is not certain. In particular, if we do not meet our anticipated revenue growth and operating expense targets, our future debt and preferred stock service obligations could exceed the amount of our available cash.

The restrictive covenants in our existing debt and preferred stock instruments and agreements may limit our ability to operate our business.

The instruments governing our debt and the certificates of designation governing our preferred stock impose significant operating and financial restrictions on us. These restrictions limit, among other things, our ability and the ability of certain of our subsidiaries to:

·	incur additional debt;

·	pay cash dividends on capital stock;

·	repay junior debt and preferred stock prior to stated maturities;

·	impose dividend restrictions on certain subsidiaries;

·	sell assets;

·	make investments;

·	engage in transactions with shareholders and affiliates;

·	create liens; and

·	engage in some types of mergers or acquisitions.

Our failure to comply with these restrictions could lead to a default under the terms of the relevant debt or a violation of the terms of the preferred stock even if we are able to meet debt service and dividend obligations.

Our revolving credit facility requires us to maintain specified financial ratios if we draw against it. Substantially all our assets are subject to liens securing indebtedness under our revolving credit facility and senior secured notes. These restrictions could limit our ability to obtain future financing, make needed capital expenditures, withstand a downturn in our business, or otherwise conduct necessary corporate activities.

If there were an event of default under our revolving credit facility or other debt, the holders of the affected debt could elect to declare all of that debt to be due and payable, which, in turn, could cause all of our other debt to become due and payable. We might not have sufficient funds available, and we might be unable to obtain sufficient funds from alternative sources on terms favorable to us or at all. If the amounts outstanding under our revolving credit facility were accelerated and we could not obtain sufficient funds to satisfy our obligations, our lenders could proceed against our assets and the stock and assets of our subsidiaries that guarantee our revolving credit facility and senior secured notes.

Our failure to pay the cash dividends on our junior exchangeable preferred stock may result in changes to our board of directors and affect our ability to incur additional debt or refinance our existing indebtedness.

As of December 31, 2007, we had failed to pay seven quarterly dividends on our junior exchangeable preferred stock, and, accordingly, a “Voting Rights Triggering Event,” as defined in the certificate of designation for the junior exchangeable preferred stock, exists. Accordingly, the holders of the junior exchangeable preferred stock are entitled to elect two directors to our board of directors. If any of these holders were to disagree with decisions made by management or the board of directors about our plans or operations, they might be able to bring significant pressure to change such plans or operations.

While a Voting Rights Triggering Event exists certain terms of our junior exchangeable preferred stock, if enforceable, may prohibit incurrence of additional indebtedness, including borrowing under our revolving credit facility and the refinancing of existing indebtedness.

We have shareholders who could exercise significant influence on management.

The holders of our Class M convertible preferred stock currently are able to elect two members to our board of directors and can vote, on an as-converted basis, approximately 2,355,152 shares of our Class A common stock, which represented, as of December 31, 2007, approximately 11.7% of the voting power of our common stock.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate facilities include the following:

	Address	Leased/ Owned	Square Feet

Midwest:
Principal Corporate HQ	3905 Dakota Street SW	Owned		50,000
	Alexandria, Minnesota
Northeast:
Territory Office	302 Mountain View Drive	Leased		10,413
	Colchester, Vermont

Territory Office	6 Telcom Drive	Owned		36,250
	Bangor, Maine

Distribution Center	808 Hercules Drive	Leased		14,500
	Colchester, VT 05446

Northwest:
Territory Office	3020 NW Merchant Way	Leased		19,200
	Bend, Oregon
South:
Territory Office	621 Boll Weevil Circle, Suite 2	Leased		18,000
	Enterprise, Alabama

Our network consisted of the following cell sites at December 31:


	2007			2006
Central		68			62
Midwest		344	(*)		244
Northeast		374			348
Northwest		201			179
South		335			325
Total		1,322			1,158
(*) Includes the addition of 80 cell sites resulting from the April 2007 southern Minnesota market purchase.

Our leased sites consist of land leases, tower leases or both. We own all the equipment within the leased sites. The leases covering these sites have various expiration dates and are with numerous lessors. These leases generally have renewal options that we would anticipate exercising. Due to our network design, loss of a leased location would not have a material impact on the operations of a territory's business.

As of December 31, 2007, we had 107 retail locations, of which almost all are leased. The leases covering these locations have various expiration dates. We believe that the loss of any one of these retail sites would not have a material impact on our business as we would likely be able to obtain substantially equivalent alternative space.

ITEM 3. LEGAL PROCEEDINGS

We are involved from time to time in routine legal matters and other claims incidental to our business. We believe that the resolution of such routine matters and other incidental claims, taking into account established reserves and insurance, will not have a material adverse impact on our consolidated financial position or results of operations.

On August 3, 2007, a purported shareholder class action complaint, captioned Joshua Teitelbaum v. Rural Cellular Corporation, et al., was filed by a shareholder of RCC in the District Court of Douglas County, State of Minnesota, against RCC and its directors challenging the proposed merger. The complaint alleges causes of action for violation of fiduciary duties of care, loyalty, candor, good faith and independence owed to the public shareholders of RCC by the members of our board of directors and acting to put their personal interests ahead of the interests of RCC’s shareholders. The complaint seeks, among other things, to declare and decree that the merger agreement was entered into in breach of the fiduciary duties of the defendants and is therefore unlawful and unenforceable, to enjoin the consummation of the merger and to direct the defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests of RCC’s shareholders and to refrain from entering into any transaction until the process for the sale or auction of RCC is completed and the highest possible price is obtained. We believe that the lawsuit is without merit. The parties have negotiated an agreement to resolve the action, subject to certain conditions. On January 25, 2008, the Court preliminarily approved the proposed settlement. The hearing for final approval of the settlement is scheduled to take place on May 1, 2008.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On October 4, 2007, the shareholders of Rural Cellular Corporation voted to approve the merger agreement providing for the acquisition of Rural Cellular Corporation by Verizon Wireless for approximately $2.67 billion in cash and assumed debt.

Based on the final tally of shares voted, approximately 88% of the combined voting power of RCC’s Class A common stock, Class B common stock, and Class M preferred stock outstanding and entitled to vote at the special meeting, voted in favor of the proposed merger agreement. Voting on ratification were 17,730,286 votes in favor, 3,734 opposed, 1,281 abstentions, and 0 broker non-votes.

The acquisition, which is subject to governmental and regulatory approval, is expected to close in the second quarter of 2008. When the merger is completed, the holders of Rural Cellular Corporation’s common stock will be entitled to receive $45 in cash, without interest, for each share of Rural Cellular Corporation’s Class A and Class B common stock owned by such holders.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price / Holders

The following table indicates the high and low sales price of the Class A Common Stock for each quarter of the 2007 and 2006 fiscal years as quoted on The Nasdaq National Market.

	High		Low
2007
First Quarter	$	15.55	$	11.17
Second Quarter	$	45.10	$	11.86
Third Quarter	$	46.34	$	30.40
Fourth Quarter	$	44.89	$	43.40

2006
First Quarter	$	17.85	$	12.87
Second Quarter	$	17.00	$	10.38
Third Quarter	$	11.47	$	6.38
Fourth Quarter	$	13.40	$	9.20

Our Class B common stock is not publicly traded.

As of February 20, 2008, there were approximately 145 holders of record of our Class A common stock and approximately seven holders of record of our Class B common stock.

Stock Performance Graph

The following graph compares the cumulative total shareholder return on our common stock for the period beginning December 31, 2002 through December 31, 2007, with the cumulative total returns of the Standard & Poor’s Corporation (“S&P”) 500 Stock Index, and a peer group index consisting of four publicly held wireless companies. The comparison assumes $100 was invested in our common stock and in each index at the beginning of comparison period and reinvestment of dividends.

Our peer group no longer includes Dobson Communication Corporation due to its November 2007 acquisition by AT&T and Alltel Corporation due to its acquisition by two private equity firms, also in November 2007. Accordingly, our peer group now consists of Centennial Communications Corp., Leap Wireless International, Inc., Suncom Wireless Holdings, Inc. (formerly Triton PCS Holdings, Inc.), and United States Cellular Corporation.

Dividend Policy

RCC has never paid dividends on its Common Stock. The terms of our credit facility, outstanding notes, and exchangeable preferred stock limit our ability to pay dividends on our Common Stock.

Our ability to pay cash dividends on and to redeem for cash our junior exchangeable preferred stock when required is restricted under various covenants contained in documents governing our outstanding preferred stock and our indebtedness, including the notes. In addition, under Minnesota law, we are permitted to pay dividends on or redeem our capital stock, including the junior exchangeable preferred stock, only if our board of directors determines that we will be able to pay our debts in the ordinary course of business after paying the dividends or completing the redemption.

Payment of Dividends on Preferred Stock.

We paid all nine outstanding accrued dividends on the Senior Preferred stock in 2007. These dividend payments totaled approximately $355.40 per share, including accrued interest. The payment date for these dividends was May 15, 2007. The aggregate dividends, which totaled approximately $41.7 million, were paid from existing cash.

We paid four dividends on our 12 ¼% Junior Exchangeable Preferred Stock in 2007, representing the quarterly dividends payable on August 15, 2006, November 15, 2006, February 15, 2007, and May 15, 2007. The dividend payments totaled approximately $128.24 per share, including accrued interest. The payment date for these dividends was May 15, 2007. The aggregate total dividends, which totaled approximately $32.8 million, were paid from existing cash. Because we have failed to pay six or more quarterly dividends on our junior exchangeable preferred stock at December 31, 2007, a “Voting Rights Triggering Event,” as defined in the Certificate of Designation, exists. Accordingly, the holders of junior exchangeable preferred stock have the right to elect two directors. While a “Voting Rights Triggering Event” exists, certain terms of our junior exchangeable preferred stock, if enforceable, may prohibit incurrence of additional indebtedness, including borrowings under our revolving credit facility.

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth certain of our consolidated financial and operating data as of and for each of the five years in the period ended December 31, 2007, which we derived from our consolidated financial statements. The data set forth below should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this Form 10-K.

(In thousands, except per share and other operating data)	Years ended December 31,
	2007			2006			2005			2004			2003
Statement of Operations Data:
Revenue:
Service	$	425,125		$	385,220		$	387,848		$	377,219		$	355,038
Roaming		182,795			153,867			122,774			105,504			131,896
Equipment		27,395			25,373			34,313			22,094			20,455
Total revenue		635,315			564,460			544,935			504,817			507,389
Operating expenses:
Network costs, excluding depreciation		159,857			138,047			120,322			104,071			96,069
Cost of equipment sales		58,339			56,587			58,266			40,372			37,636
Selling, general and administrative		160,805			147,271			152,918			135,170			131,761
Depreciation and amortization		79,448			128,415			100,463			76,355			76,429
Impairment of assets		-			23,800			7,020			47,136			42,244
Total operating expenses		458,449			494,120			438,989			403,104			384,139
Operating income		176,866			70,340			105,946			101,713			123,250
Other income (expense):
Interest expense		(197,510	)		(194,997	)		(171,831	)		(163,977	)		(136,262	)
Interest and dividend income		6,427			7,866			2,221			1,727			916
Other		(931	)		369			(876	)		(76	)		891
Other expense, net		(192,014	)		(186,762	)		(170,486	)		(162,326	)		(134,455	)
Loss before income taxes		(15,148	)		(116,422	)		(64,540	)		(60,613	)		(11,205	)
Income tax benefit		(347	)		(381	)		(418	)		(1,672	)		-
Net loss		(14,801	)		(116,041	)		(64,122	)		(58,941	)		(11,205	)
Preferred stock dividend		(15,861	)		(14,677	)		(7,174	)		(12,915	)		(38,877	)
Net loss applicable to common shares	$	(30,662	)	$	(130,718	)	$	(71,296	)	$	(71,856	)	$	(50,082	)
Weighted average common shares outstanding		15,427			14,125			12,695			12,239			12,060

Net loss per basic and diluted share	$	(1.99	)	$	(9.25	)	$	(5.62	)	$	(5.87	)	$	(4.15	)

	As of December 31,
(In thousands, except other operating data)	2007			2006			2005			2004			2003
Balance Sheet Data:
Working capital	$	109,636		$	160,207		$	129,922		$	45,308		$	86,135
Net property and equipment		219,184			211,978			277,408			276,133			226,202
Total assets		1,349,845			1,384,648			1,480,682			1,417,450			1,521,058
Total long-term liabilities		1,845,102			1,862,919			1,847,994			1,733,079			1,764,867
Redeemable preferred stock		201,519			185,658			170,976			166,296			153,381
Total shareholders’ deficit	$	(791,209	)	$	(765,156	)	$	(651,982	)	$	(596,338	)	$	(526,830	)

	As of December 31,
(In thousands, except other operating data)	2007			2006			2005			2004			2003
Other Operating Data:
Customers (not including long distance and paging):
Postpaid		651,624			586,092			597,769			628,614			656,110
Prepaid		15,750			9,433			11,663			20,391			22,302
Wholesale		123,331			110,133			96,170			80,806			67,104
Total customers		790,705			705,658			705,602			729,811			745,516

Marketed POPs (1)		7,242,000			6,604,000			6,505,000			6,279,000			5,962,000

Penetration (2)		9.2	%		9.0	%		9.5	%		10.3	%		11.4	%

Retention (3)		98.2	%		97.5	%		97.3	%		97.9	%		98.1	%

Local monthly service revenue per customer (4)	$	53		$	52		$	50		$	46		$	43

Average monthly revenue per customer (5)	$	77		$	74		$	67		$	60		$	59

Acquisition cost per customer (6)	$	519		$	534		$	497		$	444		$	422

Cell sites / Base stations:		1,322			1,158			1,061			857			754

1)	Updated to reflect 2000 U.S. Census Bureau Official Statistics.

2)	Represents the ratio of wireless voice customers, excluding wholesale customers, at the end of the period to population served.

Determined for each period by dividing total postpaid wireless voice customers discontinuing service during such period by the average postpaid wireless voice customers for such period (customers at the beginning of the period plus customers at the end of the period, divided by two), dividing that result by the number of months in the period, and subtracting such result from one.

4)	Determined for each period by dividing service revenue (not including pass-through regulatory fees) by the monthly average postpaid customers for such period.

5)	Determined for each period by dividing the sum of service revenue (not including pass-through regulatory fees) and roaming revenue by the monthly average postpaid customers for such period.

6)	Determined for each period by dividing the sum of selling and marketing expenses, net costs of equipment sales, and depreciation of rental telephone equipment by the gross postpaid and prepaid wireless voice customers added during such period.

Reconciliations of Key Financial Measures

We utilize certain financial measures that are calculated based on industry conventions. Average revenue per customer (“ARPU”) and local service revenue per customer (“LSR”) are industry terms that measure service revenue per month from our customers divided by the average number of customers in commercial service during the period. We believe that ARPU and LSR provide useful information concerning the appeal of our rate plans and service offerings and our performance in attracting high value customers.

Acquisition cost per customer is a useful measure that quantifies the costs to acquire a new customer and provides a gauge to compare our average acquisition cost per new customer to that of other wireless communication providers. Acquisition cost per customer is determined for each period by dividing the sum of selling and marketing expenses, net cost of equipment sales, and depreciation of rental telephone equipment by gross postpaid and prepaid wireless voice customers added during such period.

Retention
	Years Ended December 31,
	2007			2006			2005			2004			2003
Postpaid wireless voice customers discontinuing service (1)		136,759			175,081			197,471			161,222			150,745
Weighted average 12 month aggregate postpaid wireless voice customers (2)		7,529,586			6,987,192			7,362,780			7,667,797			7,780,921
Churn (1) divided by (2)		1.8	%		2.5	%		2.7	%		2.1	%		1.9	%
Retention (1 minus churn)		98.2	%		97.5	%		97.3	%		97.9	%		98.1	%

Acquisition Cost Per Customer	Years Ended December 31,
(in thousands, except customer gross additions and acquisition cost per customer )	2007		2006		2005		2004		2003

Selling and marketing expense	$	62,599	$	57,795	$	59,201	$	54,077	$	52,150
Net cost of equipment		30,944		31,214		23,953		18,278		17,181
Adjustments to cost of equipment		2,855		2,519		3,990		2,399		8,549
Total costs used in the calculation of Acquisition cost per customer (3)	$	96,398	$	91,528	$	87,144	$	74,754	$	77,880
Customer gross additions (4)		185,696		171,354		175,324		168,330		184,522
Acquisition cost per customer (3) divided by (4)	$	519	$	534	$	497	$	444	$	422

Local Service Revenue Per Customer (“LSR”)	Years Ended December 31,
(in thousands, except weighted average 12 month aggregate postpaid wireless voice customers and LSR)	2007			2006			2005			2004			2003
Revenues (as reported on Consolidated Statements of Operations)
Service revenues	$	425,125		$	385,220		$	387,848		$	377,219		$	355,038

Non postpaid revenue adjustments		(28,327	)		(21,181	)		(20,253	)		(20,743	)		(24,016	)

Service revenues for LSR (5)	$	396,798		$	364,039		$	367,595		$	356,476		$	331,022
Weighted average 12 month aggregate postpaid wireless voice customers (6)		7,529,586			6,987,192			7,362,780			7,667,797			7,780,921
LSR (5) divided by (6)	$	53		$	52		$	50		$	46		$	43

Average Revenue Per Customer (“ARPU”)
(in thousands, except weighted average 12 month aggregate postpaid wireless voice customers and ARPU)	Years Ended December 31,
	2007			2006			2005			2004			2003
Revenues (as reported on Consolidated Statements of Operations)
Service revenues	$	425,125		$	385,220		$	387,848		$	377,219		$	355,038
Roaming revenues		182,795			153,867			122,774			105,504			131,896
Total		607,920			539,087			510,622			482,723			486,934

Non postpaid revenue adjustments:		(28,327	)		(21,181	)		(20,253	)		(20,743	)		(24,016	)

Service revenues for ARPU (7)	$	579,593		$	517,906		$	490,369		$	461,980		$	462,918
Weighted average 12 month aggregate postpaid wireless voice customers (8)		7,529,586			6,987,192			7,362,780			7,667,797			7,780,921
ARPU (7) divided by (8)	$	77		$	74		$	67		$	60		$	59

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

We are a wireless communications service provider focusing primarily on rural markets in the United States. Our principal operating objective is to increase revenue and achieve profitability through expansion of services to our customer base and increased penetration in our wireless markets.

Our operating territories include portions of five states in the Northeast, three states in the Northwest, four states in the Midwest, two states in the South and the western half of Kansas (Central territory). Within each of our five territories, we have a strong local sales and customer service presence in the communities we serve.

Our marketed networks covered a total population of approximately 7.2 million POPs and served approximately 791,000 voice customers as of December 31, 2007. We have national roaming agreements in our markets with AT&T (effective through December 2009) and Verizon Wireless (effective through December 2009). Under these agreements, we have been able to attain preferred roaming status by overlaying our existing TDMA networks in our Central, South, Northeast and Northwest networks with GSM/GPRS/EDGE technology and our Midwest network with CDMA technology. We also have various agreements with T-Mobile.

The Verizon Wireless Merger

On July 29, 2007, we entered into a merger agreement with Cellco Partnership, a general partnership doing business as Verizon Wireless, AirTouch Cellular, an indirect wholly-owned subsidiary of Verizon Wireless, and Rhino Merger Sub, a wholly-owned subsidiary of AirTouch Cellular, pursuant to which Rhino Merger Sub will merge with and into RCC with RCC continuing as the surviving corporation and becoming a subsidiary of Verizon Wireless. At the effective time of the merger, each issued and outstanding share of our Class A and Class B common stock will be cancelled and converted into the right to receive $45.00 in cash, without interest. Each outstanding option to acquire our common stock will be cancelled in exchange for an amount equal to the product of $45.00 minus the exercise price of each option and the number of shares underlying the option. The merger agreement includes customary representations, warranties and covenants of us, Verizon Wireless and AirTouch Cellular. The merger was approved by our shareholders on October 4, 2007. The consummation of the merger remains subject to receipt of necessary approvals from the FCC and under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions. The merger agreement contains certain termination rights for both Verizon Wireless and us, and provides that upon a termination of the merger agreement under specified circumstances, we may be required to pay Verizon Wireless a termination fee of $55.0 million. We currently anticipate that the merger will be completed during the second quarter of 2008.

Operating Revenue

Our revenue primarily consists of service, roaming, and equipment revenue, each of which is described below:

Service revenue includes monthly access charges, charges for airtime used in excess of the time included in the service package purchased and data related services.

Also included are charges for features such as voicemail, call waiting, call forwarding, and incollect revenue, which consists of charges to our customers when they use their wireless phones in other wireless markets. We do not charge installation or connection fees. We also include in service revenue the USF support funding that we receive as a result of our ETC status in certain states and the USF pass-through fees we charge our customers.

Roaming revenue includes only outcollect revenue, which we receive when other wireless providers’ customers use our network.

Equipment revenue includes sales of wireless equipment and accessories to customers, network equipment reselling, and customer activation fees.

Operating Expenses

Our operating expenses include network costs, cost of equipment sales, selling, general and administrative expenses, and depreciation and amortization, each of which is described below:

Network costs include switching and transport expenses and expenses associated with the maintenance and operation of our wireless network facilities, including salaries for employees involved in network operations, site costs, charges from other service providers for resold minutes, and the service and expense associated with incollect revenue and data.

Cost of equipment sales includes costs associated with wireless devices and accessories sold to customers. We and other wireless providers use discounts on phone equipment to attract customers. As a result, we have incurred, and expect to continue to incur, losses on equipment sales per gross additional and migrated customer. We expect to continue these discounts and promotions because we believe they will increase the number of our wireless customers and, consequently, increase service revenue.

Selling, general and administrative (“SG&A”) expenses include salaries, benefits, and operating expenses such as marketing, commissions, customer support, accounting, administration, and billing. We also include in SG&A contributions payable to the USF and stock based compensation.

Depreciation and amortization represents the costs associated with the depreciation of fixed assets and the amortization of customer lists.

Other Expenses

In addition to the operating expenses discussed above, RCC also incurs other expenses, primarily interest on debt and dividends on preferred stock.

Interest expense primarily results from the issuance of notes and exchangeable preferred stock, the proceeds of which were used to finance acquisitions, repay other borrowings, and further develop our wireless network.

Interest expense includes the following:

o	Interest expense on our credit facility, senior secured notes, senior notes, and senior subordinated notes,

o	Amortization of debt issuance costs,

o	Early extinguishment of debt issuance costs,

o	Dividends on senior and junior exchangeable preferred stock,

o	Amortization of preferred stock issuance costs,

o	Gain (loss) on derivative instruments, and

o	Gain (loss) on repurchase and exchange of preferred stock.

Preferred stock dividends are accrued on our outstanding Class M convertible preferred stock and had been accrued on our Class T convertible preferred stock, which was converted to common stock in October 2005.

Critical Accounting Policies and Estimates

The following discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets, and liabilities during the periods reported. Estimates are used when accounting for certain items such as unbilled revenue, allowance for doubtful accounts, depreciation and amortization periods, income taxes, valuation of intangible assets, and litigation contingencies. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Goodwill and Other Indefinite-Lived Intangible Assets

We review goodwill and other indefinite-lived intangible assets for impairment based on the requirements of SFAS No. 142. Goodwill is tested for impairment at the reporting unit level on an annual basis as of October 1st or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. In analyzing goodwill for potential impairment, we use projections of future cash flows from the reporting units. These projections are based on our view of growth rates, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If changes in growth rates, future economic conditions, discount rates, or estimates of residual values were to occur, goodwill may become impaired.

Additionally, impairment tests for indefinite-lived intangible assets, consisting of FCC licenses, are required to be performed on an annual basis or on an interim basis if an event occurs or circumstances change that would indicate the asset might be impaired. In accordance with Emerging Issues Task Force (“EITF”) No. 02-7, Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets (“EITF No. 02-7”), impairment tests for FCC licenses are performed on an aggregate basis for each unit of accounting. We utilize a fair value approach, incorporating discounted cash flows, to complete the test. This approach determines the fair value of the FCC licenses, using start-up model assumptions and, accordingly, incorporates cash flow assumptions regarding the investment in a network, the development of distribution channels, and other inputs for making the business operational. These inputs are included in determining free cash flows of each unit of accounting, using assumptions of weighted average costs of capital and the long-term rate of growth for each unit of accounting. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If any of the assumptions were to change, our FCC licenses may become impaired.

Under SFAS No. 142, we performed annual impairment tests in 2007, 2006, and 2005 for our indefinite lived assets. Based on these tests, we recorded a noncash impairment charge included in operating expenses of $23.8 million in the fourth quarter of 2006. The impairment charge in 2006 primarily resulted from a decline in license valuation in our South territory. There was no impairment charge in 2007 or 2005 related to our annual assessment under SFAS No. 142.

Revenue Recognition — Service

We recognize service revenue based upon contracted service fees and minutes of use processed. As a result of our billing cycle cut-off times, we are required to make estimates for service revenue earned, but not yet billed, at the end of each month. These estimates are based primarily upon historical minutes of use processed. We follow this method since reasonable, dependable estimates of the revenue can be made. Actual billing cycle results and related revenue may vary from the results estimated at the end of each quarter, depending on customer usage and rate plan mix. For customers who prepay their monthly access fees, we match the recognition of service revenue to their corresponding usage. Revenues are net of credits and adjustments for service.

We receive USF revenue reflecting our ETC status in certain states. We recognize support revenue depending on the level of our collection experience in each ETC qualified state. Where we do not have adequate experience to determine the time required for reimbursement, we recognize revenue upon cash receipt. Where we do have adequate experience as to the amount and timing of the receipt of these funds, we recognize revenue on an accrual basis.

We include the pass-through fees we collect from customers as service revenue with a corresponding charge to SG&A expense. These pass-through fees, which we have the option of passing to our customers, include state and federal USF fees, together with city utility and state gross receipt taxes.

Revenue Recognition — Roaming Revenue and Incollect Cost

Roaming revenue and incollect cost information is provided to us primarily through a third party centralized clearinghouse. From the clearinghouse we receive monthly settlement data. We base our accrual of roaming revenue and incollect expense on these clearinghouse reports. We follow this method since reasonably dependable estimates of roaming revenue and incollect cost can be made based on these reports.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses that will result from failure of our customers to pay amounts owed. We base our estimates on the aging of our accounts receivable balances and our historical write-off experience, net of recoveries. If the financial condition of our customers were to deteriorate, we may be required to maintain higher allowances.

Depreciation of Property and Equipment

We depreciate our wireless communications equipment using the straight-line method over estimated useful lives. We periodically review changes in our technology and industry conditions, asset retirement activity, and salvage to determine adjustments to estimated remaining useful lives and depreciation rates. Total depreciation expense for the years ended December 31, 2007, 2006, and 2005, was $69.6 million, $109.5 million, and $81.5 million, respectively.

During the fourth quarter of 2005, we reviewed the lives of our TDMA cell sites assets and reduced the remaining useful life of this equipment from approximately 21 months to 15 months. Accordingly, TDMA cell site equipment was fully depreciated by December 31, 2006. The depreciation expense on these TDMA assets for the year ended December 31, 2006 was $47.8 million.

During the fourth quarter of 2006, RCC reviewed the lives of certain CDMA assets and reduced the remaining useful life of this equipment from approximately 40 months to 9 months. As a result, these CDMA assets were fully depreciated by June 30, 2007. Reflecting the shortened useful lives of this CDMA equipment, we recorded an additional $2.0 million in depreciation expense in the fourth quarter of 2006.

Impairment of Long-Lived Assets

We review long-lived assets, consisting primarily of property, plant and equipment and intangible assets with finite lives, for impairment in accordance with SFAS No. 144. In analyzing potential impairment, we use projections of future undiscounted cash flows from the assets. These projections are based on our view of growth rates for the related business, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If changes in growth rates, future economic conditions, discount rates, or estimates of residual values were to occur, long-lived assets may become impaired.

In June 2005, our customer relationship management and billing managed services agreement with Amdocs was mutually terminated. As a result of the termination of the agreement, we recorded a charge to operations during the quarter ended June 30, 2005 of $7.0 million, reflecting the write-down of certain development costs previously capitalized. There was no impairment charge in 2007 or 2006 related to our assessment under SFAS No. 144.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. As part of the process of preparing the consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that deferred tax assets will be recovered from future taxable income and, if we believe that recovery is not likely, we must establish an appropriate valuation allowance. To the extent we increase or decrease the valuation allowance in a period, we must include an expense or benefit within the tax provision in the consolidated statement of operations.

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. As of December 31, 2007, our valuation allowance was $161 million due to uncertainties related to our ability to utilize the deferred tax assets. The deferred tax assets consist principally of certain net operating losses (“NOLs”) being carried forward. The valuation allowance is based on our historical operations projected forward and our estimate of future taxable income and the period over which deferred tax assets will be recoverable. It is possible that we could be profitable in the future at levels that cause us to conclude that it is more likely

than not that we will realize a portion or all of the NOL carryforward. Upon reaching such a conclusion, we would immediately record the estimated net realizable value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to our combined federal and state effective rates, which would be approximately 38% under current tax law. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause the provision for income taxes to vary significantly from period to period, although our cash tax payments would likely remain unaffected until the benefit of the NOLs is utilized or the NOLs expire unused.

Litigation and Other Loss Contingencies

In the ordinary course of business, we are subject to litigation and other contingencies. Management must use its best judgment and estimates of probable outcomes when determining the impact of these contingencies. We assess the impact of claims and litigation on a regular basis and update the assumptions and estimates used to prepare the consolidated financial statements.

Accounting for Share-Based Compensation

Effective January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment (Revised 2004), which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors, including stock options and employee stock purchases under a stock purchase plan, based on estimated fair values, using the modified prospective transition method. SFAS No. 123(R) supersedes the accounting prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) for periods beginning in fiscal year 2006. In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 107 (“SAB 107”) relating to application of SFAS No. 123(R). We have applied the provisions of SAB 107 in our adoption of SFAS No. 123(R).

Upon adoption of SFAS No. 123(R), we continued to use the Black-Scholes option pricing model as our method of valuation for stock-based awards. Our determination of the fair value of stock-based awards on the date of grant is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, our expected stock price volatility over the term of the award and actual and projected exercise behaviors. Although the fair value of stock-based awards is determined in accordance with SFAS No. 123(R) and SAB 107, the Black-Scholes option pricing model requires the input of highly subjective assumptions, and other reasonable assumptions could provide differing results.

We accounted for stock options granted prior to December 31, 2005 in accordance with APB 25, under which no compensation expense was recognized as the grant date fair value was equal to the exercise price. In accordance with the modified prospective transition method pursuant to SFAS No. 123(R), our condensed consolidated financial statements for periods prior to the first quarter of fiscal 2006 have not been restated to reflect this change. Stock-based compensation recognized during each period is based on the value of the portion of the stock-based awards that will vest during that period, adjusted for expected forfeitures. Stock-based compensation recognized in our condensed consolidated financial statements for the years ended December 31, 2007 and 2006 included compensation costs for stock-based awards granted prior to, but not fully vested as of, December 31, 2005 and stock-based awards granted subsequent to December 31, 2005. We additionally reclassified unearned compensation on non-vested stock award awards of $1.8 million to additional paid-in capital. The cumulative effect adjustment for forfeitures related to stock-based awards was immaterial.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The expected term (estimated period of time outstanding) of options granted prior to January 1, 2006 is estimated using the term of the option. The expected volatility is based on historical volatility for a period equal to the stock option’s expected life. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

Because we consider our options to be “plain vanilla,” we estimated the expected term using a modified version of the simplified method, as prescribed by SAB No. 107, for options granted in 2007 and 2006. Under SAB No. 107, options are considered to be “plain vanilla” if they have the following basic characteristics: granted “at-the-money”; exercisability is conditioned upon service through the vesting date; termination of service prior to vesting results in forfeiture; limited exercise period following termination of service; and options are non-hedgeable.

Recently Issued Accounting Pronouncements

Uncertainty in Income Taxes. On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We file U.S. federal and state income tax returns. Because of our net operating loss (NOL) carryforwards, we are subject to U.S. federal, state and local income tax examinations by tax authorities for years beginning 1993 and forward. There was no cumulative effect related to adopting FIN 48. However, certain amounts have been reclassified in the statement of financial position in order to comply with the requirements of the statement.

As of January 1, 2007, we reduced our deferred tax assets and corresponding valuation allowance for $5.4 million of unrecognized tax benefits related to various state income tax matters. None of this amount, if recognized, would impact our effective tax rate. For the year ended December 31, 2007, our total deferred tax asset and valuation allowance adjustment for unrecognized tax benefits is $5.8 million, an increase of $417,000.

The following table summarizes the activity related to our unrecognized tax benefits:

(in thousands)	Total
Balance at January 1, 2007	$	5,425
Increase related to current year tax positions		417
Balance at December 31, 2007	$	5,842

Our policy is to record penalties and interest related to unrecognized tax benefits in income tax expense. As of January 1, 2007 and December 31, 2007, we have not recorded penalties or interest on either the balance sheet or in the income statement.

We do not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months.

Sales Taxes Collected From Customers and Remitted to Governmental Authorities. In March 2006, the FASB Emerging Issues Task Force issued Issue 06-03 (“EITF 06-03”), How Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement. A consensus was reached that entities may adopt a policy of presenting sales taxes in the income statement on either a gross or net basis. If taxes are significant, an entity should disclose its policy of presenting taxes. The guidance is effective for periods beginning after December 15, 2006. We present sales net of sales taxes. Our adoption of EITF 06-03 on January 1, 2007 did not have an effect on our policy related to sales taxes and, therefore, did not affect our consolidated financial statements.

Measuring Fair Value. In September 2006, the FASB issued SFAS No. 157 (“SFAS No. 157”), Fair Value Measurements. This statement establishes a consistent framework for measuring fair value and expands disclosures on fair value measurements. SFAS No. 157 is effective for RCC starting in fiscal 2008. We have not determined the impact, if any, the adoption of this statement will have on our consolidated financial statements. In February 2008, the FASB issued FASB Statement of Position, or FSP, No. 157-2 (“FSP 157-2”), Partial Deferral of the Effective Date of Statement 157, which delays the effective date of SFAS No. 157, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. Although we will continue to evaluate the application of SFAS No. 157, we do not believe the adoption will have a material impact on our results of operations or financial position.

The Fair Value Option for Financial Assets and Financial Liabilities. In February 2007, the FASB issued SFAS Statement No. 159 (“SFAS No. 159”), The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS Statement 115, permitting entities to choose to measure many financial instruments and certain warranty and insurance contracts at fair value on a contract-by-contract basis. SFAS Statement 159 will be adopted January 1, 2008, as required by the statement. We have not determined the impact, if any, the adoption of this statement will have on our consolidated financial statements.

Results of Operations

Years ended December 31, 2007 and 2006

Revenue.

	Years ended December 31,
(In thousands)	2007		2006		$ Increase		% Increase
Service	$	425,125	$	385,220	$	39,905		10.4	%
Roaming		182,795		153,867		28,928		18.8	%
Equipment		27,395		25,373		2,022		8.0	%
Total operating revenue	$	635,315	$	564,460	$	70,855		12.6	%

Service Revenue.

Service Revenue	Years ended December 31,
(In thousands)	2007		2006		$ Increase		% Increase
Local service	$	359,560	$	327,512		32,048		9.8	%
USF support		46,399		43,775		2,624		6.0	%
Regulatory pass-through		17,172		13,211		3,961		30.0	%
Other		1,994		722		1,272		176.2	%
Total service revenue	$	425,125	$	385,220		39,905		10.4	%

The increase in service revenue for the year ended December 31, 2007 primarily reflects an 11.2% increase in postpaid customers as compared to December 31, 2006 together with an increase in LSR to $53 per month during the year ended December 31, 2007 compared to $52 per month for the year ended December 31, 2006. The 2007 increase in LSR was primarily due to an increase in monthly data revenue per customer to approximately $4 as compared to approximately $2 in 2006.

We currently receive USF support in the states of Alabama, Kansas, Maine, Minnesota, Mississippi, New Hampshire, Oregon, South Dakota, Vermont, and Washington. USF support payments were $46.4 million and $43.8 million for the years ended December 31, 2007 and 2006, respectively.

The increase in regulatory pass-through fees reflects an increase in overall customers and a change in rates.

Customers. Total customers increased to 790,705 at December 31, 2007 as compared to 705,658 at December 31, 2006 reflecting the following factors:

·	improved retention, which increased from 97.5% for the year ended December 31, 2006 to 98.2% for the year ended December 31, 2007,

·	increased gross customer additions, which increased from 163,404 for the year ended December 31, 2006 to 169,856 for the year ended December 31, 2007, and

·	approximately 32,000 additional postpaid and approximately 16,000 wholesale customers from the April 2007 acquisition of markets in 28 southern Minnesota counties.

Accordingly, postpaid customers increased 11.2% to 651,624 at December 31, 2007. Wholesale customers increased 12.0% to 123,331 at December 31, 2007. Prepaid customers increased 67.0% to 15,750 at December 31, 2007.

As of December 31, 2007, approximately 95% of our postpaid customers were using new technology devices as compared to 82% at December 31, 2006. Our new technology customers provide higher retention rates and LSR. We anticipate our remaining legacy customers will be migrated by June 30, 2008.

Certain quarter ending customer results for 2007 and 2006 are set forth below:

	2007 Quarter Ended								2006 Quarter Ended
Customer and POPs Data:	March		June		September		December		March		June		September		December
Voice customers at period end
Postpaid		594,327		638,116		645,975		651,624		586,548		575,537		577,994		586,092
Prepaid		8,937		9,111		10,575		15,750		11,886		11,048		9,910		9,433
Wholesale		112,368		131,302		134,272		123,331		99,377		103,841		106,673		110,133
Total customers		715,632		778,529		790,822		790,705		697,811		690,426		694,577		705,658

Direct marketed POPs
RCC Cellular		5,828,000		6,461,000		6,461,000		6,461,000		5,751,000		5,828,000		5,828,000		5,828,000
Wireless Alliance		776,000		781,000		781,000		781,000		754,000		776,000		776,000		776,000
Total POPs		6,604,000		7,242,000		7,242,000		7,242,000		6,505,000		6,604,000		6,604,000		6,604,000

Roaming Revenue. The 18.8% increase in roaming revenue during the year ended December 31, 2007 primarily reflects a 21.1% increase in outcollect minutes and a significant increase in data traffic, which together were partially offset by a decline in our voice and data roaming yields. Our outcollect yield for the year ended December 31, 2007 was $0.10 per minute as compared to $0.11 per minute in the year ended December 31, 2006. Declines in TDMA outcollect minutes were offset by increases in new technology GSM and CDMA outcollect minutes. Data roaming for the year ended December 31, 2007 was $19.2 million as compared to $9.2 million in the comparable period of the prior year.

For the years ended December 31, 2007, 2006, and 2005, AT&T (on a pro forma basis giving effect to AT&T’s November 2007 purchase of Dobson Cellular), Verizon Wireless, and T-Mobile together accounted for approximately 95%, 93%, and 92%, respectively, of our total outcollect roaming minutes. For the years ended December 31, 2007, 2006, and 2005, AT&T (on a pro forma basis giving effect to AT&T’s November 2007 purchase of Dobson Cellular) accounted for approximately 14.8%, 14.5%, and 12.2%, of our total revenue.

At December 31, 2007, all of our 1,322 cell sites were equipped with 2.5G technology. For the years ended December 31, 2007 and 2006, 2.5G outcollect minutes accounted for 98% and 95%, respectively, of our total outcollect minutes.

Equipment Revenue. Equipment revenue increased 8.0% during the year ended December 31, 2007 to $27.4 million as compared to $25.4 million for the year ended December 31, 2006. Primarily contributing to this increase was a 3.9% increase in gross postpaid additions to 169,856 as compared to 163,404 during the comparable period of the prior year. Additionally, customer handset migrations for the year ended December 31, 2007 increased 206,681 as compared to 201,776 in 2006.

Operating Expense.

	Years ended December 31,
(In thousands)	2007		2006		$ Increase (decrease)			% Increase (decrease)
Network cost
Incollect cost	$	60,848	$	46,134	$	14,714			31.9	%
Other network cost		99,009		91,913		7,096			7.7	%
Total network cost		159,857		138,047		21,810			15.8	%
Cost of equipment sales		58,339		56,587		1,752			3.1	%
Selling, general and administrative		160,805		147,271		13,534			9.2	%
Depreciation and amortization		79,448		128,415		(48,967	)		-38.1	%
Impairment of assets		-		23,800		(23,800	)		-100.0	%
Total operating expenses	$	458,449	$	494,120	$	(35,671	)		-7.2	%

Network Cost. Network cost, as a percentage of total revenues, increased to 25.2% for the year ended December 31, 2007 as compared to 24.5% for the year ended December 31, 2006. This change reflects an increased number of cell sites, higher variable costs due to an increase in outcollect roaming minutes of use and higher outsourced data service costs. Cell sites increased to 1,322 at December 31, 2007 as compared to 1,158 at December 31, 2006, including 80 sites acquired in southern Minnesota markets.

Incollect costs increased 31.9% to $60.8 million for the year ended December 31, 2007 reflecting a 34.3% increase in incollect minutes partially offset by a decrease in incollect yield to approximately $0.08 for the year ended December 31, 2007 as compared to approximately $0.09 per minute for the year ended December 31, 2006.

Cost of Equipment Sales. As a percentage of revenue, cost of equipment sales for the year ended December 31, 2007 decreased to 9.2% as compared to 10.0% for the year ended December 31, 2006. Cost of equipment sales increased 3.1% to $58.3 million for the year ended December 31, 2007, primarily reflecting an increase in gross customer additions and handset migrations partially offset by lower average handset costs. The average cost of a handset decreased to $137 for the year ended December 31, 2007 as compared to $140 for the year ended December 31, 2006. Gross postpaid additions for the year ended December 31, 2007 were 169,856 as compared to 163,404 during the comparable period of 2006. Customer handset migrations for the year ended December 31, 2007 were 206,681 as compared to 201,776 in the comparable period of the prior year.

Selling, General and Administrative.

Components of SG&A are as follows: (in thousands)	Years ended December 31,
	2007		2006		$ Increase (Decrease)			% Increase (Decrease)
General and administrative	$	68,509	$	59,939	$	8,570			14.3	%
Sales and marketing		62,599		57,795		4,804			8.3	%
Bad debt		8,542		13,857		(5,315	)		-38.4	%
Stock-based compensation		2,923		1,490		1,433			96.2	%
Regulatory pass-through fees		18,232		14,190		4,042			28.5	%
	$	160,805	$	147,271	$	13,534			9.2	%

As a percentage of revenue, SG&A decreased to 25.3% for the year ended December 31, 2007 as compared to 26.1% for the year ended December 31, 2006. SG&A for the year ended December 31, 2007 increased 9.2% to $160.8 million, reflecting:

·	one-time strategic costs of $5.5 million related to the merger agreement between Rural Cellular Corporation and Verizon Wireless,

·	increased general and administrative expenses,

·	increased regulatory pass-through fees, which were largely offset in service revenue,

·	increased non-cash stock-based compensation expense (see Stock-based compensation), and

·	increased sales and marketing expenses, which were primarily related to the southern Minnesota market launch.

These increases were partially offset by a 38.4% decline in bad debt expense, which totaled $8.5 million for the year ended December 31, 2007. The decline in bad debt expense reflects our successful collection efforts and credit policies and is another contributing factor to our improved retention.

Stock-based compensation - SG&A. In accordance with our adoption of SFAS No. 123(R), stock-based compensation in our financial statements was recognized for all stock-based compensation expense arrangements, including employee and non-employee stock options granted after January 1, 2006 and all stock-based compensation arrangements granted prior to January 1, 2006, and remaining unvested as of such date, commencing with the quarter ended March 31, 2006. Accordingly, for the year ended December 31, 2007, stock-based compensation increased to $2.9 million from $1.5 million for the year ended December 31, 2006, primarily reflecting the increase in market price of our stock and its effect on the valuation and the corresponding expense related to current and prior year stock-based awards.

Depreciation and Amortization. Depreciation and amortization expense decreased 38.1% for the year ended December 31, 2007 to $79.4 million as compared to $128.4 million for the year ended December 31, 2006. This decrease reflects the fully depreciated status of our TDMA cell site assets at December 31, 2006.

Impairment of Assets. Under SFAS No. 142, we performed annual impairment tests in 2007 and 2006 for our indefinite lived assets. Based on these tests, we recorded a noncash impairment charge included in operating expenses of $23.8 million in the fourth quarter of 2006, primarily resulting from a decline in license valuation in our South territory. There was no impairment charge in 2007 related to our annual assessment under SFAS No. 142.

Other Income (Expense).

Interest Expense.

Components of Interest Expense	Years ended December 31,
(in thousands)	2007		2006			$ Increase (Decrease)			% Increase (Decrease)

Interest expense on credit facility	$	3,318	$	4,454		$	(1,136	)		-25.5	%
Interest expense on senior secured notes		40,803		42,847			(2,044	)		-4.8	%
Interest expense on senior notes		32,094		32,094			-			0.0	%
Interest expense on senior subordinated notes		56,955		48,688			8,267			17.0	%
Amortization of debt issuance costs		5,040		5,351			(311	)		-5.8	%
Senior and junior preferred stock dividends		45,625		55,834			(10,209	)		-18.3	%
Derivative instrument market value change		255		(197	)		452			-229.4	%
Net gain on repurchase and exchange of senior exchangeable preferred stock		-		(413	)		413			-100.0	%
Write-off of debt issuance costs		3,256		3,022			234			7.7	%
Call premium on early redemption of notes		9,750		3,200			6,550			204.7	%
Other		414		117			297			253.8	%
	$	197,510	$	194,997		$	2,513			1.3	%

Interest expense for the year ended December 31, 2007 increased 1.3%, primarily reflecting a $9.7 million call premium related to the redemption of our 9 ¾% senior subordinated notes partially offset by lower debt levels and lower average rates in fiscal 2006.

Cash interest for the year ended December 31, 2007 increased to $219.1 million as compared to $133.5 million in the year ended December 31, 2006. This increase primarily reflects the cash payment of $41.7 million in dividends on our senior exchangeable preferred stock and the cash payment of $32.8 million in dividends on our junior exchangeable preferred stock 2007. Senior exchangeable preferred stock dividends paid in cash during the year ended December 31, 2006 totaled $8.3 million. We did not pay junior exchangeable preferred stock dividends during 2006.

Redemption of Senior Exchangeable Preferred Stock for Cash. During the year ended December 31, 2007, we did not redeem any senior exchangeable preferred stock for cash. During the year ended December 31, 2006, we redeemed 22,721 shares of senior exchangeable preferred stock for $27.7 million and recorded the corresponding gain of $931,543, not including transaction commissions and other related fees, as a reduction of interest expense.

Redemption of Senior Exchangeable Preferred Stock for Class A Common Stock. During the year ended December 31, 2007, we did not redeem any senior exchangeable preferred stock for Class A common stock. During the year ended December 31, 2006, we redeemed an aggregate of 10,500 shares of our senior exchangeable preferred stock in exchange for an aggregate of 1,166,500 shares of our Class A common stock in negotiated transactions, resulting in a loss of $518,688. The shares of common stock were issued in reliance upon the exemption from registration provided in Section 3(a)(9) of the Securities Act of 1933, as amended.

Preferred Stock Dividends

Preferred stock dividends for year ended December 31, 2007 increased by 8.1% to $15.9 million as compared to $14.7 million in the year ended December 31, 2006. The increase in preferred stock dividends reflects the compounding effect of the accrual of past Class M preferred stock dividends.

Years ended December 31, 2006 and 2005

Revenue.

	Years ended December 31,
(In thousands)	2006		2005		$ Increase (Decrease)			% Increase (Decrease)
Service	$	385,220	$	387,848	$	(2,628	)		-0.7	%
Roaming		153,867		122,774		31,093			25.3	%
Equipment		25,373		34,313		(8,940	)		-26.1	%
Total operating revenue	$	564,460	$	544,935	$	19,525			3.6	%

Service Revenue.

Service Revenue	Years ended December 31,
(In thousands)	2006		2005		$ Increase (Decrease)			% Increase (Decrease)
Local service	$	327,512	$	332,310	$	(4,798	)		-1.4	%
USF support		43,775		40,792		2,983			7.3	%
Regulatory pass-through		13,211		13,891		(680	)		-4.9	%
Other		722		855		(133	)		-15.6	%
Total service revenue	$	385,220	$	387,848	$	(2,628	)		-0.7	%

The decrease in service revenue for the year ended December 31, 2006 primarily reflects a 2.0% decline in postpaid customers as compared to December 31, 2005. The decrease in postpaid customers was partially offset by an increase in LSR to $52 per month during the year ended December 31, 2006 compared to $50 per month for the year ended December 31, 2005. The 2006 increase in LSR was primarily due to an increase in monthly data revenue per customer which increased to approximately $2 as compared to approximately $1 in 2005.

USF support payments were $43.8 million and $40.8 million for the years ended December 31, 2006 and 2005, respectively.

The decrease in regulatory pass-through fees reflects a decline in overall customers and a change in rates.

Customers. Total customers increased to 705,658 at December 31, 2006 as compared to 705,602 at December 31, 2005, primarily reflecting our wholesale customer group increasing 14.5% to 110,133. Partially offsetting the increase in wholesale customers was a 2.0% decline in postpaid customers, which totaled 586,092 at December 31, 2006 as compared to 597,709 at December 31, 2005.

Reflecting improvement in postpaid customer retention offset by decreased customer gross adds for 2006 of 163,404 as compared to 166,626 for 2005, postpaid customers for 2006 declined by 11,677 as compared to a decline of 30,845 in 2005. Postpaid customer retention was 97.5% for the year ended December 31, 2006 as compared to 97.3% for the year ended December 31, 2005. Our improvement in postpaid customer retention reflects progress made on the different aspects of our customer transition to 2.5G technology, including improvement in customer service, GSM billing systems, and the functionality of our networks.

As of December 31, 2006, approximately 82% of our postpaid customers were using new technology devices as compared to 47% at December 31, 2005. Our new technology customers provide higher retention rates and LSR.

Roaming Revenue. The 25.3% increase in roaming revenue during the year ended December 31, 2006 primarily reflects a 44% increase in outcollect minutes and a significant increase in data revenue, which together were partially offset by a decline in our roaming yield. Our outcollect yield for the year ended December 31, 2006 was $0.11 per minute as compared to $0.13 per minute in the year ended December 31, 2005. Declines in TDMA outcollect minutes were offset by increases in new technology GSM and CDMA outcollect minutes. Data roaming for the year ended December 31, 2006 was $9.2 million as compared to $1.9 million in the comparable period of the prior year.

For the years ended December 31, 2006 and 2005, AT&T, Verizon Wireless, and T-Mobile together accounted for approximately 93%, and 92%, respectively, of our total outcollect roaming minutes. For the years ended December 31, 2006 and 2005, AT&T accounted for approximately 14.4% and 11.9%, respectively, of our total revenue.

Because our national roaming partners converted their customer base to 2.5G technology before we had fully operational 2.5G networks, we were not able to capture a portion of available roaming revenue in the first half of 2005. Having substantially completed our conversion during the second half of 2005, we have been able to capture additional roaming revenue (voice minutes and data) from these customers. At December 31, 2006, all of our 1,158 cell sites were equipped with 2.5G technology. For the years ended December 31, 2006 and 2005, 2.5G outcollect minutes accounted for 95% and 80%, respectively, of our total outcollect minutes.

Equipment Revenue. Equipment revenue decreased 26.1% to $25.4 million for the year ended December 31, 2006 as compared to $34.3 million for the year ended December 31, 2005, reflecting lower handset pricing for both new customers and migrating customers. Gross postpaid additions were 163,404 during the year ended December 31, 2006 as compared to 166,626 for the year ended December 31, 2005. Customer handset migrations for the year ended December 31, 2006 increased slightly to 201,776 as compared to 199,248 in the prior year.

Operating Expense.

	Years ended December 31,
(In thousands)	2006		2005		$ Increase (decrease)			% Increase (decrease)
Network cost
Incollect cost	$	46,134	$	46,880	$	(746	)		-1.6	%
Other network cost		91,913		73,442		18,471			25.2	%
		138,047		120,322		17,725			14.7	%
Cost of equipment sales		56,587		58,266		(1,679	)		-2.9	%
Selling, general and administrative		147,271		152,918		(5,647	)		-3.7	%
Depreciation and amortization		128,415		100,463		27,952			27.8	%
Impairment of assets		23,800		7,020		16,780			239.0	%
Total operating expenses	$	494,120	$	438,989	$	55,131			12.6	%

Network Cost. Network cost, as a percentage of total revenues, increased to 24.5% for the year ended December 31, 2006 as compared to 22.1% for the year ended December 31, 2005. This change reflects an increased number of cell sites, higher variable costs due to an increase in outcollect roaming minutes of use and higher outsourced data service costs. Cell sites increased to 1,158 at December 31, 2006 as compared to 1,061 at December 31, 2005.

Partially offsetting the overall increase in network cost was a 1.6% decrease in incollect cost for the year ended December 31, 2006 to approximately $0.09 per minute as compared to $0.11 for the year ended December 31, 2005. Partially offsetting the impact from the decline in per minute cost was a 14.0% increase in incollect minutes.

Cost of Equipment Sales. As a percentage of revenue, cost of equipment sales for the year ended December 31, 2006 decreased to 10.0% as compared to 10.7% for the year ended December 31, 2005. Cost of equipment sales decreased 2.9% to $56.6 million for the year ended December 31, 2006, primarily reflecting a decline in gross customer additions partially offset by an increase in the average cost of a handset to $140.16 for the year ended December 31, 2006 as compared to $138.74 for the year ended December 31, 2005. Gross postpaid additions were 163,404 during the year ended December 31, 2006 as compared to 166,626 for the year ended December 31, 2005. Customer handset migrations for the year ended December 31, 2006 increased slightly to 201,776 as compared to 199,248 in the prior year.

As of December 31, 2006, approximately 82% of our postpaid customers were using new technology devices as compared to 47% at December 31, 2005.

Selling, General and Administrative.

Components of SG&A are as follows:	Years ended December 31,
(in thousands)	2006		2005		$ (Decrease) Increase			% (Decrease) Increase
General and administrative	$	59,939	$	64,887	$	(4,948	)		-7.6	%
Sales and marketing		57,795		59,376		(1,581	)		-2.7	%
Bad debt		13,857		13,769		88			0.6	%
Stock-based compensation		1,490		680		810			119.1	%
Regulatory pass-through fees		14,190		14,206		(16	)		-0.1	%
	$	147,271	$	152,918	$	(5,647	)		-3.7	%

As a percentage of revenue, SG&A decreased to 26.1% for the year ended December 31, 2006 as compared to 28.1% for the year ended December 31, 2005. Contributing to the decrease in G&A were efficiencies from organizational changes made in the second half of 2005, a decline in contract labor associated with system conversions, and other associated one-time items in 2005. Sales and marketing costs decreased, reflecting efficiencies from the organizational changes we made in the second half of 2005 and a decline in commissions resulting from the reduced number of new postpaid customers. Gross postpaid additions were 163,404 during the year ended December 31, 2006 as compared to 166,626 for the year ended December 31, 2005.

Regulatory pass-through fees were virtually the same in 2006 as compared to 2005 at approximately $14.2 million. Bad debt expense for all of 2006 was relatively unchanged compared to 2005.

Stock-based compensation - SG&A. In accordance with our adoption of SFAS No. 123(R), stock-based compensation in our financial statements was recognized for all stock-based compensation expense arrangements, including employee and non-employee stock options granted after January 1, 2006 and all remaining unvested stock-based compensation arrangements granted prior to January 1, 2006, commencing with the quarter ended March 31, 2006. Accordingly, for the year ended December 31, 2006, stock-based compensation increased 119.0% to $1.5 million, primarily reflecting the 2006 implementation of SFAS No. 123(R). For the year ended December 31, 2005, we recorded approximately $680,000 of non-cash stock compensation expense related to non-vested shares awarded to employees.

Depreciation and Amortization. Depreciation and amortization expense increased 27.8% for the year ended December 31, 2006 to $128.4 million as compared to $100.5 million for the year ended December 31, 2005. This increase primarily reflects the accelerated depreciation of our TDMA networks and depreciation on our recently activated 2.5G networks. We are operating both TDMA and 2.5G networks in all five of our territories. Our 2.5G networks will eventually replace TDMA networks. Accordingly, our TDMA cell site equipment is fully depreciated, as of December 31, 2006. TDMA network depreciation expense for years ended December 31, 2006 and 2005 was $47.8 million and $39.9 million, respectively.

Impairment of Assets. Under SFAS No. 142, we performed annual impairment tests in 2006 and 2005 for our indefinite lived assets. Based on these tests, we recorded a noncash impairment charge included in operating expenses of $23.8 million in the fourth quarter of 2006, resultingprimarily from a decline in license valuation in our South territory. There was no impairment charge in 2005 related to our annual assessment under SFAS No. 142.

In June 2005, our customer relationship management and billing managed services agreement with Amdocs was mutually terminated. As a result of the termination of the agreement, we recorded a charge to operations during the quarter ended June 30, 2005 of $7.0 million in accordance with SFAS No. 144, reflecting the write-down of certain development costs previously capitalized.

Other Income (Expense).

Interest Expense.

Components of Interest Expense	Years ended December 31,
(in thousands)	2006			2005			$ Increase (Decrease)			% Increase (Decrease)

Interest expense on credit facility	$	4,454		$	691		$	3,763			544.6	%
Interest expense on senior secured notes		42,847			41,517			1,330			3.2	%
Interest expense on senior notes		32,094			32,095			(1	)		0.0	%
Interest expense on senior subordinated notes		48,688			45,252			3,436			7.6	%
Amortization of debt issuance costs		5,351			4,692			659			14.0	%
Senior and junior preferred stock dividends		55,834			54,778			1,056			1.9	%
Derivative instrument market value change		(197	)		(1,997	)		1,800			90.1	%
Net gain on repurchase and exchange of senior exchangeable preferred stock		(413	)		(5,722	)		5,309			-92.8	%
Write-off of debt issuance costs		3,022			1,533			1,489			97.1	%
Call premium on senior secured floating rate notes		3,200			-			3,200			-
Other		117			(1,008	)		1,125			-111.6	%
	$	194,997		$	171,831		$	23,166			13.5	%

Increased interest expense for the year ended December 31, 2006 reflects our higher debt levels resulting from the November 2005 issuance of $175 million senior subordinated floating rate notes and the borrowing of $58 million under the revolving credit facility. Included in interest expense for the year ended December 31, 2006 was $3.2 million in call premiums relating to the repayment of $160.0 million aggregate principal under our senior secured floating rate notes and a $3.0 million write-off of debt issuance costs.

Cash interest expense for all of 2006 was $133.5 million, which included payment of $8.3 million in senior exchangeable preferred stock dividends as compared to $133.0 million in 2005, which included payment of $17.8 million in senior exchangeable preferred stock dividends.

The gain resulting from repurchases of senior exchangeable preferred stock and losses from exchanges of senior exchangeable preferred stock for common stock declined to $413,000 for the year ended December 31, 2006 as compared to $5.7 million for the year ended December 31, 2005.

Redemption of Senior Exchangeable Preferred Stock for Cash. During the years ended December 31, 2006 and December 31, 2005, we redeemed 22,721 and 14,932 shares of senior exchangeable preferred stock for $27.7 million and $13.4 million, respectively. The corresponding $932,000 and $5.5 million gains, not including transaction commissions and other related fees, were recorded as a reduction of interest expense.

Redemption of Senior Exchangeable Preferred Stock for Class A Common Stock. During the years ended December 31, 2006 and 2005, we redeemed an aggregate of 10,500 and 10,535 shares of our senior exchangeable preferred stock in exchange for an aggregate of 1,166,500 and 1,152,745 shares of our Class A common stock in negotiated transactions, resulting in a loss of $518,688 and a gain of $168,241, respectively. The shares of common stock were issued in reliance upon the exemption from registration provided in Section 3(a)(9) of the Securities Act of 1933, as amended.

Preferred Stock Dividends

Preferred stock dividends for the year ended December 31, 2006 increased by 104.6% to $14.7 million as compared to $7.2 million for the year ended December 31, 2005. The increase in preferred stock dividends primarily reflects a $6.7 million gain recognized in 2005 in connection with the conversion of our outstanding shares of Class T convertible preferred stock into the 43,000 shares of Class A and 105,940 shares of Class B common stock.

LIQUIDITY AND CAPITAL RESOURCES

We need cash primarily for working capital, capital expenditures related to our network construction efforts, debt service, customer growth initiatives, and purchases of additional spectrum. In past years, we have met these requirements through cash flow from operations, borrowings under our credit facility, sales of common stock, and issuance of long-term debt and preferred stock.

We believe our networks continue to perform well as shown by our increases in customers and roaming MOUs as we continue to manage the process of transferring our networks from TDMA/analog to new technologies. Our cell site count increased from 1,158 sites at December 31, 2006 to 1,322 sites at December 31, 2007, including 80 sites acquired in southern Minnesota in April 2007. Primarily reflecting our efforts to provide additional network capacity in all of our service areas, including the recently acquired markets in southern Minnesota, our capital expenditures for the year ended December 31, 2007 increased to $61.5 million as compared to $47.5 million in 2006.

Junior Exchangeable Preferred Stock. We have failed to pay six quarterly dividends on the Junior Exchangeable Preferred Stock and, accordingly, a “Voting Rights Triggering Event,” as defined in its Certificate of Designation has occurred. As a result, the holders of junior exchangeable preferred stock have the right to elect two directors. In addition, while a “Voting Rights Triggering Event” exists, certain terms of our junior exchangeable preferred stock, if enforceable, may prohibit incurrence of additional indebtedness, including borrowings under our revolving credit facility. The accrued dividends in arrears for the junior exchangeable preferred securities, through December 31, 2007, totaled approximately $70.7 million.

Credit Facility. In April 2007, we negotiated an amendment to our revolving credit facility explicitly permitting the payment of senior and junior exchangeable preferred stock dividends and replacing all financial covenant ratios with one new senior secured first lien debt covenant. As of December 31, 2007, we were in compliance with covenants under the credit facility and have drawn $58 million of the $60 million initially available.

Our borrowings under the revolving credit facility bear interest at rates based on, at our option, on either (i) the one, two, three, six, or, if made available by the lender, nine or twelve month Eurodollar rate, which is determined by reference to the Adjusted LIBOR rate, or (ii) the Alternate Base Rate, which is the higher of the prime lending rate on page 5 of the Telerate Service and the Federal Funds Effective Rate plus 1/2 of 1 percent. In each case, we are required to pay an additional margin of interest above the Eurodollar rate or the Alternate Base Rate. The margin is based on the ratio of our senior secured debt to our adjusted cash flow. The margin above the Alternate Base Rate ranges from 0.75% to 1.00%. The margin above the Eurodollar rate fluctuates from 1.75% to 2.00%.

Senior Subordinated Floating Rate Notes. In May 2007 we issued $425 million aggregate principal amount of Senior Subordinated Floating Rate Notes due June 1, 2013 and used the proceeds to redeem our 11 3/8% Senior Subordinated Debentures and our 9 3/4% Senior Subordinated Notes. The 2013 notes mature on June 1, 2013. Interest on the 2013 notes reset quarterly at a rate equal to the three month LIBOR, plus 3.00%, and is payable on March 1, September 1, September 1 and December 1 of each year, commencing on September 1, 2007. On May 15, 2007, we had exchanged all outstanding shares of our 11 3/8% Senior Exchangeable Preferred Stock for 11 3/8% Senior Subordinated Debentures.

Cash flows for the year ended December 31, 2007 compared with the year ended December 31, 2006

(in thousands)	2007		2006			Change
Net cash provided by operating activities	$	32,481	$	92,867		$	(60,386	)
Net cash provided by (used in) investing activities		2,069		(84,898	)		86,967
Net cash provided by (used in) financing activities		7,321		(22,296	)		29,617
Net increase (decrease) in cash and cash equivalents		41,871		(14,327	)		56,198

Cash and cash equivalents, at beginning of year		72,495		86,822			(14,327	)
Cash and cash equivalents, at end of year	$	114,366	$	72,495		$	41,871

Net cash and cash equivalents provided by operating activities was $32.5 million for the year ended December 31, 2007. Adjustments to the $14.8 million net loss to reconcile to net cash used in operating activities primarily included a $28.9 million increase in preferred stock dividends, a $10.4 million increase in accrued interest and a $10.4 million increase in accounts receivable. Partially offsetting these items was $79.5 million in depreciation and customer list amortization.

Net cash provided by investing activities for the year ended December 31, 2007 was $2.1 million. This amount included $132.5 million in maturities of short-term investments, which were partially offset by $49.1 million for acquisition of wireless properties, $61.5 million for purchases of property and equipment, and $20.5 million in short-term investment purchases. The majority of property and equipment purchases were related to network expansion within existing service areas and maintenance of existing networks.

Net cash provided by financing activities for the year ended December 31, 2007 was $7.3 million, reflecting the following:

·	Proceeds from the issuance of common stock pursuant to our employee stock purchase plan and upon exercise of stock options of $2.8 million,

·	Issuance of $425.0 million aggregate principal amount of Senior Subordinated Floating Rate Notes,

·	Redemption of 9 3/4% Senior Subordinated Notes for $300.0 million, and

·	Redemption of senior subordinated debentures for $115.5 million.

Liquidity. Primarily reflecting the cash payment of $41.7 million and $32.8 million in dividends on our senior exchangeable preferred stock and our junior exchangeable preferred stock, respectively, our cash and cash equivalents and short-term investments decreased to $114.4 million as compared to $183.2 million at December 31, 2006. Cash interest payments during the year ended December 31, 2007 were $219.1 million as compared to $133.5 million during the year ended December 31, 2006.

Under the documents governing our indebtedness, we are able to make limited restricted payments, including the repurchase of senior subordinated notes or preferred stock and the payment of dividends to holders of our equity securities.

We believe that our cash and cash equivalents on hand and our cash flows from operations will be sufficient to enable us to meet required cash commitments through the next twelve-month period, and we anticipate we will be in compliance with our covenants under the credit facility.

SUPPLEMENTAL DISCLOSURE OF CONDENSED CONSOLIDATED CASH FLOW INFORMATION

(in thousands)	Years Ended December 31,
	2007		2006
Cash paid for:
Interest	$	219,115	$	133,480

Contractual Obligations Summary

The following table summarizes our contractual commitments, including dividends, interest, and principal amounts that are payable in cash, as of December 31, 2007 through the mandatory redemption dates (in thousands) for the securities listed below.

	Operating Leases		Line of Credit (due 3/25/2010) (1)		Senior Subordinated Floating Rate Notes (due 11/1/2012) (2)		Senior Subordinated Floating Rate Notes (due 6/1/2013) (3)		9⅞% Senior Notes (due 2/1/2010)		8 ¼% Senior Secured Notes (due 3/15/2012)		Junior Exchangeable Preferred Securities (due 2/15/ 2011) (4)		Class M Preferred Securities (due 4/3/2012) (5)		Total
2008	$	23,538	$	4,002	$	18,657	$	34,558	$	32,094	$	42,075	$	39,963	$	-	$	194,887
2009		20,088		4,002		18,657		34,558		32,094		42,075		39,963		-		191,437
2010		14,516		58,921		18,657		34,558		327,814		42,075		39,963		-		536,504
2011		9,204		-		18,657		34,558		-		42,075		331,156		-		435,650
2012		5,146		-		190,590		34,558		-		518,530		-		284,487		1,033,311
Thereafter		5,257		-		-		439,391		-		-		-		-		444,648
Total	$	77,749	$	66,925	$	265,218	$	612,181	$	392,002	$	686,830	$	451,045	$	284,487	$	2,836,437

(1)	The Line of Credit matures March 25, 2010. The Line of Credit interest rate obligations are reflected at December 31, 2007 rate level of 6.9%. Increases or decreases in LIBOR will impact interest expense in future years.

(2)	The floating rate notes mature November 1, 2012. Floating interest rate obligations are reflected at December 31, 2007 rate level of 10.7%. Increases or decreases in LIBOR will impact interest expense in future years.

(3)	The floating rate notes mature June 1, 2013. Floating interest rate obligations are reflected at December 31, 2007 rate level of 8.1%. Increases or decreases in LIBOR will impact interest expense in future years.

(4)

This table assumes cash dividends are paid each year. If dividends are not paid in cash, they accrue and compound until paid. If the junior exchangeable preferred stock dividends are not declared and paid at any time prior to the mandatory redemption date of February 15, 2011, the total liquidation preference plus accumulated and unpaid dividends will be $473.5 million.

(5)	Dividends on the Class M convertible preferred stock are compounded quarterly, accrue at 8% per annum and are payable upon redemption. The scheduled redemption date for Class M preferred stock is April 3, 2012. Dividends are not payable if the preferred stock is converted into equity.

Off-Balance Sheet Financings and Liabilities. We do not have any off-balance sheet financing arrangements or liabilities. We do not have any majority-owned subsidiaries or any interests in, or relationships with, any material special-purpose entities that are not included in the consolidated financial statements.

Other Matters

Inflation

The impact of inflation on our operations has not been significant.

Seasonality

We experience seasonal fluctuations in revenue and operating income. Our average monthly roaming revenue per cellular customer increases during the second and third calendar quarters. This increase reflects greater usage by our roaming customers who travel in our cellular service area for weekend and vacation recreation or work in seasonal industries. Because our cellular service area includes many seasonal recreational areas, we expect that roaming revenue will continue to fluctuate seasonally more than service revenue.

Certain quarterly results for 2007 and 2006 are set forth below (in thousands, except per share data):

	2007 Quarter Ended											2006 Quarter Ended
	Mar			Jun			Sep		Dec			Mar			Jun			Sep			Dec
Revenue:
Service	$	97,874		$	107,445		$	110,142	$	109,664		$	95,970		$	96,939		$	95,979		$	96,332
Roaming		35,947			43,580			54,520		48,748			30,806			36,660			46,952			39,449
Equipment		6,409			6,659			7,267		7,060			6,356			6,599			5,842			6,576
Total Revenue		140,230			157,684			171,929		165,472		$	133,132		$	140,198		$	148,773		$	142,357
Operating income (loss)		36,832			43,137			49,336		47,561		$	24,121		$	24,776		$	29,707		$	(8,264	)
Net income(loss) before income tax benefit		(8,597	)		(16,242	)		6,117		3,574		$	(20,929	)	$	(26,183	)	$	(15,647	)	$	(53,663	)
Net income(loss) applicable to common shares	$	(12,318	)	$	(20,067	)	$	2,172	$	(449	)	$	(24,338	)	$	(29,701	)	$	(19,277	)	$	(57,402	)
Net income(loss) per basic share	$	(0.80	)	$	(1.30	)	$	0.14	$	(0.03	)	$	(1.74	)	$	(2.11	)	$	(1.37	)	$	(4.00	)
Net income(loss) per diluted share	$	(0.80	)	$	(1.30	)	$	0.13	$	(0.03	)	$	(1.74	)	$	(2.11	)	$	(1.37	)	$	(4.00	)

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We have used senior secured notes, senior notes, senior subordinated notes, preferred securities, and bank credit facilities to finance, in part, capital requirements and operations. These financial instruments, to the extent they provide for variable rates of interest, expose us to interest rate risk. One percentage point of an interest rate adjustment would have changed our cash interest payments on an annual basis by approximately $6.6 million in 2007.

Financial Instruments

We have invested in short term investment securities which have maturities of seven months or less and are comprised primarily of obligations of the U.S. Treasury, including bills, notes and bonds or obligations issued or guaranteed by agencies of the U.S. government. These securities are recorded at cost.

At December 31, 2007, we did not have any short-term investments. At December 31, 2006, the carrying value of our short-term investments of approximately $110.7 million was approximately the same as their fair market value.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Consolidated Financial Statements and Notes included in this report on page 89.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

RCC maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. As of December 31, 2007, based on an evaluation carried out under the supervision and with the participation of RCC's management, including the chief executive officer (CEO) and the chief financial officer (CFO), of the effectiveness of our disclosure controls and procedures, the CEO and CFO have concluded that RCC's disclosure controls and procedures are effective.

Management’s Report on Internal Control Over Financial Reporting

The management of RCC is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). RCC’s internal control system is designed to provide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

RCC’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on our assessment, we believe that, as of December 31, 2007, the Company’s internal controls over financial reporting were effective.

Changes to Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Code of Ethics

We have adopted a financial code of ethics that applies to our directors, Chief Executive Officer, Chief Financial Officer, Corporate Controller and other employees involved in preparation of our financial statements. This financial code of ethics, which is one of several policies within our Code of Business Conduct, is posted on our website. Also included on our website are all of our SEC filings, including our Form 10-K. The internet address for our website is http:/unicel.com, click on “Investor relations” and “Corporate governance.”

We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website.

Executive Officers and Directors

The following table sets forth certain information with regard to each of our executive officers and directors:

Name	Age	Position
Richard P. Ekstrand	58	President, Chief Executive Officer and Director
Wesley E. Schultz	51	Executive Vice President, Chief Financial Officer and Director
Ann K. Newhall	56	Executive Vice President, Chief Operating Officer and Director
David J. Del Zoppo	52	Senior Vice President, Finance and Accounting
Anthony J. Bolland	54	Director
James V. Continenza	45	Director
Paul J. Finnegan	55	Director
Jacques Leduc	45	Director
George M. Revering	66	Director
Don C. Swenson	65	Director
George W. Wikstrom	70	Director

Richard P. Ekstrand has served as our President, Chief Executive Officer, and a director since 1990. He currently serves on the board of directors of Cellular Telecommunications & Internet Association (“CTIA”) and The Wireless Association. Mr. Ekstrand previously served as Chairman of the Board of Directors of both CTIA and the Wireless Foundation. In addition, he is past President of the Minnesota Telephone Association, the Association of Minnesota Telephone Utilities, and the Minnesota Telecommunications Association. Mr. Ekstrand is the sole shareholder, president, and a director of North Holdings, Inc., which is a shareholder of Rural Cellular. North Holdings, Inc. is a member of Lowry Telephone Company, LLC, of which Mr. Ekstrand is the treasurer and a member of the board of governors.

Wesley E. Schultz has served as Executive Vice President and Chief Financial Officer since 2000 and as a director since 1999. He joined us in 1996 as Vice President of Finance and Chief Financial Officer. In 1999, he was appointed Senior Vice President and Chief Financial Officer and Assistant Secretary. Mr. Schultz is a certified public accountant and served for three years as an auditor with Deloitte & Touche LLP.

Ann K. Newhall has served as Executive Vice President, Chief Operating Officer, and Secretary since 2000 and as a director since 1999. She joined us as Senior Vice President and General Counsel in 1999. Prior to joining us, Ms. Newhall was a shareholder attorney with Moss & Barnett, A Professional Association, most recently serving as President and a director of the firm. Ms. Newhall received her J.D. from the University of Minnesota Law School in 1977. She serves on the board of directors of Alliant Energy Corporation, a gas and electric utility.

David J. Del Zoppo has served as Senior Vice President, Finance and Accounting since February 2006. He had served as Vice President, Finance and Accounting since 1999. He joined us in 1997 as Controller and was appointed Vice President in 1998. Mr. Del Zoppo is a certified public accountant and served for four years as an auditor with KPMG, LLP.

Anthony J. Bolland has been a General Partner of Boston Ventures Management Inc. since its formation in 1983. He is currently on the boards of directors of Integra Telecom. Mr. Bolland was elected to the Board of Directors by the holders of our Class M convertible preferred stock and has served as a director since 2004.

James V. Continenza has been a director since 2005. He served as Chief Executive Officer, President, and a director of Teligent, Inc. from September 2002 through June 2004. Mr. Continenza served as a director of Microcell Telecommunications, Inc. from May 2003 to November 2004. He is currently on the board of directors of U.S.A. Mobility, Inc. Mr. Continenza was elected to the Board of Directors in May 2005 by the holders of our senior exchangeable preferred stock and appointed to an existing vacancy on the Board in May 2006.

Paul J. Finnegan is Co-CEO of Madison Dearborn Partners, Inc. Mr. Finnegan has been with Madison Dearborn Partners since he co-founded the company in 1993. Mr. Finnegan was elected to the Board of Directors by the holders of our Class M convertible preferred stock and has served as a director since 2000. Mr. Finnegan also serves on the board of directors of iplan, LLC.

Jacques S. Leduc has been a director since 2005 and currently serves as Managing Partner of Trio Capital, Inc. He served as Chief Financial Officer of Microcell Telecommunications Inc. from February 2001 through November 2004, and as Vice President Finance and Director Corporate Planning from January 1995 to February 2001. Mr. Leduc was elected to the Board of Directors in May 2005 by the holders of our senior exchangeable preferred stock and appointed to an existing vacancy on the Board in May 2006.

George M. Revering has been a director since 1990. Mr. Revering is currently retired and had served as president and general manager of Midwest Information Systems Inc. from 1976 until 2001.

Don C. Swenson has been a director since 1990. Mr. Swenson served as Chief Operating Officer of Arvig Communications Systems, Inc. from 1981 until his retirement in 2001. Mr. Swenson also serves as a director of Arvig Enterprises, Inc. Mr. Swenson has been a member of the board of directors of United Community Bank, Perham, Minnesota, since 1993.

George W. Wikstrom has been a director since 1990. Mr. Wikstrom has been Vice President of Wikstrom Telephone Company, Incorporated, a local exchange telephone company and a shareholder of Rural Cellular, for more than ten years. He has been the Commissioner of the Northwest Regional Development Commission since 1979 and has served as a director of the Minnesota Association of Rural Telecommunications.

Procedures for Submitting Nominations for Directors

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors as described in the Company’s proxy statement for its 2007 annual meeting.

Audit Committee and Audit Committee Financial Expert

Jacques Leduc (Chair), Anthony J. Bolland, George M. Revering, and Don Swenson currently serve on the Company’s audit committee. The audit committee’s duties, which are outlined in its charter, which is available on our website at http:/unicel.com, click on “Investor Relations” and “Corporate governance,” include examination of matters relating to the financial affairs of RCC, including reviewing our annual financial statements, the scope of the independent annual audit. In addition, the audit committee serves as a “qualified legal compliance committee.” All members of the audit committee are independent as defined in rules of The Nasdaq Stock Market. In addition, the Board of Directors has determined that Anthony J. Bolland and Jacques Leduc are “audit committee financial experts” as defined by applicable regulations of the Securities and Exchange Commission.

Section 16 Beneficial Ownership Reporting Compliance

Section 16 of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder require RCC’s officers, directors, and holders of 10% or more of our outstanding common stock to file certain reports with the Securities and Exchange Commission. To our best knowledge, based solely on information provided to us by the reporting individuals, all of the reports required to be filed by these individuals were timely filed.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Company’s compensation program is designed to (i) attract and retain superior talent, (ii) reward individual performance by emphasizing performance-based compensation, and (iii) align executive interests with shareholder interests by providing a significant portion of compensation in the form of the Company’s common stock or options to purchase common stock. We seek to compensate executives at a level comparable to their counterparts at other wireless companies, to provide executives with incentive to remain with the Company over the long term, to reward for performance both at and above expected levels, and to tie compensation to the Company’s performance and return to shareholders. Our compensation committee attempts to compensate our executives at a level that places them in a range between the 50th and 75th percentile of the compensation paid to executives at comparable companies.

In connection with consideration of executive compensation for fiscal 2007, our compensation committee retained Lyons, Benenson & Company, Inc. (“Lyons”) to review the compensation program for our senior executive officers. Lyons compared our compensation program to the compensation programs at other telecom companies of similar size based on information provided by proxy statements of 15 peer companies and published surveys. Lyons concluded, based on its analysis, that the base salaries of our executive officers were above market, that the target levels for short-term incentive compensation and long-term incentive compensation were comparable to market and recommended that the formula for determining long-term incentive compensation be different from that used for determining short-term incentive compensation. Based on the analysis and recommendation provided by Lyons, adjustments were made to the terms of the long-term incentive compensation for executive officers.

The principal elements of our executive compensation are base salary, short-term incentive compensation, and long-term incentive compensation in the form of stock options and performance restricted stock units.

Salary. Base salary is intended to provide current compensation. The amount is based on the executive’s job responsibilities and individual experience, his or her performance during the most recent fiscal year, and the salaries paid to executives in similar positions at comparable companies. Increases are determined based on the executive’s performance and external factors such as inflation and general economic conditions. The Lyons’ survey indicated that cash salaries paid to the Company’s executive officers were in the upper bracket of industry salaries. Accordingly, the compensation committee determined not to increase base salaries in 2007.

Short-Term Incentive Compensation. Our short-term cash incentive compensation (“bonus”) is intended to reward the executive for the Company’s performance during the current fiscal year. Generally, the target amount is a percentage of the executive’s salary, currently between 50% and 75%. Payment of the bonus depends upon the Company’s achieving specified financial targets. The specific financial goals used for determining payment of the bonus are selected by the compensation committee, after discussion with management. In 2007 these goals were 100% of budgeted EBITDA and 100% of budgeted net customer additions, with 70% of the target bonus based on EBITDA achievement and 30% based on achievement of the net customer addition goal. Each executive could earn 50% of the target amount if 90% of the budgeted goals were achieved and could receive up to 150% of the target bonus amount if the Company exceeded the budget goals. If performance with regard to either EBITDA or customer additions was less than 90%, and performance with regard to the other was 90% or greater, the incentive compensation earned for the goal that was achieved was to be reduced by 50%. If performance with regard to either EBITDA or customer additions was less than 80% of the goal, no incentive compensation would be paid. During 2007, the Company exceeded its budgeted EBITDA goal and its budgeted net customer additions goal. Accordingly, the executives received approximately 150% of their targeted bonuses.

Long-Term Incentive Compensation. Long-term incentive compensation consists of stock options and performance restricted stock units (“PRSUs”). Stock options are intended to reward executives for achieving performance levels that result in increases in share price. The options issued in 2007 were granted following the 2007 annual meeting, become exercisable in annual installments over five years, and expire ten years after the date of grant. The exercise price is equal to the market price on the date of grant. The PRSUs vest only if the Company achieves specified Company performance levels over the three fiscal years ending December 2009. These goals are based on budgeted EBITDA and net customer additions, with award of 50% of the units related to the EBITDA goal and award of 50% of the units related to the customer additions goal. The PRSUs do not fully vest until May 29, 2010, and vest only if the executive remains with the Company until the vesting date. (In the event of a change in control, these awards vest immediately.) In order to earn any PRSUs the Company’s performance related to each goal must be at least 90% of budget. The award with regard to each element may be between 90% and 110% of the awarded units, proportionately to actual performance. If performance with regard to either element is less than 80% of budget, no PRSUs will be earned, no matter how well the Company has performed with regard to the other element.

Adjustments Related to Verizon Transaction. In calculating the performance for short-and long-term incentive compensation in 2007 and 2008, the compensation committee adjusted EBITDA targets and net customer addition goals to account for the costs incurred in connection with the forthcoming merger with Verizon.

Allocation of Compensation Elements. Based on the advice of its compensation consultants, the compensation committee has determined that the allocation among the three elements of executive compensation should place greater emphasis on incentive compensation. Accordingly, short-term compensation (if paid in full) would constitute approximately 25% of total compensation, and long-term incentive compensation (if paid in full) would constitute approximately 32% of total compensation. This allocation reflects the compensation committee’s view that the achievement of the Company’s long-term financial and strategic goals is necessary for the success of the Company and that the executives should be rewarded for achieving those goals. In addition, the allocation is considered more in line with the allocation used by other similar wireless companies for executive compensation.

The Company does not have specific targets for allocating compensation among the three elements but determines the allocation each year depending upon the particular circumstances at that time.

Fringe Benefits. In addition to the compensation outlined above, each executive is eligible for various fringe benefits offered to all employees, including health and dental insurance, life insurance, short- and long-term disability insurance, and a 401(k) plan. The top three executives are also eligible to participate in a nonqualified deferred compensation plan. Prior to 2004, the Company made matching contributions to this plan, subject to the limits of employer contributions under defined contribution plans. The matching contributions were discontinued in 2004.

Long-Term Care Insurance. In 2007, the Company paid premiums on long-term care insurance owned by the three top executives for themselves and their spouses (in lieu of making matching contributions to the deferred compensation plan). The insurance policies provide for payment of premiums over a ten-year period. Also, in the event of a change in control, the Company has agreed to pay all remaining premiums on any long-term care insurance policies then provided by the Company for each of the officers and his or her spouse, provided the officer is employed by the Company at the time of the change in control. In 2006, the aggregate amount of these premiums was $29,199.

Post-Retirement Benefits. In recognition of the long-term service of Mr. Ekstrand, the Company’s CEO, the Compensation Committee has agreed to allow Mr. Ekstrand and his spouse to continue participation in the Company’s employee health insurance program after his retirement upon the same terms and conditions as if he were still employed.

Change in Control Arrangements. RCC has entered into employment agreements with Messrs. Ekstrand and Schultz and Ms. Newhall that provide that if any of these individuals is terminated for other than just cause or terminates his or her employment for “good reason” (as defined in the employment agreements), within 24 months following a change in control of RCC, or terminates his or her employment for any reason during the 30-day period following the first anniversary of the change in control, he or she would be entitled to receive compensation in an amount equal to 300% of his or her annual base salary as in effect on the date of termination (unless the reason for termination is a result of reduction in the individual’s base salary, in which case 300% of the highest base salary paid in the twelve months prior to termination shall be paid) and 300% of the greater of (a) the targeted short-term incentive for the year of termination (unless the reason for termination is a result of a reduction in the individual’s targeted annual short-term incentive, in which case the actual target short-term incentive for the prior year shall be used) or (b) the actual short-term incentive achieved in the year of termination. For purposes of calculating current year achievement of performance goals, the year will be considered to have ended on the last day of the month prior to the date of termination. In addition, the individual would be entitled to continue to participate in our group medical, dental and life insurance plans on the same basis as he or she participated immediately prior to termination for a period of eighteen months following the date of termination. The individual would be responsible for payment of premiums to the same extent as prior to termination. If the individual obtains substantially equivalent coverage or benefits from another source, we have no further obligation for these benefits. The purpose of these agreements is to encourage the individual executives to remain with the Company during any period when the Company may be subject to either a friendly or hostile takeover.

Tax or Accounting Treatment of Compensation. The compensation committee may consider the tax treatment to the employee of a particular form of compensation. The compensation committee did consider the differing accounting treatment for stock options and restricted stock grants in deciding to place greater emphasis on PRSUs and deferring the vesting date of PRSUs.

Tax Deductibility under Section 162(m). Section 162(m) of the Internal Revenue Code imposes an annual deduction limitation of $1.0 million on the compensation of certain executive officers of publicly held companies. The compensation committee has considered the impact of this limitation on RCC and determined that it would be in the best interests of RCC to preserve the tax deduction for compensation paid to the chief executive officer and other Named Executive Officers to the extent possible consistent with RCC’s executive compensation program. Awards under the 2006 Omnibus Incentive Plan are intended to meet the requirements of Section 162(m). The Committee also believes that there may be circumstances in which the Company’s interests are best served by maintaining flexibility in the way compensation is provided, whether or not the compensation is fully deductible.

Policies Regarding Equity Ownership by Management. The Company does not have any policies regarding levels of equity ownership by executive officers or directors or hedging the economic risk of ownership of the Company’s securities.

Compensation to Directors. In addition to cash compensation (annual fees, per meeting fees, and committee fees), our directors are granted restricted stock units of a value potentially greater than the cash fees. These units vest one year after the date of grant (generally the day following the annual shareholders’ meeting) and are not delivered to the director until six months after completion of service on the board.

Granting of Stock Options or Other Equity-Based Awards. Except for the grant of options or other awards to the outside directors on the day after the annual shareholders’ meeting, in the past the Company has not used a specific date for the granting of options or other stock-based awards to officers or other employees. Typically these grants have been made near the beginning of a fiscal year, as part of the determination by the compensation committee of the executive’s compensation for that year. In 2007, these awards were granted on the day following the annual meeting.

Role of Executive Officers in Determining Compensation. The Company’s executive officers meet with the compensation committee to review proposals made by any compensation consultant and to express their views on such proposals. The executives are also responsible for preparing the annual budget (subject to Board approval) upon which the targets for incentive compensation are based. The compensation committee meets on an as-needed basis, as its chairperson determines, and at times invites one or more members of management to attend all or part of the meeting. During 2007, the executives were present at meetings of the committee at which compensation was discussed and provided input regarding the proposed compensation for 2007, in particular the terms of the long-term incentive compensation program. Final votes were made without the presence of management. Because all three senior executive officers are on the board of directors, they are also able to express their views when the compensation committee recommendations are presented to the full board for approval.

Recovery of Previously Paid Incentive Compensation. The Company does not have a written policy with regard to recovery of incentive compensation where such compensation has been paid based on financial information later found to be inaccurate. It is anticipated that if such a situation were to arise, the matter would be referred to the compensation committee for analysis and recommendation of action to the full board.

Consideration of Compensation for 2008. Executive compensation for 2008 is similar to 2007 compensation, with certain adjustments to reflect the pending merger with Verizon. For example, cash-based awards rather than stock-based awards will be used for long-term incentive compensation.

Compensation Committee Report

The compensation committee of the Board of Directors is comprised of four nonemployee directors, all of whom are independent as defined in the rules of The Nasdaq Stock Market, the Securities and Exchange Commission, and the Internal Revenue Service.

The committee operates under a written charter, which has been approved by the Board of Directors and gives the committee authority to examine and recommend compensation for the executives, subject to approval by the Board of Directors. The charter is available on the Company’s website at www.unicel.com

The committee reviewed and discussed the Compensation Discussion and Analysis with management and, based upon such review and discussions, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Report on Form 10-K.

James V. Continenza, Chair	Paul Finnegan	Don Swenson	George Wikstrom
Members of the Compensation Committee

Summary Compensation Table

The following table shows the compensation of the Company’s chief executive officer, chief financial officer, and the two other most highly compensated executive officers (“Named Executive Officers”) for fiscal 2007 and 2006:

Name and Principal Position	Year	Salary ($)		Stock Awards ($) (1)		Option Awards ($) (1)		Bonus Non Equity Incentive Plan Compensation ($)		Change in Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)			Total ($)
Richard P. Ekstrand President / Chief Executive Officer
	2007		536,130		667,391		131,434		603,146		19,342		19,070	(2)		1,976,513
	2006		536,130		173,708		109,910		316,350		2,949		18,920			1,157,967

Wesley E. Schultz Executive Vice President / Chief Financial Officer
	2007		416,070		472,503		79,076		312,053		706		14,610	(3)		1,295,018
	2006		416,070		120,006		73,649		163,671		17,301		14,460			805,157

Ann K. Newhall Executive Vice President / Chief Operating Officer
	2007		416,070		472,503		79,076		312,053		21,952		15,769	(4)		1,317,423
	2006		416,070		120,006		73,649		163,671		13,913		15,619			802,928

David J. Del Zoppo Senior Vice President, Finance & Accounting
	2007		203,995		40,431		3,061		107,167		-		6,750			361,404
	2006		197,225		19,243		7,101		54,308		-		6,600			284,477

(1)

Represents the amount recognized in Rural Cellular Corporation’s financial statements for awards of restricted stock and stock options. These amounts were estimated using the valuation model described in Note 3 of Notes to Consolidated Financial Statements included our Annual Report on Form 10-K for the year ended December 31, 2007.

(2)	Includes RCC’s matching contribution to the 401(k) Plan of $6,750 and payment of $12,320 in premiums for long-term care insurance for Mr. Ekstrand and his spouse.

(3)	Includes RCC’s matching contribution to the 401(k) Plan of $6,750 and payment of $7,860 in premiums for long-term care insurance for Mr. Schultz and his spouse.

(4)	Includes RCC’s matching contribution to the 401(k) Plan of $6,750 and payment of $9,019 in premiums for long-term care insurance for Ms. Newhall and her spouse.

Grants of Plan-Based Awards

The following table provides information about awards made to the Named Executive Officers under various compensation plans during fiscal 2007:

	Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)						Estimated Future Payouts Under Equity Incentive Plan Awards (2)						Option Awards
Name	Threshold ($)		Target ($)		Maximum ($)		Threshold (#)		Target (#)		Maximum (#)		Number of Securities Underlying Options (#)		Exercise or Base Price of Option Awards ($/Share)		Grant Date Fair Value of Stock and Option Awards ($)
Richard P. Ekstrand		201,049		402,097		603,146		7,157		7,952		8,747		9,340	$	30.81	$	212,578
Wesley E. Schultz		104,018		208,035		312,053		3,944		4,382		4,820		5,147	$	30.81	$	117,146
Ann K. Newhall		104,018		208,035		312,053		3,944		4,382		4,820		5,147	$	30.81	$	117,146
David J. Del Zoppo		35,699		71,398		107,167		4,500		5,000		5,500		-		-		-

(1)

Represents cash bonus awards under the 2006 Omnibus Incentive Plan to the Named Executive Officers for fiscal 2007. As described in the Compensation Discussion and Analysis, the compensation committee determined in February 2008 that the Company exceeded the customer growth performance goal and the maximum performance goal based on earnings before interest, taxes, depreciation, and amortization during 2007.

(2)

The performance restricted stock awards are earned based on the Company’s performance for the three fiscal years ending December 31, 2009 as described in Compensation Discussion and Analysis, above. The awards were granted pursuant to the 2006 Omnibus Incentive Plan. The awards will vest on May 29, 2010 so long as the grantee is still employed by the Company as of the vesting date. In addition, all awards vest upon the occurrence of a change in control. See “Employment Agreements/Change in Control Provisions.”

Outstanding Equity Awards at December 31, 2007

The following table provides information about all outstanding equity compensation awards held by the Named Executive Officers at December 31, 2007:

	Number of Securities Underlying Unexercised Options Exercisable (#)		Number of Securities Underlying Unexercised Options Unexercisable (1)		Option Exercise Price ($)		Option Expiration Date	Number of Units of Stock that have not vested (2)		Market Value of Units of Stock that have Not Vested (3) ($)		Equity Incentive Plan Awards: Number of Restricted Stock Units Unexercised and Unearned (2)		Equity Incentive Plan Awards: Market Value of Restricted Stock Units Unexercised Unearned (3) ($)

Richard P. Ekstrand		50,000		-		15.50	8/19/08
		25,000		-		10.50	1/1/09
		80,000		-		27.38	1/2/11
		29,193		-		34.94	3/9/11
		80,000		-		3.37	5/2/12
		64,000		16,000		1.25	5/16/13
		7,227		28,909		13.56	5/25/16
		-		9,340		30.81	5/29/17
									24,815	$	1,094,094		38,667	$	1,704,828

Wesley E. Schultz		12,500		-		13.31	1/2/08
		10,000		-		15.50	8/19/08
		12,500		-		10.50	1/1/09
		60,000		-		27.38	1/2/11
		16,485		-		34.94	3/9/11
		60,000		-		3.37	5/1/12
		48,000		12,000		1.25	5/16/13
		3,982		15,930		10.08	5/26/16
		-		5,147		30.81	5/29/17
									13,674	$	602,887		29,000	$	1,278,610

Ann K. Newhall		46,578		-		12.88	2/6/09
		38,422		-		12.88	2/6/09
		60,000		-		27.38	1/2/11
		16,485		-		34.94	3/9/11
		60,000		-		3.37	5/1/12
		48,000		12,000		1.25	5/16/13
		3,982		15,930		10.08	5/26/16
		-		5,147		30.81	5/29/17
									13,674	$	602,887		29,000	$	1,278,610

David J. Del Zoppo		5,000		-		13.31	1/2/08
		10,000		-		16.25	6/25/08
		10,000		-		27.38	1/2/11
		2,614		-		34.94	3/9/11
		10,000		-		3.37	5/2/12
		4,000		1,000		1.25	5/16/13
									7,500	$	330,675		4,250	$	187,383

(1)

Each of the options becomes exercisable in five equal annual installments, beginning the first anniversary of the date of grant. Accordingly, the remaining portion of the options that expire in 2013 will become exercisable in May 2008, the remaining portions of the options expiring in 2016 will become exercisable in four equal installments beginning May 2008, and the options expiring in 2017 will become exercisable beginning in May 2008. In addition, all options become immediately exercisable in the event of a change in control. See “Employment Agreements/Change in Control Provisions.”

(2)	The following table indicates the dates when the shares of restricted stock held by each of the Named Executive Officers vest and are no longer subject to forfeiture. In addition, all awards vest upon the occurrence of a change in control. See “Employment Agreements/Change in Control Provisions.”

	12/31/2008		01/02/2009		04/01/2009		01/02/2010		5/29/2010		12/08/2010
Richard P. Ekstrand		16,863		26,667		-		12,000		7,952		-
Wesley E. Schultz		9,292		20,000		-		9,000		4,382		-
Ann K. Newhall		9,292		20,000		-		9,000		4,382		-
David J. Del Zoppo		1,750		-		2,500		-		5,000		2,500

(3)	Represents the market value of the restricted stock awards based on a closing price of $44.09 per share on the Nasdaq Stock Market on December 31, 2007, assuming that the target performance goals had been achieved.

Option Exercises and Stock Vested

The following table provides information regarding stock options exercised by the Named Executive Officers for fiscal 2007:

	Option Awards				Stock Awards
Name	Number of Shares Acquired on Exercise (#)		Value Realized on Exercise ($)		Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)
Richard P. Ekstrand		36,750		1,131,043		-		-
Wesley E. Schultz		6,500		200,149		-		-
Ann K. Newhall		-		-		-		-
David J. Del Zoppo		10,000		51,205		-		-

Nonqualified Deferred Compensation Plan

We have adopted a deferred compensation plan, which permits designated key employees to defer between 5% and 100% of their compensation during any plan year. Messrs. Ekstrand and Schultz and Ms. Newhall are eligible to participate in the deferred compensation plan. The purpose of the deferred compensation plan is to allow the individuals to defer amounts in addition to the amounts permitted under the tax rules for contributions to 401(k) plans. Under the terms of the plan, RCC is required to make a matching contribution in an amount equal to 50% of the individual’s deferred amount, but only to the extent the deferred amount, when added to any amounts contributed by the individual to our 401(k) plan, does not exceed 6% of the individual’s compensation. The matching contribution is made in the discretion of RCC at the end of the year and is contingent upon reaching established financial goals. No matching payments were made by the Company in 2007.

Payment of benefits from the deferred compensation plan is to be made after termination of the participant’s employment. In the event of the participant’s death, the balance in the participant’s account is to be paid to the participant’s beneficiary. Payment may be made by lump sum or in up to ten annual installments, as elected by the participant. The Company adopted a new plan, effective January 1, 2005, that complies with Section 409A of the Internal Revenue Code.

The following table provides information regarding deferred compensation for the Named Executive Officers during fiscal 2007:

			Year Ended December 31, 2007
Name	Aggregate Balance December 31, 2006		Executive Contributions (1)		Registrant Contributions		Aggregate Earnings (1)		Aggregate Withdrawals/ Distributions		Aggregate Balance December 31, 2007
Richard P. Ekstrand	$	320,858	$	31,901	$	-	$	19,342	$	-	$	372,101
Wesley E. Schultz	$	267,120	$	34,784	$	-	$	706	$	-	$	302,610
Ann K. Newhall	$	229,205	$	34,784	$	-	$	21,952	$	-	$	285,941
David J. Del Zoppo	$	-	$	-	$	-	$	-	$	-	$	-

(1)	The amounts reported in the Executive Contributions column are also reported as compensation to the Named Executive Officers in the Summary Compensation Table while amounts reported in the Aggregate Earnings column are not.

(2)	The amounts related to Executive Contributions reported in this column were previously reported in the Summary Compensation Table, while amounts related to Aggregate Earnings were not.

Long-Term Care Insurance

Beginning in 2004, the Company agreed to pay premiums on long-term care insurance for the three top executives and their spouses in lieu of matching contributions to the deferred compensation plan. The insurance policies provide for payment of premiums over a ten-year period. In the event of a change in control, the premiums for any remaining portion of the ten-year period are to be paid in full by the Company. In 2007, the aggregate amount of these premiums for the three executive officers was $29,199.

Employment Agreements/Change in Control Provisions

RCC has entered into employment agreements with Messrs. Ekstrand and Schultz and Ms. Newhall. The employment agreements provide for annual base salaries plus increases as may be determined from time to time. Each agreement prohibits the individual from engaging in any activity competitive with our business or contacting our customers or employees for that purpose for a period equivalent to the number of months for which the individual is receiving severance compensation of any form following termination of employment. The employment agreements, which were entered into in June 2007, provide for an initial term ending December 31, 2010 and, unless RCC or the executive gives notice otherwise, are automatically renewed each year for an additional one-year period, so that the remaining term of employment is never more than 36 months or less than 24 months.

Each agreement may be terminated at any time by either the individual or us. If any of the agreements is terminated at any time by us for other than “just cause” (as defined in the employment agreements), we are obligated to continue payment of salary for the remainder of the term of the agreement, a pro rata payment equal to the executive’s target short-term incentive for the year of termination, and all accrued and vested rights in the Company’s benefit plans, including stock options or other awards. If the individual becomes disabled, he or she is entitled to 100% of compensation and benefits for a period of six months and 65% of compensation and benefits for the remaining term of the agreement, and medical and dental coverage as provided under the terms of such plans or as required by law. Such payments are to be reduced by benefits provided under the terms of any disability insurance provided by the Company. In the event of the employee’s death, the employee’s estate will be entitled to receive compensation due through the end of the calendar month in which death occurs, pro rata payment of bonuses or incentive payments in effect for such calendar year, and all accrued and vested rights in Company benefit plans, including stock options and other awards. Upon death or disability, any restricted stock or performance restricted stock will vest to the extent earned as of the date of death or disability.

In the event any of these individuals is terminated for other than just cause or terminates his or her employment for “good reason” (as defined in the employment agreements) within 24 months following a change in control of RCC or terminates his or her employment for any reason during the 30-day period following the first anniversary of a change in control, he or she will be entitled to receive compensation in an amount equal to 300% of his or her annual base salary on the date of termination (unless the reason for termination is a result of reduction in the individual’s base salary, in which case 300% of the highest base salary paid in the twelve months prior to termination shall be paid) and 300% of the greater of (a) the targeted short-term incentive for the year of termination (unless the reason for termination is a result of a reduction in the individual’s targeted annual short-term incentive, in which case the actual target short-term incentive for the prior year shall be used) or (b) the actual short-term incentive achieved in the year of termination. For purposes of calculating achievement of performance goals for a partial year, the year will be considered to have ended on the last day of the month prior to the date of termination. In addition, the individual would be entitled to continue to participate in our group medical, dental and life insurance plans on the same basis as he or she participated immediately prior to termination for a period of eighteen months following the date of termination. The individual would be responsible for payment of premiums to the same extent as prior to termination. If the individual obtains substantially equivalent coverage or benefits from another source, we have no further obligation for these benefits. The purpose of these agreements is to encourage the individual executives to remain with the Company during any period when the Company may be subject to either a friendly or hostile takeover.

The employment agreements also provide that each executive will receive additional compensation as reimbursement for any excise taxes imposed on any portion of payments received in the event of a change in control. Also, in the event of a change in control, the Company has agreed to pay all remaining premiums on any long-term care insurance policies then provided by the Company for each of the officers and his or her spouse, provided the officer is employed by the Company at the time of the change in control.

We have also entered into a change in control agreement with Mr. Del Zoppo providing that in the event he is terminated for other than “just cause” or terminates his employment for “good reason” (each as defined in the agreement), within 24 months following a change in control of RCC or terminates his employment for any reason during the 30-day period following the first anniversary of a change in control, he will be entitled to receive compensation in an amount equal to 100% of the sum of his annual base salary as in effect on the date of termination (unless the reason for termination is a result of a reduction in his base salary, in which case 100% of the highest base salary paid in the twelve months prior to termination shall be paid) and 100% of the greater of (a) the targeted short-term incentive for the year of termination (unless the reason for termination is a result of a reduction in his targeted annual short-term incentive, in which case the actual target short-term incentive for the prior year shall be used) or (b) the actual short-term incentive achieved in the year of termination. For purposes of calculating achievement of performance goals for a partial year, the year will be considered to have ended on the last day of the month prior to the date of termination. In addition, he will be entitled to continue to participate in our group medical, dental, and life insurance plans on the same basis as he participated immediately prior to termination for a period of six months following the date of termination. He shall be responsible for payment of premiums to the same extent as prior to termination, and we are to reimburse him for any amount by which the premium exceeds the amount for which he was responsible at the time of termination. If he obtains substantially equivalent coverage or benefits from another source, we will have no further obligation for these benefits.

In addition, in the event of a change in control, any award granted under our 1995 Stock Compensation Plan or our 2006 Omnibus Incentive Plan will become fully vested and exercisable. The restricted stock awards granted in 2004 and 2005 immediately vest (on a pro rata basis) as of the date of termination for death, disability, or without cause, and the 2006 and 2007 awards vest immediately in the event of death or disability.

As defined in the agreements, a change in control occurs when

·	the majority of our directors are not persons whose election was solicited by our board or who were appointed by our Board,

·	any person or group of persons acquires 35% or more of our outstanding voting stock,

·	the consummation of certain mergers or consolidations, exchanges of shares, or dispositions of substantially all of our assets, or

·	approval by the shareholders of the liquidation or dissolution of the Company.

The following table describes the potential payments upon termination of employment for each of the Named Executive Officers assuming that the termination occurred effective on December 31, 2007.

	No Change in Control
	For Cause ($)		Death ($)		Disability ($)		Without Cause ($)		Change in Control ($)

Richard P. Ekstrand(1)		-		1,776,025		2,919,897		2,398,397		8,578,347
Wesley E. Schultz(2)		-		1,114,286		2,003,031		1,759,654		5,712,705
Ann K. Newhall(3)		-		1,114,286		2,002,617		1,759,654		5,792,007
David J. Del Zoppo(4)		-		385,788		385,788		88,180		798,227

(1)

For Mr. Ekstrand, Death consists of performance restricted stock units vesting at $1,094,094 and restricted stock vesting at $681,931; Disability consists of salary of $1,139,276, $4,596 for continuation of benefits, performance restricted stock units vesting at $1,094,094, and restricted stock vesting at $681,931; Without Cause consists of severance payment of $1,608,390, $108,076 for continuation of benefits, and restricted stock vesting at $681,931; Change in Control consists of severance payment in the amount of $2,814,684, $76,139 for continuation of benefits, vesting of stock options in the amount of $372,834, performance restricted stock units vesting at $1,094,094, restricted stock vesting in the amount of $1,704,828, and a tax gross-up in the amount of $2,515,768.

(2)

For Mr. Schultz, Death consists of performance restricted stock units vesting at $602,842 and restricted stock vesting at $511,444; Disability consists of salary of $884,149, $4,596 for continuation of benefits, performance restricted stock units vesting at $602,842, and restricted stock vesting at $511,444; Without Cause consists of severance payment of $1,,248,210 and restricted stock vesting at $511,444; Change in Control consists of severance payment in the amount of $1,872,315, $53,403 for continuation of benefits, vesting of stock options in the amount of $214,554, performance restricted stock units vesting at $602,842, restricted stock vesting in the amount of $1,278,610, and a tax gross-up in the amount of $1,690,981.

(3)

For Ms. Newhall, Death consists of performance restricted stock units vesting at $602,842 and restricted stock vesting at $511,444; Disability consists of salary of $884,149, $4,182 for continuation of benefits, performance restricted stock units vesting at $602,842, and restricted stock vesting at $511,444; Without Cause consists of severance payment of $1,248,210 and restricted stock vesting at target at $511,444; Change in Control consists of severance payment in the amount of $1,872,315, $58,121 for continuation of benefits, vesting of stock options in the amount of $214,554, performance restricted stock units vesting at $602,842, restricted stock vesting in the amount of $1,278,610, and a tax gross-up in the amount of $1,765,565.

(4)

For Mr. Del Zoppo, Death and Disability consist of performance restricted stock vesting at $297,608 and restricted stock vesting at $88,180; Without Cause consists of restricted stock vesting in the amount of $88,180; Change in Control consists of severance payment of $275,573, $4,596 for continuation of benefits, performance restricted stock vesting at $297,608, and restricted stock vesting in the amount of $220,450.

Compensation of Directors

In fiscal 2007, each of our nonemployee directors was paid an annual fee of $20,000, $1,000 for each Board meeting attended in person, and $350 for each Board meeting attended via telephone conference and was reimbursed for travel and other expenses incurred in attending meetings and serving as a director. Members of the audit committee each received an annual retainer of $5,000 and members of the compensation committee each received an annual retainer of $3,000. The chair of the audit committee received an annual retainer of $10,000.

In fiscal 2007, each nonemployee director was granted restricted stock units for 1,298 shares. The restricted stock units will vest on the day of the 2008 annual shareholders meeting. The director will not receive the shares until six months after termination of his service on the Board.

In fiscal 2006, each nonemployee director was granted restricted stock units for 2,863 shares. The restricted stock units will vest on the day of the 2007 annual shareholders meeting. The director will not receive the shares until six months after termination of his service on the Board.

The following table summarizes the compensation that our directors earned during 2007 for service as members of our Board.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)(1)(2)		Option Awards ($)(1)(3)		Total ($)
Anthony J. Bolland	$	28,100	$	39,600	$	-	$	67,700
James V. Continenza		27,750		39,600		-		67,350
Paul J. Finnegan		26,800		39,600		-		66,400
Jacques Leduc		34,150		39,600		-		73,750
George M. Revering		30,100		39,600		-		69,700
Don C. Swenson		33,100		39,600		-		72,700
George W. Wikstrom		29,100		39,600		-		68,700
	$	209,100	$	277,200	$	-	$	486,300

(1)

Represents the amount recognized in Rural Cellular Corporation’s financial statements during 2007 for awards of restricted stock and stock options. These amounts were estimated using the valuation model described in Note 3 of Notes to Consolidated Financial Statements included our Annual Report on Form 10-K for the year ended December 31, 2007.

(2)	For each director, the grant date fair value of the restricted stock units granted in 2007 is $39,991.

(3)	As of December 31, 2007, aggregate unexercised options held by each of the nonemployee directors were as follows: Messrs. Continenza and Leduc, 5,250; Mr. Wikstrom, 10,500; and Messrs. Bolland, Finnegan, Revering, and Swenson, 21,000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes share and exercise price information about our equity compensation plans as of December 31, 2007.

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants, and rights		Weighted-average exercise price of outstanding options, warrants, and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders (1)		1,381,746	$	15.16		1,172,747
Equity compensation plans not approved by security holders (2)		-		-		-
TOTAL		1,381,746	$	15.16		1,172,747

(1)	Includes stock subject to outstanding options and stock available for issuance under our 1995 Stock Compensation Plan, Stock Option Plan for Nonemployee Directors, and Employee Stock Purchase Plan.

(2)	We have not adopted any equity compensation plans that have not been approved by our shareholders.

OWNERSHIP OF VOTING SECURITIES

Common Stock. The following table sets forth information provided to us by the holders, or contained in our stock ownership records, regarding beneficial ownership of our common stock as of February 20, 2007 (except as otherwise noted) by:

·	each person known by us to be the beneficial owner of more than 5% of any class of our outstanding common stock;

·	each Named Executive Officer (as defined in the rules of the Securities and Exchange Commission);

·	each director; and

·	all directors and executive officers as a group.

Unless otherwise indicated, each person has sole voting and investment power with respect to the shares listed. A “currently exercisable” option is an option exercisable as of, or becoming exercisable within 60 days following, February 20, 2008.

	Class A					Class B
Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percentage of Class			Amount and Nature of Beneficial Ownership		Percentage of Class			Percentage of Combined Voting Power
GAMCO Investors, Inc. (1) One Corporate Center Rye, New York, NY 10580-1435		1,940,009		12.5	%		—		—			9.6	%
Eric Semler (2) 888 Seventh Avenue, Suite 1504 New York, NY 10019		1,233,908		7.9			—		—			6.1
Madison Dearborn Partners (3) Three First Plaza, Suite 330 Chicago, IL 60602		1,198,576		7.2			—-		—			5.9
Caxton International Limited(4) c/o Prime Management Limited Mechanics Building 12 Church Street Hamilton HM11, Bermuda		953,769		6.1			--		--			4.7
Boston Ventures Management, Inc. (5) 125 High Street, 17th Floor Boston, MA 02110		806,051		5.2			—-		—			4.5
Telephone & Data Systems, Inc. (6) 30 North LaSalle Street Chicago, IL 60602		586,799		3.8			132,597		55.9	%		9.4
Kevin Douglas (7) 1101 Fifth Avenue, Suite 360 San Rafael, CA 94901		576,017		3.7			—		—			2.8
Garden Valley Telephone Co. 201 Ross Avenue Erskine, MN 56535		85,418		*			45,035		19.0			2.6
North Holdings, Inc. P.O. Box 211 Lowry, MN 56349		97,276		*			32,708		13.8			2.1
HTC Services, Inc. 345 2nd Avenue West Halstad, MN 56548		-		-			20,488		8.6			1.0

Richard P. Ekstrand (8)		517,307		3.3			32,708		13.8			4.1
Anthony J. Bolland (5)		806,051		4.9			—		—			4.0
James V. Continenza (9)		5,250		*			—		—			*
Paul J. Finnegan (3)		1,198,576		7.2			—		—			5.9
Jacques Leduc (98)		5,250		*			—		—			-
Ann K. Newhall (10)		316,029		2.0			—		—			1.5
George M. Revering (11)		114,850		*			—		—			*
Wesley E. Schultz (12)		280,942		1.8	%		—		—			*
Don C. Swenson (11)		21,000		*			—		—			*
George W. Wikstrom (13)		43,633		*			—		—			*
David J. Del Zoppo (14)		52,944		*			—		—-			*
All directors and executive officers as a group (11 persons) (15)		3,361,832		18.2			32,708		13.8			17.4

_________________

* Denotes less than 1%

(1)	Based on Schedule 13D/A dated February 26, 2008, filed jointly by GAMCO Asset Management Inc., GAMCO Investors, Inc., Gabelli Funds, LLC, MJG Associates, Inc., Gabelli Securities, Inc., Teton Advisors, Inc, GGCP, Inc., Gabelli & Company, Inc., Gabelli Foundation, Inc., LICT, and Mario J. Gabelli.

(2)	Based on Schedule 13G filed February 14, 2008, filed jointly by Eric Semler, TCS Capital GP, LLC, and TCS Capital Investments, L.P.

(3)

Based on Schedule 13D dated April 13, 2000 (the “April 2000 13D”), filed jointly by Boston Ventures Company V, L.L.C., Boston Ventures Limited Partnership V, Madison Dearborn Capital Partners III, L.P., Madison Dearborn Partners III, L.P., Madison Dearborn Partners, LLC, Madison Dearborn Special Equity III, L.P., Special Advisors Fund I, LLC, The Toronto-Dominion Bank, Toronto Dominion Holdings (U.S.A.), Inc. and Toronto Dominion Investments, Inc. Reflects 1,177,576 shares of Class A common stock into which the 55,000 shares of Class M convertible preferred stock held by certain affiliates of Madison Dearborn Partners, LLC may be converted. The shares of Class M preferred stock may vote on all matters submitted for a vote of the holders of the common stock on an as-converted basis. Also includes 21,000 shares of Class A common stock that may be issued upon exercise of currently exercisable options. Paul J. Finnegan is a Managing Director of Madison Dearborn Partners, Inc., an affiliate of Madison Dearborn Partners, LLC.

(4)	Based on Schedule 13G dated March 3, 2008, filed jointly on behalf of Caxton International Limited, Caxton Associates, L.L.C., and Bruce Kovner.

(5)

Based on the April 2000 13D. Reflects 785,051 shares of Class A common stock into which 36,667 shares of Class M convertible preferred stock owned by Boston Ventures Limited Partnership V may be converted. The shares of Class M preferred stock may vote on all matters submitted for a vote of the holders of the common stock on an as-converted basis. Also includes 21,000 shares of Class A common stock that may be issued upon exercise of currently exercisable options. Anthony J. Bollard is a general partner of Boston Ventures Management, Inc., an affiliate of Boston Ventures Limited Partnership V.

(6)

Based on Schedule 13G/A dated February 14, 2006, filed jointly by Telephone and Data Systems, Inc., Arvig Telephone Company, Mid-State Telephone Company, United States Cellular Corporation, United States Cellular Investment Company, LLC, TDS Telecommunications Corporation, USCCI Corporation, TDSI Telecommunications Corporation, and the Trustees of the TDS Voting Trust.

(7)	Based on Schedule 13G/A dated February 28, 2008, filed jointly on behalf of Kevin Douglas, Michelle Douglas, the Douglas Family Trust, the James Douglas and Jean Douglas Irrevocable Descendants’ Trust, the Estate of Cynthia Douglas, and James E. Douglas III.

(8)

Includes 97,276 shares of Class A common stock and 32,708 shares of Class B common stock owned by North Holdings, Inc., of which Mr. Ekstrand is the sole shareholder and president, and 500 shares of Class A common stock held by or on behalf of one of Mr. Ekstrand’s children. Also includes 335,420 shares of Class A common stock that may be purchased upon exercise of currently exercisable options.

(9)	Includes 5,250 shares of Class A common stock that may be purchased upon exercise of currently exercisable options.

(10)	Includes 273,467 shares of Class A common stock that may be purchased upon exercise of currently exercisable options. Also includes 5,000 shares of Class A common stock held by Ms. Newhall’s spouse and 1,000 shares of Class A common stock held in an IRA account.

(11)	Includes 21,000 shares of Class A common stock that may be purchased upon exercise of currently exercisable options.

(12)	Includes 210,967 shares of Class A common stock that may be purchased upon exercise of currently exercisable options.

(13)	Includes 10,500 shares of Class A common stock that may be purchased upon exercise of currently exercisable options.

(14)	Includes 36,614 shares of Class A common stock that may be purchased upon exercise of currently exercisable options.

(15)	Includes 1,962,627 shares of Class A common stock into which 91,667 shares of Class M convertible preferred stock may be converted and 961,468 shares of Class A common stock that may be purchased upon exercise of currently exercisable options.

Junior Exchangeable Preferred Stock. Because we have failed to pay the dividends on our 12 ¼% junior exchangeable preferred stock for six quarters, the holders of such shares have the right to elect two members of our board of directors. These directors would be in addition to the directors elected by the holders of the Class A and Class B common stock and the Class M preferred stock. Based upon information available to us at the time of the filing of our proxy statement for the 2007 annual meeting of shareholders, we are aware of the following holders (other than custodians) of more than five percent of the shares of 12 1 / 4 % junior exchangeable preferred stock currently outstanding.


Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percent of Class
Fidelity Management and Research Company 82 Devonshire Street Boston, MA 02109		79,646		30.8	%
Citigroup Financial Products, Inc. 390 Greenwich Street New York, NY 10036		46,000		17.8

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Rural Cellular Corporation and its security holders and their respective affiliates engage in a variety of transactions between or among each other in the ordinary course of their respective businesses. In accordance with rules of The Nasdaq Stock Market, such transactions are reviewed and approved by the audit committee.

Transactions with Security Holders

We have entered into various arrangements with our shareholders or their affiliates. Arrangements involving shareholders or their affiliates that beneficially own more than 5% of any class of our stock and in which total payments for all of these arrangements exceeded $120,000 in fiscal 2007 are described below.

Roaming Arrangements. We have roaming agreements with United States Cellular Corporation, a subsidiary of Telephone & Data Systems, Inc., which, together with its affiliates, beneficially owns more than 5% of our Class A and Class B common stock. Under the roaming agreements, we pay for service provided to our customers in areas served by United States Cellular Corporation and receive payment for service provided to customers of United States Cellular Corporation in our cellular service areas. We negotiated the rates of reimbursement with United States Cellular Corporation, and the rates reflect those charged by all carriers. Roaming charges are passed through to the customer. During 2007, charges to our customers for services provided by United States Cellular Corporation totaled $1,561,729, and charges by us to customers of United States Cellular Corporation totaled $1,846,180.

We also have roaming agreements with Alltel Communications, Inc. and its affiliates. During 2006, Alltel Communications was the beneficial owner of more than 5% of our 12 1/4 % Junior Exchangeable Preferred Stock which has the rights to elect two directors to our Board. In January 2007, Alltel sold its ownership of our 12 1/4 % Junior Exchangeable Preferred Stock.

Leases, Interconnection Service, and Agency Agreements. We have arrangements with several of our shareholders for cell site leases, interconnection service agreements, and agent sales agreements. We currently lease office space in Detroit Lakes, Minnesota, from an affiliate of Arvig Enterprises, Inc. In addition, several of our shareholders and their affiliates serve as agents for the sale of our cellular and paging services.

During 2007, we paid $1,416,083 to Arvig Enterprises, Inc. and its affiliates for all services. Arvig Enterprises, Inc. is the beneficial owner of more than 5% of our outstanding Class B Common Stock. Don C. Swenson, one of our directors and a member of our audit committee and our compensation committee, serves as a director of Arvig Enterprises, Inc. and had served as Chief Operating Officer for Arvig Communications, Inc., an affiliate of Arvig Enterprises, Inc., from 1981 until his retirement in 2001.

·	During 2007, we paid $130,080 to Garden Valley Telephone Co. and its affiliates, which beneficially own more than 5% of our outstanding Class B Common Stock, for all services.

·	During 2007, we paid $27,944 to Telephone & Data Systems, Inc. and its affiliates for all services.

Cellular and Paging Service and Equipment. Several of our shareholders are customers for our cellular and paging services and, in connection therewith, also purchase or lease cellular telephones and pagers from us. During 2007, Arvig Enterprises, Inc. and its affiliates were billed $164,112, and Garden Valley Telephone Co. was billed $16,094 for these services and equipment.

Independence of Directors

The Board of Directors has determined that, with the exception of Messrs. Ekstrand and Schultz and Ms. Newhall, all of the directors are independent as defined by the rules of the Nasdaq Stock Market.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Principal Accountant Fees and Services

The following is a summary of the fees billed to RCC by DT for professional services rendered for the fiscal years ended December 31, 2007 and 2006:

Fee Category	Fiscal 2007		Fiscal 2006
Audit fees	$	994,397	$	875,578
Audit-related fees		86,431		26,250
Tax fees		56,116		32,384
All other fees		-		—
Total fees	$	1,136,944	$	934,212

Audit Fees. Consists of fees billed for professional services rendered for the audit of RCC’s annual consolidated financial statements, review of the interim consolidated financial statements included in quarterly reports, services that are normally provided by DT in connection with statutory and regulatory filings or engagements, and services related to the review of and attestation to RCC’s internal control of financial reporting as required under Section 404 of the Sarbanes-Oxley Act. Also included are fees of $75,000 and $169,877 in 2007 and 2006, respectively, for services related to RCC’s offerings of senior subordinated floating rate notes in May 2007 and senior secured notes in May 2006.

Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of RCC’s consolidated financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, accounting consolidations in connection with acquisitions and divestitures, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.

Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance, tax audit defense, and acquisitions and divestitures.

All Other Fees. Consists of fees for products and services other than the services reported above.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	(1)	Financial Statements	Page Number In this Form 10-K

		Rural Cellular Corporation
		REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	89
		Consolidated Balance Sheets as of December 31, 2007 and 2006	91
		Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005	93
		Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2007, 2006, and 2005	94
		Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005	96
		Notes to Consolidated Financial Statements	97
		RCC Minnesota. Inc,
		REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	131
		Balance Sheets as of December 31, 2007 and 2006	132
		Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005	133
		Statements of Shareholder’s Deficit for the Years Ended December 31, 2007, 2006, and 2005	134
		Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005	135
		Notes to Financial Statements	136

	(2)	Financial Statement Schedules

		The following financial statement schedule is filed as part of this Form 10-K:
		Schedule II - Valuation and Qualifying Accounts	129
		All schedules not included are omitted either because they are not applicable or because the information required therein is included in Notes to Consolidated Financial Statements.
	(3)	Exhibits

		See Exhibit Index on page 141.

(b)	Exhibits
	See Exhibit Index.
(c)	Financial Statement Schedules
	See Item 15 (a) (2), above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Rural Cellular Corporation

Dated: March 11, 2008	By: /s/ Richard P. Ekstrand
	Richard P. Ekstrand
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Richard P. Ekstrand	President and	March 11, 2008
Richard P. Ekstrand	Chief Executive Officer (Principal Executive Officer) and Director
/s/ Wesley E. Schultz	Executive Vice President,	March 11, 2008
Wesley E. Schultz	Chief Financial Officer and Director
/s/ David J. Del Zoppo	Senior Vice President, Finance and Accounting	March 11, 2008
David J. Del Zoppo	(Principal Accounting Officer)

/s/ Ann K. Newhall	Executive Vice President,	March 11, 2008
Ann K. Newhall	Chief Operating Officer and Director
/s/ George W. Wikstrom	Director	March 11, 2008
George W. Wikstrom
/s/ Don C. Swenson	Director	March 11, 2008
Don C. Swenson
/s/ George M. Revering	Director	March 11, 2008
George M. Revering
/s/ Anthony J. Bolland	Director	March 11, 2008
Anthony J. Bolland

/s/ Paul J. Finnegan	Director	March 11, 2008
Paul J. Finnegan

/s/ Jacques Leduc	Director	March 11, 2008
Jacques Leduc

/s/ James V. Continenza	Director	March 11, 2008
James V. Continenza

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Rural Cellular Corporation and Subsidiaries

Alexandria, Minnesota

We have audited the accompanying consolidated balance sheets of Rural Cellular Corporation and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ deficit and other comprehensive loss, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. We also have audited the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting 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 and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Note 2 to the consolidated financial statements, on January 1, 2007, the Company adopted Statement of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109. As discussed in Note 3 to the consolidated financial statements, on January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and changed its method of accounting for share-based payments.

/s/ Deloitte & Touche LLP

Minneapolis, MN

March 11, 2008

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS

	December 31,
	2007		2006

CURRENT ASSETS:
Cash and cash equivalents	$	114,366	$	72,495
Short-term investments		-		110,716
Accounts receivable, less allowance for doubtful accounts of $3,230 and $2,676		69,053		62,592
Inventories ,		15,285		11,366
Other current assets		5,365		4,265
Total current assets		204,069		261,434
PROPERTY AND EQUIPMENT, net		219,184		211,978
LICENSES AND OTHER ASSETS:
Licenses, net		536,402		524,713
Goodwill, net		359,808		348,684
Customer lists, net		7,199		10,734
Deferred debt issuance costs, net		18,630		21,910
Other assets, net		4,553		5,195
Total licenses and other assets		926,592		911,236
	$	1,349,845	$	1,384,648

The accompanying notes are an integral part of these consolidated balance sheets.

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

LIABILITIES AND SHAREHOLDERS’ DEFICIT

	December 31,
	2007			2006

CURRENT LIABILITIES:
Accounts payable	$	37,632		$	38,580
Advance billings and customer deposits		13,719			12,031
Accrued interest		32,388			42,784
Other accrued expenses		10,694			7,832
Total current liabilities		94,433			101,227
LONG-TERM LIABILITIES		1,845,102			1,862,919
Total liabilities		1,939,535			1,964,146

REDEEMABLE PREFERRED STOCK		201,519			185,658

SHAREHOLDERS’ DEFICIT:
Class A common stock; $.01 par value; 200,000 shares authorized, 15,470 and 15,048 outstanding		155			151
Class B common stock; $.01 par value; 10,000 shares authorized, 236 and 398 outstanding		2			4
Additional paid-in capital		232,756			228,149
Accumulated deficit		(1,024,122	)		(993,460	)
Total shareholders’ deficit		(791,209	)		(765,156	)
	$	1,349,845		$	1,384,648

The accompanying notes are an integral part of these consolidated financial statements.

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	For the Years Ended December 31,
	2007			2006			2005
REVENUE:
Service	$	425,125		$	385,220		$	387,848
Roaming		182,795			153,867			122,774
Equipment		27,395			25,373			34,313
Total revenue		635,315			564,460			544,935
OPERATING EXPENSES:
Network costs, excluding depreciation		159,857			138,047			120,322
Cost of equipment sales		58,339			56,587			58,266
Selling, general and administrative		160,805			147,271			152,918
Depreciation and amortization		79,448			128,415			100,463
Impairment of assets		-			23,800			7,020
Total operating expenses		458,449			494,120			438,989
OPERATING INCOME		176,866			70,340			105,946
OTHER INCOME (EXPENSE):
Interest expense		(197,510	)		(194,997	)		(171,831	)
Interest and dividend income		6,427			7,866			2,221
Other		(931	)		369			(876	)
Other expense, net		(192,014	)		(186,762	)		(170,486	)
LOSS BEFORE INCOME TAX BENEFIT		(15,148	)		(116,422	)		(64,540	)
INCOME TAX BENEFIT		(347	)		(381	)		(418	)
NET LOSS		(14,801	)		(116,041	)		(64,122	)
PREFERRED STOCK DIVIDEND		(15,861	)		(14,677	)		(7,174	)
LOSS APPLICABLE TO COMMON SHARES	$	(30,662	)	$	(130,718	)	$	(71,296	)
BASIC AND DILUTED WEIGHTED AVERAGE SHARES USED TO COMPUTE LOSS PER SHARE:		15,427			14,125			12,695

NET LOSS PER BASIC AND DILUTED SHARE	$	(1.99	)	$	(9.25	)	$	(5.62	)

The accompanying notes are an integral part of these consolidated financial statements.

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005

(In thousands)

	Class A Common Stock Shares		Class A Common Stock Amount		Class B Common Stock Shares			Class B Common Stock Amount			Additional Paid-In Capital		Accumulated Deficit			Unearned Compensation			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Deficit			Comprehensive Loss
BALANCE, December 31, 2004		11,836	$	118		540		$	5		$	193,347	$	(791,446	)	$	(698	)	$	2,336		$	(596,338	)
Stock issued through employee stock purchase plan		71		1		-			-			378		-			-			-		$	379			-
Stock options exercised		169		2		-			-			1,189		-			-			-			1,191			-
Class A common issued in exchange for senior exchangeable preferred stock		1,153		12		-			-			13,423		-			-			-			13,435			-
Conversion of Class B common stock to Class A common stock		218		2		(218	)		(2	)		-		-			-			-			-			-
Conversion of Class T preferred Stock to Class A and Class B common stock		43		-		105			1			2,476		-			-			-			2,477			-
Issuance of non-vested		40		-		-			-			1,607		-			(1,599	)		-			8			-
Amortization of unearned compensation		-		-		-			-			-		-			498			-			498			-
COMPONENTS OF COMPREHENSIVE LOSS
Net loss applicable to common shares		-		-		-			-			-		(71,296	)		-			-			(71,296	)	$	(71,296	)
Current year effect of derivative financial instruments		-		-		-			-			-		-			-			(2,336	)		(2,336	)		(2,336	)
Total comprehensive loss																									$	(73,632	)
BALANCE, December 31, 2005		13,530	$	135		427		$	4		$	212,420	$	(862,742	)	$	(1,799	)	$	-		$	(651,982	)

	Class A Common Stock Shares			Class A Common Stock Amount		Class B Common Stock Shares			Class B Common Stock Amount			Additional Paid-In Capital			Accumulated Deficit			Unearned Compensation			Total Shareholders’ Deficit			Comprehensive Loss
BALANCE, December 31, 2005		13,530		$	135		427		$	4		$	212,420		$	(862,742	)	$	(1,799	)	$	(651,982	)
Stock issued through employee stock purchase plan		88			1		-			-			468			-			-			469			-
Stock options exercised		215			3		-			-			1,614			-			-			1,617			-
Class A common issued in exchange for senior exchangeable preferred stock		1,167			12		-			-			14,077			-			-			14,089			-
Conversion of Class B common stock to Class A common stock		29			-		(29	)		-			-			-			-			-			-
Share based compensation		-			-		-			-			908			-			-			908
Issuance of non-vested shares		19			-		-			-			461			-			-			461			-
Effect of accounting change (SFAS 123R)		-			-		-			-			(1,799	)		-			1,799			-			-
COMPONENTS OF COMPREHENSIVE LOSS
Net loss applicable to common shares		-			-		-			-			-			(130,718	)		-			(130,718	)		(130,718	)
Total comprehensive loss																								$	(130,718	)
BALANCE, December 31, 2006		15,048		$	151		398		$	4		$	228,149		$	(993,460	)	$	-		$	(765,156	)
Stock issued through employee stock purchase plan		36			-		-			-			400			-			-			400
Stock options exercised		233			2		-			-			2,424			-			-			2,426
Conversion of Class B common stock to Class A common stock		162			2		(162	)		(2	)		-			-			-			-
Share based compensation		(9	)		-		-			-			1,783			-			-			1,783
COMPONENTS OF COMPREHENSIVE LOSS
Net loss applicable to common shares		-			-		-			-			-			(30,662	)		-			(30,662	)		(30,662	)
Total comprehensive loss																								$	(30,662	)
BALANCE, December 31, 2007		15,470		$	155		236		$	2		$	232,756		$	(1,024,122	)	$	-		$	(791,209	)

The accompanying notes are an integral part of these consolidated financial statements.

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years ended December 31,
	2007			2006			2005
Net loss	$	(14,801	)	$	(116,041	)	$	(64,122	)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and customer list amortization		79,448			128,415			100,463
Loss on write-off of debt and preferred stock issuance costs		3,256			3,022			1,533
Mark-to-market adjustments – financial instruments		255			(197	)		339
Net gain on repurchase and exchange of senior exchangeable preferred stock		-			(413	)		(5,722	)
Non--cash junior exchangeable preferred stock dividends		-			-			3,797
Impairment of assets		-			23,800			7,020
Stock based compensation		2,923			1,490			680
Deferred income taxes		(347	)		(381	)		(418	)
Amortization of debt issuance costs		5,040			5,351			5,460
Amortization of discount on investments		(1,260	)		(2,878	)		-
Other		(700	)		(361	)		1,365
Change in other operating elements:
Accounts receivable		(10,428	)		6,494			(14,262	)
Inventories		(3,285	)		1,483			(5,191	)
Other current assets		(1,061	)		15			(105	)
Accounts payable		8,537			(6,886	)		6,757
Advance billings and customer deposits		1,544			146			809
Accrued senior and junior exchangeable preferred stock dividends		(28,857	)		47,520			33,211
Accrued interest		(10,396	)		3,448			2,021
Other accrued expenses		2,613			(1,160	)		(698	)
Net cash provided by operating activities		32,481			92,867			72,937
INVESTING ACTIVITIES:
Purchases of property and equipment		(61,497	)		(47,458	)		(94,951	)
Purchases of short-term investments		(20,497	)		(188,166	)		(66,778	)
Maturities of short-term investments		132,473			148,100			-
Purchases of wireless properties		(49,070	)		-			-
Proceeds from sale of property and equipment		57			2,723			247
Other		603			(97	)		(103	)
Net cash provided by (cash used in) investing activities		2,069			(84,898	)		(161,585	)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock related to employee stock purchase plan and stock options		2,826			2,086			1,570
Proceeds from issuance of long-term debt under the credit facility, net		58,000			-			58,000
Repayments of long-term debt under the credit facility		(58,000	)		-			-
Proceeds from issuance of senior subordinated floating rate notes		425,000			-			172,816
Proceeds from issuance of 8 1/4% senior secured notes		-			166,600			-
Redemption of senior subordinated notes		(300,000	)		-			-
Redemption of senior subordinated debentures		(115,488	)		-			-
Redemption of senior secured floating rate notes		-			(160,000	)		-
Redemption of 9 5/8% senior subordinated notes		-			-			(125,000	)
Repurchases of senior exchangeable preferred stock		-			(27,721	)		(13,355	)
Payments of debt issuance costs		(5,017	)		(3,261	)		(3,798	)
Other		-			-			(102	)
Net cash (used in) provided by financing activities		7,321			(22,296	)		90,131
NET (DECREASE) INCREASE IN CASH		41,871			(14,327	)		1,483
CASH AND CASH EQUIVALENTS, at beginning of year		72,495			86,822			85,339
CASH AND CASH EQUIVALENTS, at end of year	$	114,366		$	72,495		$	86,822

The accompanying notes are an integral part of these consolidated financial statements.

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007, 2006, and 2005

1. Organization and Nature of Business:

Rural Cellular Corporation (“RCC” or the “Company”) is a wireless communications service provider focusing primarily on rural markets in the United States. The Company’s principal operating objective is to increase revenue and achieve profitability through increased penetration in existing wireless markets.

On July 29, 2007, the Company entered into a merger agreement with Cellco Partnership, a general partnership doing business as Verizon Wireless, AirTouch Cellular, an indirect wholly-owned subsidiary of Verizon Wireless, and Rhino Merger Sub, a wholly-owned subsidiary of AirTouch Cellular referred to as Rhino Merger Sub, pursuant to which Rhino Merger Sub will merge with and into RCC with RCC continuing as the surviving corporation and becoming a subsidiary of Verizon Wireless. The merger was approved by the Company’s shareholders on October 4, 2007, and the consummation of the merger remains subject to receipt of certain regulatory approvals.

RCC’s operating territories include portions of five states in the Northeast, three states in the Northwest, four states in the Midwest, two states in the South, and the western half of Kansas (Central territory). Within each of its five territories, RCC has deployed a strong local sales and customer service presence in the communities it serves. RCC’s marketed networks covered a total population of approximately 7.2 million POPs and served 790,705 voice customers as of December 31, 2007.

The Company has preferred roaming relationships with AT&T Wireless, T-Mobile, and Verizon Wireless in its various territories.

Reflecting RCC’s 2.5G network overlay and expansion, which began in late 2003, RCC’s network has grown from approximately 800 cell sites in early 2004 to 1,322 at December 31, 2007 and its 2.5G networks are operational in all five territories.

2.	Summary of Significant Accounting Policies:

Principles of Consolidation

The consolidated financial statements include the accounts of RCC and its wholly-owned subsidiaries and its majority-owned joint venture, Wireless Alliance, LLC (“Wireless Alliance”). All significant intercompany balances and transactions have been eliminated.

Revenue Recognition – Service

The Company recognizes service revenue based upon contracted service fees and minutes of use processed. As a result of its billing cycle cut-off times, the Company is required to make estimates for service revenue earned, but not yet billed, at the end of each month. These estimates are based primarily upon historical minutes of use processed. The Company follows this method since reasonable, dependable estimates of the revenue can be made. Actual billing cycle results and related revenue may vary from the results estimated at the end of each quarter, depending on customer usage and rate plan mix. For customers who prepay their monthly access fees, the Company matches the recognition of service revenue to their corresponding usage. Revenues are net of credits and adjustments for service.

The Company receives Universal Service Fund (“USF”) revenue reflecting its eligible telecommunications carrier (“ETC”) status in certain states. The Company recognizes support revenue depending on the level of its collection experience in each ETC qualified state. Where the Company does not have adequate experience to determine the time required for reimbursement, it recognizes revenue upon cash receipt. Where the Company does have adequate experience as to the amount and timing of the receipt of these funds, it recognizes revenue as earned.

The Company includes the pass-through fees it collects from customers as service revenue with a corresponding charge to selling, general and administrative expense. These pass-through fees, which the Company has the option of passing to customers, include state and federal USF fees, together with city utility and state gross receipt taxes.

Revenue Recognition - Roaming Revenue and Incollect Cost

Roaming revenue and incollect cost information is provided to the Company primarily through a third party centralized clearinghouse. From the clearinghouse the Company receives monthly settlement data. The Company bases its accrual of roaming revenue and incollect expense on these clearinghouse reports. The Company follows this method since reasonably dependable estimates of roaming revenue and incollect cost can be made based on these reports.

Revenue Recognition – Equipment

Equipment revenue includes sales of wireless and paging equipment and accessories to customers, network equipment reselling, and customer activation fees, which are recognized at the time of sale to the customer.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses that will result from failure of its customers to pay amounts owed. The Company bases its estimates on the aging of accounts receivable balances and its historical write-off experience, net of recoveries. If the financial condition of the Company’s customers were to deteriorate, the Company may be required to maintain higher allowances.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Short-term Investments

The Company considers all debt securities with maturities of more than three months but less than one year as short-term investments and classifies these investments as held to maturity. Short-term Investments primarily consist of direct obligations of the U.S. Treasury, including bills, notes and bonds or obligations issued or guaranteed by agencies of the U.S. government and are recorded at cost. The Company intends to hold these investments through maturity. At December 31, 2007, the Company did not have any short-term investments. At December 31, 2006, the carrying value of our short-term investments was approximately $110.7 million and was approximately the same as their fair market value.

Inventories

Inventories consist of cellular telephone equipment, pagers, and accessories and are stated at the lower of cost, determined using the average cost method, or market. Market value is determined using replacement cost.

Property and Equipment

Property and equipment are recorded at cost. Additions, improvements, or major renewals are capitalized, while expenditures that do not enhance or extend the asset’s useful life are charged to operating expense as incurred.

The components of property and equipment and the useful lives of the Company’s assets are as follows as of December 31 (in thousands):

	2007			2006			Useful Lives
Land	$	13,534		$	11,461			N/A
Building and towers		102,333			94,161		15-39 Years
Equipment (1)		414,894			365,436		2-7 Years
Phone service equipment		211			711		19 Months
Furniture and fixtures (2)		29,896			27,410		3-7 Years
Assets under construction		857			4,433			N/A
		561,725			503,612

Less—accumulated depreciation		(342,541	)		(291,634	)
Property and equipment – net	$	219,184		$	211,978

(1)	Includes the cost of cell site radio equipment, switch equipment, billing hardware and related software.

(2)	Includes the cost of furniture, in-house computer hardware/software, and phone system equipment.

The Company’s network construction expenditures are recorded as assets under construction until the system or assets are placed in service and ready for their intended use, at which time the assets are transferred to the appropriate property and equipment category. During the years ended December 31, 2007, 2006, and 2005, the Company capitalized $2.7 million, $2.0 million, and $3.7 million, respectively, in salaries of the Company’s employees. The Company did not capitalize interest cost in 2007. In 2006 and 2005 the Company capitalized interest cost of $298,000 and $1.8 million, respectively.

The Company depreciates its wireless communications equipment using the straight-line method over estimated useful lives. RCC periodically reviews changes in its technology and industry conditions, asset retirement activity, and salvage to determine adjustments to estimated remaining useful lives and depreciation rates. Total depreciation expense for the years ended December 31, 2007, 2006, and 2005 was $69.6 million, $109.5 million, and $81.5 million, respectively.

During the fourth quarter of 2006, the Company reviewed the lives of certain CDMA assets and reduced the remaining useful life of this equipment from approximately 40 months to 9 months. As a result, these CDMA assets were fully depreciated at June 30, 2007. Reflecting the shortened useful lives of this CDMA equipment, the Company recorded additional depreciation expense of $4.0 million in 2007 and $2.0 million in the fourth quarter of 2006.

During the fourth quarter of 2005, the Company reviewed the lives of its TDMA cell site assets and reduced the remaining useful life of this equipment from 21 months to 15 months. As a result, all TDMA equipment was fully depreciated by December 31, 2006. Reflecting the shortened useful lives of the TDMA equipment, the Company recorded $47.8 million of TDMA depreciation expense in 2006 compared to $39.9 million in 2005. During the year ended December 31, 2006, the Company retired and disposed of $133.5 million in fully depreciated TDMA network assets.

Licenses and Other Intangible Assets

Licenses consist of the value assigned to the Company’s personal communications services (“PCS”) licenses and cellular licenses. Other intangibles, resulting primarily from acquisitions, include the value assigned to customer lists and goodwill. Amortization is computed using the straight-line method based on the estimated useful life of the asset. Customer lists are the only intangible asset with a finite useful life; all others are considered to have indefinite useful lives.

The components of licenses and other intangible assets are as follows:

				Year Ended December 31, 2007
(in thousands)	As of December 31, 2006			Net Acquisition / (Disposition)		Impairment of Assets		Amortization Expense			As of December 31, 2007
Licenses, net	$	524,713		$	11,689	$	-	$	-		$	536,402
Goodwill, net		348,684			11,124		-		-			359,808
Customer lists
Gross Valuation		144,415			6,000		-		-			150,415
Accumulated amortization		(133,681	)		-		-		(9,535	)		(143,216	)
		10,734			6,000		-		(9,535	)		7,199

Total	$	884,131		$	28,813	$	-	$	(9,535	)	$	903,409

				Year Ended December 31, 2006
(in thousands)	As of December 31, 2005			Net Acquisition / (Disposition)		Impairment of Assets			Amortization Expense			As of December 31, 2006
Licenses, net	$	548,513		$	-	$	(23,800	)	$	-		$	524,713
Goodwill, net		348,684			-		-			-			348,684
Customer lists
Gross Valuation		144,415			-		-			-			144,415
Accumulated amortization		(115,114	)		-		-			(18,567	)		(133,681	)
		29,301			-		-			(18,567	)		10,734

Total	$	926,498		$	-	$	(23,800	)	$	(18,567	)	$	884,131

Customer list amortization expense for the years ended December 31, 2007, 2006, and 2005 was approximately $9.5 million, $18.6 million, and $18.6 million, respectively. Customer list amortization expense is estimated to be approximately $3.3 million in 2008, $1.2 million in 2009, $1.2 million in 2010, $1.2 million in 2011 and $300,000 in 2012.

The Company reviews goodwill and other indefinite-lived intangible assets for impairment based on the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). In accordance with this statement, goodwill is tested for impairment at the reporting unit level on an annual basis as of October 1st or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. In analyzing goodwill for potential impairment, the Company uses projections of future cash flows from the reporting units. These projections are based on its view of growth rates, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values. The Company believes that its estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If changes in growth rates, future economic conditions, discount rates, or estimates of residual values were to occur, goodwill may become impaired.

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Additionally, impairment tests for indefinite-lived intangible assets, including FCC licenses, are required to be performed on an annual basis or on an interim basis if an event occurs or circumstances change that would indicate the asset might be impaired. In accordance with EITF No. 02-7 (“EITF 02-7”), Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets, impairment tests for FCC licenses are performed on an aggregate basis for each unit of accounting. The Company utilizes a fair value approach, incorporating discounted cash flows, to complete the test. This approach determines the fair value of the FCC licenses, using start-up model assumptions and, accordingly, incorporates cash flow assumptions regarding the investment in a network, the development of distribution channels, and other inputs for making the business operational. These inputs are included in determining free cash flows of the unit of accounting, using assumptions of weighted average costs of capital and the long-term rate of growth for each unit of reporting. The Company believes that its estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If any of the assumptions were to change, the Company’s FCC licenses may become impaired.

Under SFAS No. 142, we performed annual impairment tests in 2007, 2006, and 2005 for our indefinite lived assets. Based on these tests, we recorded a non-cash impairment charge included in operating expenses of $23.8 million in the fourth quarter of 2006. The impairment charge in 2006 primarily resulted from a decline in license valuation in our South territory. There was no impairment charge in 2007 and 2005 related to our annual assessment under SFAS No. 142.

Deferred Debt Issuance Costs

Deferred debt issuance costs relate to the credit facility, senior secured notes, senior notes, senior subordinated notes and certain preferred stock issuances. These costs are being amortized over the respective instruments’ terms. If the related debt issuance is extinguished prior to maturity, the debt issuance costs are immediately expensed.

The Company has recorded within interest expense $3.3 million, $3.0 million, and $1.5 million of deferred debt issuance costs related to debt extinguishments in 2007, 2006, and 2005, respectively.

The gross valuation and accumulated amortization of deferred debt issuance costs are as follows:

	As of December 31,
(in thousands)	2007			2006
Gross valuation	$	32,997		$	37,410
Accumulated amortization		(14,367	)		(15,500	)
	$	18,630		$	21,910

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Other Assets

Other assets primarily consist of costs related to deferred compensation, spectrum relocation, and restricted investments. Restricted investments represent the Company’s investments in the stock of CoBank and are stated at cost, which approximates fair value.

The gross valuation and accumulated amortization of other assets are as follows:

	As of December 31,
(in thousands)	2007			2006
Gross valuation	$	7,544		$	7,862
Accumulated Amortization		(2,991	)		(2,667	)
	$	4,553		$	5,195

Income Taxes

The income and expenses of all consolidated subsidiaries are included in the consolidated federal income tax return of Rural Cellular Corporation and Subsidiaries. For financial reporting purposes, any tax benefit or provision generated by a consolidated subsidiary is accounted for in its separate taxes payable and deferred income tax accounts, computed as if it had filed separate federal and state income tax returns.

RCC uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change.

Net Loss Per Common Share

Basic net loss per share (“EPS”) is computed by dividing net loss by the weighted average number of shares outstanding during the year. Potential common shares of 1,381,746, 1,653,004, and 1,863,029 related to the Company’s outstanding stock options, were excluded from the computation of the diluted EPS for the years ended December 31, 2007, 2006, and 2005, respectively. Also excluded from the computation of the diluted EPS for the years ended December 31, 2007, 2006, and 2005 were 168,167, 177,667 shares, and 160,167 shares of non-vested shares granted in 2007, 2006, and 2005, respectively, in addition to 131,290 of non-vested units for the year end December 31, 2007 and 70,679 of non-vested units for the year end December 31, 2006. The Company’s outstanding stock options, non-vested shares, and non-vested units were excluded from the computation of the diluted EPS because they had an antidilutive effect on earnings per share.

Comprehensive Loss

The Company follows the provisions of SFAS No. 130, “Reporting Comprehensive Income” (“SFAS No. 130”), which established standards for reporting and display of comprehensive income and its components. Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. For the Company, comprehensive loss represents net losses and the deferred gains on derivative instruments. In accordance with SFAS No. 130, the Company has chosen to disclose comprehensive loss in the accompanying consolidated statement of shareholders’ deficit and comprehensive income (loss).

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Business and Credit Concentrations

RCC operates in one business segment, the operation of wireless communication systems in the United States.

For the years ended December 31, 2007, 2006, and 2005, AT&T (on a pro forma basis giving effect to AT&T’s November 2007 purchase of Dobson Cellular), Verizon Wireless, and T−Mobile together accounted for approximately 95%, 93%, and 92%, respectively, of our total outcollect roaming minutes. For the years ended December 31, 2007, 2006, and 2005, AT&T(on a pro forma basis giving effect to AT&T’s November 2007 purchase of Dobson Cellular) accounted for approximately 14.8%, 14.5%, and 12.2%, of our total revenue.

Impairment of Long-lived Assets

The Company reviews long-lived assets, consisting primarily of property, plant and equipment and intangible assets with finite lives, for recoverability in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” In analyzing potential impairment, the Company uses projections of future undiscounted cash flows from the assets. These projections are based on its view of growth rates for the related business, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values. The Company believes that its estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If changes in growth rates, future economic conditions, discount rates, or estimates of residual values were to occur, long-lived assets may become impaired.

In June 2005, the Company’s customer relationship management and billing managed services agreement with Amdocs was mutually terminated. As a result of the termination of the agreement, RCC recorded a charge to operations in 2005 of $7.0 million, reflecting the write-down of certain development costs previously capitalized. There was no impairment charge in 2007 and 2006 related to our assessment under SFAS No. 144.

Derivative Financial Instruments

The Company recognizes all derivatives as either assets or liabilities in its consolidated balance sheets and measures those instruments at fair value. The Company uses derivative instruments to manage interest rate risk. Changes in the fair values of those derivative instruments are recorded as “Other Comprehensive Income” when they qualify for hedge accounting and “Interest Expense” when they do not qualify for hedge accounting.

The Company formally documents all relationships between hedging instruments and hedged items as well as the risk management objectives and strategies for undertaking various hedge transactions. The Company also assesses, both at inception and on an on-going basis, whether the derivatives that are used in hedging transactions are effective. Should it be determined that a derivative is not effective as a hedge, the Company would discontinue the hedge accounting prospectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management 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 revenue and expenses during the reported periods. Ultimate results could differ from those estimates.

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Recently Issued Accounting Pronouncements

Uncertainty in Income Taxes. On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

The Company files U.S. federal and state income tax returns. Because of our net operating loss (NOL) carryforwards, it is subject to U.S. federal, state and local income tax examinations by tax authorities for years beginning 1993 and forward. There was no cumulative effect related to adopting FIN 48. However, certain amounts have been reclassified in the statement of financial position in order to comply with the requirements of the statement.

As of January 1, 2007, RCC reduced its deferred tax assets and corresponding valuation allowance for $5.4 million of unrecognized tax benefits related to various state income tax matters. None of this amount, if recognized, would impact its effective tax rate. For the year ended December 31, 2007, its total deferred tax asset and valuation allowance adjustment for unrecognized tax benefits is $5.8 million, an increase of $417,000.

The following table summarizes the activity related to our unrecognized tax benefits:

	Total (in thousands)
Balance at January 1, 2007	$	5,425
Increase related to current year tax positions		417
Balance at December 31, 2007	$	5,842

RCC’s policy is to record penalties and interest related to unrecognized tax benefits in income tax expense. As of January 1, 2007 and December 31, 2007, it has not recorded penalties or interest on either the balance sheet or in the income statement.

The Company does not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months.

Sales Taxes Collected From Customers and Remitted to Governmental Authorities. In March 2006, the FASB Emerging Issues Task Force issued Issue 06-03 (“EITF 06-03”), How Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement. A consensus was reached that entities may adopt a policy of presenting sales taxes in the income statement on either a gross or net basis. If taxes are significant, an entity should disclose its policy of presenting taxes. The guidance is effective for periods beginning after December 15, 2006. It presents sales net of sales taxes. The Company’s adoption of EITF 06-03 on January 1, 2007 did not have an effect on its policy related to sales taxes and, therefore, did not have an effect on its consolidated financial statements.

Measuring Fair Value. In September 2006, the FASB issued SFAS No. 157 (“SFAS No. 157”), Fair Value Measurements. This statement establishes a consistent framework for measuring fair value and expands disclosures on fair value measurements. SFAS No. 157 is effective for RCC starting in fiscal 2008. RCC has not determined the impact, if any, the adoption of this statement will have on its consolidated financial statements. In February 2008, the FASB issued FASB Statement of Position, or FSP, No. 157-2 (“FSP 157-2”), Partial Deferral of the Effective Date of Statements 157, which delays the effective date of SFAS No. 157, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financials statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. Although the Company will continue to evaluate the application of SFAS No. 157, it does not believe adoption will have a material impact on its results of operations or financial position.

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The Fair Value Option for Financial Assets and Financial Liabilities. In February 2007, the FASB issued SFAS Statement No. 159 (“SFAS No. 159”), The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS Statement 115, permitting entities to choose to measure many financial instruments and certain warranty and insurance contracts at fair value on a contract-by-contract basis. SFAS Statement 159 will be adopted January 1, 2008, as required by the statement. The Company has not determined the impact, if any, the adoption of this statement will have on its consolidated financial statements.

3.	Accounting for Share Based Payments:

Effective January 1, 2006, RCC adopted SFAS No. 123(R), Share−Based Payment (Revised 2004), which requires the measurement and recognition of compensation for all stock−based awards made to employees and directors, including stock options and employee stock purchases under a stock purchase plan, based on estimated fair values, using the modified prospective transition method. SFAS No. 123(R) supersedes previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) for periods beginning in fiscal year 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to application of SFAS No. 123(R). RCC has applied the provisions of SAB 107 in its adoption of SFAS No. 123(R).

Upon adoption of SFAS No. 123(R), the Company continued to use the Black−Scholes option pricing model as its method of valuation for stock−based awards. RCC’s determination of the fair value of stock−based awards on the date of grant is affected by its stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, its expected stock price volatility over the term of the award and actual and projected exercise behaviors. Although the fair value of stock−based awards is determined in accordance with SFAS No. 123(R) and SAB 107, the Black−Scholes option pricing model requires the input of highly subjective assumptions, and other reasonable assumptions could provide differing results.

The Company accounted for stock options granted prior to December 31, 2005 in accordance with APB 25, under which no compensation expense was recognized as the grant date fair value was equal to the exercise price. In accordance with the modified prospective transition method pursuant to SFAS No. 123(R), RCC’s condensed consolidated financial statements for periods prior to the first quarter of fiscal 2006 have not been restated to reflect this change. Stock−based compensation recognized during each period is based on the value of the portion of the stock−based awards that will vest during that period, adjusted for expected forfeitures. Stock−based compensation recognized in the Company’s condensed consolidated financial statements for the year ended December 31, 2006 included compensation costs for stock−based awards granted prior to, but not fully vested as of, December 31, 2005 and stock−based awards granted subsequent to December 31, 2005. The Company additionally reclassified unearned compensation on non-vested stock awards of $1.8 million to additional paid−in capital. The cumulative effect adjustment for forfeitures related to stock−based awards was immaterial.

The fair value of each option award is estimated on the date of grant using the Black−Scholes option valuation model. The expected term (estimated period of time outstanding) of options granted prior to January 1, 2006 is estimated using the historical exercise behavior of employees. The expected volatility is based on historical volatility for a period equal to the stock option's expected life. The risk−free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

Because RCC considers its options to be “plain vanilla,” it estimated the expected term using a modified version of the simplified method, as prescribed by SAB No. 107 and SAB No. 110, for options granted in 2007 and 2006. Options are considered to be “plain vanilla” if they have the following basic characteristics: granted “at−the−money”; exercisability is conditioned upon service through the vesting date; termination of service prior to vesting results in forfeiture; limited exercise period following termination of service; and options are non−hedgeable. The Company used the following assumptions to estimate the fair value of share−based payment awards:

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	2006 Omnibus Incentive Plan Options and Prior Plans Year ended December 31,
	2007			2006
Average expected term (years)	6.5 yrs			6.5 yrs
Expected volatility		80.00	%		82.00	%
Risk-free interest rate		4.88	%		5.17	%
Expected dividend yield		-			-

The following table summarizes the share-based compensation expense included in operating expense that we recorded within the accompanying condensed statements of operations and comprehensive loss. Prior to the adoption of SFAS No. 123(R) on January 1, 2006, we expensed non-vested shares pursuant to APB 25. Upon adoption of SFAS No. 123(R) on January 1, 2006, we began expensing stock options, shares issued pursuant to the employee stock purchase program, and non-vested shares pursuant to SFAS No. 123(R).

(in thousands)	Year ended December 31,
	2007		2006
Total stock-based compensation included in SG&A	$	2,923	$	1,490

Approval of 2006 Omnibus Incentive Plan − Shares Available Under the Plan. On May 25, 2006, RCC's shareholders approved the Rural Cellular Corporation 2006 Omnibus Incentive Plan (the “New Plan”). The New Plan affords the Board, acting through its Compensation Committee, the ability to design compensatory awards that are responsive to RCC's needs and includes authorization for a variety of awards designed to advance RCC's interests and long−term success by encouraging stock ownership among officers, directors, and employees. RCC has historically granted stock options and non-vested stock under various incentive compensation plans, including our 1995 Stock Compensation Plan and the Stock Option Plan for Nonemployee Directors (the “Prior Plans”). No further awards may be made under these Prior Plans after May 25, 2006. The New Plan replaced Prior Plans. Unissued shares totaling 255,697 from Prior Plans were transferred to the New Plan. RCC's Employee Stock Purchase Plan will continue in effect.

The number of shares of RCC's Class A common stock that may be issued or transferred under the New Plan is 1,000,000 shares plus any shares not issued or subject to outstanding awards under the Prior Plans as of the effective date of the New Plan or any such shares that cease for any reason to be subject to the Prior Plans after the effective date of the New Plan.

The following table summarizes plan activity under our various stock compensation plans from December 31, 2006 through December 31, 2007:

	2006 Omnibus Incentive and Prior Plans			Employee Stock Purchase Plan (1)
Available for issuance at December 31, 2006		1,111,909			138,374
Options granted		(19,634	)		(63,283	)
Non-vested shares awarded		(75,802	)		-
Options forfeited		57,490			-
Non-vested shares forfeited		23,693			-
Available for issuance at December 31, 2007		1,097,656			75,091

(1) Employee Stock Purchase Plan options granted of 63,283 shares reflect contributions made in 2007 with corresponding shares being awarded in January 2008.

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Non-Vested Shares

Under the 1995 Stock Compensation Plan and the 2006 Omnibus Incentive Plan, RCC has entered into non-vested stock agreements with certain key employees, covering the issuance of Class A common stock. These awards are considered to be non-vested shares under SFAS No. 123(R), as defined. If the performance provisions are achieved for employees, the vesting of the awards is subject only to the remaining term of employment. Non-vested shares awarded to non−employee directors include service conditions. Management has accrued compensation cost based on expectations of whether the conditions as described will be met and reviews these expectations quarterly.

The non-vested shares were granted to the recipients at no cost. As of December 31, 2007, there was a total of $2.6 million of total unrecognized compensation cost related to non-vested shares. This compensation cost will be expensed over a remaining average life of 1.5 years. The total fair value of non-vested shares that vested during the year ended December 31, 2007, 2006, and 2005 was $9,491, $15,720 and $6,429, respectively.

For the year ended December 31, 2007, 2006, and 2005 transactions in non-vested shares were as follows:

	Non-vested shares & units			Weighted Average Fair Value ($)
Non-vested shares outstanding, December 31, 2004		118,667		$	9.50
Granted		47,500			9.06
Vested		(676	)		9.51
Forfeited		(5,324	)		9.51
Non-vested shares outstanding, December 31, 2005		160,167			9.37
Granted		95,679			13.85
Vested		(1,653	)		9.51
Forfeited		(5,847	)		9.51
Non-vested shares outstanding December 31, 2006		248,346			11.09
Granted		75,802			19.86
Vested		(998	)		9.51
Forfeited		(23,693	)		13.63
Non-vested shares outstanding December 31, 2007		299,457		$	13.12

Employee Stock Purchase Plan

Under the employee stock purchase plan, employees who satisfy certain length of service and other criteria are permitted to purchase shares of Class A common stock at 85% of the fair market value of the Class A common stock on the first business day of January or the last business day of December of each year, whichever is lower. The number of shares authorized to be issued under the employee stock purchase plan is 750,000. Each year, employees participate in this plan by making contributions through payroll deduction. The number of purchased shares is determined and issued in January of the following year. Accordingly, we issued 63,283, 35,822, and 88,116, shares, at an exercise price of $10.93, $11.17, and $5.32, respectively, during the three months ended March 31, 2008, 2007, and 2006. The shares under the Employee Stock Purchase Plan are expensed during the year the employee made the contribution.

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Stock Options

Stock options outstanding under our 2006 Omnibus Incentive Plan and Prior Plans as of December 31, 2007 have exercise prices ranging between $0.76 and $79.25. Stock options granted to employees typically vest ratably over five years and have a maximum term of ten years. Stock options granted to directors typically vest in full after one year and have a maximum term of six years. The expense related to these options is recorded on a straight line basis over the vesting period.

During 2007, we issued options totaling 19,634 shares at an exercise price of $30.81 under our 2006 Omnibus Incentive Plan.

During 2006, we issued options totaling 75,960 shares at an exercise price of $13.56 under our 2006 Omnibus Incentive Plan.

During the year ended December 31, 2005, we issued options totaling 20,000 shares at an exercise price of $8.88 under our Stock Compensation Plan. Also during the year ended December 31, 2005, we issued options totaling 36,750 shares at an exercise price of $4.89 under our Nonemployee Director Plan.

The fair value of options that vested during the year ended December 31, 2007, 2006, and 2005 was $634,000, $1.2 million, and $2.9 million, respectively.

As of December 31, 2007, there was a total of $3.3 million of total unrecognized compensation cost related to stock awards (including non-vested shares), which will be expensed a weighted average period of 1.7 years.

For the year ended December 31, 2007, 2006 and 2005, we received approximately $2.1 million, $1.6 million, and $1.2 million, respectively in cash from option exercises. We have not realized any tax benefit on option exercises given our operating loss carryforward position and uncertainties regarding our ability to realize our deferred tax assets.

Information related to stock options issued under the 2006 Omnibus Incentive Plan and Prior Plans is as follows:

	2007					2006					2005
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of period		1,653,004		$	14.77		1,863,029		$	15.09		2,044,037		$	14.61
Granted		19,634		$	30.81		75,960		$	13.56		56,750		$	6.30
Exercised		(233,402	)	$	10.38		(213,693	)	$	7.53		(169,517	)	$	7.02
Cancelled		(57,490	)	$	29.85		(72,292	)	$	42.61		(68,241	)	$	13.30
Outstanding, end of period		1,381,746		$	15.16		1,653,004		$	14.77		1,863,029		$	15.09
Exercisable, end of period		1,231,244		$	15.71		1,370,944		$	16.64		1,409,119		$	17.91
Weighted average fair value of options granted				$	22.77				$	10.08				$	5.18

The following table summarizes the weighted contractual life of currently outstanding and exercisable options:

Weighted Average Contractual Option Life
Year End	Outstanding (years)		Exercisable (years)
2005		5		3
2006		4		4
2007		4		3

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he following table summarizes certain information concerning currently outstanding and exercisable options as of December 31, 2007:

Exercise Price Range		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price ($)		Number Exercisable		Weighted Average Exercise Price ($)
	$00.00 – $9.99		628,000		4		2.87		557,900		2.91
	$10.00 – $19.99		318,535		2		13.36		257,767		13.31
	$20.00 – $29.99		253,700		3		27.21		253,700		27.21
	$30.00 - $39.99		127,611		4		35.12		107,977		35.91
	$40.00 – $49.99		13,500		2		43.25		13,500		43.25
	$50.00 - $59.99		8,500		2		56.59		8,500		56.59
	$70.00 - $79.25		31,900		2		76.69		31,900		76.69
	$00.00 - $79.25		1,381,746		4		15.17		1,231,244		15.71

The intrinsic value for options outstanding at December 31, 2007, 2006, and 2005, was $40.7 million, $7.6 million, and $10.8 million, respectively. The intrinsic value for options exercisable at December 31, 2007, 2006, and 2005, was $35.7 million, $5.5 million, and $6.2 million, respectively. The intrinsic value for exercised options during the years ended December 31, 2007, 2006, and 2005, were $7.8 million, $1.2 million, and $1.3 million, respectively. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2007 is calculated as the difference between the exercise price of the underlying options and the yearend market price of our common stock for shares that had exercise prices lower than our per share closing market price.

The following schedule shows our net loss and net loss per share for the years ended December 31, 2005 had compensation expense been determined consistent with the provisions of SFAS No. 123(R). The pro forma information presented below is based on several subjective assumptions and should not be viewed as indicative of future periods.

	Years Ended December 31,
(in thousands, except for per share data)	2005
Net loss applicable to common shares:
As reported	$	(71,296	)
Fair value compensation expense		(2,921	)
Pro forma	$	(74,217	)
Net loss per basic and diluted share:
As reported	$	(5.62	)
Fair value compensation expense		(0.23	)
Pro forma	$	(5.85	)

On a pro forma basis, assuming compensation expense was determined consistent with the provisions of SFAS No. 123(R), stock compensation expense during the year ended December 31, 2005 was $3.6 million as compared to stock compensation expense for the year ended December 31, 2006 of $1.5 million. The decline in compensation expense for the year ended December 31, 2006 compared to 2005 reflects a higher number of shares fully vesting in 2005 as compared to 2006.

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Stock compensation expense during the year ended December 31, 2007 increased to $2.9 million as compared to $1.5 million for the year ended December 31, 2006 primarily reflecting the increase in market price of our stock and its effect on the valuation and the corresponding expense related to current and prior year stock-based awards.

4. Long-term Liabilities:

The Company had the following long-term liabilities outstanding as of December 31 (in thousands):

	December 31,
	2007			2006

Line of credit	$	58,000		$	58,000
8 ¼% senior secured notes		510,000			510,000
9 7/8% senior notes		325,000			325,000
9 ¾% senior subordinated notes		-			300,000
Senior subordinated floating rate notes		175,000			175,000
Senior subordinated floating rate notes (due 2013)		425,000			-
11 3/8% senior exchangeable preferred stock		-			115,488
Accrued dividends on 11 3/8% senior exchangeable preferred stock		-			34,611
12 ¼% junior exchangeable preferred stock (due 2011)		255,558			255,558
Accrued dividends on 12 1/4% junior exchangeable preferred stock		70,671			64,917
Deferred tax liability		12,725			13,143
Premium on senior secured notes offering		4,300			5,572
Discount on senior subordinated floating rate notes		(1,663	)		(1,917	)
Asset retirement obligations and other		10,511			7,547
Long-term liabilities	$	1,845,102		$	1,862,919

Credit Facility – As of December 31, 2007, the Company has drawn $58 million under its revolving credit facility at a rate of LIBOR plus 3.0% (6.9% as of December 31, 2007). The credit facility is subject to various covenants, including the ratio of senior secured indebtedness to annualized operating cash flow (as defined in the credit facility), the ratio of total indebtedness to annualized operating cash flow, and the ratio of annualized operating cash flow to interest expense. In April 2007, the Company negotiated an amendment to its revolving credit facility explicitly permitting the payment of senior and junior exchangeable preferred stock dividends and replacing all financial covenant ratios with one new senior secured first lien debt covenant. RCC was in compliance with all financial covenants at December 31, 2007.

8 ¼% Senior Secured Notes Due 2012 – In March 2004 and May 2006, the Company issued $510 million aggregate principal amount of 8 1/4% senior secured notes due March 15, 2012 (“2012 notes”).

Interest on the 2012 notes is payable on March 15 and September 15 of each year. After March 15, 2008, the Company may redeem the 2012 notes, in whole or in part, at prices starting at 104.125% of the principal amount at March 15, 2008, and declining to 102.063% at March 15, 2009 and 100.000% at March 15, 2010, plus accrued and unpaid interest to but excluding the date fixed for redemption.

9 7/8 % Senior Notes Due 2010 - In 2003, RCC issued $325 million principal amount of 9 7/8% senior notes due 2010. Interest is payable on February 1 and August 1 of each year. The notes will mature on February 1, 2010. After August 1, 2007, at RCC’s option, the Company may redeem the 9 7/8% notes at prices starting at 104.938% of the principal amount at August 1, 2007, declining to 102.469% at August 1, 2008 and 100% at August 1, 2009, plus accrued and unpaid interest to but excluding the date fixed for redemption.

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Senior Subordinated Floating Rate Notes Due 2012 – In November 2005, the Company issued $175 million of Senior Subordinated Floating Rate Notes due 2012, which were sold at an original issue discount of $2.2 million, or 1.25%. The effective interest rate at December 31, 2007 was 10.7%. Interest is reset quarterly.

The Company may redeem any of the Senior Subordinated Floating Rate Notes at any time on or after November 1, 2007, in whole or in part, at prices starting at 102.000% at November 1, 2007, and declining to 101.000% at November 1, 2008 and 100.000% at November 1, 2009, plus accrued and unpaid interest and liquidated damages, if any, up to, but excluding, the date of redemption.

11 3/8% Senior Exchangeable Preferred Stock – On May 15, 2007, the Company exchanged all outstanding shares of its 11 3/8% Senior Exchangeable Preferred Stock for 11 3/8% Senior Subordinated Debentures, which mature on May 15, 2010. (See “11 3/8% Senior Subordinated Debentures”)

Repurchase of Senior Exchangeable Preferred Stock. During the year ended December 31, 2007, we did not redeem any senior exchangeable preferred stock for cash. During the year ended December 31, 2006, RCC redeemed 22,721 shares of senior exchangeable preferred stock for $27.7 million cash. The corresponding gain of $932,000, not including transaction commissions and other related fees, was recorded as a reduction of interest expense.

Exchange of Senior Exchangeable Preferred Stock for Class A Common Stock. During the year ended December 31, 2007, we did not redeem any senior exchangeable preferred stock for Class A common stock. During the year ended December 31, 2006, the Company redeemed an aggregate of 10,500 of its senior exchangeable preferred stock for an aggregate of 1,166,500 shares of our Class A common stock in negotiated transactions, resulting in a loss of $519,000. The shares were issued in reliance upon the exemption from registration provided in Section 3(a)(9) of the Securities Act of 1933, as amended.

11 3/8% Senior Subordinated Debentures – On May 30, 2007 the Company redeemed all of its 11 3/8% Senior Subordinated Debentures, of which the aggregate principal amount of the exchange debentures totaled $115,488,000. (See “Senior Subordinated Floating Rates Notes Due 2013”)

9 3/4 % Senior Subordinated Notes – On May 30, 2007, the Company redeemed all of its $300 million principal amount 9 ¾% senior subordinated notes at 103.250%. (See “Senior Subordinated Floating Rates Notes Due 2013”)

Senior Subordinated Floating Rate Notes Due 2013 – On May 25, 2007 the Company issued $425 million aggregate principal amount of Senior Subordinated Floating Rate Notes due June 1, 2013 (“2013 notes”) and used the proceeds to redeem our 11 3/8% Senior Subordinated Debentures and our 9 3/4% Senior Subordinated Notes. The 2013 notes mature on June 1, 2013. Interest on the 2013 notes reset quarterly at a rate equal to the three month LIBOR, plus 3.00%, and is payable on March 1, September 1, September 1 and December 1 of each year, commencing on September 1, 2007.

The 2013 notes are redeemable at the Company’s option beginning June 1, 2008, at 102.000% of principal, plus accrued and unpaid interest, declining to 101.000% at June 1, 2009, and 100.000% at June 1, 2010. Prior to June 1, 2008, the Company may, at its option, redeem up to 35% of the original aggregate principal amount of the 2013 notes with the net cash proceeds of certain sales of equity securities at 100.000% of principal, plus accrued and unpaid interest, if any and to the extent that, after such redemption, at least 65% of the aggregate principal amount of the 2013 notes remains outstanding. In addition, prior to June 1, 2008, the Company may, at its option, redeem some or all of the 2013 notes at an established “make whole” price. The 2013 notes rank junior in right of payment to our existing and future senior indebtedness and rank equally with all of our existing and future senior subordinated indebtedness. As of December 31, 2007, the Company was in compliance with covenants under the 2013 Notes.

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12 1/4% Junior Exchangeable Preferred Stock – Due February 15, 2011. Dividends on the junior exchangeable preferred stock are cumulative, are payable quarterly, and are to be paid on any dividend payment date occurring after February 15, 2005 in cash. The Company may redeem the junior exchangeable preferred stock in whole or in part, at any time, at a redemption price equal to 103.063% of the liquidation preference, declining to 101.531% at February 15, 2008, and 100.000% at February 15, 2009, plus accumulated and unpaid dividends, if any, to but excluding the redemption date.

Upon the occurrence of a change in control, as defined in the certificate of designation, each holder of shares of junior exchangeable preferred stock has the right to have such shares repurchased. The acquiring company, within 30 days following the date of the consummation of a transaction resulting in a change of control, must mail to each holder an offer to purchase all outstanding shares at a purchase price equal to 101.000% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to but excluding the purchase date.

Until May 15, 2007, the Company had not paid any junior exchangeable preferred stock dividends in cash and had accrued the undeclared dividends by increasing the carrying amount of the junior exchangeable preferred stock. On May 15, 2007, RCC paid four dividends on the junior exchangeable preferred stock, representing the quarterly dividends payable on August 15, 2006, November 15, 2006, February 15, 2007, and May 15, 2007. The dividend payments totaled approximately $128.24 per share, including accrued interest. The aggregate total dividends, which totaled approximately $32.8 million, were paid from existing cash. At December 31, 2007, the Company had accrued $70.7 million in undeclared dividends with respect to our junior exchangeable preferred stock, representing seven quarters in arrears, which will be payable at the mandatory redemption date, if not sooner declared and paid.

The shares of the junior exchangeable preferred stock are non-voting, except as otherwise required by law and as provided in the related Certificate of Designation. The Certificate of Designation provides that at any time dividends on the outstanding junior exchangeable preferred stock are in arrears and unpaid for six or more quarterly dividend periods (whether or not consecutive), the holders of a majority of the outstanding shares of the junior exchangeable preferred stock, voting as a class, will be entitled to elect the lesser of two directors or that number of directors constituting 25% of the members of RCC’s Board of Directors. The voting rights continue until such time as all dividends in arrears on the affected class of exchangeable preferred stock are paid in full, at which time the terms of any directors elected pursuant to such voting rights will terminate. Voting rights may also be triggered by other events described in the Certificate of Designation. While a Voting Rights Triggering Event exists, certain terms of our junior exchangeable preferred stock, if enforceable, may prohibit incurrence of additional indebtedness.

Since the Company has been six or more dividend payments in arrears, and, as of December 31, 2007, have not paid in full all dividends in arrears, the holders continue to have the right to elect two directors to the Company’s board.

Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Pursuant to SFAS No. 150, the Company’s 11 3/8% Senior Exchangeable and 12 ¼ % Junior Exchangeable Preferred securities are classified as Long-Term Liabilities because these securities are exchangeable at the Company’s option for debentures of like terms. The dividend expense related to these instruments is classified as interest expense. For the years ended December 31, 2007 and 2006, dividends on these instruments were $45.6 million and $55.8 million, respectively.

Accrued dividends payable for the junior exchangeable preferred securities of $70.7 million as of December 31, 2007 are included in long-term liabilities. The Company’s Class M Preferred Stock does not meet the characteristics of a liability, pursuant to SFAS No. 150, and will continue to be presented between liability and equity on the Company’s balance sheet.

Current portion of long-term debt – There was no current portion of the Company’s long-term debt as of December 31, 2007 and December 31, 2006.

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5.	Financial Instruments:

In connection with the issuance of $175 million of senior subordinated floating rate notes in November 2005, the Company entered into a collar to manage interest rates. This collar effectively limits interest from exceeding 5.87% and from being less than 4.25% on a $175 million notional amount through its termination date of November 1, 2008. This collar is recorded on the Company’s balance sheet at fair market value, with related changes in fair market value included in the statement of operations, within interest expense, and not accounted for as a hedge under SFAS No. 133.

The notional and estimated fair market values and carrying amounts of RCC’s financial instruments are set forth in the table below. Fair market values are based on quoted market prices, if available.

	Carrying Value December 31,				Estimated Fair Market Value December 31,
(Dollars in thousands)	2007		2006		2007		2006
Financial liabilities
Credit facility	$	58,000	$	58,000	$	56,840	$	56,695
8 ¼% senior secured notes		514,300		515,572		529,125		529,125
9 7/8 % senior notes		325,000		325,000		337,188		344,500
9 3/4 % senior subordinated notes		-		300,000		-		306,750
Senior subordinated floating rate notes (due 2012)		173,337		173,083		178,500		182,656
Senior subordinated floating rate notes (due 2013)		425,000		-		431,375		-
11 3/8% senior exchangeable preferred stock		-		115,488		-		116,366
12 ¼% junior exchangeable preferred stock		255,558		255,558		260,301		230,769
Class M convertible preferred stock (1)		203,169		187,697		203,169		187,697
		1,954,364		1,930,398		1,996,498		1,954,558

Derivative financial instrument
Interest rate collar agreement		396		141		396		141
Morgan Stanley (terminates November 1, 2008)

Other
Accrued 11 3/8% senior exchangeable preferred stock dividends		-		34,611		-		34,611
Accrued 12 1/4% junior exchangeable preferred stock dividends		70,671		64,917		70,671		64,917
Asset retirement and other long-term liabilities		10,114		7,405		10,114		7,405
Total financial liabilities	$	2,035,545	$	2,037,472	$	2,077,679	$	2,061,632

(1)	These financial instruments are not actively traded and, therefore, the estimated fair market value is stated at the carrying value.

6. Redeemable Convertible Preferred Stock:

In April 2000, the Company issued 110,000 shares of Class M Voting Convertible Preferred stock. The security has a liquidation preference of $1,000 per share and is to be redeemed on April 3, 2012.

Class M Voting Convertible Preferred security balance sheet reconciliation (in thousands):

	As of December 31, 2007
Preferred securities originally issued	$	110,000
Accrued dividends		93,169
Unamortized issuance costs		(1,650	)
	$	201,519

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Dividends on the Class M convertible preferred stock are compounded quarterly, accrue at 8% per annum, and are payable upon redemption of the stock or upon liquidation of RCC. The Class M convertible preferred stock is convertible into the Company’s Class A common stock at $46.71 per share. Dividends are not payable if the shares are converted. The holders of the Class M convertible preferred stock are entitled to vote on all matters submitted to the holders of the common stock on an as-converted basis. The Class M convertible preferred stock is senior to the Company’s common stock with respect to dividend rights and rights on liquidation, winding-up and dissolution of RCC.

The Class M convertible preferred stock, is redeemable at 100% of its total liquidation preference plus accumulated and unpaid dividends at April 3, 2012.

7. Shareholders’ Deficit:

Authorized Shares

The Company has 300,000,000 shares of authorized capital stock consisting of 200,000,000 shares of Class A common stock, 10,000,000 shares of Class B common stock, and 90,000,000 undesignated shares.

Common Stock Rights

Holders of Class A common stock are entitled to one vote for each share owned while holders of Class B common stock are entitled to ten votes for each share owned. Each share of Class B common stock may at any time be converted into one share of Class A common stock at the option of the holder. All issued Class B common shares may also be converted into an equivalent number of Class A common shares upon the affirmative vote of not less than 66 2/3% of the then outstanding Class B common shares. Further, Class B common shares are automatically converted to an equal number of Class A common shares if they are transferred to anyone who is not an affiliate of the transferring shareholder.

RCC has adopted shareholder rights plans for its Class A common stock and Class B common stock. The rights plans give each holder of Class A common stock the right to purchase 1/100th of a newly authorized preferred share that is essentially equivalent to one share of Class A common stock and each holder of Class B common stock the right to purchase 1/100th of a newly authorized preferred share, essentially equivalent to one share of Class B common stock. The exercise price for both the Class A rights and the Class B rights is $120 per right.

The rights become exercisable by existing shareholders only following the acquisition by a buyer, without prior approval of the Company’s board of directors, of 15% or more of the outstanding Common Stock, Class A and Class B, or following the announcement of a tender offer for 15% of the outstanding Common Stock. If a person acquires 15% or more of the Company’s Common Stock, each right (except those held by the acquiring person) will entitle the holder to purchase shares of the Company’s Class A or Class B common stock, as appropriate, having a market value of twice the right’s exercise price, or, in effect, at a 50% discount from the then current market value. If the Company were acquired in a merger or similar transaction after a person acquires 15% of the Company’s outstanding Common Stock, without prior approval of the board of directors, each right would entitle the holder (other than the acquirer) to purchase shares of the acquiring company having a market value of twice the exercise price of the right, or, in effect, at a discount of 50%. Until the acquisition by any person of 15% or more of the Company’s Common Stock, the rights can be redeemed by the board of directors for $.001 per right.

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8.	Income Taxes:

For the years ended December 31, 2007, 2006 and 2005 the Company recorded a benefit for income taxes related to the amortization of intangibles.

The reconciliation of income tax computed at the U.S. federal statutory rate to income tax benefit recorded in the consolidated financial statements was as follows:

	Years ended December 31,
	2007			2006			2005
Tax at statutory rate		(35.0	)%		(35.0	)%		(35.0	)%
State taxes		(3.0	)		(3.0	)		(3.0	)
Benefit from Amortization		(2.7	)		(0.3	)		(0.6	)
Other Perm. Differences		2.1			-			-
FAS 150 Interest		114.0			18.1			26.6
Non-deductible Transaction Costs		14.0			-			-
Adjustment for valuation allowance		(91.7	)		19.9			11.4
		(2.3	)%		(0.3	)%		(0.6	)%

The components of the Company’s current year income tax benefit consist of the following (in thousands):

	Years Ended December 31,
	2007			2006			2005
Current
Federal	$	-		$	-		$	-
State		71			37			-
		71			37			-

Deferred
Federal		(385	)		(385	)		(385	)
State		(33	)		(33	)		(33	)
		(418	)		(418	)		(418	)

Total	$	(347	)	$	(381	)	$	(418	)

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The income tax effect of the items that create deferred income tax assets and liabilities is as follows (in thousands):

	December 31,
	2007			2006
Deferred income tax assets:
Operating loss carryforwards	$	214,309		$	205,243
Temporary differences:
Allowance for doubtful accounts		1,228			1,020

Other		6,028			3,868
Valuation allowance		(161,081	)		(183,004	)
Total deferred income tax assets		60,484			27,127
Deferred income tax liabilities:
Depreciation		(11,945	)		(13,045	)
Intangible assets		(61,264	)		(26,940	)
Other		-			(285	)
Net deferred income tax liability	$	(12,725	)	$	(13,143	)

As of December 31, 2007, the Company had tax operating loss carryforwards of approximately $585 million available to offset future income tax liabilities. Of these NOL carryforwards, $6.3 million when utilized, the benefit will be recorded through additional paid-in capital instead of the income statement. These carryforwards expire in the years 2008 through 2027. Internal Revenue Code Section 382 limits the availability and timing of the use of net operating loss carryforwards in the event of certain changes in the ownership of the Company’s common stock.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management has considered the scheduled reversal of deferred tax liabilities, the limitations under Internal Revenue Code Section 382 following a change in ownership and tax planning strategies in making this assessment. Based upon the assessment, management has established a valuation allowance for net deferred income tax assets currently not expected to be realized.

9. Commitments and Contingencies:

Employment Agreements

The Company has employment agreements with certain executive officers with terms of three years. These agreements provide for payment of amounts up to 3.00 times their average annual compensation for the three proceeding fiscal years if there is a termination of their employment as a result of a change in control of the Company, as defined in the agreements. The maximum contingent liability under these agreements was $12.5 million at December 31, 2007.

Related Party Transactions

The Company has entered into various arrangements with its shareholders or their affiliates. Arrangements involving shareholders or their affiliates that beneficially own more than 5% of any class of the Company’s stock and in which total payments or receipts for these arrangements exceeded $120,000 are described below.

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Agreements with Affiliates. The Company has arrangements with several of its shareholders for cell site leases, interconnection service agreements and agent sales agreements. During 2007, 2006, and 2005, the Company paid $1,875,238, $1,986,883, and $1,504,401, respectively, to related parties for these services net of amounts received from these shareholders for similar services provided by the Company. In addition, several of the Company’s shareholders are customers for its cellular and paging services and, in connection therewith, also purchase or lease cellular telephones from the Company. During 2007, 2006, and 2005, the Company received $363,952, $231,611, and $249,387, respectively, from related parties for these services.

Roaming Arrangements. The Company has roaming agreements with United States Cellular Corporation, a subsidiary of Telephone & Data Systems, Inc. Affiliates of Telephone & Data Systems, Inc. beneficially own, in the aggregate, more than 5% of the Company’s Class A and Class B Common Stock. Under the roaming agreements, the Company pays for service provided to its customers in areas served by United States Cellular Corporation and receives payment for service provided to customers of United States Cellular Corporation in the Company’s cellular service areas. RCC negotiated the rates of reimbursement with United States Cellular Corporation, and the rates reflect those charged by all carriers. During 2007, 2006, and 2005, charges to the Company for services provided by United States Cellular Corporation totaled $1,561,729, $1,744,161, and $1,933,176, and charges by the Company to United States Cellular Corporation totaled $1,846,180, $2,990,235, and $3,358,774, respectively.

Rural Cellular Corporation has had roaming and other service agreements with Alltel Corporation (“Alltel”). Under the roaming agreements, Rural Cellular Corporation has paid for service provided to its customers in areas served by Alltel and has received payment for service provided to these same companies in RCC’s cellular service areas. RCC negotiated the reimbursement and charge rates with these companies.

In August 2006, RCC was more than six payments in arrears on its junior exchangeable preferred stock. Accordingly a “Voting Rights Triggering Event,” for its junior exchangeable preferred stock holders had existed. Because of Alltel’s ownership of more than 5% of the RCC’s Junior Exchangeable Preferred Stock and the “Voting Rights Triggering Event,” Alltel is a related party of RCC since August 2006.

While a related party in 2006, charges to RCC for services provided by Alltel Corporation were $2,173,489. While a related party in 2006, charges by RCC to Alltel Corporation were $2,170,987. Alltel sold their ownership of RCC’s Junior Exchangeable Preferred Stock in January 2007.

Legal and Regulatory Matters

The Company is involved from time to time in routine legal matters and other claims incidental to the Company’s business. RCC believes that the resolution of such routine matters and other incidental claims, taking into account established reserves and insurance, will not have a material adverse impact on its consolidated financial position or results of operations.

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Regulatory Matters. In the normal course of business, the Company is subject to various regulatory requirements associated with its networks. The Company currently does not meet all of the requirements imposed by regulatory agencies. In some cases, the Company has received a waiver from such requirements or is in the process of applying for a waiver. However, management does not believe such non-compliance will have a material adverse effect on the Company, although the ultimate outcome of these matters cannot be determined based on available information.

Leases

The Company leases office space, cellular towers (including land leases on which the Company’s owned towers reside), and real estate under noncancelable operating leases. These leases typically include renewal options and escalation clauses. Future minimum payments under these leases as of December 31, 2007 are as follows (in thousands):

Year	Amount

2008	$	23,538
2009		20,088
2010		14,516
2011		9,204
2012		5,146
Thereafter		5,257
Total	$	77,749

Under the terms of the lease agreements, the Company also is responsible for certain operating expenses and taxes. Total rent expense of $23.0 million, $21.0 million, and $17.7 million, was charged to operations for the years ended December 31, 2007, 2006, and 2005, respectively.

For the Company’s leases, rent expense is recognized in accordance with FASB Technical Bulletin 85-3 Accounting for Operating Leases with Scheduled Rent Increases using the straight-line method over the term of the leases.

Accounting for Asset Retirement Obligations. The Company adopted Statement of Financial Accounting Standards No. 143 (“SFAS No. 143”), Accounting for Asset Retirement Obligations, effective January 1, 2003. Pursuant to SFAS No. 143, the Company recorded the fair value of a legal liability for contractual obligations related to costs associated with removing equipment from cell sites that reside on leased property (“ARO”). This liability is reviewed and adjusted periodically and is recorded in other long−term liabilities. The Company increased the ARO liability from $4.6 million at December 31, 2006 to $5.9 million at December 31, 2007 reflecting an increase in the number of cell sites on leased property.

Purchase Commitments

On December 29, 2006, the Company executed a three-year purchase agreement with Nortel under which they will provide CDMA network and switching equipment/software/support for the Company’s Midwest territory. This equipment is being used to replace the Company’s previously installed network equipment in this territory. The Company completed the equipment replacement during 2007 and does not have a remaining commitment under this purchase agreement at December 31, 2007.

Off-Balance Sheet Financings and Liabilities

The Company does not have any off-balance sheet financing arrangements or liabilities. The Company does not have any majority-owned subsidiaries or any interests in, or relationships with, any material special-purpose entities that are not included in the consolidated financial statements.

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10. Defined Contribution Plan:

The Company has a defined contribution savings and profit-sharing plan for employees who meet certain age and service requirements. Under the savings portion of the plan, employees may elect to contribute a percentage of their salaries to the plan, with the Company contributing a matching percentage of the employees’ contributions. Under the profit-sharing portion of the plan, the Company contributes a percentage of employees’ salaries. Contributions charged to operations for the years ended December 31, 2007, 2006, and 2005, were approximately $796,000, $786,000, and $732,000, respectively. The percentages the Company matches under the savings portion of the plan and contributes under the profit-sharing portion of the plan are determined annually by the Company’s Board of Directors.

11. Supplemental Cash Flow Information (in thousands):

	Years ended December 31,
	2007		2006		2005
Cash paid for:
Interest, net of amounts capitalized (1)	$	219,115	$	133,480	$	132,966
Noncash financing transactions:
Accrued property and equipment purchases	$	571	$	1,178	$	5,452
Preferred stock dividends	$	15,861	$	14,677	$	13,865
Conversion of Class T preferred stock into common stock	$	-	$	-	$	7,540
Reversal of Class T preferred stock accrued dividends	$	-	$	-	$	1,681
Exchange of Senior Exchangeable Preferred Stock for Class A Common Stock	$	-	$	14,089	$	13,435
(1) Includes Senior Exchangeable Preferred Stock quarterly dividends paid in cash totaling approximately $8.3 million and $17.8 million in 2006 and 2005, respectively.

12. Quarterly Results of Operations (Unaudited):

The Company experiences seasonal fluctuations in revenue and operating income. RCC’s average monthly roaming revenue per cellular customer increases during the second and third calendar quarters. This increase reflects greater usage by its roaming customers who travel in the Company’s cellular service areas for weekend and vacation recreation or work in seasonal industries. Because RCC’s cellular service area includes many seasonal recreation areas, it expects that roaming revenue will continue to fluctuate seasonally more than service revenue.

Certain quarterly results for 2007 and 2006 are set forth below (in thousands, except per share data):

	2007 Quarter Ended											2006 Quarter Ended
	Mar			Jun			Sep		Dec			Mar			Jun			Sep			Dec
Revenue:
Service	$	97,874		$	107,445		$	110,142	$	109,664		$	95,970		$	96,939		$	95,979		$	96,332
Roaming		35,947			43,580			54,520		48,748			30,806			36,660			46,952			39,449
Equipment		6,409			6,659			7,267		7,060			6,356			6,599			5,842			6,576
Total Revenue	$	140,230		$	157,684		$	171,929	$	165,472		$	133,132		$	140,198		$	148,773		$	142,357
Operating income (loss)	$	36,832		$	43,137		$	49,336	$	47,561		$	24,121		$	24,776		$	29,707		$	(8,264	)
Net income(loss) before income tax benefit	$	(8,597	)	$	(16,242	)	$	6,117	$	3,574		$	(20,929	)	$	(26,183	)	$	(15,647	)	$	(53,663	)
Net income(loss) applicable to common shares	$	(12,318	)	$	(20,067	)	$	2,172	$	(449	)	$	(24,338	)	$	(29,701	)	$	(19,277	)	$	(57,402	)
Net income(loss) per basic share	$	(0.80	)	$	(1.30	)	$	0.14	$	(0.03	)	$	(1.74	)	$	(2.11	)	$	(1.37	)	$	(4.00	)
Net income(loss) per diluted share	$	(0.80	)	$	(1.30	)	$	0.13	$	(0.03	)	$	(1.74	)	$	(2.11	)	$	(1.37	)	$	(4.00	)

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13. Guarantor/Non-Guarantor Condensed Consolidating Financial Information

RCC’s obligations under the 8 1/4% Senior Secured Notes due 2012 are senior secured obligations and are fully and unconditionally guaranteed on a senior, secured, second-priority basis by certain of its subsidiaries. Wireless Alliance, LLC is not a guarantor of the notes.

The Company accounts for its investment in subsidiaries using the equity method for purposes of the supplemental consolidating presentation. The principal eliminating entries eliminate investments in subsidiaries and inter-company balances and transactions.

The following consolidating financial information as of the dates and for the periods indicated of Rural Cellular Corporation (the Parent), its guarantor subsidiaries, and its non-guarantor subsidiaries reflects all inter-company revenue and expense.

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Balance Sheet Information as of December 31, 2007 (in thousands, except per share data):

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

CURRENT ASSETS:
Cash and cash equivalents	$	110,704		$	3,636		$	26		$	-		$	114,366
Accounts receivable, less allowance for doubtful accounts		28,844			39,774			435			-			69,053
Inventories		6,126			9,001			158			-			15,285
Other current assets		2,273			2,961			131			-			5,365
Current intercompany receivable		(15,490	)		28,185			-			(12,695	)		-
Total current assets		132,457			83,557			750			(12,695	)		204,069
PROPERTY AND EQUIPMENT, net		66,044			147,438			5,702			-			219,184
LICENSES AND OTHER ASSETS:
Licenses, net		-			527,723			8,679			-			536,402
Goodwill, net		14,273			345,535			-			-			359,808
Customer lists, net		5,436			1,763			-			-			7,199
Deferred debt issuance costs, net		18,630			-			-			-			18,630
Investment in consolidated subsidiaries		1,097,414			-			-			(1,097,414	)		-
Other assets, net		2,507			6,915			1,624			(6,493	)		4,553
Total licenses and other assets		1,138,260			881,936			10,303			(1,103,907	)		926,592
	$	1,336,761		$	1,112,931		$	16,755		$	(1,116,602	)	$	1,349,845

CURRENT LIABILITIES:
Accounts payable	$	25,077		$	12,432		$	123		$	-		$	37,632
Advance billings and customer deposits		2,950			10,510			259			-			13,719
Accrued interest		32,388			-			-			-			32,388
Other accrued expenses		38,140			48,977			35			(76,458	)		10,694
Current intercompany payable		-			12,586			110			(12,696	)		-
Total current liabilities		98,555			84,505			527			(89,154	)		94,433
LONG-TERM LIABILITIES		1,827,896			1,004,575			32,589			(1,019,958	)		1,845,102
Total liabilities		1,926,451			1,089,080			33,116			(1,109,112	)		1,939,535

REDEEMABLE PREFERRED STOCK		201,519			-			-			-			201,519

SHAREHOLDERS’ EQUITY (DEFICIT):
Class A common stock; $.01 par value; 200,000 shares authorized, 15,470 outstanding		155			2			-			(2	)		155
Class B common stock; $.01 par value; 10,000 shares authorized, 236 outstanding		2			-			-			-			2
Additional paid-in capital		232,756			844,559			31,679			(876,238	)		232,756
Accumulated earnings (deficit)		(1,024,122	)		(820,710	)		(48,040	)		868,750			(1,024,122	)
Total shareholders’ equity (deficit)		(791,209	)		23,851			(16,361	)		(7,490	)		(791,209	)
	$	1,336,761		$	1,112,931		$	16,755		$	(1,116,602	)	$	1,349,845

121

Statement of Operations Information for the year ended December 31, 2007 (in thousands):

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUE:
Service	$	142,571		$	279,582		$	5,333		$	(2,361	)	$	425,125
Roaming		41,231			136,480			5,084			-			182,795
Equipment		7,332			19,651			412			-			27,395
Total revenue		191,134			435,713			10,829			(2,361	)		635,315
OPERATING EXPENSES:
Network costs, excluding depreciation		50,693			108,351			2,927			(2,114	)		159,857
Cost of equipment sales		18,137			39,521			681			-			58,339
Selling, general and administrative		95,606			61,937			3,509			(247	)		160,805
Depreciation and amortization		22,338			55,080			2,030			-			79,448
Total operating expenses		186,774			264,889			9,147			(2,361	)		458,449
OPERATING INCOME		4,360			170,824			1,682			-			176,866
OTHER INCOME (EXPENSE):
Interest expense		(197,331	)		(97,176	)		(3,122	)		100,119			(197,510	)
Interest and dividend income		106,420			124			2			(100,119	)		6,427
Inter-company charges		46,908			(46,908	)		-			-			-
Equity in subsidiaries		25,168			-			-			(25,168	)		-
Other		(321	)		(609	)		(1	)		-			(931	)
Other expense, net		(19,156	)		(144,569	)		(3,121	)		(25,168	)		(192,014	)
INCOME (LOSS) BEFORE INCOME TAXES		(14,796	)		26,255			(1,439	)		(25,168	)		(15,148	)
INCOME TAX PROVISION (BENEFIT)		5			3,358			5			(3,715	)		(347	)
NET INCOME (LOSS)		(14,801	)		22,897			(1,444	)		(21,453	)		(14,801	)
PREFERRED STOCK DIVIDEND		(15,861	)		-			-			-			(15,861	)
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$	(30,662	)	$	22,897		$	(1,444	)	$	(21,453	)	$	(30,662	)

122

Statement of Cash Flows Information for the year ended December 31, 2007 (in thousands):

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
Net income (loss)	$	(14,801	)	$	22,897		$	(1,444	)	$	(21,453	)	$	(14,801	)
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and customer list amortization		22,338			55,080			2,030			-			79,448
Loss on write-off of debt and preferred stock issuance costs		3,256			-			-			-			3,256
Mark-to-market adjustments – financial instruments		255			-			-			-			255
Stock-based compensation		2,923			-			-			-			2,923
Deferred income taxes		6			3,358			5			(3,716	)		(347	)
Amortization of debt issuance cost		5,040			-			-			-			5,040
Amortization of discount on investments		(1,260	)		-			-			-			(1,260	)
Other		(618	)		(90	)		8			-			(700	)
Change in other operating elements:
Accounts receivable		(6,414	)		(5,174	)		1,160			-			(10,428	)
Inventories		(2,752	)		(549	)		16			-			(3,285	)
Other current assets		(294	)		(723	)		(44	)		-			(1,061	)
Accounts payable		11,534			(2,685	)		(312	)		-			8,537
Advance billings and customer deposits		279			1,225			40			-			1,544
Accrued senior and junior exchangeable preferred stock dividends		(28,857	)		-			-			-			(28,857	)
Accrued interest		(10,396	)		-			-			-			(10,396	)
Other accrued expenses		3,120			(506	)		(1	)		-			2,613
Net cash provided by (used in) operating activities		(16,641	)		72,833			1,458			(25,169	)		32,481
INVESTING ACTIVITIES:
Purchases of property and equipment		(27,374	)		(33,861	)		(262	)		-			(61,497	)
Purchases of short-term investments		(20,497	)		-			-			-			(20,497	)
Maturities of short-term investments		132,473			-			-			-			132,473
Purchases of wireless properties		(37,170	)		(11,900	)		-			-			(49,070	)
Proceeds from sale of property and equipment		10			47			-			-			57
Other		667			(59	)		(5	)		-			603
Net cash provided by (used in) investing activities		48,109			(45,773	)		(267	)		-			2,069
FINANCING ACTIVITIES:
Change in parent company receivable and payable		2,344			(26,308	)		(1,205	)		25,169			-
Proceeds from issuance of common stock related to employee stock purchase plan and stock options		2,826			-			-			-			2,826
Proceeds from issuance of long-term debt under the credit facility, net		58,000			-			-			-			58,000
Repayments of long-term debt under the credit facility, net		(58,000	)		-			-			-			(58,000	)
Proceeds from issuance of senior subordinated floating rate notes		425,000			-			-			-			425,000
Redemption of senior subordinated notes		(300,000	)		-			-			-			(300,000	)
Redemption of senior subordinated debentures		(115,488	)		-			-			-			(115,488	)
Payments of debt issuance costs		(5,017	)		-			-			-			(5,017	)
Net cash (used in) provided by financing activities		9,665			(26,308	)		(1,205	)		25,169			7,321
NET (DECREASE) INCREASE IN CASH		41,133			752			(14	)		-			41,871
CASH AND CASH EQUIVALENTS, at beginning of year		69,571			2,884			40			-			72,495
CASH AND CASH EQUIVALENTS, at end of year	$	110,704		$	3,636		$	26		$	-		$	114,366

123

Balance Sheet Information as of December 31, 2006 (in thousands, except per share data):

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated

CURRENT ASSETS:
Cash and cash equivalents	$	69,571		$	2,884		$	40		$	-		$	72,495
Short-term investments		110,716			-			-			-			110,716
Accounts receivable, less allowance for doubtful accounts		26,387			34,610			1,595			-			62,592
Inventories		2,739			8,452			175			-			11,366
Other current assets		1,940			2,263			87			(25	)		4,265
Current intercompany receivable		(4,160	)		18,642			-			(14,482	)		-
Total current assets		207,193			66,851			1,897			(14,507	)		261,434
PROPERTY AND EQUIPMENT, net		41,247			163,519			7,212			-			211,978
LICENSES AND OTHER ASSETS:
Licenses, net		-			516,034			8,679			-			524,713
Goodwill, net		3,151			345,533			-			-			348,684
Customer lists, net		644			10,090			-			-			10,734
Deferred debt issuance costs, net		21,910			-			-			-			21,910
Investment in consolidated subsidiaries		1,088,428			-			-			(1,088,428	)		-
Other assets, net		2,859			11,310			1,922			(10,896	)		5,195
Total licenses and other assets		1,116,992			882,967			10,601			(1,099,324	)		911,236
	$	1,365,432		$	1,113,337		$	19,710		$	(1,113,831	)	$	1,384,648

CURRENT LIABILITIES:
Accounts payable	$	19,203		$	18,880		$	497		$	-		$	38,580
Advance billings and customer deposits		2,527			9,286			218			-			12,031
Accrued interest		42,784			-			-			-			42,784
Other accrued expenses		34,771			49,218			36			(76,193	)		7,832
Current intercompany payable		-			14,481			-			(14,481	)		-
Total current liabilities		99,285			91,865			751			(90,674	)		101,227
LONG-TERM LIABILITIES		1,845,645			1,020,518			33,876			(1,037,120	)		1,862,919
Total liabilities		1,944,930			1,112,383			34,627			(1,127,794	)		1,964,146

REDEEMABLE PREFERRED STOCK		185,658			-			-			-			185,658

SHAREHOLDERS’ EQUITY (DEFICIT):
Class A common stock; $.01 par value; 200,000 shares authorized, 15,048 outstanding		151			2			-			(2	)		151
Class B common stock; $.01 par value; 10,000 shares authorized, 399 outstanding		4			-			-			-			4
Additional paid-in capital		228,149			844,559			31,679			(876,238	)		228,149
Accumulated earnings (deficit)		(993,460	)		(843,607	)		(46,596	)		890,203			(993,460	)
Total shareholders’ equity (deficit)		(765,156	)		954			(14,917	)		13,963			(765,156	)
	$	1,365,432		$	1,113,337		$	19,710		$	(1,113,831	)	$	1,384,648

124

Statement of Operations Information for the year ended December 31, 2006 (in thousands):

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUE:
Service	$	109,158		$	271,673		$	6,144		$	(1,755	)	$	385,220
Roaming		36,029			110,579			7,259			-			153,867
Equipment		5,370			19,535			468			-			25,373
Total revenue		150,557			401,787			13,871			(1,755	)		564,460
OPERATING EXPENSES:
Network costs, excluding depreciation		32,839			103,510			3,009			(1,311	)		138,047
Cost of equipment sales		13,464			42,291			832			-			56,587
Selling, general and administrative		64,568			79,404			3,743			(444	)		147,271
Depreciation and amortization		23,720			101,846			2,849			-			128,415
Impairment of assets		-			23,800			-			-			23,800
Total operating expenses		134,591			350,851			10,433			(1,755	)		494,120
OPERATING INCOME		15,966			50,936			3,438			-			70,340
OTHER INCOME (EXPENSE):
Interest expense		(194,719	)		(103,578	)		(3,321	)		106,621			(194,997	)
Interest and dividend income		114,383			99			5			(106,621	)		7,866
Inter-company charges		30,229			(30,229	)		-			-			-
Equity in subsidiaries		(81,923	)		-			-			81,919			(4	)
Other		(18	)		405			(14	)		-			373
Other expense, net		(132,048	)		(133,303	)		(3,330	)		81,919			(186,762	)
INCOME (LOSS) BEFORE INCOME TAXES		(116,082	)		(82,367	)		108			81,919			(116,422	)
INCOME TAX PROVISION (BENEFIT)		(41	)		(21,826	)		5			21,481			(381	)
NET INCOME (LOSS)		(116,041	)		(60,541	)		103			60,438			(116,041	)
PREFERRED STOCK DIVIDEND		(14,677	)		-			-			-			(14,677	)
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$	(130,718	)	$	(60,541	)	$	103		$	60,438		$	(130,718	)

125

Statement of Cash Flows Information for the year ended December 31, 2006 (in thousands):

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
Net income (loss)	$	(116,041	)	$	(60,541	)	$	103		$	60,438		$	(116,041	)
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and customer list amortization		23,720			101,846			2,849			-			128,415
Loss on write-off of debt and preferred stock issuance costs		3,022			-			-			-			3,022
Mark-to-market adjustments – financial instruments		(197	)		-			-			-			(197	)
Net gain on repurchase and exchange of senior exchangeable preferred stock		(413	)		-			-			-			(413	)
Non-cash junior exchangeable preferred stock dividends		-			-			-			-			-
Impairment of assets		-			23,800			-			-			23,800
Stock-based compensation		1,490			-			-			-			1,490
Deferred income taxes		(41	)		(21,826	)		5			21,481			(381	)
Amortization of debt issuance costs		5,351			-			-			-			5,351
Amortization of discount on investments		(2,878	)		-			-			-			(2,878	)
Other		(206	)		(189	)		34			-			(361	)
Change in other operating elements:
Accounts receivable		4,016			1,977			501			-			6,494
Inventories		982			493			8			-			1,483
Other current assets		(344	)		362			(3	)		-			15
Accounts payable		(6,763	)		10			(133	)		-			(6,886	)
Advance billings and customer deposits		127			52			(33	)		-			146
Accrued senior exchangeable preferred stock dividends		47,520			-			-			-			47,520
Accrued interest		3,448			-			-			-			3,448
Other accrued expenses		(411	)		(746	)		(3	)		-			(1,160	)
Net cash provided by (used in) operating activities		(37,618	)		45,238			3,328			81,919			92,867
INVESTING ACTIVITIES:
Purchases of property and equipment		(17,127	)		(29,950	)		(381	)		-			(47,458	)
Purchases of short-term investments		(188,166	)		-			-			-			(188,166	)
Maturities of short-term investments		148,100			-			-			-			148,100
Proceeds from sale of property and equipment		128			2,595			-			-			2,723
Other		123			(215	)		(5	)		-			(97	)
Net cash used in investing activities		(56,942	)		(27,570	)		(386	)		-			(84,898	)
FINANCING ACTIVITIES:
Change in parent company receivable and payable		102,291			(17,423	)		(2,949	)		(81,919	)		-
Proceeds from issuance of common stock related to employee stock purchase plan and stock options		2,086			-			-			-			2,086
Proceeds from issuance of 8 ¼% senior secured notes		166,600			-			-			-			166,600
Redemption of senior secured floating rate notes		(160,000	)		-			-			-			(160,000	)
Repurchases of senior exchangeable preferred stock		(27,721	)		-			-			-			(27,721	)
Payments of debt issuance costs		(3,261	)		-			-			-			(3,261	)
Net cash (used in) provided by financing activities		79,995			(17,423	)		(2,949	)		(81,919	)		(22,296	)
NET (DECREASE) INCREASE IN CASH		(14,565	)		245			(7	)		-			(14,327	)
CASH AND CASH EQUIVALENTS, at beginning of year		84,136			2,639			47			-			86,822
CASH AND CASH EQUIVALENTS, at end of year	$	69,571		$	2,884		$	40		$	-		$	72,495

126

Statement of Operations Information for the year ended December 31, 2005 (in thousands):

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUE:
Service	$	95,620		$	285,681		$	7,555		$	(1,008	)	$	387,848
Roaming		25,061			88,877			8,839			(3	)		122,774
Equipment		6,733			26,914			666			-			34,313
Total revenue		127,414			401,472			17,060			(1,011	)		544,935
OPERATING EXPENSES:
Network costs, excluding depreciation		23,270			94,688			3,117			(753	)		120,322
Cost of equipment sales		11,744			45,472			1,050			-			58,266
Selling, general and administrative		39,701			108,517			4,958			(258	)		152,918
Depreciation and amortization		18,128			78,779			3,556			-			100,463
Impairment of assets		7,020			-			-			-			7,020
Total operating expenses		99,863			327,456			12,681			(1,011	)		438,989
OPERATING INCOME		27,551			74,016			4,379			-			105,946
OTHER INCOME (EXPENSE):
Interest expense		(171,745	)		(105,133	)		(2,990	)		108,037			(171,831	)
Interest and dividend income		110,222			34			2			(108,037	)		2,221
Inter-company charges		10,140			(10,140	)		-			-			-
Equity in subsidiaries		(39,134	)		-			-			39,126			(8	)
Other		18			(884	)		(2	)		-			(868	)
Other expense, net		(90,499	)		(116,123	)		(2,990	)		39,126			(170,486	)
INCOME (LOSS) BEFORE INCOME TAXES		(62,948	)		(42,107	)		1,389			39,126			(64,540	)
INCOME TAX PROVISION (BENEFIT)		1,174			(1,649	)		-			57			(418	)
NET INCOME (LOSS)		(64,122	)		(40,458	)		1,389			39,069			(64,122	)
PREFERRED STOCK DIVIDEND		(7,174	)		-			-			-			(7,174	)
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$	(71,296	)	$	(40,458	)	$	1,389		$	39,069		$	(71,296	)

127

Statement of Cash Flows Information for the year ended December 31, 2005 (in thousands):

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
Net income (loss)	$	(64,122	)	$	(40,458	)	$	1,389		$	39,069		$	(64,122	)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and customer list amortization		18,128			78,779			3,556			-			100,463
Loss on write-off of debt and preferred stock issuance costs		1,533			-			-			-			1,533
Mark-to-market adjustments – financial instruments		339			-			-			-			339
Gain on repurchase of preferred stock		(5,722	)		-			-			-			(5,722	)
Non-cash preferred stock dividends		3,797			-			-			-			3,797
Impairment of assets		7,020			-			-			-			7,020
Stock-based compensation		680			-			-			-			680
Deferred income taxes		1,174			(1,649	)		-			57			(418	)
Amortization of debt issuance costs		5,460			-			-			-			5,460
Other		167			1,196			2			-			1,385
Change in other operating elements:
Accounts receivable		(9,175	)		(5,241	)		154			-			(14,262	)
Inventories		(1,817	)		(3,510	)		136			-			(5,191	)
Other current assets		78			(180	)		(3	)		-			(105	)
Accounts payable		5,086			1,952			(281	)		-			6,757
Advance billings and customer deposits		248			620			(59	)		-			809
Accrued preferred stock dividends		33,211			-			-			-			33,211
Accrued interest		2,021			-			-			-			2,021
Other accrued expenses		(681	)		(14	)		(3	)		-			(698	)
Net cash provided by (used in) operating activities		(2,575	)		31,495			4,891			39,126			72,937
INVESTING ACTIVITIES:
Purchases of property and equipment		(18,920	)		(75,604	)		(427	)		-			(94,951	)
Purchases of short-term investments		(66,778	)		-			-			-			(66,778	)
Proceeds from sale of property and equipment		34			213			-			-			247
Other		(103	)		-			-			-			(103	)
Net cash used in investing activities		(85,767	)		(75,391	)		(427	)		-			(161,585	)
FINANCING ACTIVITIES:
Change in parent company receivable and payable		(1,721	)		45,282			(4,435	)		(39,126	)		-
Proceeds from issuance of common stock related to employee stock purchase plan and stock options		1,570			-			-			-			1,570
Proceeds from issuance of long-term debt under the credit facility		58,000			-			-			-			58,000
Proceeds from issuance of senior subordinated floating rate notes		172,816			-			-			-			172,816
Redemption of 9 5/8% senior subordinated notes		(125,000	)		-			-			-			(125,000	)
Repurchases of preferred stock		(13,355	)		-			-			-			(13,355	)
Payments of debt issuance costs		(3,798	)		-			-			-			(3,798	)
Other		(102	)		-			-			-			(102	)
Net cash (used in) provided by financing activities		88,410			45,282			(4,435	)		(39,126	)		90,131
NET INCREASE IN CASH		68			1,386			29			-			1,483
CASH AND CASH EQUIVALENTS, at beginning of year		84,068			1,253			18			-			85,339
CASH AND CASH EQUIVALENTS, at end of year	$	84,136		$	2,639		$	47			-		$	86,822

128

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

Schedule II - Valuation and Qualifying Accounts

Allowance for Doubtful Accounts:

	Years Ended December 31,
(in thousands)	2007			2006			2005
Balance, at beginning of year	$	2,676		$	3,567		$	2,456
Additions charged to income		13,343			17,901			20,112
Write-offs		(12,789	)		(18,792	)		(19,001	)
Balance, at end of year	$	3,230		$	2,676		$	3,567

129

Included on the following pages are the financial statements for RCC Minnesota, Inc., a wholly-owned subsidiary of Rural Cellular Corporation. Rural Cellular Corporation is required to provide these financial statements under Regulation S-X Rule No. 3-16, “Financial Statements of Affiliates Whose Securities Collateralize an Issue Registered or Being Registered.” The securities of RCC Minnesota, Inc. collateralize RCC’s 8¼% Senior Secured Notes due 2012.

130

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholder and Board of Directors

Rural Cellular Corporation Minnesota

Alexandria, Minnesota

We have audited the accompanying balance sheets of RCC Minnesota, Inc. (RCCM), a wholly owned subsidiary of Rural Cellular Corporation (RCC), as of December 31, 2007 and 2006, and the related statements of operations, shareholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of RCCM’s management. Our responsibility is to express an opinion on the 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. RCCM is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of RCCM’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such financial statements present fairly, in all material respects, the financial position of RCCM at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared from the separate records maintained by Rural Cellular Corporation and may not necessarily be indicative of the conditions that would have existed or the results of operations if RCCM had been operated as an unaffiliated company. Portions of certain income and expenses represent allocations made to and from RCCM, as discussed in Note 2 to the financial statements.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

March 11, 2008

131

RCC MINNESOTA, INC.

(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)

BALANCE SHEETS

	As of December 31,
	2007		2006
	(In thousands, except shares and per share data)
ASSETS
INTERCOMPANY RECEIVABLE	$	-	$	4,401
LICENSES AND OTHER ASSETS:
Licenses, net		433,198		421,509
Deferred tax asset		6,484		10,889
Total assets	$	439,682	$	436,799

LIABILITIES AND SHAREHOLDERS’ EQUITY


CURRENT LIABILITIES:
Inter-company payable	$	2,500	$	-
Other accrued expenses		27		10
Inter-company taxes payable		20,940		20,940
Total current liabilities		23,467		20,950
LONG-TERM LIABILITIES:
Inter-company long-term debt		327,134		333,361
Other long-term liabilities		22		37
Total liabilities		350,623		354,348

SHAREHOLDERS’ EQUITY:
Common stock; $0.01 par value; 200,000 shares authorized; 1,000 issued and outstanding		-		-
Additional paid-in capital		68,530		68,530
Accumulated equity		20,529		13,921
Total shareholders’ equity		89,059		82,451
	$	439,682	$	436,799

The accompanying notes are an integral part of these financial statements.

132

RCC MINNESOTA, INC.

(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)

STATEMENTS OF OPERATIONS

	Years Ended December 31,
(In thousands)	2007		2006			2005
REVENUE:
License management revenue	$	50,831	$	49,821		$	49,797
Total revenue		50,831		49,821			49,797
OPERATING EXPENSES:
Corporate management expense		6,639		5,079			2,939
Other operating		963		834			693
Impairment of assets		-		23,800			-
Total operating expenses		7,602		29,713			3,632
OPERATING INCOME		43,229		20,108			46,165
OTHER EXPENSE:
Inter-company interest		32,216		34,164			34,705
INCOME (LOSS) BEFORE INCOME TAX PROVISION		11,013		(14,056	)		11,460
INCOME TAX PROVISION (BENEFIT)		4,405		(5,623	)		4,639
NET INCOME (LOSS)	$	6,608	$	(8,433	)	$	6,821

The accompanying notes are an integral part of these financial statements.

133

RCC MINNESOTA, INC.

(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)

STATEMENTS OF SHAREHOLDERS’ EQUITY

For the years ended December 31, 2007, 2006, and 2005

	Additional Paid-In Capital		Accumulated Earnings			Total Shareholders’ Equity
	(In thousands)
BALANCE, December 31, 2004	$	1	$	15,533		$	15,534
Net income		-		6,821			6,821
Parent company capital contribution		68,529		-			68,529
BALANCE, December 31, 2005		68,530		22,354			90,884
Net loss		-		(8,433	)		(8,433	)
BALANCE, December 31, 2006		68,530		13,921			82,451
Net income		-		6,608			6,608
BALANCE, December 31, 2007	$	68,530	$	20,529		$	89,059

The accompanying notes are an integral part of these financial statements.

134

RCC MINNESOTA, INC.

(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)

STATEMENTS OF CASH FLOWS

(In thousands)	Years ended December 31,
	2007			2006			2005
OPERATING ACTIVITIES:
Net (loss) income	$	6,608		$	(8,433	)	$	6,821
Adjustments to reconcile to net cash provided by operating activities:
Impairment of assets		-			23,800			-
Deferred income taxes		4,405			(5,623	)		4,639
Other		(15	)		(3	)		-
Net cash provided by operating activities		10,998			9,741			11,460
INVESTING ACTIVITIES:
Assignment of licenses from wholly-owned subsidiaries of RCC.		-			(211	)		-
Acquisition of licenses		(11,900	)		-			-
Disposition of licenses		211			-			-
Other		17			50			-
Net cash used in investing activities		(11,672	)		(161	)		-
FINANCING ACTIVITIES:
Net change in inter-company / (receivable) / long-term debt		674			(9,580	)		(11,460	)
Net cash provided by (used in) financing activities		674			(9,580	)		(11,460	)
NET CHANGE IN CASH		-			-			-
CASH AND CASH EQUIVALENTS, at beginning of year		-			-			-
CASH AND CASH EQUIVALENTS, at end of year	$	-		$	-		$	-

The accompanying notes are an integral part of these financial statements.

135

RCC MINNESOTA, INC.

(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)

NOTES TO FINANCIAL STATEMENTS

1) Background and Basis of Presentation:

RCC Licenses, Inc., a wholly−owned subsidiary of Rural Cellular Corporation (“RCC”), was incorporated in 1997. In July 1998, RCC Licenses, Inc. changed its name to RCC Minnesota, Inc. (“RCCM”). RCCM’s operations are subject to the applicable rules and regulations of the Federal Communications Commission (“FCC”). Since inception, this subsidiary has not engaged in any business activity other than acquiring and holding FCC licenses and conducting business activities incidental to holding and acquiring FCC licenses.

The financial statements of RCCM are presented to comply with the requirement under Rule 3-16 of Regulation S-X of the Securities and Exchange Commission to provide financial statements of affiliates whose securities collateralize registered securities if certain significance tests are met.

The Verizon Wireless Merger.

On July 29, 2007, RCC entered into a merger agreement with Cellco Partnership, a general partnership doing business as Verizon Wireless, AirTouch Cellular, an indirect wholly-owned subsidiary of Verizon Wireless, and Rhino Merger Sub Corporation, a wholly-owned subsidiary of AirTouch Cellular referred to as Rhino Merger Sub, pursuant to which Rhino Merger Sub will merge with and into RCC with RCC continuing as the surviving corporation and becoming a subsidiary of Verizon Wireless. Accordingly, RCC Minnesota, Inc. will be involved in the merger due to it being a wholly-owned subsidiary of RCC. The merger is anticipated to close during the second quarter of 2008.

History of RCC Minnesota, Inc.

The following reflects the history of RCC Licenses, Inc., founded in 1997 and renamed RCC Minnesota, Inc. in 1998:

·	October 1997, RCC assigned the cellular licenses in its Midwest territory to RCC Licenses, Inc.

·	July 1998, RCC Licenses, Inc. changed its name to RCC Minnesota, Inc.

·	December 2000, RGI Group, Inc., Western Maine Cellular, Inc., RCC Holdings, Inc., and MRCC, Inc., wholly-owned subsidiaries of RCC, assigned certain licenses to RCCM. Management agreements between RCCM and RCC operating subsidiaries commenced on December 1, 2000.

·	January 2001, Star Cellular was acquired by RCC and assigned certain licenses to RCCM.

·	February 2001, RCCM entered into an agreement to sell its 10MHz PCS licenses in its Northwest territory.

·	October 2003, RCCM acquired 1900 MHz spectrum from AT&T Wireless Services, Inc. and one of its affiliates.

March 2004, RCCM exchanged certain wireless properties with AT&T Wireless. Under the agreement, RCCM sold to AT&T Wireless its Oregon RSA 4 license. RCCM received from AT&T Wireless licenses in Alabama and Mississippi. In addition, RCCM received from AT&T Wireless unbuilt PCS licenses covering portions of RCC's South, Midwest, and Northwest territories.

136

May 2004, RCC Holdings, a wholly-owned subsidiary of RCC, assigned licenses in its Alabama and Mississippi markets to RCCM.

·	November 2004, RCCM acquired additional 1900 MHz PCS licenses, which cover selected areas in its Midwest and Northwest territories.

·	January 2006, RCCM was assigned paging licenses, which cover selected areas in RCC’s Midwest Territory.

·	Rural Cellular Corporation completed the purchase of southern Minnesota wireless markets. As part of this purchase, the respective A-block cellular licenses covering Minnesota Rural Service Areas, or RSAs, 7, 8, 9, and 10 were transferred to RCCM.

Principles of Presentation

The financial statements include all of the accounts of RCC Minnesota, Inc., a wholly-owned, license-only subsidiary of Rural Cellular Corporation.

The financial information included herein may not necessarily be indicative of the financial position, results of operations or cash flows of RCCM in the future or what the financial position, results of operations or cash flows would have been if RCCM had been a separate, independent company during the periods presented.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Ultimate results could differ from those estimates.

2) Summary of Significant Accounting Policies:

Revenue Recognition — License management revenue

RCCM recognizes inter−company management revenue based upon agreements with RCC’s other operating subsidiaries, which have assigned all or a portion of their licenses to RCCM. Pursuant to these agreements, RCCM charges each of the other operating subsidiaries a fixed monthly amount for the use of the licenses based on a detailed transfer pricing analysis conducted by RCC.

Expense Recognition

Corporate management expense. RCCM recognizes an inter-company corporate management charge in accordance with an agreement with RCC’s other operating subsidiaries reflecting a proportionate share of RCC’s operating expenses. The allocation to RCCM is based on relative revenues.

Other operating expenses. RCCM recognizes other operating expenses, including costs directly related to legal and FCC license renewal fees.

Interest expense. In the years ended December 31, 2007 and 2006, RCCM recognized inter-company interest expense using a rate equal to the weighted average rate of RCC’s total external debt, including preferred securities.

137

Income Tax Provision

The income and expenses of RCCM are included in the consolidated federal income tax return of Rural Cellular Corporation and subsidiaries. Any tax benefit or provision generated by RCCM from such inclusion in Rural Cellular Corporation and subsidiaries consolidated federal income tax return is accounted for in taxes payable and deferred tax accounts. For financial reporting purposes, the income tax provision or benefit of RCCM has been computed as if it had filed separate federal and state income tax returns.

RCCM uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change.

Licenses

RCCM holds licenses either granted to it by the FCC, received through acquisition, or assigned to it from RCC’s other subsidiaries. The valuation of RCCM’s licenses reflects their original acquisition cost adjusted by subsequent impairment adjustments as determined by the application of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets”(“SFAS No. 142”).

The changes in carrying amount of licenses are as follows (in thousands):

	Years Ended December 31,
	2007		2006
Beginning of year	$	421,509	$	445,098
Net acquisitions		11,689		-
Impairment of assets		-		(23,800	)
Assigned from RCC wholly-owned subsidiary		-		211
End of year	$	433,198	$	421,509

RCCM is a wholly−owned subsidiary of RCC and applies SFAS No. 142 in evaluating license impairment. Impairment tests for indefinite−lived intangible assets, consisting of FCC licenses, are required to be performed on an annual basis or on an interim basis if an event occurs or circumstances change that would indicate the asset might be impaired. In accordance with Emerging Issues Task Force (“EITF”) No. 02−7, Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets, impairment tests for FCC licenses are performed on an aggregate basis by unit of accounting. RCCM utilizes a fair value approach, incorporating discounted cash flows, to complete the test. This approach determines the fair value of the FCC licenses, using start−up model assumptions and, accordingly, incorporates cash flow assumptions regarding the investment in a network, the development of distribution channels, and other inputs for making the business operational. These inputs are included in determining free cash flows of the unit of accounting, using assumptions of weighted average costs of capital and the long−term rate of growth for the unit of accounting. RCCM believes that its estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If any of the assumptions were to change, RCCM’s FCC licenses may become impaired.

RCC as a consolidated entity also tests for impairment as required under SFAS No. 142. This is done at the lowest reporting level for which identifiable cash flows exist. Under this guidance RCC identified five separate units of accounting. The testing required by SFAS No. 142 at the RCC level resulted in a $23.8 million in 2006, while no impairment resulted in 2007 and 2005. The impairment charge in 2006 primarily resulted from a decline in license valuation in our South territory.

138

Inter-company receivable / payable:

RCC funds RCCM through an inter-company account which may results in a receivable or payable. The balance adjusts as RCCM earns revenue and recognizes expense or as licenses are acquired or sold. This account is settled with the parent company on a periodic basis. Reflecting the April 2007 acquisition of southern Minnesota markets and its earned revenue and recognized expense, RCCM’s inter-company position was a $2.5 million payable at December 31, 2007. At December 31, 2006, RCCM’s inter-company position was a $4.4 million receivable.

Inter-company long- term debt:

RCCM’s long-term inter-company note matures on November 1, 2012. The note bears an interest rate equal to the weighted average cost of indebtedness of RCC and is adjusted annually. At December 31, 2007, $327 million was outstanding and the weighted average cost of indebtedness was 9.41%. At December 31, 2006, $333 million was outstanding and the weighted average cost of indebtedness was 9.95%. Inter-company note interest and the entire principal balance are due at maturity. Inter-company note interest may be pre-paid in whole or in part at anytime without premium or penalty.

Recently Issued Accounting Pronouncements

Measuring Fair Value. In September 2006, the FASB issued SFAS No. 157 (“SFAS No. 157”), Fair Value Measurements. This statement establishes a consistent framework for measuring fair value and expands disclosures on fair value measurements. SFAS No. 157 is effective for RCC starting in fiscal 2008. RCCM has not determined the impact, if any, the adoption of this statement will have on its consolidated financial statements. In February 2008, the FASB issued FASB Statement of Position, or FSP, No. 157-2 (“FSP 157-2”), Partial Deferral of the Effective Date of Statement 157, which delays the effective date of SFAS No. 157, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. Although we will continue to evaluate the application of SFAS No. 157, RCCM does not believe the adoption will have a material impact on its results of operations or financial position.

The Fair Value Option for Financial Assets and Financial Liabilities. In February 2007, the FASB issued SFAS Statement No. 159 (“SFAS No. 159”), The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS Statement 115, permitting entities to choose to measure many financial instruments and certain warranty and insurance contracts at fair value on a contract-by-contract basis. SFAS Statement 159 will be adopted January 1, 2008, as required by the statement. RCCM has not determined the impact, if any, the adoption of this statement will have on its consolidated financial statements.

The Company files as part of a consolidated group for federal and state income tax purposes. The consolidated group has net operating loss carryforwards, and therefore is subject to federal and state income tax examinations by the tax authorities for years beginning 1993 and forward.

3) Income Taxes:

RCCM’s reconciliation of income tax computed at the U.S. federal statutory rate to income tax benefit recorded in the consolidated financial statements was as follows:

	Year Ended December 31,
	2007			2006			2005
Tax at statutory rate		35.0	%		35.0	%		35.0	%
State taxes		5.0			5.0			5.0
		40.0	%		40.0	%		40.0	%

139

The components of the Company’s income tax provision consists of the following:

	Year Ended December 31,
(in thousands)	2007		2006			2005
Current
Federal	$	-	$	-		$	-
State		-		-			-
		-		-			-

Deferred
Federal		3,854		(4,920	)		4,059
State		551		(703	)		580
		4,405		(5,623	)		4,639
Total	$	4,405	$	(5,623	)	$	4,639

The income tax effect of the items that create deferred income tax assets are as follows:

	As of December 31,
(in thousands)	2007			2006
Deferred income tax assets:
Operating loss carryforwards	$	44,013		$	29,294
Total deferred income tax assets		44,013			29,294

Deferred income tax liabilities:
Intangible assets		(37,534	)		(18,405	)
Net deferred income tax asset	$	6,479		$	10,889

140

EXHIBIT INDEX

Exhibit No.	Document
2.1	Agreement and Plan of Merger by and among Cellco Partnership, Airtouch Cellular, and Rural Cellular Corporation dated July 29, 2007	[1]
2.2	Purchase Agreement with Alltel Communications, Inc.	[2]
3.1(a)	Articles of Incorporation	[3]
3.1(b)	Amendment to Articles of Incorporation effective March 24, 2000	[3]
3.2	Amended and Restated Bylaws, effective May 3, 2007	[4]
4.1(a)	Indenture dated March 25, 2004, between Rural Cellular Corporation, as Issuer, and U.S. Bank National Association, as trustee, with respect to the senior secured notes, including the forms of Senior Secured Notes	[5]
4.1(b)	Collateral Agreement dated as of March 25, 2004, made by Rural Cellular Corporation and each of its subsidiaries that are signatories in favor of U.S. Bank National Association, as Collateral Trustee	[5]
4.2	Indenture dated August 1, 2003 between Rural Cellular Corporation, as Issuer, and U.S. Bank National Association, as Trustee, with respect to the 9 7/8% Senior Notes Due 2010, including the form of 9 7/8% Senior Notes Due 2010	[6]
4.3	Indenture dated November 7, 2005 between Rural Cellular Corporation, as Issuer, and Wells Fargo Bank, National Association, as Trustee, with respect to the Senior Subordinated Floating Rate Notes Due 2012, including form of Senior Subordinated Notes Due 2012	[7]
4.4	Indenture dated as of May 30, 2007 by and between Rural Cellular Corporation and Wells Fargo Bank, N.A., Trustee, related to Floating Rate Senior Subordinated Notes Due 2013	[4]
4.5	Certificate of Designation of 11 3/8% Senior Exchangeable Preferred Stock	[8]
4.6	Certificate of Designation of 12 ¼% Junior Exchangeable Preferred Stock	[3]
4.7(a)	Class A Share Rights Agreement dated April 30, 1999	[9]
4.7(b)	Amendment to the Class A Share Rights Agreement dated March 31, 2000	[10]
4.7(c)	Amendment to the Class A Share Rights Agreement dated July 30, 2007	[11]
4.8(a)	Registration Rights Agreement dated March 31, 2000 by and between Rural Cellular Corporation and Telephone and Data Systems, Inc.	[12]
4.8(b)	Certificate of Designation of Voting Power, Preferences and Relative Participating, Optional and Other Special Rights, Qualifications and Restrictions of Class T Convertible Preferred Stock of Rural Cellular Corporation	[12]
4.9(a)	Preferred Stock Purchase Agreement dated April 3, 2000 among Rural Cellular Corporation, Madison Dearborn Capital Partners III, L.P., Madison Dearborn Special Equity III, L.P., Special Advisors Fund I, LLC, Boston Ventures Limited Partnership V and Toronto Dominion Investment, Inc. (collectively “Class M Investors”)	[12]
4.9(b)	Certificate of Designation of Voting Power, Preferences and Relative Participating, Optional and Other Special Rights, Qualifications and Restrictions of Class M Redeemable Voting Convertible Preferred Stock of Rural Cellular Corporation	[12]
4.9(c)	Registration Rights Agreement dated April 3, 2000 among Rural Cellular Corporation and Class M Investors	[12]
10.1(a)	Credit facility dated as of March 25, 2004 among Rural Cellular Corporation, Lehman Commercial Paper, Inc., as Administrative Agent, and Bank of America, N.A., as Documentation Agent	[5]
10.1(b)	Guarantee and Collateral Agreement dated as of March 25, 2004 among Rural Cellular Corporation, Lehman Commercial Paper Inc., as Administrative Agent, and Bank of America, N.A., as Documentation Agent	[5]
10.1(c)	Intercreditor Agreement, dated as of March 25, 2004, among Lehman Commercial Paper Inc., as Senior Agent and Account Agent, U.S. Bank National Association, as Indenture Trustee and Collateral Trustee, Rural Cellular Corporation, a Minnesota corporation, and the Guarantors	[5]
10.1(d)	First Amendment to Credit Agreement dated October 18, 2005	[13]
10.1 (e)	Second Amendment to Credit Agreement dated May 22, 2006	[13]
10.1 (f)	Third Amendment to Credit Agreement dated April 13, 2007	[4]
*10.2(a)	1995 Stock Compensation Plan, as amended	[14]
*10.2(b)	Amendment No. 6 to 1995 Stock Compensation Plan	[15]
*10.2(c)	Form of Restricted Stock Award Agreement pursuant to 1995 Stock Compensation Plan.	[5]
*10.3(a)	Rural Cellular Corporation 2006 Omnibus Incentive Plan	[16]
*10.3.(b)	Performance Restricted Stock Unit Agreement Pursuant to 2006 Omnibus Incentive Plan	[17]
*10.3(c)	Restricted Stock Unit Agreement pursuant to 2006 Omnibus Incentive Plan	[17]
*10.4(a)	Stock Option Plan for Nonemployee Directors, as amended	[18]
*10.4(b)	Amendment No. 5 to Stock Option Plan for Nonemployee Directors	[15]
*10.5	Amended and Restated Employment Agreement with Richard P. Ekstrand effective June 21, 2007	[4]
*10.6	Amended and Restated Employment Agreement with Wesley E. Schultz effective June 21, 2007	[4]
*10.7	Amended and Restated Employment Agreement with Ann K. Newhall effective June 21, 2007	[4]
*10.8	Amended and Restated Change of Control Agreement with David Del Zoppo effective June 21, 2007	[4]
*10.9(a)	Key Employee Deferred Compensation Plan	[19]
*10.9(b)	Amendment to Key Employee Deferred Compensation Plan	[20]
*10.9(c)	Second Amendment to Key Employee Deferred Compensation Plan	[7]
*10.10 (a)	Key Employee Deferred Compensation Plan II	[7]
*10.10 (b)	Amendment to Key Employee Deferred Compensation Plan II	***
**10.11(a)	Master Purchase Agreement dated March 14, 2002 by and between Rural Cellular Corporation and Ericsson Inc.	[21]
**10.11(b)	Addendum dated August 4, 2003 to Master Purchase Agreement	[21]
**10.11(c)	Restated and Amended Master Purchase Agreement with Ericsson, Inc.	[2]
** 10.11(d)	Master Hosted Services Agreement by and between Rural Cellular Corporation and Ericsson Inc. effective April 25, 2007	[4]
**10.11 (e)	Schedule No. 1 to Master Hosted Services Agreement	[4]
**10.11 (f)	Schedule No. 2 to Master Hosted Services Agreement	[4]
**10.12(a)	Intercarrier Multi-Standard Roaming and Colocation Agreement by and between Cingular Wireless LLC and Rural Cellular Corporation effective June 6, 2003 (“Roaming Agreement”)	[13]
**10.12(b)	Amendment No. 1 to Roaming Agreement	[13]
**10.13(a)	Billing Services and License Agreement between VeriSign, Inc and Rural Cellular Corporation	[22]
**10.13 (b)	Amendment No. One to Billing Services and License Agreement	[23]
** 10.13 (cb)	Amendment No. Two to Billing Services and License Agreement	[24]
**10.13 (d)	Amendment No. Three to Billing Services and License Agreement	[4]
**10.13 (e)	Amendment No. Four to Billing Services and License Agreement	[25]
**10.13 (f)	Amendment No. Five to Billing Services and License Agreement	***
**10.14	Purchase and License Agreement with Nortel Networks Incorporated	[2]
21	Subsidiaries of Registrant	***
23.1	Consent of Deloitte & Touche LLP regarding financial statements of Rural Cellular Corporation	***
23.2	Consent of Deloitte & Touche LLP regarding financial statements of RCC Minnesota, Inc.	***
31.1	Section 302 Certification Sarbanes-Oxley Act of 2002	***
31.2	Section 302 Certification Sarbanes-Oxley Act of 2002	***
32.1	Certification of principal executive officer and principal financial officer pursuant to Section 906 of Sarbanes Oxley Act	***

__________________


[1]	Filed as an exhibit to Report on Form 8-K dated July 29, 2007 and filed on July 30, 2007, and incorporated herein by reference.
[2]	Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2006 and incorporated herein by reference.
[3]	Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
[4]	Filed as an exhibit to Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference.
[5]	Filed as an exhibit to Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.
[6]	Filed as an exhibit to Report on Form 10-Q for quarter ended June 30, 2003, and incorporated herein by reference
[7]	Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
[8]	Filed as an exhibit to Registration Statement on Form S-4 (SEC No. 333-57677), filed June 25, 1998, and incorporated herein by reference.
[9]	Filed as an exhibit to Registration Statement on Form 8-A filed May 19, 1999 and incorporated herein by reference.
[10]	Filed as an exhibit to Registration Statement on Form 8-A/A-1 filed April 18, 2000 and incorporated herein by reference.
[11]	Filed as an exhibit to Report on Form 8-K dated July 29, 2007 and filed on August 2, 2007, and incorporated herein by reference.
[12]	Filed as an exhibit to Report on Form 8-K dated April 1, 2000 and incorporated herein by reference.
[13]	Filed as an exhibit to Amendment No. 1 to Registration Statement on Form S-4 (SEC No. 333-132744), filed June 7, 2006, and incorporated herein by reference.
[14]	Filed with definitive Proxy Statement for 2000 Annual Meeting on April 7, 2000 and incorporated herein by reference.
[15]	Filed as an exhibit to Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference.
[16]	Filed as an exhibit to Report on Form 8-K dated May 26, 2006, and incorporated herein by reference.
[17]	Filed as an exhibit to Report on Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
[18]	Filed with definitive Proxy Statement for 2002 Annual Meeting on April 8, 2002 and incorporated herein by reference.
[19]	Filed as an exhibit to Report on Form 10-Q/A for the quarter ended June 30, 2001, and incorporated herein by reference.
[20]	Filed as an exhibit to Report on Form 10-K for year ended December 31, 2002, and incorporated herein by reference
[21]	Filed as an exhibit to Report on Form 10-K/A for the year ended December 31, 2003, and incorporated herein by reference.
[22]	Filed as an exhibit to Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference.
[23]	Filed as an exhibit to Report on Form 10-Q/A for the quarter ended June 30, 2006, and incorporated herein by reference.
[24]	Filed as an exhibit to Report on Form 10-K/A for the year ended December 31, 2006 and incorporated herein by reference.
[25]	Filed as an exhibit to Report on Form 10-Q/A for the quarter ended September 30, 2007 and incorporated herein by reference.
*	Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form.
**	Portions of this exhibit have been omitted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to Registrant’s request for confidential treatment of such information under Rule 24b-2 of the Securities Exchange Act of 1934.
***	Filed herewith.

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