The Company's statements regarding its 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 the 2008 Form 10-K.

Overview

The Company owns and operates ILECs and CLECs that provide, own, and operate phone, video, and Internet services in a number of Minnesota and Iowa communities.

The Company also sells and services cellular phones and accessories, customer premise equipment, and transport facilities.

On November 3, 2006, the company acquired a 33.33% ownership interest in Hector Communications Corporation, which provides phone, video and Internet services to a number of communities in Minnesota and Wisconsin.

On January 4, 2008, the Company completed its acquisition of Hutchinson Telephone Company (HTC), which operates as a subsidiary of New Ulm Telecom, Inc. The acquisition of HTC has resulted in a combined company that provides phone, video, and Internet services with over 50,000 connections in a number of Minnesota and Iowa communities. Additional information is available in Note 3 to the Consolidated Financial Statements of this Form 10-Q.

On November 10, 2008, the Company opened TechTrends, Inc. in New Ulm, Minnesota. TechTrends is a Company-owned and operated retail store offering computers and computer accessories, in addition to computer repair and website design services. TechTrends also provides its NU-Telecom customers a full array of customer services, such as answering billing questions and taking monthly payments.

For purposes of this report, unless the context requires otherwise, all references to the "Company" mean New Ulm Telecom, Inc. and its subsidiaries.

The Company also holds:

† 25.18% ownership interest in FiberComm, LC, a CLEC based in Sioux City, Iowa,
† 30.88% ownership interest in En-Tel Communications, LLC, a CLEC based in Willmar, Minnesota,
† 33.33% ownership interest in Hector Communications Corporation, based in New Ulm, Minnesota,
† 16.38% ownership interest in Broadband Visions, LLC, which provides video headend and Internet services,

† 33.33% ownership interest in Direct Communications, LLC, which provides services on behalf of SHAL,
† 33.33% ownership interest in SHAL, LLC and SHAL Networks, Inc., which constructs and leases fiber-optic communication lines and transport facilities throughout Minnesota, and
† 14.29% ownership interest in Independent Emergency Services, LLC, a provider of E-911 services to the State of Minnesota and Minnesota Counties.

The Company is organized into three business segments, as described in Note 10 - Segment Information of the Consolidated Financial Statements of this Form 10-Q.

Consolidated Operating Results

The following is a discussion of consolidated results of operations. Certain reclassifications have been made between revenues and expenses on the income statement for the quarter ended June 30, 2008 to make them comparable to the 2009 presentation. More detailed discussion of operating results by segment follows this discussion.

Operating Revenues:

Total operating revenues were $8,275,242 for the three months ended June 30, 2009, for a decrease of 4.8% or $420,512 as compared to the same period in 2008. Total operating revenues were $16,721,058 for the six months ended June 30, 2009 for a decrease of 4.0% or $690,770 as compared to the same period in 2008. This decrease is a result of decreases in local, network access, video, Internet, and other non-regulated revenues.

The Telecom segment invested heavily during 2008 in its infrastructure, which has allowed 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 allow it to offer its customers new technologies as they emerge. The Company anticipates that the geographic expansion of its service offerings will provide this segment with future growth.

The Telecom segment continues to experience downward pressure on its network access revenues as a result of negative pricing pressures on access charges and a decrease in the access minutes of use, both of which are consistent with industry trends. The decrease in network access revenues was minimized 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, and Aurelia, Iowa, and the immediate surrounding areas served by the affected ILECs. The Company continues to monitor the negative effects of network access pricing and the downward trend in access minutes of use that could affect future revenues in the Telecom sector in order to minimize the impact on the Company. Also, the FCC continues to examine inter-carrier compensation (payments from one telecommunications company to another for the use of their interconnecting networks). This examination could lead to significant changes in the way the Company is compensated for use of its local network in the future.

Prior to and since the introduction of the Missoula Intercarrier Compensation Plan in 2006, there have been ongoing discussions at the FCC regarding changes in intercarrier compensation. It is possible that an ILEC could experience a change in revenue if intercarrier compensation reform is adopted by the FCC. There is no definite timeline for the FCC to act, so it is not possible to predict when any change in revenue will occur or the extent of the impact.

The Minnesota Public Utilities Commission ("MPUC") has considered intrastate access reform and universal service for several years. The MPUC opened the most recent docket on the issue of state access reform in 2006. After requesting comments to refresh the record at that time there was little activity in this area throughout 2008. The Iowa Utilities Board ("IUB") had previously not exercised oversight in the access rates of small local exchange carriers. In November of 2007, however, the IUB indicated it intends to assume that role. In January 2009, the IUB ordered rate reductions in the rates of a tariff filed on behalf of numerous ILECs by a state trade association. This ruling will affect Peoples ILEC. In September of 2008, the IUB also issued an inquiry docket regarding establishing a state Universal Service Fund in Iowa. The Company cannot estimate the impact, if any, of future potential state access revenue changes or the availability of state universal service support.

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 allow the Company to continue to offer its customers new technologies as they emerge, and that geographic expansion of the Company's service offerings will provide this segment with continued future growth.

Operating Expenses:

Operating expenses for the three months ended June 30, 2009 increased $36,752 or 0.5%, as compared to the same period in 2008. Operating expenses for the six months ended June 30, 2009 increased $338,224 or 2.4%, as compared to the same period in 2008. Depreciation and amortization expense increased $285,883 or 6.4% for the six months ended June 30, 2009 as compared to 2008. This increase is due to the Company's continued investment in the Telecom segment's infrastructure and an increase in the amount of amortization expense on intangible assets as a result of the year-end 2008 final allocation of the purchase price for the HTC acquisition. Operating expenses, excluding depreciation and amortization, increased $52,341 or 0.5% for the six months ended June 30, 2009 as compared to 2008. The increase in operating expenses, excluding depreciation and amortization, was attributed to the increased cost of providing services, such as digital video, DSL, and Internet service. 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 the three months ended June 30, 2009 decreased $457,264 as compared to same period in 2008. Operating income for the six months ended June 30, 2009 decreased $1,028,994 as compared to same period in 2008. Operating income decreased primarily due to a decrease in local, network access, Internet, video, and cellular revenues. The increase in operating expenses was primarily due to increased depreciation and amortization expense. The decrease in revenue is consistent with industry trends and due to the current economic conditions.

Other Income and Expense:

Other expenses, net of other income, for the three months ended June 30, 2009 decreased $89,708 compared to the three months ended June 30, 2008. Other income, net of other expenses, for the six months ended June 30, 2009 decreased $4,505,189 compared to the six months ended June 30, 2008. The decrease was primarily due to the 2006 sale of MWH and the final receipt of proceeds of $5,123,797 in January 2008.

The Company's investment income in Hector Communications Corporation for the six months ended June 30, 2009 decreased $28,996, compared to the six months ended June 30, 2008. The Company acquired a 33.33% ownership interest in Hector on November 3, 2006.

Other investment income for the six months ended June 30, 2009 decreased $65,969, compared to the six months ended June 30, 2008, primarily due to activity from equity investments.

There was a $221,738 decrease in interest expense for the six-month period ended June 30, 2009 compared to the same period in 2008. The decrease in interest expense was due to the reduction in interest rates on the portion of the Company's borrowings from CoBank, ACB, subject to variable interest rates, and reduced amounts of outstanding debt.

There was a $327,022 decrease in interest income for the six month period ended June 30, 2009 compared to the same period in 2008, primarily due to the interest received in January 2008 on the final distribution of MWH sale proceeds.

Net Income:

Net income was $313,856 for the three months ended June 30, 2009 compared with $346,108 for the same period in 2008. Net income was $1,027,383 for the six months ended June 30, 2009 compared with $4,363,360 for the same period in 2008. This $3,335,977 decrease was primarily the result of the January 2008 receipt of the final escrow distribution from the October 2006 sale of its interest in MWH to Alltel.

Summary of Operations (Unaudited)


                               Three Months Ended            Six Months Ended
                                    June 30,                     June 30,
                               2009          2008           2009           2008
       Operating Income:
       Telecom Segment      $   641,466   $ 1,065,614   $  1,381,447   $  2,326,132
       Cellular Segment          51,209        58,566        108,090        180,673
       Phonery Segment          269,671       295,430        659,115        670,841
       Total                    962,346     1,419,610      2,148,652      3,177,646

       Other Income             282,403       286,458      1,138,192      5,865,119
       Interest Expense        (713,398 )    (807,161 )   (1,471,837 )   (1,693,575 )
       Income Taxes            (217,495 )    (552,799 )     (787,624 )   (2,985,830 )
       Net Income           $   313,856   $   346,108   $  1,027,383   $  4,363,360

       Basic and Diluted
       Earnings per Share          0.06          0.07           0.20           0.85

       Weighted Average
       Shares Outstanding     5,115,435     5,115,435      5,115,435      5,115,435

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

Telecom Segment Operations

The Telecom segment revenues represented 89.2% of the Company's consolidated operating revenues for the three months ended June 30, 2009 before intercompany eliminations, and 88.2% of the Company's consolidated operating revenues for the six months ended June 30, 2009 before intercompany eliminations. Revenues are primarily earned by providing approximately 29,000 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 Telecom segment revenues for the three months ending June 30, 2009 decreased $256,674 or 3.0% compared to the same period last year. Total Telecom segment revenues for the six months ending June 30, 2009 decreased $425,142 or 2.5% compared to the same period last year. All information contained in the following table is before intercompany eliminations.

Telecom Segment


                                         Three Months Ended              Six Months Ended
                                              June 30,                       June 30,
                                        2009           2008            2009            2008
Operating Revenues
Local Network                        $ 1,779,623    $ 1,846,944    $  3,627,305    $  3,692,468
Network Access                         3,546,270      3,629,479       6,976,558       7,235,350
Other                                  2,835,712      2,941,856       5,698,926       5,800,113
Total Operating Revenues               8,161,605      8,418,279      16,302,789      16,727,931

Operating Expenses, Excluding
Depreciation and Amortization          5,184,702      5,158,448      10,273,151      10,050,319
Depreciation and Amortization
Expenses                               2,335,437      2,194,217       4,648,191       4,351,480
Total Operating Expenses               7,520,139      7,352,665      14,921,342      14,401,799

Operating Income                     $   641,466    $ 1,065,614    $  1,381,447    $  2,326,132

Net Income                           $   124,622    $   279,332    $    635,908    $    683,060

Local network revenue decreased in the Telecom segment by $67,321 or 3.6% for the three months ended June 30, 2009 compared to the same period in 2008. Local network revenue decreased in the Telecom segment by $65,163 or 1.8% for the six months ended June 30, 2009 compared to the same period in 2008. The decrease was the result of a decline in the number of local access customers.

Network access revenue decreased $83,209 or 2.3% for the three months ended June 30, 2009 compared with the same period in 2008. Network access revenue decreased $258,792 or 3.6% for the six months ended June 30, 2009 compared with the same period in 2008. The segment continues to experience an overall decrease in minutes of use and the effects of downward pressure on network access pricing, a common industry trend. In order to minimize the impact on the Company, the Company continues to monitor the negative effects of network access pricing and the downward trend in access minutes of use. The Telecom segment has maintained, enhanced and continually invested in its infrastructure. These capital expenditures have allowed the Company to receive additional settlements from the National Exchange Carrier Association ("NECA"). The additional investment in the local loop (access line cost) has made the Company eligible for high-cost loop funding through the Universal Service Fund.

Other operating revenues decreased $106,144 or 3.6% for the three months ended June 30, 2009 compared with the same period in 2008. Other operating revenues decreased $101,187 or 1.7% for the six months ended June 30, 2009 compared with the same period in 2008. 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. Due to economic conditions and increased competition, the Company experienced a decrease in video service revenue of approximately $114,600. As a partial offset to that decrease, Internet services experienced an increase in revenue of approximately $10,000.

Operating expenses, excluding depreciation and amortization, increased $26,254 or 0.5% for the three months ended June 30, 2009 compared with the same period in 2008. Operating expenses, excluding depreciation and amortization, increased $222,832 or 2.2% for the six months ended June 30, 2009 compared with the same period in 2008. Operating expenses increased primarily as a result of additional selling, general and administrative costs. The Company continues to (i) 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), (ii) offer additional services (video and DSL), (iii) pursue aggressive marketing to develop brand recognition, and (iv) provide solutions for its 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, deserving the Company's best service, attitude and consideration. The Company is applying this customer-centric philosophy at all of its locations.

Depreciation and amortization expenses increased $141,220 or 6.4% for the three months ended June 30, 2009 compared with the same period in 2008. Depreciation and amortization expenses increased $296,711 or 6.8% for the six months ended June 30, 2009 compared with the same period in 2008. Approximately $150,000 of this increase is due to amortization on the intangible assets acquired in the HTC purchase. The remaining increase in depreciation and amortization reflects the Company's continued investment in its network.

Operating income decreased $424,148 for the three months ended June 30, 2009 compared with the same period in 2008. Operating income decreased $944,685 for the six months ended June 30, 2009 compared with the same period in 2008. The decrease in operating income was due to a decrease in operating revenues and the increase in operating expenses, due to increased depreciation and amortization, and additional general and administrative expenses. The Company is always striving for cost efficiencies and technological improvement to enhance its operating margins for the Telecom segment. The $425,142 decrease in revenues combined with a $519,543 increase in operating expenses resulted in the $944,685 decrease in operating income for the six months ended June 30, 2009.

Cellular Segment

The Cellular segment represented 1.6% of the consolidated operating revenues for the three months ended June 30, 2009 before intercompany eliminations. The Cellular segment represented 1.7% of the consolidated operating revenues for the six months ended June 30, 2009 before intercompany eliminations. Revenues are earned primarily by sales and service of cellular phones and accessories. The operating revenue from sales of cellular phones and accessories, and cellular commissions decreased by $43,791 for the three-month period ending June 30, 2009 compared with the same period in 2008. The operating revenue from sales of cellular phones and accessories, and cellular commissions decreased by $97,344 for the six-month period ending June 30, 2009 compared with the same period in 2008 The decrease in operating revenues in the three and six-month periods is due to a decrease in the sale of cellular phones because (i) customers are retaining existing phones longer, (ii) the Company is facing increased competition, and (iii) there has been a decrease in the cellular commission structure.

The interest expense and income tax for the period ending June 30, 2009 is primarily due to the settlement of the Internal Revenue Service (IRS) examination of the Company's 2006 and 2007 federal income tax returns, and additional state tax due on related IRS adjustments.

A recap of income for the cellular segment is contained in the following table:

Cellular Segment

                                       Three Months Ended June 30,         Six Months Ended June 30,
                                         2009              2008              2009             2008

Operating Revenues                  $      150,598    $       194,389    $     321,915    $    419,259

Operating Expenses, Excluding
Depreciation and Amortization               99,389            135,823          213,825         238,586
Depreciation and Amortization
Expenses                                         -                  -                -               -
Total Operating Expenses                    99,389            135,823          213,825         238,586

Operating Income                            51,209             58,566          108,090         180,673

Interest Expense                              (105 )                -           (3,878 )             -
Interest Income                                  -                  -                -         206,950
Gain on Sale of MWH                              -                  -                -       5,123,797
Income Taxes                               (23,690 )         (158,387 )       (105,108 )    (2,230,472 )

Net Income (Loss)                   $       27,414    $       (99,821 )  $        (896 )  $  3,280,948

Phonery Segment

The Phonery segment represented 9.2% of the consolidated operating revenues for the three months ended June 30, 2009 before intercompany eliminations. The Phonery segment represented 10.0% of the consolidated operating revenues for the six months ended June 30, 2009 before intercompany eliminations. Revenues are earned primarily by sales, installation and service of business telephone systems and data communications equipment. In addition, the Phonery segment leases network capacity to provide additional network access revenues and resells long distance toll service. This segment's expertise is the quality installation and maintenance of CPE, provision of customer long distance needs and transport solutions in communication to end user customers. All information contained in the following table is before intercompany eliminations.

Phonery Segment


                                       Three Months Ended June 30,          Six Months Ended June 30,
                                         2009               2008               2009            2008

Operating Revenues                  $       839,824    $       923,665    $    1,854,987    $ 1,945,145

Operating Expenses, Excluding
Depreciation and Amortization               531,211            584,836         1,121,806      1,189,410
Depreciation and Amortization
Expenses                                     38,942             43,399            74,066         84,894
Total Operating Expenses                    570,153            628,235         1,195,872      1,274,304

Operating Income                            269,671            295,430           659,115        670,841

Net Income                          $       161,820    $       166,597    $      392,371    $   399,352

Operating revenue decreased $83,841, or 9.1%, for the three months ended June 30, 2009 compared to the same period in 2008. Operating revenue decreased $90,158, or 4.6%, for the six months ended June 30, 2009 compared to the same period in 2008.

Operating expenses, excluding depreciation and amortization, decreased $53,625 or 9.2% for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Operating expenses, excluding depreciation and amortization, decreased $67,604 or 5.7% for the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decrease is primarily due to lower overhead costs. This segment remains focused on cost efficiencies, while striving to reach the customer service goal of 100% customer satisfaction. The Phonery segment continues to seek new technologies to better serve customer needs and to operate efficiently.

Depreciation and amortization expenses decreased $4,457 or 10.3% for the three months ended June 30, 2009 compared to the same period ended 2008. Depreciation and amortization expenses decreased $10,828 or 12.8% for the six months ended June 30, 2009 compared to the same period ended 2008. The decrease is primarily due to the fact that some long-lived assets have become fully depreciated.

Operating income decreased $25,759 for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Operating income decreased $11,726 for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Capital Structure

The total long-term capital structure (long-term debt plus shareholders' equity) for the Company was $104,146,575 at June 30, 2009, reflecting 50.2% equity and 49.8% debt. This compares to a capital structure of $103,472,730 at December 31, 2008, reflecting 50% equity and 50% debt. The debt results from the borrowings used to acquire HTC. Management believes adequate internal and external resources are available to finance ongoing operating requirements, including . . .