The Company's future results of operation and other forward-looking statements are subject to risks and uncertainties, including, but not limited to, the effects of deregulation in the telecommunications industry as a result of the Telecommunications Act of 1996. These forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from these statements and the Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events or the receipt of new information. See "Risk Factors" in Item 1A of this Form 10-K.

Results of Operations for 2008, 2007 and 2006

The Company operates three business segments: Telecom, Cellular and Phonery. The majority of its operations consist of the Telecom segment that provides telephone and related ancillary services, Internet services, and cable television services to several communities in Minnesota and Iowa. The Cellular segment includes the sale and service of cellular phones and accessories, and a 9.88% interest in MWH (sold to Alltel on October 2, 2006), which it recorded on the equity method of accounting due to the influence the Company had over the operations and management of MWH. The Phonery segment includes the sales and service of customer premise equipment (CPE), transport operations, and the resale of long distance toll service.

Consolidated Results of Operations

2008 Compared to 2007

Operating Revenues

Consolidated revenues for 2008 were $35,294,331, compared with $17,300,936 in 2007, an increase of $17,993,395, or 104.0%. Without the addition of HTC, total operating revenues would have increased $776,732 or 4.5% in 2008 as compared to 2007. Without the effect of the acquisition of HTC, the Cellular and the Phonery segments would have experienced decreases as compared to 2007, and the Telecom segment would have seen an increase in revenues of approximately $1,090,000.

The Telecom segment showed increased revenue of $18,301,054, as compared to the same period in 2007 due to the acquisition of HTC. Without the addition of HTC, local network revenues and network access revenues would have increased approximately $733,000.

All income statement categories experienced increases in revenues due to the acquisition of HTC on January 4, 2008. Without the addition of HTC, the Telecom segment would have increased in its local network revenues approximately $5,000. Excluding HTC revenue, network access revenues would have increased about $728,000, due to access settlements and revenues from new and expanded service offerings: digital video, digital subscriber line (DSL), Internet access, and the operations of a CLEC in the city of Redwood Falls, Minnesota. The Telecom segment has invested heavily in its infrastructure, which has enabled it to enhance its local network so that it could offer a "triple-play" of services to its subscribers. In the telecommunications industry, a "triple-play" of services refers to offering telephone, Internet, and video services over the same infrastructure. The Company expects that continued infrastructure investment will enable it to offer its customers new technologies as they emerge. The Company believes the geographic expansion of its service offerings will provide this segment with future growth.

Despite the industry trend of continuing downward pressure on the Telecom segment's network access revenues, the segment experienced increased revenues due to access settlements. The increase in network access revenues due to settlements was enhanced due to the Company's eligibility for high-cost loop funding through the Universal Service Fund for its ILEC operations in Springfield and Sanborn, Minnesota, Aurelia, Iowa, and the immediately surrounding areas served by these affected ILECs. In order to minimize the impact, the Company continues to monitor the negative effects of network access pricing and downward trend in access minutes of use that could affect future revenues in the Telecom sector. Also, the FCC continues to examine inter-carrier compensation (payments from one telecommunications company to another for the use of interconnecting networks). The FCC currently has an open docket on intercarrier compensation as well as several dockets on Voice over Internet Protocol (VoIP). The Company cannot predict the outcome of these proceedings, nor can it estimate the impact, if any, on the Company.

The Company believes that, despite the regulatory and competitive challenges faced by the Telecom segment, the Company has positioned itself for future revenue growth. The Company believes that future growth will be realized through increases in revenue due to new and expanded service offerings. The Company also continually evaluates new and emerging technologies to keep the Company's service offerings innovative and competitive. The Company expects that continued infrastructure investment will enable it to continue to offer its customers new technologies as they emerge, and that geographic expansion of the Company's service offerings, in particular through the acquisition of HTC, will provide this segment with continued future growth

The Cellular segment experienced a $104,314 increase in revenues compared with the same period in 2007. The Phonery segment had a $2,077,679 increase in revenues compared with the same period in 2007. Without the addition of HTC, the Cellular segment would have realized a decrease in revenues of $166,959 and the Phonery segment would have realized a decrease of $62,296.

Operating Expenses

Operating expenses for 2008 were $29,294,003 compared to $14,239,568 in 2007, an increase of $15,054,435, or 105.7%, compared to 2007. This increase is due primarily to the acquisition of HTC. Without the acquisition of HTC, operating expenses would have increased 7.2%, due to increased operating expenditures in the Telecom segment. Without the addition of HTC, the Phonery segment would have experienced an 8.6% decrease in operating expenses, and the Cellular segment experienced a 42.5% decrease. Depreciation and amortization expense for the Telecom segment increased by $4,956,768 in 2008 compared to 2007. Without the addition of HTC, this segment would have experienced an increase of $41,687. This increase resulted as the Company has continued its investment in the Telecom segment's infrastructure. The increase in operating expenses, excluding depreciation and amortization, was attributed to the increased cost of providing services and an increasing customer base for the segment's expanded services, such as digital video, DSL, and Internet service. In addition, operating expenses increased due to increased costs to continue to comply with the Sarbanes-Oxley Act Section 404 requirements. The remainder of the increase in the Telecom segment reflected the additional selling, general and administrative expenses associated with the commitment of the Company to compete in all aspects of communication services and to provide exceptional customer service for the Company's assortment of products and services to the communities that it serves.

Operating Income

Operating income for 2008 increased $2,938,960 or 96.0% over 2007. Without the addition of HTC, operating income would have decreased approximately $242,000, primarily due to increases in plant operations and general and administrative expenses, from the Telecom segment's operations.

Other Income

Overall, other income for 2008 decreased $3,899,032 compared to 2007. The decrease is primarily due to the increase in interest expense associated with borrowing from CoBank in January 2008 to finance the acquisition of HTC, and an impairment of goodwill in the amount of $2.3 million described in Note 5 to the Consolidated Financial Statements of this Form 10-K, partially offset by the gain in January 2008 resulting from the receipt of the final $5.1 million payment for the 2006 sale of MWH to Alltel compared to the receipt in April 2007 of a $3.1 million payment.

There was a $3,285,763 increase in interest expense in 2008 compared to 2007 due to the Company's borrowings from CoBank, ACB commencing in January 2008 to finance the acquisition of HTC.

The Company's investment income in Hector Communications Corporation for 2008 was $625,981, as compared to $536,504 for 2007. The Company acquired a 33.33% ownership interest in Hector on November 3, 2006.

Other investment income decreased $33,115 for 2008 compared to 2007, primarily due to a decrease in equity method investment income. Without the HTC acquisition, other investment income would have seen a decrease of $117,384 due primarily to the FiberComm LC.

The sale of marketable securities held by HTC at acquisition generated a loss of $162,999.

There was a $396,384 decrease in interest and dividend income for 2008 compared to 2007. The decrease was due to fewer funds available for investment.

Net Income

Net income was $2,692,526 for 2008 compared with $4,582,972 for 2007. The decrease of $1,890,446, or 41.2%, decrease in net income was primarily the result of the $2.3 million impairment to goodwill.

2007 Compared to 2006

2007 consolidated revenues were $17,301,000, compared with $16,882,000 in 2006, an increase of $419,000, or 2.5%.

The Telecom segment showed decreased local network revenue of approximately $80,000. This decrease, a common industry trend, was due to declining access lines as customers increasingly utilized wireless phones, dropped second phone lines in their homes when they moved their Internet service from a dial-up platform to a DSL platform, and utilized Voice over Internet Protocol (VoIP) or other services that bypass the local exchange network. With DSL, one access line allows customers to use a telephone and be connected to the Internet at the same time.

The Telecom segment experienced decreases in its operating revenues resulting from a decrease in access revenue. The decline in access revenue reflects industry trends of declining access usage and continued downward pricing pressures. The Telecom segment's decrease in operating revenues is primarily due to these trends. Partially offsetting the decrease in access revenue, the Telecom segment experienced increases in unregulated revenues for video and Internet services due to an increase in customers.

The Company believes, despite the negative industry trends, that the revenues in the Telecom segment will experience future growth. The Company expects that the decreases in access revenue will be offset by growth from new and expanded service offerings: digital video and digital subscriber line (DSL), Internet service provision, and the complete array of the Company's services offered through its Competitive Local Exchange Carrier (CLEC) in the city of Redwood Falls, Minnesota. The Company also expects that the continued marketing of service bundles, which offer customers discounts for subscribing to multiple services, will help retain current customers and attract new customers. Also, the Company continually evaluates new and emerging technologies to keep the Company's service offerings innovative and competitive. The Telecom segment has made significant investments in its infrastructure, which has allowed it to enhance its local network so that it can offer a "triple-play" of services to its subscribers. The Company expects that continued investment in its infrastructure will allow it to continue to expand its offering to customers, including new technologies as they emerge, such as hi-definition television (HDTV) introduced in 2007, and that the geographic expansion of the Company's service offerings will provide this segment with continued future growth. The Telecom segment invested $4,005,000 in its infrastructure in 2007, which allowed it to enhance its local network, and offer new services to its subscribers.

The Cellular segment experienced a $160,000 increase in revenues due to an increase in its sales and service revenues of cellular phones and accessories. The Phonery segment had a $191,000 increase in revenues, primarily due to an increase in transport revenues.

2007 consolidated operating expenses were $14,240,000, compared with $13,531,000 in 2006, an increase of $709,000 or 5.2%. The Telecom segment had an increase of $379,000 due to expenses from an increase in the number of customers subscribing to Internet and video services, additional plant operating expenses associated with the maintenance of its infrastructure, and additional selling, general and administrative expenses associated with the commitment of the Company to compete in all aspects of communications services and to provide exceptional customer service for the Company's complete array of products and services in the communities that it serves. The Company incurred $81,000 and $137,000 in out-of-pocket expenses in 2007 and 2006 respectively, to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The Cellular segment had a $179,000 increase in cost of goods sold and sales expense due to the increase in cellular phone and accessory sales. The Phonery segment had an increase to cost of goods sold of $187,000 due to an increase in sales.

2007 consolidated net income was $4,583,000 compared with $35,111,000 in 2006. The decrease in consolidated net income of $30,528,000 was primarily due to the 2006 gain booked on the sale of the Company's MWH investment ($50,153,000 before income taxes), compared to the 2007 gain booked from the sale of the Company's MWH investment ($3,117,000 before income taxes). The revenues generated by the Company's non-regulated service offerings such as DSL and video services, cellular and CPE sales increased in 2007 as compared to 2006. In addition, the Company had an increase in interest income due to more funds available for investment in 2007.

Results of Operations by Business Segment

Telecom Segment

The Telecom segment revenues represented 87.2% of the Company's 2008 consolidated operating revenues before eliminations. Revenues are primarily earned by providing approximately 30,000 customers access to the local network in ILEC and CLEC operations, and by providing inter-exchange access for long distance network carriers. The Telecom segment also earns revenue by providing Internet services, including high-speed DSL Internet access, and video services to its subscribers, directory advertising, through billing and collecting for various long distance companies, and for management services provided to HCC. This segment has invested in its infrastructure so that it can provide its customers with the latest technological advances, including being able to offer its "triple-play" of services. Total 2008 Telecom segment revenues increased $18,301,054 or 117.9% compared to 2007, due to the acquisition of HTC. Without the addition of HTC, the segment would have experienced a 7.0% increase in operating revenues for the year. All information contained in the following table is before intercompany eliminations.

Telecom Segment                                     2008            2007            2006
Operating Revenues
Local Network                                   $  7,496,194    $  3,958,892    $  4,038,947
Network Access                                    14,681,089       5,921,277       6,409,470
Other                                             11,640,123       5,636,183       4,963,670
Total Operating Revenues                          33,817,406      15,516,352      15,412,087

Operating Expenses, Excluding Depreciation
and Amortization                                  20,883,438       9,688,213       9,071,687
Depreciation and Amortization                      8,774,280       3,817,512       4,055,177
Total Operating Expenses                          29,657,718      13,505,725      13,126,864

Operating Income                                $  4,159,688    $  2,010,627    $  2,285,223

Net Income (Loss)                               $ (1,509,808 )  $  1,943,756    $  1,586,953

Capital Expenditures                            $  3,997,478    $  4,004,509    $  1,950,205

Local network revenue increased in the Telecom segment by $3,537,302 or 89.4% in 2008 over 2007 and decreased $80,055 or 2.0% in 2007 over 2006. The number of access lines served increased 93.2% in 2008 over 2007, and decreased 2.4% in 2007 over 2006. The increase in access lines in 2008 was due to the acquisition of HTC, and 2007 was primarily due to the decreased demand for access lines as the Company's customers increasingly selected DSL Internet services at higher speeds than is available through traditional dial-up service.

Without the addition of HTC, local network revenue would have increased by approximately $5,000. Local network revenues continue to experience downward revenue pressure as a result of the continuing decline in the number of access lines. The decrease in access lines is due to customers increasingly utilizing other technologies, such as wireless phones and IP services, as well as customers dropping second phone lines when they move their Internet service from a dial-up platform to a DSL platform.

DSL is used to provide both traditional voice connectivity and access to high-speed Internet service over the same facilities, which eliminates the need for customers to have second lines dedicated solely to providing Internet service. The decrease in access lines is also attributed to an increasing number of customers who only subscribe to wireless service. In addition, charges for the regulated voice portion of DSL service were responsible for an increase of $84,500 in 2008 revenue, and a increase of $23,000 for 2007. The industry downward revenue trend was minimized by the success of the promotion and packaging of vertical services, most notably DSL, and focused marketing to potential customers. The Telecom segment has also entered into a number of interconnection agreements with wireless providers, which allow these providers access to its customers at the local service level. The interconnection agreements were a source of local network revenues for 2008 and 2007, contributing approximately $69,700 and $109,000, respectively.

Network access revenue increased $8,759,812 or 147.9% in 2008, compared with 2007, due to the acquisition of HTC. This increase is the result of carrier settlements and additional revenues due to the acquisition of HTC. Without HTC, an increase of approximately $728,000 or 12.3% would have been realized. The Telecom segment has continually invested in its infrastructure. These capital expenditures have maintained and enhanced this segment's infrastructure and have allowed the Company to receive additional settlements from the National Exchange Carrier Association (NECA). Investment in the local loop (access line cost) has made the Company eligible for high-cost loop funding through the Universal Service Fund.

The Telecom segment has invested approximately $10,000,000 in capital expenditures since 2006. These capital expenditures, which have enhanced this segment's infrastructure, allowed New Ulm and its subsidiaries to receive additional settlements from the NECA. The additional investment in the local loop (access line cost) has made the Company eligible for high-cost loop funding and safety net universal funding through the Universal Service Fund, minimizing the decrease in network access revenues. In 2008, the Telecom segment saw a decrease of $23,566 in the receipt of this funding compared to 2007.

Other operating revenues increased $6,003,940 or 106.5% for 2008, compared with 2007, due to the acquisition of HTC. Without the acquisition of HTC, other operating revenues would have increased 6.3% in 2008 over 2007. Due to the infrastructure enhancements that have taken place since 2000, the Telecom segment has been able to offer its customers a "triple-play" of services over the existing infrastructure and offer its services on a CLEC basis to the cities of Redwood Falls and Litchfield, Minnesota. The video product offered in New Ulm, Essig, Searles, Courtland, Springfield, Sanborn, Redwood Falls, Hutchinson and Litchfield, Minnesota was responsible for $2,638,905 of the increase in these revenues. Without HTC, video revenues would have increased about $64,000. Cable television services continued to be offered in the Minnesota communities of Jeffers, Cologne, Mayer, New Germany, and New Market Township, and were responsible for a $7,394 decrease in other operating revenues. The revenues from billing management services, and miscellaneous receipts totaled $1,759,620 for 2008, an increase of approximately $788,400 from 2007. Excluding HTC, the increase would have been approximately $133,600. The remainder of the revenue increase was primarily attributed to Telecom segment's sale of Internet services in the amount of $2,584,058. Excluding HTC, internet revenues would have increased $159,518.

Operating expenses, excluding depreciation and amortization, increased $11,195,225 or 115.6% in 2008, compared with 2007, primarily due to the acquisition of HTC. Without the addition of HTC, operating expenses, excluding depreciation and amortization, would have increased by 14.4%. Operating expenses increased as a result of increased selling, general and administrative costs, particularly those associated with compliance with Sarbanes-Oxley Act Section 404, the increasing expenses associated with the expanded array of services offered, such as video and DSL that allow the Company to offer the "triple-play" of services to its customers and the expenses associated with offering services to HTC customers. The Telecom segment has recognized the value in being able to compete in all aspects of communication services. The Company continues to enhance its awareness of customer satisfaction (including 24 hours a day, 7 days a week access to Internet support due to customers' desire for this service), offers additional services (video and DSL), pursues aggressive marketing to develop brand recognition, and provides solutions for customers' evolving communication needs. The Company has expanded its services and product offerings in an effort to meet its objective of achieving 100% customer satisfaction by making the customer its top priority, and deserving of the Company's best service, attitude and consideration. The Company is applying these same customer-centric philosophies at HTC.

Depreciation and amortization expenses increased $4,956,768 or 129.8% in 2008, compared with 2007, primarily due to the acquisition of HTC. Excluding depreciation and amortization from HTC, the increase would have been $41,687, as the Company continues to make investments in the Telecom segment's infrastructure.

The Telecom segment capital expenditures for 2008 were $3,997,478. For 2007 and 2006, expenditures were $4,004,509 and $1,950,205 respectively. The most significant projects for 2008 were circuit improvements, buried and fiber optic cable, and investment into IP technology. Construction projects for 2007 consisted of circuit equipment improvements in excess of $1.1 million, in addition to significant increases to buried and fiber optic cable. Construction projects for 2006 consisted of continued build-out of facilities and the installation of electronics to provide video and DSL in the rural areas surrounding New Ulm. The segment's capital budget for 2009 is approximately $6,000,000.

Operating income increased $2,149,061 or 106.9% in 2008, compared to 2007, primarily due to the acquisition of HTC. The increase in operating income was due to the increase in revenues for video and Internet services from an increase in customers, and the increase in revenues due to the billing services that the Company provides to HCC. This is partially offset by the cost of providing additional services (video and DSL) to an increasing customer base, and additional general and administrative expenses associated with the commitment of the Telecom segment to effectively compete in all aspects of communication services and to provide superior customer-focused service for the Telecom segment's complete array of products and services. The Company is always striving for cost efficiencies and technological improvement to enhance its operating margins for the Telecom segment. The $18,301,054 increase in revenues combined with the $16,151,993 increase in operating expenses resulted in the $2,149,061 increase in operating income when comparing 2008 to 2007.

Cellular Segment

The Cellular segment operations include the sales and service of cellular phones and accessories and represents 2.1% of the 2008 consolidated operating revenues before eliminations. The operating revenue from sales of cellular phones and accessories increased by $104,314 in 2008, compared with 2007, due primarily to an increase in the sale of cellular phones through the acquisition of HTC.

The Cellular segment information for its investment in MWH is shown in the following table using the proportionate consolidation method. The Company recorded its 9.88% investment in MWH using the proportionate consolidation method so that it could be compared to the cellular industry, as well as the Company's other business segments, and because the Company's Chief Operating Decision Maker (CODM) reviewed the performance of MWH using the proportionate method. A recap of the Company's investment in MWH (prior to its October 2, 2006 sale to Alltel) using the proportionate method is as follows:

                                                                      2006

    Proportionate Method:
    Operating Revenues                                            $ 20,940,667
    Operating Expenses, Excluding Depreciation and Amortization     12,273,174
    Depreciation and Amortization Expenses                           2,216,856
    Total Operating Expenses                                        14,490,030

    Operating Income                                                 6,450,637

    Net Income                                                    $  5,925,389

A recap of income for the Cellular segment, using the equity method to record earnings on its investment in MWH (prior to its October 2, 2006 sale to Alltel), is contained in the following table:

 Cellular Segment                            2008            2007            2006
 Operating Revenues                      $    813,121    $    708,807    $     549,226

 Operating Expenses, Excluding
 Depreciation and Amortization                525,979         564,561          386,003

 Operating Income                             287,142         144,246          163,223

 Interest Income                              158,163         212,290                -
 Interest Expense                                   -               -          (96,870 )
 Cellular Investment Income                         -               -        5,925,389
. . .