ALEC HOLDINGS INC
S-1, 1999-10-08
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1999
                                                    REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                    FORM S-1
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933
                             ---------------------

                              ALEC HOLDINGS, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                   <C>                                   <C>
              DELAWARE                                6719                               52-2126573
    (State or other jurisdiction          (Primary Standard Industrial                (I.R.S. Employer
 of incorporation or organization)        Classification Code Number)              Identification Number)
</TABLE>

                            510 L. STREET, SUITE 500
                            ANCHORAGE, ALASKA 99501
                                 (907) 297-3000
  (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)

                          ---------------------------

                              MICHAEL E. HOLMSTROM
               SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
                              ALEC HOLDINGS, INC.
                            510 L. STREET, SUITE 500
                            ANCHORAGE, ALASKA 99501
                                 (907) 297-3000
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for services)
                          ---------------------------

                                   COPIES TO:

<TABLE>
<S>                                     <C>
      MITCHELL S. PRESSER, ESQ.              WILLIAM P. ROGERS, JR., ESQ.
    WACHTELL, LIPTON, ROSEN & KATZ             CRAVATH, SWAINE & MOORE
        51 WEST 52(ND) STREET                     825 EIGHTH AVENUE
       NEW YORK, NY 10019-6150                 NEW YORK, NY 10019-7475
            (212) 403-1000                          (212) 474-1270
</TABLE>

                          ---------------------------

    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
                          ---------------------------

    If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, check the following box. / /
                          ---------------------------

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
                                                                      PROPOSED MAXIMUM
                     TITLE OF EACH CLASS OF                              AGGREGATE                 AMOUNT OF
                  SECURITIES TO BE REGISTERED                        OFFERING PRICE(1)          REGISTRATION FEE
<S>                                                               <C>                       <C>
Common Stock, par value $.01 per share..........................        $200,000,000                $55,600
</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
    fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
                 SUBJECT TO COMPLETION. DATED OCTOBER 8, 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]

                                          Shares

                              ALEC HOLDINGS, INC.

                                  Common Stock
                                ----------------

    This is an initial public offering of shares of common stock of ALEC
Holdings, Inc. All of the          shares are being sold by ALEC Holdings.

    Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $      and $      . Application will be made for quotation
of the common stock on the Nasdaq National Market under the symbol "ALSK".

    SEE "RISK FACTORS" ON PAGE 11 TO READ ABOUT FACTORS YOU SHOULD CONSIDER
BEFORE BUYING SHARES OF THE COMMON STOCK.

                             ---------------------

    NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

                             ---------------------

<TABLE>
<CAPTION>
                                                                                              PER SHARE     TOTAL
                                                                                             -----------  ---------
<S>                                                                                          <C>          <C>
Initial public offering price..............................................................   $           $
Underwriting discount......................................................................   $           $
Proceeds, before expenses, to ALEC Holdings................................................   $           $
</TABLE>

    To the extent that the underwriters sell more than       shares of common
stock, the underwriters have the option to purchase up to an additional
      shares from ALEC Holdings at the initial public offering price less the
underwriting discount.

                             ---------------------

    The underwriters expect to deliver the shares against payment in New York,
New York on             , 1999.

                             ---------------------

GOLDMAN, SACHS & CO.                                DONALDSON, LUFKIN & JENRETTE

             CIBC WORLD MARKETS

                           DEUTSCHE BANC ALEX. BROWN

                                         HAMBRECHT & QUIST

                             ---------------------

                      Prospectus dated             , 1999.
<PAGE>
                               PROSPECTUS SUMMARY

    THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS.

                                  OUR BUSINESS

    We are the leading diversified, facilities-based telecommunications provider
in Alaska, offering local telephone, wireless, long distance, data and Internet
services to business and residential customers throughout the state. We are the
only telecommunications provider in Alaska using its own network facilities to
provide end-to-end communications services to its customers.

    LOCAL TELEPHONE.  With over 320,000 access lines, representing 75% of the
access lines in Alaska, we are the largest local exchange carrier in Alaska and
the 15th largest in the U.S. We provide service to all of the state's major
population centers, including Anchorage, Juneau and Fairbanks.

    WIRELESS.  We are the largest and only statewide provider of wireless
services in Alaska, currently serving over 70,000 subscribers. Our wireless
network covers over 460,000 residents, including all major population centers
and highway corridors. We are in the process of upgrading our network to be
fully digital in all of our service areas by year-end 1999.

    LONG DISTANCE.  We provide long distance and other interexchange services to
approximately 26,000 customers primarily in Anchorage and intend to market these
services statewide beginning in the first quarter of 2000. We recently migrated
long distance traffic from leased circuits onto our own network infrastructure,
which we believe will result in significant cost savings over time.

    DATA AND INTERNET.  We are the third largest provider of Internet access
services in Alaska, with approximately 16,000 customers. We also own 28.5% of
the second largest Internet services provider in Alaska, with approximately
28,000 customers. We currently offer dedicated and dial-up Internet access to
our customers and intend to offer digital subscriber line, or DSL, services by
year-end 1999.

    Our telecommunications network includes over 485 miles of fiber optic cable,
176 switching facilities and a statewide cellular network. In addition, we
recently purchased fiber capacity for high speed links within Alaska and for
termination of traffic in the lower 48 states. We plan to continue enhancing our
network to meet customer demand for increased bandwidth and advanced services.

    For the year ended December 31, 1998, on a pro forma basis, we would have
had combined revenues of $281.6 million, operating income of $40.6 million,
Adjusted EBITDA, as defined under "Summary Unaudited Pro Forma Combined
Financial and Operating Data", of $106.1 million and a net loss of $17.3
million.

    We were formed in 1998 by Fox Paine & Company, LLC, members of the former
senior management team of Pacific Telecom, Inc., and other experienced
telecommunications industry executives. In May 1999, we acquired the Alaska
telecommunications properties of Century Telephone Enterprises, Inc. and
substantially all of the assets and liabilities of the Anchorage Telephone
Utility, or ATU. Century's Alaska properties were the incumbent provider of
local telephone services in Juneau, Fairbanks and more than 70 rural communities
in Alaska and provided Internet services to customers statewide. ATU was the
largest local exchange carrier in Alaska and provided local telephone and long
distance services primarily in Anchorage and cellular services statewide.

                                       3
<PAGE>
                            OUR BUSINESS OPPORTUNITY

    Alaska is characterized by its large geographic size, widely dispersed
population and large distance between urban areas. Over 60% of the state's
population resides in its three largest cities, Anchorage, Juneau and Fairbanks.
Alaska lacks an effective ground transportation infrastructure, and many of the
state's communities are accessible only by air or water. As a result, Alaskans
are particularly dependent on telecommunications services to access resources
and information unavailable in their communities. We estimate that Alaskan
telecommunications businesses generated aggregate revenues of $1 billion in
1998.

    Alaska's income and demographic characteristics provide opportunities for
significant growth of telecommunications services. Alaska has the highest median
household income in the U.S. In addition, Alaskans pay no state personal income
taxes and receive an annual per capita payment from the Alaska Permanent Fund.
The population in Alaska has been growing at a compound annual rate of 1.3% over
the last ten years, compared to 1.0% for the U.S. as a whole. The U.S. Census
Bureau projects that Alaska's population will grow at a compound annual rate of
1.9%, as compared to 0.8% for the U.S. as a whole, through 2005.

    We believe that the outlook for growth in our businesses is favorable due to
the fundamental demand for telecommunications, including:

    - continued demand for core telephone services and enhanced service
      offerings, such as voice mail and call waiting,

    - access line growth due to population growth and the demand for multiple
      lines,

    - increasing demand for wireless services and

    - DSL and Internet access growth due to higher business and consumer
      bandwidth needs for data and Internet services.

                                       4
<PAGE>
                             OUR BUSINESS STRATEGY

    As part of our business strategy, we intend to:

    LEVERAGE OUR NETWORK AND CUSTOMER BASE.  Our competitive position as the
leading diversified, facilities-based telecommunications provider in Alaska
affords us a valuable opportunity to capitalize on the growing demand for
communications services. In particular, we intend to:

        PROVIDE ONE-STOP COMMUNICATIONS SERVICES.  We intend to offer a complete
    suite of telecommunications and data services, including:

      - local telephone,

      - wireless,

      - long distance and

      - data and Internet services.

        INCREASE PENETRATION OF ENHANCED SERVICES.  We seek to achieve a higher
    penetration of high-margin enhanced services. Offered services include:

      - call waiting,

      - caller ID,

      - call forwarding and

      - voice mail.

        OFFER COMPLEMENTARY COMMUNICATIONS AND MEDIA SERVICES.  We currently
    offer ISDN and other high-speed data services and intend to expand our
    service offerings to include:

      - DSL services by year-end 1999,

      - virtual private networks and

      - statewide Centrex services, such as four-digit dialing.

    PROVIDE SUPERIOR CUSTOMER SERVICE. We are committed to building strong
customer relationships by providing high-quality customer care. We intend to
increase customer loyalty and retention by:

    - improving call response times,

    - providing one-call customer solutions and

    - offering online customer account management services.

    BUILD THE LEADING COMMUNICATIONS BRAND IN ALASKA.  Through future promotion
of all of our service offerings under the "Alaska Communications Systems" brand
name, we intend to take advantage of our statewide presence and centralized
marketing to:

    - build superior brand awareness,

    - drive greater penetration of our products and services and

    - create higher demand for premium-priced branded services.

    REALIZE OPERATING EFFICIENCIES.  We seek to realize significant operating
efficiencies by:

    - eliminating duplicative overhead from our recent acquisitions,

    - investing in new cost-effective information technology and

    - creating an integrated, low cost network.

    PURSUE SELECTED STRATEGIC ACQUISITIONS. We intend to pursue selected
investments in or acquisitions of:

    - local exchange carriers in Alaska and

    - entities whose businesses complement our existing product and service
      offerings.

                                       5
<PAGE>
                                  THE OFFERING

<TABLE>
<S>                                                                          <C>
Shares of common stock offered.............................................          shares
Shares of common stock outstanding after the offering......................          shares
</TABLE>

                             ---------------------

<TABLE>
<S>                                            <C>
Proposed Nasdaq National Market Symbol.......  "ALSK"

Use of Proceeds..............................  We estimate that we will receive net proceeds
                                               from the offering of approximately $161.0
                                               million. We will use $20.5 million of the net
                                               proceeds to repay debt, including:

                                               -  $10.5 million to redeem a portion of our
                                                  senior discount debentures, including a
                                                  $1.2 million redemption premium, and

                                               -  $10.0 million of borrowings under our
                                                  revolving credit facility.

                                               We intend to use the balance of the net
                                               proceeds for capital expenditures, strategic
                                               investments and acquisitions, including
                                               acquisitions of access lines, and general
                                               corporate purposes. Depending on the timing
                                               of these expenditures, we may also use a
                                               portion of the proceeds to repay a portion of
                                               our outstanding term loans. The senior
                                               discount debentures and senior credit
                                               facility are described under "Description of
                                               Indebtedness-- The Senior Credit Facility"
                                               and "--The ALEC Holdings Senior Discount
                                               Debentures".
</TABLE>

    The calculation of the shares outstanding after the offering is based upon
the number of shares outstanding on              , 1999. The calculation of the
shares outstanding after the offering does not include 3,350,497 shares issuable
upon exercise of outstanding options granted to our directors, officers,
employees and consultants issued under our stock incentive plan, which is
described under "Management--ALEC Holdings, Inc. 1999 Stock Incentive Plan".
Also, the calculation of the shares outstanding after the offering assumes that
the underwriters will not exercise the option granted by us to purchase up to
       additional shares of common stock in the offering, as described under
"Underwriting".

                                       6
<PAGE>
       SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL AND OPERATING DATA

    The following summary unaudited pro forma combined financial and operating
data are based on the financial statements of Century's Alaska properties and
ATU, as adjusted to illustrate the estimated effects of:

    - the acquisition in May 1999 of Century's Alaska properties,

    - the acquisition in May 1999 of ATU,

    - the purchase in June 1999 of fiber capacity for $19.5 million,

    - the financings entered into to complete these acquisitions and

    - the offering and the application of the net proceeds of the offering, as
      described under "Use of Proceeds",

as if they had occurred at the beginning of the periods presented with respect
to the operating, financial and other data and on June 30, 1999 with respect to
the balance sheet data.

    The summary unaudited pro forma combined financial and operating data do not
purport to be indicative of what our financial position or results of operations
would actually have been had these transactions been completed on the dates
indicated, or to project our results of operations for any future period, and
should be read in conjunction with "Unaudited Pro Forma Combined Financial
Statements", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and the related notes which
are included elsewhere in this prospectus.

    You should also keep the following points in mind as you read the table.

    - "Other income (expense)" includes the equity in losses of minority
      investments, which were $2,945,000 for the year ended December 31, 1998
      and $1,282,000 for the six months ended June 30, 1999.

    - Net cash data includes information from ATU's financial statements
      prepared according to governmental accounting standards. The differences
      between governmental accounting standards and the standards promulgated by
      the Financial Accounting Standards Board, and their impact on ATU's
      financial statements, are discussed in Note 1 to the financial statements
      of Municipality of Anchorage Telephone Utility Fund which are included
      elsewhere in this prospectus.

    - "EBITDA" is net income before interest expense, income taxes, depreciation
      and amortization. EBITDA is not intended to represent cash flow from
      operations as defined under generally accepted accounting principles, and
      should not be considered as an alternative to net income as an indicator
      of our operating performance or cash flows. EBITDA is included in this
      prospectus because management believes it is a useful financial
      performance measure for comparing companies in the telecommunications
      industry in terms of operating performance and ability to satisfy debt
      service, capital expenditure and working capital requirements.

    - "Adjusted EBITDA" for the year ended December 31, 1998 is EBITDA increased
      by:

        - the net effect of the elimination of one-time duplicative
          administrative charges resulting from Century's acquisition of Pacific
          Telecom, and the related loss of revenues, in the amount of
          $1,399,000,

        - unrealized access revenues in the amount of $417,000 that were not
          recovered in 1998 but are being recovered in 1999,

        - the net effect of reduced operating expenses, primarily leased circuit
          expenses, partially offset by higher maintenance expenses, that would
          have been experienced had the purchase of fiber capacity occurred

                                       7
<PAGE>
          on January 1, 1998, in the amount of $2,047,000 and

        - the equity in losses of minority investments, which were $2,945,000.

    - "Adjusted EBITDA" for the six months ended June 30, 1999 is EBITDA:

        - increased by (1) $1,024,000 net cost savings related to the purchase
          of fiber capacity, (2) $6,577,000 of non-recurring expense and
          transaction costs associated with our acquisitions of Century's Alaska
          properties and ATU and (3) the equity in losses of minority
          investments, which were $1,282,000, and

        - decreased by $1,570,000 of revenues related to prior periods.

    - Operating cash flows would have been increased by $2,047,000 for the year
      ended December 31, 1998 and by $1,024,000 for the six months ended June
      30, 1999, had the purchase of fiber capacity occurred on January 1, 1998.

    - "Pro forma cash interest expense" is defined as interest expense exclusive
      of amortization of deferred financing costs.

    - "Access lines in service" includes all revenue producing lines connected
      to retail or wholesale customers.

<TABLE>
<CAPTION>
                                                                               YEAR ENDED        SIX MONTHS ENDED
                                                                            DECEMBER 31, 1998     JUNE 30, 1999
                                                                           -------------------  ------------------
<S>                                                                        <C>                  <C>
                                                                                   (DOLLARS IN THOUSANDS)
OPERATING DATA:
Operating revenues.......................................................      $   281,606         $    145,236
Operating expenses.......................................................          240,986              127,059
                                                                                ----------           ----------
Operating income.........................................................           40,620               18,177
Interest expense, net....................................................          (55,356)             (28,183)
Other income (expense)...................................................           (2,540)                (781)
                                                                                ----------           ----------
Loss before income taxes.................................................          (17,276)             (10,787)
Income taxes.............................................................               --                   --
                                                                                ----------           ----------
Net loss.................................................................      $   (17,276)        $    (10,787)
                                                                                ----------           ----------
                                                                                ----------           ----------
OTHER FINANCIAL DATA:
Net cash provided by operating activities................................      $    52,308         $     58,066
Net cash used by investing activities....................................          (32,323)            (704,986)
Net cash provided by financing activities................................          103,240              749,787
EBITDA...................................................................           99,301               46,555
Adjusted EBITDA..........................................................          106,109               53,868
Pro forma cash interest expense..........................................           51,538               26,135
Capital expenditures.....................................................           56,443               30,242
OTHER DATA (END OF PERIOD):
Access lines in service..................................................          305,334              318,227
Cellular subscribers.....................................................           66,572               69,581
Cellular penetration.....................................................             14.5%                15.1%
</TABLE>
<TABLE>
<CAPTION>
                                                                                     AS OF JUNE 30, 1999
                                                                           ---------------------------------------
<S>                                                                        <C>                  <C>
                                                                                                   AS ADJUSTED
                                                                                 ACTUAL            FOR OFFERING
                                                                           -------------------  ------------------

<CAPTION>
                                                                                       (IN THOUSANDS)
<S>                                                                        <C>                  <C>
BALANCE SHEET DATA:
Current assets...........................................................      $    61,059         $    214,755
Net property, plant and equipment........................................          420,908              420,908
Total assets.............................................................          796,346              941,677
Current liabilities......................................................           50,781               42,081
Long-term debt including current portion.................................          614,013              607,044
Stockholders' equity.....................................................          122,219              283,219
</TABLE>

                                       8
<PAGE>
    SUMMARY HISTORICAL COMBINED FINANCIAL DATA--CENTURY'S ALASKA PROPERTIES

    The following table sets forth summary historical combined financial data of
Century's Alaska properties. You should keep the following points in mind as you
read the table.

    - We derived the summary historical combined financial data included in the
      table from the combined financial statements and the related notes of
      Century's Alaska properties, some of which are included elsewhere in this
      prospectus.

    - Century acquired its Alaska properties on December 1, 1997 as part of its
      acquisition of Pacific Telecom. This acquisition was accounted for as a
      purchase, resulting in a pushdown of $208.0 million of goodwill to
      Century's Alaska properties.

    - The data for the year ended December 31, 1997 represent the results of
      Century's Alaska properties for the first 11 months of the year, as owned
      by Pacific Telecom, and the last month of the year, as owned by Century.
    - The data include the results of the telephone operation of the City of
      Fairbanks from October 6, 1997, the date of its acquisition. This
      acquisition was accounted for as a purchase.

    - On December 31, 1997, the cellular operations of Fairbanks were sold to
      ATU.
    The summary historical combined financial data should be read in conjunction
with "Selected Historical Combined Financial Data--Century's Alaska Properties",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements and the related notes of
Century's Alaska properties which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
                                                                                                             THREE MONTHS
                                                                                                                ENDED
                                                                 YEAR ENDED DECEMBER 31,                      MARCH 31,
                                                  -----------------------------------------------------  --------------------
<S>                                               <C>        <C>        <C>        <C>        <C>        <C>        <C>
                                                    1994       1995       1996       1997       1998       1998       1999
                                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------

<CAPTION>
                                                                            (DOLLARS IN THOUSANDS)
<S>                                               <C>        <C>        <C>        <C>        <C>        <C>        <C>
OPERATING DATA:
Operating revenues..............................  $  69,402  $  75,071  $  80,773  $  94,886  $ 124,509  $  28,375  $  31,361
Operating expenses..............................     52,795     55,506     60,518     70,356    104,595     23,990     25,451
                                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Operating income................................     16,607     19,565     20,255     24,530     19,914      4,385      5,910
Interest expense, net...........................     (2,459)    (2,331)    (1,996)    (2,340)    (1,405)      (302)      (358)
Other income (expense)..........................      1,094     (1,020)       (33)      (245)       356        357         80
                                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Income before income taxes......................     15,242     16,214     18,226     21,945     18,865      4,440      5,632
Income taxes....................................      5,962      5,713      6,737      8,482      9,218      2,214      2,709
                                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Net income......................................  $   9,280  $  10,501  $  11,489  $  13,463  $   9,647  $   2,226  $   2,923
                                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------
OTHER FINANCIAL DATA:
Net cash provided by operating activities.......  $  22,510  $  29,917  $  34,589  $  26,801  $  38,291  $  11,025  $  14,103
Net cash provided (used) by investing
  activities....................................    (21,151)   (19,587)   (20,611)   (16,833)   (26,664)     1,947     (2,339)
Net cash used by financing activities...........     (1,659)   (10,578)   (12,947)   (10,772)    (6,770)   (11,587)    (6,753)
EBITDA..........................................     30,790     32,861     35,570     42,574     50,729     11,951     13,775
EBITDA margin...................................       44.4%      43.8%      44.0%      44.9%      40.7%      42.1%      43.9%
Capital expenditures............................  $  21,001  $  19,437  $  20,465  $  16,400  $  26,799  $   2,321  $   2,200

OTHER DATA (END OF PERIOD):
Access lines in service.........................     73,563     77,660     82,969    124,869    131,858    128,023    134,276
Cellular subscribers............................      3,058      3,950      5,573      2,096      2,945      2,546      3,417
Cellular penetration............................        2.1%       2.7%       3.8%       3.7%       5.2%       4.6%       5.2%
</TABLE>

                                       9
<PAGE>
                     SUMMARY HISTORICAL FINANCIAL DATA--ATU

    The following table sets forth summary historical financial data of ATU. You
should keep the following points in mind as you read the table.

    - We derived the summary historical combined financial data included in the
      table from the financial statements and related notes of ATU, some of
      which are included elsewhere in this prospectus.

    - ATU was a public utility of the Municipality of Anchorage and was exempt
      from federal and state income taxes.

    - Net cash data includes information from ATU's financial statements
      prepared in accordance with governmental accounting standards. The
      differences between governmental accounting standards and the standards
      promulgated by the Financial Accounting Standards Board, and their impact
      on ATU's financial statements, are discussed in Note 1 to the financial
      statements of Municipality of Anchorage Telephone Utility Fund which are
      included elsewhere in this prospectus.

    The summary historical financial data below should be read in conjunction
with "Selected Historical Financial Data--ATU", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes of ATU which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
                                                                                                           THREE MONTHS
                                                                                                              ENDED
                                                               YEAR ENDED DECEMBER 31,                      MARCH 31,
                                                -----------------------------------------------------  --------------------
<S>                                             <C>        <C>        <C>        <C>        <C>        <C>        <C>
                                                  1994       1995       1996       1997       1998       1998       1999
                                                ---------  ---------  ---------  ---------  ---------  ---------  ---------

<CAPTION>
                                                                          (DOLLARS IN THOUSANDS)
<S>                                             <C>        <C>        <C>        <C>        <C>        <C>        <C>
OPERATING DATA:
Operating revenues............................  $ 117,911  $ 122,681  $ 130,314  $ 139,941  $ 157,097  $  36,758  $  39,757
Operating expenses............................     96,970    102,009    109,398    120,932    134,204     31,276     34,261
                                                ---------  ---------  ---------  ---------  ---------  ---------  ---------
Operating income..............................     20,941     20,672     20,916     19,009     22,893      5,482      5,496
Interest expense, net.........................     (7,565)    (6,706)    (6,840)    (6,768)    (6,427)    (1,840)    (1,585)
Other income (expense)........................       (328)      (322)      (219)      (123)     2,896       (183)      (423)
                                                ---------  ---------  ---------  ---------  ---------  ---------  ---------
Income before income taxes....................     13,048     13,644     13,857     12,118     13,570      3,459      3,488
Income taxes..................................         --         --         --         --         --         --         --
                                                ---------  ---------  ---------  ---------  ---------  ---------  ---------
Net income....................................  $  13,048  $  13,644  $  13,857  $  12,118  $  13,570  $   3,459  $   3,488
                                                ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                ---------  ---------  ---------  ---------  ---------  ---------  ---------
OTHER FINANCIAL DATA:
Net cash provided by operating activities.....  $  42,382  $  43,412  $  42,120  $  46,641  $  53,207  $   8,394  $  10,735
Net cash provided (used) by investing
  activities..................................     13,577      1,057       (787)    (3,665)    (5,659)    (8,044)    (1,568)
Net cash provided (used) by financing
  activities..................................    (57,169)   (53,518)   (30,095)   (46,916)   (33,580)    16,631    (12,150)
EBITDA........................................     39,549     39,608     41,193     45,725     49,605     12,398     12,507
EBITDA margin.................................       33.5%      32.3%      31.6%      32.7%      31.6%      33.7%      31.5%
Capital expenditures..........................  $  33,328  $  27,958  $  24,958  $  35,187  $  29,644  $   8,404  $   3,383

OTHER DATA (END OF PERIOD)
Access lines in service.......................    144,869    147,934    154,752    158,486    168,536    164,569    170,343
Cellular subscribers..........................     13,684     24,855     37,651     53,035     63,627     54,436     63,779
Cellular penetration..........................        4.7%       8.4%      12.6%      13.3%      15.8%      13.7%      15.8%
</TABLE>

                                       10
<PAGE>
                                  RISK FACTORS

    AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS, TOGETHER WITH THE OTHER INFORMATION IN
THIS PROSPECTUS, BEFORE DECIDING TO PURCHASE SHARES OF OUR COMMON STOCK.

THE TELECOMMUNICATIONS INDUSTRY IS EXTREMELY COMPETITIVE, AND WE MAY HAVE
  DIFFICULTY COMPETING EFFECTIVELY

    As the incumbent local exchange carrier, we face competition mainly from
resellers, local providers who lease unbundled network elements from us and, to
a lesser degree, from facilities-based providers of local telephone services. In
September 1997, GCI, Inc. and AT&T Alascom, Inc., the two largest long distance
carriers in Alaska, began providing competitive local telephone services in
Anchorage: GCI principally through unbundled network element interconnection
with ATU's facilities, and AT&T Alascom through the resale of ATU's services. As
a result, ATU lost approximately 19% of its retail access lines in Anchorage to
these competitors during the first ten months of competition ended June 1998,
and these competitors currently have approximately 23% of the retail access
lines in Anchorage. We cannot be sure that we will not continue to lose
customers to GCI and AT&T Alascom or to other new providers of local telephone
service.

    As "rural telephone companies" under the Telecommunications Act, our rural
local exchange carriers have historically been exempt from the obligation to
lease their facilities to competitive local exchange carriers seeking to
interconnect with their networks. However, on June 30, 1999, the Alaska Public
Utility Commission, commonly known as the APUC, terminated these exemptions.
While we are contesting this action, we may eventually be required to allow
interconnection to competitors in some or all of these rural service areas and
our results of operations could be materially adversely affected. The
termination of the rural exemptions is more fully described under "--Revocation
of the substantial protections from competition granted to our rural local
exchange carriers under the Telecommunications Act of 1996 could result in
increased competition". In addition, while cellular telephone services have
historically complemented traditional local exchange carrier services, we
anticipate that existing and emerging wireless technologies may increasingly
compete with local exchange carrier services.

    With respect to our wireless services, we currently compete with at least
one other cellular provider in each of our wireless service areas. In addition,
we have one PCS competitor in Anchorage. Some of our competitors are formidable,
with financial and technical resources greater than ours.

    In long distance, we currently have less than 2.5% of total long distance
revenues in Alaska and face competition from AT&T Alascom and GCI, the two major
long distance providers in Alaska.

    In the highly competitive Internet access services business, we expect that
competition will intensify in the future due to the absence of significant
barriers to entry. We currently compete with a number of established online
services companies, interexchange carriers and cable companies.

    Aggressive competition in all of the markets in which we operate could
result in:

    - reductions in our customer base,

    - the lowering of rates and other prices in order to compete and

    - increased marketing expenditures and use of discounting and promotional
      campaigns that would adversely affect our margins.

                                       11
<PAGE>
FAILURE TO INTEGRATE OUR RECENT ACQUISITIONS SUCCESSFULLY MAY PREVENT US FROM
  REALIZING PLANNED OPERATING GAINS AND EFFICIENCIES AND OTHERWISE FROM
  IMPLEMENTING OUR BUSINESS STRATEGY

    Our ability to operate successfully is dependent on our ability to integrate
the operations of Century's Alaska properties and ATU and manage the growth
expected to result from the combination of those businesses. Our success will
depend on our ability to, among other things:

    - retain and assimilate qualified managerial, professional and technical
      personnel from the acquired businesses,

    - centralize general and administrative support services and information
      technology platforms, and coordinate and integrate operational, financial
      and management processes, systems and controls, including the development
      of effective systems relating to ordering, provisioning and billing for
      telecommunication services,

    - successfully market all of our service and product offerings under a
      unified brand name, while raising brand awareness among our customers,

    - adopt and maintain uniform standards, control procedures and policies,

    - manage growth in our service and product offerings, while avoiding
      disruption of our existing business and

    - preserve good relationships with our suppliers, employees and customers.

    The expansion of our operations also will depend on our ability to, among
other things, assess markets, forecast regulatory trends, identify, finance and
complete suitable acquisitions and continue to expand and upgrade our network
backbone, all in a timely manner, at reasonable cost and on satisfactory terms
and conditions.

    Failure to successfully integrate our recent acquisitions or any businesses
we may acquire in the future could adversely impact our business strategy and
materially adversely effect our results of operations.

WE HAVE A SHORT OPERATING HISTORY WITH RESPECT TO OUR CURRENT BUSINESSES

    Prior to May 1999, substantially all of our current businesses were
conducted as part of Century or the Municipality of Anchorage and their
affiliates. After our acquisitions of Century's Alaska properties and ATU in May
1999, we engaged in business as an independent entity for the first time and
have since made significant changes, including personnel and organizational
changes.

THE ESTABLISHMENT OF A NEW REGULATORY AGENCY IN ALASKA MAKES THE DIRECTION OF
  INTRASTATE REGULATORY POLICY LESS CLEAR

    Effective on July 1, 1999, the APUC was extinguished by legislative action
and a new Regulatory Commission of Alaska, or RCA, was established. The statutes
and regulations of the state applicable to our businesses remained largely
intact and are now administered by the RCA. None of the former APUC
commissioners was appointed to the RCA, and only one of the new RCA
commissioners has prior APUC experience. Given the large number of proceedings
currently before the RCA, including those addressing various aspects of local
exchange competition, access charges and universal service, the creation of a
new commission increases regulatory uncertainty regarding the timing and
direction of state regulatory policies.

REVOCATION OF THE SUBSTANTIAL PROTECTIONS FROM COMPETITION GRANTED TO OUR RURAL
  LOCAL EXCHANGE CARRIERS UNDER THE TELECOMMUNICATIONS ACT OF 1996 COULD RESULT
  IN INCREASED COMPETITION

    On June 30, 1999, the APUC issued an order revoking the regulatory
exemptions that our rural local exchange carriers hold. These exemptions permit
local exchange operating companies in rural areas to refuse to offer
interconnection to competitors. If this revocation is not reversed by the RCA or
by court action, and if we are not permitted to charge competitors compensatory
rates for

                                       12
<PAGE>
interconnection and for the lease of unbundled network elements, our financial
and operating results could be adversely affected.

    We have filed a petition with the RCA seeking reconsideration of the
revocation of the rural exemptions and we may seek judicial relief. We also have
filed with the RCA an application for approval for the rates we would charge for
interconnection. If the revocation is upheld and rates for interconnection are
not established through tariff proceedings or negotiation with competitors, they
would be established through an arbitration proceeding. We cannot predict the
outcome of these proceedings.

    Additionally, during the last legislative session, a bill was proposed in
the Alaska state senate to open to competition many local telephone markets in
Alaska having 5,000 or more access lines, effectively depriving incumbent local
exchange carriers in those markets of their rural exemptions. While this bill
was not enacted into law, we cannot predict whether or to what extent proposals
included in the bill will be offered again and enacted into law. To the extent
the markets of our rural local exchange carriers are opened to competition by
the APUC's termination of the rural exemptions, we do not believe that the
marginal effect of passage of the proposed bill on our business would be
material.

A REDUCTION OF THE RATES WE CHARGE OUR LOCAL TELEPHONE CUSTOMERS BY THE RCA
  WOULD REDUCE OUR REVENUES AND EARNINGS

    The rates we charge our local telephone customers are based, in part, on a
rate of return authorized by the RCA on capital invested in our local exchange
carriers' networks. These authorized rates are subject to review and change by
the RCA at any time. If the RCA orders us to reduce our rates, both our revenues
and our earnings will be reduced.

    The APUC in the past indicated that one of our exchange carriers was earning
in excess of its historical authorized rate of return. Neither the RCA nor the
former APUC has initiated a proceeding to review or change the authorized rate
of return. As a condition to granting its approval of our recent acquisitions of
Century's Alaska properties and ATU, however, the APUC required that we file, by
June 30, 2001, revenue requirement, cost-of-service and rate design studies that
show our earnings levels for the year ended December 31, 2000. Based on
historical practice, the APUC did not generally initiate rate proceedings unless
a company, as a whole, was earning in excess of the average of its authorized
rates of return. We cannot assure you, however, that the RCA will not change
this practice, that our earnings levels, as disclosed in our studies, will not
exceed our authorized rates of return, or that the RCA will not initiate a rate
proceeding that results in the RCA ordering us to reduce our rates.

REVENUES FROM ACCESS CHARGES MAY BE REDUCED OR LOST

    We received 35.0% of our 1998 pro forma combined revenues from access
charges paid by interstate and intrastate interexchange carriers for originating
and terminating calls in their service areas. The amount of revenue that we
receive from access charges is calculated in accordance with requirements set by
the FCC and the RCA. Any change in these requirements may reduce our revenues
and earnings.

A REDUCTION IN THE UNIVERSAL SERVICE SUPPORT CURRENTLY RECEIVED BY SOME OF OUR
  SUBSIDIARIES WOULD REDUCE OUR REVENUES AND EARNINGS

    We received 4.8% of our 1998 pro forma combined revenues from the federal
Universal Service Fund, which was established under the direction of the FCC to
compensate businesses for the high cost of providing universal
telecommunications services in rural areas. We also receive payments from the
Alaska Universal Service Fund which, according to calculations made by the staff
of the fund, total approximately $1.5 million each year. If the subsidies
received from these funds were

                                       13
<PAGE>
materially reduced or discontinued, some of our rural operating companies might
not be able to operate profitably.

    Various reform proceedings are underway at the FCC to change the method of
calculating the amount of subsidies paid under the federal fund, and future
reforms are expected to replace the current historical cost system with a system
based on forward-looking economic costs. Reform proceedings are also underway in
Alaska to review carriers' support from the state fund, and proposals have been
made to require carriers to use payments received from the fund to provide
public interest pay telephones. In addition, the existence of the state fund has
been challenged in court. Any of these reforms, proposals and challenges may
result in a reduction or discontinuation of the subsidies available to our rural
operating companies.

WE MAY NOT BE ABLE TO OFFER LONG DISTANCE SERVICES ON A PROFITABLE BASIS

    Our long distance operations have historically been modest in relation to
the long distance businesses of our competitors and have generated operating
losses of $3.7 million in 1998 and $3.2 million in 1997. We intend to expand our
long distance operations substantially and change the way in which we offer
those services by packaging them with complementary services. There is no
assurance that our operating losses from long distance services will not
increase in the future, even after taking account of revenue from complementary
services.

    We have historically offered long distance services only in the Anchorage
area, and those services were provided on a "reseller" basis as we relied on
other carriers to provide the service. We recently acquired ownership of long
distance fiber optic transmission capacity connecting Juneau, Fairbanks and
Seattle with Anchorage and, where possible, we have transferred our long
distance traffic to our own network. We have also committed to purchase
additional fiber optic capacity in 2001. We plan to expand significantly our
marketing of long distance services by packaging them with complementary
telecommunications services, including statewide Centrex, Internet access and
high speed data services. Our existing long distance competitors can be expected
to respond to our initiatives and some of them have greater financial resources
than we have. We cannot predict that we will generate sufficient revenue from
these efforts to provide a satisfactory return on our recent $19.5 million
investment in fiber optic capacity or to fund $19.5 million in future
investments in additional fiber optic capacity that we are committed to make.

    We expect to continue to enter into resale agreements for a portion of our
long distance services. In connection with these agreements, we must estimate
future demand for our service. If we overestimate this demand, we may be
obligated to pay for services we do not need, and if we underestimate this
demand, we may need to lease additional capacity on a short-term basis at
unfavorable prices, assuming additional capacity is available. If additional
capacity is not available, we will not be able to meet this demand.

WE DEPEND ON KEY MEMBERS OF OUR SENIOR MANAGEMENT TEAM

    Our success depends largely on the skills, experience and performance of key
members of our senior management team. If we were to lose one or more of these
key employees, particularly Charles E. Robinson, our Chairman, President and
Chief Executive Officer, our ability to successfully implement our business plan
and the price of our common stock could be materially adversely affected. We do
not maintain any "key person" insurance on any of our personnel.

ANY FAILURE TO REACH AGREEMENT IN THE NEGOTIATIONS WITH THE UNION REPRESENTING
  OUR EMPLOYEES COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS

    Approximately 70% of our employees are represented by unions. Century's
Alaska properties have a collective bargaining agreement with the International
Brotherhood of Electrical Workers, or IBEW, that expires in 2004. ATU also has a
contract with the IBEW that was scheduled to expire in August 1999. Management
and the IBEW are in the process of concluding negotiations regarding

                                       14
<PAGE>
the terms under which ATU's represented employees would be transitioned to
Century's Alaska properties' collective bargaining agreement. A failure to reach
agreement with the IBEW could adversely affect our operations.

OUR SUBSTANTIAL DEBT MAY REDUCE OUR FLEXIBILITY AND IMPAIR OUR OPERATIONS

    We have a significant amount of debt. As of June 30, 1999, we had
outstanding $622.7 million of debt, excluding unused commitments--of which $19.9
million was our senior debt and $593.7 million was senior and senior
subordinated debt of our subsidiary, Alaska Communications Systems Holdings--and
stockholders' equity of $122.2 million. In addition, Alaska Communications
Systems Holdings' senior credit facility provides that Alaska Communications
Systems Holdings may borrow up to an additional $65.0 million under a revolving
credit facility. The senior credit facility and the indentures governing our
senior discount debentures and senior subordinated notes limit our and our
subsidiaries' ability to incur additional debt and impose significant
restrictions on our ability to:

    - pay cash dividends and make other restricted payments,

    - sell assets or stock,

    - enter into transactions with affiliates,

    - effect mergers or other business combinations and

    - engage in other lines of business.

    In addition, the senior credit facility restricts our ability to prepay
existing debt and the amount of capital expenditures we can make in each year,
and requires us to meet specified financial ratios and tests.

    Our debt could adversely affect our operations by:

    - impairing our ability to borrow additional money on favorable terms,

    - requiring us to use a substantial portion of our operating cash flow to
      service debt, which would reduce the funds available for operations,
      capital expenditures, acquisitions and other investments in our business,

    - placing us at a competitive disadvantage against competitors with lesser
      debt burdens and

    - making us more vulnerable to a worsening of conditions in the markets in
      which we operate or in the U.S. economy generally.

    Although we intend to repay a portion of our indebtedness with the proceeds
of the offering, we will continue to have a significant amount of debt. We also
expect to incur additional debt in the future for capital expenditures, possible
future investments and acquisitions and working capital.

BECAUSE WE AND OUR DIRECT SUBSIDIARY, ALASKA COMMUNICATIONS SYSTEMS HOLDINGS,
  ARE HOLDING COMPANIES, WE BOTH RELY ON DISTRIBUTIONS FROM OUR SUBSIDIARIES TO
  SATISFY OUR OBLIGATIONS. IF WE DO NOT RECEIVE THOSE DISTRIBUTIONS FROM OUR
  SUBSIDIARIES, WE MAY NOT BE ABLE TO SERVICE OUR SUBSTANTIAL DEBT

    We cannot assure you that we will be able to meet our debt obligations.
Because we are a holding company with no significant assets or independent
operations other than the equity of Alaska Communications Systems Holdings, if
we do not receive dividends or other distributions from Alaska Communications
Systems Holdings that are sufficient for us to satisfy our obligations under our
senior discount debentures, or if Alaska Communications Systems Holdings, which
is also a holding company, does not receive dividends or other distributions
from its subsidiaries that are sufficient to satisfy its obligations under its
senior credit facility and senior subordinated notes, then, unless we can
refinance those obligations, a default could occur and payment of those
obligations could be accelerated. While we expect sufficient dividends to be
available to meet our debt service obligations, dividends from our subsidiaries
could be unavailable if those subsidiaries

                                       15
<PAGE>
are unable to produce sufficient operating cash flow or if dividends or other
payments to us are otherwise restricted by the agreements to which our
subsidiaries are parties or by law or regulatory order. In the event of an
insolvency, bankruptcy or similar proceedings involving one of our or Alaska
Communications Systems Holdings' subsidiaries, creditors of that subsidiary
would generally be entitled to priority over us with respect to the assets of
the subsidiary.

    The lenders under Alaska Communications Systems Holdings' senior credit
facility have a first priority lien on all of the capital stock of Alaska
Communications Systems Holdings we own as well as on the common stock of all of
its subsidiaries. This stock accounts for substantially all of our assets, and
the stock of its subsidiaries accounts for substantially all of Alaska
Communications Systems Holdings' assets. If Alaska Communications Systems
Holdings defaults under the senior credit facility or if we default on our
guarantee of the senior credit facility, the lenders under the senior credit
facility could foreclose upon the capital stock of Alaska Communications Systems
Holdings and its subsidiaries. A foreclosure sale of our Alaska Communications
Systems Holdings stock could force us to accept a depressed value for our Alaska
Communications Systems Holdings common stock, and a foreclosure sale of the
common stock of Alaska Communications Systems Holdings' subsidiaries could force
Alaska Communications Systems Holdings to accept a depressed value for its
subsidiaries' common stock.

WE MAY NOT HAVE SUFFICIENT FUNDS TO REPAY OR REDEEM OUR DEBT IF WE ARE REQUIRED
  TO DO SO

    At maturity or upon the occurrence of a "change of control", as defined in
the documentation governing our debt obligations, we cannot assure you that we
will have sufficient funds or would be able to arrange for additional financing
to repay our debt obligations under the senior credit facility, our senior
discount debentures or the senior subordinated notes. There is no sinking fund
with respect to our senior discount debentures or the senior subordinated notes,
and at maturity the entire outstanding principal amount of those securities will
become due and payable. In addition, if a "change of control" occurs, each
holder of the debentures or notes will have the right to require us to
repurchase all or a portion of the holder's notes or debentures. However:

    - the senior credit facility effectively prevents the repurchase of our
      senior discount debentures and the senior subordinated notes in the event
      of a change of control, unless all amounts outstanding under the senior
      credit facility are repaid in full;

    - our failure to repurchase our senior discount debentures and the senior
      subordinated notes would be a default under the indentures governing them,
      which would be a default under the senior credit facility; and

    - our failure to repay all amounts outstanding under the senior credit
      facility upon a default would be a default under the indentures governing
      our senior discount debentures and the senior subordinated notes.

    Because we will probably not have sufficient cash flow from operations to
repay our senior discount debentures and the senior subordinated notes upon a
change of control, we may need to borrow additional amounts or seek other
sources of financing to repay them. We cannot guarantee that such additional
financing will be available or available on favorable terms.

                                       16
<PAGE>
WE COULD EXPERIENCE SIGNIFICANT BUSINESS DISRUPTIONS IF WE FAIL TO IDENTIFY AND
  RESOLVE POTENTIAL YEAR 2000 PROBLEMS IN A TIMELY MANNER

    Many existing computer systems and microprocessors use only two digits to
identify a year in the date field, which assumes that the first two digits of
the year are always "19". As a result, beginning on January 1, 2000, computers
that are not year 2000 compliant may interpret the year as "1900" instead of
"2000". Systems that calculate, compare or sort data using the incorrect date
may malfunction.

    We are significantly dependent upon the proper functioning of our computer
systems, digital switches and electronic transmission equipment. A failure of
our systems to be year 2000 compliant would have a material adverse effect on
our business. For example, failure could seriously disrupt our switches and
network, potentially resulting in business interruptions or shutdown.

    We also believe that, if we or our important vendors or suppliers experience
year 2000 problems, the problems could materially disrupt our business processes
and relationships with our customers or could require the expenditure of
material financial and other resources. We have conducted a review of the
computer systems and related software, digital switches and electronic
transmission equipment that we acquired upon completion of our acquisitions of
Century's Alaska properties and ATU. We have identified a number of systems that
are not year 2000 compliant and have implemented a plan that we believe will
ensure that these systems, software and equipment store and process information
properly in the year 2000. We expect that the action items required by this plan
will be largely completed by the end of October 1999.

    We have also made efforts to verify the year 2000 readiness of our important
vendors and suppliers. Although we believe the processes we have initiated are
adequate to remedy year 2000 deficiencies, we cannot assure you that these
remedies will be timely or effectively implemented or that we will be immune to
year 2000 deficiencies suffered by third parties that may in some way affect our
business in a materially adverse manner. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a more detailed
discussion of our year 2000 readiness.

YOU WILL NOT RECEIVE CASH DIVIDENDS ON YOUR INVESTMENT IN OUR COMMON STOCK

    We have never declared or paid any cash dividends on our common stock. We
intend to retain our earnings, if any, to finance the development and expansion
of our business, and, therefore, we do not anticipate paying any cash dividends
in the foreseeable future. Moreover, our ability to declare and pay cash
dividends on our common stock is restricted by covenants in our senior credit
facility and in the indentures governing our senior discount debentures and
senior subordinated notes. As a result, capital appreciation, if any, of our
common stock will be your sole source of gain for the foreseeable future.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
  COMMON STOCK IF YOU PURCHASE COMMON STOCK IN THE OFFERING

    Purchasers of common stock in the offering will experience immediate and
substantial dilution in the net tangible book value of their common stock. We
currently have a substantial net tangible book deficit per share of common
stock. At an assumed initial public offering price of $      , which is the
midpoint of the initial public offering price range set forth on the cover of
this prospectus, the dilution will be   per share in net tangible book value of
common stock from the initial public offering price, as more fully described
under "Dilution".

                                       17
<PAGE>
YOUR INTERESTS AS HOLDERS OF THE COMMON STOCK MAY CONFLICT WITH THOSE OF OUR
  CONTROLLING STOCKHOLDER

    Fox Paine & Company beneficially owns approximately 90% of the outstanding
shares of our voting capital stock and after this offering will continue to own
approximately       %, based on the midpoint of the initial public offering
price range set forth on the cover of this prospectus. As a result, Fox Paine &
Company has and will continue to have control over the outcome of matters
requiring stockholder approval, including the power to:

    - elect all of our directors and the directors of our subsidiaries,

    - amend our charter or by-laws and

    - adopt or prevent mergers, consolidations or the sale of all or
      substantially all of our assets or our subsidiaries' assets.

    Fox Paine & Company also will be able to prevent or cause a change of
control relating to us. Fox Paine & Company's control over us and our
subsidiaries, and its ability to prevent or cause a change in control relating
to us, may delay or prevent a change in control of us, which could adversely
affect the market price of the common stock.

    Fox Paine & Company may in the future make significant investments in other
telecommunications companies. Some of these companies may be our competitors.
Fox Paine & Company and its affiliates are not obligated to advise us of any
investment or business opportunities of which they are aware, and they are not
restricted or prohibited from competing with us.

THE PRICE OF OUR COMMON STOCK MAY BE SUBJECT TO WIDE FLUCTUATIONS AND MAY TRADE
  BELOW THE INITIAL PUBLIC OFFERING PRICE

    Although we and the underwriters examined many factors and determined the
initial public offering price after extensive negotiation, the market price of
common stock after the offering may vary from the initial public offering price.
Fluctuations in the price of our common stock may result from factors such as
the following, some of which are beyond our control:

    - quarterly variations in our operating results,

    - operating results that vary from the expectations of securities analysts
      and investors,

    - changes in expectations as to our future financial performance, including
      financial estimates by securities analysts and investors,

    - announcements by us or our competitors of significant contracts,
      acquisitions, strategic partnerships, joint ventures or capital
      commitments,

    - changes in the status of our intellectual property and other proprietary
      rights,

    - announcements by third parties of significant claims or proceedings
      against us,

    - changes in law and regulation,

    - future sales of common stock and

    - stock market price and volume fluctuations.

    In addition, the stock market in recent years has experienced extreme price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of companies. As a result of these fluctuations, our
common stock may trade at prices below the initial public offering price.

                                       18
<PAGE>
OUR SHARE PRICE MAY DECLINE DUE TO THE LARGE NUMBER OF SHARES ELIGIBLE FOR
  FUTURE SALE

    Sales of substantial amounts of our common stock after the offering, or the
possibility of such sales, could adversely affect the market price of our common
stock and impede our ability to raise capital through the issuance of equity
securities. See "Shares Eligible for Future Sale" for a discussion of possible
future sales of common stock.

    After this offering, we will have              outstanding shares of common
stock,   % of which will be beneficially owned by Fox & Paine, our controlling
stockholder, and we will have reserved an additional              shares of
common stock for issuance pursuant to outstanding stock options. All of the
shares of common stock to be sold in this offering will be freely tradable
without restriction or further registration under the federal securities laws
unless purchased by one of our "affiliates", as that term is defined in Rule 144
under the Securities Act of 1933. The remaining       shares of outstanding
common stock, representing approximately   % of the outstanding common stock
upon completion of the offering will be available for future sale subject to
restrictions on the timing, manner and volume of sales imposed by the Securities
Act of 1933, or otherwise generally, upon expiration of lockup agreements with
the underwriters 180 days after the date of this prospectus.

                                       19
<PAGE>
                                USE OF PROCEEDS

    Assuming an initial public offering price of $      per share, which is the
midpoint of the initial public offering price range set forth on the cover of
this prospectus, and no exercise by the underwriters of their over-allotment
option, we will receive net proceeds from the offering of $161.0 million, after
deducting underwriting discounts and estimated offering expenses of $13.0
million. We intend to use $20.5 million of the net proceeds we receive to repay:

    - $10.5 million of our senior discount debentures due May 15, 2011, on which
      interest accrues at an annual rate of 13.00% and is payable semiannually,
      including $9.3 million in aggregate accreted value and a redemption
      premium of $1.2 million on these debentures and

    - $10.0 million in aggregate principal amount outstanding under our
      revolving credit facility, with an estimated weighted average annual
      interest rate of 8.23%. After this repayment, our $75.0 million revolving
      credit facility will continue to be in effect.

    We intend to use the balance of the net proceeds from the offering to fund a
portion of our capital expenditures, and for strategic investments and
acquisitions, including acquisitions of access lines, and general corporate
purposes. Depending on the timing of these expenditures, we may also use a
portion of the proceeds to repay a portion of our outstanding term loans.

    We currently expect that for the balance of 1999 and 2000, capital
expenditures will total approximately $132.0 million, including expenditures for
upgrades and replacements of switch and transmission capacity in our local
exchange operations, expansion of digital wireless capacity in our cellular
operations and the introduction of DSL services.

    We are actively pursuing selected regional acquisitions in Alaska. There are
19 local exchange carriers remaining in Alaska with an aggregate of
approximately 120,000 access lines, presenting us with the potential for
significant expansion of our network. In addition, we may pursue other selected
strategic acquisitions and investments which will complement our existing
product and service offerings.

                                DIVIDEND POLICY

    We anticipate that we will retain all of our earnings in the foreseeable
future to finance the expansion of our business and, therefore, we do not
anticipate paying any cash dividends in the foreseeable future. Our future
dividend policy will depend on our earnings, capital requirements and financial
condition and the requirements of the financing agreements to which we may be a
party and other factors considered relevant by our board of directors. In
addition, covenants in our senior credit facility and indentures governing our
senior discount debentures and senior subordinated notes limit our ability to
declare and pay cash dividends on our common stock.

                                       20
<PAGE>
                                 CAPITALIZATION

    The following table sets forth the capitalization of ALEC Holdings as of
June 30, 1999:

    - on an actual basis and

    - as adjusted for the sale of       shares of common stock in the offering
      at an initial public offering price of $      per share, which is the
      midpoint of the initial public offering price range set forth on the cover
      of this prospectus, and the application of the net proceeds received from
      the sale as described under "Use of Proceeds".

    You should read this table together with "Summary Unaudited Pro Forma
Combined Financial and Operating Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
related notes which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
                                                                                            AS OF JUNE 30, 1999
                                                                                         -------------------------
<S>                                                                                      <C>          <C>
                                                                                                      AS ADJUSTED
                                                                                           ACTUAL     FOR OFFERING
                                                                                         -----------  ------------

<CAPTION>
                                                                                          (DOLLARS IN THOUSANDS)
<S>                                                                                      <C>          <C>
Cash and cash equivalents..............................................................  $     4,019   $  149,350
                                                                                         -----------  ------------
                                                                                         -----------  ------------
Revolving debt(1)......................................................................  $     8,700   $       --
                                                                                         -----------  ------------
                                                                                         -----------  ------------
Long-term debt:
  Senior credit facility...............................................................  $   435,000   $  435,000
  9 3/8% Senior subordinated notes due 2009............................................      150,000      150,000
  13% Senior discount debentures due 2011(2)...........................................       19,911       12,942
  Capital lease obligations............................................................        7,500        7,500
  Note to Municipality of Fairbanks....................................................        1,602        1,602
                                                                                         -----------  ------------
    Total long-term debt...............................................................      614,013      607,044
Stockholders' equity:
  Preferred stock ($    par value)       shares authorized; no shares issued and
    outstanding; no adjusted shares issued and outstanding.............................           --           --
  Common stock ($0.01 par value) 40,000,000 shares authorized; 20,082,871 shares issued
    and outstanding;       as adjusted shares issued and outstanding(3)................          201
  Paid-in capital......................................................................      128,482
  Notes receivable from officers.......................................................         (718)        (718)
  Retained earnings....................................................................       (5,746)      (5,746)
                                                                                         -----------  ------------
    Total stockholders' equity.........................................................      122,219      283,219
                                                                                         -----------  ------------
    Total capitalization...............................................................  $   736,232   $  890,263
                                                                                         -----------  ------------
                                                                                         -----------  ------------
</TABLE>

- ------------------------

(1) Additional borrowings of $1.3 million have been made under the revolving
    credit facility since June 30, 1999. The revolving credit facility allows
    for borrowings of up to $75.0 million, and $65.0 million of additional
    borrowings are available under the revolving credit facility.

(2) On May 14, 1999, we issued our senior discount debentures and warrants to
    purchase 828,261 shares of common stock for aggregate gross proceeds of
    $25.0 million. For purposes of calculating the original issue discount
    related to our senior discount debentures, $5.1 million of value was
    attributed to the warrants. The value of our senior discount debentures
    adjusted for the offering reflects repayment of 35% of their accreted value,
    net of original issue discount and exclusive of the redemption premium, as
    of June 30, 1999. On November 15, 1999, our senior discount debentures will
    have an accreted value of $26.6 million, exclusive of original issue
    discount. We intend to repay 35% of the accreted value of our senior
    discount debentures at a redemption price of 113% of accreted value with
    proceeds from the offering.

(3) The calculations of shares issued and outstanding do not include (A)
    3,350,497 shares issuable upon exercise of options granted under our stock
    incentive plan, (B) 828,261 shares issuable under outstanding warrants
    exercisable at $0.01 per share, all of which are expected to be issued in
    connection with the offering, and (C) 1,707,405 shares issued in July and
    September 1999 to Cook Inlet Region, Inc. and to two of our executive
    officers.

                                       21
<PAGE>
                                    DILUTION

    The net tangible book deficit of ALEC Holdings as of June 30, 1999 was
approximately $187.4 million, or approximately $9.33 per share of common stock,
based on an aggregate of 20,082,871 shares of common stock outstanding. The
number of shares outstanding as of June 30, 1999 excludes:

    - 3,350,497 shares of common stock issuable upon exercise of outstanding
      options granted to our directors, officers, employees and consultants
      under our stock incentive plan,

    - 828,261 shares issuable under outstanding warrants exercisable at $0.01
      per share, all of which are expected to be issued in connection with the
      offering, and

    - 1,707,405 shares issued in July and September 1999 to Cook Inlet Region,
      Inc. and to two of our executive officers.

    "Net tangible book deficit" per share represents the amount of our total
consolidated tangible assets minus total combined liabilities, divided by the
shares of common stock outstanding, before giving effect to the sale of the
shares of common stock offered in the offering. After giving effect to the sale
of       shares of common stock in the offering at an assumed initial public
offering price of $      per share, which is the midpoint of the initial public
offering price range set forth on the cover of this prospectus, and after
deducting estimated underwriting discounts and offering expenses of $13.0
million, and applying the net proceeds from the offering as described under "Use
of Proceeds", the net tangible book deficit of ALEC Holdings as of June 30, 1999
would have been approximately $      , or approximately $      per share of
common stock. This represents an immediate decrease in net tangible book deficit
of $      per share of common stock to existing stockholders and an immediate
dilution in net tangible book value of $      per share of common stock to new
investors purchasing common stock in the offering at the assumed initial public
offering price. The following table illustrates this per share dilution, without
giving effect to the exercise of the underwriters' over-allotment option:

<TABLE>
<S>                                                                        <C>        <C>
Assumed initial public offering price per share..........................             $
  Net tangible book deficit per share as of June 30, 1999................  $       ()
  Decrease in net tangible book deficit per share attributable to the
    offerings(1).........................................................
                                                                           ---------  ---------
Pro forma net tangible book deficit per share after the offering.........
Net tangible book value dilution per share to new investors(2)...........             $
                                                                                      ---------
                                                                                      ---------
</TABLE>

- ------------------------

(1) After deducting the underwriting discounts and estimated expenses for the
    offering.

(2) Dilution is determined by subtracting pro forma net tangible book deficit
    per share from the assumed initial public offering price paid by a new
    investor.

    The following table summarizes, as of June 30, 1999, the difference between
the number of shares of common stock purchased, the total consideration paid and
the average price per share paid by our existing stockholders and by new
investors.

<TABLE>
<CAPTION>
                                                       SHARES PURCHASED            TOTAL CONSIDERATION         AVERAGE
                                                  --------------------------  -----------------------------     PRICE
                                                     NUMBER        PERCENT         AMOUNT         PERCENT     PER SHARE
                                                  -------------  -----------  ----------------  -----------  -----------
<S>                                               <C>            <C>          <C>               <C>          <C>
Existing stockholders...........................     20,082,871            %  $    123,594,000            %   $    6.15
New investors...................................
                                                  -------------         ---   ----------------         ---        -----
Total...........................................                           %  $                           %   $
                                                  -------------         ---   ----------------         ---        -----
                                                  -------------         ---   ----------------         ---        -----
</TABLE>

                                       22
<PAGE>
         SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA--ALEC HOLDINGS

    The following table sets forth selected historical consolidated financial
data of ALEC Holdings. You should keep the following points in mind as you read
the table.

    - The selected historical consolidated operating data for the six months
      ended June 30, 1999 include the operating results of Century's Alaska
      properties and ATU from their acquisition on May 14, 1999 through June 30,
      1999.

    - We derived the selected historical consolidated financial data for the six
      months ended June 30, 1999 and as of June 30, 1999 from the unaudited
      consolidated financial statements of ALEC Holdings, which are included
      elsewhere in this prospectus and which, in the opinion of management,
      include all adjustments, consisting solely of normal, recurring
      adjustments, necessary to present fairly the information they contain.

    - "EBITDA" is net income before interest expense, income taxes, depreciation
      and amortization. EBITDA is not intended to represent cash flow from
      operations as defined under generally accepted accounting principles and
      should not be considered as an alternative to net income as an indicator
      of our operating performance or cash flows. EBITDA is included in this
      prospectus because management believes it is a useful financial
      performance measure for comparing companies in the telecommunications
      industry in terms of operating performance and ability to satisfy debt
      service, capital expenditure and working capital requirements.

    The selected historical consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the unaudited consolidated financial statements
of ALEC Holdings and the related notes which are included elsewhere in this
prospectus.

                                       23
<PAGE>
                              ALEC HOLDINGS, INC.

<TABLE>
<CAPTION>
                                                                                             SIX MONTHS ENDED
                                                                                              JUNE 30, 1999
                                                                                        --------------------------
<S>                                                                                     <C>
                                                                                          (DOLLARS IN THOUSANDS,
                                                                                        EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Operating revenues
  Local telephone.....................................................................         $     32,375
  Cellular............................................................................                4,568
  Long distance.......................................................................                1,387
                                                                                                 ----------
    Total operating revenues..........................................................               38,330
Operating expenses
  Local telephone.....................................................................               23,249
  Cellular............................................................................                3,039
  Long distance.......................................................................                1,575
  Depreciation and amortization.......................................................                8,093
                                                                                                 ----------
    Total operating expenses..........................................................               35,956
                                                                                                 ----------
Operating income......................................................................                2,374
Interest expense, net.................................................................               (7,624)
Other income (expense)................................................................                 (496)
                                                                                                 ----------
Income (loss) before income taxes.....................................................               (5,746)
Income taxes..........................................................................                   --
                                                                                                 ----------
Net loss..............................................................................         $     (5,746)
                                                                                                 ----------
                                                                                                 ----------
Net loss per share....................................................................         $       (.29)
                                                                                                 ----------
                                                                                                 ----------
Weighted average shares outstanding (in thousands)....................................               20,083
                                                                                                 ----------
                                                                                                 ----------
OTHER FINANCIAL DATA:
Cash provided by operating activities.................................................         $     12,915
Cash used by investing activities.....................................................              720,072
Cash provided by financing activities.................................................              711,176
EBITDA................................................................................               10,199
EBITDA margin.........................................................................                 26.6%
Capital expenditures..................................................................         $     27,231

OTHER DATA (END OF PERIOD):
Access lines in service...............................................................              318,227
Cellular subscribers..................................................................               69,581
Cellular penetration..................................................................                 15.1%

BALANCE SHEET DATA (END OF PERIOD):
Total assets..........................................................................         $    796,346
Long-term debt including current portion..............................................              614,013
Stockholders' equity..................................................................              122,219
</TABLE>

                                       24
<PAGE>
    SELECTED HISTORICAL COMBINED FINANCIAL DATA--CENTURY'S ALASKA PROPERTIES

    The following table sets forth selected historical combined financial data
of Century's Alaska properties. You should keep the following points in mind as
you read the table.

    - We derived the selected historical combined financial data for each of the
      three years in the period ended December 31, 1998 and as of December 31,
      1997 and 1998 from the audited combined financial statements and the
      related notes of Century's Alaska properties which are included elsewhere
      in this prospectus.

    - We derived the selected historical combined financial data for each of the
      two years in the period ended December 31, 1995 and as of December 31,
      1994, 1995 and 1996, from the unaudited combined financial statements of
      Century's Alaska properties which are not included in this prospectus.

    - We derived the selected combined historical financial data for each of the
      three month periods ended March 31, 1998 and 1999 and as of March 31, 1998
      and 1999 from the unaudited combined financial statements of Century's
      Alaska properties, which are included elsewhere in this prospectus and
      which, in the opinion of management, include all adjustments, consisting
      solely of normal, recurring adjustments, necessary to present fairly the
      information they contain.

    - Century acquired its Alaska properties on December 1, 1997 as part of its
      acquisition of Pacific Telecom. This acquisition was accounted for as a
      purchase, resulting in a pushdown of $208 million of goodwill to Century's
      Alaska properties.

    - The financial statements for the 11-month period ended November 30, 1997
      and prior periods have been presented on Pacific Telecom's basis of
      accounting, while the financial statements as of December 31, 1997, the
      one-month period ended December 31, 1997 and subsequent periods have been
      presented on Century's basis of accounting.

    - The financial statements of Century's Alaska properties include the
      results of the City of Fairbanks Telephone Operation from October 6, 1997,
      the date of its acquisition. This acquisition was accounted for as a
      purchase.

    - On December 31, 1997, the cellular operations in Fairbanks were sold to
      ATU. The Fairbanks cellular property had 5,497 subscribers at the time of
      the sale.

    The selected historical combined financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the combined financial statements of Century's
Alaska properties and the related notes which are included elsewhere in this
prospectus.

                                       25
<PAGE>
<TABLE>
<CAPTION>
                                                         CENTURY'S ALASKA PROPERTIES
                          ------------------------------------------------------------------------------------------
<S>                       <C>        <C>        <C>        <C>          <C>        <C>          <C>        <C>
                                        PACIFIC TELECOM                                   CENTURY
                          --------------------------------------------  --------------------------------------------

<CAPTION>
                                                             JAN. 1,     DEC. 1,
                                                              1997        1997                      THREE MONTHS
                              YEAR ENDED DECEMBER 31,          TO          TO      YEAR ENDED     ENDED MARCH 31,
                          -------------------------------   NOV. 30,    DEC. 31,    DEC. 31,    --------------------
                            1994       1995       1996        1997        1997        1998        1998       1999
                          ---------  ---------  ---------  -----------  ---------  -----------  ---------  ---------
<S>                       <C>        <C>        <C>        <C>          <C>        <C>          <C>        <C>
<CAPTION>
                                                            (DOLLARS IN THOUSANDS)
<S>                       <C>        <C>        <C>        <C>          <C>        <C>          <C>        <C>
OPERATING DATA:
Operating revenues
  Local telephone.......  $  66,636  $  70,540  $  75,950   $  79,330   $  10,255   $ 121,933   $  27,967  $  30,815
  Cellular..............      2,766      4,531      4,823       5,120         181       2,576         408        546
                          ---------  ---------  ---------  -----------  ---------  -----------  ---------  ---------
  Total operating
    revenues............     69,402     75,071     80,773      84,450      10,436     124,509      28,375     31,361
Operating expenses
  Local telephone.......     37,664     38,043     41,789      42,404       6,434      72,008      16,451     17,270
  Cellular..............      2,042      3,147      3,381       3,082         147       2,128         330        396
  Depreciation and
    amortization........     13,089     14,316     15,348      15,823       2,466      30,459       7,209      7,785
                          ---------  ---------  ---------  -----------  ---------  -----------  ---------  ---------
  Total operating
    expenses............     52,795     55,506     60,518      61,309       9,047     104,595      23,990     25,451
                          ---------  ---------  ---------  -----------  ---------  -----------  ---------  ---------
Operating income........     16,607     19,565     20,255      23,141       1,389      19,914       4,385      5,910
Interest expense, net...     (2,459)    (2,331)    (1,996)     (2,169)       (171)     (1,405)       (302)      (358)
Other income (expense)..      1,094     (1,020)       (33)       (298)         53         356         357         80
                          ---------  ---------  ---------  -----------  ---------  -----------  ---------  ---------
Income before income
  taxes.................     15,242     16,214     18,226      20,674       1,271      18,865       4,440      5,632
Income taxes............      5,962      5,713      6,737       7,746         736       9,218       2,214      2,709
                          ---------  ---------  ---------  -----------  ---------  -----------  ---------  ---------
Net income..............  $   9,280  $  10,501  $  11,489   $  12,928   $     535   $   9,647   $   2,226  $   2,923
                          ---------  ---------  ---------  -----------  ---------  -----------  ---------  ---------
                          ---------  ---------  ---------  -----------  ---------  -----------  ---------  ---------

OTHER FINANCIAL DATA:
Net cash provided by
  operating
  activities............  $  22,510  $  29,917  $  34,589   $  21,213   $   5,588   $  38,291   $  11,025  $  14,103
Net cash provided (used)
  by investing
  activities............    (21,151)   (19,587)   (20,611)    (13,554)     (3,279)    (26,664)      1,947     (2,339)
Net cash used by
  financing
  activities............     (1,659)   (10,578)   (12,947)     (8,209)     (2,563)     (6,770)    (11,587)    (6,753)
EBITDA..................     30,790     32,861     35,570      38,666       3,908      50,729      11,951     13,775
EBITDA margin...........       44.4%      43.8%      44.0%       45.8%       37.4%       40.7%       42.1%      43.9%
Capital expenditures....  $  21,001  $  19,437  $  20,465   $  14,575   $   1,825   $  26,799   $   2,321  $   2,200

OTHER DATA (END OF
  PERIOD):
Access lines in
  service...............     73,563     77,660     82,969          --     124,869     131,858     128,023    134,276
Cellular subscribers....      3,058      3,950      5,573          --       2,096       2,945       2,546      3,417
Cellular penetration....        2.1%       2.7%       3.8%         --         3.7%        5.2%        4.6%       5.2%

BALANCE SHEET DATA
  (END OF PERIOD):
Total assets............  $ 157,536  $ 161,323  $ 162,834          --   $ 459,175   $ 472,660   $ 466,301  $ 473,669
Long-term debt including
  current portion.......     43,089     43,616     44,294          --      42,950      43,408      42,683     43,094
Stockholders' equity....     82,317     90,841     92,137          --     391,314     400,962     395,359    403,885
</TABLE>

                                       26
<PAGE>
                    SELECTED HISTORICAL FINANCIAL DATA--ATU

    The following table sets forth selected historical financial data of ATU.
You should keep the following points in mind as you read the table.

    - We derived the selected historical financial data for each of the three
      years in the period ended December 31, 1998 and as of December 31, 1997
      and 1998 from the audited financial statements and the related notes of
      ATU which are included elsewhere in this prospectus.

    - We derived the selected historical financial data for each of the two
      years in the period ended December 31, 1995 and as of December 1994, 1995
      and 1996 from the audited financial statements of ATU which are not
      included in this prospectus.

    - We derived the selected historical financial data for each of the three
      month periods ended March 31, 1998 and 1999 and as of March 31, 1998 and
      1999 from the unaudited financial statements of ATU, which are included
      elsewhere in this prospectus and which, in the opinion of management,
      include all adjustments, consisting solely of normal, recurring
      adjustments, necessary to present fairly the information they contain.

    - "Other income (expense)" includes the equity in earnings (losses) from
      minority investments.

    - During the periods presented, ATU was a public utility of the Municipality
      of Anchorage and was exempt from federal and state income taxes.

    - Net cash data includes information from ATU financial statements prepared
      in accordance with governmental accounting standards. The differences
      between governmental accounting standards and the standards promulgated by
      the Financial Accounting Standards Board, and their impact on ATU's
      financial statements are discussed in Note 1 to the financial statements
      of Municipality of Anchorage Telephone Utility Fund which are included
      elsewhere in this prospectus.

    - On June 1, 1999, as part of the consolidation of our operating and billing
      systems, we conformed the methodology by which we calculate our number of
      access lines across all of our local exchanges to that used for Century's
      Alaska properties. Due to limited data available to us, we have not
      computed any adjustments to the access lines in service for any year prior
      to 1998. If the number of access lines in service were computed using this
      method, the number of access lines as of December 31, 1998 would increase
      by 4,940 and the number of access lines as of March 31, 1999 would
      increase by 6,113. We intend to use the method used to calculate access
      lines in service for Century's Alaska properties to calculate our access
      lines in all future periods.

    The selected historical financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of ATU and the related notes which are
included elsewhere in this prospectus.

                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                                                   ATU
                                               ---------------------------------------------------------------------------
                                                                                                          THREE MONTHS
                                                              YEAR ENDED DECEMBER 31,                   ENDED MARCH 31,
                                               -----------------------------------------------------  --------------------
                                                 1994       1995       1996       1997       1998       1998       1999
                                               ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>        <C>
                                                                         (DOLLARS IN THOUSANDS)
OPERATING DATA:
Operating revenues
  Local telephone............................  $ 109,371  $ 110,011  $ 113,415  $ 116,555  $ 121,057  $  29,735  $  30,364
  Cellular...................................      8,540     12,670     16,897     21,845     29,225      5,879      6,710
  Long distance..............................         --         --          2      1,541      6,815      1,144      2,683
                                               ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Total operating revenues.................    117,911    122,681    130,314    139,941    157,097     36,758     39,757

Operating expenses
  Local telephone............................     71,564     73,024     75,980     74,994     74,240     18,231     18,844
  Cellular...................................      6,473      9,727     12,379     14,455     19,961      4,048      4,740
  Long distance..............................         --         --        543      4,644     10,395      1,898      3,243
  Depreciation and amortization..............     18,936     19,258     20,496     26,839     29,608      7,099      7,434
                                               ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Total operating expenses.................     96,970    102,009    109,398    120,932    134,204     31,276     34,261
                                               ---------  ---------  ---------  ---------  ---------  ---------  ---------

Operating income.............................     20,941     20,672     20,916     19,009     22,893      5,482      5,496
Interest expense, net........................     (7,565)    (6,706)    (6,840)    (6,768)    (6,427)    (1,840)    (1,585)
Other income (expense).......................       (328)      (322)      (219)      (123)    (2,896)      (183)      (423)
                                               ---------  ---------  ---------  ---------  ---------  ---------  ---------
Income before income taxes...................     13,048     13,644     13,857     12,118     13,570      3,459      3,488
Income taxes.................................         --         --         --         --         --         --         --
                                               ---------  ---------  ---------  ---------  ---------  ---------  ---------
Net income...................................  $  13,048  $  13,644  $  13,857  $  12,118  $  13,570  $   3,459  $   3,488
                                               ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                               ---------  ---------  ---------  ---------  ---------  ---------  ---------

OTHER FINANCIAL DATA:
Net cash provided by operating activities....  $  42,382  $  43,412  $  42,120  $  46,641  $  53,207  $   8,394  $  10,735
Net cash provided (used) by investing
  activities.................................     13,577      1,057       (787)    (3,665)    (5,659)    (8,044)    (1,568)
Net cash provided (used) by financing
  activities.................................    (57,169)   (53,518)   (30,095)   (46,916)   (33,580)    16,631    (12,150)
EBITDA.......................................     39,549     39,608     41,193     45,725     49,605     12,398     12,507
EBITDA margin................................       33.5%      32.3%      31.6%      32.7%      31.6%      33.7%      31.5%
Capital expenditures.........................  $  33,328  $  27,958  $  24,958  $  35,187  $  29,644  $   8,404  $   3,383

OTHER DATA (END OF PERIOD):
Access lines in service......................    144,869    147,934    154,752    158,486    168,536    164,569    170,343
Cellular subscribers.........................     13,684     24,855     37,651     53,035     63,627     54,436     63,779
Cellular penetration.........................        4.7%       8.4%      12.6%      13.3%      15.8%      13.7%      15.8%

BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................  $ 288,857  $ 289,903  $ 308,810  $ 323,124  $ 350,245  $ 351,190  $ 346,696
Long-term debt including current portion.....    145,775    123,009    146,412    151,945    172,521    180,161    167,618
Fund equity..................................    118,695    126,839    132,596    136,414    141,884    139,873    145,372
</TABLE>

                                       28
<PAGE>
               UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

    The following unaudited pro forma combined financial and operating data are
based on the financial statements of Century's Alaska properties and ATU, as
adjusted for the estimated effects of:

    - the acquisition in May 1999 of Century's Alaska properties,

    - the acquisition in May 1999 of ATU,

    - the purchase in June 1999 of fiber capacity for $19.5 million,

    - the financings entered into to complete these transactions and

    - the offering and the application of the net proceeds of the offering, as
      described under "Use of Proceeds",

as if they had occurred at the beginning of the periods presented with respect
to the Unaudited Pro Forma Combined Statements of Operations and on June 30,
1999 with respect to the Unaudited Pro Forma Consolidated Balance Sheet.

    Our operating data for the six months ended June 30, 1999 include the
operations of Alaska Communications Systems Holdings, Century's Alaska
properties and ATU since May 14, 1999, the date of their acquisition.

    The unaudited pro forma combined financial and operating data are not
necessarily indicative of what our financial position or results of operations
would actually have been had these transactions been completed on the dates
indicated and do not project our results of operations for any future date.

                                       29
<PAGE>
             UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31, 1998
                                     ------------------------------------------------------------------------------
<S>                                  <C>          <C>         <C>           <C>          <C>            <C>
                                      CENTURY'S                                                          ADJUSTED
                                       ALASKA                 ACQUISITION    PRO FORMA     OFFERING      PRO FORMA
                                     PROPERTIES      ATU      ADJUSTMENTS    COMBINED     ADJUSTMENTS    COMBINED
                                     -----------  ----------  ------------  -----------  -------------  -----------

<CAPTION>
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                  <C>          <C>         <C>           <C>          <C>            <C>
Operating revenues
  Local telephone..................   $ 121,933   $  121,057   $       --    $ 242,990     $      --     $ 242,990
  Cellular.........................       2,576       29,225           --       31,801            --        31,801
  Long distance....................          --        6,815           --        6,815            --         6,815
                                     -----------  ----------  ------------  -----------  -------------  -----------
    Total operating revenues.......     124,509      157,097           --      281,606            --       281,606
Operating expenses
  Local telephone..................      72,008       74,240        1,033(a)    147,281           --       147,281
  Cellular.........................       2,128       19,961           --       22,089            --        22,089
  Long distance....................          --       10,395           --       10,395            --        10,395
  Depreciation and amortization....      30,459       29,608        1,154(b)     61,221           --        61,221
                                     -----------  ----------  ------------  -----------  -------------  -----------
    Total operating expenses.......     104,595      134,204        2,187      240,986            --       240,986
                                     -----------  ----------  ------------  -----------  -------------  -----------
Operating income...................      19,914       22,893       (2,187)      40,620            --        40,620
Interest expense, net..............      (1,405)      (6,427)     (49,265)(c)    (57,097)       1,741(c)    (55,356)
Equity in earnings (loss) of
  subsidiaries.....................          --       (2,945)          --       (2,945)           --        (2,945)
Other income (expense).............         356           49           --          405            --           405
                                     -----------  ----------  ------------  -----------  -------------  -----------
  Income (loss) before income
    taxes..........................      18,865       13,570      (51,452)     (19,017)        1,741       (17,276)
Income tax expense (benefit).......       9,218           --       (9,218)(d)         --          --            --
                                     -----------  ----------  ------------  -----------  -------------  -----------
Net income (loss)..................   $   9,647   $   13,570   $  (42,234)   $ (19,017)    $   1,741 ( )(f  $ (17,276)
                                     -----------  ----------  ------------  -----------  -------------  -----------
                                     -----------  ----------  ------------  -----------  -------------  -----------
Net loss per share.................                                          $    (.95)
                                                                            -----------                 -----------
                                                                            -----------                 -----------
Weighted average shares
  outstanding......................                                             20,083(g)                         (g)
                                                                            -----------  -------------  -----------
                                                                            -----------  -------------  -----------
</TABLE>

                                       30
<PAGE>
             UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                               SIX
                                                                                                             MONTHS
                                                                                                              ENDED
                           JANUARY 1, 1999 TO                                                               JUNE 30,
                              MAY 14, 1999                           SIX MONTHS ENDED                         1999
                         ----------------------                       JUNE 30, 1999                        -----------
                          CENTURY'S                            ----------------------------                 ADJUSTED
                           ALASKA                ACQUISITION                     PRO FORMA     OFFERING     PRO FORMA
                         PROPERTIES      ATU     ADJUSTMENTS    ALEC HOLDINGS    COMBINED    ADJUSTMENTS    COMBINED
                         -----------  ---------  ------------  ---------------  -----------  ------------  -----------
<S>                      <C>          <C>        <C>           <C>              <C>          <C>           <C>
                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating Revenues
  Local telephone......   $  45,538   $  46,380   $       --      $  32,375      $ 124,293    $       --    $ 124,293
  Cellular.............         931      10,277           --          4,568         15,776            --       15,776
  Long distance........          --       3,780           --          1,387          5,167            --        5,167
                         -----------  ---------  ------------  ---------------  -----------  ------------  -----------
    Total operating
      revenues.........      46,469      60,437           --         38,330        145,236            --      145,236
Operating expenses
  Local telephone......      27,305      29,120          378(a)       23,249        80,052            --       80,052
  Cellular.............         957       7,677           --          3,039         11,673            --       11,673
  Long distance........          --       4,841           --          1,575          6,416            --        6,416
  Depreciation and
    amortization.......       8,912      11,655          258(b)        8,093        28,918            --       28,918
                         -----------  ---------  ------------  ---------------  -----------  ------------  -----------
    Total operating
      expenses.........      37,174      53,293          636         35,956        127,059            --      127,059
                         -----------  ---------  ------------  ---------------  -----------  ------------  -----------
Operating income.......       9,295       7,144         (636)         2,374         18,177            --       18,177
Interest expense, net..        (700)     (2,439)     (18,272)(c)       (7,624)     (29,035)          852(c)    (28,183)
Equity in earnings
  (loss) of
  subsidiaries.........          --      (1,282)          --                        (1,282)           --       (1,282)
Other income
  (expense)............         921          76           --           (496)           501            --          501
                         -----------  ---------  ------------  ---------------  -----------  ------------  -----------
  Income (loss) before
    taxes..............       9,516       3,499      (18,908)        (5,746)       (11,639)          852      (10,787)
Income tax expense
  (benefit)............       3,944          --       (3,944)(d)           --           --            --           --
                         -----------  ---------  ------------  ---------------  -----------  ------------  -----------
Net income (loss)......   $   5,572   $   3,499   $  (14,964)     $  (5,746)     $ (11,639)   $      852   )(f  $ (10,787)
                         -----------  ---------  ------------  ---------------  -----------  ------------  -----------
                         -----------  ---------  ------------  ---------------  -----------  ------------  -----------
Net loss per share.....                                           $    (.29)     $    (.58)
                                                               ---------------  -----------                -----------
                                                               ---------------  -----------                -----------
Weighted average shares
  outstanding..........                                              20,083(g)      20,083(g)                        (g)
                                                               ---------------  -----------  ------------  -----------
                                                               ---------------  -----------  ------------  -----------
</TABLE>

                                       31
<PAGE>
         NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

(a) For the periods presented, represents the estimated management fee to be
    paid to Fox Paine & Company. This management fee is equal to 1% of annual
    net income before interest expense, interest income, income taxes,
    depreciation and amortization and equity in earnings (loss) of minority
    investments, calculated without regard to the fee.

(b) Represents the increase in depreciation and amortization expense as a result
    of the increase in goodwill due to the application of purchase accounting
    and the $19.5 million purchase of fiber capacity. Goodwill is amortized over
    40 years, and the fiber capacity is depreciated over 20 years.

(c) Represents the net adjustment to interest expense as a result of the
    borrowings under our revolving credit facility, term loan facilities, senior
    subordinated notes and senior discount debentures, calculated as follows:

<TABLE>
<CAPTION>
                                                                                    ACTUAL
                              YEAR ENDED                     FOR THE PERIOD     FOR THE PERIOD
                             DECEMBER 31,     AS ADJUSTED    JANUARY 1, 1999    MAY 15, 1999 TO    AS ADJUSTED
                                 1998        FOR OFFERING    TO MAY 14, 1999     JUNE 30, 1999    FOR OFFERING
                            ---------------  -------------  -----------------  -----------------  -------------
<S>                         <C>              <C>            <C>                <C>                <C>
                                                          (DOLLARS IN THOUSANDS)
Revolving credit
  facility................     $     523(1)    $      --        $     196(1)       $      69        $      --
Term loan A facility......        11,625(2)       11,625            4,359(2)           1,588            5,947
Term loan B facility......        12,000(3)       12,000            4,500(3)           1,636            6,136
Term loan C facility......        11,138(4)       11,138            4,177(4)           1,516            5,693
9 3/8% Senior subordinated
  notes due 2009..........        14,063(5)       14,063            5,274(5)           1,811            7,085
13% Senior discount
  debentures due 2011.....         3,250(6)        2,112            1,219(6)             413            1,061
Interest on long term
  obligations assumed.....           600(7)          600              225(7)             229              454
                            ---------------  -------------       --------            -------      -------------
Pro forma cash interest
  expense.................        53,199(8)       51,538           19,950(8)           7,262           26,403
Amortization of deferred
  financing costs.........         3,750(9)        3,722            1,406(9)             571            1,964
Amortization of OID on
  discount debentures.....           148              96               55                 19               44
                            ---------------  -------------       --------            -------      -------------
Pro forma interest
  expense.................        57,097          55,356           21,411              7,852           28,411
Consolidated interest
  income..................            --              --               --               (228)            (228)
Historical interest
  expense, net............        (7,832)         (7,832)          (3,139)                --            (3139)
                            ---------------  -------------       --------            -------      -------------
    Total.................     $  49,265       $  47,524        $  18,272          $   7,624        $  25,044
                            ---------------  -------------       --------            -------      -------------
                            ---------------  -------------       --------            -------      -------------
</TABLE>

- ------------------------------

    (1) Represents interest on the $6.7 million that was drawn under the
       revolving credit facility of Alaska Communications Systems Holdings on
       May 14, 1999 using an assumed interest rate of 7.750%. As adjusted,
       interest reflects retirement of debt from the net proceeds of the
       offering.

    (2) Represents interest on the $150.0 million term loan A facility using an
       assumed interest rate of 7.750%.

    (3) Represents interest on the $150.0 million term loan B facility using an
       assumed interest rate of 8.000%.

    (4) Represents interest on the $135.0 million term loan C facility using an
       assumed interest rate of 8.250%.

    (5) Represents interest on the $150.0 million senior subordinated notes
       using an interest rate of 9.375%.

    (6) Represents interest on our $25.0 million senior discount debentures
       using an interest rate of 13.000%. As adjusted, interest reflects the
       retirement of debt from the net proceeds of the offering.

    (7) Represents interest on $7.5 million of long-term obligations assumed by
       us at an interest rate of 8.000%.

                                       32
<PAGE>
    (8) A 1/8% change in interest rates for the variable rate debt above would
       change interest expense by $552,000 for the year ended December 31, 1998
       and by $207,000 for the six months ended June 30, 1999.

    (9) Deferred financing costs are amortized over the term of the related debt
       (an average life of eight years for all borrowings). As adjusted,
       amortization reflects the retirement of debt from the net proceeds of the
       offering.

(d) Represents the elimination of historical tax expense, as on a pro forma
    basis we would have been in a net loss position. No tax benefit for the net
    loss is reflected in the Unaudited Pro Forma Combined Statement of
    Operations, as we are uncertain when profitable operations will be achieved.

(e) Following the offering, we will record charges related to the redemption of
    our senior discount debentures of $3.3 million. These charges will be
    recorded as extraordinary items and, as such, are not included in the
    Unaudited Pro Forma Combined Statements of Operations.

(f)  Following the offering, we will record compensation expense of $
    related to the issuance of 466,000 stock options under our stock incentive
    plan on September 28, 1999 as all of these options will vest immediately
    upon the offering. This expense is not included in the Unaudited Pro Forma
    Combined Statements of Operations.

(g) Weighted average shares outstanding represent the shares outstanding at June
    30, 1999 and do not include the effect of 2,899,497 shares issuable upon
    exercise of options granted under our stock option plan and 828,261 shares
    issuable under outstanding warrants exercisable at $.01 per share because
    they would be accretive. Weighted average shares outstanding as adjusted for
    the offering are increased for the       shares issued in the offering. All
    of the shares issuable to outstanding warrants are expected to be issued in
    connection with the offering.

                                       33
<PAGE>
                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                                PRO FORMA
                                                            BALANCE SHEET AT     OFFERING     BALANCE SHEET
                                                              JUNE 30, 1999    ADJUSTMENTS   AT JUNE 30, 1999
                                                            -----------------  ------------  ----------------
<S>                                                         <C>                <C>           <C>
                                                                         (DOLLARS IN THOUSANDS)
ASSETS:
Cash and cash equivalents.................................    $       4,019     $  145,331(a)   $    149,350
Accounts receivable.......................................           47,493             --           47,493
Materials and supplies and other current assets...........            9,547             --            9,547
                                                            -----------------  ------------  ----------------
Total current assets......................................           61,059        145,331          214,755
Net property, plant and equipment.........................          420,908             --          420,908
Goodwill..................................................          243,980             --          243,980
Other assets..............................................           70,399             --           70,399
                                                            -----------------  ------------  ----------------
    Total Assets..........................................    $     796,346     $  145,331     $    941,677
                                                            -----------------  ------------  ----------------
                                                            -----------------  ------------  ----------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable.............................................    $       8,700     $   (8,700)(a)   $         --
Other current liabilities.................................           42,081             --           42,081
                                                            -----------------  ------------  ----------------
    Total current liabilities.............................           50,781         (8,700)          42,081
Long-term debt:
  Senior credit facility..................................          435,000             --          435,000
  9 3/8% Senior subordinated notes due 2009...............          150,000             --          150,000
  13% Senior discount debentures due 2011.................           19,911          6,969(a)         12,942
  Capital lease obligations...............................            7,500             --            7,500
  Note to Municipality of Fairbanks.......................            1,602             --            1,602
                                                            -----------------  ------------  ----------------
    Total long-term debt..................................          614,013          6,969          607,044
Other liabilities.........................................            9,297             --            9,297
Stockholders' equity......................................          122,219        161,000          283,219
                                                            -----------------  ------------  ----------------
    Total Liabilities and Stockholders' Equity............    $     796,346     $  145,331     $    941,677
                                                            -----------------  ------------  ----------------
                                                            -----------------  ------------  ----------------
</TABLE>

             NOTE TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

(a) Represents the use of the estimated net proceeds of $161.0 million from the
    offering to repay $8.7 million of borrowings under our revolving credit
    facility at June 30, 1999 and $7.0 million of accreted value of our senior
    discount debentures, net of original issue discount, at June 30, 1999, and
    the use of $145.3 million of cash for capital expenditures, acquisitions and
    working capital purposes.

                                       34
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    This discussion and analysis should be read in conjunction with the
financial statements and related notes, the pro forma financial information and
the other financial information included elsewhere in this prospectus.

                                 ALEC HOLDINGS

    We were formed in 1998 to acquire telecommunications properties in Alaska.
In May 1999, we acquired Century's Alaska properties and ATU. Century's Alaska
properties were the incumbent provider of local telephone services in Juneau,
Fairbanks and more than 70 rural communities in Alaska and provided Internet
services to customers statewide. ATU was the largest local exchange carrier in
Alaska and provided local telephone and long distance services primarily in
Anchorage and cellular services statewide. In addition, ATU held minority
interests in companies that delivered wireless cable television, Internet access
and wholesale long distance.

    Prior to the consummation of the acquisitions of Century's Alaska properties
and ATU in May 1999, we had no operations. Accordingly, the following discussion
should be read in conjunction with our consolidated financial statements and the
related notes, the combined financial statements and the related notes of
Century's Alaska properties and the financial statements and the related notes
of ATU included in this prospectus.

    Today, we generate revenue through:

    - the provision of local telephone services, including:

     - basic local service to retail customers within our service areas,

     - wholesale service to competitive local exchange carriers,

     - network access services to interexchange carriers for origination and
       termination of interstate and intrastate long distance phone calls,

     - enhanced services,

     - ancillary services, such as billing and collection,

     - universal service payments and

     - Internet and other services;

    - the provision of wireless services; and

    - the provision of long distance services.

We also recognize our proportionate share of the net income or loss of our
minority-owned investments.

    Within the telecommunications industry, local exchange carriers have
historically enjoyed stable revenue and cash flow from local exchange operations
resulting from the need for basic telecommunications services, the highly
regulated nature of the telecommunications industry and, in the case of rural
local exchange carriers, the underlying cost recovery settlement and support
mechanisms applicable to local exchange operations. Basic local service is
generally provided at a flat monthly rate and allows the user to place unlimited
calls within a defined local calling area. Access revenues are generated by
providing interexchange carriers access to the local exchange carrier's local
network and its customers. Universal service revenues are a subsidy paid to
rural local exchange carriers, such as Century's Alaska properties, to support
the high cost of providing

                                       35
<PAGE>
service in rural markets. Other service revenue is generated from ancillary
services, enhanced services and Internet access.

    Changes in revenue are largely attributable to changes in the number of
access lines, local service rates and minutes of use. Other factors can also
impact revenue, including:

    - intrastate and interstate revenue settlement methodologies,

    - authorized rates of return for regulated services,

    - whether an access line is used by a business or residential subscriber,

    - intrastate and interstate calling patterns,

    - customers' selection of various local rate plan options,

    - selection of enhanced calling services, such as voice mail, or other
      packaged products, such as cellular and Internet and

    - other subscriber usage characteristics.

    Local exchange carriers have two basic tiers of customers:

    - end users located in the local exchanges that pay for local telephone
      service including, in our case, retail, resale and unbundled network
      elements end users and

    - interexchange carriers that pay the local exchange carrier for access to
      customers located within that local exchange carrier's local service area.

    Local exchange carriers provide access service to numerous interexchange
carriers and may also bill and collect long distance charges from interexchange
carrier customers on behalf of the interexchange carriers. The amount of access
charge revenue associated with a particular interexchange carrier varies
depending upon long distance calling patterns and the relative market share of
each long distance carrier.

    Our local service rates for end users are authorized by the RCA. Authorized
rates are set by the FCC and the RCA for interstate and intrastate access
charges, respectively, and may change from time to time.

    ATU has historically provided long distance service both through leased
facilities and as a reseller of other carriers' long distance services. We
recently purchased $19.5 million of long distance fiber capacity for high speed
links within Alaska and for termination of traffic in the lower 48 states, the
cost of which we will depreciate over 20 years. We have migrated long distance
traffic from leased circuits onto our own network infrastructure. As a result,
we expect that in future periods operating expenses relating to leased circuits
will be lower, but depreciation relating to the purchased capacity will be
higher.

ALEC HOLDINGS--SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE
  30, 1998

    The following unaudited table summarizes our combined operations for the six
month periods ended June 30, 1999 and June 30, 1998. For the six months ended
June 30, 1999, the summary information represents the combined historical
results of Century's Alaska properties and ATU from January 1, 1999 through
acquisition on May 14, 1999 and our consolidated operating results for the
period from May 15, 1999 to June 30, 1999. For the six months ended June 30,
1998, the summary

                                       36
<PAGE>
information represents the historical combined operating results of Century's
Alaska properties and ATU for that six month period.

<TABLE>
<CAPTION>
                                                                    COMBINED SIX MONTHS
                                                                       ENDED JUNE 30,
                                                                    --------------------
                                                                      1998       1999
                                                                    ---------  ---------
                                                                       (IN THOUSANDS)
<S>                                                                 <C>        <C>
OPERATING REVENUES:
Local telephone...................................................  $ 117,429  $ 124,319
Cellular..........................................................     14,122     15,776
Long distance.....................................................      2,487      5,141
                                                                    ---------  ---------
    Total operating revenues......................................    134,038    145,236
OPERATING EXPENSES:
Cost of sales and operating expenses--local telephone.............     70,944     79,674
Cost of sales and operating expenses--cellular....................      9,782     11,432
Cost of sales and operating expenses--long distance...............      4,410      6,416
Depreciation and amortization.....................................     26,575     28,901
                                                                    ---------  ---------
    Total operating expenses......................................    111,711    126,423
                                                                    ---------  ---------
Operating income..................................................     22,327     18,813
Interest expense, net.............................................     (4,267)   (10,763)
Other income (expense)............................................       (667)      (781)
                                                                    ---------  ---------
Income before taxes...............................................     17,393      7,269
Income taxes......................................................      4,304      3,944
                                                                    ---------  ---------
Net income........................................................  $  13,089  $   3,325
                                                                    ---------  ---------
                                                                    ---------  ---------
EBITDA............................................................  $  50,519  $  48,548
                                                                    ---------  ---------
                                                                    ---------  ---------
</TABLE>

    OPERATING REVENUES

    Combined operating revenues increased $11.2 million, or 8.4%, for the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998.
Local service, network access and cellular revenues all increased as compared to
the prior six month period.

    LOCAL TELEPHONE

    Local telephone revenues, which consist of local service, network access
charges and other revenues, increased $6.9 million, or 5.9%, for the six months
ended June 30, 1999 as compared to the six months ended June 30, 1998. The
increase in local service revenues corresponds to a 7.9% growth in access lines
from the previous period from 294,933 to 318,227.

    CELLULAR

    Cellular revenues increased $1.7 million, or 11.7%, for the six months ended
June 30, 1999 as compared to the six months ended June 30, 1998, as cellular
customers increased 15.2% during that period from 60,425 to 69,581.

    LONG DISTANCE

    Long distance revenues increased $2.7 million, or 106.7%, for the six months
ended June 30, 1999 as compared to the six months ended June 30, 1998 due to a
104.2% increase in long distance minutes of use.

                                       37
<PAGE>
    OPERATING EXPENSES

    Operating expenses increased $14.7 million, or 13.2%, for the six months
ended June 30, 1999 as compared to the six months ended June 30, 1998. Operating
expenses increased to 87.0% of revenues for the six months ended June 30, 1999
as compared to 83.3% of revenues for the six months ended June 30, 1998.
Adjusted for one-time and transaction related costs associated with our
acquisitions of Century's Alaska properties and ATU of approximately $6.6
million and reducing revenues by $1.6 million for non-recurring items related to
a prior period, operating expenses would have been 83.4% of revenues for the six
months ended June 30, 1999.

    LOCAL TELEPHONE

    Cost of sales and operating expenses--local telephone increased $8.7
million, or 12.3%. The one-time costs discussed above contributed to the
increase. Sales and customer service expense, two components of local telephone
customer expense, increased for the current six month period primarily due to
increased competition in the local market.

    CELLULAR

    Cost of sales and operating expenses--cellular increased $1.7 million, or
16.9%, for the six months ended June 30, 1999 as compared to the six months
ended June 30, 1998, primarily due to the increased costs of supporting a larger
customer base, combined with the marketing expenses associated with customer
sales and retention.

    LONG DISTANCE

    Cost of sales and operating expenses--long distance increased by $2.0
million, or 45.5%, but decreased as a percentage of sales as long distance
operations benefited from economies of scale, particularly in general and
administrative expenses.

    DEPRECIATION AND AMORTIZATION

    The increase of $2.3 million, or 8.8%, was due to increases in plant in
service for the six months and additional amortization of goodwill from May 14,
1999 to June 30, 1999.

    INTEREST EXPENSE, NET

    Interest expense, net increased $6.5 million, or 152.2%, for the six months
ended June 30, 1999 as compared to the six months ended June 30, 1998 due
primarily to an increase of $611.6 million in debt incurred in connection with
the acquisitions of Century's Alaska properties and ATU.

    OTHER INCOME (EXPENSE)

    Other income (expense) for the six months ended June 30, 1999 consists
primarily of non-recurring income and expenses ancillary to telephone operations
and losses in minority interests. Other income was approximately $1.2 million,
including approximately $0.5 million of one-time revenues and $0.7 million of
ancillary revenues. Other expense was approximately $0.7 million, consisting
primarily of miscellaneous non-recurring and non-operating expense items. The
other component of other expense is losses in minority interests, which were
$1.3 million for the six months ended June 30, 1999. Other expense increased
$114,000, or 17.1%, for the six months ended June 30, 1999 as compared to the
six months ended June 30, 1998, which consisted primarily of increased losses in
minority interests.

                                       38
<PAGE>
    NET INCOME AND EBITDA

    The decrease in net income is primarily a result of the factors discussed
above and, in particular, the increase in operating expense as a percentage of
sales and the increase in interest expense. EBITDA, which is not driven by the
increase in interest expense, decreased $2.0 million.

                          CENTURY'S ALASKA PROPERTIES

    Century acquired its Alaska properties on December 1, 1997 as part of its
acquisition of Pacific Telecom from PacifiCorp Holdings, Inc. On October 6,
1997, prior to their acquisition by Century, Century's Alaska properties
acquired the assets of the City of Fairbanks Telephone Operation. On December
31, 1997, Century's Alaska properties sold their Alaska rural statistical area,
or RSA, #1 B-side cellular property in Fairbanks to ATU. The operating results
of this divested property are included in the historical operating results of
Century's Alaska properties.

    The following table summarizes each component of Century's Alaska
properties' revenue sources for the years ended December 31, 1996, 1997 and 1998
and the three-month periods ended March 31, 1998 and 1999:

<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED
                                                 YEAR ENDED DECEMBER 31,           MARCH 31,
                                             -------------------------------  --------------------
                                               1996       1997       1998       1998       1999
                                             ---------  ---------  ---------  ---------  ---------
                                                                (IN THOUSANDS)
<S>                                          <C>        <C>        <C>        <C>        <C>
Local service..............................  $  21,740  $  26,937  $  37,255  $   8,961  $   9,576
Network access.............................     45,056     50,298     64,321     14,292     15,305
Other......................................      9,154     12,350     20,357      4,714      5,934
                                             ---------  ---------  ---------  ---------  ---------
Local telephone............................     75,950     89,585    121,933     27,967     30,815
Cellular...................................      4,823      5,301      2,576        408        546
                                             ---------  ---------  ---------  ---------  ---------
Total......................................  $  80,773  $  94,886  $ 124,509  $  28,375  $  31,361
                                             ---------  ---------  ---------  ---------  ---------
                                             ---------  ---------  ---------  ---------  ---------
</TABLE>

    Century's Alaska properties' operating expenses are categorized as: cost of
sales and operating expenses--telephone; cost of sales and operating
expenses--wireless; and depreciation and amortization. Cost of sales and
operating expenses--telephone are those operating expenses incurred by Century's
Alaska properties in connection with their local telephone business, including
the operation of their central offices and outside plant facilities and related
operations, customer service, marketing and other general and administrative
expenses and allocated corporate expenses. Cost of sales and operating
expenses--wireless are those operating expenses incurred by Century's Alaska
properties in connection with the operation of their wireless facilities and
transmission of wireless services, customer service, marketing and other general
and administrative expenses and allocated corporate expenses.

CENTURY'S ALASKA PROPERTIES--THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE
  MONTHS ENDED MARCH 31, 1998

    OPERATING REVENUES

    Combined operating revenues increased $3.0 million, or 10.5%, for the three
months ended March 31, 1999 as compared to the three months ended March 31,
1998. Local service, network access and cellular revenues all increased as
compared to the prior three month period.

                                       39
<PAGE>
    LOCAL TELEPHONE

    Local telephone revenues, which consist of local service, network access
charges and other revenues, increased $2.8 million, or 10.2%, for the three
months ended March 31, 1999 as compared to the three months ended March 31,
1998. The increase in local service revenues corresponds with a 4.9% growth in
access lines from the prior period. Access revenues increased $1.0 million, or
7.1%, as compared to the prior three-month period.

    CELLULAR

    Cellular revenues increased $138,000, or 33.8%, for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998, as cellular
customers increased 34.3% as of March 31, 1999 as compared to March 31, 1998.

    OPERATING EXPENSES

    LOCAL TELEPHONE

    Cost of sales and operating expenses--telephone increased by $819,000, or
5.0%, for the three months ended March 31, 1999 as compared to the three months
ended March 31, 1998.

    CELLULAR

    Cost of sales and operating expenses--cellular increased $66,000, or 20.0%,
for the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998. This increase was due to the additional marketing and support
costs associated with the 34.3% increase in cellular customers.

    DEPRECIATION AND AMORTIZATION

    Depreciation and amortization increased $576,000, or 8.0%, for the three
months ended March 31, 1999 as compared to the three months ended March 31, 1998
due to higher plant in service balances and amortization of goodwill associated
with purchase accounting.

    INTEREST EXPENSE, NET

    Interest expense, net increased to $358,000 for the three months ended March
31, 1999 as compared to $302,000 for the three months ended March 31, 1998.

    OTHER INCOME (EXPENSE)

    Other income (expense) is related primarily to non-recurring income and
expenses ancillary to telephone operations. For the three months ended March 31,
1999, other income (expense) decreased $277,000, or 77.6%, as compared to the
three months ended March 31, 1998. The decrease was primarily due to recognition
of non-recurring expense items in the current period.

    INCOME TAXES

    The provision for income taxes was $2.7 million for the three months ended
March 31, 1999 as compared to $2.2 million for the three months ended March 31,
1998 due to increased taxable income in the three month period ended March 31,
1999, as a result of the factors described above.

    NET INCOME AND EBITDA

    Increases of $697,000 in net income and of $1.8 million in EBITDA were a
result of the factors described above, and in particular, the increase in our
customer base as represented by increased access lines and increased cellular
customers.

                                       40
<PAGE>
CENTURY'S ALASKA PROPERTIES--FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO
  FISCAL YEAR ENDED DECEMBER 31, 1997

    The financial statements of Century's Alaska properties reflect the combined
results of Century's Alaska properties, including Telephone Utilities of Alaska,
Inc., which operates in Juneau, Telephone Utilities of the Northland, Inc.,
which operates in numerous rural communities, and the Alaska RSA #3 cellular
property for the years ended December 31, 1997 and 1998. Additionally, the
results of the City of Fairbanks Telephone Operation are reflected from the date
of acquisition, October 6, 1997. The Alaska RSA #1 B-side cellular property was
divested on December 31, 1997 to comply with FCC cross-ownership restrictions.
The operating results of this property are included in the financial statements
for the years ended December 31, 1997 and 1996, respectively, as follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER
                                                                31,
                                                        --------------------
                                                          1996       1997
                                                        ---------  ---------
                                                           (IN THOUSANDS)
<S>                                                     <C>        <C>
Revenues..............................................  $   2,681  $   3,100
Operating expenses....................................      1,889      1,643
Depreciation..........................................        457        424
                                                        ---------  ---------
Operating income......................................  $     335  $   1,033
                                                        ---------  ---------
                                                        ---------  ---------
</TABLE>

    OPERATING REVENUES

    Combined operating revenues increased 31.2% to $124.5 million for the year
ended December 31, 1998 as compared to $94.9 million for the year ended December
31, 1997. Local telephone operating revenues increased 36.0% to $121.9 million
for the year ended December 31, 1998 as compared to $89.6 million for the year
ended December 31, 1997. Cellular revenues decreased 51.4% to $2.6 million for
the year ended December 31, 1998 as compared to $5.3 million for the year ended
December 31, 1997. Ownership of the City of Fairbanks Telephone Operation for a
full year in 1998 versus a partial year in 1997 accounted for $21.0 million of
the total $29.6 million increase in combined operating revenues.

    LOCAL TELEPHONE

    Local telephone revenues increased 36.0% to $121.9 million for the year
ended December 31, 1998 as compared to $89.6 million for the year ended December
31, 1997. Of this increase, $21.0 million was due to the full year of ownership
of the City of Fairbanks Telephone Operation in 1998 versus a partial year in
1997, $4.2 million was due to higher access revenues at Telephone Utilities of
Alaska and Telephone Utilities of the Northland, $1.5 million was due to higher
local service revenues at Telephone Utilities of Alaska and Telephone Utilities
of the Northland and $0.4 million was due to higher other revenues. The increase
in local service revenues was due to a 5.6% growth in access lines from December
31, 1997 to December 31, 1998. Growth in access revenues was primarily the
result of a higher revenue requirement due to higher expenses for the year ended
December 31, 1998 as compared to the year ended December 31, 1997.

    CELLULAR

    Cellular revenues decreased 51.4% to $2.6 million for the year ended
December 31, 1998 as compared to $5.3 million for the year ended December 31,
1997. Improved results of the Alaska RSA #3 property increased revenues $0.4
million for the year ended December 31, 1998 as compared to the year ended
December 31, 1997. The divestiture of the Alaska RSA #1 B-side

                                       41
<PAGE>
cellular property decreased cellular revenue by $3.1 million for the year ended
December 31, 1998 as compared to the year ended December 31, 1997.

    OPERATING EXPENSES

    LOCAL TELEPHONE

    Cost of sales and operating expenses--telephone increased 47.5% to $72.0
million for the year ended December 31, 1998 as compared to $48.8 million for
the year ended December 31, 1997. Ownership of the City of Fairbanks Telephone
Operation for the full year 1998 versus a partial year in 1997 accounted for
$15.0 million of the total increase in cost of sales and operating expenses--
telephone. The remaining increase was due primarily to higher expenses at
Telephone Utilities of Alaska and Telephone Utilities of the Northland local
telephone operations, attributable to increased costs necessary to support
growth in access lines and higher corporate allocated costs.

    CELLULAR

    Cost of sales and operating expenses--cellular decreased by 34.1% to $2.1
million for the year ended December 31, 1998 as compared to $3.2 million for the
year ended December 31, 1997. In addition, $0.5 million of higher cost of sales
and operating expense--cellular was due to increased costs necessary to support
the increased number of customers for the Alaska RSA #3 cellular property. The
divestiture of the Alaska RSA #1 B-side cellular property decreased expenses by
$1.6 million.

    DEPRECIATION AND AMORTIZATION

    Depreciation and amortization increased $12.2 million to $30.5 million for
the year ended December 31, 1998 as compared to $18.3 million for the year ended
December 31, 1997. The increase in depreciation and amortization expense was due
to higher plant in service balances, amortization of goodwill associated with
purchase accounting, higher authorized depreciation rates effective January 1,
1998, as approved by the APUC, and a full year of ownership of the City of
Fairbanks Telephone Operation.

    INTEREST EXPENSE, NET

    Interest expense, net decreased 40.0% to $1.4 million for the year ended
December 31, 1998 as compared to $2.3 million for the year ended December 31,
1997. The decrease was due to an increase of $4.9 million in cash and cash
equivalents and an increase of $11.5 million in affiliated receivable balances
at December 31, 1998 as compared to December 31, 1997.

    OTHER INCOME (EXPENSE)

    Other income (expense) is related primarily to non-recurring and
non-operating income and expenses. For the year ended December 31, 1998, other
income (expense) was $356,000 as compared to $(245,000) for the year ended
December 31, 1997.

    INCOME TAXES

    Income taxes increased 8.7% to $9.2 million for the year ended December 31,
1998 as compared to $8.5 million for the year ended December 31, 1997. The
increase in income taxes was due to increased taxable income in 1998 as compared
to 1997.

                                       42
<PAGE>
    NET INCOME

    As a result of the factors described above, net income decreased $3.8
million to $9.6 million for the year ended December 31, 1998 as compared to
$13.4 million for the year ended December 31, 1997.

    EBITDA

    As a result of the factors described above, EBITDA increased by $8.2 million
to $50.7 million for the year ended December 31, 1998 as compared to $42.6
million for the year ended December 31, 1997. In particular, an increase in
local telephone customers as represented by an increase in access lines more
than offset the effects of a decline in cellular customers.

CENTURY'S ALASKA PROPERTIES--FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO
  FISCAL YEAR ENDED DECEMBER 31, 1996

    OPERATING REVENUES

    Combined operating revenues increased 17.5% to $94.9 million for the year
ended December 31, 1997 as compared to $80.8 million for the year ended December
31, 1996. Local telephone operating revenues increased 18.0% to $89.6 million
for the year ended December 31, 1997 as compared to $76.0 million for the year
ended December 31, 1996. Cellular revenues increased 9.9% to $5.3 million for
the year ended December 31, 1997 as compared to $4.8 million for the year ended
December 31, 1996. Ownership of the City of Fairbanks Telephone Operation from
October 6, 1997 through December 31, 1997 accounted for $7.8 million of the
total $14.1 million increase in combined operating revenues.

    LOCAL TELEPHONE

    Local telephone revenues increased 18.0% to $89.6 million for the year ended
December 31, 1997 as compared to $76.0 million for the year ended December 31,
1996. Of this increase, $7.8 million was due to partial year ownership of the
City of Fairbanks Telephone Operation in 1997, $1.2 million was due to higher
access revenues at Telephone Utilities of Alaska and Telephone Utilities of the
Northland, and $2.0 million was due to higher local service and other revenues
at Telephone Utilities of Alaska and Telephone Utilities of the Northland. The
increase in local service revenues was due to a 6.0% growth in access lines and
higher enhanced services revenue, in each case, without giving effect to the
City of Fairbanks Telephone Operation acquisition. Growth in access revenues was
primarily the result of a higher revenue requirement due to higher expenses for
the year ended December 31, 1997 as compared to the prior year.

    CELLULAR

    Cellular revenues increased 9.9% to $5.3 million for the year ended December
31, 1997 as compared to $4.8 million for the year ended December 31, 1996.
Improved results were primarily due to an increase in subscribers from December
31, 1996 to December 31, 1997.

    OPERATING EXPENSES

    LOCAL TELEPHONE

    Cost of sales and operating expenses--telephone increased 16.7% to $48.8
million for the year ended December 31, 1997 as compared to $41.8 million for
the year ended December 31, 1996. Ownership of the City of Fairbanks Telephone
Operation for part of the year in 1997 accounted for $4.4 million of the total
increase. The remaining increase is due primarily to higher expenses for

                                       43
<PAGE>
Telephone Utilities of Alaska and Telephone Utilities of the Northland local
telephone operations, attributable to increased costs necessary to support
growth in access lines.

    CELLULAR

    Cost of sales and operating expenses--cellular decreased 4.5% to $3.2
million for the year ended December 31, 1997 as compared to $3.4 million for the
year ended December 31, 1996.

    DEPRECIATION AND AMORTIZATION

    Depreciation and amortization increased 19.2% to $18.3 million for the year
ended December 31, 1997 as compared to $15.3 million for the year ended December
31, 1996. Ownership of the City of Fairbanks Telephone Operation for part of the
year in 1997 resulted in $2.1 million of the total increase. The remaining
portion of the total increase was due to higher plant in service balances in
1997 as compared to 1996.

    INTEREST EXPENSE, NET

    Interest expense, net increased 17.2% to $2.3 million for the year ended
December 31, 1997 as compared to $2.0 million for the year ended December 31,
1996.

    OTHER INCOME (EXPENSE)

    Other income (expense) is related primarily to non-recurring and
non-operating income and expenses. For the year ended December 31, 1996, these
items resulted in other income (expense) of $0.0 million as compared to $(0.2)
million for the year ended December 31, 1997. This increase was due principally
to increased Internet revenues and increased payphone, equipment sales and
rental activity.

    INCOME TAXES

    Income taxes increased 25.9% to $8.5 million for the year ended December 31,
1997 as compared to $6.7 million for the year ended December 31, 1996. The
increase in income taxes was due to increased taxable income in 1997 as compared
to 1996.

    NET INCOME

    As a result of the factors described above, net income increased $1.9
million to $13.4 million for the year ended December 31, 1997 as compared to
$11.5 million for the year ended December 31, 1996.

    EBITDA

    As a result of the factors described above, EBITDA increased $7.0 million to
$42.6 million for the year ended December 31, 1997 as compared to $35.6 million
for the year ended December 31, 1996. In particular, this increase was the
result of increases in local telephone and cellular customers.

                                       44
<PAGE>
                                      ATU

    The following table summarizes each component of ATU's revenue sources for
the years ended December 31, 1996, 1997 and 1998 and the three months ended
March 31, 1998 and 1999:

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                               YEAR ENDED DECEMBER 31,           MARCH 31,
                                           -------------------------------  --------------------
                                             1996       1997       1998       1998       1999
                                           ---------  ---------  ---------  ---------  ---------
                                                              (IN THOUSANDS)
<S>                                        <C>        <C>        <C>        <C>        <C>
Local service............................  $  49,458  $  52,007  $  50,863  $  12,913  $  12,244
Network access...........................     34,800     34,369     34,740      8,035     10,686
Other....................................     29,157     30,179     35,454      8,787      7,434
                                           ---------  ---------  ---------  ---------  ---------
  Local telephone........................    113,415    116,555    121,057     29,735     30,364
Cellular.................................     16,897     21,845     29,225      5,879      6,710
Long distance............................          2      1,541      6,815      1,144      2,683
                                           ---------  ---------  ---------  ---------  ---------
Total....................................  $ 130,314  $ 139,941  $ 157,097  $  36,758  $  39,757
                                           ---------  ---------  ---------  ---------  ---------
                                           ---------  ---------  ---------  ---------  ---------
</TABLE>

    ATU's operating expenses are categorized as: cost of sales and operating
expenses--local telephone; cost of sales and operating expenses--cellular; cost
of sales and operating expenses-- long distance; and depreciation and
amortization. Cost of sales and operating expenses--local telephone are those
operating expenses incurred by ATU in connection with its local telephone
business, including the operation of its central offices and outside plant
facilities and related operations, customer service, marketing and other general
and administrative expenses and corporate expenses. These expenses included
allocations from the Municipality of Anchorage totaling $3.2 million, $3.7
million and $3.2 million for the years ended December 31, 1996, 1997 and 1998,
respectively. Management considers these expenses to be comparable to those
which would have been incurred on a stand-alone basis and to those we expect to
incur in future periods. Cost of sales and operating expenses--cellular are
those operating expenses incurred by ATU in connection with the operation of its
wireless facilities and transmission of wireless services, customer service,
marketing and other general and administrative expenses and corporate expenses.
Cost of sales and operating expenses--long distance includes operating expenses
incurred by ATU in connection with the provisioning of long distance services.

ATU--THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
  31, 1998

    OPERATING REVENUES

    Operating revenues increased $3.0 million, or 8.2%, for the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998. ATU
reported revenue growth in all three service categories: local telephone,
cellular and long distance.

    LOCAL TELEPHONE

    Local telephone revenues, which consist of local service, network access
charges and other revenues, increased $629,000, or 2.1%, for the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998. Local
service revenues decreased $669,000, or 5.2%, as a result of a 3.6% decrease in
retail access lines. Local service revenues include revenues for ATU's retail
local telephone service to business and residential customers and wholesale
customers that resell ATU's local telephone service. The decrease in retail
access lines was primarily due to the introduction of competition in ATU's
service area.

                                       45
<PAGE>
    Network access revenues increased $2.7 million, or 33.0%, for the three
months ended March 31, 1999 as compared to the three months ended March 31,
1998, due primarily to prior period revenues which had been reserved in
connection with various regulatory matters that have been resolved.

    Other revenues decreased $1.4 million, or 15.4%, for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998.

    CELLULAR

    Cellular revenues increased $831,000, or 14.1%, for the three months ended
March 31, 1999 as compared to the three months March 31, 1998. The number of
subscribers increased from 54,436 at March 31, 1998 to 63,779 at March 31, 1999.

    LONG DISTANCE

    Long distance revenues increased $1.5 million, or 134.5%, for the three
months ended March 31, 1999 as compared to the three months ended March 31, 1998
principally due to a 161.1% growth in minutes of use.

    OPERATING EXPENSES

    LOCAL TELEPHONE

    Cost of sales and operating expenses--telephone increased $613,000, or 3.4%,
for the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998 due to a number of factors including increased labor and
consulting related to new information systems, increased customer service
expense and an increase in sales and marketing expense as a response to the
opening of the Anchorage local market to competition.

    CELLULAR

    Cost of sales and operating expenses--cellular increased $692,000, or 17.1%,
for the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998 primarily due to the increase costs of supporting a larger
customer base.

    LONG DISTANCE

    Cost of sales and operating expenses--long distance increased $1.3 million,
or 70.9%, for the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998. Expenses rose at a lower rate than revenues due to
economies of scale. Since ATU was not a facilities-based carrier, a primary
component of long distance cost of sales was the semi-fixed expense of leased
lines over a range of capacity. In addition, selling, general and administrative
expense, as a percentage of revenues, was significantly lower for the three
months ended March 31, 1999 as compared to the three months ended March 31,
1998.

    DEPRECIATION AND AMORTIZATION

    Depreciation and amortization expense increased $335,000, or 4.7%, for the
three months ended March 31, 1999 as compared to the three months ended March
31, 1998 primarily due to increases in plant in service balances.

    INTEREST EXPENSE, NET

    Interest expense, net decreased $255,000, or 13.9%, for the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998 due to
the decrease in outstanding long-term debt.

                                       46
<PAGE>
    OTHER INCOME (EXPENSE)

    Other income (expense) includes equity in earnings (loss) of minority
interests and other income and expenses ancillary to telephone operations. Other
income decreased by $277,000 for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998.

    NET INCOME AND EBITDA

    Net income increased $29,000, or 0.8%, and EBITDA increased $109,000, or
0.9%, as a result of the factors described above. In particular, the increase in
the customer base for cellular and long distance services and the increase in
revenues from the resale of unbundled network elements more than offset the
competition-driven decrease in local telephone retail customers.

ATU--FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER
  31, 1997

    OPERATING REVENUES

    Operating revenues increased 12.3% to $157.1 million for the year ended
December 31, 1998 as compared to $139.9 million for the year ended December 31,
1997. ATU reported revenue growth in all three service categories: local
telephone, cellular and long distance.

    LOCAL TELEPHONE

    Local telephone revenues, which consist of local service, network access
charges and other revenues, increased 3.9% to $121.1 million for the year ended
December 31, 1998 as compared to $116.6 million for the year ended December 31,
1997. Local service revenues decreased 2.2% to $50.9 million for the year ended
December 31, 1998 as compared to $52.0 million for the year ended December 31,
1997 as a result of a decrease in retail access lines. Local service revenues
include revenues for ATU's retail local telephone service to business and
residential customers and wholesale customers that resell ATU's local telephone
service. Although the total number of access lines increased from 158,486 at
December 31, 1997 to 168,536 at December 31, 1998, retail access lines decreased
14,492 from 150,720 at December 31, 1997 to 136,228 at December 31, 1998,
principally as a result of the introduction of competition in ATU's service
area. The number of access lines made available to competitors increased from
7,766 at December 31, 1997 to 32,308 at December 31, 1998. This decrease in
retail access lines resulted in a decrease in local service revenues.

    Network access revenues increased 1.1% to $34.7 million for the year ended
December 31, 1998 as compared to $34.4 million for the year ended December 31,
1997. Market share losses relating to increased sales by competitors reduced
network access revenues by $1.9 million in 1998. We expect this competition to
continue. This decrease was partially offset by $2.4 million in higher
intrastate network access revenues from the settlement of a prior year access
charge dispute.

    Other revenues increased 17.5% to $35.5 million for the year ended December
31, 1998 as compared to $30.2 million for the year ended December 31, 1997. This
increase was primarily attributable to higher revenues from unbundled network
element interconnection and directory advertising. Revenues from monthly charges
paid by competing carriers for unbundled network element interconnection are
accounted for as other revenue.

    CELLULAR

    Cellular revenues increased 33.8% to $29.2 million for the year ended
December 31, 1998 as compared to $21.8 million for the year ended December 31,
1997. The increase was due to an

                                       47
<PAGE>
increase in the number of cellular subscribers in Anchorage and Alaska RSA #2,
as well as the acquisition of the Alaska RSA #1 B-side cellular property on
January 1, 1998. The number of subscribers increased from 47,538, excluding the
Alaska RSA #1 B-side property, at December 31, 1997 to 63,627 at December 31,
1998. The Fairbanks property increased from 5,497 subscribers at January 1, 1998
to 9,064 at December 31, 1998. Average revenue per customer per month remained
stable at $42 per customer per month.

    LONG DISTANCE

    Long distance revenues increased 342.2% to $6.8 million for the year ended
December 31, 1998 as compared to $1.5 million for the year ended December 31,
1997 principally due to customer growth. The number of customers increased to
25,670 customers at December 31, 1998 from approximately 10,600 customers at
December 31, 1997.

    OPERATING EXPENSES

    LOCAL TELEPHONE

    Cost of sales and operating expenses--telephone decreased marginally to
$74.2 million for the year ended December 31, 1998 as compared to $75.0 million
for the year ended December 31, 1997. Product sales and advertising expenses
increased $2.4 million in 1998 due to increased advertising campaigns resulting
from heightened competition in the local telephone market in 1998. These
increased expenses were offset by $3.5 million of reduced expenses, primarily
due to lower labor expenses associated with reduced full-time local telephone
employee levels in 1998 as compared to 1997.

    CELLULAR

    Cost of sales and operating expenses--cellular increased 38.1% to $20.0
million for the year ended December 31, 1998 as compared to $14.5 million for
the year ended December 31, 1997. An increase in customers from 47,538 at
December 31, 1997 to 63,627 at December 31, 1998 resulted in increases in sales
and marketing, general and administrative and other operating expenses. Of the
$5.5 million increase in cost of sales and operating expenses--cellular, $2.1
million was due to the operation of the newly acquired Alaska RSA #1 B-side
cellular property for a full year in 1998.

    LONG DISTANCE

    Cost of sales and operating expenses--long distance increased 123.8% to
$10.4 million for the year ended December 31, 1998 as compared to $4.6 million
for the year ended December 31, 1997. Increased expenses were due to additional
dedicated facilities leases, access payments, advertising and administrative
expenses to support increasing long distance traffic volumes. Traffic volumes
increased due to increases in the total number of long distance customers. As a
result, ATU's long distance operations incurred losses of $3.7 million in 1998
and $3.2 million in 1997.

    DEPRECIATION AND AMORTIZATION

    Depreciation and amortization expense increased 10.3% to $29.6 million for
the year ended December 31, 1998 as compared to $26.8 million for the year ended
December 31, 1997. Increases in plant in service balances and goodwill
amortization accounted for the increase. Higher depreciation and amortization
expense of $1.5 million in the local telephone operations and $1.3 million in
the cellular and long distance operations was incurred in 1998.

                                       48
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    INTEREST EXPENSE, NET

    Interest expense, net decreased 5.0% to $6.4 million for the year ended
December 31, 1998 as compared to $6.8 million for the year ended December 31,
1997. Interest expense increased by $1.1 million as a result of additional
outstanding long-term obligations associated with a bond issuance in 1998.
Increases in interest income from higher cash balances served to offset higher
interest expense. Reversal of previously accrued interest expense for revenue
that had been reserved in prior periods but recognized in 1998 reduced interest
expense for the year ended December 31, 1998 by $0.4 million.

    OTHER INCOME (EXPENSE)

    Other income (expense) includes equity in earnings (loss) of minority
interests and nonoperating other income and expenses ancillary to telephone
operations. ATU recognized losses in its minority investments of $2.9 million
for the year ended December 31, 1998 compared to earnings of $0.2 million for
the year ended December 31, 1997. For the year ended December 31, 1998, ATU
incurred $1.1 million in proportional losses from its minority investments, and
wrote down $1.5 million and $0.4 million of its investments in Alaskan Choice
Television, LLC, and Internet Alaska, Inc., respectively.

    NET INCOME AND INCOME TAXES

    As a result of the factors described above, net income increased $1.5
million to $13.6 million for the year ended December 31, 1998 as compared to
$12.1 million for the year ended December 31, 1997. Because ATU was a public
utility of the Municipality of Anchorage, it was exempt from U.S. federal and
state income taxes.

    EBITDA

    As a result of the factors described above, EBITDA increased $3.9 million to
$49.6 million for the year ended December 31, 1998 as compared to $45.7 million
for the year ended December 31, 1997. In particular, the increase in the
customer base for cellular and long distance services and the increase in
revenues from the resale of unbundled network elements more than offset the
competition-driven decrease in local telephone retail customers.

ATU--FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER
  31, 1996

    OPERATING REVENUES

    Operating revenues increased 7.4% to $139.9 million for the year ended
December 31, 1997 as compared to $130.3 million for the year ended December 31,
1996. ATU reported revenue growth in all three service categories: local
telephone, cellular and long distance.

    LOCAL TELEPHONE

    Local telephone revenues increased 2.8% to $116.6 for the year ended
December 31, 1997 as compared to $113.4 million for the year ended December 31,
1996. Local service revenues increased 5.2% to $52.0 million for the year ended
December 31, 1997 as compared to $49.5 million for the year ended December 31,
1996. The increase in local service revenues was primarily due to a 2.4%
increase in access lines and increases in penetration of enhanced services, such
as caller ID and call forwarding. Access revenues declined $0.4 million for the
year ended December 31, 1997 due to lower intrastate access revenues. Other
revenues increased 3.4% to $30.2 million for the year ended December 31, 1997 as
compared to $29.2 million for the year

                                       49
<PAGE>
ended December 31, 1996, principally as a result of the commencement of
unbundled network element interconnection, resulting in the sale by ATU of
unbundled network elements to a competitor, and directory advertising revenues.

    CELLULAR

    Cellular revenues increased 29.3% to $21.8 million for the year ended
December 31, 1997 as compared to $16.9 million for the year ended December 31,
1996. The increase was principally attributable to a 26.3% increase in the
number of subscribers, from 37,651 at December 31, 1996 to 47,538 at December
31, 1997, excluding the Alaska RSA #1 B-Side cellular property which was
acquired on January 1, 1998.

    LONG DISTANCE

    Long distance revenues increased to $1.5 million for the year ended December
31, 1997 as compared to $2,000 for the year ended December 31, 1996. The
increase was attributable to the commencement of the long distance business in
the fall of 1996.

    OPERATING EXPENSES

    LOCAL TELEPHONE

    Cost of sales and operating expenses--telephone decreased 1.3% to $75.0
million for the year ended December 31, 1997 as compared to $76.0 million for
the year ended December 31, 1996. The decrease is primarily attributable to
lower labor expense as a result of a reduction in the number of employees and
lower expenses from regulatory consulting services.

    CELLULAR

    Cost of sales and operating expenses--cellular increased 16.8% to $14.5
million for the year ended December 31, 1997 as compared to $12.4 million for
the year ended December 31, 1996. The increase is attributable to increases in
the number of employees to support growth in the customer base and increased
advertising expenses.

    LONG DISTANCE

    Cost of sales and operating expenses--long distance increased $4.1 million
to $4.6 million for the year ended December 31, 1997 as compared to $0.5 million
for the year ended December 31, 1996. The increase was due to start-up expenses
associated with commencing long distance operations, including higher switching,
facilities lease and access expenses to support the larger base of customers.

    DEPRECIATION AND AMORTIZATION

    Depreciation expense increased 30.9% to $26.8 million for the year ended
December 31, 1997 as compared to $20.5 million for the year ended December 31,
1996. The higher depreciation expense was attributable to higher telephone plant
in service, as well as higher depreciation rates authorized by the APUC that
became effective January 1, 1997.

    INTEREST EXPENSE, NET

    Interest expense, net remained relatively unchanged. Higher interest expense
from additional outstanding long-term debt balances was offset by higher
interest income associated with higher average cash balances.

                                       50
<PAGE>
    OTHER INCOME (EXPENSE)

    Other income (expense) includes minority investment earnings of $0.2 million
and other expense of $0.3 million for the year ended December 31, 1997 as
compared to other expense of $0.2 million for the year ended December 31, 1996.

    NET INCOME

    As a result of the factors described above, net income decreased $1.8
million to $12.1 million for the year ended December 31, 1997 as compared to
$13.9 million for the year ended December 31, 1996. Because ATU was a public
utility of the Municipality of Anchorage, it was exempt from U.S. federal and
state income taxes.

    EBITDA

    As a result of the factors described above, EBITDA increased $4.5 million to
$45.7 million for the year ended December 31, 1997 as compared to $41.2 million
for the year ended December 31, 1996. In particular, our customer base grew in
local, cellular and long distance services.

YEAR 2000

    Some of our older computer programs identify years with two digits instead
of four. This may cause problems because these programs may recognize the year
2000 as the year 1900. These problems could result in a system failure or
miscalculations disrupting operations, including a temporary inability to
process transactions, send invoices or engage in similar, normal business
activities. In addition, we face the risk that suppliers of products, services
and systems purchased by us do not have business systems or products that comply
with the year 2000 requirements.

    While we believe that the conversions or installations of replacement
systems will proceed smoothly, we cannot assure you that there will not be
interruptions or failures in our systems or in the systems of our suppliers. The
telecommunications industry is highly susceptible to the year 2000 issue. Should
the year 2000 issue cause problems across our infrastructure, service could be
interrupted. These events, if they occur, could materially adversely affect our
financial condition and results of operations.

    In order to understand our vulnerability to the year 2000 issue, we
conducted a comprehensive systems assessment of our year 2000 compliance during
the process of evaluating the acquisitions of Century's Alaska properties and
ATU. Many of our systems have also been represented by the respective vendors of
these systems to be year 2000 compliant, and both Century's Alaska properties
and ATU have initiatives in progress that we believe will address all
outstanding year 2000 issues.

    As of January 1, 1999, ATU completed its installation of an integrated
financial and accounting system. On March 12, 1999, ATU completed its
installation of Saville, a state-of-the-art customer care and billing system.
MACtel and ATU Long Distance will continue to operate their existing financial
management and billing systems. With respect to carrier access billing, ATU has
completed the transition to Century's Alaska properties' existing systems. Each
of the foregoing systems has been represented by the vendor to be year 2000
compliant.

    We have recently converted Century's Alaska properties' customer care and
billing systems to ATU's Saville platform. Century's Alaska properties recently
completed their installation of Platinum, an integrated financial and accounting
application. Facilities management and repair support systems for Century's
Alaska properties have also transitioned to ATU platforms, which have been
represented by the vendors as year 2000 compliant.

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<PAGE>
    Since January 1, 1997, ATU has spent approximately $22.8 million to upgrade
and maintain its information technology systems. While each of these upgrades
related to systems that we believe are year 2000 compliant, the expenditures for
upgrading these systems also included costs of replacing otherwise obsolete
systems. We expect to spend an additional $4.3 million to make our information
technology systems year 2000 compliant by the end of October 1999.

    Upgrades required to make ATU's network equipment year 2000 compliant are
mostly complete, with remaining upgrades expected to be finished by mid-November
1999. All of ATU's central office switches have been upgraded to year 2000
certified release levels. Upgrades required to make Century's Alaska properties'
network equipment year 2000 compliant are mostly complete, and the majority of
upgrades required to make Century's Alaska properties' central office switches
year 2000 compliant are complete, with remaining upgrades expected to be
finished by October 31, 1999.

    Century's Alaska properties' cellular systems are supported by Novatel and
Northern Telecom switching and cell site equipment. The Novatel switches, which
serve southeast Alaska, are not currently year 2000 compliant, but these systems
are in the process of being replaced by year 2000 compliant systems, with
completion expected by the end of October 1999 at a remaining cost of
approximately $4.0 million.

    Given the progress made to date, we do not anticipate delays in finalizing
and implementing year 2000 readiness solutions by the end of October 1999. We
cannot accurately estimate the uncertainty of completing our year 2000 readiness
plan, particularly as it relates to any failure by third parties that have
material relationships with us and fail to achieve their own year 2000
readiness. We have in the past and will continue to obtain assurances from third
parties that their systems are or will be year 2000 compliant no later than the
end of October 1999. Any failures by these third parties to appropriately
address their own year 2000 readiness challenges could materially adversely
affect our financial condition and results of operations.

    We believe that the following several situations make up our most reasonably
likely worst case scenario:

    FAILURE OF ELECTRICAL POWER SUPPLIES.  Although most of our major switching
and information systems have emergency standby power supplies, in the event of
long-term power disruption we may be required to shut down our switching and
computer equipment. We believe the larger electrical utilities that provide
service to us are pursuing year 2000 readiness strategies. However, electric
utilities serving smaller rural communities may be particularly exposed to year
2000 readiness issues.

    DISRUPTION OF SWITCHING AND INFORMATION TECHNOLOGY INFRASTRUCTURE.  The most
significant risks related to our switching and information technology systems
are:

    - the inability of our customers to make and receive calls,

    - the inability of our cell sites, switching centers and other interfaces to
      process and record call details of local telephone, long distance and
      cellular traffic accurately and

    - the inability of our billing systems to report and bill customers for
      phone usage accurately.

    We believe that we have adequately addressed each of these risks in our year
2000 readiness plan.

    INABILITY OF LARGE CUSTOMERS TO PAY INVOICES.  Our largest customers are
interexchange carriers that are customers, vendors and competitors in some of
our markets. If interexchange carriers experience year 2000 readiness problems,
we may experience delays in collection of outstanding receivables and a decrease
in the cash available to fulfill our obligations.

                                       52
<PAGE>
    We are developing contingency plans for potential year 2000 disruptions. We
are closely monitoring our year 2000 readiness plan and have developed
preliminary contingency plans for the most critical aspects of our year 2000
readiness plan. Details of these plans will be further developed and will depend
on our final assessment of the relevant situation and potential alternative
strategies.

LIQUIDITY AND CAPITAL RESOURCES

    We have funded our operations primarily from the sale of stock, debt
financing and operations. The six months ended June 30, 1999 include operations
from acquired telephone operations for the period from May 15, 1999 to June 30,
1999. For this period, our cash flows from operating activities were $12.9
million, primarily as a result of a decrease in accounts receivable and the
add-back of depreciation as a non-cash component of the net loss. Significant
cashflows from the issuance of debt and stock were used for the acquisitions of
Century's Alaska properties and ATU and, to a lesser extent, for capital
expenditures. At June 30, 1999, we had approximately $6.0 million in working
capital, including approximately $4.0 million in cash and cash equivalents. We
also had $66.3 million of remaining capacity under the $75.0 million revolving
credit facility as of June 30, 1999.

    Our initial debt borrowings and equity contributions were sufficient to fund
the consummation of the acquisitions of Century's Alaska properties and ATU and
the purchase of fiber capacity. On May 14, 1999 Alaska Communications Systems
Holdings entered into a $435.0 million credit agreement and issued $150.0
million aggregate principal amount of senior subordinated notes in a private
placement, and we issued senior discount debentures and warrants for $25.0
million in gross proceeds in a private placement, and received an equity capital
infusion in the amount of $121.2 million. As a result of the financing for these
acquisitions, as of June 30, 1999 we had $609.8 million of long-term debt.
Interest payments on borrowings under the senior credit facility, our senior
discount debentures and the senior subordinated notes, as well as amortization
of borrowings under the senior credit facility, represent significant
obligations of ours and Alaska Communications Systems Holdings. Interest on our
senior discount debentures and the senior subordinated notes is payable
semiannually. Interest on borrowings under the senior credit facility is payable
quarterly, and the senior credit facility requires annual principal payments
commencing on May 14, 2002.

    The local telephone network requires the timely maintenance of plant and
infrastructure. Our local network is of high quality and is technically advanced
and will have relatively predictable annual capital needs. Our historical
capital expenditures have been significant. The construction and geographic
expansion of our cellular network required a substantial amount of capital. The
implementation of our long distance and interexchange network strategy is also
capital intensive. We recently purchased fiber capacity for $19.5 million, which
was funded with monies borrowed to finance the acquisitions of Century's Alaska
properties and ATU. This purchase will enable us to use our own leased
facilities in developing our business. We also have agreed to purchase
additional fiber capacity for $19.5 million in the second quarter of 2001. In
addition to the purchase of fiber capacity, we anticipate total capital
expenditures of approximately $42.0 million for the remainder of 1999, and
approximately $90.0 million in 2000, which we expect to fund through internally
generated cash flow, a portion of the net proceeds from the offering and
additional borrowings under our revolving credit facility.

    Our capital requirements may change, however, due to, among other things:

    - the availability of additional fiber capacity,

    - our decision to pursue specific acquisition opportunities,

                                       53
<PAGE>
    - changes in technology,

    - the effects of competition or

    - changes in our business strategy.

    Any of these changes could require additional financing that might not be
available or, if available, might not be on terms favorable to us. Our ability
to satisfy our capital requirements will be dependent upon our future financial
performance, which is, in turn, subject to future economic conditions and to
financial, business and other factors, many of which are beyond our control. In
addition, in connection with the offering, we are seeking to amend the credit
agreement relating to the senior credit facility to, among other things, permit
additional capital expenditures in each year.

    On July 6, 1999, we sold 1,624,907 shares of our common stock to Cook Inlet
Region, Inc. for $10.0 million in cash, all of which was subsequently
contributed to Alaska Communications Systems Holdings as additional equity
capital. In connection with Cook Inlet's investment, it became a party to the
stockholders' agreement, which is described under "Management--Stockholders'
Agreement".

    On July 24, 1999 we entered into a hedging transaction which fixed at 5.99%
the underlying variable rate on one-half of the borrowings under the senior
credit facility, or $217.5 million, for a three-year period.

    We believe that we will have sufficient working capital provided by
operations and borrowings under our existing revolving credit facility to fund
our operations and capital expenditures over the next 12 months.

EFFECT OF NEW ACCOUNTING STANDARDS

    SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
was issued in June 1998. SFAS No. 133 establishes standards for the recognition
and measurement of derivatives and hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. We are currently
analyzing the impact SFAS No. 133 will have on our financial statements.

    SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE, was issued in March 1998. SOP 98-1, among other
things, requires that the costs of software, whether purchased or developed
internally, be capitalized and amortized over the estimated useful life of the
software. Adoption of SOP 98-1 is required as of January 1, 1999. We do not
expect SOP 98-1 to have a material impact on our financial statements.

OUTLOOK

    We expect the current demand for telecommunications services in Alaska to
continue to grow, particularly as a result of:

    - continuing growth in demand for core telephone services and enhanced
      service offerings,

    - increased access line demand stemming from growth in population and the
      demand for multiple lines,

    - increases in demand for wireless services and

    - growth in demand for DSL and Internet access services due to higher
      business and consumer bandwidth needs for Internet and data services.

    We believe that we will be able to capitalize on this demand through our
diverse service offerings and a focused sales and marketing approach.

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<PAGE>
    There are currently a number of regulatory proceedings underway at the
federal and state levels that could have a significant impact on our operations.
The APUC held hearings the week of June 21, 1999 and on June 30, 1999 issued
orders revoking the rural exemptions applicable to our rural local exchange
carriers. We have sought reconsideration of the APUC rulings by the RCA and we
may also consider seeking judicial review of the APUC rulings. On September 1,
1999, we filed a petition with the RCA seeking suspension or modification of
interconnection duties and other market structure reforms for our local exchange
carriers in selected markets. We also requested the removal or reduction of
regulatory limitations on these local exchange carriers in the future. If
reconsideration or appeal of the APUC's orders or suspension or modification of
interconnection duties is unsuccessful, or if market structure reforms are not
implemented or if they are implemented in a manner that is unfavorable to us,
then we may be unable to provide local telephone service on a profitable basis
to all our service areas. See "Regulation" for a more detailed discussion of
these and other regulatory considerations.

    Additionally, during the last legislative session, a bill was proposed in
the Alaska state senate to open to competition local telephone markets in Alaska
having 5,000 or more access lines, effectively depriving incumbent local
exchange carriers in those rural markets of their rural exemptions. To the
extent the markets of our rural local exchange carriers are opened to
competition by the APUC's termination of the rural exemptions, we do not believe
that the marginal effect of passage of the proposed bill on our business would
be material.

    The telecommunications industry is extremely competitive, and we expect
competition to intensify in the future. As the incumbent local exchange carrier,
we face competition mainly from resellers, local providers who lease unbundled
network elements from us and, to a lesser degree, from facilities-based
providers of local telephone services. In addition, as described in the
preceding paragraph, we may be required to allow interconnection to competitors
in some or all of the areas served by our rural local exchange carriers.
Moreover, while cellular telephone services have historically complemented
traditional local exchange carrier services, we anticipate that existing and
emerging wireless technologies may increasingly compete with local exchange
carrier services. In wireless services, we currently compete with at least one
other cellular provider in each of our wireless service areas. In long distance,
we currently have less than 2.5% of total long distance revenues in Alaska and
we face competition from the two major long distance providers in Alaska. In the
highly competitive business for Internet access services, we currently compete
with a number of established online service companies, interexchange carriers
and cable companies.

    The telecommunications industry is subject to continuous technological
change. We expect that new technological developments in the future will
generally serve to enhance our ability to provide service to our customers.
However, these developments may also increase competition or require us to make
significant capital investments to maintain our leadership position in Alaska.

                                       55
<PAGE>
                               INDUSTRY OVERVIEW

OVERVIEW

    In recent years, the telecommunications industry has undergone rapid change
due to economic growth, technological advancements, infrastructure improvements
and regulatory changes, all of which have increased demand and competition for
telecommunications services. The Alaskan telecommunications industry is
influenced by many of these factors, and Alaska's unique characteristics further
enhance the need for telecommunications services. Alaska is characterized by its
large geographic size, widely dispersed population and large distance between
urban areas. Over 60% of the state's population resides in its three largest
cities: Anchorage, Juneau and Fairbanks. Alaska lacks an effective ground
transportation infrastructure and many of the state's communities are accessible
only by air or water. As a result, Alaskan residents are particularly dependent
on telecommunications to access resources and information.

    Alaskan telecommunications operators use a variety of technologies,
including traditional copper wire, fiber optic cable, digital microwave and
satellite-based communications, particularly in remote communities, to provide
telecommunications services, including local telephone, wireless, long distance,
data and Internet services.

LOCAL TELEPHONE OVERVIEW

    The U.S. local telephone industry is subject to significant regulation from
both the FCC and state authorities. The U.S. local telephone industry is
composed of a few large, well-known companies, including the regional Bell
operating companies and GTE Corporation, and numerous small, independent
telephone companies. Large incumbent local exchange carriers generate the vast
majority of the estimated $100 billion in annual local exchange revenues and own
a substantial majority of the access lines. A majority of the small, independent
telephone companies operate in sparsely populated rural areas with limited
competition due to the unfavorable economics of constructing and operating a
competing network in those areas.

    Local telephone services traditionally offered by local telephone companies
include:

    - basic local service to customers within a local exchange carrier's service
      area,

    - network access services to interexchange carriers for origination and
      termination of interstate and intrastate long distance phone calls,

    - enhanced services, such as call waiting, call forwarding, caller ID and
      voice mail and

    - other services, such as billing and collection, directory publishing,
      directory assistance and Centrex, a switch-based service offering for
      business customers.

Rural local exchange carriers typically receive the majority of their revenues
from access charges, as opposed to the regional Bell operating companies, which
receive a greater share of revenues from basic local services.

    The characteristics of a rural local exchange carrier's service areas result
in higher costs for the local exchange carrier because of the additional costs
of providing the infrastructure to rural customers and the lack of economies of
scale available in more densely populated areas. To ensure that affordable
universal telephone service is available in remote areas, rural local exchange
carriers typically benefit from various support mechanisms. The largest explicit
support mechanism for rural local exchange carriers are universal service
payments, as more fully described under "Regulation".

                                       56
<PAGE>
ALASKA OVERVIEW

    The population of Alaska was approximately 614,000 at June 30, 1998, having
grown at a compound annual rate of 1.3% over the past ten years, compared to
1.0% for the U.S. as a whole. While the majority of the population is
concentrated in the city of Anchorage and surrounding areas, population growth
in recent years has been broadly distributed throughout the state. The U.S.
Census Bureau projects that through 2005 the population of Alaska will grow at a
compound annual rate of 1.9%, as compared to 0.8% for the U.S. as a whole,
through 2005.

    Alaska has the highest median household income in the U.S. According to the
U.S. Census Bureau, Alaska's average median household income during the period
from 1995 to 1997 was $50,829, approximately 40% greater than the overall U.S.
median household income. Alaskans benefit from the absence of state personal
income taxes and receive annual per capita payments from the Alaska Permanent
Fund which in 1999 totaled over $1,700 per person.

    Historically, the state's economy has depended significantly on natural
resource industries in general and the petroleum industry in particular. In
1996, the most recent year for which the gross state product was calculated, the
petroleum industry represented approximately 36.3% of the $25.9 billion gross
state product. In 1998, most of the employment growth in Alaska was attributable
to the services sector and, in particular, health care, hotels and social
services.

                                       57
<PAGE>
                                    BUSINESS

    We are the leading diversified, facilities-based telecommunications provider
in Alaska, offering local telephone, wireless, long distance, data and Internet
services to business and residential customers throughout the state. We are the
only telecommunications provider in Alaska using its own network facilities to
provide end-to-end communications services to its customers.

    LOCAL TELEPHONE.  With over 320,000 access lines, representing 75% of the
access lines in Alaska, we are the largest local exchange carrier in Alaska and
the 15th largest in the U.S. We provide service to all of the state's major
population centers, including Anchorage, Juneau and Fairbanks. There are no
regional Bell operating companies in Alaska.

    WIRELESS.  We are the largest and only statewide provider of wireless
services in Alaska, currently serving over 70,000 subscribers. Our wireless
network covers over 460,000 residents, including all major population centers
and highway corridors. We are in the process of upgrading our network to be
fully digital in all of our service areas by year-end 1999.

    LONG DISTANCE.  We provide long distance and other interexchange services to
approximately 26,000 customers primarily in Anchorage and intend to market these
services statewide beginning in the first quarter of 2000. We recently migrated
long distance traffic from leased circuits onto our own network infrastructure,
which we believe will result in significant cost savings over time.

    DATA AND INTERNET.  We are the third largest provider of Internet access
services in Alaska with approximately 16,000 customers. We also own 28.5% of the
second largest Internet services provider in Alaska with approximately 28,000
customers. We currently offer dedicated and dial-up Internet access to our
customers and intend to offer digital subscriber line, or DSL, services by
year-end 1999.

    Our telecommunications network includes over 485 miles of fiber optic cable,
176 switching facilities and a statewide cellular network. In addition, we
recently purchased fiber capacity for high speed links within Alaska and for
termination of traffic in the lower 48 states. We plan to continue enhancing our
network to meet customer demand for increased bandwidth and advanced services.

    For the year ended December 31, 1998, on a pro forma basis, we would have
had combined revenues of $281.6 million, operating income of $40.6 million,
Adjusted EBITDA, as defined under "Summary Unaudited Pro Forma Combined
Financial and Operating Data", of $106.1 million and a net loss of $17.3
million.

    We were formed in 1998 by Fox Paine & Company, members of the former senior
management team of Pacific Telecom, and other experienced telecommunications
industry executives. In May 1999, we acquired Century's Alaska properties and
ATU. Century's Alaska properties were the incumbent provider of local telephone
services in Juneau, Fairbanks and more than 70 rural communities in Alaska and
provided Internet services to customers statewide. ATU was the largest local
exchange carrier in Alaska and provided local telephone and long distance
services primarily in Anchorage and cellular services statewide.

OUR BUSINESS OPPORTUNITY

    Alaska is characterized by its large geographic size, widely dispersed
population and large distance between urban areas. Over 60% of the state's
population resides in its three largest cities: Anchorage, Juneau and Fairbanks.
Alaska lacks an effective ground transportation infrastructure, and many of the
state's communities are accessible only by air or water. As a result, Alaskans
are particularly dependent on telecommunications services to access resources
and information unavailable in their communities. We estimate that Alaskan
telecommunications businesses generated aggregate revenues of $1 billion in
1998.

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<PAGE>
    Alaska's income and demographic characteristics provide opportunities for
continued growth of telecommunications services. Alaska has the highest median
household income in the U.S. In addition, Alaskans pay no state personal income
taxes and receive an annual per capita payment from the Alaska Permanent Fund.
The population in Alaska has been growing at a compound annual rate of 1.3% over
the last ten years, compared to 1.0% for the U.S. as a whole. The U.S. Census
Bureau projects that Alaska's population will grow at a compound annual rate of
1.9%, as compared to 0.8% for the U.S. as a whole, through 2005.

    We believe that the outlook for growth in our businesses is favorable due to
the fundamental demand for telecommunications, including:

    - continued demand for core telephone services and enhanced service
      offerings, such as voice mail and call waiting,

    - access line growth due to population growth and the demand for multiple
      lines,

    - increasing demand for wireless services and

    - DSL and Internet access growth due to higher business and consumer
      bandwidth needs for data and Internet services.

OUR BUSINESS STRATEGY

    As part of our business strategy, we intend to:

    LEVERAGE OUR NETWORK AND CUSTOMER BASE.  As the leading diversified,
facilities-based telecommunications provider in Alaska offering customers a
broad array of services over our extensive network, we believe we have a
significant competitive advantage. Our competitive position provides us with a
valuable opportunity to capitalize on the growing demand for communications
services and the development of new technologies and services. In particular, we
intend to:

        PROVIDE ONE-STOP COMMUNICATIONS SERVICES.  We intend to offer a complete
    suite of telecommunications and data services, providing both residential
    and business customers with local telephone, long distance and wireless, as
    well as high speed data and Internet services. We also intend to introduce
    new telecommunications products and services as they develop. We believe
    that providing one-stop communications services will enable us to meet our
    customers' increasingly complex communications needs and to strengthen our
    position by capturing a larger portion of our customers' communications
    expenditures.

        INCREASE PENETRATION OF ENHANCED SERVICES.  We seek to achieve a higher
    penetration of enhanced services among our significant base of installed
    customers. Customer penetration of enhanced services such as call waiting,
    caller ID and voice mail, calculated as the number of enhanced services
    divided by the number of access lines, in our service areas is approximately
    86%, while other local exchange carriers in the U.S. have achieved average
    penetration levels of 121%. We believe we can achieve penetration rates for
    these services comparable to these industry averages. Increasing our
    penetration rates will improve our revenue per customer which we expect, due
    to the fixed cost nature of our local exchange business, to result in
    improved operating margins.

        OFFER COMPLEMENTARY COMMUNICATIONS AND MEDIA SERVICES.  We intend to
    expand our service offerings with a particular focus on data, Internet and
    wireless cable television services. We anticipate significant demand for
    these services as they become necessary for businesses and increasingly
    desirable for residential users. We currently offer ISDN and other
    high-speed data services and intend to introduce DSL services by year-end
    1999. During 2000, we intend to expand our service offerings to include
    virtual private networks, statewide Centrex services, such as four digit
    dialing, and enhanced digital wireless cable television services.

                                       59
<PAGE>
    PROVIDE SUPERIOR CUSTOMER SERVICE.  We are committed to building strong
customer relationships by providing high-quality customer care. We believe that
by increasing customer loyalty and retention we will enhance our ability to
market our service offerings. We are building a state-of-the-art customer care
system that will provide one-call customer service access, improved call
response times and, we believe, greater overall customer satisfaction. In
addition, we will provide web-based services that will allow customers to check
billing, order new services or otherwise manage their accounts online.

    BUILD THE LEADING COMMUNICATIONS BRAND IN ALASKA.  We intend to take
advantage of our statewide presence and centralized marketing efforts by
promoting a unified brand name. We intend to, over time, transition our entire
suite of telecommunications services to be marketed under the "Alaska
Communications Systems" brand, which we seek to make synonymous with high-
quality telecommunications. We believe that a single brand uniting all of our
service offerings will result in superior brand awareness, greater product
penetration and higher demand for packages of premium-priced branded services.

    REALIZE OPERATING EFFICIENCIES.  We seek to realize significant operating
efficiencies from the consolidation and integration of our recent acquisitions
and the continuous improvement of our operations. We believe we will realize
significant future savings by consolidating Century's Alaska properties and ATU
into a single operating entity, subject to regulatory restrictions. We intend to
continue to make investments in information technology relating to service
provisioning, network management and customer service which we believe will
improve operating margins. In addition, we are creating an integrated low cost
network utilizing state-of-the-art technology which we believe will further
improve operating margins.

    PURSUE SELECTED STRATEGIC ACQUISITIONS.  We are actively pursuing selected
regional acquisitions in Alaska. There are 19 local exchange carriers remaining
in Alaska with an aggregate of approximately 120,000 access lines, presenting us
with the potential for significant expansion of our network. In addition, we may
pursue other selected strategic acquisitions and investments which will
complement our existing product and service offerings.

PRODUCTS, SERVICES AND REVENUE SOURCES

    We offer a broad portfolio of telecommunications services to residential and
business customers in our markets. Our service offerings are locally managed to
better serve the needs of each community. We believe that, as the communications
marketplace continues to converge, our ability to offer an integrated package of
communications products will provide a distinct competitive advantage, as well
as increase customer loyalty, thereby decreasing customer turnover. We intend to
complement our local telephone services by actively marketing our wireless, long
distance, data and Internet service offerings.

                                       60
<PAGE>
    The following table sets forth the components of our revenues on a pro forma
basis for the periods presented:

<TABLE>
<CAPTION>
                                                                               YEAR ENDED            SIX MONTHS ENDED
                                                                           DECEMBER 31, 1998          JUNE 30, 1999
                                                                        ------------------------  ----------------------
<S>                                                                     <C>          <C>          <C>        <C>
                                                                                     (DOLLARS IN MILLIONS)
REVENUE SOURCE:                                                           AMOUNT       PERCENT     AMOUNT      PERCENT
                                                                        -----------  -----------  ---------  -----------
Local network service.................................................   $    93.1         33.1%  $    47.2        32.5%
Network access........................................................        98.6         35.0        51.4        35.4
Directory advertising.................................................        26.5          9.4        13.7         9.4
Deregulated revenue...................................................        18.5          6.6         9.5         6.6
Other.................................................................         6.3          2.2         2.5         1.7
                                                                        -----------       -----   ---------       -----
  Local telephone.....................................................       243.0         86.3       124.3        85.6
Cellular..............................................................        31.8         11.3        15.8        10.9
Long distance.........................................................         6.8          2.4         5.1         3.5
                                                                        -----------       -----   ---------       -----
  Total...............................................................   $   281.6        100.0%  $   145.2       100.0%
                                                                        -----------       -----   ---------       -----
                                                                        -----------       -----   ---------       -----
</TABLE>

    LOCAL TELEPHONE SERVICES

    BASIC LOCAL SERVICE.  Basic local service enables customers to originate and
receive telephone calls within a defined "exchange" area. We provide basic local
services to residential and business customers, generally for a fixed monthly
charge. The maximum amount that we can charge a customer for basic local
services is determined by rate proceedings involving the RCA. We charge business
customers higher rates to recover a portion of the costs of providing local
service to residential customers. On average, U.S. business rates for basic
local services have been over two times the rates of residential customers.
Basic local service also includes non-recurring charges to customers for the
installation of new products and services.

    At December 31, 1998, approximately 60% of our retail access lines served
residential customers, while 40% served business customers. Currently, our
monthly charges for basic local service for residential customers range from
$9.42 to $16.30 in the service areas of Century's Alaska properties and are
$9.70 in ATU's service area, as compared to the national average of $15.99.
Monthly charges for business customers range from $17.65 to $26.05 in the
service areas of Century's Alaska properties and are $25.75 in ATU's service
areas, as compared to the national average of $34.55.

                                       61
<PAGE>
    The table below sets forth the growth in access lines at Century's Alaska
properties and ATU from December 31, 1994 to December 31, 1998 and for the six
month period ended June 30, 1999. The number of access lines shown for Century's
Alaska properties in 1997 includes approximately 37,000 access lines that were
acquired by Century's Alaska properties as part of its acquisition of the City
of Fairbanks Telephone Operation in October 1997. The number of access lines
shown for ATU represents all revenue producing access lines connected to retail
or wholesale customers.

<TABLE>
<CAPTION>
                                                          AS OF DECEMBER 31,                      AS OF
                                         -----------------------------------------------------  JUNE 30,
                                           1994       1995       1996       1997       1998       1999
                                         ---------  ---------  ---------  ---------  ---------  ---------
<S>                                      <C>        <C>        <C>        <C>        <C>        <C>
Access lines:
  Century's Alaska properties..........     73,563     77,660     82,969    124,869    131,858    136,872
  ATU..................................    144,869    147,934    154,752    158,486    168,536    181,355
                                         ---------  ---------  ---------  ---------  ---------  ---------
      Total............................    218,432    225,594    237,721    283,335    300,394    318,227
                                         ---------  ---------  ---------  ---------  ---------  ---------
                                         ---------  ---------  ---------  ---------  ---------  ---------
Percentage Growth:
  Century's Alaska properties..........     --            5.6%       6.8%      50.5%       5.6%    --
  ATU..................................     --            2.1%       4.6%       2.4%       6.3%    --
  Combined.............................     --            3.3%       5.4%      19.2%       7.8%    --
</TABLE>

On June 1, 1999, as part of the consolidation of our operating and billing
systems, we conformed the methodology by which we calculate our number of access
lines across all of our local exchanges to that used for Century's Alaska
properties. We intend to use the method used to calculate access lines in
service for Century's Alaska properties to calculate our access lines in all
future periods. In the table above, for the period ended June 30, 1999, we show
ATU's number of access lines calculated using this method. If we computed the
number of ATU's access lines in service at December 31, 1998 under this same
method, the number of access lines at ATU would increase by 4,940 and the total
number of access lines would equal 305,334. Due to limited data available to us,
we have not computed any adjustments to the access lines in service for any year
prior to 1998.

    Future growth in access lines is expected to be derived from:

    - increases in line demand from data-related usage by existing business
      customers,

    - increased additional line demand from Internet usage by residential
      customers and

    - population growth in our service areas.

    ENHANCED SERVICES.  Enhanced services consist of services such as call
waiting, call forwarding, call return, continuous redial, caller ID and voice
mail. These services are generally billed on a monthly basis together with the
customers' bills for basic local services. Customer penetration of enhanced
services, calculated as the number of enhanced services divided by the number of
access lines, in our service areas is approximately 86%, while other rural local
exchange carriers in the U.S. have achieved a penetration level of 121%, on
average.

    NETWORK ACCESS

    Network access services arise in connection with the origination and
termination of long distance, or toll, calls and typically involve more than one
company in the provision of such long distance service on an end-to-end basis.
Since toll calls are generally billed to the customer originating the call, a
mechanism is required to compensate each company providing services relating to
the call. This mechanism is the access charge, which we bill to each
interexchange carrier for the use of our facilities to access the customer, as
described below.

                                       62
<PAGE>
    INTRASTATE ACCESS CHARGES.  We generate intrastate access revenue when an
intrastate long distance call which involves an interexchange carrier is
originated and terminated within the same state. The interexchange carrier pays
us an intrastate access payment for either terminating or originating the call.
We record the details of the call through our carrier access billing system and
receive the access payment from the interexchange carrier. When one of our
customers originates the call, we typically provide billing and collection for
the interexchange carrier through a billing and collection agreement. The access
charge for our intrastate service is regulated by the RCA.

    INTERSTATE ACCESS CHARGES.  We generate interstate access revenue when an
interstate long distance call is originated from a local calling area in one
state to a local calling area in another state. We bill interstate access
charges in the same manner as we bill intrastate access charges; however, the
interstate access charge is regulated by the FCC rather than by the RCA.

    WIRELESS SERVICES

    Our cellular businesses currently are managed separately from our local
exchange carrier business and are subject to a different regulatory framework
and cost structure. ATU's wireless services are provided statewide under the
MACtel brand name. Management intends to integrate Century's Alaska properties'
cellular operations with those of MACtel. The primary sources of wireless
revenue include subscriber access charges, airtime usage, toll charges,
connection fees, roaming revenues, as well as enhanced features, such as voice
mail. A subscriber may purchase services separately or may purchase rate plans
that package these services in different ways to fit different calling patterns.
We currently provide digital service in Anchorage and Fairbanks and expect to be
fully digital in our other service areas by the end of 1999. Upon conversion to
digital service, we will be able to offer advanced digital services and
features, such as text messaging.

    As illustrated in the table below, Century's Alaska properties and MACtel
have experienced growth in the number of cellular subscribers served and total
covered population over the past five years.

<TABLE>
<CAPTION>
                                                              AS OF DECEMBER 31,                      AS OF
                                             -----------------------------------------------------  JUNE 30,
                                               1994       1995       1996       1997       1998       1999
                                             ---------  ---------  ---------  ---------  ---------  ---------
<S>                                          <C>        <C>        <C>        <C>        <C>        <C>
Covered population:
  Century's Alaska properties..............     53,484     54,286     55,101     55,927     56,766     56,766
  MACtel...................................    289,813    294,160    298,573    397,434    403,396    403,396
                                             ---------  ---------  ---------  ---------  ---------  ---------
    Total..................................    342,297    348,446    353,674    453,361    460,162    460,162
                                             ---------  ---------  ---------  ---------  ---------  ---------
                                             ---------  ---------  ---------  ---------  ---------  ---------
Ending subscribers:
  Century's Alaska properties..............      1,194      1,300      1,678      2,096      2,945      3,487
  MACtel...................................     13,684     24,855     37,651     53,035     63,627     66,094
                                             ---------  ---------  ---------  ---------  ---------  ---------
    Total..................................     14,878     26,155     39,239     55,131     66,572     69,581
                                             ---------  ---------  ---------  ---------  ---------  ---------
                                             ---------  ---------  ---------  ---------  ---------  ---------
Ending penetration:
  Century's Alaska properties..............        2.2%       2.4%       3.1%       3.7%       5.2%       6.1%
  MACtel...................................        4.7%       8.4%      12.6%      13.3%      15.8%      16.4%
  Combined.................................        4.3%       7.5%      11.1%      12.2%      14.5%      15.1%
</TABLE>

    Although we have achieved cellular penetration rates of 18% and 19% in
Anchorage and Kenai, penetration rates in our other service areas are
significantly lower. Management believes there are opportunities to improve the
penetration rates of our cellular operations in Fairbanks and Juneau. Management
also believes that the market for wireless services will continue to grow with
the growth in the wireless industry as a whole.

                                       63
<PAGE>
    We also own 10 megahertz E Block PCS licenses covering Anchorage, Juneau and
Fairbanks, which were purchased by Century's Alaska properties in 1997.
Management is analyzing the build out of these licenses and technical
alternatives for using this spectrum to enhance our service offerings in our
overall business.

    LONG DISTANCE SERVICES

    We began offering long distance services on a resale basis in October 1997,
primarily in Anchorage. We currently have approximately 26,000 long distance
customers and less than 2.5% of total long distance revenues in Alaska. We
intend to expand our long distance operations into the service areas of
Century's Alaska properties during the first quarter of 2000. Before August
1998, Century's Alaska properties were precluded from entering the long distance
business by a non-competition agreement with AT&T Alascom which was signed when
Pacific Telecom sold Alascom, Inc. to AT&T in 1995. To date, our long distance
operations have generated operating losses.

    In April 1999, we entered into a settlement agreement with GCI under which
we agreed to enter into a number of new business arrangements and to settle a
number of outstanding disputes, including GCI's opposition to our acquisitions
of Century's Alaska properties and ATU, the effect of which is not expected to
be material. As part of this agreement and to reduce our dependence on a resale
long distance strategy, we purchased from GCI $19.5 million of fiber capacity
for high speed links within Alaska and for termination of traffic in the lower
48 states. Subsequently, we entered into an amendment of our purchase agreement
with GCI, whereby, among other things, we agreed to purchase additional capacity
in 2001 for $19.5 million. We expect that migrating long distance traffic onto
our network facilities will over time reduce the cost of providing long distance
and other interexchange services and data and Internet access services.

    We are subject to numerous conditions imposed by the RCA and, to a lesser
degree, by the FCC on the manner in which we conduct our long distance
operations. The restrictions are intended to prohibit cross-subsidization from
the regulated local exchange carrier to the unregulated long distance affiliate
and discrimination against other long distance providers in favor of a local
exchange carrier's long distance affiliate. Among the conditions applied to our
long distance affiliates are those which:

    - require us to hold all books and records, management, employees and
      administrative services separate, except that services may be provided
      among affiliates through arms-length affiliated interest agreements,

    - prohibit Century's Alaska properties from bundling local and long distance
      services until competition develops in their local markets and

    - prevent us from joint ownership of telephone transmission or switching
      facilities with the local exchange carrier and from using the local
      exchange carrier's assets as collateral for its own indebtedness.

    As a result of the introduction of competition in ATU's local service areas,
the APUC lifted the restriction on bundling on local and long distance services
in ATU's service areas in 1998.

    INTERNET ACCESS

    We provide Internet access services to approximately 16,000 customers and
generated $5.1 million in Internet access revenues for the year ended December
31, 1998. In order to offer Internet access, we provide local dial-up telephone
numbers for our customers. These local dial-up numbers allow customers access,
through a modem connection on their computer, to a series of computer servers we
own and maintain. These servers allow customers to access their e-mail

                                       64
<PAGE>
accounts and to be routed to local access points that connect customers to the
Internet. We charge customers either a flat rate for unlimited Internet usage or
a usage sensitive rate, which, in either case, is billed in conjunction with the
local telephone bill.

    We also own a 28.5% minority interest in Internet Alaska, Inc., which
provides Internet access to approximately 28,000 customers primarily in
Anchorage and Fairbanks.

    WIRELESS CABLE TELEVISION

    We own a two-thirds interest in Alaskan Choice Television, LLC, a wireless
cable television provider, having recently acquired the previous managing
member's one-third interest. Alaskan Choice Television provides wireless cable
television services over assigned UHF frequencies to approximately 3,000
customers in our Anchorage and Fairbanks service areas. We are currently in
negotiations to acquire the remaining one-third interest in Alaskan Choice
Television.

    UNIVERSAL SERVICE REVENUE

    Universal service revenue supplements the amount of local service revenue we
receive to ensure that basic local service rates for customers in high cost
rural areas are not significantly higher than rates charged in lower cost urban
and suburban areas. The Telecommunications Act prescribed new standards
applicable to universal service, including mechanisms for defining the types of
services to be provided as part of a universal service program, specific goals
or criteria applicable to universal service programs, new qualifications for
receipt of universal service funding and new requirements for contributions to
universal service funding. The FCC, in conjunction with a federal-state joint
board composed of FCC and state commission members, has been working since
passage of the Telecommunications Act to implement these new statutory
provisions. The FCC has chosen to address universal service matters, initially
for non-rural telephone companies, and subsequently for rural telephone
companies. New cost-identification models for non-rural local carriers are
presently expected to be implemented on January 1, 2000 and would be applicable
to our ATU operations. New rules for rural telephone companies, applicable to
Century's Alaska properties, are not expected to be adopted before January 1,
2001 at the earliest.

    OTHER

    We seek to capitalize on our local presence and network infrastructure by
offering additional services to customers, such as directory services and
billing and collection services for interexchange carriers.

NETWORK FACILITIES

    As of August 31, 1999, we owned 74 exchanges serving over 320,000 access
lines. All of our exchanges are served by digital switches provided
predominately by Nortel Networks. Our switches are linked through a combination
of extensive aerial, underground and buried cable, including 485 miles of fiber
optic cable, as well as digital microwave and satellite links. We have 100%
single-party services (one customer per access line), and believe all switches
have the latest generic software upgrades available, allowing for the full range
of enhanced customer features.

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

                                       65
<PAGE>
    Network operations and monitoring are provided for Century's Alaska
properties and ATU by ATU's network operating control center located in
Anchorage. The network operating control center has technicians staffed or
on-call seven days a week, 24 hours a day. Automated alarm systems are in place
should problems arise with the network after normal business hours. We also have
customer care facilities in Anchorage and Fairbanks with extensive business
hours to efficiently handle customer inquiries and orders for service.

    Our cellular operations consist of eight switching centers and 77 cell sites
covering all major population centers and highway corridors in Alaska. We plan
to complete the conversion of all of our switching and cell site equipment to
digital service by the end of 1999. Our switching and cell site infrastructure
is linked by digital microwave and fiber. MACtel also has a network operating
control center and customer care center, located in Anchorage.

    We are enhancing our interexchange network to accommodate developing
products and technology. We are working with Nortel Networks on a multiple phase
conversion of our network from a time division multiple access, or TDMA, circuit
switched platform to an asynchronous transfer mode/Internet protocol, or ATM/IP,
packet switched platform based on Nortel's SUCCESSION NETWORK-TM-. We believe
the implementation of the SUCCESSION NETWORK-TM- will enable us to provide a
complete suite of telecommunications and data services and achieve significant
operating efficiencies. We have completed the first phase of the conversion,
which resulted in the migration of our network traffic to our fiber optic
transport facilities acquired in June 1999. We are currently in the second
phase, which will involve the conversion of our transport connections between
Anchorage and each of Fairbanks, Kenai, Juneau and Seattle from TDMA to ATM,
which we expect to complete by year-end 1999. We expect to complete the
implementation of Nortel's SUCCESSION NETWORK-TM- by year-end 2002. Our planned
network enhancements prior to year-end 2002 will include the installation of
call servers in Anchorage and either Fairbanks or Juneau and the conversion of
network switching nodes to accommodate ATM/IP traffic.

    Completion of the SUCCESSION NETWORK-TM- will enable us to provide an array
of IP products throughout our core business. We currently offer frame relay, and
will offer each of the following services as the necessary network elements are
completed:

    - virtual private networks,

    - virtual private lines,

    - transparent local area networks (LAN),

    - proprietary LANs and wide area networks (WAN) and

    - high speed Internet access.

                                       66
<PAGE>
COMPETITION

    LOCAL TELEPHONE SERVICES

    Incumbent local exchange carriers may be subject to any of three types of
competition:

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

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

    - competition from unbundled network element interconnection, that is,
      providers who lease unbundled network elements from the incumbent local
      exchange carrier.

    The geographic characteristics of rural areas make the entrance of most
facilities-based competitors uneconomical because of the significant capital
investment required and the limited market size. Thus, competition is likely to
come from resale interconnection or unbundled network element interconnection.
There are no regional Bell operating companies in Alaska.

    In September 1997, GCI and AT&T Alascom, the two largest long distance
carriers in Alaska, began providing competitive local telephone services in
Anchorage. GCI competes principally through unbundled network element
interconnection with ATU's facilities, while AT&T Alascom competes exclusively
by reselling ATU's services. Competition is based upon price and pricing plans,
types of services offered, customer service, billing services, quality and
reliability. GCI has focused principally on advertising discount plans for
bundled services. AT&T Alascom's strategy has been to resell ATU's service as
part of a package of local and long distance services. As a result, ATU lost
approximately 19% of its retail access lines in Anchorage to these competitors
during the first ten months of competition ended June 1998, approximately 61% of
which resulted from unbundled network element interconnection by GCI. The
majority of this loss was among price-sensitive residential customers who have
lower average monthly bills than ATU's business customers. Since June 1998, the
rate of this loss has slowed, with ATU's aggregate market share loss rising only
from 19% to just under 23% in the last year-and-a-half. We expect GCI and AT&T
Alascom to continue to compete for local telephone business.

    As "rural telephone companies" under the Telecommunications Act, our rural
local exchange carriers were granted rural exemptions from the obligation to
lease their facilities to competitive local exchange carriers seeking to
interconnect with our network. However, following a Fall 1997 request from GCI
for unbundled network elements, collocation and/or interconnection and
subsequent litigation between us and GCI before the APUC, the APUC terminated
these rural exemptions on June 30, 1999 and ordered the start of a nine-month
cycle of negotiation or arbitration between us and GCI as provided for in the
Telecommunications Act. We may eventually be required to allow unbundled network
element interconnection in some of the service areas of Century's Alaska
properties. However, we believe that our services offerings, customer
relationships and expertise in the local telephone business will provide us a
competitive advantage over new local exchange carriers. In addition, we believe
that the lifting of the rural exemptions provides the RCA the opportunity to
implement market structure reforms that would mitigate the financial impact
caused by competition, although we cannot assure you that the RCA will do so.
See "Regulation-- The Telecommunications Act--Promotion of Local Service
Competition and Rural Exemptions" for further details on the termination of the
rural exemptions and the actions we have taken in connection with them.

    We expect increasing competition from providers of various services that
provide users the means to bypass our network. Long distance companies may
construct, modify or lease facilities to

                                       67
<PAGE>
transmit traffic directly from a user to a long distance company. Cable
television companies, in particular, may be able to modify their networks to
partially or completely bypass our local network.

    In addition, while cellular telephone services have historically
complemented traditional local exchange carrier services, we anticipate that
existing and emerging wireless technologies may increasingly compete with local
exchange carrier services. Technological developments in cellular telephone
features, personal communications services, digital microwave and other wireless
technologies are expected to further permit the development of alternatives to
traditional landline services.

    WIRELESS SERVICES

    The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of improvements in the
capacity and quality of digital technology, shorter cycles for new products and
enhancements and changes in consumer preferences and expectations. We believe
that the demand for wireless telecommunications services is likely to increase
significantly as equipment costs and service rates continue to decline and
equipment becomes more convenient and functional. We currently compete with at
least one other cellular provider in each of our wireless service areas,
including AT&T Wireless Services, Century and Mercury Communications.
Competition is based on price, quality, network coverage and brand reputation.
In addition, there are six PCS licensees in each of our wireless service areas.
We hold PCS licenses covering Anchorage, Fairbanks and Juneau. One of the PCS
licensees began providing digital PCS service in Anchorage in October 1998.
Another PCS licensee has recently indicated it will commence trials of its
technology. We believe that the unique and vast terrain and the high cost of PCS
system buildout makes entrance into markets outside Anchorage unlikely.

    LONG DISTANCE SERVICES

    The long distance telecommunications market is highly competitive.
Competition in the long distance business is based on price, customer service,
billing services and quality. We currently offer long distance in ATU's service
areas, and intend, subject to regulatory restrictions, to expand ATU's long
distance operations into the service areas of Century's Alaska properties. AT&T
Alascom and GCI are currently the two major long distance providers in Alaska,
including in our service areas. We currently have less than 2.5% of total long
distance revenues in Alaska.

    INTERNET SERVICES

    The market for Internet access services is highly competitive. There are few
significant barriers to entry, and we expect that competition will intensify in
the future. We currently compete with a number of established online services
companies, interexchange carriers and cable companies. We believe that our
ability to compete successfully will depend upon a number of factors, including
the reliability and security of our network infrastructure, the ease of access
to the Internet and the pricing policies of our competitors.

CUSTOMERS

    We have two basic types of customers for our local services:

    - business and residential customers located in their local service areas
      that pay for local phone service and

    - interexchange carriers that pay us for access to long distance calling
      customers located within our local service areas.

                                       68
<PAGE>
In general, the majority of our local customers are residential, rather than
business, customers, as is typical for rural telephone companies. In addition,
no single local customer of ours represented more than 5% of our total 1998 pro
forma revenue, excluding access customers.

SALES AND MARKETING

    Century's Alaska properties and ATU have historically conducted their sales
and marketing operations for each of their respective products on a stand-alone
basis, with each product line having its own sales force and marketing
department. Going forward, we intend to consolidate our product and service
offerings under the "Alaska Communications Systems" brand, subject to regulatory
and strategic business considerations.

    Key components of our sales and marketing strategy include:

    - marketing current and future service offerings aggressively, including
      packaged service offerings,

    - centralizing marketing functions and

    - enhancing direct sales efforts.

    We believe that we can leverage our position as an integrated, one-stop
provider of telecommunications services with strong positions in local access,
wireless, long distance and data and Internet markets. By pursuing a marketing
strategy that takes advantage of these characteristics and that facilitates
cross-selling and packaging of our products and services, we believe we can
increase penetration of new product offerings, improve customer retention rates,
increase our share of our customers' overall telecommunications expenditures and
achieve continued revenue and operating cash flow growth.

    While Century's Alaska properties and ATU have, to a limited extent,
marketed local telephone services in attractively-priced, packaged service
offerings with wireless, long distance and Internet services, neither Century's
Alaska properties nor ATU emphasized these types of offerings. However, we
believe packaged offerings are popular with customers because they allow
customers to enjoy pricing for a number of services at a substantial discount to
A LA CARTE pricing of individual services. Subject to regulatory limitations, we
intend to expand this strategy, which we expect will increase the average
revenue per customer and result in a more loyal and satisfied customer base and
reduced churn.

    We have established a sales and marketing organization where marketing
strategies will be centralized and sales functions will be based locally. To
enhance our direct selling efforts, we have established additional customer and
retail service centers in our larger service areas, such as Juneau and
Kenai/Soldotna, and intend to enhance call center operations through a
combination of technology investments and training and incentive compensation
programs for call center employees.

SUPPLIERS

    We believe we have strong, long-term relationships with our numerous
communications vendors. Our primary switching vendor is Nortel Networks, a
leading provider of advanced switching systems. We use Ericsson switches and
radios for our cellular operations. For our billing systems we use Saville
Systems, and for our accounting systems we use SAP. Our primary information
technology architecture is provided by IBM. While we recognize that the
separation of Century's Alaska properties from the rest of Century's properties
might result in higher unit costs for Century's Alaska properties, we expect
that the combination of Century's Alaska properties and ATU and the presence of
vendor competition will deter any significant unit increases and may result

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in unit cost reductions in the longer term. We enjoy positive relationships with
a variety of vendors for outside plant facilities and other elements of our
network.

EMPLOYEES

    We consider employee relations to be good. As of August 31, 1999, we
employed a total of 1,097 regular full-time employees, 731 of whom were
represented by unions. In addition, we employ approximately 21 regular part-time
employees in various support positions throughout the organization.

    Century's Alaska properties have a collective bargaining agreement with the
IBEW that expires in 2004. This agreement provides for wage increases up to 4%
based upon the annual increases in the U.S. Department of Labor CPI-U, the
Consumer Price Index for Anchorage. ATU also has a contract with the IBEW that
was scheduled to expire in August 1999. Management and the IBEW are in the
process of concluding negotiations regarding the terms under which ATU's
represented employees would be transitioned to Century's Alaska properties'
collective bargaining agreement. We believe these terms will be ratified by the
IBEW membership and the transition completed prior to October 31, 1999. ATU's
existing agreement remains in full force and effect pending conclusion of the
negotiation and ratification process, and we are confident that a mutually
acceptable transition can be effected with the IBEW. There have been no work
stoppages or strikes by either Century's Alaska properties' or ATU's employees,
and management has worked closely with IBEW leadership for many years.

ENVIRONMENTAL REGULATIONS

    Our operations are subject to federal, state and local laws and regulations
governing the use, storage, disposal of, and exposure to, hazardous materials,
the release of pollutants into the environment and the remediation of
contamination. As an owner or operator of property and a generator of hazardous
wastes, we could be subject to environmental laws that impose liability for the
entire cost of cleanup at contaminated sites, regardless of fault or the
lawfulness of the activity that resulted in contamination. We believe, however,
that our operations are in substantial compliance with applicable environmental
laws and regulations.

    Many of our properties formerly contained, or currently contain, underground
and aboveground storage tanks used for the storage of fuel or wastes. Some of
these tanks have leaked. We believe that known contamination caused by these
leaks has been, or is being, investigated or remediated. We cannot be sure,
however, that we have discovered all contamination or that the regulatory
authorities will not request additional remediation at sites that have
previously undergone remediation.

    Our cellular operations are also subject to regulations and guidelines that
impose a variety of operational requirements relating to radio frequency
emissions. The potential connection between radio frequency emissions and
negative health effects, including some forms of cancer, has been the subject of
substantial study by the scientific community in recent years. To date, the
results of these studies have been inconclusive. Although we have not been named
in any lawsuits alleging damages from radio frequency emissions, it is possible
we could be sued in the future, particularly if scientific studies conclusively
determine that radio frequency emissions are harmful.

PROPERTIES

    LOCAL TELEPHONE.  Our primary properties consist of 168 switching facilities
serving 74 exchanges. We own most of our administrative and maintenance
facilities, central office and remote switching platforms and transport and
distribution network facilities. We lease our corporate headquarters located in
Anchorage.

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    Our transport and distribution network facilities include a fiber optic
backbone and copper wire distribution facilities that connect customers to
remote switch locations or to the central office and to points of presence or
interconnection with interexchange carriers. These facilities are located on
land pursuant to permits, easements or other agreements.

    WIRELESS.  We have 77 cell sites that cover all major population centers and
highway corridors throughout Alaska. In most cases, we lease the land on which
these sites are located.

LEGAL PROCEEDINGS

    We currently, and from time to time, are involved in litigation and
regulatory proceedings incidental to the conduct of our business. Some of these
regulatory proceedings are described under "Risk Factors" and "Regulation". We
are not a party to any lawsuit or proceeding that, in the opinion of management,
is likely to have a material adverse effect on us.

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                                   REGULATION

OVERVIEW

    Our operations are subject to the separate but concurrent jurisdictional
control of both the federal government and the State of Alaska. Our local
telephone operating subsidiaries, Telephone Utilities of the Northland,
Telephone Utilities of Alaska and PTI Communications, which was formerly the
City of Fairbanks Telephone Operation, and ATU are each "telecommunications
carriers" and "local exchange carriers" under the Communications Act of 1934,
which was amended by the Telecommunications Act. As a result, the FCC exercises
jurisdiction over all of our interstate and wireless communications activities.
Our local telephone operating companies are also "public utilities" within the
meaning of the Alaska statutes and are, therefore, governed by the applicable
rules and regulations of the RCA. The RCA succeeded to the regulatory
responsibilities of the APUC when it ceased to exist on June 30, 1999. Only one
of the new RCA commissioners has prior APUC experience.

FEDERAL REGULATION

    Under the federal regulatory scheme, incumbent local exchange carriers are
required to comply with the Communications Act and the applicable rules and
regulations of the FCC. In substantially overhauling the Communications Act, the
Telecommunications Act was intended to, among other things, eliminate
unproductive regulatory burdens and promote competition. Despite this,
telecommunications carriers are still subject to extensive ongoing regulatory
requirements. For instance, FCC-regulated entities, like our subsidiaries, are
required to maintain accounting records in accordance with the Uniform System of
Accounts to structure access charges according to FCC rules, and to reflect in
their charges for interstate services at a rate of return prescribed by the FCC.
The FCC also regulates transfers of control and assignments of these operating
authorizations and construction licenses. The FCC requires carriers providing
access services to file tariffs with the FCC reflecting the rates, terms and
conditions of those services. These tariffs are subject to review and potential
objection by the FCC or third parties.

STATE REGULATION

    Telecommunications companies subject to the RCA's jurisdiction are required
to obtain certificates of public convenience and necessity prior to operating as
a public utility in Alaska. The RCA is responsible for approving new issuances
and any transfers of these operating certificates. In addition, the RCA is
responsible for implementing a portion of the competitive requirements of the
Telecommunications Act, as well as for regulating intrastate access and local
service rates and services of local telephone companies. After passage of the
Telecommunications Act, the APUC adopted a plan to address competition issues
across Alaska. The APUC established multiple dockets to investigate different
competition-related issues, including revising local and long distance market
structures, reforming its intrastate access charge system and establishing a
state universal service fund. While some of these dockets have been completed,
many others remain open for further processing by the RCA.

COST RECOVERY AND REVENUE RECOGNITION

    As a regulated common carrier, we are afforded the opportunity to set
maximum rates at a level that allows us the opportunity to recover the
reasonable costs we incur in the provision of regulated telecommunications
services and to earn a reasonable rate of return on the investment required to
provide these services.

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    These costs are recovered through:

    - monthly charges to end users for basic local telephone services and
      enhanced service offerings,

    - access charges to interexchange carriers for originating and terminating
      interstate and intrastate interexchange calls,

    - interconnection charges, wholesale service charges and other rates to
      competing carriers interconnecting with our networks or reselling our
      services and

    - high-cost support mechanisms, such as the federal Universal Service Fund
      and the Alaska Universal Service Fund.

Rates for regulated services, and the amount of high-cost support, are set by
the FCC with respect to interstate services and by the RCA with respect to
intrastate services.

    In conjunction with the recovery of costs and establishment of rates, a
local exchange carrier must first determine its aggregate costs and then
allocate those costs between regulated and nonregulated services.

    After identifying the regulated costs of providing local telephone service,
a local exchange carrier must allocate those costs among its various local
exchange and interstate and intrastate interexchange services and between state
and federal jurisdictions. This process is complicated by the difficulty of
allocating specific pieces of plant and equipment to a particular service
because a local exchange carrier's plant and equipment are utilized for
different services, such as local telephone and interstate and intrastate
access. This process is referred to as "separations" and is governed primarily
by the FCC's rules and regulations. The underlying legal purpose of separations
rules is to define how a carrier's expenses are allocated and recovered from
federal and state jurisdictions. The FCC is considering whether to modify or
eliminate the current separations process. This decision could indirectly
increase or reduce earnings of carriers subject to separations rules.

    INTERSTATE END-USER RATES

    The deployment of the local telephone network from the switching facility to
the customer is known as the "local loop" and is one of the most significant
costs incurred by a local exchange carrier in providing telephone service. The
FCC has established a rate structure that provides for the recovery of a portion
of the cost of the local loop allocated to that interstate jurisdiction directly
from the end user customer through the assessment of a subscriber line charge.
The remaining portion of the local loop costs are recovered from interstate
access charges to an interexchange carrier.

    As a result of the market and geographic conditions in rural areas, the
costs of providing local loop and switching services are often higher than in
urban areas. In the absence of an accommodation in the FCC rules to address this
fact, a substantial portion of the costs of smaller local exchange carriers
would remain unrecovered, leaving them little alternative other than to charge
high rates for intrastate services. Accordingly, the FCC provides for additional
interstate recovery by eligible telecommunications carriers through the federal
Universal Service Fund. The federal Universal Service Fund is available to
carriers whose local loop costs are significantly above the national average as
calculated pursuant to FCC rules. Recent FCC rulings have made this high-cost
support available to a competitive carrier, on an averaged per line basis, for
those lines serving customers switching to the competitive carrier.

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    INTERSTATE ACCESS RATES

    Interstate access rates are developed on the basis of a local exchange
carrier's measurement of its interstate costs for the provision of access
service to interexchange carriers divided by its projected demand for service.
The resulting rates are published in a company's interstate access tariff and
filed with the FCC, at which time they are subject to challenge by third parties
and to review by the FCC.

    The FCC recognized that this rate making and tariff filing process may be
administratively burdensome for small local exchange carriers. Accordingly, the
FCC established the National Exchange Carriers Association, which is commonly
referred to as NECA, in 1983 to, among other things, develop common interstate
access service rates, terms and conditions. NECA develops interstate access
rates on the basis of data that are provided individually by participating local
exchange carriers and blended to yield average rates. These rates are intended
to generate revenue equal to the aggregate costs plus a return on the investment
of all of the participants. Currently, the authorized rate of return used in
setting interstate access rates is 11.25%.

    Individual participating local exchange carriers are likely to have costs of
providing service that are either higher or lower than the revenues generated by
applying the overall NECA tariff rate. To rectify this result, the revenues
generated by applying the NECA rates are pooled from all of the participating
companies and redistributed on the basis of each individual company's costs. The
result of this process not only eliminates the burden of individual tariff
filing, but also produces a system in which small companies can share and spread
risk. For example, if a smaller local exchange carrier filed its own tariff and
subsequently suffered the loss of major customers that utilize interstate access
service, the local exchange carrier could suffer significant under-recovery of
its costs. In the NECA pool environment, the impact of this loss is reduced
because it is spread over all of the pool participants.

    NECA operates separate pools for traffic sensitive costs, which are
primarily switching costs, and non-traffic sensitive costs, which are primarily
loop costs. Companies are also free to develop and administer their own
interstate access charges. Our properties participate in both the traffic
sensitive and non-traffic sensitive NECA pools. ATU files its own traffic
sensitive access tariffs with the FCC but participates in the NECA non-traffic
sensitive pool.

    The FCC has initiated a proceeding to review its rates and policies
governing interstate exchange access and the rate of return applicable to
incumbent local exchange carriers who are subject to rate-of-return, rather than
price cap, regulation. Both ATU and our properties are rate-of-return regulated,
and thus the outcome of this proceeding could directly affect their earning
prospects. The outcome of this proceeding, however, and its ultimate impact on
us, cannot be predicted at this time.

    INTRASTATE END USER RATES

    The levels of rates charged to end users for the provision of basic local
service are generally subject to rate-of-return regulation administered by the
RCA. Local rates are typically set at a level that will allow recovery of
embedded costs for local service divided by the number of services and
customers. Recognized costs include an allowance for a rate of return on
investment in plant used to provide local service. Rate cases are typically
infrequent, carrier-initiated and require the carrier to meet substantial
burdens of proof. The last APUC-authorized rates of return were 12.55% and
11.70% for Telephone Utilities of Alaska and Telephone Utilities of the
Northland, respectively. These rates were ordered in 1989. PTI Communications
was previously not regulated by the APUC and instead was regulated by the City
of Fairbanks Public Utilities Board. As a condition of the acquisition of the
City of Fairbanks Telephone Operation by our properties, the APUC required that
a general rate proceeding be initiated for PTI Communications by June 1999. This
proceeding has

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been delayed and combined with a company-wide earnings review to be filed with
the APUC by June 30, 2001. ATU's last authorized rate of return was 9.79% for
retail local exchange and 10.85% for intrastate access, ordered in 1991.

    The APUC adopted regulations to govern competition in the local exchange
marketplace. The transitional regulations provide for, among other things:

    - initial classification of all incumbent local exchange carriers, including
      our properties and ATU, as dominant carriers,

    - symmetrical requirements that all carriers, both dominant and nondominant,
      offer all retail services for resale at wholesale rates and

    - substantial dominant carrier pricing flexibility in competitive areas,
      under which carriers may reduce retail rates, offer new or repackaged
      services and implement special contracts for retail service upon 30 days'
      notice to the APUC. Only rate increases affecting existing services are
      subject to full cost support showings for local exchange carriers in areas
      with local competition.

    INTRASTATE ACCESS RATES

    In the past, the APUC has required all local companies in Alaska to pool
their access costs and has set an annual statewide average price for access
service. Each local exchange carrier charges interexchange carriers fees for
originating or terminating long distance calls on its network based on the
statewide average cost of access rather than on its costs of access. Access
revenues are collected in a pool administered by the Alaska Exchange Carriers
Association and then redistributed to the local exchange carriers based on their
actual costs. With the passage of the Telecommunications Act and increased
competition in the local exchange market, the APUC began a process of reforming
intrastate access charges.

    Under recent revisions to the Alaska access system, local exchange carriers
not yet subject to local competition continue to participate in the Alaska
Exchange Carriers Association pool. Participants in this pool recover their
costs based on the embedded cost of services most recently authorized by the
APUC. In the event of competitive entry into a dominant carrier's service area,
these revisions also require the dominant local exchange carrier to exit the
pool and initiate separate access charges. Dominant local exchange carriers
subjected to competitive entry have the right to propose that their access
charges be based on market rates.

    An additional consequence of this access reform is the continued removal of
subsidies implicit in access pricing. For instance, the APUC recently abolished
the "weighting system" for the non-traffic-sensitive rate element that had
loaded extra costs on access charges for lower cost urban exchanges to support
rural exchanges. At the same time, the APUC proposed to support a portion of
high switching costs separately through a state universal service fund. The RCA
has subsequently proposed that such state universal service support be available
only to local companies with access lines of 20,000 or less.

    The Alaska Universal Service Fund serves as a complement to the federal
Universal Service Fund, but must meet federal statutory criteria concerning
consistency with federal rules and regulations. Currently, the Alaska Universal
Service Fund only subsidizes a portion of higher cost carriers' switching costs,
and the costs of lifeline service--supporting rates of low income customers. The
APUC indicated that it might have considered expanding the Alaska Universal
Service Fund's coverage in the future, such as to support the costs of public
interest pay telephones. The RCA has proposed to subject existing support paid
to carriers for switching costs to an access line threshold which could reduce
or eliminate such support for some of our

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subsidiaries. Further litigation has been initiated in state court to determine
the lawfulness of the Alaska Universal Service Fund as currently established.

THE TELECOMMUNICATIONS ACT

    Among other things, the Telecommunications Act was enacted to enhance
competition without jeopardizing the availability of nationwide universal
service at affordable rates. These two objectives have resulted in a complex set
of rules intended to promote competitive entry in the provision of local
telephone services, except where entry would adversely effect the provision of
universal service or the public interest.

    PROMOTION OF LOCAL SERVICE COMPETITION AND THE RURAL EXEMPTIONS

    The Telecommunications Act made competitive entry into the local telephone
business more attractive to other carriers by removing barriers to competition.
In order to promote competition, the Telecommunications Act established new
interconnection rules generally requiring local exchange carriers to allow
competing carriers to interconnect with their local networks. Congress
recognized, however, that when the desire to promote competition conflicted with
the ability of existing carriers to provide universal service to higher cost
customers, local exchange carriers classified as "Rural Telephone Companies"
should be exempted from interconnection requirements until the continuation of
the exemption was no longer required by the public interest, as defined in the
Telecommunications Act.

    Under the Telecommunications Act, all local exchange carriers, including
both incumbent local exchange carriers and new competitive carriers, are
required to:

    - offer reasonable and nondiscriminatory resale of their telecommunications
      services,

    - ensure that customers can keep their telephone numbers when changing
      carriers,

    - ensure that competitors' customers can use the same number of digits when
      dialing and receive nondiscriminatory access to telephone numbers,
      operator service, directory assistance and directory listing,

    - ensure access to telephone poles, ducts, conduits and rights of way and

    - compensate competitors for the costs of terminating traffic.

    The Telecommunications Act also requires incumbent local exchange carriers
to:

    - negotiate in good faith the terms and conditions of interconnection with
      any competitive carrier making a bona fide request for same,

    - interconnect their facilities and equipment with any requesting
      telecommunications carrier at any technically feasible point,

    - unbundle and provide nondiscriminatory access to unbundled network
      elements, such as local loops, switches and transport facilities, at
      nondiscriminatory rates and on nondiscriminatory terms and conditions,

    - offer resale interconnection at wholesale rates,

    - provide reasonable notice of changes in the information necessary for
      transmission and routing of services over the incumbent local exchange
      carrier's facilities or in the information necessary for interoperability
      and

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    - provide for the physical collocation of equipment necessary for
      interconnection or access to unbundled network elements at the premises of
      the incumbent local exchange carrier, at rates, terms and conditions that
      are just, reasonable and nondiscriminatory.

    In order to implement interconnection requirements, local exchange carriers
generally enter into negotiated interconnection arrangements with competing
carriers. Local exchange carriers may also offer interconnection tariffs,
available to all competitors.

    Competitors are required to compensate a local exchange carrier for the cost
of providing interconnection services. In the case of resale interconnection,
the rules provide that the rates charged should be on a wholesale basis and
reflect the current retail rates of the incumbent local exchange carrier,
excluding the portion of costs avoided by the incumbent local exchange carrier.
In the case of unbundled network element interconnection, rates are based on
costing methodologies that employ a forward-looking economic cost pricing
methodology known as total element long run incremental cost. The
Telecommunications Act specifies that resale and unbundled network element rates
are to be negotiated among the parties, or, if the parties fail to reach an
agreement, arbitrated by the relevant state regulatory authority. Once the
parties have come to agreement, the proposed rates are subject to final approval
by the state regulatory commission.

    In January 1997, ATU entered into an interconnection agreement with GCI,
which provides for resale and unbundled network element interconnection, and
with AT&T Alascom, which provides for resale interconnection.

    Our local operating utilities, Telephone Utilities of Alaska, Telephone
Utilities of the Northland, and PTI Communications, are defined as "rural
telephone companies" under the Telecommunications Act. As rural telephone
companies, they were granted rural exemptions from the requirements relating to
both resale interconnection and unbundled network element interconnection. The
rural exemptions were continued until the APUC determined that interconnection
was technically feasible, not unduly economically burdensome and consistent with
the Telecommunications Act's universal service provisions.

    On June 30, 1999, the APUC ordered the rural exemptions of Telephone
Utilities of the Northland, Telephone Utilities of Alaska and PTI Communications
terminated in order to increase competition in their rural local exchange
markets. As a result, these companies are no longer exempt from the
Telecommunications Act's interconnection requirements. While the short-term
effect of the orders may be delayed for up to nine months under the
Telecommunications Act while interconnection agreements are negotiated, the
eventual effect of the orders, taken alone as written by the APUC without
reference to potential modification and suspension of those companies'
interconnection duties, would likely be materially adverse to their operations.
We have sought reconsideration of the APUC's orders and may also consider
appealing them.

    Separately, on September 1, 1999, we filed a petition with the RCA seeking
suspension or modification of interconnection duties and addressing market
structure reforms for the Fairbanks and Juneau-Douglas markets. In that
petition, Telephone Utilities of Alaska, Telephone Utilities of the Northland,
with respect to North Pole, Alaska only, and PTI Communications proposed
tariffed terms and conditions, including pricing, for resale of their services
at wholesale discounts, for certain unbundled network elements, and for the
interconnection of their facilities and those of competitive local exchange
carriers in the Fairbanks and Juneau-Douglas markets, effective January 1, 2000.
Further, as part of that proposal, we also requested that the RCA permit our
local exchange carriers to operate subject to competitive regulation and that
the RCA remove or reduce other regulatory limitations in those markets now
imposed on these local exchange carriers, effective January 1, 2001. We believe
the RCA must act on this petition within the next 180 days, but the RCA retains
the power to grant, deny or modify the petition, in whole or in part, and we
cannot predict whether and to what extent the petition will be approved. Grant
of the petition would

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provide increased operating and marketing flexibility that we believe over time
could partially or substantially offset the potential for adverse effect caused
by termination of the rural exemptions.

    In April 1999, a bill was proposed in the Alaska state senate to open to
competition many local telephone markets in which we operate. Specifically, the
bill proposed to allow competitors to provide local telephone service in local
telephone markets throughout Alaska that have at least 5,000 access lines,
effectively depriving incumbent local exchange carriers in those markets of
their rural exemptions. Competition resulting from this bill, if it had been
enacted into law, could have materially adversely affected our profitability.
Although this bill was not enacted into law, we cannot predict at this time
whether or to what extent proposals included in the bill will be offered again
and enacted into law. To the extent the markets of our rural local exchange
carriers are opened to competition by the APUC's termination of their rural
exemptions, we do not believe that the marginal effect of passage of the
proposed bill on our business would be material.

    For the first three months of 1999, our local exchange carriers benefiting
from rural exemptions accounted for 42.3% of our revenues and 52.3% of our
operating income. Loss of the rural exemptions, absent compensating measures,
such as rate increases, or market structure reforms, such as the replacement of
implicit subsidies by explicit support mechanisms, or rate deaveraging, could
adversely affect our operating results.

    PROMOTION OF UNIVERSAL SERVICE

    While the Telecommunications Act promoted Congress' policy of ensuring that
affordable service is provided to consumers universally in rural, high-cost
areas of the country, the Telecommunications Act altered the framework for
providing universal service by:

    - providing for the identification of those services eligible for universal
      service support,

    - requiring the FCC to make implicit subsidies explicit,

    - expanding the types of communications carriers required to pay universal
      service support and

    - allowing competitive local exchange carriers to be eligible for funding.

These and other provisions were intended to make provision of universal service
support compatible with a competitive market.

    Pursuant to the Telecommunications Act, federal Universal Service Fund
payments are only available to carriers that are designated as eligible
telecommunications carriers by a state public utilities commission. In areas
served by rural local exchange carriers, the Telecommunications Act provides
that a state public utilities commission may designate more than one eligible
telecommunications carrier, in addition to the incumbent local exchange carrier,
only after determining that the designation of an additional eligible
telecommunications carrier will serve the public interest. As a result, an
incumbent rural local exchange carrier has an opportunity to maintain its status
as the sole recipient of federal Universal Service Fund payments in its service
area, even if it is subsequently subjected to competition. Telephone Utilities
of Alaska, Telephone Utilities of the Northland and PTI Communications are
currently the sole designated eligible telecommunications carriers in their
respective service areas. The addition of a second eligible telecommunications
carrier in the service areas of our properties could have the effect of reducing
the amount of funds available from the federal Universal Service Fund and could
materially adversely affect our ability to achieve a reasonable rate of return
on the capital invested in our network.

    In May 1997, the FCC implemented new rules for interstate universal service
support. The new rules provide for separate federal Universal Service Fund
programs for rural and non-rural telephone companies. The new rules for
non-rural companies base support upon "forward-looking

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costs" derived from cost proxy models. It is uncertain whether the
forward-looking cost model will fully compensate local exchange carriers for the
cost of providing local service in high-cost areas. The FCC set the
implementation date for the new system at January 1, 1999, which has now been
postponed to January 1, 2000 for non-rural telephone companies. The FCC has
established a Rural Task Force, which will investigate how to adapt the proxy
cost models approved for larger carriers for rural telephone companies. The FCC
has indicated that it will not implement a new system for application to rural
telephone companies for an additional three years after the first step
implementation, or at least until January 1, 2001. In the interim, support
mechanisms for rural carriers remain unchanged. The FCC continues to refine the
cost proxy models to be applied to non-rural telephone companies for
implementation next January 1, 2000.

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                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

    Set forth below is information concerning our directors and executive
officers:

<TABLE>
<CAPTION>
NAME                                            AGE      POSITION
- ------------------------------------------      ---      ---------------------------------------------------------------
<S>                                         <C>          <C>
Charles E. Robinson.......................          65   Chairman, President and Chief Executive Officer
Wesley E. Carson..........................          49   Executive Vice President and Assistant Secretary
Donn T. Wonnell...........................          52   Executive Vice President, General Counsel and Secretary
Michael E. Holmstrom......................          56   Senior Vice President and Chief Financial Officer
John Ayers................................          56   Senior Vice President of Marketing and Sales
Benjamin L. Jarvis........................          62   Senior Vice President of LEC Operations
Dean A. Ryland............................          48   Vice President, Finance and Accounting, Controller and
                                                         Assistant Treasurer
Kevin P. Hemenway.........................          39   Vice President and Treasurer
W. Dexter Paine, III......................          38   Director
Saul A. Fox...............................          45   Director
J. Russell Triedman.......................          29   Director
Carl H. Marrs.............................          50   Director
</TABLE>

    CHARLES E. ROBINSON.  Mr. Robinson, our Chairman, President and Chief
Executive Officer since May 1999, has over four decades of experience in the
telecommunications industry. Mr. Robinson was instrumental in creating Alaska's
long distance communications systems, including the White Alice Communications
System, beginning in the late 1950's. Between 1979 and 1982, Mr. Robinson served
as President of Alascom, the state's primary long distance carrier at the time.
Under his guidance, Alascom developed the first statewide long distance service
network in Alaska, connecting with more than 27 independent local companies. Mr.
Robinson served as President and Chief Operating Officer of Pacific Telecom from
1981 until its sale to Century in 1997 and was appointed Chairman and Chief
Executive Officer in 1989. Mr. Robinson has been a member of the National
Security Telecommunications Advisory Committee for the last 18 years, having
been appointed by President Reagan. Mr. Robinson also served on the Board of
Directors of the United States Telephone Association from 1993 to 1995.

    WESLEY E. CARSON.  Mr. Carson, our Executive Vice President and Assistant
Secretary, since July 1998 has had responsiblity for public affairs, corporate
communications, administration, human resources and labor relations. He has over
19 years of telecommunications experience. Mr. Carson began his career in
telecommunications in 1980 with TRT Telecommunications Corporation, an
international data and voice carrier located in Washington, D.C. that was
acquired by Pacific Telecom in 1988. From 1989 to 1997, Mr. Carson served as the
Vice President of Human Resources for Pacific Telecom responsible for
administrative services, the planning, development, implementation and
administration of human resources policies and procedures and employee
relations. Mr. Carson has been involved with labor issues for nearly 20 years
and an active participant in Alaska labor relations since 1989. Mr. Carson holds
a B.A. in International Relations from Brigham Young University, a Master of
Public Administration degree from the University of Illinois-Springfield and a
J.D. from Georgetown University.

    DONN T. WONNELL.  Mr. Wonnell is Executive Vice President, General Counsel
and Secretary, a position he has held since June 1999. Mr. Wonnell has worked in
the telecommunications industry for more than 20 years. Mr. Wonnell served as
Vice President for legal, regulatory and legislative affairs of Pacific Telecom
until the merger of Pacific Telecom into Century at the end of 1997. Prior to
joining Pacific Telecom, Mr. Wonnell served as President of the
Telecommunications and Energy

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Division of California Pacific Utilities in San Francisco, and, earlier, as Vice
President and General Counsel of RCA Alaska Communications in Anchorage. Mr.
Wonnell holds a B.A. from the College of William & Mary and a J.D. from the
University of Pennsylvania School of Law. Mr. Wonnell has been admitted to
practice before the bars of Alaska, California, Pennsylvania and the District of
Columbia.

    MICHAEL E. HOLMSTROM.  Mr. Holmstrom, our Senior Vice President and Chief
Financial Officer since January 1999, is responsible for our financial,
accounting, tax and business development functions. Mr. Holmstrom's career in
telecommunications spans 35 years. Since 1990 he has consulted, served as Chief
Operating Officer for Spectrum Network Systems, Ltd. in Sydney, Australia, and
as Chief Financial Officer for Atlantic Tele-Network in the U.S. Virgin Islands.
From 1983 through 1989 he was Vice President of Unregulated Operations, Chief
Financial Officer and then President of CP National Corporation, a
telecommunications provider that merged with Alltel Corporation in December
1988. Mr. Holmstrom was Vice President of Finance at Alascom from 1976 through
1980, and Vice President of Financial and Business Planning at Pacific Telecom,
Alascom's parent corporation, from 1980 to 1981. Mr. Holmstrom has a B.S. in
Business Administration from Gannon University. He was Executive-in-Residence
professor of business strategy at Texas A&M University for the academic year
1981 to 1982.

    JOHN AYERS.  Mr. Ayers is Senior Vice President of Marketing and Sales, a
position he has held since May 1999. Mr. Ayers has more than 20 years of
experience in the telecommunications industry. As President and co-founder of
e.Net, Ltd. in 1996, Mr. Ayers served as a consultant to a variety of
established and start-up businesses. From February 1987 through August 1995, Mr.
Ayers held various leadership positions with Pacific Telecom and its
subsidiaries, including Executive Vice President of Pacific Telecom Services
Company, with responsibility for strategic planning, marketing and business
development, and Executive Vice President and General Manager of Alascom, Inc.,
Alaska's largest interexchange carrier. Mr. Ayers holds a bachelor's degree in
management from Golden Gate University.

    BENJAMIN L. JARVIS.  Mr. Jarvis, our Senior Vice President of LEC Operations
since November 1998, has over 35 years of experience in the telecommunications
industry. Mr. Jarvis served Pacific Telecom in operations management from 1966
to 1982. From 1982 to 1998, Mr. Jarvis held various leadership positions with
Harris Corporation, Bay Area Teleport and Harbor Bay Telecommunications,
American Satellite Inc., U.S. Intelco Networks Inc. and two competitive local
exchange carriers operating in emerging markets.

    DEAN A. RYLAND.  Mr. Ryland, our Vice President, Finance and Accounting,
Controller and Assistant Treasurer since September 1998, served as a senior
accounting manager with Century from 1997 to 1998. Prior to this time he worked
at Pacific Telecom for over 20 years, holding various positions including Vice
President, Finance and Administration Multivisions Ltd., and Pacific Telecom
Accounting Manager. Mr. Ryland earned a B.A. from the University of Santa Clara.
Mr. Ryland began his professional accounting career as an auditor for
PriceWaterhouse based in Anchorage and left when offered an opportunity to join
Alascom in 1976.

    KEVIN P. HEMENWAY.  Mr. Hemenway joined us as Vice President and Treasurer
in July 1999 with 10 years of prior experience in the telecommunications
industry. Before joining us Mr. Hemenway served as the Chief Financial Officer
and Treasurer of Atlantic Tele-Network, Inc. based in the U.S. Virgin Islands.
From January 1990 to October 1998, as an independent consultant, Mr. Hemenway
performed extensive financial, accounting, management and rate making consulting
services for the telecommunications industry, principally for Atlantic
Tele-Network, Inc. and its subsidiaries. From 1986 through 1989, Mr. Hemenway
was employed by Deloitte & Touche LLP as a C.P.A. and manager, performing both
audit and consulting services. From 1983 to 1986, Mr. Hemenway was employed by
Grant Thornton as a C.P.A. and senior staff accountant.

                                       81
<PAGE>
Mr. Hemenway graduated from Creighton University in 1982 with a B.S.B.A.,
majoring in accounting, and is a non-practicing CPA certificate holder
registered in the State of Nebraska.

    W. DEXTER PAINE, III.  Mr. Paine, a director since July 1998, has been
President and Co-founder of Fox Paine & Company since its inception in 1997.
From 1994 until founding Fox Paine, Mr. Paine served as a senior partner of
Kohlberg & Company, where he was responsible for establishing and leading the
firm's west coast office. Prior to joining Kohlberg & Company, Mr. Paine served
as a general partner at Robertson Stephens & Company. In his more than 11 years
in leveraged investing, Mr. Paine has focused on the supermarket, healthcare,
telecommunications and automotive industries. Mr. Paine has a B.A. in economics
from Williams College.

    SAUL A. FOX.  Mr. Fox, a director since May 1999, has been Chief Executive
Officer and Co-founder of Fox Paine & Company since its inception in 1997. From
1984 until founding Fox Paine & Company, Mr. Fox was at Kohlberg Kravis &
Roberts & Co., where he became one of KKR's most senior general partners prior
to his retirement from KKR in 1996. In his more than 13 years at KKR, Mr. Fox
was involved in numerous leveraged transactions in a wide variety of industries.
Prior to joining KKR, Mr. Fox was an attorney at Latham & Watkins, a leading
national law firm headquartered in Los Angeles, California. Mr. Fox has a B.S.
in communications and computer science from Temple University and a J.D. from
the University of Pennsylvania Law School.

    J. RUSSELL TRIEDMAN.  Mr. Triedman, a director since June 1999, has been a
Vice President of Fox Paine & Company since 1998. Upon completion of law school
in 1996, Mr. Triedman worked at Cravath, Swaine & Moore. While at Cravath, Mr.
Triedman worked in mergers and acquisitions and high yield finance. Prior to
attending law school, Mr. Triedman worked as a financial analyst at Brown
Brothers Harriman & Co. in the private equity group, where he facilitated three
private equity investments totaling $95 million. Mr. Triedman is a graduate of
Brown University with a B.S. in Applied Mathematics and Economics and holds a
J.D. from the University of Chicago Law School.

    CARL H. MARRS.  Mr. Marrs, a director since July 1999, is President and
Chief Executive Officer of Cook Inlet. Mr. Marrs has been with Cook Inlet for
approximately 25 years. During that period Mr. Marrs has been employed in a
series of management positions, culminating in his appointment as President in
1986. Mr. Marrs attended the Stanford University School of Business for
Executives in 1983 and the Amos Tuck School of Business at Dartmouth College in
1986.

COMMITTEES OF THE BOARD OF DIRECTORS

    Upon completion of the offerings, our board of directors will establish an
Audit Committee, a Compensation Committee and an Executive Committee. The
functions of the Audit Committee will be to:

    - recommend annually to our board of directors the appointment of our
      independent auditors,

    - discuss and review in advance the scope and the fees of our annual audit
      and review the results thereof with our independent auditors,

    - review and approve non-audit services of our independent auditors,

    - review compliance with our existing major accounting and financial
      reporting policies,

    - review the adequacy of major accounting and financial reporting policies
      and

    - review our management's procedures and policies relating to the adequacy
      of our internal accounting controls and compliance with applicable laws
      relating to accounting practices.

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<PAGE>
We anticipate that the Audit Committee will consist solely of directors who are
not otherwise our employees.

    The functions of the Compensation Committee will be to review and approve
annual salaries, bonuses, and grants of stock options under our stock incentive
plans for all executive officers and other key members of management, and to
review and approve the terms and conditions of all employee benefit plans or
changes to these plans. We anticipate the Compensation Committee will consist of
directors who are not otherwise our employees.

    The Executive Committee will have the authority to exercise the powers of
our board of directors, other than those reserved to the Audit Committee and the
Compensation Committee or to our full board of directors, between meetings of
our full board of directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    As noted above, our board of directors does not currently have a
Compensation Committee, but we anticipate establishing one in connection with
the offering. Prior to this offering, our principals and senior management were
directly involved in setting compensation for our executives.

COMPENSATION OF DIRECTORS

    We currently do not, and we will continue not to, compensate our directors
for serving as directors. We will reimburse all directors for reasonable and
necessary expenses they incur in performing their duties as directors.

EXECUTIVE COMPENSATION

    Prior to the acquisitions of Century's Alaska properties and ATU on May 14,
1999, none of our executive officers was compensated by us or any of our
subsidiaries to any meaningful extent. As a result, individual information for
our directors and executive officers is not provided for periods prior to May
14, 1999. The following table shows current cash compensation, assuming a full
year and the payment of maximum targeted bonuses, for our Chief Executive
Officer and each of our four other most highly compensated executive officers
under their employment agreements.

                                       83
<PAGE>

<TABLE>
<CAPTION>
                                                                         LONG-TERM COMPENSATION
                                           ANNUAL COMPENSATION     ----------------------------------
                                         ------------------------  SECURITIES UNDERLYING                   ALL OTHER
NAME AND PRINCIPAL POSITION                SALARY        BONUS       STOCK OPTIONS(1)        LTIP       COMPENSATION(2)
- ---------------------------------------  -----------  -----------  ---------------------     -----     ------------------
<S>                                      <C>          <C>          <C>                    <C>          <C>

Charles E. Robinson....................  $   500,000  $   500,000          1,117,500       $       0     $    1,071,712
  Chairman, President and
  Chief Executive Officer

Wesley E. Carson.......................      200,000      200,000            450,000               0            534,690
  Executive Vice President and
  Assistant Secretary

Donn T. Wonnell........................      200,000      100,000            300,000               0            316,408
  Executive Vice President,
  General Counsel and Secretary

Michael E. Holmstrom...................      200,000      100,000            350,000               0              8,700
  Senior Vice President and
  Chief Financial Officer

John Ayers.............................      200,000      100,000            300,000               0              8,700
  Senior Vice President
</TABLE>

- ------------------------

(1) Options to purchase shares of common stock. See "--Option Grants".

(2) In May and July 1999, Messrs. Robinson, Carson and Wonnell received common
    stock grants in the amounts of 172,729 shares for Mr. Robinson, 85,469
    shares for Mr. Carson and 50,000 shares for Mr. Wonnell. The fair market
    value of these grants was established using a per share price of
    approximately $6.15. In addition, each executive officer receives an annual
    car allowance in the amount of $8,700.

OPTION GRANTS

    The following table provides information on grants of stock options in 1999
to the executive officers listed below.

<TABLE>
<CAPTION>
                                                   PERCENTAGE
                                  NUMBER OF         OF TOTAL
                                  SECURITIES      STOCK OPTIONS
                                  UNDERLYING       GRANTED TO
                                STOCK OPTIONS       EMPLOYEES       EXERCISE                                 GRANT DATE
                                   GRANTED          IN FISCAL         PRICE            EXPIRATION             PRESENT
NAME                               (SHARES)           1999          PER SHARE             DATE                VALUE(3)
- ------------------------------  --------------  -----------------  -----------  ------------------------  ----------------
<S>                             <C>             <C>                <C>          <C>                       <C>
Charles E. Robinson...........      1,017,500(1)          30.9%     $  6.1542   May 14, 2008
                                      100,000(2)           3.0%        6.1542   September 28, 2008
Wesley E. Carson..............        400,000(1)          12.1%        6.1542   May 14, 2008
                                       50,000(2)           1.5%        6.1542   September 28, 2008
Donn T. Wonnell...............        250,000(1)           9.1%        6.1542   June 1, 2008
                                       50,000(2)           1.5%        6.1542   September 28, 2008
Michael E. Holmstrom..........        300,000(1)           7.6%        6.1542   May 14, 2008
                                       50,000(2)           1.5%        6.1542   September 28, 2008
John Ayers....................        250,000(1)           7.5%        6.1542   May 24, 2008
                                       50,000(2)           1.5%        6.1542   September 28, 2008
</TABLE>

- ------------------------

(1) Of these stock options, 10% vest on each anniversary of their grant for a
    period of five years. The first anniversary of Messrs. Robinson's, Carson's
    and Holmstrom's grants will be May 14, 2000; the first anniversary of Mr.
    Ayers' grant will be May 24, 2000; and the first anniversary of

                                         (FOOTNOTES CONTINUED ON FOLLOWING PAGE)

                                       84
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)

    Mr. Wonnell's grant will be June 1, 2000. An additional 10% (16.67%, in the
    case of Mr. Robinson) of these stock options granted to each such officer
    will vest on the ninth year after the date of grant and vesting may be
    accelerated to each January 1 of the five years (three years, in the case of
    Mr. Robinson) following the date of grant if corporate financial goals
    established under our stock incentive plan are attained.

(2) These stock options will vest upon completion of the offering. Each
    executive officer has agreed not to dispose of more than 20% of the shares
    he may receive upon exercise of these options before each anniversary
    following September 28, 1999, the date of grant of the options.

(3) The present value of the grant at the date of grant is estimated using the
    Black-Scholes option pricing model with the following weighted-average
    assumptions used for these grants: risk-free rate of return of       %;
    expected dividend yield of zero; expected time of exercise       years;
    expected volatility of zero, due to the lack of a public trading market for
    the securities underlying the options at the time of grant, based on the
    minimum value method. No adjustments were made to reflect forfeiture risk or
    non-transferability.

OPTION EXERCISES AND YEAR-END VALUES

    The following table provides information for the listed executive officers,
regarding the number and value of all their unexercised stock options at
September 30, 1999. To date, none of these options has vested.

<TABLE>
<CAPTION>
                                                    NUMBER OF SECURITIES UNDERLYING
                                                       UNEXERCISED STOCK OPTIONS         VALUE OF UNEXERCISED
                                                         AT SEPTEMBER 30, 1999        IN-THE-MONEY STOCK OPTIONS
                                                                (SHARES)               AT SEPTEMBER 30, 1999(1)
NAME                                                   EXERCISABLE/UNEXERCISABLE       EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------  --------------------------------  ---------------------------
<S>                                                 <C>                               <C>
Charles E. Robinson...............................            0/1,117,500                   $            0/
Wesley E. Carson..................................             0/450,000                                 0/
Donn T. Wonnell...................................             0/300,000                                 0/
Michael E. Holmstrom..............................             0/350,000                                 0/
John Ayers........................................             0/300,000                                 0/
</TABLE>

- ------------------------

(1) The fair market value of stock options as of       , 1999 was assumed to be
    $      per share, equal           , due to the lack of a public trading
    market for the securities underlying the stock options.

EMPLOYMENT ARRANGEMENTS

    Before completion of the acquisitions of Century's Alaska properties and
ATU, we entered into new employment arrangements with some of our employees
relating to their employment with us and Alaska Communications Systems Holdings,
their ownership of our common stock and the granting of options to purchase
shares of our common stock following the completion of these acquisitions.

    EMPLOYMENT AGREEMENT WITH CHARLES E. ROBINSON.  Under the employment
agreement among ALEC Holdings, Alaska Communications Systems Holdings and
Charles E. Robinson, dated as of March 12, 1999, Mr. Robinson serves as the
Chairman of the Board, Chief Executive Officer and President of ALEC Holdings
and Alaska Communications Systems Holdings for a three-year period, which will
be extended automatically for successive additional one-year periods unless
either our board of directors, or Mr. Robinson gives no less than 90 days
written notice of an

                                       85
<PAGE>
intention not to extend the term. Mr. Robinson will receive an initial annual
base salary of $500,000, which may be increased at the beginning of each year
following the first year of employment.

                                       86
<PAGE>
Mr. Robinson will be eligible for an annual bonus equal to 100% of his annual
base salary for each calendar year based on our attainment of mutually
determined business targets, with appropriate adjustments to the extent we
exceed or fail to reach these targets. In no event will Mr. Robinson's annual
bonus be less than $200,000. Mr. Robinson's employment agreement also provides
for other customary benefits including fringe benefit plans, paid vacation, life
and disability insurance plans and expense reimbursement.

    Under the Robinson employment agreement, if Mr. Robinson's employment were
to be terminated by Mr. Robinson for good reason or following a change in
control or by ALEC Holdings without cause, we would be obligated to pay Mr.
Robinson a lump sum cash payment in an amount equal to the sum of:

    - Mr. Robinson's annual base salary, as then in effect plus

    - Mr. Robinson's most recent annual bonus, as well as reimbursement for the
      cost of continuing health insurance coverage under COBRA for twelve
      months.

In addition, upon the termination of Mr. Robinson's employment, the number of
then-unvested options will vest as are necessary to vest at least one-third of
all options received by Mr. Robinson. In addition, in the event we decide at any
time not to extend the term of his employment agreement, we will pay Mr.
Robinson the sum of:

    - Mr. Robinson's annual base salary, as then in effect, plus

    - Mr. Robinson's most recent annual bonus plus

    - reimbursement for the cost of continuing health insurance coverage under
      COBRA for twelve months.

    The employment agreement with Mr. Robinson also provides that during his
employment and during the 12-month period following any termination of his
employment, Mr. Robinson will not directly or indirectly own, make equity or
debt investments in, manage, control, participate in, consult with, advise,
render services to, or in any manner engage in, or be connected as an employee,
officer, partner, director, consultant or otherwise with:

    - any enterprise engaged in the provision of local exchange or wireless
      telecommunications services in any state in which:

       - we, our affiliates or subsidiaries or

       - any entity that is a party to an acquisition agreement with us, our
         affiliates or subsidiaries

    is engaged in the provision of local exchange or wireless telecommunications
services, or

    - any enterprise that is the subject of a potential transaction made known
      to us, our affiliates or subsidiaries, or Mr. Robinson during or at any
      time prior to the termination of his employment agreement, that is engaged
      in the provision of local exchange or wireless telecommunications
      services.

However, Mr. Robinson may be a passive owner of not more than one percent of any
publicly traded class of capital stock of any entity engaged in the provision of
local exchange or wireless telecommunications services. The Robinson employment
agreement also provides for other non-inducement and non-solicitation
restrictions during Mr. Robinson's employment and during the 12-month period
following any termination of his employment.

    EMPLOYMENT AGREEMENT WITH WESLEY E. CARSON.  Under the employment agreement,
dated March 12, 1999, by and among ALEC Holdings, Alaska Communications Systems
Holdings and Wesley E. Carson, Mr. Carson serves as Executive Vice President of
us and Alaska Communications Systems Holdings for a two-year initial term at an
annual base salary of $200,000. Mr. Carson's employment agreement generally
contains provisions similar to those in Mr. Robinson's employment agreement,
except that:

                                       87
<PAGE>
    - Mr. Carson does not have a guaranteed minimum annual bonus and Mr. Carson
      will receive no annual bonus if termination occurs prior to December 31,
      1999 and

    - Mr. Carson's employment agreement does not provide any additional rights
      with respect to vesting of then-unvested options upon termination.

    OTHER EMPLOYMENT ARRANGEMENTS.  We have made additional employment
commitments to other of our officers on terms and conditions substantially
similar to those in the employment agreement with Mr. Carson.

ALEC HOLDINGS, INC. 1999 STOCK INCENTIVE PLAN

    In connection with the completion of the acquisitions of Century's Alaska
properties and ATU, we adopted the ALEC Holdings, Inc. 1999 Stock Incentive Plan
under which we may grant incentive awards in the form of options to purchase
shares of our common stock, restricted shares of our common stock and stock
appreciation rights to participants, which include non-employee directors,
officers, employees and consultants of us and our affiliates. The total number
of shares of our common stock initially reserved and available for grant under
the stock incentive plan is 3,410,486 shares. A committee of our board of
directors, or our board of directors itself in the absence of a committee, is
authorized to make grants and various other decisions under the stock incentive
plan. Unless otherwise determined by the committee, any participant granted an
award under the stock incentive plan must become a party to, and agree to be
bound by, the stockholders' agreement.

    Stock options may include incentive stock options, nonqualified stock
options or both, in each case, with or without stock appreciation rights. Stock
options are generally nontransferable and, unless otherwise determined by the
committee, have a term of ten years. Upon a participant's death or when the
participant's employment with us or the applicable affiliate of us is terminated
for any reason, the participant's then-unvested stock options are forfeited and
the participant or his or her legal representative may, within three months if
termination of employment is for any reason other than death, or one year in the
case of the participant's death, exercise any previously vested stock options.
Stock appreciation rights may be granted in conjunction with all or part of any
stock option award and are generally exercisable only in connection with the
exercise of the related stock option. Upon termination or exercise of the
related stock option, stock appreciation rights terminate and are no longer
exercisable. Stock appreciation rights are transferable only with the related
stock options. Unless otherwise provided in the related award agreement or, if
applicable, the stockholders' agreement, immediately prior to the change of
control transactions described in the stock incentive plan, all outstanding
stock options and stock appreciation rights will become fully exercisable and
vested, and any restrictions and deferral limitations applicable to any
restricted stock awards will lapse. The committee may also grant to any
participant, on terms and conditions determined by the committee, the right to
receive cash payments to be paid at that time as an award results in
compensation income to the participant in order to assist the participant in
paying the resulting taxes.

    The stock incentive plan will terminate on May 14, 2009. However, awards
outstanding at that time will not be affected or impaired by the stock incentive
plan's termination. Our board of directors and the committee have authority to
amend the stock incentive plan and awards granted thereunder.

    On May 14, 1999 we issued options to purchase 2,305,997 shares of common
stock to some of our employees and a consulting firm; on May 24, 1999 we issued
options to purchase 250,000 shares of common stock to some of our employees; on
June 1, 1999 we issued options to purchase 275,000 shares of common stock to
some of our employees; on June 9, 1999 we issued options to purchase 15,000
shares of common stock to some of our employees; and on June 25, 1999 we issued
options to purchase 73,500 shares of common stock to some of our employees.

                                       88
<PAGE>
For all of these options, 10% vest on each anniversary of their grant for a
period of five years and an additional 10% of the options may vest on each
January 1 for the five years following the date of the grant, subject to the
attainment of corporate financial goals established under our stock incentive
plan. On September 28, 1999 we issued options to purchase 466,000 shares of
common stock to some of our employees, all of which will vest upon completion of
the offering. The employees to whom these options have been granted have agreed
not to dispose of more than 20% of the shares they may receive upon exercise of
these options before each anniversary following September 28, 1999, the date of
grant of the options (plus any shares permitted to be disposed of, but not
disposed of, in any previous year). We are currently seeking a determination of
the fair market value of these recently granted options from an independent
appraisal firm. We plan to use this determination to calculate the compensation
expense related to these recently granted options, which we will record upon
completion of the offering.

STOCKHOLDERS' AGREEMENT

    On May 14, 1999, we entered into a stockholders' agreement with Fox Paine
Capital Fund, investors affiliated with Fox Paine Capital Fund and several
non-fund investors, including co-investors and some of our employees listed on
the signatures pages to the stockholders' agreement. Since May 14, 1999,
additional parties, including Cook Inlet, have been added to the stockholders'
agreement. The following is a summary of the material terms of the stockholders'
agreement and is qualified in its entirety by reference to the stockholders'
agreement, which has been filed as an exhibit to the registration statement of
which this prospectus is a part.

    TRANSFER RESTRICTIONS.  The stockholders' agreement contains general
restrictions on the ability of our stockholders to transfer their shares of
common stock. In addition, if Fox Paine Capital Fund and its affiliates desire
to sell or dispose of all their shares of common stock, they have the right to
require the non-fund investors to sell all of their shares of common stock on a
pro rata basis and on the same terms and conditions in that transaction. The
non-fund investors have tag-along rights which enable them to participate on a
pro rata basis and on the same terms and conditions in sales of shares of common
stock by Fox Paine Capital Fund and its affiliates other than sales made
pursuant to Rule 144 under the Securities Act.

    REGISTRATION RIGHTS.  Under the stockholders' agreement, following
completion of the offering and subject to limited exceptions,

    - Fox Paine Capital Fund and its affiliates, as a group, may make up to six
      demands for registration under the Securities Act of their shares of
      common stock,

    - Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, or
      holders of at least 25% of the shares of common stock presently owned by
      DLJ, may make one demand for registration under the Securities Act of
      their shares of common stock and

    - Cook Inlet, or holders of at least 25% of the shares of common stock
      presently owned by Cook Inlet, may make one demand for registration under
      the Securities Act of its shares of common stock.

    Upon any demand for registration by any of Fox Paine Capital Fund and its
affiliates, DLJ or Cook Inlet, each of our other stockholders will be given the
opportunity to participate on a pro rata basis in the registration demanded. The
stockholders' agreement also provides the stockholders with piggyback
registration rights which allow each of them to include all or a portion of
their shares of common stock under a registration statement filed by us, subject
to limited exceptions. The stockholders have agreed not to exercise their
piggyback registration rights with respect to the offering.

                                       89
<PAGE>
    OTHER AGREEMENTS.  Pursuant to the stockholders' agreement, each of our
stockholders has agreed at all times during the term of the stockholders'
agreement, not to act as a member of a group or in concert with others in
connection with the acquisition, disposition or voting of shares of common stock
in any manner inconsistent with the stockholders' agreement.

    Provisions in the stockholders' agreement that

    - preclude stockholders from granting any proxy or entering into any voting
      trust with respect to our common stock or entering into any stockholder
      agreement or arrangement inconsistent with the provisions of the
      stockholders' agreement or

    - grant members of management various rights to put or call their shares of
      common stock

expire upon completion of the offering.

    TERMINATION.  The rights and obligations described under "--Transfer
Restrictions" will terminate when

    - Fox Paine Capital Fund and its affiliates own less than 20% of the fully
      diluted shares of common stock then outstanding or

    - in the case of the shares of common stock issued upon exercise of the
      warrants issued in connection with the senior discount debentures,
      following completing of the offering.

    In addition, the stockholders' agreement will terminate upon any
recapitalization, consolidation, reorganization or other restructuring of ALEC
Holdings as a result of which parties to the stockholders' agreement and their
permitted transferees own less than a majority of the outstanding voting power
of the entity surviving that recapitalization, consolidation, reorganization or
other restructuring. After such a transaction, only rights and obligations
described under "--Registration Rights" will survive until the earlier of

    - May 14, 2019 or

    - the date when there are no longer any shares outstanding or issuable upon
      exercise or conversion of any options, warrants, rights or other
      convertible securities that remain to be registered.

Rights and obligations under the stockholders' agreement relating to
indemnification will survive indefinitely.

                                       90
<PAGE>
              INSIDER RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    In connection with the execution of the purchase agreement relating to
Century's Alaska properties, Century entered into a consulting agreement, dated
August 14, 1998, with LEC Consulting Corporation, a corporation owned and
operated by current and former members of our management team. Pursuant to the
consulting agreement, LEC Consulting provided management and advisory services
to Century's Alaska properties with respect to its day-to-day business
operations. Under the terms of the consulting agreement, Century paid LEC
Consulting $175,000 per month for these services. In addition to the services
required under the consulting agreement, LEC Consulting employees were
responsible for managing the transition process for us and for creating the
infrastructure necessary to begin operations as of May 14, 1999. In addition,
Fox Paine & Company loaned to LEC Consulting approximately $3.4 million
beginning in August 1998 for funding of start-up expenses, which amount was
repaid out of funds provided by us on May 14, 1999 as part of the fees and
expenses related to the acquisitions of Century's Alaska properties and ATU. LEC
Consulting was merged into Alaska Communications Systems Holdings on May 10,
1999.

    Pursuant to a consulting agreement between Century and Mr. Robinson, Mr.
Robinson will continue to provide consulting services to Century with respect to
its operations in Alaska and the lower 48 states. We do not believe that these
services will interfere with Mr. Robinson's fulfillment of his duties and
responsibilities to us. We have agreed that Mr. Robinson will not participate in
making any decisions relating to acquisitions by us in the lower 48 states
during the term of his consulting agreement and for two years thereafter. This
consulting agreement will expire on or before November 2000.

    In connection with the completion of the acquisitions of Century's Alaska
properties and ATU, members of management were given grants of our common stock.
In connection with the stock grants, we loaned Messrs. Robinson and Carson
approximately 40% of the fair market value of the grants on May 14, 1999 on a
nonrecourse basis. Subsequently, we loaned Mr. Wonnell approximately 40% of the
fair market value of the grants on July 1, 1999 on a nonrecourse basis. The
proceeds of these loans, which are secured by the shares of our common stock
owned by the individual borrowers, were to be used by those three individuals to
pay taxes on the income deemed received in connection with the grants.

    Fox Paine & Company received aggregate advisory fees in the amount of $14.2
million upon consummation of the acquisitions of Century's Alaska properties and
ATU. In addition, Fox Paine & Company will receive an annual management fee in
the amount of 1% of ALEC Holdings' net income before interest expense, interest
income, income taxes, depreciation and amortization and equity in earnings
(losses) of minority investments, calculated without regard to the fee.

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<PAGE>
          SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS

    The following table sets forth certain information with respect to
beneficial ownership of common stock, including the percent of the total voting
power, as of the date of this prospectus, and as adjusted to reflect completion
of the offerings, by

    - each of our five most highly compensated officers,

    - each director,

    - each holder of more than 5% of our common stock and

    - all current directors and executive officers as a group.

    Except as otherwise indicated in the footnotes below, each beneficial owner
has the sole power to vote and to dispose of all shares held by that holder. You
should keep the following points in mind as you read the information in the
table.

    - The amounts and percentage of our common stock beneficially owned by a
      holder are reported on the basis of the regulations of the SEC that govern
      the determination of beneficial ownership of securities. Under these
      regulations, a person is deemed to be a "beneficial owner" of a security
      if that person has or shares "voting power", which includes the power to
      vote or to direct the voting of the security, or "investment power", which
      includes the power to dispose of or to direct the disposition of the
      security. A person is also deemed to be a beneficial owner of any
      securities with respect to which that person has a right to acquire
      beneficial ownership within 60 days. Under these rules, more than one
      person may be deemed a beneficial owner of the same security and a person
      may be deemed to be a beneficial owner of securities as to which that
      person has no economic interest.

    - The percentage of our common stock outstanding is based on the 21,790,276
      shares of our common stock outstanding as of the date of this prospectus,
      without taking into account any options or convertible interests.

    - We have computed percentages of shares outstanding with respect to the
      currently outstanding shares of our common stock held by the holder,
      without taking into account any options.

<TABLE>
<CAPTION>
                                                    BENEFICIAL OWNERSHIP   BENEFICIAL OWNERSHIP
                                                       OF COMMON STOCK     OF COMMON STOCK AFTER
                                                       BEFORE OFFERING           OFFERING
                                                    ---------------------  ---------------------
NAME                                                  SHARES        %        SHARES        %
- --------------------------------------------------  ----------  ---------  ----------  ---------
<S>                                                 <C>         <C>        <C>         <C>
Fox Paine Capital, LLC(1).........................  19,555,751       89.7%
Fox Paine Capital Fund(1).........................  16,251,658       74.6%
FPC Investors, L.P.(1)............................     241,144        1.1%
W. Dexter Paine, III(1)...........................  19,555,751       89.7%
Saul A. Fox(1)....................................  19,555,751       89.7%
J. Russell Triedman(1)............................  19,555,751       89.7%
Cook Inlet Region, Inc.(2)........................   1,624,907        7.5%
Carl H. Marrs(2)..................................   1,624,907        7.5%
Charles E. Robinson(3)............................     241,788        1.1%
Wesley E. Carson(4)...............................     129,341          *
Donn T. Wonnell(5)................................      66,249          *
Michael E. Holmstrom(6)...........................      16,249          *
John Ayers(7).....................................      16,249          *
All directors and executive officers as a group (9
  persons)........................................  21,650,534       99.4%
</TABLE>

                                            (FOOTNOTES APPEAR ON FOLLOWING PAGE)

                                       91
<PAGE>
- ------------------------

*   The percentage of shares beneficially owned does not exceed 1% of the class.

(1) Fox Paine Capital, LLC is General Partner or Manager of Fox Paine Capital
    Fund, FPC Investors, L.P., ALEC Coinvestment Fund I, LLC, ALEC Coinvestment
    Fund II, LLC, ALEC Coinvestment Fund III, LLC, ALEC Coinvestment Fund IV,
    LLC, ALEC Coinvestment Fund V, LLC and ALEC Coinvestment Fund VI, LLC and
    possesses voting and investment power over all shares held by each of these
    entities. Fox Paine Capital is not the record owner of any shares of our
    common stock. Messrs. Fox and Paine are members of Fox Paine Capital and
    share voting power of Fox Paine Capital. Mr. Triedman is a Vice President of
    Fox Paine & Company. None of the shares shown as beneficially owned by any
    of Messrs. Fox, Paine or Triedman are owned of record by these individuals.
    The address of Fox Paine Capital, Fox Paine Capital Fund, FPC Investors, and
    Messrs. Fox, Paine and Triedman is c/o Fox Paine & Company, LLC, 950 Tower
    Lane, Suite 1950, Foster City, CA 94404.

(2) Cook Inlet Region, Inc. is record owner of 1,624,907 shares of our common
    stock. The address of Cook Inlet is 2525 C Street, P.O. Box 93330,
    Anchorage, Alaska 99509-3330. Mr. Marrs is President and Chief Executive
    Officer of Cook Inlet.

(3) Mr. Robinson is record owner of 241,788 shares of our common stock. The
    address of Mr. Robinson is c/o ALEC Holdings, Inc., 510 L. Street, Suite
    500, Anchorage, Alaska 99501. Of these shares, 172,729 represent stock
    grants. See "Insider Relationships and Related Party Transactions".

(4) Mr. Carson is record owner of 129,341 shares of our common stock. The
    address of Mr. Carson is c/o ALEC Holdings, Inc., 510 L. Street, Suite 500,
    Anchorage, Alaska 99501. Of these shares, 85,469 represent stock grants. See
    "Insider Relationships and Related Party Transactions".

(5) Mr. Wonnell is record owner of 66,249 shares of our common stock. The
    address of Mr. Wonnell is c/o ALEC Holdings, Inc., 510 L. Street, Anchorage,
    Alaska 99501. Of these shares, 50,000 represent stock grants. See "Insider
    Relationships and Related Party Transactions".

(6) Mr. Holmstrom is record owner of 16,249 shares of our common stock. The
    address of Mr. Holmstrom is c/o ALEC Holdings, Inc., 510 L. Street, Suite
    500, Anchorage, Alaska 99501.

(7) Mr. Ayers is record owner of 16,249 shares of our common stock. The address
    of Mr. Ayers is c/o ALEC Holdings, Inc., 510 L. Street, Suite 500,
    Anchorage, Alaska 99501.

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<PAGE>
                          DESCRIPTION OF INDEBTEDNESS

THE SENIOR CREDIT FACILITY

    Alaska Communications Systems Holdings, together with us, entered into a
credit agreement with The Chase Manhattan Bank, as administrative agent and
collateral agent, Credit Suisse First Boston Corporation, as documentation
agent, and Canadian Imperial Bank of Commerce, as syndication agent, and the
lenders named therein that provides the Alaska Communications Systems Holdings'
senior credit facility consisting of term loans of up to $460.0 million and a
revolving credit facility of $75.0 million. Chase Securities Inc. acted as
advisor and arranger in connection with the senior credit facility. The
following is a summary description of the material terms of the senior credit
facility and is subject to and qualified in its entirety by reference to the
credit agreement, which has been filed as an exhibit to the registration
statement of which this prospectus is a part.

    STRUCTURE.  Loans under the credit agreement consist of:

    - a term loan A facility in the amount of $150.0 million;

    - a term loan B facility in the amount of $150.0 million;

    - a term loan C facility in the amount of $160.0 million; and

    - a revolving credit facility in the amount of $75.0 million which is
      available, in part, for up to $25.0 million in letters of credit and up to
      $10.0 million in the form of swingline loans.

The term loan facilities and the revolving credit facility constitute the senior
credit facility. Alaska Communications Systems Holdings used the term loan
facilities and a portion of the revolving credit facility to provide a portion
of the funds necessary to complete the acquisitions of Century's Alaska
properties and ATU and to repay existing indebtedness of Century's Alaska
properties. Alaska Communications Systems Holdings will use the remainder of the
revolving credit facility for general corporate purposes.

    SECURITY; GUARANTEES.  Alaska Communications Systems Holdings' obligations
under the senior credit facility are unconditionally and irrevocably guaranteed,
jointly and severally, by us and by each of Alaska Communications Systems
Holdings' existing and subsequently acquired or organized domestic or, in
limited circumstances, foreign subsidiaries. In addition, the senior credit
facility and the related guarantees are secured by collateral that includes
substantially all of Alaska Communications Systems Holdings' assets and all of
the assets of Alaska Communications Systems Holdings' subsidiaries, including:

    - a first priority pledge:

       -   by us of all of Alaska Communications Systems Holdings' capital stock
           and

       -   to the extent not prohibited by law or any existing contract, by
           Alaska Communications Systems Holdings of the capital stock of
           companies in which Alaska Communications Systems Holdings holds a
           minority stake, plus of all the capital stock of Alaska
           Communications Systems Holdings, or any of its domestic subsidiaries
           or, under limited circumstances, any of Alaska Communications Systems
           Holdings' foreign subsidiaries, held in any existing and subsequently
           acquired or organized subsidiary, which pledge, in the case of any
           foreign subsidiary will, except under limited circumstances, be
           limited to 65% of the capital stock of the foreign subsidiary, and

    - a perfected first priority security interest in, and mortgage on,
      substantially all of Alaska Communications Systems Holdings' tangible and
      intangible assets and substantially all of the tangible and intangible
      assets of the guarantors, including accounts receivable, documents,

                                       93
<PAGE>
      inventory, equipment, intellectual property, investment property, general
      intangibles, real property, cash and cash accounts and proceeds of the
      foregoing, in each case subject to limited exceptions.

The credit agreement provides for the release of guarantees under limited
circumstances.

    AVAILABILITY.  The availability of the senior credit facility is subject to
various conditions precedent typical of bank loans including, among other
things, the absence of any material adverse change in Alaska Communications
Systems Holdings' business. The full amount of the term loan facilities was
drawn as required in a single drawing on May 14, 1999. As a result of issuance
of $150.0 million in Alaska Communications Systems Holdings senior subordinated
notes, the term loan C facility was reduced to $135.0 million on May 14, 1999.
Amounts repaid or prepaid under the term loan facilities may not be reborrowed.
Amounts repaid under the revolving credit facility are available for reborrowing
on a revolving basis, subject to the terms of the revolving credit facility.

    AMORTIZATION AND INTEREST

    - The term loan A facility is repayable in annual principal payments of
      1.00% of outstanding principal over five years, commencing on May 14,
      2002, with the balance of the term loan A facility payable at maturity.
      The final maturity of the term loan A facility is November 14, 2006. The
      term loan A facility bears interest at an annual rate equal (at Alaska
      Communications Systems Holdings' option) to: (1) an adjusted London
      interbank offered rate, or LIBOR, plus 2.75% or (2) a rate equal to 1.75%
      plus the greater of the administrative agent's prime rate, a certificate
      of deposit rate plus 1.00% and the federal funds effective rate plus
      0.50%, in each case subject to reduction based on Alaska Communications
      Systems Holdings' financial performance.

    - The term loan B facility is repayable in annual principal payments of
      1.00% of outstanding principal over six years, commencing on May 14, 2002,
      with the balance of term loan B facility payable at maturity. The final
      maturity of the term loan B facility is November 14, 2007. The term loan B
      facility bears interest at an annual rate equal (at Alaska Communications
      Systems Holdings' option) to: (1) an adjusted LIBOR plus 3.00% or (2) a
      rate equal to 2.00% plus the greater of the administrative agent's prime
      rate, a certificate of deposit rate plus 1.00% and the federal funds
      effective rate plus 0.50%.

    - The term loan C facility is repayable in annual principal payments of
      1.00% of outstanding principal over six years, commencing on May 14, 2002,
      with the balance of term loan C facility payable at maturity. The final
      maturity of the term loan C facility is May 14, 2008. The term loan C
      facility bears interest at an annual rate equal (at Alaska Communications
      Systems Holdings' option) to: (1) an adjusted LIBOR plus 3.25% or (2) a
      rate equal to 2.25% plus the greater of the administrative agent's prime
      rate, a certificate of deposit rate plus 1.00% and the federal funds
      effective rate plus 0.50%.

    - The revolving credit facility is a seven-year facility and outstanding
      balances thereunder will bear interest at an annual rate equal (at Alaska
      Communications Systems Holdings' option) to: (1) an adjusted LIBOR plus
      2.75% or (2) a rate equal to 1.75% plus the greater of the administrative
      agent's prime rate, a certificate of deposit rate plus 1.00% and the
      federal funds effective rate plus 0.50%, in each case subject to reduction
      based on Alaska Communications Systems Holdings' financial performance.

Amounts under the senior credit facility not paid when due bear interest at a
default rate equal to 2.00% above the otherwise applicable rate.

                                       94
<PAGE>
    On July 24, 1999 we entered into a hedging transaction which fixed at 5.99%
the underlying variable rate on one-half of the borrowings under the senior
credit facility, or $217.5 million, for a three-year period.

    PREPAYMENTS.  The senior credit facility permits Alaska Communications
Systems Holdings to prepay loans and to permanently reduce revolving credit
commitments, in whole or in part, at any time. In addition, Alaska
Communications Systems Holdings is required to make mandatory prepayments of the
term loan facilities, subject to limited exceptions, in amounts equal to the
excess, if any, of:

    - 50% of excess cash flow for each fiscal year, as specified in the credit
      agreement, over

    - the aggregate principal amount of the term loan facilities prepaid during
      the fiscal year.

Alaska Communications Systems Holdings is also required to make mandatory
prepayments of term loan facilities, subject to limited exceptions, with the net
cash proceeds of dispositions of assets or issuances of debt of us or any of our
subsidiaries. Mandatory and optional prepayments will be allocated ratably among
the term loan A facility, the term loan B facility and the term loan C facility,
as applicable, and within each term loan facility, applied ratably to the
remaining amortization payments under that facility, except that the lenders
participating in the term loan B facility and the term loan C facility, as
applicable, have the right to refuse mandatory prepayments, in which case those
prepayments will be applied to the term loan A facility, or, if no portion of
the term loan A facility remains outstanding, Alaska Communications Systems
Holdings may retain the prepayments. Any prepayment of adjusted LIBOR loans
other than at the end of an interest period will be subject to reimbursement of
breakage costs as described in the credit agreement.

    FEES.  Alaska Communications Systems Holdings is required to pay the
lenders, on a quarterly basis, a commitment fee equal to 0.50% annually on the
undrawn portion of the unused commitments, subject to reductions based upon
Alaska Communications Systems Holdings' financial performance. Alaska
Communications Systems Holdings is also required to pay:

    - on a quarterly basis, a commission on the face amount of all outstanding
      letters of credit equal to the applicable margin then in effect for
      adjusted LIBOR loans under the revolving credit facility,

    - on a quarterly basis, a fronting fee in the amount of 0.25% annually on
      each letter of credit to the issuing bank,

    - standard fees of the issuing bank with respect to issuance, amendment,
      renewal or extension of any letters of credit and

    - fees payable to the administrative agent.

    COVENANTS, EVENTS OF DEFAULT.  The credit agreement contains customary
covenants that, among other things, restrict our ability, the ability of Alaska
Communications Systems Holdings and the ability of Alaska Communications Systems
Holdings' subsidiaries to dispose of assets, incur additional indebtedness,
incur guarantee obligations, prepay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, change Alaska Communications Systems
Holdings' business, make capital expenditures or engage in transactions with
affiliates. In addition, under the senior credit facility, Alaska Communications
Systems Holdings is required to comply with specified financial ratios,
including minimum interest coverage ratios and maximum leverage ratios.

    The credit agreement also contains provisions that prohibit any modification
of the indenture relating to the senior subordinated notes of Alaska
Communications Systems Holdings as well as

                                       95
<PAGE>
customary representations and warranties, affirmative covenants and events of
default, including cross default, material judgments and change in control.

    In connection with the offering, we are seeking to amend the credit
agreement related to the senior credit facility. The amendment will:

    - modify the provisions related to the prepayment of indebtedness to permit
      the repayment of our senior discount debentures,

    - modify the provisions related to capital expenditures to increase the
      amount of capital expenditures we are permitted to make in each year and

    - increase our flexibility with respect to the use of funds to finance
      acquisitions.

THE ALASKA COMMUNICATIONS SYSTEMS HOLDINGS SENIOR SUBORDINATED NOTES

    On May 14, 1999, Alaska Communications Systems Holdings issued $150.0
million in aggregate principal amount of senior subordinated notes due 2009 in a
private transaction not subject to the registration requirements of the
Securities Act. Cash interest is payable on the outstanding principal amount of
the senior subordinated notes at the annual rate of 9 3/8% payable semiannually
on May 15th and November 15th of each year, commencing November 15, 1999,
subject to restrictions on dividends to Alaska Communications Systems Holdings
contained in the senior credit facility.

    The senior subordinated notes rank junior in right of payment to all current
and future senior indebtedness of Alaska Communications Systems Holdings, rank
equally in right of payment to all current and future senior subordinated
indebtedness of Alaska Communications Systems Holdings and rank senior in right
of payment to all current and future subordinated indebtedness of Alaska
Communications Systems Holdings. As obligations of a holding company, the senior
subordinated notes are effectively subordinated to all obligations of the
subsidiaries of Alaska Communications Systems Holdings.

    The senior subordinated notes are not redeemable until May 15, 2004.
Thereafter, the senior subordinated notes will be redeemable at the option of
Alaska Communications Systems Holdings with a premium that declines each year
until 2007, when the senior subordinated notes will be redeemable in whole or in
part at 100% of their principal amount plus accrued and unpaid interest. Upon a
change of control as described in the indenture governing the senior
subordinated notes, each holder will be able to require Alaska Communications
Systems Holdings to offer to redeem the holder's senior subordinated notes at a
price equal to 101% of principal amount, subject to restrictions contained in
the senior credit facility. If Alaska Communications Systems Holdings
consummates one or more offerings of Alaska Communications Systems Holdings
capital stock on or before May 15, 2002, Alaska Communications Systems Holdings,
at its option, will be able to use all or a portion of the sale proceeds to
redeem up to 35% of the aggregate principal amount of the senior subordinated
notes originally issued, at a price equal to their principal amount plus a
premium equal to one year's interest at the stated interest rate.

    The indenture relating to the senior subordinated notes contains various
restrictive covenants that, among other things, limit:

    - the incurrence of indebtedness by Alaska Communications Systems Holdings
      and its subsidiaries,

    - the payment of restricted payments, as described in the indenture relating
      to the senior subordinated notes,

    - the payment of dividends on stock and purchases of stock,

                                       96
<PAGE>
    - the sale of assets or stock of Alaska Communications Systems Holdings'
      subsidiaries,

    - transactions with affiliates,

    - mergers, consolidations and sales of assets and

    - the business activities in which Alaska Communications Systems Holdings
      and its subsidiaries may engage.

The indenture also limits the extent to which Alaska Communications Systems
Holdings may permit restrictions on the ability of its subsidiaries to pay
dividends and make other distributions. Each of these limitations, however, is
subject to qualifications set forth fully in the indenture governing the senior
subordinated notes, which has been filed as an exhibit to the registration
statement of which this prospectus is a part.

    The indenture relating to the senior subordinated notes also contains events
of default customary for obligations of this type, including:

    - a default in the payment of interest on the senior subordinated notes when
      due and payable,

    - the acceleration of debt of Alaska Communications Systems Holdings or any
      of its subsidiaries in an amount in excess of $5.0 million and

    - the rendering of any judgment for the payment of money in excess of $5.0
      million against Alaska Communications Systems Holdings

subject, in each case, to applicable grace periods.

    Payment of all amounts outstanding under the senior subordinated notes could
be accelerated in the event of a default under the indenture governing the
senior subordinated notes.

THE ALEC HOLDINGS DISCOUNT DEBENTURES

    On May 14, 1999, we issued $46.9 million in aggregate principal amount of
senior discount debentures due 2011 and 828,261 warrants, for gross proceeds of
$25.0 million, in a private transaction not subject to the registration
requirements of the Securities Act. No cash interest is payable on the discount
debentures for five years following issuance, but deferred interest accrues at
the annual rate of 13%. On and after May 15, 2004, cash interest will be payable
on the outstanding principal amount of the discount debentures, including
accrued deferred interest, at the annual rate of 13% payable semiannually on May
15th and November 15th of each year, subject to restrictions on dividends to us
contained in the senior credit facility and the indenture relating to the senior
subordinated notes.

    The discount debentures rank equally in right of payment to all of our
current and future senior indebtedness and rank senior in right of payment to
all of our current and future subordinated indebtedness. As obligations of a
holding company, the discount debentures are effectively subordinated to all
obligations of our subsidiaries, including Alaska Communications Systems
Holdings' obligations under the senior subordinated notes and borrowings under
the senior credit facility.

    The discount debentures are not redeemable until May 15, 2004. Thereafter,
the discount debentures will be redeemable at our option with a premium that
declines each year until 2009, when the discount debentures will be redeemable
in whole or in part at 100% of their principal amount plus accrued and unpaid
interest. Upon a change of control as described in the indenture governing the
discount debentures, each holder will be able to require us to offer to redeem
the holder's discount debentures at a price equal to 101% of accreted value or,
if after May 15, 2004, of the principal amount thereof plus accrued and unpaid
interest thereon, subject to restrictions

                                       97
<PAGE>
contained in the senior credit facility and the indenture relating to the senior
subordinated notes. If we consummate one or more offerings of our common stock
on or before May 15, 2002, we, at our option, will be able to use all or a
portion of the sale proceeds to redeem up to 35% of the aggregate principal
amount of the discount debentures originally issued, at a price equal to their
accreted value plus a premium equal to one year's interest at the stated
interest rate. As more fully described under "Use of Proceeds", we intend to use
$10.5 of the net proceeds from the offerings to repay $9.3 million in aggregate
accreted value of the senior discount debentures, plus a redemption premium of
$1.2 million.

    The indenture relating to the discount debentures contains various
restrictive covenants that, among other things, limit:

    - the incurrence of indebtedness by us and our subsidiaries,

    - the payment of restricted payments, as described in the indenture relating
      to the discount debentures,

    - the payment of dividends on stock and purchases of stock,

    - the sale of assets or stock of our subsidiaries,

    - transactions with affiliates,

    - mergers, consolidations and sales of assets and

    - the business activities in which we and our subsidiaries may engage.

Each of these limitations, however, is subject to qualifications set forth fully
in the indenture governing the senior discount debentures, which has been filed
as an exhibit to the registration statement of which this prospectus is a part.

    The indenture relating to the discount debentures also contains events of
default customary for obligations of this type, including:

    - a default in the payment of interest on the discount debentures when due
      and payable,

    - the acceleration of our or the debt of any of our subsidiaries in an
      amount in excess of $5.0 million and

    - the rendering of any judgment for the payment of money in excess of $5.0
      million against us,

subject, in each case, to applicable grace periods.

Payment of all amounts outstanding under the discount debentures could be
accelerated in the event of a default under the indenture governing the discount
debentures.

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<PAGE>
                          DESCRIPTION OF CAPITAL STOCK

    THE FOLLOWING SUMMARY DESCRIBES THE MATERIAL TERMS OF OUR CAPITAL STOCK.
HOWEVER, YOU SHOULD REFER TO THE ACTUAL TERMS OF THE CAPITAL STOCK CONTAINED IN
OUR CERTIFICATE OF INCORPORATION AND IN OTHER AGREEMENTS REFERENCED BELOW.

    Our authorized capital stock consists of 40 million shares of common stock,
par value $0.01 per share, and currently no shares of preferred stock. As of
             , 1999, we had              shares of common stock outstanding.
After this offering, there will be              shares of common stock
outstanding.

COMMON STOCK

    Subject to the rights of the holders of any preferred stock that may be
outstanding, each holder of common stock on the applicable record date is
entitled to receive dividends as may be declared by our board of directors out
of funds legally available to pay dividends, and, in the event of liquidation,
to share ratably in any distribution of our assets after payment or providing
for the payment of liabilities and the liquidation preference of any outstanding
preferred stock. Common stock will vote together as a single class on all
matters presented to a vote of stockholders, including the election of
directors. Each holder of common stock is entitled to one vote for each share
held of record on the applicable record date for all of these matters. Holders
of common stock have no cumulative voting rights or preemptive rights to
purchase or subscribe for any stock or other securities, and there are no
conversion rights or redemption or sinking fund provisions with respect to
common stock. All outstanding shares of common stock are, and the shares of
common stock sold in the offerings will be when issued, fully paid and
nonassessable.

PREFERRED STOCK

    We intend to amend our charter to authorize              shares of preferred
stock and give our board of directors the authority to issue shares of preferred
stock in one or more series and to fix, by resolution, the voting powers, and
designations, preferences and relative, participating, optional or other rights,
if any, and the qualifications, limitations or restrictions thereof, if any,
including the number of shares in each series (which our board of directors may
increase or decrease as permitted by Delaware law), liquidation preferences,
dividend rates, conversion rights and redemption provisions of the shares
constituting any series, without any further vote or action by the stockholders.
Any shares of preferred stock so issued would have priority over the common
stock with respect to dividend or liquidation rights or both. Although our board
of directors has no present plans to issue any of the terms of such series,
impede the completion of a merger, tender offer or other takeover attempt.

DELAWARE GENERAL CORPORATION LAW

    Section 203 of the Delaware General Corporation Law generally prevents
Delaware corporations from engaging under certain circumstances in a business
combination with any interested stockholder for three years following the date
that the stockholder became an interested stockholder. We intend to opt out of
the provisions of Section 203.

ACTION BY WRITTEN CONSENT

    Under the Delaware General Corporation Law, unless the certificate of
incorporation expressly prohibits action by the written consent for
stockholders, any action required or permitted to be taken by our stockholders
at a duly called annual or special meeting of stockholders may be taken by a
consent in writing executed by stockholders possessing the requisite votes for
the action to be taken. Our certificate of incorporation does not expressly
prohibit action by the written consent of

                                       99
<PAGE>
stockholders. As a result, Fox Paine & Company, as holder of       % of our
total voting power after this offering, will be able to take any action to be
taken by stockholders without the necessity of holding a stockholder meeting. We
intend, however, to hold annual meetings of stockholders.

TRANSFER AGENT AND REGISTRAR

    The transfer agent and registrar for the common stock is              .

LISTING

    Application will be made for quotation of our common stock on the Nasdaq
National Market under the symbol "ALSK".

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<PAGE>
                        SHARES ELIGIBLE FOR FUTURE SALE

    Prior to the offering, there has been no public market for our common stock.
Future sales of substantial amounts of common stock in the public market, or the
perception that substantial sales may occur, could adversely affect the
prevailing market price of the common stock. After completion of the offering,
there will be              shares of common stock outstanding. Of these shares,
the       shares of common stock sold in the offering, or             shares if
the underwriter's options to purchase additional shares are exercised in full,
will be freely transferable without restriction under the Securities Act, except
by persons who may be deemed to be our affiliates. All the remaining shares of
common stock may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, including an exemption
contained in Rule 144 under the Securities Act.

    In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, including an affiliate, who beneficially owns
"restricted securities" may not sell those securities until they have been
beneficially owned for at least one year. Thereafter, the person would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:

    (1) 1% of the then outstanding shares of common stock, or approximately
                    shares after the offering; and

    (2) the average weekly trading volume of the common stock on the Nasdaq
       National Market during the four calendar weeks preceding the date on
       which notice of the sale is filed with the SEC.

Sales under Rule 144 are subject to certain restrictions relating to manner of
sale, notice and the availability of current public information about us and may
be effected only through unsolicited brokers' transactions.

    A person who is not deemed an "affiliate" of us at any time during the 90
days preceding a sale would (but for the Stockholders' Agreement described above
and the "lock-up" arrangements described below) be entitled to sell his, her or
its restricted shares under Rule 144 without regard to the volume or other
limitations described above, once two years have elapsed since the restricted
shares were acquired from us or one of our affiliates.

    We, our directors, executive officers and our principal stockholders have
agreed with the underwriters that, during the period beginning from the date of
this prospectus and continuing to and including the date 180 days after the date
of this prospectus, we will not offer, sell, contract to sell or otherwise
dispose of any shares of common stock or any securities of ALEC Holdings which
are substantially similar to the shares of the common stock or which are
convertible into or exchangeable for securities which are substantially similar
to the shares of common stock (other than, in our case, pursuant to our existing
employee compensation plans) without the prior written consent of Goldman, Sachs
& Co., except for the shares of common stock offered in connection with the
offerings. The lock-up agreements by these persons (other than ALEC Holdings)
cover an aggregate of approximately       shares.

    No prediction can be made as to the effect, if any, that market sales of
restricted shares or the availability of restricted shares for sale will have on
the market price of our common stock prevailing from time to time. Nevertheless,
sales of substantial amounts of common stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for our common
stock and could impair our future ability to raise capital through an offering
of our equity securities, as described under "Risk Factors--Our share price may
decline due to the large number of shares eligible for future sale".

                                      101
<PAGE>
    As of September 30, 1999, there were outstanding stock options to purchase
an aggregate of 3,350,497 shares of common stock, none of which are presently
exercisable or exercisable within 60 days, except for 466,000 stock options
granted to our employees which will vest immediately upon completion of the
offering. These employees have agreed not to dispose of more than 20% of the
shares they may receive upon exercise of these options before each anniversary
following September 28, 1999, the date of grant of the options (plus any shares
permitted to be disposed of, but not disposed of, in any previous year). All
outstanding stock options are held by our directors, executive officers and
employees.

                                      102
<PAGE>
                   U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS

    The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a non-U.S. holder. As used in this prospectus, the term "non-U.S. holder" is
a person other than:

    - a citizen or individual resident of the U.S. for U.S. federal income tax
      purposes,

    - a corporation or other entity taxable as a corporation created or
      organized in or under the laws of the United States or of any political
      subdivision of the U.S.,

    - an estate whose income is includible in gross income for U.S. federal
      income tax purposes regardless of its source or

    - a trust, in general, if it is subject to the primary supervision of a
      court within the U.S. and the control of one or more U.S. persons.

    This discussion does not consider:

    - U.S. state and local or non-U.S. tax consequences,

    - specific facts and circumstances that may be relevant to a particular
      non-U.S. holder's tax position, including, if the non-U.S. holder is a
      partnership, that the U.S. tax consequences of holding and disposing of
      our common stock may be affected by certain determinations made at the
      partner level,

    - the tax consequences for the shareholders or beneficiaries of a non-U.S.
      holder,

    - special tax rules that may apply to certain non-U.S. holders, including
      without limitation, banks, insurance companies, dealers in securities and
      traders in securities who elect to apply a mark-to-market method of
      accounting or

    - special tax rules that may apply to a non-U.S. holder that holds our
      common stock as part of a "straddle," "hedge" or "conversion transaction".

    The following is based on provisions of the U.S. Internal Revenue Code of
1986, as amended, applicable Treasury regulations, and administrative and
judicial interpretations, all as of the date of this prospectus, and all of
which may change, retroactively or prospectively. The following summary is for
general information. ACCORDINGLY, EACH NON-U.S. HOLDER SHOULD CONSULT A TAX
ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF OUR COMMON
STOCK.

DIVIDENDS

    In the event that dividends are paid on shares of common stock, dividends
paid to a non-U.S. holder of common stock generally will be subject to
withholding of U.S. federal income tax at a 30% rate, or such lower rate as may
be provided by an applicable income tax treaty. Non-U.S. holders should consult
their tax advisors regarding their entitlement to benefits under a relevant
income tax treaty.

    Dividends that are effectively connected with a non-U.S. holder's conduct of
a trade or business in the U.S. or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an individual, a
"fixed base", in the U.S., as provided in that treaty ("U.S. trade or business
income"), are generally subject to U.S. federal income tax on a net income basis
at regular graduated rates, but are not generally subject to the 30% withholding
tax if the non-U.S. holder files the appropriate U.S. Internal Revenue Service
form with the payor. Any U.S. trade or business income received by a non-U.S.
holder that is a corporation may also, under certain

                                      103
<PAGE>
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as specified by an applicable income tax treaty.

    Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. For dividends paid after
2000:

    - a non-U.S. holder of common stock who claims the benefit of an applicable
      income tax treaty rate generally will be required to satisfy applicable
      certification and other requirements;

    - in the case of common stock held by a foreign partnership, the
      certification requirement will generally be applied to the partners of the
      partnership and the partnership will be required to provide certain
      information, including a U.S. taxpayer identification number and

    - look-through rules will apply for tiered partnerships.

    A non-U.S. holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for a refund with the
IRS.

GAIN ON DISPOSITION OF COMMON STOCK

    A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:

    - the gain is U.S. trade or business income, in which case, the branch
      profits tax described above may also apply to a corporate non-U.S. holder,

    - the non-U.S. holder is an individual who holds the common stock as a
      capital asset within the meaning of Section 1221 of the Internal Revenue
      Code, is present in the U.S. for more than 182 days in the taxable year of
      the disposition and meets certain other requirements,

    - the non-U.S. holder is subject to tax pursuant to the provisions of the
      U.S. tax law applicable to certain U.S. expatriates or

    - we are or have been a "U.S. real property holding corporation" for federal
      income tax purposes at any time during the shorter of the five-year period
      ending on the date of disposition or the period that the non-U.S. holder
      held our common stock.

    Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
plus its other assets used or held for use in a trade or business. We believe
that ALEC Holdings has not been and is not currently, and we do not anticipate
it becoming, a "U.S. real property holding corporation" for U.S. federal income
tax purposes. The tax relating to stock in a "U.S. real property holding
corporation" will not apply to a non-U.S. holder whose holdings, direct and
indirect, at all times during the applicable period, constituted 5% or less of
the common stock, provided that the common stock was regularly traded on an
established securities market.

FEDERAL ESTATE TAX

    Common stock owned or treated as owned by an individual who is a non-U.S.
holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.

                                      104
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

    Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, non-U.S. holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends paid prior to 2001 to an address outside the
U.S. For dividends paid after 2000, however, a non-U.S. holder of common stock
that fails to certify its non-U.S. holder status in accordance with applicable
U.S. Treasury Regulations may be subject to backup withholding at a rate of 31%
on payments of dividends.

    The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker or through a non-U.S. branch of a U.S.
broker generally will be subject to information reporting and backup withholding
at a rate of 31% unless the holder either certifies its status as a non-U.S.
holder under penalties of perjury or otherwise establishes an exemption. The
payment of the proceeds of the disposition by a non-U.S. holder of common stock
to or through a non-U.S. office of a non-U.S. broker will not be subject to
backup withholding or information reporting unless the non-U.S. broker is a
"U.S. related person". In the case of the payment of proceeds from the
disposition of common stock by or through a non-U.S. office of a broker that is
a U.S. person or a "U.S. related person", information reporting, but currently
not backup withholding, on the payment applies unless the broker receives a
statement from the owner, signed under penalty of perjury, certifying its
non-U.S. status or the broker has documentary evidence in its files that the
holder is a non-U.S. holder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S. related person" is:

    - a "controlled foreign corporation" for U.S. federal income tax purposes,

    - a foreign person 50% or more of whose gross income for certain periods is
      derived from the conduct of a U.S. trade or business or

    - effective after 2000, a foreign partnership if, at any time during its
      taxable year, (A) at least 50% of the capital or profits interest in the
      partnership is owned by U.S. persons, or (B) the partnership is engaged in
      a U.S. trade or business.

    Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a non-U.S. office of a broker that is a U.S.
person or a "U.S. related person" unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge or reason to know that the holder is a U.S. person. Non-U.S. holders
should consult their own tax advisors regarding the application of the
information reporting and backup withholding rules to them, including changes to
these rules that will become effective after 2000.

    Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.

                               VALIDITY OF SHARES

    The validity of the shares of common stock will be passed upon for us by
Wachtell, Lipton, Rosen & Katz, New York, New York and for the underwriters by
Cravath, Swaine & Moore, New York, New York.

                                    EXPERTS

    Our balance sheet as of March 31, 1999 included in this prospectus has been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report herein and are included in

                                      105
<PAGE>
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.

    The consolidated financial statements of Alaska Communications Systems
Holdings, Inc. as of December 31, 1998 and for the period from July 16, 1998,
its date of inception through December 31, 1998 included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report herein and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

    The combined financial statements of CenturyTel Alaska Properties, also
known as Century's Alaska properties, as of December 31, 1998 and for the year
then ended have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

    The combined financial statements of CenturyTel Alaska Properties, also
known as Century's Alaska properties, as of December 31, 1997 and for the year
ended December 31, 1996, eleven months ended November 30, 1997, and one month
ended December 31, 1997 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report herein
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

    The combined financial statements of Telephone Fund of Fairbanks Municipal
Utilities Services as of October 6, 1997 and for the year ended December 31,
1996 and the period ended October 6, 1997 included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report herein and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

    The financial statements of the Municipality of Anchorage Telephone Utility
Fund as of December 31, 1998, and for each of the years in the three-year period
ended December 31, 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

                                      106
<PAGE>
                             ADDITIONAL INFORMATION

    We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered in this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules to that registration statement. For
further information with respect to us and the common stock, we refer you to
this registration statement and its exhibits and schedules. Statements contained
in this prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
that contract or document filed as an exhibit to the registration statement,
each of these statements being qualified in all respects by that reference. The
registration statement, including exhibits thereto, may be inspected and copied
at the public reference facilities maintained by the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's Regional
Offices located at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and Seven World Trade Center, 13(th) Floor, New York, New York 10048. Copies of
these materials may be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC also
maintains a world wide web site (HTTP://WWW.SEC.GOV) that contains reports,
proxy and information statements and other information regarding registrants
such as us which file electronically with the SEC. The registration statement,
including all exhibits thereto and amendments thereof, is available on that
website.

    We recently filed a registration statement on Form S-4 with the SEC in
connection with the registration under the Securities Act of 1933 of our senior
discount debentures. Upon effectiveness of that registration statement we became
subject to the informational requirements of the Exchange Act and will file
annual, quarterly and current reports, proxy and information statements and
other information with the SEC. You may inspect and copy these reports, proxy
and information statements and other information at the addresses set forth
above.

    We intend to furnish to our stockholders our annual reports containing
consolidated financial statements audited by our independent auditors and
quarterly reports containing unaudited consolidated financial statements for
each of the first three quarters of each fiscal year.

                                      107
<PAGE>
                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                    <C>
ALEC Holdings, Inc.
  Independent Auditors' Report.......................................................        F-2
  Balance Sheet--March 31, 1999......................................................        F-3
  Notes to Balance Sheet--March 31, 1999.............................................        F-4
  Consolidated Balance Sheet--June 30, 1999 (Unaudited)..............................        F-5
  Consolidated Statement of Operations--Six Months Ended June 30, 1999 (Unaudited)...        F-6
  Consolidated Statement of Stockholders' Equity--Six Months Ended June 30, 1999
    (Unaudited)......................................................................        F-7
  Consolidated Statement of Cash Flows--Six Months Ended June 30, 1999 (Unaudited)...        F-8
  Notes to Consolidated Financial Statements--Six Months Ended June 30, 1999
    (Unaudited)......................................................................        F-9
Alaska Communications Systems Holdings, Inc.
  Independent Auditors' Report.......................................................       F-15
  Consolidated Balance Sheets--December 31, 1998 and March 31, 1999 (Unaudited)......       F-16
  Consolidated Statements of Cash Flows--Period from July 16, 1998 (Date of
    Inception) through December 31, 1998 and Three Months Ended March 31, 1999
    (Unaudited)......................................................................       F-17
  Notes to Consolidated Financial Statements--Period from July 16, 1998 (Date of
    Inception) through December 31, 1998 (Notes for the Three Months Ended March 31,
    1999 Are Unaudited)..............................................................       F-18
CenturyTel Alaska Properties
  Independent Auditors' Reports......................................................       F-21
  Combined Balance Sheets--December 31, 1997, December 31, 1998 and March 31, 1999...       F-23
  Combined Statements of Income and Retained Earnings--Year Ended December 31, 1996,
    Eleven Months Ended November 30, 1997, One Month Ended December 31, 1997, Year
    Ended December 31, 1998 and Three Months Ended March 31, 1998 and 1999
    (Unaudited)......................................................................       F-24
  Combined Statements of Cash Flows--Year Ended December 31, 1996, Eleven Months
    Ended November 30, 1997, One Month Ended December 31, 1997, Year Ended December
    31, 1998 and Three Months Ended March 31, 1998 and 1999 (Unaudited)..............       F-25
  Notes to Combined Financial Statements--Year Ended December 31, 1996, Eleven Months
    Ended November 30, 1997, One Month Ended December 31, 1997, Year Ended December
    31, 1998 and Three Months Ended March 31, 1998 and 1999 (Unaudited)..............       F-26
Telephone Fund of Fairbanks Municipal Utilities Services
  Independent Auditors' Report.......................................................       F-39
  Combined Balance Sheet--October 6, 1997............................................       F-40
  Combined Statements of Income and Fund Equity--Year Ended December 31, 1996 and
    Period Ended October 6, 1997.....................................................       F-41
  Combined Statements of Cash Flows--Year Ended December 31, 1996 and Period Ended
    October 6, 1997..................................................................       F-42
  Notes to Combined Financial Statements--Year Ended December 31, 1996 and Period
    Ended October 6, 1997............................................................       F-43
Municipality of Anchorage Telephone Utility Fund
  Independent Auditors' Report.......................................................       F-46
  Balance Sheets--December 31, 1997, December 31, 1998 and March 31, 1999............       F-47
  Statements of Revenues, Expenses, and Changes in Retained Earnings--Years Ended
    December 31, 1996, 1997 and 1998 and Three Months Ended March 31, 1998 and March
    31, 1999 (Unaudited).............................................................       F-48
  Statements of Cash Flows--Years Ended December 31, 1996, 1997 and 1998 and Three
    Months Ended March 31, 1998 and March 31, 1999 (Unaudited).......................       F-49
  Notes to Financial Statements--Years Ended December 31, 1996, 1997 and 1998 and
    Three Months Ended March 31, 1998 and 1999 (Unaudited)...........................       F-56
</TABLE>

                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

Board of Directors
ALEC Holdings, Inc.
Anchorage, Alaska

    We have audited the balance sheet of ALEC Holdings, Inc. (the "Company") as
of March 31, 1999. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

    We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

    In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of ALEC Holdings, Inc. as of
March 31, 1999, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Portland, Oregon
June 28, 1999

                                      F-2
<PAGE>
                              ALEC HOLDINGS, INC.

                                 BALANCE SHEET

                                 MARCH 31, 1999

<TABLE>
<S>                                                                                  <C>
                                            ASSETS

CURRENT ASSETS:
  Cash.............................................................................  $       1
                                                                                     ---------
                                                                                     ---------

                             LIABILITIES AND STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value; authorized, 1,000 shares; outstanding, 100
    shares.........................................................................  $       1
                                                                                     ---------
                                                                                     ---------
</TABLE>

                          See notes to Balance Sheet.

                                      F-3
<PAGE>
                              ALEC HOLDINGS, INC.

                             NOTES TO BALANCE SHEET

                                 MARCH 31, 1999

1.  THE COMPANY

    ALEC Holdings, Inc. (the "Company") was incorporated in the State of
Delaware in October 1998 to operate as a holding company to purchase
telecommunications properties.

2.  SUBSEQUENT ACQUISITIONS

    At March 31, 1999, Alaska Communications Systems Holdings, Inc. ("ACS"),
which became a wholly owned subsidiary of the Company in May 1999, had announced
two purchase agreements that would allow ACS to enter the telecommunications
industry. The first agreement involved the acquisition of Century Tel's Alaska
holdings including Telephone Utilities of Alaska, Inc., Telephone Utilities of
the Northland, Inc., PTI Communications of Alaska, Inc., Pacific Telecom of
Alaska PCS, Inc. and Pacific Telecom Cellular of Alaska, Inc. The second
agreement was with the Municipality of Anchorage to acquire all of its
telecommunication investments.

    On May 14, 1999, ACS Company purchased all the outstanding shares of PTI
Alaska from CenturyTel of the Northwest, Inc. and CenturyTel Wireless, Inc.,
which are wholly owned subsidiaries of Century. PTI Alaska is the incumbent
provider of local telephone services to over 131,000 access lines in Juneau,
Fairbanks and more than 70 rural communities in Alaska. PTI Alaska also provides
cellular services to approximately 3,000 subscribers and Internet services to
approximately 16,000 customers. The aggregate cash purchase paid by the Company
was approximately $411.8 million.

    On May 14, 1999, ACS also purchased certain of the assets and certain of the
liabilities of the Anchorage Telephone Utility ("ATU") from the Municipality of
Anchorage. ATU is the largest local exchange carrier in Alaska providing local
services to over 168,000 access lines, primarily in Anchorage. ATU also provides
cellular service to over 63,000 subscribers under the MACtel brand name and long
distance service on a resale basis to approximately 26,000 customers. The
aggregate cash purchase price paid by the Company was approximately $265.1
million.

    ACS recorded transaction fees and expenses of approximately $48 million from
these purchases. In addition, ACS will amortize approximately $267 of
acquisition goodwill over 40 years.

                                      F-4
<PAGE>
                              ALEC HOLDINGS, INC.

                           CONSOLIDATED BALANCE SHEET

                 (UNAUDITED, IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                        JUNE 30,
                                                                                                          1999
                                                                                                      ------------
<S>                                                                                                   <C>
ASSETS
Current assets:
  Cash and cash equivalents.........................................................................  $      4,019
  Accounts receivable--trade........................................................................        47,493
  Materials and supplies............................................................................         5,759
  Prepayments and other current.....................................................................         3,788
                                                                                                      ------------
    Total current assets............................................................................        61,059
Investments.........................................................................................         4,356
Property, plant and equipment:
  Telecommunications................................................................................       829,962
  Less: Accumulated depreciation....................................................................      (432,095)
                                                                                                      ------------
                                                                                                           397,867
  Construction work in progress.....................................................................        23,041
                                                                                                      ------------
    Net property, plant and equipment...............................................................       420,908
Intangible assets...................................................................................        25,115
Goodwill............................................................................................       243,980
Debt issuance cost..................................................................................        37,311
Deferred charges....................................................................................         3,238
Other assets........................................................................................           379
                                                                                                      ------------
    Total assets....................................................................................  $    796,346
                                                                                                      ------------
                                                                                                      ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.................................................................  $      4,248
  Notes payable.....................................................................................         8,700
  Accounts payable--trade...........................................................................        16,134
  Accounts payable--affiliates......................................................................            75
  Income taxes payable..............................................................................          (278)
  Advance billings and customer deposits............................................................         6,242
  Accrued and other current liabilities.............................................................        19,944
                                                                                                      ------------
    Total current liabilities.......................................................................        55,065
Long-term debt, net of current portion..............................................................       609,765
Deferred income taxes...............................................................................             2
Unamortized investment tax credits..................................................................           694
Other deferred credits and long-term liabilities....................................................         8,601
Stockholders' equity:
  Common stock, $.01 par value; 40,000,000 shares authorized,
    20,082,871 shares issued........................................................................           201
  Paid in capital in excess of par value............................................................       128,482
  Notes receivable from officers....................................................................          (718)
  Retained earnings (deficit).......................................................................        (5,746)
                                                                                                      ------------
    Total stockholders' equity......................................................................       122,219
                                                                                                      ------------
  Total liabilities and stockholders' equity........................................................  $    796,346
                                                                                                      ------------
                                                                                                      ------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-5
<PAGE>
                              ALEC HOLDINGS, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

               (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                 SIX MONTHS ENDED
                                                                                                  JUNE 30, 1999
                                                                                                ------------------
<S>                                                                                             <C>
Operating revenues:
  Local telephone.............................................................................      $   32,375
  Cellular....................................................................................           4,568
  Long distance...............................................................................           1,387
                                                                                                      --------
    Total operating revenues..................................................................          38,330
Operating expenses: Cost of sales and operating expenses
  Local telephone.............................................................................          23,249
  Cellular....................................................................................           3,039
  Long Distance...............................................................................           1,575
  Depreciation and amortization...............................................................           8,093
                                                                                                      --------
    Total operating expenses..................................................................          35,956
Operating income..............................................................................           2,374
Other income and expense:
  Interest expense............................................................................          (7,852)
  Interest income.............................................................................             228
  Other.......................................................................................            (496)
                                                                                                      --------
    Total other income and expense............................................................          (8,120)
                                                                                                      --------
Income (loss) before income taxes.............................................................          (5,746)
Income taxes..................................................................................              --
                                                                                                      --------
Net loss......................................................................................      $   (5,746)
                                                                                                      --------
                                                                                                      --------
Net loss per share............................................................................      $     (.29)
                                                                                                      --------
                                                                                                      --------
Weighted averages shares outstanding..........................................................          20,083
                                                                                                      --------
                                                                                                      --------
</TABLE>

                See notes to consolidated financial statements.

                                      F-6
<PAGE>
                              ALEC HOLDINGS, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 (UNAUDITED, IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                PAID IN         NOTES
                                                               CAPITAL IN    RECEIVABLE                     TOTAL
                                                   COMMON     IN EXCESS OF      FROM        RETAINED    STOCKHOLDERS'
                                                    STOCK      PAR VALUE      OFFICERS      EARNINGS        EQUITY
                                                 -----------  ------------  -------------  -----------  --------------
<S>                                              <C>          <C>           <C>            <C>          <C>
Balance, December 31, 1998.....................   $      --    $       --     $      --     $      --    $         --
Issuance of 20,082,871 shares of common stock,
  $.01 par.....................................         201       123,393            --            --         123,594
Discount on warrants issued in conjunction with
  long-term debt...............................          --         5,089            --            --           5,089
Officers loans in conjunction with the issuance
  of stock.....................................          --            --          (718)           --            (718)
Net loss for the period December 31, 1998 to
  June 30, 1999................................          --            --            --        (5,746)         (5,746)
                                                      -----   ------------       ------    -----------  --------------
Balance, June 30, 1999.........................   $     201    $  128,482     $    (718)    $  (5,746)   $    122,219
                                                      -----   ------------       ------    -----------  --------------
                                                      -----   ------------       ------    -----------  --------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-7
<PAGE>
                              ALEC HOLDINGS, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                           (UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      SIX MONTHS
                                                                                                        ENDED
                                                                                                    JUNE 30, 1999
                                                                                                    --------------
<S>                                                                                                 <C>
Cash Flows from Operating Activities:
  Net loss........................................................................................   $     (5,746)
  Adjustments to reconcile net loss to net cash provided by operating activities:
    Depreciation and amortization.................................................................          8,093
    Amortization of debt issuance costs...........................................................            589
    Deferred income taxes.........................................................................             41
    Deferred credits..............................................................................           (154)
    Account receivable and other current assets...................................................          8,237
    Accounts payable and other current liabilities................................................          1,910
    Other.........................................................................................            (55)
                                                                                                    --------------
      Net cash provided by operating activities...................................................         12,915
                                                                                                    --------------

Cash Flows from Investing Activities:
  Construction (excluding interest capitalized on equity funds)...................................        (27,231)
  Cost of acquisitions, net of cash received......................................................       (690,207)
  Organizational costs............................................................................         (2,634)
                                                                                                    --------------
    Net cash used by investing....................................................................       (720,072)
                                                                                                    --------------

Cash Flows from Financing Activities:
  Net change in short-term notes payable..........................................................          8,700
  Proceeds from the issuance of long-term debt, net of discounts..................................        612,411
  Debt issuance costs.............................................................................        (37,900)
  Issuance of common stock/warrants...............................................................        127,965
                                                                                                    --------------
    Net cash provided by financing activities.....................................................        711,176
                                                                                                    --------------

Increase in cash..................................................................................          4,019
Cash at beginning of period.......................................................................             --
                                                                                                    --------------
Cash at end of period.............................................................................   $      4,019
                                                                                                    --------------
                                                                                                    --------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-8
<PAGE>
                              ALEC HOLDINGS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         SIX MONTHS ENDED JUNE 30, 1999

                           (UNAUDITED, IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The consolidated financial statements for ALEC Holdings, Inc. and
Subsidiaries (the Company) represent the operating results of the following four
legal entities (see Note 2, Acquisitions):

    ALEC Holdings, Inc.

    Alaska Communications Systems Holdings, Inc. (formerly ALEC Acquisition
Corporation)

    ALEC Acquisition Sub Corp., Inc. which acquired the stock of the PTI Alaska
companies at the closing of the acquisitions.

    Alaska Communications Systems, Inc. which acquired the stock of ATU Long
Distance, ATU Communications, Inc. and MACtel Inc. at the closing of the
acquisitions.

    The Company wholly owns Alaska Communications Systems Holdings, Inc. which
was organized in 1998 as the principal entity to acquire and manage
telecommunication operations in Alaska. The principal activities in 1998 were
the preparation of systems and obtaining financing for the recently completed
acquisitions.

    A summary of significant accounting policies followed by the Company is set
forth below:

    BASIS OF PRESENTATION

    The accompanying unaudited consolidated financial statements are for six
months ended June 30, 1999 and include the operations of Alaska Communications
Systems Holdings for the full six month period and the PTI Alaska companies, ATU
Long Distance, ATU Communications and MACtel since their acquisition on May 14,
1999. These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the full fiscal year or for any future period.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of commitments and contingencies at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

    REGULATION

    The local telephone exchange activities of the Company are subject to rate
regulation by the Federal Communications Commission (FCC) for interstate
telecommunication service, and the Regulatory Commission of Alaska (RCA) for
intrastate and local exchange telecommunication

                                      F-9
<PAGE>
                              ALEC HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         SIX MONTHS ENDED JUNE 30, 1999

                           (UNAUDITED, IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
service. The Company, as required by the FCC, accounts for such activity
separately. Long distance services are subject to rate regulation as a
non-dominant interexchange carrier by the FCC for interstate telecommunication
services and the RCA for intrastate telecommunication services. Cellular
operations are not subject to rate regulation.

    PROPERTY, PLANT AND EQUIPMENT

    TELEPHONE plant is stated substantially at original cost of construction.
Telephone plant retired in the ordinary course of business, together with cost
of removal, less salvage, is charged to accumulated depreciation with no gain or
loss recognized. Renewal and betterment of telephone plant are capitalized while
repairs, as well as renewals of minor items, are charged to operating expense.
The Company provides for depreciation of telephone plant on the straight-line
method, using rates approved by the regulatory authorities.

    NON-TELEPHONE plant is stated at cost and, when sold or retired, a gain or
loss is recognized. Depreciation of such property is provided on the
straight-line method over its estimated service live ranging from seven to 15
years.

    MINORITY INVESTMENTS

    Minority investments consist of investments in companies which are accounted
for using the equity method.

    CELLULAR LICENSES

    Cellular licenses are stated at net book value. Amortization is computed on
the straight-line method over an estimated useful life of 40 years.

    GOODWILL

    Goodwill is amortized on the straight-line method over 40 years.

    REVENUE RECOGNITION

    Recurring revenues are billed one month in advance and are deferred until
the month earned. Nonrecurring revenues are billed in arrears and are recognized
when earned.

    IMPAIRMENT OF LONG-LIVED ASSETS

    The Company has adopted FASB Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Under the provisions of this statement, the Company has evaluated its long-lived
assets for financial impairments and will continue to evaluate them if events or
changes in circumstance indicate the carrying amount of such assets may not be
fully recoverable.

                                      F-10
<PAGE>
                              ALEC HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         SIX MONTHS ENDED JUNE 30, 1999

                           (UNAUDITED, IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    EARNINGS PER SHARE

    Earnings per share is based on the weighted average number of shares of
common stock outstanding (basic earnings per share) and dilutive common
equivalent shares from stock options and warrants, using the treasury stock
method (dilutive earnings per share). Common stock equivalent shares were
antidilutive for the period ended June 30, 1999.

    COMPREHENSIVE INCOME (LOSS)

    The Company has adopted FASB Statement No. 130, COMPREHENSIVE INCOME. The
Company's comprehensive loss is equal to its net loss.

2. ACQUISITIONS

    On May 14, 1999, Alaska Communications Systems Holdings, a 100%-owned
subsidiary of the Company, acquired Century's Alaska holdings (PTI properties),
including Telephone Utilities of Alaska, Inc., Telephone Utilities of the
Northland, Inc., PTI Communications of Alaska, Inc., Pacific Telecom of Alaska
PCS, Inc., and Pacific Telecom Cellular of Alaska, Inc., excluding the assets,
liabilities and equity of Alaska RSA#1. On the same date, ACS also acquired from
the Municipality of Anchorage ATU Communications, Inc. and its subsidiaries,
MACtel and ATU Long Distance. These holdings include local area exchanges, long
distance service, Internet service and cellular operations throughout rural
Alaska and Anchorage.

    Both acquisitions were accounted for under the purchase method of
accounting. The financial statements reflect the allocation of the purchase
price and assumption of certain liabilities and include the operating results of
both ATU and PTI Alaska from the date of acquisition. In total, the Company paid
Century Telephone Enterprise $411,784 for the PTI properties and the
Municipality of Anchorage $265,115 for the assets acquired. Deferred acquisition
expenses totaling $14,079 were also allocated to the purchase price. The
purchase price information presented is subject to final settlement adjustments,
which management does not expect to be material.

    The following reflects the preliminary allocation of the purchase price and
the sources of funds to finance the purchase (in thousands).

<TABLE>
<CAPTION>
                                                             PTI
                                                         PROPERTIES       ATU         TOTAL
                                                         -----------  -----------  -----------
<S>                                                      <C>          <C>          <C>
Current assets.........................................  $    20,905  $    45,142  $    66,047
Property, plant & equipment............................      153,181      247,694      400,875
Other assets...........................................        9,765       20,750       30,515
Less liabilities assumed...............................      (12,701)     (38,518)     (51,219)
                                                         -----------  -----------  -----------
Net assets acquired....................................      171,150      275,068      446,218
Goodwill...............................................      244,593          167      244,760
                                                         -----------  -----------  -----------
Total cost of acquisition..............................      415,743      275,235      690,978
Acquisition expenses...................................       (3,959)     (10,120)     (14,079)
                                                         -----------  -----------  -----------
Total purchase price paid..............................  $   411,784  $   265,115  $   676,899
                                                         -----------  -----------  -----------
                                                         -----------  -----------  -----------
</TABLE>

                                      F-11
<PAGE>
                              ALEC HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         SIX MONTHS ENDED JUNE 30, 1999

                           (UNAUDITED, IN THOUSANDS)

2. ACQUISITIONS (CONTINUED)
    Net assets acquired were purchased for cash provided from the following
sources:

<TABLE>
<S>                                                                <C>
Revolving credit facility (of ACS)...............................  $   6,700
Term loan facilities (of ACS)....................................    435,000
9 3/8% Senior subordinated notes due 2009 (of ACS)...............    150,000
13% Senior discount debentures due 2011..........................     19,911
Issuance of common stock/warrants................................    126,289
                                                                   ---------
Total sources....................................................  $ 737,900
                                                                   ---------
                                                                   ---------
</TABLE>

    These sources also provided $12,600 of working capital and entailed $48,400
of transaction fees and expenses.

    The goodwill acquired will be amortized on a straight line basis over 40
years.

    The following are the pro forma results for the six month periods ended June
30, 1998 and 1999, giving effect to the acquisitions as if they had occurred at
the beginning of the periods:

<TABLE>
<CAPTION>
                                                                         1998         1999
                                                                      -----------  -----------
<S>                                                                   <C>          <C>
Revenues............................................................  $   134,038  $   145,236
Net loss............................................................       (8,835)     (11,639)
Net loss per share..................................................         (.44)        (.58)
Weighted average shares outstanding.................................       20,083       20,083
</TABLE>

3. LONG-TERM OBLIGATIONS

    Long-term obligations consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                    JUNE 30,
                                                                                      1999
                                                                                   -----------
<S>                                                                                <C>
Term Loan A Facility.............................................................  $   150,000
Term Loan B Facility.............................................................      150,000
Term Loan C Facility.............................................................      135,000
9 3/8% Senior subordinated notes due 2009........................................      150,000
13% Senior discount debentures due 2011..........................................       19,911
Note to Municipality of Fairbanks................................................        1,602
Capital Lease Obligations........................................................        7,500
                                                                                   -----------
                                                                                       614,013
Less current portion.............................................................       (4,248)
                                                                                   -----------
Total long-term obligations......................................................  $   609,765
                                                                                   -----------
                                                                                   -----------
</TABLE>

    The Company's senior discount debentures balance of $19,911 is the $25,000
book value minus original issue discount of $5,089. The Original Issue Discount
resulted from the issuance of detachable warrants in connection with the 13%
senior discount debentures. These detachable

                                      F-12
<PAGE>
                              ALEC HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         SIX MONTHS ENDED JUNE 30, 1999

                           (UNAUDITED, IN THOUSANDS)

3. LONG-TERM OBLIGATIONS (CONTINUED)
warrants are exercisable into 828,261 shares of common stock at any time from
May 14, 1999 through May 15, 2011 at $0.01 per share. The original issue
discount represents the difference between the exercise price and the fair value
of the underlying shares at the date of issue.

4. STOCK OPTIONS

    At June 30, 1999, the Company has authorized a total of 3,410,486 shares of
common stock for issuance under the 1999 Stock Incentive Plan. At June 30, 1999,
2,899,497 shares are reserved for issuance upon the exercise of outstanding
options. The options are exercisable at $6.1542 per share of common stock. No
options are currently vested.

5. BUSINESS SEGMENTS

    The Company has adopted FASB Statement No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. The Company has three reportable
segments: local telephone (consisting of local telephone service, directory
advertising, deregulated revenue and other revenues), cellular and long
distance. Each reportable segment is a strategic business under separate
management and offering different services than those offered by the other
segments. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.

    The Company also incurs interest expense, interest income, equity in
earnings of minority investments and other non operating income and expense at
the parent company which are not allocated to the business segments, nor are
they evaluated by the chief operating decision maker in analyzing the
performance of the business segments. These non operating income and expense
items are provided in the accompanying table under the caption "Other" in order
to assist the users of these financial statements in reconciling the operating
results and total assets of the business segments to the consolidated financial
statements.

                                      F-13
<PAGE>
                              ALEC HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         SIX MONTHS ENDED JUNE 30, 1999

                           (UNAUDITED, IN THOUSANDS)

5. BUSINESS SEGMENTS (CONTINUED)
    The following table illustrates selected financial data for each segment for
the consolidated period ended June 30, 1999 (in thousands):

<TABLE>
<CAPTION>
                                                         LOCAL                  LONG
                                                       TELEPHONE   CELLULAR   DISTANCE     OTHER       TOTAL
                                                      -----------  ---------  ---------  ---------  -----------
<S>                                                   <C>          <C>        <C>        <C>        <C>
Operating revenues..................................  $    32,375  $   4,568  $   1,387  $      --  $    38,330
Operating income (loss).............................        1,477      1,153       (256)                  2,374
Depreciation and amortization.......................        7,649        376         68                   8,093
Interest expense....................................          (72)        (1)        --     (7,779)      (7,852)
Interest income.....................................          145         16         --         67          228
Equity in earnings of minority investments..........           --                    --        163          163
Other non-operating.................................         (616)         1         --        (44)        (659)
Income taxes........................................        1,894        670         --     (2,564)          --
Net income (loss)...................................          934      1,169       (256)    (7,593)      (5,746)

Capital expenditures................................        4,583        326     19,502      2,820       27,231
Investments under the equity method.................           --         --         --      4,356        4,356
Total assets........................................      686,901     65,513     22,458     21,474      796,346
</TABLE>

6. INCOME TAXES

    There was no current provision for income taxes in the consolidated period
ended June 30, 1999. In general, the provision for income taxes may differ from
the federal statutory rate due to the effect of federal and state alternative
minimum taxes and net operating losses incurred for the period that are not
benefited. In the current period, operating losses were not benefited because
its is not certain that the Company will be able to use the losses going
forward.

                                      F-14
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Alaska Communications Systems Holdings, Inc.
Anchorage, Alaska

    We have audited the consolidated balance sheet of Alaska Communications
Systems Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 1998,
and the related consolidated statement of cash flows for the period from July
16, 1998 (date of inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

    We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Alaska
Communications Systems Holdings, Inc. and Subsidiaries as of December 31, 1998,
and their cash flows for the period from July 16, 1998 (date of inception)
through December 31, 1998 in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Portland, Oregon
March 24, 1999

                                      F-15
<PAGE>
                  ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,     MARCH 31,
                                                                                          1998           1999
                                                                                     --------------  -------------
<S>                                                                                  <C>             <C>
                                                                                                      (UNAUDITED)
ASSETS
CURRENT ASSETS:
  Cash.............................................................................   $    281,236   $     180,422
  Receivable from employees and related party (Note 2).............................         41,771          44,770
                                                                                     --------------  -------------
    Total current assets...........................................................        323,007         225,192
PROPERTY, PLANT, AND EQUIPMENT, Net (Notes 1 and 3)................................         36,536         565,482
DEFERRED ACQUISITION AND FINANCING COSTS (Note 1)..................................        248,637       1,709,089
DEPOSITS...........................................................................         11,820          15,720
                                                                                     --------------  -------------
                                                                                      $    620,000   $   2,515,483
                                                                                     --------------  -------------

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
  Accrued Liabilities..............................................................   $         --   $     495,483
  Advances payable to stockholder (Note 2).........................................        620,000       2,020,000
                                                                                     --------------  -------------
    Total current liabilities......................................................        620,000       2,515,483

COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)......................................             --              --

STOCKHOLDER'S EQUITY:
  Common stock, $.01 par value; authorized, 1,000 shares; outstanding, 1 share.....             --              --
                                                                                     --------------  -------------
                                                                                      $    620,000   $   2,515,483
                                                                                     --------------  -------------
                                                                                     --------------  -------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-16
<PAGE>
                  ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              PERIOD FROM JULY
                                                                                  16, 1998
                                                                             (DATE OF INCEPTION)   THREE MONTHS
                                                                              THROUGH DECEMBER    ENDED MARCH 31,
                                                                                  31, 1998             1999
                                                                             -------------------  ---------------
<S>                                                                          <C>                  <C>
                                                                                                    (UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for property, plant, and equipment..............................     $     (36,536)     $     528,946
  Deferred acquisition costs...............................................          (248,637)         1,460,452
  Deposits.................................................................           (11,820)             3,900
  Accounts receivable from employees and related party.....................           (41,771)             2,999
  Accrued liabilities......................................................                --            495,483
                                                                                   ----------     ---------------
    Net cash used in investing activities..................................          (338,764)         1,500,814
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from advances from stockholder..................................           620,000          1,400,000
                                                                                   ----------     ---------------
NET (DECREASE) INCREASE IN CASH............................................           281,236           (100,814)
CASH, BEGINNING OF PERIOD..................................................                --            281,236
                                                                                   ----------     ---------------
CASH, END OF PERIOD........................................................     $     281,236      $     180,422
                                                                                   ----------     ---------------
                                                                                   ----------     ---------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-17
<PAGE>
         ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    PERIOD FROM JULY 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
           AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The consolidated financial statements for Alaska Communications Systems
Holdings, Inc. and Subsidiaries (the "Company") represent the operating results
of the following three legal entities:

        Alaska Communications Systems Holdings, Inc. (formerly ALEC Acquisition
    Corporation)

        ALEC Acquisition Sub Corp., Inc.

        Alaska Communications Systems, Inc.

    The Company was organized in 1998 as the principal entity to acquire and
manage telecommunication operations in Alaska. The principal activities in 1998
and through March 31, 1999 were the preparation of systems and obtaining
financing for pending acquisitions (see Note 5). In May 1999, the Company was
acquired and became a wholly owned subsidiary of ALEC Holdings, Inc.

    A summary of significant accounting policies followed by the Company is set
forth below:

    USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of commitments and contingencies at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

    PROPERTY, PLANT, AND EQUIPMENT is stated at cost. At December 31, 1998, the
Company was in the early stages of opening its Corporate Headquarters in
Anchorage. No depreciation was claimed in 1998 since the assets in service were
acquired at year end.

    DEFERRED ACQUISITION AND FINANCING COSTS are stated at cost and are direct
costs incurred in connection with the Company's acquisitions and related
financings.

    REVENUES--No revenues or expenses have been generated since the Company was
not in operation as of December 31, 1998.

2. TRANSACTIONS WITH RELATED PARTIES

    Fox Paine Capital Fund, the majority stockholder of the Company's parent,
ALEC Holdings, Inc., has advanced cash to allow the Company to operate until
permanent funding is put in place at the closing of the acquisitions (see Note
5). Outstanding advances were $620,000 as of December 31, 1998. Fox Paine
Capital Fund will continue to fund the Company until permanent funding is
obtained at the closing of the acquisitions.

    The Company advanced cash to a related party to perform certain consulting
services in connection with the Company's pending acquisitions. Cash used is
capitalized as deferred acquisition costs. Any unused cash that was advanced to
this related party is to be repaid to the Company. As of December 31, 1998, the
total amount of unused cash was $41,771.

                                      F-18
<PAGE>
         ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    PERIOD FROM JULY 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
           AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)

3. PROPERTY, PLANT, AND EQUIPMENT

    The balances by category of property, plant, and equipment, at December 31,
1998 are:

<TABLE>
<S>                                                                 <C>
Office furniture, equipment, and other............................  $   3,049
Construction work in progress.....................................     33,487
                                                                    ---------
Total property, plant, and equipment..............................     36,536
Less: Accumulated depreciation....................................         --
                                                                    ---------
Property, plant, and equipment, net...............................  $  36,536
                                                                    ---------
                                                                    ---------
</TABLE>

4. LEASES

    The Company has entered into an operating lease for office space in
Anchorage, Alaska for its corporate headquarters. The lease is for 60 months
and, under this lease agreement, future minimum annual rental payments are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ---------------------------------------------------------------------------------
<S>                                                                                <C>
1999.............................................................................  $   278,772
2000.............................................................................      139,060
2001.............................................................................      141,841
2002.............................................................................      144,678
2003.............................................................................      147,571
                                                                                   -----------
    Total........................................................................  $   851,922
                                                                                   -----------
                                                                                   -----------
</TABLE>

5. COMMITMENTS AND CONTINGENCIES

    The Company has announced two purchase agreements that will allow the
Company to enter the telecommunications industry. The first agreement involves
the acquisition of CenturyTel's Alaska holdings including Telephone Utilities of
Alaska, Inc., Telephone Utilities of the Northland, Inc., PTI Communications of
Alaska, Inc., Pacific Telecom of Alaska PCS, Inc., and Pacific Telecom Cellular
of Alaska, Inc. and the second is with the Municipality of Anchorage to acquire
all of its telecommunication investments. Upon completion of these two
contracts, the Company will have in excess of 300,000 local telephone, 70,000
cellular, 20,000 long distance, and 16,000 Internet access lines. The combined
purchase price is approximately $700 million. The Company is being funded by a
$145 million equity contribution from its parent, ALEC Holdings, Inc., and the
remainder with bank financed debt.

    It is currently anticipated that by mid-1999 all regulatory approvals will
have been granted and the acquisitions will be completed. At that time, the
Company's primary business will be to provide traditional local telephone, long
distance, cellular, and Internet service throughout the state of Alaska. Until
the completion of the acquisitions, the Company is incurring costs to facilitate
certain transition and financing activities.

                                      F-19
<PAGE>
         ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    PERIOD FROM JULY 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
           AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)

6. BASIS OF PRESENTATION FOR UNAUDITED QUARTERLY INFORMATION

    The accompanying unaudited financial information at March 31, 1999 and for
the three months ended March 31, 1999 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the full
fiscal year or for any future period.

                                      F-20
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Century Telephone Enterprises, Inc.:

    We have audited the accompanying combined balance sheet of CenturyTel's
Alaska Properties as of December 31, 1998, and the related combined statement of
income and retained earnings, and cash flows for the year then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.

    We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

    In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of CenturyTel's Alaska
Properties as of December 31, 1998, and the results of their operations and
their cash flows for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.

KPMG LLP

Shreveport, Louisiana
February 26, 1999

                                      F-21
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Century Telephone Enterprises, Inc.
Monroe, Louisiana

    We have audited the combined balance sheet of CenturyTel Alaska Properties
as of December 31, 1997, and the related combined statements of income and
retained earnings and of cash flows for the year ended December 31, 1996, eleven
months ended November 30, 1997, and one month ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of CenturyTel Alaska
Properties as of December 31, 1997, and the results of their operations and
their cash flows for the year ended December 31, 1996, eleven months ended
November 30, 1997, and one month ended December 31, 1997, in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Portland, Oregon
March 25, 1999

                                      F-22
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

                            COMBINED BALANCE SHEETS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                                --------------------   MARCH 31,
                                                                                  1997       1998        1999
                                                                                ---------  ---------  -----------
<S>                                                                             <C>        <C>        <C>
                                                                                                      (UNAUDITED)
                                                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents...................................................  $     871  $   5,728   $  10,739
  Accounts receivable:
    Customers, less allowance for doubtful accounts of $376, $164 and $162 at
      December 31, 1997 and 1998, and March 31, 1999, respectively............      5,071  $   8,446   $   8,362
    Affiliates (Note 8).......................................................     20,404     31,922      38,361
    Connecting companies......................................................      4,146     10,984       6,596
    Receivable from sale of cellular license..................................      5,022         --          --
    Miscellaneous accounts receivable and other...............................      2,760      1,213       1,326
  Material and supplies (at cost).............................................      2,653      2,072       2,058
  Prepayments.................................................................      1,513        610         602
                                                                                ---------  ---------  -----------
      Total current assets....................................................     42,440     60,975      68,044
                                                                                ---------  ---------  -----------
PROPERTY, PLANT AND EQUIPMENT, Net (Note 4)...................................    158,590    161,710     157,866
                                                                                ---------  ---------  -----------
OTHER ASSETS:
  Excess cost of net assets acquired, less accumulated amortization of $5,056,
    $6,853 and 8,455 at December 31, 1997 and 1998, and March 31, 1999,
    respectively (Note 1).....................................................    248,948    242,632     241,030
  Investments, at cost........................................................        997        976         976
  Other, net..................................................................      8,200      6,367       5,753
                                                                                ---------  ---------  -----------
    Total other assets........................................................    258,145    249,975     247,759
                                                                                ---------  ---------  -----------
TOTAL ASSETS..................................................................  $ 459,175  $ 472,660   $ 473,669
                                                                                ---------  ---------  -----------
                                                                                ---------  ---------  -----------
                                      LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term debt (Note 5)...............................  $   1,316  $   1,427   $   1,451
  Accounts payable............................................................      3,275      5,322       2,589
  Accrued expenses and other accrued liabilities:
    Salaries and benefits.....................................................      2,434      1,949       2,321
    Taxes.....................................................................      1,123      1,008       1,937
    Other.....................................................................        684      1,849       1,841
  Advance billings and customer deposits (Note 1).............................      1,643      2,019       2,026
                                                                                ---------  ---------  -----------
    Total current liabilities.................................................     10,475     13,574      12,165
                                                                                ---------  ---------  -----------
LONG-TERM DEBT (Note 5).......................................................     41,634     41,981      41,643
                                                                                ---------  ---------  -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
  Deferred income taxes (Note 6)..............................................     11,297     13,523      13,914
  Deferred investment tax credits.............................................      1,421        909         780
  Other.......................................................................      3,034      1,711       1,282
                                                                                ---------  ---------  -----------
    Total deferred credits and other liabilities..............................     15,752     16,143      15,976
                                                                                ---------  ---------  -----------
SHAREHOLDER'S EQUITY:
  Common stock (103, 104 and 104 shares authorized and 23, 24, and 24 issued
    and outstanding, respectively)............................................         23         24          24
  Paid-in capital.............................................................    393,026    393,026     393,026
  Retained earnings...........................................................     (1,735)     7,912      10,835
                                                                                ---------  ---------  -----------
    Total shareholder's equity................................................    391,314    400,962     403,885
                                                                                ---------  ---------  -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY....................................  $ 459,175  $ 472,660   $ 473,669
                                                                                ---------  ---------  -----------
                                                                                ---------  ---------  -----------
</TABLE>

            See accompanying notes to combined financial statements.

                                      F-23
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

              COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                  ELEVEN MONTHS      ONE MONTH                     THREE MONTHS ENDED MARCH
                                  YEAR ENDED     ENDED NOVEMBER   ENDED DECEMBER     YEAR ENDED              31,
                                 DECEMBER 31,          30,              31,         DECEMBER 31,   ------------------------
                                     1996             1997             1997             1998          1998         1999
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
<S>                             <C>              <C>              <C>              <C>             <C>          <C>
                                                                                                   (UNAUDITED)  (UNAUDITED)
OPERATING REVENUES:
  Telephone...................     $  75,950        $  79,330        $  10,255       $  121,933     $  27,967    $  30,815
  Cellular....................         4,823            5,120              181            2,576           408          546
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
    Total operating
      revenues................        80,773           84,450           10,436          124,509        28,375       31,361

OPERATING EXPENSES:
  Cost of sales and operating
    expenses--telephone.......        41,789           42,404            6,434           72,008        16,451       17,270
  Cost of sales and operating
    expenses--cellular........         3,381            3,082              147            2,128           330          396
  Depreciation and
    amortization..............        15,348           15,823            2,466           30,459         7,209        7,785
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
    Total operating
      expenses................        60,518           61,309            9,047          104,595        23,990       25,451
                                ---------------  ---------------  ---------------  --------------  -----------  -----------

OPERATING INCOME..............        20,255           23,141            1,389           19,914         4,385        5,910

OTHER INCOME (EXPENSE):
  Interest expense............        (3,176)          (3,027)            (253)          (3,588)         (797)        (965)
  Interest income (Note 8)....         1,180              858               82            2,183           495          607
  Other income (expense),
    net.......................           (33)            (298)              53              356           357           80
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
    Total other income
      (expense)...............        (2,029)          (2,467)            (118)          (1,049)           55         (278)
                                ---------------  ---------------  ---------------  --------------  -----------  -----------

INCOME BEFORE INCOME TAX
  EXPENSE.....................        18,226           20,674            1,271           18,865         4,440        5,632
INCOME TAX EXPENSE (Note 6)...         6,737            7,746              736            9,218         2,214        2,709
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
NET INCOME....................        11,489           12,928              535            9,647         2,226        2,923
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
RETAINED EARNINGS AT BEGINNING
  OF PERIOD...................        63,216           61,079               --           (1,735)       (1,735)       7,912
Less dividends to
  shareholder.................        13,626            7,080            2,270               --            --           --
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
RETAINED EARNINGS AT END OF
  PERIOD......................     $  61,079        $  66,927        $  (1,735)      $    7,912     $     491    $  10,835
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
                                ---------------  ---------------  ---------------  --------------  -----------  -----------
</TABLE>

            See accompanying notes to combined financial statements.

                                      F-24
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

                       COMBINED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                  ELEVEN MONTHS     ONE MONTH                       THREE MONTHS ENDED MARCH
                                  YEAR ENDED          ENDED           ENDED         YEAR ENDED                31,
                                 DECEMBER 31,     NOVEMBER 30,     DECEMBER 31,    DECEMBER 31,    --------------------------
                                     1996             1997             1997            1998            1998          1999
                                ---------------  ---------------  --------------  ---------------  -------------  -----------
<S>                             <C>              <C>              <C>             <C>              <C>            <C>
                                                                                                    (UNAUDITED)   (UNAUDITED)
OPERATING ACTIVITIES:
  Net income..................     $  11,489        $  12,928       $      535       $   9,647       $   2,226     $   2,923
  Adjustments to reconcile net
    income to net cash
    provided by operating
    activities:
    Depreciation and
      amortization............        15,348           15,823            2,466          30,459           7,209         7,785
    Deferred income taxes and
      unamortized investment
      tax credits, net........         1,538            1,160               65              24             148            66
    Change in current assets
      and liabilities:
      Accounts receivable.....        14,476           (1,383)           3,873          (3,644)         (2,105)        4,359
      Accounts payable........        (6,828)          (2,986)          (1,527)          1,479            (282)       (2,733)
      Other current assets and
        liabilities, net......        (1,434)          (4,329)             176           2,427           1,588         1,322
      Other, net..............            --               --               --          (2,101)          2,241           381
                                ---------------  ---------------  --------------       -------     -------------  -----------
        Net cash provided by
          operating
          activities..........        34,589           21,213            5,588          38,291          11,025        14,103
                                ---------------  ---------------  --------------       -------     -------------  -----------
INVESTING ACTIVITIES:
  Payments for property,
    plant, and equipment......       (20,465)         (14,575)          (1,825)        (26,799)         (2,321)       (2,200)
  Other, net..................          (146)           1,021           (1,454)            135           4,268          (139)
                                ---------------  ---------------  --------------       -------     -------------  -----------
      Net cash provided (used)
        by investing
        activities............       (20,611)         (13,554)          (3,279)        (26,664)          1,947        (2,339)
FINANCING ACTIVITIES:
  Proceeds from issuance of
    long-term debt............         1,739               --               --              --              --            --
  Dividends paid..............       (13,626)          (7,080)          (2,270)             --              --            --
  Payments of long-term
    debt......................        (1,060)          (1,129)            (293)         (1,322)         (2,047)         (314)
  Change in affiliate
    balance...................            --               --               --          (5,448)         (9,540)       (6,439)
                                ---------------  ---------------  --------------       -------     -------------  -----------
      Net cash used by
        financing
        activities............       (12,947)          (8,209)          (2,563)         (6,770)        (11,587)       (6,753)
INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS........         1,031             (550)            (254)          4,857           1,385         5,011
CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR...........           644            1,675            1,125             871             871         5,728
                                ---------------  ---------------  --------------       -------     -------------  -----------
CASH AND CASH EQUIVALENTS, END
  OF YEAR.....................     $   1,675        $   1,125       $      871       $   5,728       $   2,256     $  10,739
                                ---------------  ---------------  --------------       -------     -------------  -----------
                                ---------------  ---------------  --------------       -------     -------------  -----------
SUPPLEMENTAL CASH FLOW
  INFORMATION:
  Net assets of acquisitions
    contributed as paid-in
    capital, including push-
    down of goodwill of
    $32,159...................     $      --        $  89,132       $       --       $      --       $      --     $      --
  Push-down of excess costs of
    Alaskan entities from
    CenturyTel acquisition....            --               --          208,389              --              --            --
  Paydown of minority interest
    liability through transfer
    of property, plant, and
    equipment.................            --               --            1,525              --              --            --
  Income tax paid.............         5,344            4,653            3,207             600           1,428         2,076
  Interest paid...............         3,510            2,706              261           3,434             577           954
</TABLE>

            See accompanying notes to combined financial statements.

                                      F-25
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

                     NOTES TO COMBINED FINANCIAL STATEMENTS

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
          (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE
           MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    GENERAL--The combined financial statements for CenturyTel Alaska Properties
(the "Company") represent the operating results of the following legal entities
("Alaskan Entities"):

    Telephone Utilities of Alaska, Inc. ("TUA")

    Telephone Utilities of the Northland, Inc. ("TUN")

    PTI Communications of Alaska, Inc. ("PTICA")

    Pacific Telecom of Alaska PCS, Inc. ("PTAPCS")

    Pacific Telecom Cellular of Alaska, Inc. ("PTCA"), excluding the assets,
liabilities and equity of Alaska RSA #1

    TUA, TUN, PTICA, and PTAPCS were wholly owned subsidiaries of Pacific
Telecom, Inc. ("PTI") and PTCA was a wholly owned subsidiary of Pacific Telecom
Cellular, Inc., which was a wholly owned subsidiary of PTI. Until December 1,
1997, PacifiCorp Holdings owned 100% of the voting securities of PTI. The
Company was acquired on December 1, 1997 as a result of Century Telephone
Enterprises, Inc.'s ("CenturyTel") acquisition of Pacific Telecom, Inc. (the
"Acquisition") (Note 13). The financial statements beginning December 1, 1997
reflect the excess cost of net assets acquired and the subsequent amortization
expense which was allocated to the Alaska properties in accordance with purchase
accounting.

    TUA, TUN, PTICA, and PTAPCS became wholly owned subsidiaries of CenturyTel
of the Northwest, Inc. ("CNI") which is a wholly owned subsidiary of CenturyTel.
PTCA is a wholly owned subsidiary of CenturyTel Wireless, Inc. ("CT Wireless")
which is a wholly owned subsidiary of CenturyTel.

    The Company's primary business is to provide traditional and cellular
telephone service to its customers which are located in the state of Alaska. The
Company was dependent on PTI and certain subsidiaries prior to the Acquisition
and is dependent upon CenturyTel and certain CenturyTel subsidiaries to provide
construction and maintenance services, materials and supplies and managerial,
technical and accounting services. Intercompany billings include a return on
investment to the related company.

    The Company's telephone operations are regulated in nature and its telephone
accounting records are maintained in accordance with the rules and regulations
of the Alaska Public Utilities Commission ("APUC") which substantially adhere to
the rules and regulations of the Federal Communications Commission. The
Company's regulated operations are subject to the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 71, ACCOUNTING FOR THE EFFECTS OF
CERTAIN TYPES OF REGULATION.

    ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the

                                      F-26
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
          (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE
           MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results may differ
from those estimates.

    REVENUE RECOGNITION--Revenues are recognized when earned. The Company
participates in toll revenue pools with other telephone companies. Such pools
are funded by toll revenue and/or access charges regulated by the APUC within
the intrastate jurisdiction and the Federal Communications Commission within the
interstate jurisdiction. Much of the interstate toll service revenue earned
through various pooling processes is initially recorded based on estimates.
These estimates are derived from interim financial statements, available
separations studies and the most recent rate of return published by the National
Exchange Carriers Association. These estimates are subject to subsequent
adjustment in future accounting periods as refined operational information
becomes available. Any subsequent adjustments have not been material.

    PROPERTY, PLANT, AND EQUIPMENT--Telephone plant is stated substantially at
original cost of construction. Telephone plant retired in the ordinary course of
business, together with cost of removal, less salvage, is charged to accumulated
depreciation with no gain or loss recognized. Renewals and betterments of
telephone plant are capitalized while repairs, as well as renewals of minor
items, are charged to operating expense.

    The Company provides depreciation for telephone plant on the straight-line
method, using rates approved by the regulatory authorities. Depreciation expense
for telephone plant amounted to $13,774, $14,406, $1,737, and $23,550 for the
year ended December 31, 1996, eleven months ended November 30, 1997, one month
ended December 31, 1997, and year ended December 31, 1998, respectively.
Included in 1998 expense is additional depreciation of approximately $1,506
which was approved by the regulatory authorities. The composite depreciation
rate was 5.7% for the year ended December 31, 1996, 5.8% for the eleven months
ended November 30, 1997 and the one month ended December 31, 1997, and 6.1% for
the year ended December 31, 1998.

    Non-telephone plant is stated at cost and, when sold or retired, a gain or
loss is recognized. Depreciation of such property is provided on the
straight-line method over its estimated service lives ranging from 7 to 15
years. Depreciation for non-telephone plant amounted to $1,198, $922, $190, and
$583 for the year ended December 31, 1996, eleven months ended November 30,
1997, one month ended December 31, 1997, and the year ended December 31, 1998,
respectively.

    LONG-LIVED ASSETS AND EXCESS COST OF NET ASSETS ACQUIRED (GOODWILL)--The
carrying value of long-lived assets, including allocated goodwill, is reviewed
for impairment at least annually, or whenever events or changes in circumstances
indicate that such carrying value may not be recoverable, by assessing the
recoverability of such carrying value through estimated undiscounted future net
cash flows expected to be generated by the assets. The excess cost of net assets
acquired is being amortized over 40 years. Amortization expense was $333 for the
year ended

                                      F-27
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
          (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE
           MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 31, 1996, $455 during the eleven months ended November 30, 1997, $537
during the one month ended December 31, 1997, and $6,326 for the year ended
December 31, 1998.

    INCOME TAXES--Prior to the Acquisition, the Company was included in the
consolidated federal income tax return of PacifiCorp Holdings and CenturyTel in
subsequent periods. For financial accounting purposes, federal income taxes are
computed and recorded as if the Company filed a separate federal income tax
return, except that, (i) in the event the Company generates a net tax loss which
is utilized in the respective consolidated return, the Company will be given the
benefit of such loss, and (ii) income taxes are calculated based upon the
statutory tax rate in effect for PacifiCorp prior to the Acquisition and
CenturyTel and its subsidiaries for subsequent periods on a consolidated basis.
The Company periodically settles amounts owed to CenturyTel for federal income
taxes. The Company is included in a consolidated Alaska state income tax return.

    The Company uses the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are established for the
future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. Investment tax credits related to plant have been deferred and are being
amortized as a reduction of federal income tax expense over the estimated useful
lives of the assets giving rise to the credits.

    Pursuant to SFAS 71, the regulatory liability, net of the related tax
impact, is being amortized as a reduction of federal income tax expense over the
estimated remaining lives of the assets which generated the deferred taxes.

    CASH EQUIVALENTS--For purposes of the statement of cash flows, the Company
considers all demand deposits, central depository bank account ("CDA") deposits,
and all short-term investments with a maturity at date of purchase of three
months or less to be cash equivalents.

    INVESTMENTS--The Rural Telephone Bank ("RTB") requires borrowers of RTB
funds to purchase RTB stock as a percentage of loan funds provided. These
investments have been accounted for using the cost method.

    ADVANCE BILLINGS--Advance billings creditable to revenue accounts in future
months are recorded in advance billings until the service is rendered.

    EARNINGS PER SHARE--The common stock of the Company is not traded in a
public market; therefore, earnings per share amounts are not presented in
accordance with SFAS 128, EARNINGS PER SHARE.

2. PCS LICENSE ACQUISITION COSTS

    In early 1997, the Company was awarded three 10 MHz licenses to provide
personal communications services ("PCS") in Alaska. The Company paid $3,023 for
such licenses, which will

                                      F-28
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
          (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE
           MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

2. PCS LICENSE ACQUISITION COSTS (CONTINUED)
be amortized over the useful economic lives once construction is complete. At
this time, construction has not yet begun. These licenses are included in Other
Assets on the balance sheet.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

    CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE, ACCRUED
EXPENSES, AND CUSTOMER DEPOSITS--The carrying amount approximates the fair value
due to the short maturity of these instruments.

    OTHER INVESTMENTS--The Company's other investments are represented by its
investment in RTB stock. The carrying amount of such investment approximates the
fair market value of these instruments.

    LONG-TERM DEBT--The carrying value of the Company's long-term debt had a
fair value of $42,669 at December 31, 1997 and $45,853 at December 31, 1998. The
fair value was estimated by discounting the scheduled payment streams to present
value based upon rates currently offered to the Company for debt of similar
remaining maturities. Prepayment penalties and other costs of debt retirement
are not reflected in the estimates.

4. PROPERTY, PLANT, AND EQUIPMENT, NET

    The following table summarizes the major classes of property, plant, and
equipment as of December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                                        1997          1998
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
General support...................................................  $     33,508  $     31,811
Central office....................................................       113,040       120,613
IOT...............................................................        21,283         5,652
Cable and wire....................................................       221,428       232,819
Construction in progress..........................................         5,633         9,345
Nonregulated and other............................................           677         8,452
                                                                    ------------  ------------
  Telephone property, plant, and equipment........................       395,569       408,692
Less accumulated depreciation.....................................      (238,228)     (248,915)
                                                                    ------------  ------------
  Net telephone property, plant, and equipment....................       157,341       159,777
Wireless property, plant, and equipment...........................         1,340         2,617
Less accumulated depreciation.....................................           (91)         (684)
                                                                    ------------  ------------
  Net wireless property, plant, and equipment.....................         1,249         1,933
                                                                    ------------  ------------
  Property, plant, and equipment, net.............................  $    158,590  $    161,710
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>

                                      F-29
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
          (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE
           MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

4. PROPERTY, PLANT, AND EQUIPMENT, NET (CONTINUED)
    The Company retired approximately $1,762 of telephone property, plant, and
equipment and a like amount of accumulated depreciation in 1998.

5. LONG-TERM DEBT

    Long-term debt as of December 31, 1997 and 1998 is summarized below:

<TABLE>
<CAPTION>
                                                                           1997       1998
                                                                         ---------  ---------
<S>                                                                      <C>        <C>
First mortgage notes:
  5.0%-6.5%, due in installments to 2027...............................  $  29,226  $  28,546
  7.2%-9.4%, due in installments to 2020...............................     10,820     10,588
  10.1%-11.8%, due in installments to 2017.............................      2,904      2,672
Unsecured note at 3%, due in installments to 2007......................         --      1,602
                                                                         ---------  ---------
  Subtotal.............................................................     42,950     43,408
Less current maturities................................................     (1,316)    (1,427)
                                                                         ---------  ---------
  Total long-term debt, excluding current maturities...................  $  41,634  $  41,981
                                                                         ---------  ---------
                                                                         ---------  ---------
</TABLE>

    The approximate annual debt maturities for the five years subsequent to
December 31, 1998 are as follows: 1999, $1,427; 2000, $1,527; 2001, $1,637;
2002, $1,755; and 2003, $1,551.

    At December 31, 1998, under the most restrictive covenant of the Company's
long-term debt agreement, all of the Company's retained earnings were available
for the payment of cash dividends.

    Substantially all of the Company's telephone property, plant, and equipment
is pledged to secure the first mortgage notes.

                                      F-30
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
          (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE
           MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

6. INCOME TAXES

    Income tax expense consists of the following components:

<TABLE>
<CAPTION>
                                                                     ELEVEN MONTHS       ONE MONTH
                                                     YEAR ENDED          ENDED             ENDED          YEAR ENDED
                                                    DECEMBER 31,     NOVEMBER 30,      DECEMBER 31,      DECEMBER 31,
                                                        1996             1997              1997              1998
                                                   ---------------  ---------------  -----------------  ---------------
<S>                                                <C>              <C>              <C>                <C>
Federal:
  Current........................................     $   4,733        $   5,689         $     575         $   7,093
  Deferred.......................................           265              109               (12)             (177)
State:
  Current........................................         1,388            1,708               170             2,101
  Deferred.......................................           351              240                 3               201
                                                        -------          -------             -----           -------
    Income tax expense...........................     $   6,737        $   7,746         $     736         $   9,218
                                                        -------          -------             -----           -------
                                                        -------          -------             -----           -------
</TABLE>

    The following is a reconciliation from the statutory federal income tax rate
to the Company's effective income tax rate:

<TABLE>
<CAPTION>
                                                                     ELEVEN MONTHS
                                                     YEAR ENDED     ENDED NOVEMBER      ONE MONTH       YEAR ENDED
                                                    DECEMBER 31,          30,        ENDED DECEMBER    DECEMBER 31,
                                                        1996             1997           31, 1997           1998
                                                   ---------------  ---------------  ---------------  ---------------
<S>                                                <C>              <C>              <C>              <C>
Statutory federal income tax rate................         35.00%           35.00%           35.00%           35.00%
State income taxes, net of federal income tax
  benefit........................................          6.00%            6.00%            8.44%            7.90%
Amortization of nondeductible excess cost of net
  assets acquired................................            --               --            14.20%           10.10%
Amortization of excess deferred income taxes.....         (1.67)%          (1.32   )%        (2.18   )%        (1.60   )%
Amortization of deferred investment tax credits..         (3.15   )%        (2.27   )%        (3.76   )%        (2.70   )%
Other, net.......................................          0.78%            0.06%            6.20%            0.20%
                                                          -----            -----            -----            -----
  Effective income tax rate......................         36.96%           37.47%           57.90%           48.90%
                                                          -----            -----            -----            -----
                                                          -----            -----            -----            -----
</TABLE>

                                      F-31
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
          (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE
           MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

6. INCOME TAXES (CONTINUED)
    The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                                                              1997        1998
                                                                                           ----------  ----------
<S>                                                                                        <C>         <C>
Deferred tax assets:
  Regulatory liability...................................................................  $       18  $      388
  Deferred investment tax credits........................................................         991         374
  Other..................................................................................         829         567
  Total gross deferred tax assets........................................................       1,838       1,329
    Less: Valuation allowances...........................................................          --          --
    Net Deferred tax assets..............................................................       1,838       1,329
Deferred tax liabilities:
  Property, plant, and equipment, primarily due to depreciation differences..............     (13,088)    (14,112)
  Excess costs of net assets acquired....................................................         (47)       (740)
                                                                                           ----------  ----------
  Total gross deferred tax liabilities...................................................     (13,135)    (14,852)
                                                                                           ----------  ----------
  Net deferred tax liability.............................................................  $  (11,297) $  (13,523)
                                                                                           ----------  ----------
                                                                                           ----------  ----------
</TABLE>

7. EMPLOYEE BENEFIT PLANS

    Substantially all employees of the Company, except those which are members
of the International Brotherhood of Electrical Workers ("IBEW"), are covered by
a pension plan (the "Plan") which is sponsored by PTI before the Acquisition and
CNI subsequently which includes other affiliated companies. The Plan provides
benefits based upon employees' total years of service and the highest five years
compensation during their last 10 years of service. The Company's portion of
pension income was $57 during the year ended December 31, 1996, $219 during the
eleven months ended November 30, 1997, $23 during the one month ended December
31, 1997, and $384 for the year ended December 31, 1998. Because actuarial
information regarding the status of the Plan is computed for the Plan in total,
the Company does not separately determine its portion of the actuarial present
value of the accumulated plan benefits, projected benefit obligation, or net
assets available for benefits.

    In accordance with the purchase agreement with Alaska Communications Systems
Holdings, Inc., formerly known as ALEC Acquisition Corporation ("ALEC") (see
Note 13), the Plan assets and obligations will be valued at the closing date.
Based on this valuation, assets equaling the actuarial present value of the
accrued benefits of the Company's employees, plus an additional $250, will be
transferred to a replacement plan.

    The Company participates in a postretirement health care and insurance plan
(the "PRB Plan") which is sponsored by PTI prior to acquisition and by CNI
subsequently which includes other affiliated companies.

                                      F-32
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
          (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE
           MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

7. EMPLOYEE BENEFIT PLANS (CONTINUED)
    The Company recognizes the cost of other postretirement benefits over the
active service period of its employees. PTI's policy was to fund annually an
amount of the postretirement benefit liability that will systematically reduce
that liability using available funds and allow deductibility for federal income
tax purposes. Due to income tax regulations that restrict the deductibility of
certain contributions for postretirement benefits, PTI elected to make non-tax
contributions to meet funding requirements imposed by state regulatory
commissions. PTI recognized the transition obligation, which represents the
previously unrecognized prior service cost, over a period of 20 years. Because
actuarial information regarding the status of the PRB Plan is computed for the
PRB Plan in total, PTI did not separately determine its portion of the actuarial
present value of the accumulated plan benefit, projected benefit obligations or
net assets available for benefits. At December 31, 1997, the date of the latest
actuarial evaluation for the PRB Plan, plan assets were less than the projected
benefit obligation by approximately $46,246 and the unamortized portion of the
transition obligation was $26,099. The Company's portion of the net periodic
postretirement benefit cost was $846 during the year ended December 31, 1996,
$485 during the eleven months ended November 30, 1997, $41 during the one month
ended December 31, 1997, and $471 during the year ended December 31, 1998, as
follows:

<TABLE>
<S>                                                                    <C>
Service cost.........................................................  $     183
Interest cost........................................................        392
Amortization of transition obligation................................        116
Amortization of unrecognized prior service cost......................         (4)
Expected return on assets............................................       (216)
                                                                       ---------
    Net periodic postretirement benefit cost.........................  $     471
                                                                       ---------
                                                                       ---------
</TABLE>

    At the time of adoption of SFAS 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, the Company elected to amortize the
transition obligation, at the date of implementation, over 20 years.

    In accordance with the purchase agreement with ALEC (see Note 13), the
purchaser assumes the liability for postretirement benefits related to employees
that retire subsequent to the closing date.

                                      F-33
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
             (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE
        THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

8. CERTAIN TRANSACTIONS

    The Company purchases certain plant materials and other services (including
certain operating expenses) from PTI, CenturyTel, and other affiliated
companies. Materials and services purchased by the Company from PTI prior to
acquisition and CenturyTel and its subsidiaries subsequently totaled
approximately $9,227 for the year ended December 31, 1996, $8,581 for the eleven
months ended November 30, 1997, $1,626 for the one month ended December 31,
1997, and $29,306 (which included $15,648 of operating expenses) during the year
ended December 31, 1998. Many of the costs that are allocated to the Alaska
companies are based on time distribution and are, therefore, representative of
what costs would have been on a stand-alone basis. General and administrative
costs are allocated based on expense levels of all companies. Such costs, when
allocated to the subsidiaries, include a reasonable rate of return on investment
to the related affiliate and, therefore, are representative of what costs would
have been on a stand-alone basis.

    Prior to the Acquisition, short-term advances were made to PTI under an
agreement providing interest at the prime commercial rate for funds held more
than 90 days. Interest income on these advances was $1,052 during the year ended
December 31, 1996, $797 during the eleven months ended November 30, 1997, and
$81 during the one month ended December 31, 1997.

    Subsequent to the Acquisition, the Company participates in a Central
Depository Account ("CDA") with CenturyTel and other affiliates. The Company is
assessed or receives interest on the net amount of its CDA balance and the net
accounts receivable or payable to CenturyTel and its affiliates. Related
interest income amounted to $2,156 for the year ended December 31, 1998. The
rate used to calculate the related interest income was the three month U.S.
T-Bill rate. Related interest expense amounted to $637 for the year ended
December 31, 1998. The rate used to calculate the related interest expense was
the weighted average rate of CenturyTel's debt.

9. BUSINESS AND CREDIT CONCENTRATIONS

    The Company provides telephone services to customers (business and
residential) located in the state of Alaska. Receivables from connecting
companies represent the amounts due from various long distance carriers such as
AT&T and the Bell operating companies.

    The ultimate realization of the Company's balance in the CDA discussed above
is dependent upon the financial resources of CenturyTel.

10. COMMITMENTS AND CONTINGENCIES

    Expenditures for property, plant, and equipment are anticipated to be
approximately $19,469 for telephone operations and $615 for wireless operations
during 1999.

    The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of the matters will not have a material adverse effect on the
Company's financial position or results of operations.

                                      F-34
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
             (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE
        THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
    The Company's operations are subject to federal, state and local laws and
regulations governing the use, storage, disposal of, and exposure to, hazardous
materials, the release of pollutants into the environment and the remediation of
contamination. As an owner or operator of property and a generator of hazardous
wastes, the Company could be subject to certain environmental laws that impose
liability for the entire cost of cleanup at contaminated sites, regardless of
fault or the lawfulness of the activity that resulted in contamination. The
Company believes, however, that its operations are in substantial compliance
with applicable environmental laws and regulations and that there is no material
exposure to loss related to environmental issues.

    Many of the Company's properties formerly contained, or currently contain,
underground and aboveground storage tanks used for the storage of fuel or
wastes. Some of these tanks have leaked. The Company believes that known
contamination caused by these leaks has been, or is being, investigated or
remediated. The Company cannot be sure, however, that it has discovered all
contamination or that the regulatory authorities will not request additional
remediation at sites that have previously undergone remediation.

11. BUSINESS SEGMENTS

    The Company is engaged in providing local exchange telephone services and
cellular telephone services in Alaska. The following tables illustrate selected
financial data for each segment:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996                                                    TELEPHONE   CELLULAR      TOTAL
- -----------------------------------------------------------------------------  -----------  ---------  -----------
<S>                                                                            <C>          <C>        <C>
Operating revenues...........................................................  $    75,950  $   4,823  $    80,773
Depreciation and amortization................................................       14,383        965       15,348
Operating income.............................................................       19,778        477       20,255
Capital expenditures.........................................................       19,694        771       20,465
</TABLE>

<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED NOVEMBER 30, 1997                                           TELEPHONE   CELLULAR      TOTAL
- -----------------------------------------------------------------------------  -----------  ---------  -----------
<S>                                                                            <C>          <C>        <C>
Operating revenues...........................................................  $    79,330  $   5,120  $    84,450
Depreciation and amortization................................................       15,090        733       15,823
Operating income.............................................................       21,836      1,305       23,141
Capital expenditures.........................................................       14,225        350       14,575
</TABLE>

<TABLE>
<CAPTION>
ONE MONTH ENDED DECEMBER 31, 1997                                               TELEPHONE   CELLULAR      TOTAL
- -----------------------------------------------------------------------------  -----------  ---------  -----------
<S>                                                                            <C>          <C>        <C>
Operating revenues...........................................................  $    10,255  $     181  $    10,436
Depreciation and amortization................................................        2,375         91        2,466
Operating income (loss)......................................................        1,446        (57)       1,389
Capital expenditures.........................................................        1,732         93        1,825
Total assets.................................................................      450,155      9,020      459,175
</TABLE>

                                      F-35
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
             (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE
        THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

11. BUSINESS SEGMENTS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998                                                    TELEPHONE   CELLULAR      TOTAL
- -----------------------------------------------------------------------------  -----------  ---------  -----------
<S>                                                                            <C>          <C>        <C>
Operating revenues...........................................................  $   121,933  $   2,576  $   124,509
Depreciation and amortization................................................       29,734        725       30,459
Operating income (loss)......................................................       20,190       (276)      19,914
Capital expenditures.........................................................       26,664        135       26,799
Total assets.................................................................      470,649      2,011      472,660
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998                                               TELEPHONE   CELLULAR      TOTAL
- -----------------------------------------------------------------------------  -----------  ---------  -----------
<S>                                                                            <C>          <C>        <C>
Operating revenues...........................................................  $    27,967  $     408  $    28,375
Depreciation and amortization................................................        7,069        140        7,209
Operating income (loss)......................................................        4,447        (62)       4,385
Capital expenditures.........................................................        2,225         96        2,321
Total assets.................................................................      458,847      1,972      460,819
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999                                               TELEPHONE   CELLULAR      TOTAL
- -----------------------------------------------------------------------------  -----------  ---------  -----------
<S>                                                                            <C>          <C>        <C>
Operating revenues...........................................................  $    30,815  $     546  $    31,361
Depreciation and amortization................................................        7,643        142        7,785
Operating income (loss)......................................................        5,902          8        5,910
Capital expenditures.........................................................        2,194          6        2,200
Total assets.................................................................      471,652      2,017      473,669
</TABLE>

    The following is a reconciliation of operating income to income before
income tax expense:

<TABLE>
<CAPTION>
                                                                                                         THREE MONTHS ENDED
                                                       ELEVEN MONTHS      ONE MONTH
                                         YEAR ENDED        ENDED            ENDED         YEAR ENDED         MARCH 31,
                                        DECEMBER 31,    NOVEMBER 30,    DECEMBER 31,     DECEMBER 31,   --------------------
                                            1996            1997            1997             1998         1998       1999
                                       --------------  --------------  ---------------  --------------  ---------  ---------
<S>                                    <C>             <C>             <C>              <C>             <C>        <C>
Operating income.....................    $   20,255      $   23,141       $   1,389       $   19,914    $   4,385  $   5,910
Interest expense.....................        (3,176)         (3,027)           (253)          (3,588)        (797)      (965)
Interest income......................         1,180             858              82            2,183          495        607
Other income (expense), net..........           (33)           (298)             53              356          357         80
                                       --------------  --------------       -------     --------------  ---------  ---------
Income before income tax expense.....    $   18,226      $   20,674       $   1,271       $   18,865    $   4,440  $   5,632
                                       --------------  --------------       -------     --------------  ---------  ---------
                                       --------------  --------------       -------     --------------  ---------  ---------
</TABLE>

12. ACCOUNTING FOR THE EFFECTS OF REGULATION

    The Company currently accounts for its regulated telephone operations in
accordance with the provisions of SFAS 71. While the ongoing applicability of
SFAS 71 to the Company's telephone operations is being monitored due to the
changing regulatory, competitive, and legislative

                                      F-36
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
             (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE
        THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

12. ACCOUNTING FOR THE EFFECTS OF REGULATION (CONTINUED)
environments, the Company believes that SFAS 71 still applies. However, it is
possible that changes in regulation or legislation or anticipated changes in
competition or in the demand for regulated services or products could result in
the Company's telephone operations not being subject to SFAS 71 in the near
future. In that event, implementation of SFAS 101, REGULATED
ENTERPRISES--ACCOUNTING FOR THE DISCONTINUANCE OF APPLICATION OF FASB STATEMENT
NO. 71, would require the write-off of previously established regulatory assets
and liabilities, along with an adjustment of certain accumulated depreciation
accounts to reflect the difference between recorded depreciation and the amount
of depreciation that would have been recorded had the Company's telephone
operations not been subject to rate regulation. Regulatory assets were
$45,600,000, and regulatory liabilities were $880,000. Such discontinuance of
the application of SFAS 71 would result in a material, noncash charge against
earnings which would be reported as an extraordinary item. While the effect of
implementing SFAS 101 cannot be precisely estimated at this time, management
believes that the noncash, after-tax, extraordinary charge would be between
$25,000 and $28,000.

13. ACQUISITIONS AND DISPOSITIONS

    On September 8, 1997, the Company acquired the outstanding stock of
Polarnet, Inc., an Internet service provider. The purchase price was
approximately $1,100 and was accounted for by the purchase method. The excess of
the purchase price over the estimated fair value of net assets acquired amounted
to approximately $968, which is included in goodwill. The results of operations
of Polarnet, Inc. from September 8, 1997 are included in the statement of
income.

    On October 6, 1997, PTI acquired the net assets of the local exchange
utilities ("PTI-Fairbanks") from the City of Fairbanks. The purchase price was
approximately $87 million and was accounted for by the purchase method. The
excess of the purchase price over the estimated fair value of net assets
acquired amounted to approximately $31 million, which is included in goodwill.
The results of operations of PTI-Fairbanks from October 6, 1997 are included in
the statements of income. Assets and liabilities acquired were as follows:

<TABLE>
<S>                                                                 <C>
Fair value of assets acquired.....................................  $  86,750
Cash paid for net assets..........................................    (85,000)
                                                                    ---------
  Liabilities assumed.............................................  $   1,750
                                                                    ---------
                                                                    ---------
</TABLE>

    On December 1, 1997, PTI was sold to CenturyTel for approximately $2.2
billion (including assumed debt). As a result of this transaction, the Company
recorded all previously retained earnings as paid-in capital and pushed down
excess costs of approximately $208 million to the Alaskan entities to reflect
the change from PTI's to CenturyTel's basis of accounting.

    In August 1998 CNI and CT Wireless entered into a definitive agreement to
sell the stock of the Company to ALEC for approximately $409 million, subject to
certain adjustments. The transaction is anticipated to close in 1999 subject to
regulatory approvals and various closing conditions.

                                      F-37
<PAGE>
                          CENTURYTEL ALASKA PROPERTIES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

      YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
       ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
             (INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE
        THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

                                 (IN THOUSANDS)

14. YEAR 2000 (UNAUDITED)

    The Company has initiated a plan ("Year 2000 Plan") to identify, assess, and
remediate "Year 2000" issues within each of its significant computer programs
and certain equipment which contain micro-processors. The Year 2000 Plan is
addressing the issue of computer programs and embedded computer chips being
unable to distinguish between the year 1900 and the year 2000, if a program or
chip uses only two digits rather than four to define the applicable year. The
Company has divided the Year 2000 Plan into four major phases--assessment,
planning, implementation, and testing. After completing the assessment and
planning phases earlier this year, the Company is currently in the
implementation and testing phases. Systems which have been determined not to be
Year 2000 compliant are being either replaced or reprogrammed, and thereafter
tested for Year 2000 compliance. The Year 2000 Plan anticipates that by October
1999 the implementation and testing phases will be completed.

    The Company is identifying and contacting critical suppliers and customers
whose computerized systems interface with the Company's systems, regarding their
plans and progress in addressing their Year 2000 issues. The Company has
received varying information from such third parties on the state of compliance
or expected compliance. Contingency plans are being developed in the event that
any critical supplier or customer is not compliant.

    The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
operations, liquidity, and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether consequences of Year 2000 failures will
have a material impact on the Company's operations, liquidity, or financial
condition.

15. BASIS OF PRESENTATION FOR UNAUDITED QUARTERLY INFORMATION

    The accompanying unaudited financial information at March 31, 1999 and for
the three months ended March 31, 1998 and 1999 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the full
fiscal year or for any future period.

                                      F-38
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Century Telephone Enterprises, Inc.
Monroe, Louisiana

    We have audited the combined balance sheet of Telephone Fund of Fairbanks
Municipal Utilities Services (the "Company") as of October 6, 1997, and the
related combined statements of income and fund equity and of cash flows for the
period ended October 6, 1997 and the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Telephone Fund of
Fairbanks Municipal Utilities Services as of October 6, 1997, and the results of
their operations and their cash flows for the period ended October 6, 1997 and
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.

Deloitte & Touche LLP

Portland, Oregon
March 25, 1999

                                      F-39
<PAGE>
                          TELEPHONE FUND OF FAIRBANKS
                          MUNICIPAL UTILITIES SERVICES

                             COMBINED BALANCE SHEET

                                OCTOBER 6, 1997

                                 (IN THOUSANDS)

<TABLE>
<S>                                                                                 <C>
                                           ASSETS
CURRENT ASSETS:
  Accounts receivable:
    Customers, less allowance for doubtful accounts of $156.......................  $     903
    Connecting companies and other................................................      1,949
  Material and supplies (at cost).................................................      2,608
  Prepayments.....................................................................         23
                                                                                    ---------
      Total current assets........................................................      5,483
PROPERTY, PLANT, AND EQUIPMENT, Net...............................................     50,279
                                                                                    ---------
                                                                                    $  55,762
                                                                                    ---------
                                                                                    ---------

                                 LIABILITIES AND FUND EQUITY
CURRENT LIABILITIES:
  Accounts payable................................................................  $     290
  Accrued expenses and other accrued liabilities..................................      2,869
  Advance billings and customer deposits (Note 1).................................      1,140
  Capital leases..................................................................        262
                                                                                    ---------
      Total current liabilities...................................................      4,561
DEFERRED CREDIT (Note 1)..........................................................      1,180
FUND EQUITY.......................................................................     50,021
                                                                                    ---------
                                                                                    $  55,762
                                                                                    ---------
                                                                                    ---------
</TABLE>

            See accompanying notes to combined financial statements.

                                      F-40
<PAGE>
                          TELEPHONE FUND OF FAIRBANKS
                          MUNICIPAL UTILITIES SERVICES

                 COMBINED STATEMENTS OF INCOME AND FUND EQUITY

         YEAR ENDED DECEMBER 31, 1996 AND PERIOD ENDED OCTOBER 6, 1997

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED    PERIOD ENDED
                                                                                     DECEMBER 31,    OCTOBER 6,
                                                                                         1996           1997
                                                                                    --------------  -------------
<S>                                                                                 <C>             <C>
OPERATING REVENUES--Telephone.....................................................    $   28,602      $  22,796
OPERATING EXPENSES:
  Cost of sales and operating expenses--telephone.................................        17,678         14,074
  Depreciation and amortization...................................................         5,172          4,249
                                                                                    --------------  -------------
    Total operating expenses......................................................        22,850         18,323
                                                                                    --------------  -------------
OPERATING INCOME..................................................................         5,752          4,473
OTHER INCOME (EXPENSE):
  Interest expense................................................................        (1,552)        (1,520)
  Interest income.................................................................           462            416
  Other income (expense), net.....................................................           555            217
                                                                                    --------------  -------------
    Total other expense...........................................................          (535)          (887)
                                                                                    --------------  -------------
NET INCOME........................................................................         5,217          3,586
                                                                                    --------------  -------------
FUND EQUITY, BEGINNING OF YEAR....................................................        48,298         49,690
DIVIDENDS.........................................................................        (3,825)        (3,255)
                                                                                    --------------  -------------
FUND EQUITY, END OF YEAR..........................................................    $   49,690      $  50,021
                                                                                    --------------  -------------
                                                                                    --------------  -------------
</TABLE>

            See accompanying notes to combined financial statements.

                                      F-41
<PAGE>
                          TELEPHONE FUND OF FAIRBANKS
                          MUNICIPAL UTILITIES SERVICES

                       COMBINED STATEMENTS OF CASH FLOWS

         YEAR ENDED DECEMBER 31, 1996 AND PERIOD ENDED OCTOBER 6, 1997

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED
                                                                                   DECEMBER 31,     PERIOD ENDED
                                                                                       1996       OCTOBER 6, 1997
                                                                                  --------------  ----------------
<S>                                                                               <C>             <C>
OPERATING ACTIVITIES:
  Net income....................................................................    $    5,216       $    3,586
  Adjustments to reconcile net income to net cash provided by operating
    activities:
    Depreciation and amortization...............................................         5,172            4,249
    Change in current assets and liabilities:
      Accounts receivable.......................................................           167              996
      Accounts payable..........................................................          (563)          (2,133)
      Other current assets and liabilities, net.................................           132              529
                                                                                  --------------        -------
        Net cash provided by operating activities...............................        10,124            7,227
                                                                                  --------------        -------
INVESTING ACTIVITIES:
  Payments for property, plant, and equipment...................................        (6,023)          (3,452)
                                                                                  --------------        -------
FINANCING ACTIVITIES:
  Dividends paid to MUS.........................................................        (3,825)          (3,255)
  Payments of lease obligation..................................................          (276)            (520)
                                                                                  --------------        -------
        Net cash used in financing activities...................................        (4,101)          (3,775)
                                                                                  --------------        -------
INCREASE (DECREASE) IN CASH.....................................................            --               --
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................            --               --
                                                                                  --------------        -------
CASH AND CASH EQUIVALENTS, END OF YEAR..........................................    $       --       $       --
                                                                                  --------------        -------
                                                                                  --------------        -------
</TABLE>

                  See notes to combined financial statements.

                                      F-42
<PAGE>
            TELEPHONE FUND OF FAIRBANKS MUNICIPAL UTILITIES SERVICES

                     NOTES TO COMBINED FINANCIAL STATEMENTS

         YEAR ENDED DECEMBER 31, 1996 AND PERIOD ENDED OCTOBER 6, 1997

                             (DOLLARS IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The Telephone Utility of Fairbanks Municipal Utilities Services' (the
"Company") primary business is to provide telephone service to its customers who
are located in the City of Fairbanks and surrounding local areas. The Company's
telephone operations are regulated in nature and its telephone accounting
records are maintained in accordance with the rules and regulations of the
Alaska Public Utilities Commission ("APUC") which substantially adhere to the
rules and regulations of the Federal Communications Commission. The Company's
regulated operations are subject to the provisions of Statement of Financial
Accounting Standards No. 71 ("SFAS 71"), ACCOUNTING FOR THE EFFECTS OF CERTAIN
TYPES OF REGULATION. In an asset purchase agreement effective October 6, 1997,
the Company was sold by the Municipal Utilities System ("MUS"), an enterprise
fund of the City of Fairbanks, to PTI Communications of Alaska, Inc. and began
doing business as PTI-Fairbanks. The financial statements do not reflect any
purchase adjustments from this transaction. The financial statements also
exclude the cellular fund which operates the RSA #1 A-Side cellular property
site license.

    The accompanying financial statements represent the financial position of
the Company as of October 6, 1997 and the results of its operations and cash
flows for the period ended October 6, 1997 and the year ended December 31, 1996.

    A summary of significant accounting policies followed by the Company is set
forth below:

    USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires Management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of commitments and contingencies at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    PROPERTY, PLANT, AND EQUIPMENT--The Company states its property, plant and
equipment at cost. Additions to plant include direct costs and related indirect
charges. Depreciation is provided using the straight-line method based primarily
on the estimated service lives of the various classes of depreciable assets. The
composite depreciation rate for depreciable telecommunications plant was 5.7%
for the period ended October 6, 1997 and 4.9% for the year ended 1996.

    INCOME TAXES--As MUS is a public entity, it is exempt from paying any
federal, state or local taxes. In place of property taxes, MUS makes a payment
in lieu of taxes (see Note 2).

    REVENUE RECOGNITION--The Company participates in access revenue pools for
certain interstate and intrastate revenues, which are initially recorded based
on estimates. Certain network access revenues are estimated under cost
separations procedures that base revenues on current operating costs and
investments in facilities to provide such services. These estimates are derived
from interim financial statements, available separations studies and the most
recent rate of return published by the National Exchange Carriers Association.
These estimates are subject to subsequent adjustment in future accounting
periods as refined operational information becomes available. Any subsequent
adjustments have not been material.

    ADVANCE BILLINGS--Advance billings creditable to revenue accounts in future
months are recorded in advance billings until the service is rendered.

                                      F-43
<PAGE>
            TELEPHONE FUND OF FAIRBANKS MUNICIPAL UTILITIES SERVICES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

         YEAR ENDED DECEMBER 31, 1996 AND PERIOD ENDED OCTOBER 6, 1997

                             (DOLLARS IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    DEFERRED CREDIT--In prior years contributions were made by outside third
parties to fund construction of certain property, plant, and equipment of the
Company. These contributions have been recorded as a deferred credit and are
being amortized over the lives of the funded assets.

2. TRANSACTIONS WITH RELATED PARTIES

    The Company purchases certain administrative, engineering, personnel, and
legal services from the City of Fairbanks. These services, which are charged at
cost to various capital and expense accounts, were $596 for the period ended
October 6, 1997 and $853 for the year ended December 31, 1996.

    The Company makes payments in lieu of taxes at 4% of gross revenue, with
payments capped at $2,243, plus a 3% supplemental, with payments capped at
$1,300 for all utilities. Payments in lieu of taxes to the City of Fairbanks
General Fund by the Company amounted to $1,536 for the period ended October 6,
1997 and $1,715 for the year ended December 31, 1996.

    MUS also allocates interest expense on revenue bonds as well as interest
income earned on short-term investments to each of its utilities as part of its
centralized cash management program. The amount of interest expense and income
allocated to the Company was $1,520 and $416 during the period ended October 6,
1997 and $1,552 and $462 during the year ended December 31, 1996.

3. PROPERTY, PLANT, AND EQUIPMENT, NET

    The balances by category of property, plant, and equipment, net at October
6, 1997 are:

<TABLE>
<S>                                                                 <C>
Central office equipment..........................................  $  25,533
Poles, cable, and conduit.........................................     60,195
Buildings.........................................................      6,675
Office furniture, equipment, and other............................     25,884
Construction work in progress.....................................      4,897
                                                                    ---------
  Total property, plant, and equipment, gross.....................    123,184
Accumulated depreciation..........................................    (72,905)
                                                                    ---------
  Property, plant, and equipment, net.............................  $  50,279
                                                                    ---------
                                                                    ---------
</TABLE>

4. EMPLOYEE BENEFIT PLANS

    All permanent employees of the Company are eligible to participate as
members of the State of Alaska Public Employees Retirement System ("PERS"), a
defined benefit agent multiple-employer public employee retirement system that
acts as a common investment and administrative agent for the State of Alaska and
any political subdivision or public organization that elects to join the system.
Eligible employees contribute 6.75% of their gross salary to PERS. The Company
is required to contribute the remaining amounts necessary to fund PERS, using
the actuarial basis specified by the PERS Board. Because actuarial information
regarding the status of the PERS plan is computed for the Plan in total, the
Company does not separately determine its portion of the

                                      F-44
<PAGE>
            TELEPHONE FUND OF FAIRBANKS MUNICIPAL UTILITIES SERVICES

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

         YEAR ENDED DECEMBER 31, 1996 AND PERIOD ENDED OCTOBER 6, 1997

                             (DOLLARS IN THOUSANDS)

4. EMPLOYEE BENEFIT PLANS (CONTINUED)
actuarial present value for the accumulated plan benefits, projected benefit
obligation, or net assets available for benefits. At June 30, 1997, the date of
the latest actuarial evaluation for the Plan, Plan assets of $70,726 exceeded
the projected benefit obligation by approximately $33,837.

    Certain employees of the Company are members of the International
Brotherhood of Electrical Workers ("IBEW") and are eligible to participate in
two different union-sponsored multiple employer defined benefit plans, a pension
plan and a thrift plan. Under the pension plan, the Company contributed between
$4 and $5.09 per compensable hour to the Alaska Electrical Pension Fund and the
total contribution was $782 for the period ended October 6, 1997 and $864 for
the year ended December 31, 1996. Under the thrift plan, the Company pays a
minimum of 4% of the participant's gross wages into the plan plus after one year
it matches the employee's contributions, to a maximum of 3%. The Company's
contributions to the thrift plan was $332 for the period ended October 6, 1997
and $298 for the year ended December 31, 1996.

5. EMPLOYEES' DEFERRED COMPENSATION

    The Company offers its employees three deferred compensation plans which are
part of the MUS multiemployer plan. The plans are available to all Company
employees and permit them to defer a portion of their salary until future years.
Participants' rights under the plans are equal to those of general creditors of
MUS in an amount equal to the fair market value of the deferred account for each
participant. The fair market value of both the assets and liabilities for the
Plan in total at October 6, 1997 was $13,247.

6. COMMITMENTS AND CONTINGENCIES

    Expenditures under the Company's 1998 construction and capital expenditure
program are expected to approximate $7,193.

                                  * * * * * *

                                      F-45
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Honorable Mayor and Members of the Assembly
Municipality of Anchorage:

    We have audited the accompanying balance sheets of the Municipality of
Anchorage Telephone Utility Fund (Utility) as of December 31, 1998 and 1997, and
the related statements of revenues, expenses, and changes in retained earnings,
and cash flows for each of the years in the three-year period ended December 31,
1998. These financial statements are the responsibility of the Utility's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    The financial statements present only the Municipality of Anchorage
Telephone Utility Fund and are not intended to present fairly the financial
position and results of operations of the Municipality of Anchorage in
conformity with generally accepted accounting principles.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Municipality of
Anchorage Telephone Utility Fund as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.

KPMG LLP

Anchorage, Alaska
February 19, 1999

                                      F-46
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                                 BALANCE SHEETS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                            ------------------------   MARCH 31,
                                                                               1997         1998         1999
                                                                            -----------  -----------  -----------
<S>                                                                         <C>          <C>          <C>
                                                                                                      (UNAUDITED)
                                                     ASSETS
CURRENT ASSETS
  Cash....................................................................  $    10,474  $    25,755   $  23,034
  Accounts receivable, net of uncollectibles of $1,586, $1,343 and $1,735
    in 1998, 1997 and March 31, 1999......................................       21,216       23,733      24,026
  Inventories.............................................................        4,415        3,074       3,138
                                                                            -----------  -----------  -----------
    Total current assets..................................................       36,105       52,562      50,198
RESTRICTED CASH...........................................................        2,067          754         492
RESTRICTED INVESTMENTS....................................................       12,895       14,838      16,817
NET TELEPHONE PLANT.......................................................      250,669      257,703     255,184
OTHER ASSETS
  Cellular licenses.......................................................        9,670       16,315      16,203
  Minority investments....................................................        7,983        5,535       5,107
  Other...................................................................        3,735        2,538       2,695
                                                                            -----------  -----------  -----------
    Total other assets....................................................       21,388       24,388      24,005
                                                                            -----------  -----------  -----------
TOTAL ASSETS..............................................................  $   323,124  $   350,245   $ 346,696
                                                                            -----------  -----------  -----------
                                                                            -----------  -----------  -----------

                                           FUND EQUITY AND LIABILITIES
CURRENT LIABILITIES
  Accounts payable........................................................  $    23,211  $    24,366   $  22,967
  Accrued interest........................................................        1,730        2,227       1,779
  Compensated absences payable............................................        3,297        2,786       2,857
  Accrued employee benefits...............................................        2,141        1,938       2,313
  Advance billings and customer deposits..................................        4,386        4,523       3,790
  Current installments of long-term obligations...........................       16,719       17,614      17,249
                                                                            -----------  -----------  -----------
    Total current liabilities.............................................       51,484       53,454      50,955
LONG-TERM OBLIGATIONS.....................................................      135,226      154,907     150,369
FUND EQUITY
  Retained Earnings.......................................................      136,414      141,884     145,372
                                                                            -----------  -----------  -----------
TOTAL FUND EQUITY AND LIABILITIES.........................................  $   323,124  $   350,245   $ 346,696
                                                                            -----------  -----------  -----------
                                                                            -----------  -----------  -----------
</TABLE>

                See accompanying notes to financial statements.

                                      F-47
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

       STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN RETAINED EARNINGS

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                        THREE MONTHS ENDED MARCH
                                                       YEARS ENDED DECEMBER 31,                   31,
                                                 -------------------------------------  ------------------------
<S>                                              <C>          <C>          <C>          <C>          <C>
                                                    1996         1997         1998         1998         1999
                                                 -----------  -----------  -----------  -----------  -----------

<CAPTION>
                                                                                        (UNAUDITED)  (UNAUDITED)
<S>                                              <C>          <C>          <C>          <C>          <C>
OPERATING REVENUES
  Local telephone..............................  $   113,415  $   116,555  $   121,057   $  29,735    $  30,364
  Cellular.....................................       16,897       21,845       29,225       5,879        6,710
  Long distance................................            2        1,541        6,815       1,144        2,683
                                                 -----------  -----------  -----------  -----------  -----------
    Total operating revenue....................      130,314      139,941      157,097      36,758       39,757

OPERATING EXPENSES
  Cost of sales and operating
    expenses--local............................       75,980       74,994       74,240      18,231       18,844
  Cost of sales and operating
    expenses--cellular.........................       12,379       14,455       19,961       4,048        4,740
  Cost of sales and operating expenses--long
    distance...................................          543        4,644       10,395       1,898        3,243
  Depreciation and amortization................       20,496       26,839       29,608       7,099        7,434
                                                 -----------  -----------  -----------  -----------  -----------
    Total operating expenses...................      109,398      120,932      134,204      31,276       34,261
                                                 -----------  -----------  -----------  -----------  -----------

OPERATING INCOME...............................       20,916       19,009       22,893       5,482        5,496
  Interest expense.............................       (9,187)      (9,308)      (9,394)     (2,448)      (1,996)
  Equity in earnings (loss) of minority
    investments................................          (45)         158       (2,945)       (250)        (509)
  Interest income..............................        2,347        2,540        2,967         608          411
  Other income (expense), net..................         (174)        (281)          49          67           86
                                                 -----------  -----------  -----------  -----------  -----------
    Net other expense..........................       (7,059)      (6,891)      (9,323)     (2,023)      (2,008)
                                                 -----------  -----------  -----------  -----------  -----------
  NET INCOME...................................       13,857       12,118       13,570       3,459        3,488
                                                 -----------  -----------  -----------  -----------  -----------
                                                 -----------  -----------  -----------  -----------  -----------

RETAINED EARNINGS, JANUARY 1...................      126,839      132,596      136,414     136,414      141,884
Utility Revenue Distribution to Municipality of
  Anchorage....................................       (8,100)      (8,300)      (8,100)         --           --
                                                 -----------  -----------  -----------  -----------  -----------
RETAINED EARNINGS, PERIOD END..................  $   132,596  $   136,414  $   141,884   $ 139,873    $ 145,372
                                                 -----------  -----------  -----------  -----------  -----------
                                                 -----------  -----------  -----------  -----------  -----------
</TABLE>

                See accompanying notes to financial statements.

                                      F-48
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                            STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    YEARS ENDED            THREE MONTHS ENDED MARCH
                                                                   DECEMBER 31,                      31,
                                                          -------------------------------  ------------------------
                                                            1996       1997       1998        1998         1999
                                                          ---------  ---------  ---------  -----------  -----------
<S>                                                       <C>        <C>        <C>        <C>          <C>
                                                                                           (UNAUDITED)  (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
  Income from operations................................  $  20,477  $  19,005  $  22,548   $   5,629    $   5,666
  Adjustments to reconcile income from operations to
    net cash provided by operating activities
    Depreciation and amortization.......................     20,496     26,839     29,608       7,099        7,434
    Provision for uncollectible accounts................      1,112      1,113      1,643         441          944
    Loss on disposition of fixed assets.................        288        100        174          56           --
    Nonregulated income and other.......................        439         43         95        (464)        (165)
    Changes in assets and liabilities which increase
      (decrease) cash Accounts receivable...............       (996)    (4,040)    (4,160)     (1,184)      (1,237)
      Inventory of materials, supplies, and goods
        for resale......................................        159       (504)     1,341          63          (64)
      Other assets......................................       (364)       120      1,244         751         (157)
      Accounts payable..................................        (25)     4,172      1,155      (4,290)      (1,399)
      Accrued employee benefits and compensated
        absences payable................................      1,198        194       (713)        408          446
      Customer deposits.................................       (620)      (262)      (292)       (115)        (733)
      Advance billings..................................        306        558        428          --           --
      Other liabilities.................................       (350)      (697)       136          --           --
                                                          ---------  ---------  ---------  -----------  -----------
Net cash provided by operating activities...............     42,120     46,641     53,207       8,394       10,735
                                                          ---------  ---------  ---------  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Cash flows from noncapital financing activities
    Utility revenue distribution--Municipality of
      Anchorage.........................................     (8,100)    (8,300)    (8,100)         --           --
  Cash flows from capital and related financing
    activities
    Acquisition of telephone plant......................    (24,958)   (35,187)   (29,644)      8,404        3,383
    Short-term advance from Municipality of Anchorage
      General Fund......................................    (12,000)        --         --          --           --
    Principal payments on long-term obligations.........    (22,002)   (19,617)   (17,340)     (2,497)      (6,475)
    Bond issuance.......................................     43,659     24,790     29,592      29,592           --
    Interest payments on long-term obligations..........     (6,513)    (7,952)    (8,011)     (2,060)      (2,292)
    Cost of removal of telephone plant..................       (181)      (650)       (77)         --           --
                                                          ---------  ---------  ---------  -----------  -----------
Net cash provided (used) by capital and related
  financing activities..................................    (21,995)   (38,616)   (25,480)     16,631      (12,150)
                                                          ---------  ---------  ---------  -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Interest..............................................      2,347      2,325      2,968         744          411
  Minority investments..................................     (2,398)    (5,227)    (7,283)     (7,283)          --
  Proceeds from sale of restricted investments..........     12,865     12,109     13,912      13,912       15,655
  Purchase of restricted investments....................    (13,601)   (12,872)   (15,256)    (15,417)     (17,634)
                                                          ---------  ---------  ---------  -----------  -----------
Net cash used by investing activities...................       (787)    (3,665)    (5,659)     (8,044)      (1,568)
                                                          ---------  ---------  ---------  -----------  -----------
NET CHANGE IN CASH......................................     11,238     (3,940)    13,968      16,981       (2,983)

CASH, JANUARY 1.........................................      5,243     16,481     12,541      12,541       26,509
                                                          ---------  ---------  ---------  -----------  -----------
CASH, PERIOD END (including Restricted Cash
  (see Note 1)).........................................  $  16,481  $  12,541  $  26,509   $  29,522    $  23,526
                                                          ---------  ---------  ---------  -----------  -----------
                                                          ---------  ---------  ---------  -----------  -----------
NON-CASH CAPITAL, FINANCING, AND INVESTING ACTIVITIES
  Retirement of telephone plant.........................  $   7,124  $   9,077  $   3,401          --    $      --
  Write down of long-term investments...................         --         --      1,888          --           --
  Financed equipment purchased..........................         --         --      6,655          --        1,420
                                                          ---------  ---------  ---------  -----------  -----------
  Total Non-cash Capital, Financing, and Investing
    Activities..........................................  $   7,124  $   9,077  $  11,944          --    $   1,420
                                                          ---------  ---------  ---------  -----------  -----------
                                                          ---------  ---------  ---------  -----------  -----------
</TABLE>

                See accompanying notes to financial statements.

                                      F-49
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    DESCRIPTION OF BUSINESS

    The accompanying financial statements include the activities of the
Telephone Utility Fund (Utility), a public utility of the Municipality of
Anchorage (Municipality), ATU Communications, Inc. (ACI), a holding company,
MACtel, Inc. (MACtel) and ATU Long Distance, Inc. (ATU LD), wholly owned
subsidiaries of ACI. All significant intercompany transactions have been
eliminated.

    The regulated arm of the Utility provides local telecommunications service
and access to long distance telecommunications service to the Anchorage Bowl
area and to Girdwood and other small communities in the area south of the
Anchorage Bowl both inside and outside the boundaries of the Municipality. The
nonregulated arm of the Utility sells, rents, and leases customer premise
equipment to customers throughout the State of Alaska. MACtel is a
wholesale/retail cellular service provider that operates in Anchorage, the Kenai
Peninsula, and the North Star and North Slope Boroughs. ATU LD provides long
distance service to customers in Anchorage, Fairbanks, Juneau, the Kenai
Peninsula and the Matanuska Valley. Approximately 70% of the Utility's employees
are covered under a labor contract with the International Brotherhood of
Electrical Workers (IBEW) which expires on August 31, 1999.

    On January 5, 1998, MACtel acquired certain assets of Pacific Telecom
Cellular of Alaska RSA #1, Inc. and stock of Prudhoe Communications, Inc.,
collectively d/b/a Cellulink, a cellular service company in Fairbanks, Alaska
for $8,900.

    The purchase price was allocated as follows:

<TABLE>
<S>                                                                  <C>
Property and equipment.............................................  $   1,817
Cellular licenses..................................................      7,083
                                                                     ---------
                                                                     $   8,900
                                                                     ---------
                                                                     ---------
</TABLE>

    Results of operations for the acquired companies have been included in 1998
operations since the date of acquisition. Pro forma information for prior
periods is not presented because it is not material.

    SALE OF UTILITY

    During 1998, the Municipal Assembly accepted a bid in the amount of $295,000
from Alaska Communications Systems, Inc. to acquire substantially all of the
assets and assume substantially all of the liabilities of the Utility. The sale
will become effective after review and approval by the Alaska Public Utilities
Commission (APUC), the Federal Communications Commission (FCC), and non-action
by the United States Department of Justice under the Hart-Scott-Rodino Act. The
sales price will be adjusted based upon levels of cash and net plant on the
closing date.

                                      F-50
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    REGULATION

    The Utility is subject to rate regulation by the FCC for interstate
telecommunication service, and the APUC for intrastate and local exchange
telecommunication service. The Utility, as required by the FCC, accounts for
such activity separately.

    The services of ATU LD are subject to rate regulation as a non-dominant
interexchange carrier by the FCC for interstate telecommunication services and
the APUC for intrastate telecommunication services. The operations of MACtel are
not subject to rate regulation.

    BASIS OF ACCOUNTING

    The accounting records of the Utility conform to Part 32 Uniform System of
Accounts as prescribed by the FCC and the APUC.

    The accompanying financial statements are prepared on the accrual basis of
accounting. The accounting policies of the Utility are in conformity with the
requirements of the FCC and the APUC. The Utility prepares its financial
statements in accordance with Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation". Accounting
under SFAS No. 71 is appropriate as long as rates are established by or subject
to approval by independent third-party regulators; rates are designed to recover
the specific enterprise's cost-of-service; and in view of demand for service, it
is reasonable to assume that rates are set at levels that will recover costs and
can be collected from customers.

    Under Governmental Accounting Standards Board (GASB) Statement No. 20,
ACCOUNTING AND FINANCIAL REPORTING FOR PROPRIETARY FUNDS AND OTHER GOVERNMENTAL
ENTITIES THAT USE PROPRIETARY FUND ACCOUNTING, the Utility applies all
applicable GASB pronouncements and all Financial Accounting Standards Board
(FASB) Statements and Interpretations, Accounting Principles, Board Opinions and
Accounting Research Bulletins, unless they conflict with or contradict GASB
pronouncements. ATU follows the provisions of GASB Statement No. 27 to account
for pension and post-retirement costs, which differs from FAS Statement No. 87
and FAS Statement No. 106 regarding the methodology for calculation of such
costs and how they are recorded and disclosed. Specifically, GASB Statement No.
27 requires that annual pension cost be equal to the annual required
contributions of the employer (ARC) to the plan for that year calculated via an
actuarial valuation performed in accordance with specific parameters. These
parameters address such matters as the frequency of actuarial valuations,
acceptable actuarial cost methods, asset valuation methodology, minimum and
maximum amortization periods and the amortization method. Generally, employers
are required to record a net pension obligation (NPO) if the ARC calculated in
accordance with the parameters exceeds actual contributions made. Annual pension
cost is calculated as the ARC, one year's interest on the NPO, and certain
required adjustments. Under GASB Statement No. 27, employers are permitted to
apply the measurement and recognition requirements of GASB Statement No. 27 to
postemployment healthcare benefits.

                                      F-51
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Pursuant to GASB Statement No. 27, the Municipality of Anchorage Telephone
Utility Fund recorded annual pension cost of $1,041,000 for the year ended
December 31, 1998, of which $749,520 related to pension benefits and $291,480
related to postemployment healthcare benefits. As of December 31, 1998 and 1997,
there is no NPO.

    Under FASB Statement No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, the
following components are included in the net pension cost recognized for a
period by an employer sponsoring a defined benefit pension plan:

    - Service cost

    - Interest cost

    - Actual return on plan assets, if any

    - Amortization of unrecognized prior service cost, if any

    - Gain or loss (including the effects of changes in assumptions) to the
      extent recognized

    - Amortization of the unrecognized net obligation (and loss or cost) or
      unrecognized net asset (and gain) existing at the date of initial
      application of FASB Statement No. 87.

    The service component of net periodic pension cost, the projected benefit
obligation, and the accumulated benefit obligation are based on an attribution
of pension benefits to periods of employee service and on the use of actuarial
assumptions to calculate the actuarial present value of those benefits.
Actuarial assumptions reflect the time value of money (discount rate) and the
probability of payments (assumptions as to mortality, turnover, early
retirement, and so forth).

    Under FASB Statement No. 87, a liability (unfunded accrued pension cost) is
recognized if net periodic pension cost recognized pursuant to FASB Statement
No. 87 exceeds amounts the employer has contributed to the plan. An asset
(prepaid pension cost) is recognized if net periodic pension cost is less than
amounts the employer has contributed to the plan.

    If the accumulated benefit obligations exceeds the fair value of plan
assets, the employer shall recognize in the statement of financial position a
liability (including unfunded accrued pension cost) that is at least equal to
the unfunded accumulated benefit obligation. Recognition of an additional
minimum liability is required in certain other circumstances.

    Accounting for postretirement benefits pursuant to FASB Statement No. 106,
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, is
similar to the accounting proscribed for pension benefits in accordance with
FASB Statement No. 87.

    It is not practicable to quantify the differences between the statements
without an additional complete actuarial valuation because the actuarial
calculations for FAS Statement No. 87 purposes require different assumptions and
represent different measurement bases. Other differences between GASB and FAS
have been evaluated and have been determined not to be material for the periods
presented.

                                      F-52
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the balance sheet and revenues and expenses for the period. Actual results
could differ from those estimates. The more significant accounting and reporting
policies and estimates applied in the preparation of the accompanying financial
statements are discussed below.

    CASH POOLS AND RESTRICTED INVESTMENTS

    The Municipality uses a central treasury to account for all cash and
investments to maximize interest income. Interest income from cash pool
investments is allocated to the Utility based on its monthly closing cash pool
equity balance. Restricted investments are recorded at fair value. All amounts
in the cash pools and in restricted investments are interest bearing and consist
primarily of repurchase agreements, banker's acceptances or U.S. Government
securities. The Utility adopted GASB Statement No. 31, ACCOUNTING AND FINANCIAL
REPORTING FOR CERTAIN INVESTMENTS AND FOR EXTERNAL INVESTMENT POOLS, during
1998. The impact of adopting this statement was not material to the financial
statements.

    Under GASB Statement No. 3, DEPOSITS WITH FINANCIAL INSTITUTIONS,
INVESTMENTS (INCLUDING REPURCHASE AGREEMENTS), AND REVERSE REPURCHASE
AGREEMENTS, the Utility's cash and investments are classified in credit risk
category 1 because they are insured or registered or are securities held by the
Utility or its agent in the Utility's name.

    STATEMENT OF CASH FLOWS

    The Utility has adopted GASB Statement No. 9, REPORTING CASH FLOWS OF
PROPRIETARY AND NONEXPENDABLE TRUST FUNDS AND GOVERNMENTAL ENTITIES THAT USE
PROPRIETARY FUND ACCOUNTING. For purposes of the statement of cash flows, the
Utility has defined cash as the demand deposits and investments maintained in
the general and construction cash pools, including restricted and unrestricted
balances, as well as cash balances maintained separately from the cash pools.
Maturity periods of investments have been disregarded, since the Utility uses
the general and construction cash pools as demand deposit accounts.

                                      F-53
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Cash consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                                   1996       1997       1998
                                                                                 ---------  ---------  ---------
<S>                                                                              <C>        <C>        <C>
Equity in general cash pool....................................................  $  14,427  $   9,401  $  19,254
Cash...........................................................................        963      1,073      6,501
                                                                                 ---------  ---------  ---------
    Total cash.................................................................     15,390     10,474     25,755
Amounts included with restricted investments:
Equity in construction cash pool...............................................         --        927         --
Equity in general cash pool reserved for customer deposits.....................      1,091        830        537
Cash included in revenue bond reserve investments..............................         --        310        217
                                                                                 ---------  ---------  ---------
                                                                                 $  16,481  $  12,541  $  26,509
                                                                                 ---------  ---------  ---------
                                                                                 ---------  ---------  ---------
</TABLE>

    INVENTORIES

    The Utility's inventories, consisting primarily of parts and supplies, are
valued at the lower of weighted average cost or market.

    TELEPHONE PLANT

    Telephone plant is stated at cost. The additions to telephone plant in
service are recorded at the original cost of contracted services, direct
materials and labor, and indirect overhead charges. When property is retired,
the cost of the property unit, plus removal costs, less salvage, is charged to
accumulated depreciation. Gain or loss on the retirement of regulated telephone
plant is not recognized except for extraordinary retirements.

    The Utility's depreciation is computed using the straight-line method over
the estimated lives of the assets. Current rates on regulated plant were
implemented January 1, 1997 and were based on APUC Docket U-96-78. MACtel and
ATU LD property and equipment are depreciated using the straight-line and
declining balance methods over the estimated useful asset lives.

    The estimated life in years of major plant and equipment categories follows:

<TABLE>
<CAPTION>
                                                                                     ESTIMATED
PLANT AND EQUIPMENT                                                                    LIFE
- ----------------------------------------------------------------------------------  -----------
<S>                                                                                 <C>
Buildings.........................................................................          56
Central office equipment..........................................................        9-10
Cable, wire and conduit...........................................................       12-46
Furniture, computers and support equipment........................................        7-22
Vehicles..........................................................................       11-19
Leasehold improvements............................................................         2-3
Nonregulated......................................................................        3-10
</TABLE>

                                      F-54
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    MINORITY INVESTMENTS

    Minority investments consist of investments in companies which are accounted
for using the equity method.

    CELLULAR LICENSES

    Cellular licenses are stated at net book value. Amortization is computed on
the straight-line method over an estimated useful life of 40 years.

    DISCOUNT ON REVENUE BONDS PAYABLE

    The discount on revenue bonds payable is amortized over the life of the
related bond issue using the effective interest method.

    REVENUE RECOGNITION

    Recurring revenues are billed one month in advance and are deferred until
the month earned. Nonrecurring revenues are billed in arrears and are recognized
when earned.

    During 1998 the Utility participated in both interstate and intrastate
common line pooled settlements. During 1998 the Utility did not participate in
any traffic-sensitive pools. Pooled revenues are based on settlements with the
applicable pool's administrator. Intrastate pooled revenues are settled on a
monthly basis with the Alaska Exchange Carrier Association (AECA) and are final
at the time of settlement. Participation in the AECA pool was discontinued
effective January 1, 1999. Interstate pooled revenues are settled on a monthly
basis with the National Exchange Carrier Association (NECA). The NECA
settlements may be adjusted for a period of up to twenty-four months. Interstate
traffic sensitive revenue is based on rates and charges defined in the Utility's
interstate tariff approved by the FCC. Interstate traffic sensitive revenue is
recognized when earned for both recurring and nonrecurring charges.

    To the extent that disputes arise over revenue settlement procedures, the
Utility's policy is to defer revenue collected until settlement methodologies
are resolved and finalized.

    MUNICIPAL UTILITY SERVICE ASSESSMENT

    The Municipal Utility Service Assessment (MUSA) is assessed by the
Municipality and is calculated based on the net book value of telephone plant in
the prior year. Net book value for each tax district is multiplied by the
current mill rate to determine the assessment. The Utility also pays a gross
receipt tax, which is 1.25% of gross operating revenues, excluding nonregulated
revenues.

    ADVERTISING

    Advertising costs are expensed in the period in which they are incurred.

                                      F-55
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    INCOME TAXES

    The Internal Revenue Code provides that gross income for tax purposes does
not include income accruing to a state or territory, or any political
subdivision thereof, which is derived from the exercise of any essential
governmental function or from any public utility. The Utility is a public
utility of the Municipality and is therefore exempt from federal and state
income taxes. ACI and its subsidiaries are exempt from federal and state income
taxes because ACI is a holding company owned 100% by the Utility.

    GASB NO. 27

    The Utility adopted GASB Statement No. 27, ACCOUNTING FOR PENSIONS BY STATE
AND LOCAL GOVERNMENTAL EMPLOYERS, during 1998. GASB No. 27 establishes standards
for the measurement, recognition and display of pension expense and related
liabilities, assets, note disclosure and applicable required supplementary
information in the financial reports of state and local governmental employers.
The impact of adopting GASB No. 27 was not material to the financial statements.

    IMPAIRMENT OF LONG-LIVED ASSETS

    The Utility has adopted FASB Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Under the provisions of this statement, the Utility has evaluated its long-lived
assets for financial impairments and will continue to evaluate them if events or
changes in circumstance indicate the carrying amount of such assets may not be
fully recoverable.

    RECLASSIFICATIONS

    Certain reclassifications have been made to the December 31, 1997 and 1996
financial statements to conform to the current year's presentation.

                                      F-56
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(2) TELEPHONE PLANT

    A summary of telephone plant and equipment at December 31, follows:

<TABLE>
<CAPTION>
                                                                        1997          1998
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Plant in Service
  Cable, wire and conduit.........................................  $    166,055  $    169,705
  Central office equipment........................................       124,199       126,364
  Buildings.......................................................        43,908        44,207
  Furniture, computers and support equipment......................        21,580        21,380
  Nonregulated equipment..........................................        30,413        36,269
  Vehicles........................................................         7,523         7,499
  Land............................................................         5,101         5,168
  Leasehold improvements..........................................           468           741
                                                                    ------------  ------------
                                                                         399,247       411,333
  Less accumulated depreciation...................................      (162,990)     (187,179)
                                                                    ------------  ------------
  Net plant in service............................................       236,257       224,154
  Construction work in progress...................................        14,412        33,549
                                                                    ------------  ------------
  Net telephone plant.............................................  $    250,669  $    257,703
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>

                                      F-57
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(3) LONG-TERM OBLIGATIONS

    Long-term obligations consist of the following at December 31:

    Bonds payable:

<TABLE>
<CAPTION>
                                                                                             1997         1998
                                                                                          -----------  -----------
<S>                                                                                       <C>          <C>
  1993 Series, effective interest rate of 5.49%, due in 2013............................  $    17,390  $    16,670
  1994 Series, effective interest rate of 4.38%, due in 2010............................       66,210       54,265
  1996 Series, effective interest rate of 5.71%, due in 2016............................       42,745       41,430
  1997 Series, effective interest rate of 5.18%, due in 2017............................       25,000       24,275
  1998 Series, effective interest rate of 4.44%, due in 2010............................           --       30,000
                                                                                          -----------  -----------
                                                                                              151,345      166,640
  Less: Unamortized loss on refunding...................................................       (2,295)      (1,643)
  Less: Current portion.................................................................      (14,705)     (16,370)
  Less: Unamortized discount............................................................         (257)        (226)
  Plus: Unamortized premium.............................................................          238          678
                                                                                          -----------  -----------
Net long-term revenue bonds payable.....................................................      134,326      149,079
                                                                                          -----------  -----------
Equipment financing obligations, interest rates range from approximately 4-5%, final
  payment due in 2004...................................................................           --        6,034
  Less: Current portion.................................................................           --       (1,071)
                                                                                          -----------  -----------
Net equipment financing obligations.....................................................           --        4,963
                                                                                          -----------  -----------
Note payable:
  Note payable, effective interest rate of 5.98%, due in 1999...........................        2,187          173
  Less: Current portion.................................................................       (2,014)        (173)
                                                                                          -----------  -----------
Net note payable........................................................................          173           --
                                                                                          -----------  -----------
Arbitrage payable.......................................................................          727          865
                                                                                          -----------  -----------
Total long-term obligations.............................................................  $   135,226  $   154,907
                                                                                          -----------  -----------
                                                                                          -----------  -----------
</TABLE>

Debt service requirements are the following for the years ended December 31:

<TABLE>
<CAPTION>
                                                               PRINCIPAL   INTEREST      TOTAL
                                                              -----------  ---------  -----------
<S>                                                           <C>          <C>        <C>
1999........................................................  $    17,614  $   8,272  $    25,886
2000........................................................       17,686      7,592       25,278
2001........................................................       18,381      6,853       25,234
2002........................................................       19,176      6,063       25,239
2003........................................................        9,989      5,152       15,141
2004-2008...................................................       41,461     18,580       60,041
2009-2013...................................................       30,825      9,164       39,989
2014-2017...................................................       17,715      1,720       19,435
                                                              -----------  ---------  -----------
                                                              $   172,847  $  63,396  $   236,243
                                                              -----------  ---------  -----------
                                                              -----------  ---------  -----------
</TABLE>

    The 1993 revenue bond covenants require the establishment of reserves over a
five-year period equal to the maximum annual debt service on all outstanding
bonds. The 1994 refunding bond covenants require establishment of a reserve in
the amount of $9,750. The 1996 revenue bond covenants require an amount equal to
the lesser of $4,400 or the maximum annual debt service to

                                      F-58
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(3) LONG-TERM OBLIGATIONS (CONTINUED)
be funded in equal installments over four years. The 1997 revenue bond covenants
require an amount equal to the lessor of $2,500 or the maximum annual debt
service to be funded in equal installments over four years. The 1998 revenue
bond covenants require an amount equal to the lessor of $3,000 or the maximum
annual debt service to be funded in equal installments over four years. The
revenue bond covenants further stipulate that revenues less expenses will be
equal to at least 1.4 times the debt service requirements for that year.
Expenses are defined as costs for operation and maintenance of the system,
excluding depreciation and MUSA for each year. For the years ended December 31,
1998, 1997 and 1996, the Utility complied with the revenue bond covenants.

(4) REFUNDING OF LONG-TERM OBLIGATIONS

    In 1994, the Utility issued refunding bond issues for the purpose of
redeeming certain bond issues when they become due or callable. The net proceeds
of the refunding bond issue were used to purchase US Government securities which
were deposited in an irrevocable trust with an escrow agent to provide all
future debt service payments on the refunded bonds. Since payment of these
advance refunded issues has been provided, as described above, neither the
liability nor the assets irrevocably pledged, including related interest income
and expense, are reflected in the accompanying financial statements.

    Defeased bonds as of December 31, 1998 total $11,390 for the 1990 issue.

                                      F-59
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(5) RETIREMENT PLANS

    Substantially all employees are covered by one of the following plans.

    INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (IBEW) PLAN

    The IBEW Plan is a union sponsored defined benefit pension plan for members
of the IBEW #1547 Union. The Utility contributed $3.67 per compensable employee
hour to the Alaska Electrical Trust Fund in 1998, 1997 and 1996. Utility
contributions to this plan were $3,130, $3,379 and $3,608 for the years ended
December 31, 1998, 1997 and 1996, respectively. The hourly rate paid by the
Utility is determined by the collective bargaining process. The Utility's
obligation for IBEW employee retirement is limited to the amount paid to the
Alaska Electrical Trust Fund.

    STATE OF ALASKA PUBLIC EMPLOYEES' RETIREMENT SYSTEM PLAN

    As discussed in note 1, the Utility adopted the provisions of GASB Statement
No. 27, ACCOUNTING FOR PENSIONS BY STATE AND LOCAL GOVERNMENTAL EMPLOYERS (GASB
27), in 1998.

    STATE OF ALASKA PUBLIC EMPLOYEES' RETIREMENT SYSTEM

    A. PLAN DESCRIPTION

    The Utility contributes to the State of Alaska Public Employees' Retirement
System (PERS), a defined benefit, agent multiple-employer public employee
retirement system which was established and is administered by the State of
Alaska (State) to provide pension, postemployment healthcare, death and
disability benefits to eligible employees.

    All full-time Utility employees not covered by the IBEW Plan are eligible to
participate in PERS. Benefit and contribution provisions are established by
State law and may be amended only by the State Legislature.

    Each fiscal year, PERS issues a publicly available financial report that
includes financial
statements and required supplementary information. That report may be obtained
by writing to the State of Alaska, Department of Administration, Division of
Retirement and Benefits, P.O. Box 110203, Juneau, Alaska, 99811-0203 or by
calling (907) 465-4460.

    B. FUNDING POLICY AND ANNUAL PENSION COST

    Employee contribution rates are 6.75% as required by State statute. The
funding policy for PERS provides for periodic employer contributions at
actuarially determined rates that, expressed as a percentage of annual covered
payroll, are sufficient to accumulate sufficient assets to pay

                                      F-60
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(5) RETIREMENT PLANS (CONTINUED)
benefits when due. The Utility's annual pension cost for the current year and
the related information is as follows:

<TABLE>
<CAPTION>
                                                                              POSTEMPLOYMENT
                                                         PENSION                HEALTHCARE
                                               ----------------------------  ----------------
<S>                                            <C>                           <C>
Contribution rates:
  Employee...................................             4.86%                   1.89%
  Employer...................................             6.36%                   2.47%
Annual pension cost..........................              $750                    $291
Contributions made...........................              $750                    $291
Actuarial valuation date.....................         June 30, 1996                Same
Actuarial cost method........................     Projected unit credit            Same
Amortization method..........................       Level dollar, open             Same
Amortization period..........................        Rolling 25 years              Same
Asset valuation method.......................     5-year smoothed market           Same
Actuarial assumptions:
  Inflation rate.............................               4%                     Same
  Investment return..........................             8.25%                    Same
  Projected salary increase..................              5.5%                    N/A
Health cost trend............................              N/A                     5.5%
</TABLE>

    The components of annual pension cost for the year ended December 31, 1998
are as follows:

<TABLE>
<S>                                                                  <C>
Annual required contribution (ARC).................................  $   1,041
Interest on the net pension obligation (NPO).......................         --
Adjustment to the ARC..............................................         --
                                                                     ---------
Annual pension cost (APC)..........................................      1,041
Contributions made.................................................      1,041
Increase in NPO....................................................         --
NPO, beginning of year.............................................         --
                                                                     ---------
NPO, end of year...................................................  $      --
                                                                     ---------
                                                                     ---------
</TABLE>

                                      F-61
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(5) RETIREMENT PLANS (CONTINUED)
    Three year trend information follows:

<TABLE>
<CAPTION>
                                         YEAR ENDED                   PERCENTAGE OF APC
                                         DECEMBER 31       APC           CONTRIBUTED           NPO
                                       ---------------  ---------  -----------------------  ---------
<S>                                    <C>              <C>        <C>                      <C>
Pension..............................          1996     $   1,032               100%        $
                                               1997           827               100%               --
                                               1998           750               100%               --
Postemployment healthcare............          1996     $     382               100%        $      --
                                               1997           306               100%               --
                                               1998           291               100%               --
</TABLE>

    In the current year (the transition year), the Utility determined, in
accordance with provisions of GASB No. 27, that no pension liability (asset)
existed to PERS and there was no previously reported liability (asset) to PERS.

    Information regarding funding progress follows:
<TABLE>
<CAPTION>
                                                                                     UNFUNDED
                                                                                     ACTUARIAL
                                              ACTUARIAL    ACTUARIAL    ACTUARIAL     ACCRUED
                                              VALUATION      VALUE       ACCRUED     LIABILITY
                                             YEAR ENDED     OF PLAN     LIABILITY     (ASSET)      FUNDED      COVERED
                                               JUNE 30      ASSETS        (AAL)       (UAAL)        RATIO      PAYROLL
                                             -----------  -----------  -----------  -----------  -----------  ---------
<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
Pension benefits...........................        1995    $   5,417    $   4,457    $    (960)         122%  $  11,288
                                                   1996        6,656        5,702         (954)         117%     11,436
                                                   1997       10,180        7,419       (2,761)         137%     12,290
Postemployment healthcare benefits.........        1995    $   2,036    $   1,675    $    (361)         122%  $  11,288
                                                   1996        2,565        2,198         (367)         117%     11,436
                                                   1997        3,794        2,765       (1,029)         137%     12,290

Total......................................        1995    $   7,453    $   6,132    $  (1,321)         122%  $  11,288
                                                   1996        9,221        7,900       (1,321)         117%     11,436
                                                   1997       13,974       10,184       (3,790)         137%     12,290

<CAPTION>

                                                UAAL AS A
                                               PERCENTAGE
                                               OF COVERED
                                                 PAYROLL
                                             ---------------
<S>                                          <C>
Pension benefits...........................            (9)%
                                                       (8)%
                                                      (22)%
Postemployment healthcare benefits.........            (3)%
                                                       (3)%
                                                       (8)%
Total......................................           (12)%
                                                      (11)%
                                                      (31)%
</TABLE>

(6) OTHER EMPLOYEE BENEFITS

    The Municipality offers its employees, including employees of the Utility, a
deferred compensation plan (Plan) created in accordance with Internal Revenue
Code Section 457. The Plan, available to all Municipal employees, permits them
to defer a portion of their salary until future years. The deferred compensation
is not available to employees until termination, retirement, death or
unforeseeable emergency. It is the opinion of the Municipality's legal counsel
that the

                                      F-62
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(6) OTHER EMPLOYEE BENEFITS (CONTINUED)
Municipality has no liability for losses under the Plan but does have the duty
of due care that would be required of an ordinary prudent investor.

    The municipality believes that it is unlikely that it will use the assets to
satisfy the claims of general creditors in the future.

    In accordance with labor agreements, IBEW employees' medical/dental coverage
is provided through the Alaska Electrical Health and Welfare Trust Fund. Utility
contributions to this fund were $2,859, $3,143 and $2,888 for the years ended
December 31, 1998, 1997 and 1996, respectively.

(7) MINORITY INVESTMENTS

    Minority investments held consist of the following at December 31:

<TABLE>
<CAPTION>
                                                              1997       1998        OWNERSHIP %
                                                            ---------  ---------  -----------------
<S>                                                         <C>        <C>        <C>
Alaskan Choice Television, LLC............................  $   4,627  $   2,651             33%
Alaska Network Systems, Inc...............................      2,353      2,015             47%
Internet Alaska, Inc......................................        803        500             30%
Security One, LLC.........................................        200        369             20%
                                                            ---------  ---------
                                                            $   7,983  $   5,535
                                                            ---------  ---------
                                                            ---------  ---------
</TABLE>

    The Utility is one of three members of a limited liability company, Alaskan
Choice Television, LLC (ACTV). ACTV has accumulated substantial losses since
inception and is not generating sufficient cash flow to sustain operations.
These factors, among others, indicate that ACTV may be unable to continue as a
going concern for a reasonable period of time. ACTV's continuation as a going
concern is dependent upon its ability to attain additional equity and debt
financing and achieve positive cash flow and profitability. ACTV is in
negotiation with a potential investor who will provide working capital. The
other two members of the limited liability company have agreed to sell their
interests to this investor. ACTV expects to complete this transaction in the
second quarter of 1999. Additionally, ACTV is in discussion with several
financial institutions to provide the necessary debt financing. Pursuant to
Statement of Financial Accounting Principles Board Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock", the Utility assessed the
recoverability of its investment in ACTV during 1998 and adjusted the carrying
value of the investment to its estimated fair value resulting in a noncash
impairment loss of approximately $1,500.

(8) RELATED PARTY TRANSACTIONS

    INTRAGOVERNMENTAL CHARGES

    Certain general and administrative functions of the Municipality, including
data processing, workers' compensation insurance and medical/dental/life
insurance, are centralized and the related cost is allocated to the various
funds of the Municipality, including the Utility. Such costs allocated

                                      F-63
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(8) RELATED PARTY TRANSACTIONS (CONTINUED)
to the Utility totaled $3,187, $3,672, and $3,204 for the years ended December
31, 1998, 1997, and 1996, respectively.

    These costs are allocated to ATU from the Municipality of Anchorage through
an inter-governmental charge system ("IGC") based upon ATU's proportionate share
of certain cost drivers, such as manned positions, building square footage or
number of transactions processed, depending upon the type of cost being
allocated. Certain IGC's are based upon work orders for specific projects
between departments. Management believes that the methodology utilized is
reasonable. It is not practicable to quantify what such costs would have been on
a stand-alone basis.

(9) FAIR VALUE OF FINANCIAL INSTRUMENTS

    The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.

    The following methods and assumptions were used by the Utility in estimating
fair value disclosures for financial instruments:

        Cash, restricted investments, accounts receivable, accounts payable and
    accrued liabilities, accrued interest, customer deposits and accrued
    employee benefits--The carrying amounts at December 31, 1998 and 1997
    approximate the fair values due to the short maturity of these instruments.

        Long-term debt--The fair value of the Utility's long-term debt is
    estimated by discounting the future cash flows of the various instruments at
    rates currently available to the Utility for similar debt instruments of
    comparable maturities.

    The carrying amount of long-term debt and its estimated fair value at
December 31 are as follows:

<TABLE>
<CAPTION>
                                                                         1997         1998
                                                                      -----------  -----------
<S>                                                                   <C>          <C>
Carrying amount.....................................................  $   153,532  $   172,847
Fair value..........................................................      161,000      181,000
</TABLE>

(10) BUSINESS SEGMENTS

    The Utility has adopted FASB Statement No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. The Utility has three reportable
segments: local telephone, long distance and cellular. The accounting policies
of the segments are the same as those described in the summary of significant
accounting policies. Each reportable segment is a strategic business offering
different services and is managed separately.

                                      F-64
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(10) BUSINESS SEGMENTS (CONTINUED)
    The following table illustrates selected financial data for each segment.

<TABLE>
<CAPTION>
                                                                      LOCAL       LONG
YEAR ENDED 1996                                                     TELEPHONE   DISTANCE   CELLULAR      TOTAL
- -----------------------------------------------------------------  -----------  ---------  ---------  -----------
<S>                                                                <C>          <C>        <C>        <C>
Operating income (loss)..........................................  $    18,975  $    (542) $   2,483  $    20,916
Depreciation and amortization....................................       18,460         --      2,036       20,496
Capital expenditures.............................................       22,280         --      4,992       27,272
Total assets.....................................................      278,354         81     30,375      308,810

YEAR ENDED 1997
Operating income (loss)..........................................  $    17,850  $  (3,218) $   4,377  $    19,009
Depreciation and amortization....................................       23,712        114      3,013       26,839
Capital expenditures.............................................       28,922        664      6,201       35,787
Total assets.....................................................      287,419      1,757     33,948      323,124

YEAR ENDED 1998
Operating income (loss)..........................................  $    21,490  $  (3,744) $   5,147  $    22,893
Depreciation and amortization....................................       25,327        164      4,117       29,608
Capital expenditures.............................................       26,751        275      9,431       36,457
Total assets.....................................................      295,810      2,532     51,903      350,245

THREE MONTHS ENDED MARCH 31, 1998
Operating income (loss)..........................................  $     5,318  $    (753) $     917  $     5,482
Depreciation and amortization....................................        6,184         --        915        7,099
Total assets.....................................................      304,132      2,494     44,564      351,190

THREE MONTHS ENDED MARCH 31, 1999
Operating income (loss)..........................................  $     5,807  $    (605) $     916  $     5,496
Depreciation and amortization....................................        6,335         45      1,054        7,434
Total assets.....................................................      292,581      3,083     51,032      346,696
</TABLE>

(11) COMMITMENTS AND CONTINGENCIES

    CONSTRUCTION COMMITMENTS

    The Municipal Assembly has approved the Utility's 1999 capital budget of
$29,200.

    CONTINGENCIES

    The Utility is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of the matters will not have a material adverse effect on the
Utility's financial position or results of operations.

                                      F-65
<PAGE>
                           MUNICIPALITY OF ANCHORAGE

                             TELEPHONE UTILITY FUND

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

                                 (IN THOUSANDS)

(12) BASIS OF PRESENTATION FOR UNAUDITED QUARTERLY INFORMATION

    The accompanying unaudited financial information at March 31, 1999 and for
the three months ended March 31, 1998 and 1999 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the full
fiscal year or for any future period.

                                      F-66
<PAGE>
                                  UNDERWRITING

    ALEC Holdings and the underwriters named below (the "Underwriters") have
entered into an underwriting agreement with respect to the shares being offered.
Subject to certain conditions, each Underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation, CIBC World Markets Corp.,
Deutsche Bank Securities Inc. and Hambrecht & Quist, LLC are the representatives
of the Underwriters.

<TABLE>
<CAPTION>
UNDERWRITERS                                                                           NUMBER OF SHARES
- ------------------------------------------------------------------------------------  ------------------
<S>                                                                                   <C>
Goldman, Sachs & Co.................................................................
Donaldson, Lufkin & Jenrette Securities Corporation.................................
CIBC World Markets Corp.............................................................
Deutsche Bank Securities Inc........................................................
Hambrecht & Quist, LLC..............................................................
                                                                                           ----------
    Total...........................................................................
                                                                                           ----------
                                                                                           ----------
</TABLE>

                               ------------------

    If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
shares from ALEC Holdings to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.

    The following table shows the per share and total underwriting discounts and
commissions to be paid to the Underwriters by ALEC Holdings. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option to
purchase       additional shares.

<TABLE>
<CAPTION>
                                                                                     PAID BY US
                                                                             ---------------------------
<S>                                                                          <C>           <C>
                                                                             NO EXERCISE   FULL EXERCISE
                                                                             ------------  -------------
Per Share..................................................................   $             $
Total......................................................................   $             $
</TABLE>

    Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $     per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $     per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.

    ALEC Holdings has agreed with the Underwriters not to dispose of or hedge
any common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This agreement does not apply to
any existing employee benefit plans. See "Shares Eligible for Future Sale" for a
discussion of certain transfer restrictions.

    At ALEC Holdings' request, the Underwriters have reserved up to      shares
of the common stock offered for sale in the offering, at the initial public
offering price, to employees and selected customers, suppliers and others having
a relationship with ALEC Holdings through a directed share program. The number
of shares available for sale to the general public will be reduced to the extent
these persons purchase the reserved shares. There can be no assurance that any
of the reserved shares will be so purchased. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered for sale in the offering.

                                      U-1
<PAGE>
    Prior to the offering, there has been no public market for the shares. The
initial public offering price has been negotiated among ALEC Holdings and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be ALEC Holdings' historical performance, estimates of business
potential and earnings prospects of ALEC Holdings, an assessment of ALEC
Holdings' management and the consideration of the above factors in relation to
market valuation of companies in related businesses.

    Application will be made for quotation of the common stock on the Nasdaq
National Market under the symbol "ALSK".

    In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.

    The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.

    These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

    The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.

    ALEC Holdings estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $1.63 million.

    The Underwriters and their affiliates have in the past provided, and may in
the future from time to time provide, investment banking and general financing
and banking services to Fox Paine & Company and its affiliates for which they
have in the past received, and may in the future receive, customary fees.
Affiliates of CIBC World Markets Corp. and affiliates of Deutsche Bank
Securities Inc. are limited partners in certain partnerships organized by Fox
Paine & Company, including certain of the partnerships organized in connection
with the formation of ALEC Holdings.

    Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation were the
initial purchasers of ALEC Holdings' senior discount debentures. These
affiliates of Donaldson, Lufkin & Jenrette Securities Corporation received
warrants to purchase 828,261 shares of common stock at an exercise price of
$0.01 per share in connection with the issuance of the senior discount
debentures. All of the shares underlying these warrants are expected to be
issued in connection with the offering.

    An affiliate of CIBC World Markets Corp., Canadian Imperial Bank of
Commerce, is the syndication agent and a lender under the senior credit facility
and in those capacities receives customary fees, commissions and reimbursement
of expenses. A portion of the net proceeds from the offering will be used to
repay borrowings under the revolving credit facility. CIBC World Markets Corp.
was an initial purchaser of the senior subordinated notes and in that capacity
received customary fees and commissions.

    On September 27, 1999, Hambrecht & Quist Group, the parent corporation of
Hambrecht & Quist, LLP, entered into an agreement and plan of merger with The
Chase Manhattan Corporation pursuant to which Hambrecht & Quist Group and its
subsidiaries will be acquired by The Chase

                                      U-2
<PAGE>
Manhattan Corporation. An affiliate of The Chase Manhattan Corporation, The
Chase Manhattan Bank, is the administrative agent and collateral agent and a
lender under the senior credit facility and in those capacities receives
customary fees, commissions and reimbursement of expenses. Another affiliate of
The Chase Manhattan Corporation, Chase Securities Inc., was an initial purchaser
of the senior subordinated notes and in that capacity received customary fees
and commissions.

    ALEC Holdings has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.

                                      U-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

    NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO
SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.

                            ------------------------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                               PAGE
                                               -----
<S>                                         <C>
Prospectus Summary........................           3
Risk Factors..............................          11
Use of Proceeds...........................          20
Dividend Policy...........................          20
Capitalization............................          21
Dilution..................................          22
Selected Historical Consolidated Financial
  Data--ALEC Holdings.....................          23
Selected Historical Combined Financial
  Data--Century's Alaska Properties.......          25
Selected Historical Financial Data--ATU...          27
Unaudited Pro Forma Combined Financial
  Statements..............................          29
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations..............................          35
Industry Overview.........................          56
Business..................................          58
Regulation................................          72
Management................................          80
Insider Relationships and Related Party
  Transactions............................          90
Security Ownership by Management and
  Principal Stockholders..................          91
Description of Indebtedness...............          93
Description of Capital Stock..............          99
Shares Eligible for Future Sale...........         101
U.S. Tax Consequences to Non-U.S.
  Holders.................................         103
Validity of Shares........................         105
Experts...................................         105
Additional Information....................         107
Index To Financial Statements.............         F-1
Underwriting..............................         U-1
</TABLE>

                                        Shares

                              ALEC HOLDINGS, INC.

                                  Common Stock

                             ---------------------

                                     [LOGO]

                             ---------------------

                              GOLDMAN, SACHS & CO.

                          DONALDSON, LUFKIN & JENRETTE

                               CIBC WORLD MARKETS

                           DEUTSCHE BANC ALEX. BROWN

                               HAMBRECHT & QUIST

                      Representatives of the Underwriters

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

    The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
common stock being registered, all of which will be paid by the Registrant:

<TABLE>
<CAPTION>
                                                                    AMOUNT
                                                                   ---------
<S>                                                                <C>
SEC registration fee.............................................  $  55,600
NASD filing fee..................................................     20,500
Nasdaq National Market listing fee...............................          *
Printing and engraving expenses..................................          *
Legal fees and expenses..........................................          *
Accounting fees and expenses.....................................          *
Blue sky fees and expenses.......................................          *
Transfer agent and registrar fees and expenses...................          *
Miscellaneous....................................................          *
                                                                   ---------
Total............................................................  $
                                                                   ---------
                                                                   ---------
</TABLE>

- ------------------------

* To be provided by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

    Section 145 of the Delaware General Corporation ("DGCL") provides that a
corporation has the power to indemnify its officers, directors, employees and
agents (or persons serving in such positions in another entity at the request of
the corporation) against expenses, including attorney's fees, judgments, fines
or settlement amounts actually and reasonably incurred by them in connection
with the defense of any action by reason of being or having been directors or
officers, if such person shall have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation (and, with respect to any criminal action, had no reasonable cause
to believe the person's conduct was unlawful), except that if such action shall
be by or in the right of the corporation, no such indemnification shall be
provided as to any claim, issue or matter as to which such person shall have
been judged to have been liable to the corporation unless and to the extent that
the Court of Chancery of the State of Delaware, or another court in which the
suit was brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity. The Registrant's Certificate of Incorporation provides that the
Registrant will indemnify its officers and directors to the fullest extent
permitted by Delaware law.

    As permitted by Section 102 of the DGCL, the Registrant's Certificate of
Incorporation provides that no director shall be liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as a director
other than (i) for breaches of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for the
unlawful payment of dividends or unlawful stock purchases or redemptions under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.

    The Underwriting Agreement is expected to provide that the Underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant

                                      II-1
<PAGE>
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement to be filed as Exhibit
1.1 hereto.

    The Registrant maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

    The following is a summary of the transactions by the Registrant during the
past three years involving sales of the Registrant's securities that were not
registered under the Securities Act:

        (1) Pursuant to a Stock Subscription Agreement, dated as of May 14,
    1999, by and among the Registrant and the Investors (as defined therein),
    (a) Fox Paine Capital Fund, L.P. was issued 16,251,658 shares, par value
    $.01 per share, of common stock ("Common Stock"), (b) FPC Investors, L.P.
    was issued 241,144 shares of Common Stock, (c) ALEC Coinvestment Fund I, LLC
    was issued 812,453 shares of Common Stock, (d) ALEC Coinvestment Fund II,
    LLC was issued 406,227 shares of Common Stock, (e) ALEC Coinvestment Fund
    III, LLC was issued 487,472 shares of Common Stock, (f) ALEC Coinvestment
    Fund IV, LLC was issued 487,472 shares of Common Stock, (g) ALEC
    Coinvestment Fund V, LLC was issued 812,453 shares of Common Stock, (h) ALEC
    Coinvestment Fund VI, LLC was issued 56,872 shares of Common Stock, (i)
    Chamer Company, Inc. was issued 42,248 shares of Common Stock, (j) Charles
    E. Robinson was issued 69,059 shares of Common Stock, (k) Wesley E. Carson
    was issued 43,872 shares of Common Stock and (l) Michael E. Holmstrom was
    issued 16,249 shares of Common Stock. Each Investor thereunder paid
    approximately $6.15 in cash per share of Common Stock.

        (2) In connection with the acquisitions of Century's Alaska properties
    and ATU on May 14, 1999, the Registrant granted (a) 172,729 shares of Common
    Stock to Charles E. Robinson, (b) 85,469 shares of Common Stock to Wesley E.
    Carson, (c) 64,996 shares of Common Stock to James H. Huesgen and (d) 32,498
    shares of Common Stock to Wayne P. Graham. Mr. Huesgen and Mr. Graham are
    former members of management. In connection with these grants, Mr. Robinson,
    Mr. Carson and Mr. Graham each borrowed approximately 40% of the fair market
    value of their respective grants on a non-recourse basis to pay taxes on the
    income deemed received by virtue of such grants.

        (3) Pursuant to a Purchase Agreement, dated as of May 11, 1999, by and
    among the Registrant, on the one hand, DLJ Investment Partners, L.P., DLJ
    Investment Funding, Inc. and DLJ ESC II L.P., on the other hand
    (collectively, the "Initial Purchasers"), the Initial Purchasers purchased
    $46,928,435 aggregate principal amount of 13% Senior Discount Debentures due
    2011 (the "Senior Discount Debentures"). In connection with this purchase,
    the Registrant and the Initial Purchasers entered into a Warrant Agreement,
    dated as of May 14, 1999, pursuant to which the Initial Purchasers were
    issued 828,261 warrants (the "Warrants"), each such warrant entitling the
    Initial Purchasers to purchase one share of Common Stock for $.01 (subject
    to adjustment). In consideration for the Senior Discount Debentures and the
    Warrants, the Initial Purchasers paid the Registrant $25.0 million in cash.

        (4) Pursuant to a Purchase Agreement, dated as of May 11, 1999, by and
    among the Alaska Communications Systems Holdings, Inc., on the one hand,
    Chase Securities, Inc., CIBC World Markets Corp. and Credit Suisse First
    Boston Corporation (collectively, the "Notes Initial Purchasers"), the Notes
    Initial Purchasers purchased $150,000,000 aggregate principal amount of
    9 3/8% Senior Subordinated Notes due 2009 (the "Notes") for $150,000,000 in
    cash. The Registrant and each of Alaska Communications Systems Holdings'
    subsidiaries has guaranteed Alaska Communications Systems Holdings'
    obligations under the Notes on a senior subordinated basis.

                                      II-2
<PAGE>
        (5) Pursuant to a Stock Subscription Agreement, dated as of July 6,
    1999, by and between the Registrant and Cook Inlet Region, Inc. ("CIRI"),
    CIRI purchased 1,624,907 shares of Common Stock for $10 million in cash.

        (6) Pursuant to a Stock Subscription Agreement, dated as of July 6,
    1999, by and between the Registrant and Donn T. Wonnell, Mr. Wonnell
    purchased 16,249 shares of Common Stock for $100,000 in cash.

        (7) On September 27, 1999, John Ayers purchased 16,249 shares of Common
    Stock for $100,000 in cash.

        (8) The Registrant granted 50,000 shares of Common Stock to Donn T.
    Wonnell on July 1, 1999. In connection with this grant, Mr. Wonnell borrowed
    approximately 40% of the fair market value of this grant on a non-recourse
    basis to pay taxes on the income deemed received by virtue of such grant.

        (9) Pursuant to the ALEC Holdings, Inc. 1999 Stock Incentive Plan, the
    Registrant granted 3,385,497 options to officers and other employees of the
    Registrant and its subsidiaries, each such option entitling the holder
    thereof, once such option vests, to purchase one share of Common Stock for
    $6.1542 (subject to adjustment). None of these options has been exercised.

    The sales described in this Item 15 were made in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act relating to
sales by an issuer not involving any public offering. The foregoing transactions
did not involve a distribution or public offering. Except as set forth above, no
underwriters were engaged in connection with the foregoing issuances of
securities, and no commissions or discounts were paid.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

    (A) EXHIBITS

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     EXHIBIT TITLE
- -----------  ----------------------------------------------------------------------------------
<C>          <S>

       1.1   Form of Underwriting Agreement*

       2.1   Purchase Agreement, dated as of August 14, 1998, as amended, by and among ALEC
             Acquisition Sub Corp., CenturyTel of the Northwest, Inc. and CenturyTel Wireless,
             Inc.**

       2.2   Asset Purchase Agreement, dated as of October 20, 1998, by and between Alaska
             Communications Systems, Inc. and the Municipality of Anchorage**

       3.1   Certificate of Incorporation of the Registrant**

       3.2   By-Laws of the Registrant**

       4.1   Specimen of Common Stock Certificate*

       4.2   Stockholders' Agreement, dated as of May 14, 1999, by and among the Registrant and
             the Investors listed on the signature pages thereto**

       4.3   First Amendment to Stockholders' Agreement, dated as of July 6, 1999, by and among
             the Registrant and the Investors listed on the signature pages thereto**

       4.4   Indenture, dated as of May 14, 1999, by and between Alaska Communications Systems
             Holdings, Inc., the Guarantors (as defined therein) and IBJ Whitehall Bank & Trust
             Company**
</TABLE>

                                      II-3
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     EXHIBIT TITLE
- -----------  ----------------------------------------------------------------------------------
<C>          <S>
       4.5   Purchase Agreement, dated as of May 11, 1999, by and among Alaska Communications
             Systems Holdings, Inc., the Guarantors, Chase Securities Inc., CIBC World Markets
             Corp. and Credit Suisse First Boston Corporation**

       4.6   Indenture, dated as of May 14, 1999, by and between the Registrant and The Bank of
             New York**

       4.7   Purchase Agreement, dated as of May 11, 1999, by and among the Registrant, DLJ
             Investment Partners, L.P., DLJ Investment Funding, Inc. and DLJ ESC II, L.P.**

       5.1   Opinion of Wachtell, Lipton, Rosen & Katz (including consent)*

      10.1   Exchange and Registration Rights Agreement, dated as of May 14, 1999, by and among
             Alaska Communications Systems Holdings, Inc., the Guarantors, Chase Securities
             Inc., CIBC World Markets Corp. and Credit Suisse First Boston Corporation**

      10.2   Exchange and Registration Rights Agreement, dated as of May 14, 1999, by and among
             the Registrant, DLJ Investment Partners, L.P., DLJ Investment Funding, Inc. and
             DLJ ESC II L.P.**

      10.3   Credit Agreement, dated as of May 14, 1999, by and among Alaska Communications
             Systems Holdings, Inc., the Registrant, the financial institutions Lenders party
             thereto, The Chase Manhattan Bank, Credit Suisse First Boston and Canadian
             Imperial Bank of Commerce**

      10.4   Employment Agreement, dated as of March 12, 1999, by and among Alaska
             Communications Systems Holdings, Inc., the Registrant and Charles E. Robinson**

      10.5   Employment Agreement, dated as of March 12, 1999, by and among Alaska
             Communications Systems Holdings, Inc., the Registrant and Wesley E. Carson**

      10.6   ALEC Holdings, Inc. 1999 Stock Incentive Plan**

      21.1   Subsidiaries of the Registrant**

      23.1   Consent of Deloitte & Touche LLP relating to the audited financial statements of
             ALEC Holdings, Inc. as of March 31, 1999

      23.2   Consent of Deloitte & Touche LLP relating to the audited financial statements of
             Alaska Communications Systems Holdings, Inc. and subsidiaries as of December 31,
             1998 and for the period from June 16, 1998 (date of inception) through December
             31, 1998 (included in Exhibit No. 23.1)

      23.3   Consent of KPMG LLP relating to the audited combined financial statements of
             CenturyTel's Alaska Properties as of December 31, 1998 and for the year then ended

      23.4   Consent of Deloitte & Touche LLP relating to the audited combined financial
             statements of Telephone Fund of Fairbanks Municipal Utilities Services as of
             October 6, 1997 and for the year ended December 31, 1996 and the period ended
             October 6, 1997 (included in Exhibit No. 23.1)

      23.5   Consent of KPMG LLP relating to the audited financial statements of Municipality
             of Anchorage Telephone Utility Fund as of December 31, 1997 and 1998 and for each
             of the years in the three-year period ended December 31, 1998

      23.6   Consent of Deloitte & Touche LLP relating to the audited combined financial
             statements of CenturyTel Alaska Properties as of December 31, 1997 and for the
             year ended December 31, 1996, the eleven months ended November 30, 1997 and the
             one month ended December 31, 1997 (included in Exhibit No. 23.1)
</TABLE>

                                      II-4
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     EXHIBIT TITLE
- -----------  ----------------------------------------------------------------------------------
<C>          <S>
      23.7   Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit No. 5.1)

      24.1   Powers of Attorney (included on signature page)

      27.1   Financial Data Schedule**
</TABLE>

- ------------------------

*  To be provided by amendment

** Filed as an exhibit to the Registrant's Registration Statement on Form S-4,
   File No. 333-82361

    (B) FINANCIAL STATEMENT SCHEDULES

       None

ITEM 17. UNDERTAKINGS

    The undersigned Registrant hereby undertakes:

        (1) That for purposes of determining any liability under the Securities
    Act of 1933, the information omitted from the form of prospectus filed as
    part of this Registration Statement in reliance upon Rule 430A and contained
    in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
    or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
    of this Registration Statement as of the time it was declared effective.

        (2) That for the purpose of determining any liability under the
    Securities Act of 1933, each post-effective amendment that contains a form
    of prospectus shall be deemed to be a new registration statement relating to
    the securities offered therein, and the offering of such securities at that
    time shall be deemed to be the initial BONA FIDE offering thereof.

        (3) To provide to the underwriters at the closing specified in the
    underwriting agreement certificates in such denominations and registered in
    such names as required by the underwriters to permit prompt delivery to each
    purchaser.

        (4) Insofar as indemnification for liabilities arising under the
    Securities Act of 1933 may be permitted to directors, officers and
    controlling persons of the Registrant pursuant to the foregoing provisions,
    or otherwise, the Registrant has been advised that in the opinion of the
    Securities and Exchange Commission such indemnification is against public
    policy as expressed in the Securities Act of 1933 and is, therefore,
    unenforceable. In the event that a claim for indemnification against such
    liabilities (other than the payment by the Registrant of expenses incurred
    or paid by a director, officer or controlling person of the Registrant in
    the successful defense of any action, suit or proceeding) is asserted by
    such director, officer or controlling person in connection with the
    securities being registered, the Registrant will, unless in the opinion of
    its counsel the matter has been settled by controlling precedent, submit to
    a court of appropriate jurisdiction the question whether such
    indemnification by it is against public policy as expressed in the
    Securities Act of 1933 and will be governed by the final adjudication of
    such issue.

                                      II-5
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in The City of New York, State of New
York, on the 8th day of October 1999.

                                ALEC HOLDINGS, INC.

                                BY:  /S/ CHARLES E. ROBINSON
                                     ------------------------------------------
                                     Name: Charles E. Robinson
                                     Title: Chairman, President and
                                          Chief Executive Officer

                               POWER OF ATTORNEY

    KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Dean A. Ryland and Michael
E. Holmstrom and each of them severally, his or her true and lawful
attorney-in-fact with power of substitution and resubstitution to sign in his or
her name, place and stead, in any and all capacities, to do any and all things
and execute any and all instruments that such attorney may deem necessary or
advisable under the Securities Act of 1933 (the "Securities Act"), and any
rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the registration under the Securities Act of the
Common Stock of the Registrant, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign his or her name in
his or her respective capacity as a member of the Board of Directors or officer
of the Registrant, this Registration Statement and/or such other form or forms
as may be appropriate to be filed with the Commission as any of them may deem
appropriate in respect of the Common Stock of the Registrant, to any and all
amendments thereto (including post-effective amendments) to this Registration
Statement, to any related Rule 462(b) Registration Statement and to any other
documents filed with the Securities and Exchange Commission, as fully for all
intents and purposes as he or she might or could do in person, and hereby
ratifies and confirms all said attorneys-in-fact and agents, each acting along,
and his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

    Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 8, 1999.

          SIGNATURE                        TITLE
- ------------------------------  ---------------------------
   /s/ CHARLES E. ROBINSON      Chairman of the Board,
- ------------------------------    President and Chief
     Charles E. Robinson          Executive Officer

   /s/ MICHAEL E. HOLMSTROM     Senior Vice President and
- ------------------------------    Chief Financial Officer
     Michael E. Holmstrom

      /s/ DEAN A. RYLAND        Vice President, Controller
- ------------------------------    and Assistant Secretary
        Dean A. Ryland

   /s/ DEXTER W. PAINE, III     Director
- ------------------------------
     Dexter W. Paine, III

       /s/ SAUL A. FOX          Director
- ------------------------------
         Saul A. Fox

   /s/ J. RUSSELL TRIEDMAN      Director
- ------------------------------
     J. Russell Triedman

      /s/ CARL H. MARRS         Director
- ------------------------------
        Carl H. Marrs

                                      II-6

<PAGE>
                                                                    EXHIBIT 23.1

                         INDEPENDENT AUDITORS' CONSENT

    We consent to the use in this Registration Statement of ALEC Holdings, Inc.
on Form S-1 of our reports on the following financial statements of the
following companies (for the periods indicated) appearing in the Prospectus,
which is part of this Registration Statement:

    - Our report dated June 28, 1999 on the balance sheet of ALEC Holdings, Inc.
      as of March 31, 1999

    - Our report dated March 24, 1999 on the consolidated balance sheet of
      Alaska Communications Systems Holdings, Inc. and Subsidiaries as of
      December 31, 1998 and the related consolidated statement of cash flows for
      the period from July 16, 1998 (date of inception) through December 31,
      1998

    - Our report dated March 25, 1999 on the combined financial statements of
      CenturyTel Alaska Properties as of December 31, 1997 and for the year
      ended December 31, 1996, the eleven months ended November 30, 1997, and
      one month ended December 31, 1997

    - Our report dated March 25, 1999 on the combined financial statements of
      Telephone Fund of Fairbanks Municipal Utilities Services as of October 6,
      1997 and for the year ended December 31, 1996 and the period ended October
      6, 1997

    We also consent to the reference to us under the heading "Experts" in such
Prospectus.

DELOITTE & TOUCHE LLP

Portland, Oregon
October 5, 1999

<PAGE>
                                                                    EXHIBIT 23.3

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
CenturyTel, Inc.:

    We consent to the use of our report dated February 26, 1999, on CenturyTel's
Alaska Properties as of and for the year ended December 31, 1998 included herein
and to the reference to our firm under the heading "Experts" in this
registration statement and related prospectus.

                                          KPMG LLP

Shreveport, Louisiana
October 5, 1999

<PAGE>
                                                                    EXHIBIT 23.5

The Honorable Mayor and Member of the Assembly
Municipality of Anchorage Telephone Utility Fund

We consent to the use of our report dated February 19, 1999 on the balance sheet
of the Municipality of Anchorage Telephone Utility Fund as of December 31, 1998
and 1997, and the related statements of revenues, expenses and changes in
retained earnings, and cash flows for each of the years in the three-year period
ended December 31, 1998, included herein and to the reference to our firm under
the heading "Experts" in the prospectus. Our report contains a paragraph which
emphasizes that the financial statements represent the financial position and
results of operations of the Municipality of Anchorage, Alaska, Telephone
Utility Fund and not the Municipality of Anchorage, Alaska taken as a whole.

                                          KPMG LLP

Anchorage, Alaska
October 5, 1999


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