ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements. All statements regarding Shenandoah Telecommunications Company’s expected future financial position and operating results, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements. We cannot assure you that the Company’s expectations expressed or implied in these forward-looking statements will turn out to be correct. The Company’s actual results could be materially different from its expectations because of various factors, including those discussed below and under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2012. The following management’s discussion and analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2012, including the financial statements and related notes included therein.

General

Overview. Shenandoah Telecommunications Company is a diversified telecommunications company providing both regulated and unregulated telecommunications services through its ~~wholly owned~~wholly-owned subsidiaries. These subsidiaries provide wireless personal communications services (as a Sprint PCS ~~Affiliate of Sprint Nextel)~~Affiliate), local exchange telephone services, video, ~~Internet~~internet and data services, long distance, fiber optics facilities, and leased tower facilities. The Company has the following three reportable segments, which it operates and manages as strategic business units organized by lines of business:

The Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS ~~Affiliate of Sprint Nextel.~~Affiliate. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.

The Cable segment provides video, internet and voice services in franchise areas in Virginia, West Virginia and portions of western Maryland, and leases fiber optic facilities throughout its service area.

The Wireline segment provides regulated and unregulated voice services, dial-up and DSL internet access, and long-distance access services throughout Shenandoah County and portions of Rockingham and Augusta Counties, Virginia, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.

A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company.

Index

Results of Operations

Three Months Ended ~~March 31,~~June 30, 2013 Compared with the Three Months Ended ~~March 31,~~June 30, 2012

Consolidated Results

The Company’s consolidated results from continuing operations for the ~~first quarter~~second quarters of 2013 and 2012 are summarized as follows:

(in thousands)	Three Months Ended March 31,						Change						Three Months Ended June 30,						Change
	2013			2012			$			%			2013			2012			$			%

Operating revenues	$	76,010		$	68,823		$	7,187			10.4		$	77,454		$	71,378		$	6,076		8.5
Operating expenses		60,801			60,006			795			1.3			62,954			60,241			2,713		4.5
Operating income		15,209			8,817			6,392			72.5			14,500			11,137			3,363		30.2

Interest expense		(2,152	)		(1,795	)		(357	)		(19.9	)		(2,068	)		(1,522	)		(546	)	(35.9	)
Other income (expense)		668			659			9			1.4			488			391			97		24.8
Income before taxes		13,725			7,681			6,044			78.7			12,920			10,006			2,914		29.1
Income tax expense		5,374			3,273			2,101			64.2			5,078			4,284			794		18.5
Net income from continuing operations	$	8,351		$	4,408		$	3,943			89.5		$	7,842		$	5,722		$	2,120		37.0

Operating revenues

For the three months ended ~~March 31,~~June 30, 2013, operating revenues increased ~~$7.2~~$6.1 million, or ~~10.4%~~8.5%. Wireless segment revenues increased $5.5 million compared to the ~~first~~second quarter of 2012. Net postpaid service revenues increased ~~$3.7~~$3.4 million, as data fees on smartphones increased ~~$1.7~~$1.5 million ~~in the 2013 period from 2012’s first quarter, while 5.5%~~and 4.6% year-over-year growth in ~~quarter-over-quarter~~ average postpaid subscribers added an additional ~~$2.2 million to net postpaid service revenue.~~$1.9 million. Net prepaid service revenues grew ~~$1.9~~$2.8 million, or ~~nearly 28%~~36.2%, ~~compared to the 2012 first quarter. Average~~as average prepaid subscribers increased ~~18.6%~~15.3% in 2013 over 2012. Other Wireless segment revenues declined $0.7 million. Cable segment revenues increased ~~$1.3~~$1.1 million due to a ~~2.3%~~2.7% increase in average revenue generating units and a 5.5% average price increase, compared to the ~~first quarter of 2012.~~2012 period.

Operating expenses

For the three months ended ~~March 31,~~June 30, 2013, operating expenses increased ~~$0.8~~$2.7 million, or ~~1.3%~~4.5%, compared to the 2012 period. Wireless segment expenses grew $2.9 million, driven by increases in prepaid expenses ~~increased $1.2~~of $1.1 million, ~~including $0.3~~network costs of $1.0 million and depreciation and amortization of $1.0 million. Growth in ~~higher handset costs,~~prepaid expenses included a $0.8 million ~~for~~increase in marketing costs, ~~and $0.1 million~~while the increased network costs were largely the result of the Network Vision upgrades. The increase in ~~other costs.~~ Wireless segment ~~postpaid~~ depreciation and amortization expense ~~declined $1.5~~was due primarily to a 2012 favorable adjustment of $0.9 million ~~primarily due~~related to ~~$2.0 million of accelerated depreciation~~asset retirement obligations associated with ~~Network Vision upgrades in~~ the first quarter of 2012. Wireline segment operating expenses increased $1.1 million, including $0.3 million in costs to provide transition services to Converged Services properties sold to third parties, $0.2 million in increased depreciation expense on expanded fiber networks, and $0.6 million in costs to support expanded services to affiliates.upgrades. Cable segment operating expenses increased ~~$0.2~~$0.7 million, ~~while parent company~~including $0.4 million in programming costs. Wireline segment operating expenses decreased ~~$0.2~~$0.3 million.

~~Other~~Interest and other income (expense)

Changes in interest and other income (expense) included increased interest expense on higher outstanding debt balances, partially offset by additional patronage income from ~~CoBank, following~~CoBank. The changes were driven by the refinancing of debt in the third quarter of 2012, as well as lower gains recorded on other investments.

Income tax expense

The Company’s effective tax rate on income from continuing operations decreased from ~~42.6%~~42.8% in the ~~first~~ quarter ofended June 30, 2012 to ~~39.2%~~39.3% in the ~~first~~2013 quarter ~~of 2013~~ principally due ~~corporate changes undertaken in 2012 to simplify the Company’s structure and~~ to changes in the ~~mix~~form and simplification of ~~taxable income, resulting~~the structure of the Company’s subsidiaries undertaken in ~~a decrease in the effective state tax rate.~~2012.

Index

Net income from continuing operations

For the three months ended ~~March 31,~~June 30, 2013, net income from continuing operations increased ~~$3.9~~$2.1 million, or ~~89.5%~~37.0%, reflecting ~~higher wireless~~growth in subscriber counts and ~~cable segment revenues~~revenue per subscriber in both the Wireless and Cable segments, partially offset by increases in operating expenses incurred in support of this growth and the network costs associated with the Company’s participation in the Network Vision project, and higher interest expenses.

Six Months Ended June 30, 2013 Compared with the Six Months Ended June 30, 2012

Consolidated Results

The Company’s consolidated results from continuing operations for the first six months of 2013 and 2012 are summarized as follows:

(in thousands)	Six Months Ended June 30,						Change
	2013			2012			$			%

Operating revenues	$	153,463		$	140,201		$	13,262		9.5
Operating expenses		123,755			120,246			3,509		2.9
Operating income		29,708			19,955			9,753		48.9

Interest expense		(4,220	)		(3,317	)		(903	)	(27.2	)
Other income (expense)		1,157			1,049			108		10.3
Income before taxes		26,645			17,687			8,958		50.6
Income tax expense		10,452			7,558			2,894		38.3
Net income from continuing operations	$	16,193		$	10,129		$	6,064		59.9

Operating revenues

For the six months ended June 30, 2013, operating revenues increased $13.3 million, or 9.5%. Wireless segment revenues increased $11.0 million compared to the first six months of 2012. Net postpaid service revenues increased $7.1 million, as data fees on smartphones increased $3.2 million and 5.0% year-over-year growth in ~~wireless~~average postpaid subscribers added an additional $3.9 million. Net prepaid service revenues grew $4.7 million, or 32.1%, as average prepaid subscribers increased 16.9% in 2013 over 2012. Other Wireless segment revenues declined $0.8 million. Cable segment revenues increased $2.5 million due to a 2.6% increase in average revenue generating units and a 5.5% average price increase, compared to the 2012 period.

Operating expenses

For the six months ended June 30, 2013, operating expenses increased $3.5 million, or 2.9%, compared to the 2012 period. Wireless prepaid expenses increased $2.5 million, including $1.6 million for marketing costs. Wireless segment network costs increased $2.2 million due to rent and backhaul increases associated with the Network Vision upgrade. Postpaid handset costs declined $1.0 million primarily due to fewer handsets sold through Company-controlled channels in 2013. Depreciation and ~~subsidies~~amortization expense declined $0.7 million due to less accelerated depreciation in 2013 versus 2012, partly offset by a 2012 favorable depreciation adjustment of $0.9 million. Advertising and ~~wireline~~commissions expenses decreased $0.6 million from 2012 levels. Cable segment operating expenses increased $0.9 million, including $0.4 million in programming costs and $0.4 million in advertising costs. Wireline segment operating expenses increased $0.8 million, with an increase in network costs of $0.4 million and depreciation of $0.3 million accounting for most of the increase. Parent company operating expenses decreased $0.3 million.

Index

Interest and other income (expense)

Changes in interest and other income (expense) included increased interest expense on higher outstanding debt balances, partially offset by additional patronage income from CoBank. The changes were driven by the refinancing of debt in the third quarter of 2012, as well as lower gains recorded on other investments.

Income tax expense

The Company’s effective tax rate on income from continuing operations decreased from 42.7% in the six months ended June 30, 2012 to 39.2% in the 2013 period, principally due to changes in the form and simplification of the structure of the Company’s subsidiaries undertaken in 2012.

Net income from continuing operations

For the six months ended June 30, 2013, net income from continuing operations increased $6.1 million, or 59.9%, reflecting growth in subscriber counts and revenue per subscriber in both the Wireless and Cable segments, partially offset by increases in operating expenses incurred in support of this growth and the network costs associated with the Company’s participation in the Network Vision project, and higher interest ~~expense and taxes.~~expenses.

Wireless

The Company’s Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, through Shenandoah Personal Communications LLC (“PCS”), a Sprint PCS ~~Affiliate of Sprint Nextel.~~Affiliate. This segment also leases land on which it builds Company-owned cell towers, which it leases to affiliated and non-affiliated wireless service providers, throughout the same four-state area described above, through Shenandoah Mobile LLC (“Mobile”).

PCS receives revenues from Sprint ~~Nextel~~ for subscribers that obtain service in PCS’s network coverage area. PCS relies on Sprint ~~Nextel~~ to provide timely, accurate and complete information to record the appropriate revenue for each financial period. Postpaid revenues received from Sprint ~~Nextel~~ are recorded net of certain fees totaling 20% of net postpaid billed revenue retained by ~~Sprint Nextel.~~Sprint. These fees include an 8% management fee and a 12% net service fee. Sprint ~~Nextel~~ also retains a 6% management fee on prepaid revenues.

During the first quarter of 2012, the Company ~~entered into agreements~~amended its affiliate agreement with Sprint ~~Nextel and Alcatel-Lucent~~ to ~~begin adding~~allow the Company to offer 4G LTE service toon the Company’s Wireless network. The 4G service uses base station equipment acquired from Alcatel-Lucent in conjunction with ~~Sprint Nextel’s wireless network upgrade plan known as~~Sprint’s Network ~~Vision.~~Vision project. There was no immediate change to the fees paid to Sprint, but the net service fee cap that ~~is currently~~had been 12% of net billed revenues ~~will increase~~was increased to 14% on July 1, 2013. IfBased upon an analysis of the balance of payments between Sprint and Shentel, ~~supports raising the rate,~~ Sprint ~~could increase~~has given Shentel thirty days’ advance written notice that the net service fee will increase to 14% ~~at that time.~~, effective August 1, 2013.

The following tables show selected operating statistics of the Wireless segment as of the dates shown:

Mar. 31, Dec. 31, Mar. 31, Dec. 31,
2013 2012 2012 2011

Retail PCS Subscribers – Postpaid 263,957 262,892 250,684 248,620
Retail PCS Subscribers – Prepaid 134,404 128,177 114,384 107,100
PCS Market POPS (000) (1) 2,390 2,390 2,388 2,388
PCS Covered POPS (000) (1) 2,058 2,057 2,055 2,055
CDMA Base Stations (sites) 521 516 510 509
LTE-enabled sites 232 200 - -
LTE-covered POPS (000) (1) 1,450 1,131 - -
EVDO-enabled sites 451 444 434 433
EVDO Covered POPS (000) (1) 2,032 2,029 2,027 2,027
Towers, Company owned 151 150 149 149
Non-affiliate cell site leases 218 216 219 219

Three Months Ended
March 31,
2013 2012

Gross PCS Subscriber Additions – Postpaid 15,824 15,966
Net PCS Subscriber Additions – Postpaid 1,065 2,064
Gross PCS Subscriber Additions – Prepaid 21,422 19,364
Net PCS Subscriber Additions – Prepaid 6,227 7,285
PCS Average Monthly Retail Churn % - Postpaid 1.87 % 1.86 %
PCS Average Monthly Retail Churn % - Prepaid 3.87 % 3.65 %

~~Index~~

	June 30,		Dec. 31,		June 30,		Dec. 31,
	2013		2012		2012		2011
Retail PCS Subscribers – Postpaid		266,297		262,892		255,025		248,620
Retail PCS Subscribers – Prepaid		131,372		128,177		117,070		107,100
PCS Market POPS (000) (1)		2,393		2,390		2,408		2,388
PCS Covered POPS (000) (1)		2,063		2,057		2,064		2,055
CDMA Base Stations (sites)		525		516		510		509
LTE-enabled sites (2)		361		200		-		-
LTE-covered POPS (000) (1)		1,755		1,131		-		-
EVDO-enabled sites		478		444		434		433
EVDO Covered POPS (000) (1)		2,040		2,029		2,036		2,027
Towers		151		150		149		149
Non-affiliate cell site leases		219		216		216		219

Index

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012

Gross PCS Subscriber Additions – Postpaid		15,184			16,107			31,088			32,073
Net PCS Subscriber Additions – Postpaid		2,340			4,341			3,405			6,405
Gross PCS Subscriber Additions – Prepaid		18,307			15,043			39,729			34,407
Net PCS Subscriber Additions – Prepaid		(3,032	)		2,686			3,195			9,971
PCS Average Monthly Retail Churn % - Postpaid		1.62	%		1.55	%		1.74	%		1.71	%
PCS Average Monthly Retail Churn % - Prepaid		5.33	%		3.56	%		4.62	%		3.61	%

POPS refers to the estimated population of a given geographic area and is based on information purchased from third parties. Market POPS are those within a market area which the Company is authorized to serve under its Sprint PCS affiliate agreements, and Covered POPS are those covered by the Company’s network.

LTE-enabled sites refers to cell sites with both 4G LTE equipment and Ethernet backhaul in service.

Three Months Ended ~~March 31,~~June 30, 2013 Compared with the Three Months Ended ~~March 31,~~June 30, 2012

(in thousands)	Three Months Ended March 31,				Change						Three Months Ended June 30,					Change
	2013		2012		$			%			2013			2012		$			%

Segment operating revenues
Wireless service revenue	$	44,065	$	38,403	$	5,662			14.7		$	46,362		$	40,187	$	6,175		15.4
Tower lease revenue		2,562		2,251		311			13.8			2,576			2,280		296		13.0
Equipment revenue		1,331		1,530		(199	)		(13.0	)		1,270			1,341		(71	)	(5.3	)
Other revenue		199		485		(286	)		(59.0	)		(442	)		455		(897	)	(197.1	)
Total segment operating revenues		48,157		42,669		5,488			12.9			49,766			44,263		5,503		12.4
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below		17,530		16,393		1,137			6.9			17,854			16,917		937		5.5
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		8,771		7,994		777			9.7			9,064			8,102		962		11.9
Depreciation and amortization		6,028		7,757		(1,729	)		(22.3	)		7,782			6,753		1,029		15.2
Total segment operating expenses		32,329		32,144		185			0.6			34,700			31,772		2,928		9.2
Segment operating income	$	15,828	$	10,525	$	5,303			50.4		$	15,066		$	12,491	$	2,575		20.6

Operating revenues

Wireless service revenue increased ~~$5.7~~$6.2 million, or ~~14.7%~~15.4%, for the three months ended ~~March 31,~~June 30, 2013, compared to the comparable 2012 ~~first quarter.~~period. Net postpaid service revenues increased ~~$3.7~~$3.4 million, as data fees on smartphones increased ~~$1.7~~$1.5 million ~~in the 2013 period from 2012’s first quarter. A 5.5%~~and 4.6% year-over-year growth in ~~quarter-over-quarter~~ average postpaid subscribers added an additional ~~$2.2 million to net postpaid service revenue.~~$1.9 million. Net prepaid service revenues grew ~~$1.9~~$2.8 million, or ~~nearly 28%~~36.2%, ~~compared to the 2012 first quarter. Average~~as average prepaid subscribers increased ~~18.6%~~15.3% in 2013 over ~~2012, with changes in the mix of subscribers to higher revenue plans accounting for the remainder of the~~2012.

The increase in ~~prepaid~~tower lease revenue resulted primarily from rent increases related to tenants installing 4G equipment on our towers.

The decrease in other revenue primarily resulted from a $0.5 million adjustment to straight-line rent accruals at a small number of sites related to termination of Sprint iDEN leases and from a $0.2 million decline in federal Universal Service Fund (“USF”) revenue from Sprint.

Index

As stated above, Sprint has notified Shentel of their intention to increase the net service ~~revenues.~~fee to 14%, the maximum allowed under the contract, effective August 1, 2013. This is expected to reduce revenue by approximately $0.3 million per month based on current activity.

Cost of goods and services

Cost of goods and services increased ~~$1.1~~$0.9 million, or ~~6.9%~~5.5%, in 2013 from the ~~first~~second quarter of 2012. Postpaid handset costs decreased $0.7 million primarily due to fewer handsets sold through Company-controlled channels in 2013. Handset costs associated with prepaid customer acquisitions increased $0.2 million due to an increase in gross additions. Network costs increased ~~$1.2~~$1.0 million, primarily due to increases in rent and backhaul associated with the Network Vision project. Maintenance expense grew $0.3 million due to increases in maintenance contracts that support the upgraded wireless network. Postpaid handset costs decreased $0.3 million primarily due to fewer handsets sold through Company-controlled channels in 2013.

Selling, general and administrative

Selling, general and administrative costs increased ~~$0.8~~$1.0 million, or ~~9.7%~~11.9%, in the first ~~quarter~~three months of 2013 over the comparable 2012 period. Costs associated with supporting the existing prepaid subscriber base accounted for ~~$0.6~~$0.9 million of the increase, while costs to add new prepaid subscribers increased ~~$0.5~~$0.3 million. Advertising and commission expenses associated with postpaid activities decreased a total of $0.3 million.

Depreciation and amortization

Depreciation and amortization increased $1.0 million in the second quarter of 2013 over the comparable 2012 period, due primarily to a 2012 favorable adjustment of $0.9 million related to asset retirement obligations associated with the upgrades. Network Vision-related accelerated depreciation in the second quarter of 2013 totaled $1.8 million, flat against the $1.8 million in the second quarter of 2012.

Six Months Ended June 30, 2013 Compared with the Six Months Ended June 30, 2012

(in thousands)	Six Months Ended June 30,					Change
	2013			2012		$			%

Segment operating revenues
Wireless service revenue	$	90,427		$	78,589	$	11,838		15.1
Tower lease revenue		5,137			4,530		607		13.4
Equipment revenue		2,602			2,871		(269	)	(9.4	)
Other revenue		(243	)		941		(1,184	)	(125.8	)
Total segment operating revenues		97,923			86,931		10,992		12.6
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below		35,385			33,310		2,075		6.2
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		17,835			16,096		1,739		10.8
Depreciation and amortization		13,809			14,510		(701	)	(4.8	)
Total segment operating expenses		67,029			63,916		3,113		4.9
Segment operating income	$	30,894		$	23,015	$	7,879		34.2

Operating revenues

Wireless service revenue increased $11.8 million, or 15.1%, for the six months ended June 30, 2013, compared to the comparable 2012 period. Net postpaid service revenues increased $7.1 million, as data fees on smartphones increased $3.2 million in 2013 from the first half of 2012, while 5.0% growth in period-over-period average postpaid subscribers added an additional $3.9 million to net postpaid service revenue. Net prepaid service revenues grew $4.7 million, or 32.1%, compared to the six months ended June 30, 2012. Average prepaid subscribers increased nearly 17% in 2013 over 2012, with changes in the mix of subscribers accounting for the remainder of the increase in prepaid service revenues.

Index

The increase in tower lease revenue resulted primarily from rent increases related to tenants installing 4G equipment on our towers.

Cost of goods and services

Cost of goods and services increased $2.1 million, or 6.2%, in 2013 from the first half of 2012. Network costs increased $2.2 million, primarily due to increases in rent and backhaul associated with the Network Vision project. Maintenance expense grew $0.6 million due to increases in maintenance contracts that support the upgraded wireless network. Prepaid support costs increased $0.3 million as a result of the growing subscriber base. Postpaid handset costs decreased $1.0 million primarily due to fewer handsets sold through Company-controlled channels in 2013.

Selling, general and administrative

Selling, general and administrative costs increased $1.7 million, or 10.8%, in the first six months of 2013 over the comparable 2012 period. Costs associated with supporting the existing prepaid subscriber base accounted for $1.5 million of the increase, while costs to add new prepaid subscribers increased $0.7 million. Advertising and commission expenses associated with postpaid activities decreased a total of $0.6 million.

Depreciation and amortization

Depreciation and amortization decreased ~~$1.7~~$0.7 million in 2013 over the 2012 first ~~quarter, due primarily to $2.0 million of accelerated~~half. Accelerated depreciation ~~recorded in the first quarter of 2012~~ on assets to be replaced during Network Vision ~~upgrades. Accelerated~~upgrades decreased from $4.0 million in the prior year period to $2.6 million in the current period. The decrease in accelerated depreciation ~~in first quarter 2013 totaled $0.8 million. Also contributing~~was partially offset by a 2012 favorable adjustment of $0.9 million related to asset retirement obligations associated with the ~~decrease was a $0.2 million decline in amortization of the initial purchase cost of acquired prepaid customers.~~upgrades.

Cable

The Cable segment provides analog, digital and high-definition television service under franchise agreements in Virginia, West Virginia and portions of western Maryland, as well as internet and voice services in these markets.

The following table shows selected operating statistics of the Cable segment as of the dates shown:

Mar. 31,
2013

Dec. 31,
2012

Mar. 31,
2012

Dec. 31,
2011

Homes Passed (1) 185,099 184,533 182,828 182,156
Customer Relationships (2)
Video customers 59,353 59,089 62,519 62,835
Non-video customers 16,220 15,709 13,611 12,513
Total customer relationships 75,573 74,798 76,130 75,348
Video
Customers (3) 61,257 61,559 64,532 64,979
Penetration (4) 33.1 % 33.4 % 35.3 % 35.7 %
Digital video penetration (5) 39.6 % 39.5 % 39.7 % 39.0 %
High-speed Internet
Available Homes (6) 164,789 163,273 156,791 156,119
Customers (3) 42,479 41,025 38,856 37,021
Penetration (4) 25.8 % 25.1 % 24.8 % 23.7 %
Voice
Available Homes (6) 157,409 154,552 143,907 143,235
Customers (3) 12,840 12,307 10,618 9,881
Penetration (4) 8.2 % 8.0 % 7.4 % 6.9 %
Total Revenue Generating Units (7) 116,576 114,891 114,006 111,881
Total Fiber Miles (8) 40,686 39,418 35,086 34,772
Total Route Miles 2,116 2,077 1,998 1,990

Index

	June 30, 2013			Dec. 31, 2012			June 30, 2012			Dec. 31, 2011

Homes Passed (1)		184,615			184,533			183,190			182,156
Customer Relationships (2)
Video customers		57,826			59,089			60,635			62,835
Non-video customers		16,731			15,709			14,091			12,513
Total customer relationships		74,557			74,798			74,726			75,348
Video
Customers (3)		59,929			61,559			62,737			64,979
Penetration (4)		32.5	%		33.4	%		34.2	%		35.7	%
Digital video penetration (5)		40.2	%		39.5	%		39.1	%		39.0	%
High-speed Internet
Available Homes (6)		166,675			163,273			157,153			156,119
Customers (3)		42,564			41,025			38,623			37,021
Penetration (4)		25.5	%		25.1	%		24.6	%		23.7	%
Voice
Available Homes (6)		161,709			154,552			150,759			143,235
Customers (3)		13,622			12,307			11,133			9,881
Penetration (4)		8.4	%		8.0	%		7.4	%		6.9	%
Total Revenue Generating Units (7)		116,115			114,891			112,493			111,881
Total Fiber Miles (8)		41,394			39,418			35,518			34,772
Fiber Route Miles		2,234			2,077			2,007			1,990

Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines. Homes passed is an estimate based upon the best available information.

Customer relationships represent the number of customers who receive at least one of our services.

Generally, a dwelling or commercial unit with one or more television sets connected to our distribution system counts as one video customer. Where services are provided on a bulk basis, such as to hotels and some multi-dwelling units, the revenue charged to the customer is divided by the rate for comparable service in the local market to determine the number of customer equivalents included in the customer counts shown above.

Penetration is calculated by dividing the number of customers by the number of homes passed or available homes, as appropriate.

Digital video penetration is calculated by dividing the number of digital video customers by total video customers. Digital video customers are video customers who receive any level of video service via digital transmission. A dwelling with one or more digital set-top boxes counts as one digital video customer.

Homes and businesses are considered available (“available homes”) if we can connect them to our distribution system without further extending the transmission lines and if we offer the service in that area. Homes passed in Shenandoah County are excluded from available homes as we do not offer high-speed internet or voice services over our co-axial distribution network in this market.

~~Index~~

Revenue generating units are the sum of video, voice and high-speed internet customers.

Fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.

Index

Three Months Ended ~~March 31,~~June 30, 2013 Compared with the Three Months Ended ~~March 31,~~June 30, 2012

(in thousands)	Three Months Ended June 30,						Change
	2013			2012			$			%

Segment operating revenues
Service revenue	$	17,564		$	16,356		$	1,208		7.4
Equipment and other revenue		2,580			2,656			(76	)	(2.9	)
Total segment operating revenues		20,144			19,012			1,132		6.0

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below		12,353			11,560			793		6.9
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		5,566			5,254			312		5.9
Depreciation and amortization		5,847			6,203			(356	)	(5.7	)
Total segment operating expenses		23,766			23,017			749		3.3
Segment operating loss	$	(3,622	)	$	(4,005	)	$	383		(9.6	)

(in thousands)

Three Months Ended
March 31,

Change

2013 2012 $ %

Segment operating revenues
Service revenue $ 17,380 $ 16,052 $ 1,328 8.3
Equipment and other revenue 2,525 2,531 (6 ) (0.2 )
Total segment operating revenues 19,905 18,583 1,322 7.1

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 12,289 12,226 63 0.5
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 5,438 5,047 391 7.7
Depreciation and amortization 5,564 5,852 (288 ) (4.9 )
Total segment operating expenses 23,291 23,125 166 0.7
Segment operating loss $ (3,386 ) $ (4,542 ) $ 1,156 25.5

Operating revenues

Cable segment service revenue increased ~~$1.3~~$1.2 million, or ~~8.3%~~7.4%, due to a ~~2.3%~~2.7% increase in average revenue generating units, video price increases averaging 5.5% implemented in the first quarter of 2013 driven by rising programming costs, and customers selecting higher-priced digital TV services and higher-speed data access packages.

Operating expenses

Cable segment cost of goods and services increased $0.8 million, or 6.9% principally due to higher programming, network and maintenance expenses. Cable programming costs increased $0.4 million as the impact of rising rates per subscriber outpaced declining video subscriber counts. Network and maintenance expenses increased a total of $0.3 million due to costs to support network growth.

Selling, general and administrative expenses have increased principally due to increases in customer service costs and advertising costs, offset partly by lower charges for bad debts.

The decrease in depreciation and amortization expense consists of $0.6 million lower amortization on customer base intangibles established in the cable acquisitions, which amortize at accelerated rates that decline with each anniversary of their establishment, partially offset by higher depreciation expense on assets placed in service.

Index

Six Months Ended June 30, 2013 Compared with the Six Months Ended June 30, 2012

(in thousands)	Six Months Ended June 30,						Change
	2013			2012			$			%

Segment operating revenues
Service revenue	$	34,945		$	32,410		$	2,535		7.8
Equipment and other revenue		5,104			5,187			(83	)	(1.6	)
Total segment operating revenues		40,049			37,597			2,452		6.5

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below		24,642			23,786			856		3.6
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		11,004			10,301			703		6.8
Depreciation and amortization		11,411			12,055			(644	)	(5.3	)
Total segment operating expenses		47,057			46,142			915		2.0
Segment operating loss	$	(7,008	)	$	(8,545	)	$	1,537		(18.0	)

Operating revenues

Cable segment service revenue increased $2.5 million, or 7.8%, due to a 2.6% increase in average revenue generating units, video price increases averaging 5.5% implemented in the first quarter 2013 driven by rising programming costs, and customers selecting higher priced digital TV services and higher speed data access packages.

Operating expenses

Cable segment cost of goods and services increased ~~0.5%~~$0.9 million, or 3.6%, principally due to higher programming, network and maintenance expenses. Cable programming costs ~~were flat~~increased $0.4 million as ~~declining video subscriber counts offset~~ the impact of rising rates per ~~sub.~~subscriber outpaced declining video subscriber counts. Network and maintenance expenses each increased $0.2 million due to costs to support the year-over-year growth of the network.

Selling, general and administrative expenses have increased principally due to increases in advertising costs ~~of our new brand~~ and ~~allocated costs for~~ customer service ~~functions,~~costs, offset partly by lower charges for bad debts.

The decrease in depreciation and amortization expense consists of $1.1 million lower amortization on customer base intangibles established in the cable acquisitions, which ~~were set-up to~~ amortize at accelerated rates that decline with each anniversary of their establishment, partially offset by higher depreciation expense on assets placed in service.

Wireline

The Wireline segment is comprised of several subsidiaries providing telecommunications services. Through these subsidiaries, this segment provides regulated and unregulated voice services, ~~dial-up and~~ DSL internet access, and long distance access services throughout Shenandoah County and portions of northwestern Augusta and Rockingham ~~and Augusta~~ Counties, ~~Virginia, and~~Virginia. This segment also leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.

Index

	Mar. 31,		Dec. 31,		Mar. 31,		Dec. 31,		June 30,		Dec. 31,		June 30,		Dec. 31,
	2013		2012		2012		2011		2013		2012		2012		2011

Wireline Segment
Telephone Access Lines		22,234		22,297		22,838		23,083		22,419		22,297		22,670		23,083
Long Distance Subscribers		10,116		10,157		10,416		10,483		10,065		10,157		10,380		10,483
DSL Subscribers		12,665		12,567		12,472		12,351		12,576		12,567		12,505		12,351
Dial-up Internet Subscribers		918		996		1,282		1,410
Total Fiber Miles (1)		84,365		84,107		79,225		78,523		84,414		84,107		81,844		78,523
Fiber Route Miles		1,428		1,420		1,356		1,349		1,430		1,420		1,378		1,349

(1)

Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.

Three Months Ended ~~March 31,~~June 30, 2013 Compared with the Three Months Ended ~~March 31,~~June 30, 2012

(in thousands)	Three Months Ended June 30,				Change
	2013		2012		$			%

Segment operating revenues
Service revenue	$	4,319	$	4,118	$	201		4.9
Access revenue		3,067		3,042		25		0.8
Facilities lease revenue		5,642		5,252		390		7.4
Equipment revenue		9		14		(5	)	(35.7	)
Other revenue		805		1,356		(551	)	(40.6	)
Total segment operating revenues		13,842		13,782		60		0.4
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below		6,084		6,518		(434	)	(6.7	)
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		1,661		1,638		23		1.4
Depreciation and amortization		2,433		2,285		148		6.5
Total segment operating expenses		10,178		10,441		(263	)	(2.5	)
Segment operating income	$	3,664	$	3,341	$	323		9.7

(in thousands)

Three Months Ended
March 31,

Change

2013 2012 $ %

Segment operating revenues
Service revenue $ 4,245 $ 4,129 $ 116 2.8
Access revenue 3,248 2,993 255 8.5
Facilities lease revenue 5,148 5,052 96 1.9
Equipment and other revenue 1,068 736 332 45.1
Total segment operating revenues 13,709 12,910 799 6.2
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 6,099 5,229 870 16.6
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 1,709 1,717 (8 ) (0.5 )
Depreciation and amortization 2,372 2,173 199 9.2
Total segment operating expenses 10,180 9,119 1,061 11.6
Segment operating income $ 3,529 $ 3,791 $ (262 ) (6.9 )

Operating revenues

Total operating revenues in the quarter ended June 30, 2013 were flat against the comparable 2012 period. Increases in service revenue resulted primarily from contracts to lease fiber facilities and provide internet access to third parties. Facilities lease revenue increased largely due to affiliate billings associated with Network Vision upgrades in the Wireless segment. Other revenue decreased due to the conclusion of billings for transition services to buyers of Converged Services’ properties (coupled with a corresponding decrease in costs of goods and services mentioned below).

Operating expenses

Operating expenses overall decreased $0.3 million, or 2.5%, in the quarter ended June 30, 2013, compared to the 2012 quarter. The decrease in cost of goods and services was related to the decline in transition services for Converged Services properties. The increase in depreciation resulted from additions to switch and circuit equipment in support of fiber and other service contract revenue increases as discussed above.

Index

Six Months Ended June 30, 2013 Compared with the Six Months Ended June 30, 2012

(in thousands)	Six Months Ended June 30,				Change
	2013		2012		$			%

Segment operating revenues
Service revenue	$	8,564	$	8,247	$	317		3.8
Access revenue		6,314		6,035		279		4.6
Facilities lease revenue		10,790		10,304		486		4.7
Equipment revenue		15		20		(5	)	(25.0	)
Other revenue		1,867		2,085		(218	)	(10.5	)
Total segment operating revenues		27,550		26,691		859		3.2
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below		12,183		11,747		436		3.7
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		3,371		3,354		17		0.5
Depreciation and amortization		4,805		4,458		347		7.8
Total segment operating expenses		20,359		19,559		800		4.1
Segment operating income	$	7,191	$	7,132	$	59		0.8

Operating revenues

Total operating revenues increased ~~$0.8~~$0.9 million in the ~~three~~six months ended ~~March 31,~~June 30, 2013, up from the comparable 2012 period. The increase in service revenue resulted primarily from contracts to lease fiber facilities and provide internet access to third parties. Access revenue increased primarily due to the Company’s mid-2012 decision to re-tariff DSL rates. ~~Other~~Facilities lease revenue increased due to the addition of affiliate and non-affiliated leased circuits. Other revenue decreased due to the conclusion of billings for transition services to buyers of Converged Services’ properties ~~(offset by increased~~(coupled with a corresponding decrease in costs of goods and services mentioned below).

Operating expenses

Operating expenses overall increased ~~$1.1~~$0.8 million, or ~~11.6%~~4.1%, in the ~~three~~six months ended ~~March 31,~~June 30, 2013, compared to the 2012 ~~three~~six month period. The increase in cost of goods and services resulted primarily from costs to provide services to PCS, ~~Shentel~~Shenandoah Cable and other customers, related to the increases in revenues shown above. The increase was partially offset by a $0.4 million decline in costs to support the transitioning Converged Services properties. The increase in depreciation resulted from additions to switch and circuit equipment in support of fiber and other service contract revenue increases as discussed above.

Index

Non-GAAP Financial Measure

In managing our business and assessing our financial performance, management supplements the information provided by financial statement measures prepared in accordance with GAAP with adjusted OIBDA, which is considered a “non-GAAP financial measure” under SEC rules.

Adjusted OIBDA is defined by us as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of: certain non-recurring transactions; impairment of assets; gains and losses on asset sales; and share based compensation expense. Adjusted OIBDA should not be construed as an alternative to operating income as determined in accordance with GAAP as a measure of operating performance.

In a capital-intensive industry such as telecommunications, management believes that adjusted OIBDA and the associated percentage margin calculations are meaningful measures of our operating performance. We use adjusted OIBDA as a supplemental performance measure because management believes it facilitates comparisons of our operating performance from period to period and comparisons of our operating performance to that of other companies by excluding potential differences caused by the age and book depreciation of fixed assets (affecting relative depreciation expenses) as well as the other items described above for which additional adjustments were made. In the future, management expects that the Company may again report adjusted OIBDA excluding these items and may incur expenses similar to these excluded items. Accordingly, the exclusion of these and other similar items from our non-GAAP presentation should not be interpreted as implying these items are non-recurring, infrequent or unusual.

While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the current period allocation of costs associated with long-lived assets acquired or constructed in prior periods, and accordingly may obscure underlying operating trends for some purposes. By isolating the effects of these expenses and other items that vary from period to period without any correlation to our underlying performance, or that vary widely among similar companies, management believes adjusted OIBDA facilitates internal comparisons of our historical operating performance, which are used by management for business planning purposes, and also facilitates comparisons of our performance relative to that of our competitors. In addition, we believe that adjusted OIBDA and similar measures are widely used by investors and financial analysts as measures of our financial performance over time, and to compare our financial performance with that of other companies in our industry.

Adjusted OIBDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. These limitations include the following:

it does not reflect capital expenditures;

many of the assets being depreciated and amortized will have to be replaced in the future and adjusted OIBDA does not reflect cash requirements for such replacements;

it does not reflect costs associated with share-based awards exchanged for employee services;

it does not reflect interest expense necessary to service interest or principal payments on indebtedness;

it does not reflect expenses incurred for the payment of income ~~taxes and other~~ taxes; and

other companies, including companies in our industry, may calculate adjusted OIBDA differently than we do, limiting its usefulness as a comparative measure.

In light of these limitations, management considers adjusted OIBDA as a financial performance measure that supplements but does not replace the information reflected in our GAAP results.

The following table shows adjusted OIBDA for the three and six months ended ~~March 31,~~June 30, 2013 and 2012:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)
	2013		2012		2013		2012
Adjusted OIBDA	$	31,260	$	28,472	$	60,894	$	55,180

(in thousands)
Three Months Ended
March 31,

2013 2012

Adjusted OIBDA $ 29,635 $ 26,709

Index

The following table reconciles adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure, for the three and six months ended ~~March 31,~~June 30, 2013 and 2012:

Consolidated:
(in thousands)	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
Operating income	$	14,500	$	11,137		$	29,708	$	19,955
Plus depreciation and amortization		16,071		15,259			30,042		31,066
Adjusted prepaid results		-		1,562			-		3,257
Plus (gain) loss on asset sales		152		(9	)		234		24
Plus share based compensation expense		537		523			910		878
Adjusted OIBDA	$	31,260	$	28,472		$	60,894	$	55,180

(in thousands)

Three Months Ended
March 31,

2013 2012

Operating income $ 15,209 $ 8,817
Plus depreciation and amortization 13,972 15,807
Adjusted prepaid results - 1,695
Plus loss on asset sales 82 33
Plus share based compensation expense 372 357
Adjusted OIBDA $ 29,635 $ 26,709

Adjusted prepaid results refers to the impact on ~~first quarter~~the three and six month periods of 2012 had Sprint ~~Nextel~~ calculated prepaid costs consistent with the adjustment received from Sprint ~~Nextel~~ in the fourth quarter of 2012, related to the previous nine quarters, and recorded in the fourth quarter of 2012.

The following tables reconcile adjusted OIBDA to operating income by major segment for the three and six months ended ~~March 31,~~June 30, 2013 and 2012:

~~Wireless Segment:~~

Wireless Segment: (in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Operating income	$	15,066	$	12,491	$	30,894	$	23,015
Plus depreciation and amortization		7,782		6,753		13,809		14,510
Adjusted prepaid results		-		1,562		-		3,257
Plus loss on asset sales		11		-		100		4
Plus share based compensation expense		152		152		262		256
Adjusted OIBDA	$	23,011	$	20,958	$	45,065	$	41,042

(in thousands)

Three Months Ended
March 31,

2013 2012

Operating income $ 15,828 $ 10,525
Plus depreciation and amortization 6,028 7,757
Adjusted prepaid results - 1,695
Plus loss on asset sales 90 4
Plus share based compensation expense 108 104
Adjusted OIBDA $ 22,054 $ 20,085

~~Cable Segment:~~

(in thousands)
Three Months Ended
March 31,

2013 2012

Operating loss $ (3,386 ) $ (4,542 )
Plus depreciation and amortization 5,564 5,852
Plus (gain) loss on asset sales (19 ) 9
Plus share based compensation expense 162 149
Adjusted OIBDA $ 2,321 $ 1,468

~~Wireline Segment:~~

(in thousands)	Three Months Ended March 31,
Cable Segment: (in thousands)					Three Months Ended June 30,						Six Months Ended June 30,
	2013		2012		2013			2012			2013			2012

Operating income	$	3,529	$	3,791
Operating income (loss)					$	(3,622	)	$	(4,005	)	$	(7,008	)	$	(8,545	)
Plus depreciation and amortization		2,372		2,173		5,847			6,203			11,411			12,055
Plus loss on asset sales		12		20
Plus (gain) loss on asset sales						28			(30	)		9			(21	)
Plus share based compensation expense		78		82		236			218			398			366
Adjusted OIBDA	$	5,991	$	6,066	$	2,489		$	2,386		$	4,810		$	3,855

Index

Wireline Segment: (in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Operating income	$	3,664	$	3,341	$	7,191	$	7,132
Plus depreciation and amortization		2,433		2,285		4,805		4,458
Plus loss on asset sales		113		21		124		41
Plus share based compensation expense		114		120		191		202
Adjusted OIBDA	$	6,324	$	5,767	$	12,311	$	11,833

Liquidity and Capital Resources

The Company has four principal sources of funds available to meet the financing needs of its operations, capital projects, debt service, investments and potential dividends. These sources include cash flows from operations, existing balances of cash and cash equivalents, the liquidation of investments and borrowings. Management routinely considers the alternatives available to determine what mix of sources are best suited for the long-term benefit of the Company.

Sources and Uses of Cash. The Company generated ~~$22.7~~$52.2 million of net cash from operations in the first ~~three~~six months of 2013, compared to ~~$22.5~~$44.5 million in the first ~~three~~six months of 2012. Net income increased from the 2012 period to 2013, including the effects of non-cash items such as depreciation, amortization, deferred income taxes and provisions for bad debt. ~~A smaller decrease in income taxes receivable in the first three months of 2013 compared to 2012 offset the improvements~~The increase in net income ~~described above.~~was partially offset by a decrease in cash provided by net changes in assets and liabilities.

~~Indebtedness~~.Indebtedness. As of ~~March 31,~~June 30, 2013, the Company’s indebtedness totaled ~~$231.4~~$230.7 million, with an annualized overall weighted average interest rate of approximately ~~2.97%.~~3.60% after considering the impact of swap contracts. Following the expiration of the 2010 swap and payoff of fixed rate debt during the third quarter of 2013, the weighted average interest rate is expected to approximate 3.41% at current LIBOR rates. The Company has $50 million available under the Revolving Facility, and the right to borrow up to $100 million under one or more Incremental Term Loan facilities, subject to certain restrictions. The Revolving Facility and Incremental Term Loan Facility are both subject to the terms of the Restated and Amended Credit Agreement entered into in September 2012.

The Company is bound by certain financial covenants under its Credit Agreement. Noncompliance with any one or more of the debt covenants may have an adverse effect on our financial condition or liquidity in the event such noncompliance cannot be cured or should we be unable to obtain a waiver from the lenders. As of ~~March 31,~~June 30, 2013, the Company was in compliance with all debt covenants, and ratios at ~~March 31,~~June 30, 2013 were as follows:

		Actual			Covenant Requirement at ~~March 31,~~June 30, 2013
Total Leverage Ratio	~~1.97~~		1.89		3.00 or Lower
Debt Service Coverage Ratio	~~6.65~~		8.98		2.50 or Higher
Equity to Assets Ratio	~~38.3%~~		38.3	%	30.0% or Higher

In accordance with the Credit Agreement, the total leverage and debt service coverage ratios noted above are based on the twelve months ended ~~March 31,~~June 30, 2013. In addition to the covenants above, the Company is required to supply the lender with quarterly financial statements and other reports as defined by the Credit Agreement. As a result of the improved leverage ratio reported as of March 31, 2013, effective May 28, 2013, the margin over LIBOR on the Company’s variable rate debt was reduced from 2.75% to 2.50%. The Company was in compliance with all reporting requirements at ~~March 31,~~June 30, 2013.

The Company has no off-balance sheet arrangements (other than operating leases) and has not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

Capital Commitments. Capital expenditures budgeted for 2013 total $125.2 million. Planned spending contemplates the replacement of remaining base stations in our wireless network as part of ~~Sprint Nextel’s~~Sprint’s Network Vision project started in 2012, as well as adding capacity to our PCS network, new towers to support the expansion of PCS network capacity, and ~~on-going~~ongoing spending to expand and upgrade our fiber networks and information technology capabilities. Cable segment capital spending for 2013 ~~included~~includes spending for upgrades of the last acquired Cable markets, extensions of current systems and other continuing cable segment expenditures.

Index

For the first ~~three~~six months of 2013, the Company spent ~~$26.0~~$48.5 million on capital projects, compared to ~~$14.8~~$32.3 million in the comparable 2012 period. Spending related to Wireless projects accounted for ~~$20.0~~$35.0 million in the first ~~three~~six months of 2013, primarily for base station upgrades, while Cable ~~projects accounted for $2.9~~capital spending of $6.6 million ~~primarily for~~related to network upgrades to support new services or customers. Wireline projects accounted for ~~$1.9~~$4.5 million, driven primarily ~~for~~by fiber builds and switching/routing ~~capability, and other~~capability. Other projects ~~accounted for $1.2~~totaled $2.4 million, largely related to information technology projects.

The Company received ~~$1.1~~$3.3 million in cash from sales of Converged Services properties completed during the first ~~quarter~~six months of 2012.

The Company believes that cash on hand, cash flow from operations and borrowings expected to be available under the Company’s existing credit facilities will provide sufficient cash to enable the Company to fund planned capital expenditures, make scheduled principal and interest payments, meet its other cash requirements and maintain compliance with the terms of its financing agreements for at least the next twelve months. Thereafter, capital expenditures will likely continue to be required to provide increased capacity to meet the Company’s expected growth in demand for its products and services. The actual amount and timing of the Company’s future capital requirements may differ materially from the Company’s estimate depending on the demand for its products and new market developments and opportunities.

~~Index~~

The Company’s cash flows from operations could be adversely affected by events outside the Company’s control, including, without limitation, changes in overall economic conditions, regulatory requirements, changes in technologies, demand for its products, availability of labor resources and capital, changes in the Company’s relationship with Sprint, ~~Nextel,~~ and other conditions. The Wireless segment’s operations are dependent upon ~~Sprint Nextel’s~~Sprint’s ability to execute certain functions such as billing, customer care, and collections; the subsidiary’s ability to develop and implement successful marketing programs and new products and services; and the subsidiary’s ability to effectively and economically manage other operating activities under the Company's agreements with ~~Sprint Nextel.~~Sprint. The Company's ability to attract and maintain a sufficient customer base, particularly in the acquired cable markets, is also critical to its ability to maintain a positive cash flow from operations. The foregoing events individually or collectively could affect the Company’s results.

Recently Issued Accounting Standards

There were no recently issued accounting standards, not adopted by the Company as of ~~March 31,~~June 30, 2013, that are expected to have a material impact on the Company’s results of operations or financial condition.

Index

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risks relate primarily to changes in interest rates on instruments held for other than trading purposes. The Company’s interest rate risk generally involves three components. The first component is outstanding debt with variable rates. As of ~~March 31,~~June 30, 2013, the Company had $230.0 million of variable rate debt outstanding, bearing interest at a rate of ~~2.95%~~2.70% as determined on a monthly basis. An increase in market interest rates of 1.00% would add approximately $2.3 million to annual interest expense, excluding the effect of interest rate swaps. An additional ~~$1.2~~$0.5 million of the Company’s outstanding debt has a fixed rate of 7.37% through maturity in August 2013; the remaining ~~$0.3~~$0.2 million of outstanding debt bears no interest. Due to the relatively short time frame to maturity of the fixed rate debt, market value approximates carrying value of the fixed rate debt. The Company entered into two swap agreements that, through the maturity of the 2010 swap agreement on July 31, 2013, cover notional principal equal to nearly all of the outstanding variable rate debt to pay a blended fixed rate of just over 1.00% and receive a variable rate based on one month LIBOR; subsequently, the 2012 swap agreement covers notional principal equal to approximately 76% of the outstanding variable rate debt through maturity in 2019, requiring the Company to pay a fixed rate of 1.13% and receive a variable rate based on one month LIBOR, to manage a portion of its interest rate risk. The 2012 swap currently adds approximately $1.6 million to annual interest expense, based on the spread between the fixed rate and the variable rate currently in effect on our debt.

The second component of interest rate risk consists of temporary excess cash, which can be invested in various short-term investment vehicles such as overnight repurchase agreements and Treasury bills with a maturity of less than 90 days. The cash is currently invested in a combination of a commercial checking account that has limited interest rate risk and ~~two treasury bills with face amounts~~three money market mutual funds that contain a total investment of ~~$5 million each which will mature at par in April and May of 2013.~~$35 million. Management continues to evaluate the most beneficial use of these funds.

The third component of interest rate risk is marked increases in interest rates that may adversely affect the rate at which the Company may borrow funds for growth in the future. If the Company should borrow additional funds under any Incremental Term Loan Facility to fund its capital investment needs, repayment provisions would be agreed to at the time of each draw under the Incremental Term Loan Facility. If the interest rate margin on any draw exceeds by more than 0.25% the applicable interest rate margin on the Term Loan A Facility, the applicable interest rate margin on the Term Loan A Facility shall be increased to equal the interest rate margin on the Incremental Term Loan Facility. If interest rates increase generally, or if the rate applied under the Company’s Incremental Term Loan Facility causes the Company’s outstanding debt to be repriced, the Company’s future interest costs could increase.

Management views market risk as having a potentially significant impact on the Company's results of operations, as future results could be adversely affected if interest rates were to increase significantly for an extended period, or if the Company’s need for additional external financing resulted in increases to the interest rates applied to all of its new and existing debt. The Company will have approximately $55 million of variable rate debt with no interest rate protection outstanding after August of 2013. The Company’s investments in publicly traded stock and bond mutual funds under the rabbi trust, which are subject to market risks and could experience significant swings in market values, are offset by corresponding changes in the liabilities owed to participants in the Executive Supplemental Retirement Plan. General economic conditions affected by regulatory changes, competition or other external influences may pose a higher risk to the Company’s overall results.

As of ~~March 31,~~June 30, 2013, the Company has ~~$6.3~~$6.4 million of cost and equity method investments. Approximately $2.1 million is invested in privately held companies through investments with portfolio managers. Most of the companies are in an early stage of development and significant increases in interest rates could have an adverse impact on their results, ability to raise capital and viability. The Company’s market risk is limited to the funds previously invested.

Index

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our President and Chief Executive Officer, who is the principal executive officer, and the Vice President - Finance and Chief Financial Officer, who is the principal financial officer, conducted an evaluation of our disclosure controls and procedures, as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934. The Company's principal executive officer and its principal financial officer concluded that the Company's disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2013.

Changes in Internal Control Over Financial Reporting

During the ~~first~~second quarter of 2013, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Other Matters Relating to Internal Control Over Financial Reporting

Under the Company’s agreements with Sprint, ~~Nextel,~~ Sprint ~~Nextel~~ provides the Company with billing, collections, customer care, certain network operations and other back office services for the PCS operation. As a result, Sprint ~~Nextel~~ remits to the Company approximately ~~58%~~59% of the Company’s total operating revenues. Due to this relationship, the Company necessarily relies on Sprint ~~Nextel~~ to provide accurate, timely and sufficient data and information to properly record the Company’s revenues, and accounts receivable, which underlie a substantial portion of the Company’s periodic financial statements and other financial disclosures.

Information provided by Sprint ~~Nextel~~ includes reports regarding the subscriber accounts receivable in the Company’s markets. Sprint ~~Nextel~~ provides the Company with monthly accounts receivable, billing and cash receipts information on a market level, rather than a subscriber level. The Company reviews these various reports to identify discrepancies or errors. Under the Company’s agreements with Sprint, ~~Nextel,~~ the Company is entitled to only a portion of the receipts, net of items such as taxes, government surcharges, certain allocable write-offs and the 20.0% of revenue retained by ~~Sprint Nextel.~~Sprint. Effective August 1, 2013, Sprint’s revenue retention will increase to 22.0%. Because of the Company’s reliance on Sprint ~~Nextel~~ for financial information, the Company must depend on Sprint ~~Nextel~~ to design adequate internal controls with respect to the processes established to provide this data and information to the Company and ~~Sprint Nextel’s~~Sprint’s other Sprint PCS affiliate network partners. To address this issue, Sprint ~~Nextel~~ engages an independent registered public accounting firm to perform a periodic evaluation of these controls and to provide a “Report on Controls Placed in Operation and Tests of Operating Effectiveness” under guidance provided in Statements on Standards for Attestation Engagements No. 16 (“SSAE 16”). The report is provided to the Company on an annual basis and covers a nine-month period. The most recent report covered the period from January 1, 2012 to September 30, 2012. The most recent report indicated there were no material issues which would adversely affect the information used to support the recording of the revenues provided by Sprint ~~Nextel~~ related to the Company’s relationship with them.

Index

PART II.

OTHER INFORMATION

ITEM 1A.

Risk Factors

As previously discussed, our actual results could differ materially from our forward-looking statements. Except as described below, there have been no material changes in the risk factors from those described in Part 1, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

~~On April 15, 2013, Dish Network Corporation~~Since December 31, 2012, the proposed transaction between Sprint Nextel and Softbank Corp. has been completed and Sprint Nextel will now be known as Sprint Corp. Sprint has completed their proposed acquisition of the portion of Clearwire they did not previously own, and Softbank Corp. has announced that it ~~had made~~will invest an ~~offer~~additional $16 billion in Sprint primarily for investment in Sprint’s network over the next two years, and that it will not make significant changes to acquire Sprint Nextel for $25.5 billion, competing with Softbank Corporation’s previously announced offer to acquire 70% of Sprint Nextel for $20.1 billion. The terms of these proposed transactions,Sprint’s corporate structure or ~~delays in consummating a transaction, could affect Sprint Nextel’s business in a way that could be adverse to us.~~
senior management team.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The Company maintains a dividend reinvestment plan (the “DRIP”) for the benefit of its shareholders. When shareholders remove shares from the DRIP, the Company issues a certificate for whole shares, pays out cash for any fractional shares, and cancels the fractional shares purchased. In conjunction with exercises of stock options and distributions of vested share awards, the Company periodically repurchases shares from recipients to cover some of the exercise price of the options being exercised or taxes payable associated with the distribution of shares. The following table provides information about the Company’s repurchases of shares during the three months ended ~~March 31,~~June 30, 2013:

	Number of Shares Purchased		Average Price Paid per Share
April 1 to April 30		366	$	16.01
May 1 to May 31		7,174	$	17.48
June 1 to June 30		2,587	$	16.91

Total		10,127	$	17.28

Number of Shares
Purchased
Average Price Paid per Share
January 1 to January 31 5 $ 15.06
February 1 to February 28 3 $ 14.49
March 1 to March 31 3 $ 14.76

Total 11 $ 14.82

Index

~~Index~~

ITEM 6.

Exhibits

(a) The following exhibits are filed with this Quarterly Report on Form 10-Q:

~~10.43~~

Addendum XV dated as of March 11, 2013, to Sprint PCS Management Agreement by and among Sprint Spectrum, L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal communications, LLC.

31.1	Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2	Certification of Vice President - Finance and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32	Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350.

(101)

Formatted in XBRL (Extensible Business Reporting Language)

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

~~Index~~

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SHENANDOAH TELECOMMUNICATIONS COMPANY
		(Registrant)

	/s/Adele M. Skolits
	Adele M. Skolits
	Vice President - Finance and Chief Financial Officer
	Date: ~~May 3,~~August 2, 2013

Index

EXHIBIT INDEX

Exhibit No.

Exhibit

~~10.43~~

31.1

Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2

Certification of Vice President - Finance and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350.

(101)

Formatted in XBRL (Extensible Business Reporting Language)

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

3036

VIRGINIA		54-1162807
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

		Page
		Numbers

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets ~~March 31,~~June 30, 2013 and December 31, 2012	3-4

	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended ~~March 31,~~June 30, 2013 and 2012	5

	Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the ~~Three~~Six Months Ended ~~March 31, 2013 and~~June 30, 2013and the Year Ended December 31, 2012	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2013 and 2012	7-8

	Notes to Unaudited Condensed Consolidated Financial Statements	~~9-13~~9-14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~14-24~~15-30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2531

Item 4.	Controls and Procedures	2632

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	2733

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2733

Item 6.	Exhibits	2834

	Signatures	2935

	Exhibit Index	3036

ASSETS	March 31, 2013		December 31, 2012		June 30, 2013		December 31, 2012

Current Assets
Cash and cash equivalents	$	67,095	$	71,086	$	73,402	$	71,086
Accounts receivable, net		24,566		25,274		25,019		25,274
Income taxes receivable		2,239		4,705		4,789		4,705
Materials and supplies		7,186		9,789		8,011		9,789
Prepaid expenses and other		5,790		4,749		5,548		4,749
Deferred income taxes		942		832		1,028		832
Total current assets		107,818		116,435		117,797		116,435

Investments, including $2,173 and $2,064 carried at fair value		8,448		8,214
Investments, including $2,190 and $2,064 carried at fair value						8,578		8,214

Property, plant and equipment, net		370,196		365,474		386,581		365,474

Other Assets
Intangible assets, net		73,783		74,942		72,625		74,942
Deferred charges and other assets, net		6,483		5,675		10,501		5,675
Net other assets		80,266		80,617		83,126		80,617
Total assets	$	566,728	$	570,740	$	596,082	$	570,740

LIABILITIES AND SHAREHOLDERS’ EQUITY	March 31, 2013			December 31, 2012			June 30, 2013		December 31, 2012

Current Liabilities
Current maturities of long-term debt	$	1,238		$	1,977		$	517	$	1,977
Accounts payable		20,500			31,729			34,721		31,729
Advanced billings and customer deposits		11,191			11,190			11,282		11,190
Accrued compensation		2,277			2,671			2,314		2,671
Accrued liabilities and other		9,597			10,573			10,316		10,573
Total current liabilities		44,803			58,140			59,150		58,140

Long-term debt, less current maturities		230,200			230,200			230,200		230,200

Other Long-Term Liabilities
Deferred income taxes		56,952			57,896			60,498		57,896
Deferred lease payable		5,221			4,903			5,582		4,903
Asset retirement obligations		5,966			5,896			6,086		5,896
Other liabilities		6,570			5,857			6,454		5,857
Total other liabilities		74,709			74,552			78,620		74,552

Commitments and Contingencies

Shareholders’ Equity
Common stock		24,973			24,688			25,452		24,688
Accumulated other comprehensive loss		(331	)		(863	)
Accumulated other comprehensive income (loss)								2,444		(863	)
Retained earnings		192,374			184,023			200,216		184,023
Total shareholders’ equity		217,016			207,848			228,112		207,848

Total liabilities and shareholders’ equity	$	566,728		$	570,740		$	596,082	$	570,740

	Shares			Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2011		23,838		$	22,043		$	175,616		$	-		$	197,659

Net income		-			-			16,303			-			16,303
Other comprehensive loss, net of tax		-			-			-			(863	)		(863	)
Dividends declared ($0.33 per share)		-			-			(7,896	)		-			(7,896	)
Dividends reinvested in common stock		37			493			-			-			493
Stock based compensation		-			1,842			-			-			1,842
Common stock issued through exercise of incentive stock options		55			404			-			-			404
Common stock issued for share awards		45			-			-			-			-
Common stock issued		1			10			-			-			10
Common stock repurchased		(13	)		(143	)		-			-			(143	)
Net excess tax benefit from stock options exercised		-			39			-			-			39

Balance, December 31, 2012		23,962		$	24,688		$	184,023		$	(863	)	$	207,848

Net income		-			-			16,193			-			16,193
Other comprehensive income, net of tax		-			-			-			3,307			3,307
Stock based compensation		-			1,045			-			-			1,045
Common stock issued for share awards		68			-			-			-			-
Common stock issued		-			5			-			-			5
Common stock repurchased		(21	)		(330	)		-			-			(330	)
Net excess tax benefit from stock options exercised		-			44			-			-			44

Balance, June 30, 2013		24,009		$	25,452		$	200,216		$	2,444		$	228,112

	Liability Derivatives					Derivatives
		Fair Value as of					Fair Value as of
	Balance Sheet	March 31,		December 31,		Balance Sheet	June 30,				December 31,
	Location	2013		2012		Location	2013				2012
Derivatives not designated as hedging instruments:
Interest rate swaps	Accrued liabilities and other	$	135	$	239	Accrued liabilities and other		$	33			$	239
Total derivatives not designated as cash flow hedges		$	135	$	239			$	33			$	239

Derivatives designated as hedging instruments:
Interest rate swaps	Accrued liabilities and other	$	1,559	$	1,613	Accrued liabilities and other		$	1,561			$	1,613
	Deferred charges and other assets, net		1,007		177	Deferred charges and other assets, net			(5,628	)			(177	)
Total derivatives designated as hedging instruments		$	552	$	1,436			$	(4,067	)		$	1,436

	Gains and Losses on Cash Flow Hedges			Taxes			Accumulated Other Comprehensive Income			Gains and (Losses) on Cash Flow Hedges			Income Taxes			Accumulated Other Comprehensive Income(Loss)

Balance as of December 31, 2012	$	(1,436	)	$	573		$	(863	)	$	(1,436	)	$	573		$	(863	)
Other comprehensive income before reclassifications		490			(196	)		294			4,698			(1,875	)		2,823
Amounts reclassified from accumulated other comprehensive income (to interest expense)		394			(156	)		238			805			(321	)		484
Net current period other comprehensive income		884			(352	)		532			5,503			(2,196	)		3,307
Balance as of March 31, 2013	$	(552	)	$	221		$	(331	)
Balance as of June 30, 2013										$	4,067		$	(1,623	)	$	2,444

Three months ended March 31, 2013 (In thousands)	Wireless		Cable			Wireline		Other			Eliminations			Consolidated Totals
External revenues
Service revenues	$	44,065	$	17,380		$	3,900	$	-		$	-		$	65,345
Other		3,019		2,476			5,170		-			-			10,665
Total external revenues		47,084		19,856			9,070		-			-			76,010
Internal revenues		1,073		49			4,639		-			(5,761	)		-
Total operating revenues		48,157		19,905			13,709		-			(5,761	)		76,010

Operating expenses
Costs of goods and services, exclusive of depreciation and amortization shown separately below		17,530		12,289			6,099		-			(5,218	)		30,700
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		8,771		5,438			1,709		754			(543	)		16,129
Depreciation and amortization		6,028		5,564			2,372		8			-			13,972
Total operating expenses		32,329		23,291			10,180		762			(5,761	)		60,801
Operating income (loss)		15,828		(3,386	)		3,529		(762	)		-			15,209

Three months ended March 31, 2012 (In thousands)	Wireless		Cable			Wireline		Other			Eliminations			Consolidated Totals
External revenues
Service revenues	$	38,403	$	16,052		$	3,868	$	-		$	-		$	58,323
Other		3,451		2,456			4,593		-			-			10,500
Total external revenues		41,854		18,508			8,461		-			-			68,823
Internal revenues		815		75			4,449		-			(5,339	)		-
Total operating revenues		42,669		18,583			12,910		-			(5,339	)		68,823

Operating expenses
Costs of goods and services, exclusive of depreciation and amortization shown separately below		16,393		12,226			5,229		17			(4,836	)		29,029
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		7,994		5,047			1,717		915			(503	)		15,170
Depreciation and amortization		7,757		5,852			2,173		25			-			15,807
Total operating expenses		32,144		23,125			9,119		957			(5,339	)		60,006
Operating income (loss)		10,525		(4,542	)		3,791		(957	)		-			8,817

	March 2013		December 2012		June 30, 2013		December 31, 2012

CoBank (fixed term loan)	$	1,183	$	1,876	$	478	$	1,876
Term Loan A		230,000		230,000		230,000		230,000
Other debt		255		301		239		301
		231,438		232,177		230,717		232,177
Current maturities		1,238		1,977		517		1,977
Total long-term debt	$	230,200	$	230,200	$	230,200	$	230,200

	Mar. 31, 2013			Dec. 31, 2012			Mar. 31, 2012			Dec. 31, 2011

Homes Passed (1)		185,099			184,533			182,828			182,156
Customer Relationships (2)
Video customers		59,353			59,089			62,519			62,835
Non-video customers		16,220			15,709			13,611			12,513
Total customer relationships		75,573			74,798			76,130			75,348
Video
Customers (3)		61,257			61,559			64,532			64,979
Penetration (4)		33.1	%		33.4	%		35.3	%		35.7	%
Digital video penetration (5)		39.6	%		39.5	%		39.7	%		39.0	%
High-speed Internet
Available Homes (6)		164,789			163,273			156,791			156,119
Customers (3)		42,479			41,025			38,856			37,021
Penetration (4)		25.8	%		25.1	%		24.8	%		23.7	%
Voice
Available Homes (6)		157,409			154,552			143,907			143,235
Customers (3)		12,840			12,307			10,618			9,881
Penetration (4)		8.2	%		8.0	%		7.4	%		6.9	%
Total Revenue Generating Units (7)		116,576			114,891			114,006			111,881
Total Fiber Miles (8)		40,686			39,418			35,086			34,772
Total Route Miles		2,116			2,077			1,998			1,990

	Number of Shares Purchased		Average Price Paid per Share
January 1 to January 31		5	$	15.06
February 1 to February 28		3	$	14.49
March 1 to March 31		3	$	14.76

Total		11	$	14.82

(in thousands)	June 30, 2013			December 31, 2012

Wireless	$	200,826		$	179,929
Cable		210,434			202,436
Wireline		89,522			88,776
Other		465,761			458,650
Combined totals		966,543			929,791
Inter-segment eliminations		(370,461	)		(359,051	)
Consolidated totals	$	596,082		$	570,740

(In thousands)	March 31, 2013			December 31, 2012

Wireless	$	178,049		$	179,929
Cable		198,820			202,436
Wireline		86,469			88,776
Other (includes assets held for sale)		462,428			458,650
Combined totals		925,766			929,791
Inter-segment eliminations		(359,038	)		(359,051	)
Consolidated totals	$	566,728		$	570,740