Telergee Conference

Discussion Materials prepared for:

2009 Telergee Conference

October 15, 2009

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Otelco Overview

 Acquired and operate 10 RLECs and 2 facilities based CLECs in Alabama, Maine, Massachusetts, Missouri, New Hampshire and West Virginia  Initial Public Offering on December 16, 2004  Follow-on offering priced June 28, 2007  As of 6/30/09, operate over 100,000 voice and data access lines and 122,000 wholesale CLEC network connections  LTM Revenue and Adjusted EBITDA of $92.9 million and $43.9 million respectively 1

Otelco Q2 2009 Metrics

RLEC Access Lines: Voice Lines RLEC Data Lines RLEC Access Line Equivalents CLEC Access Lines: Voice Lines Data Lines CLEC Access Line Equivalents Total Access Line Equivalents Wholesale Network Connections Cable Television Customers Dial-Up Internet Customers Key Operating Statistics 2007 36,687 12,160 48,847 16,973 2,571 19,544 68,391 0 4,169 15,249 2008 51,530 18,709 70,239 26,558 3,246 29,804 100,043 98,187 4,082 11,864

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Q2 2009 50,078 19,596 69,674 27,110 3,298 30,408 100,082 122,471 4,114 10,165

Industry Update

Recent Service Provider Observations

“We expect continuing declines in traditional access lines but offsets in growth in broadband and video services.” (2008 10-K) “Telegraphs aren't relevant. Wireline voice, whether you're in a rural area or urban area, wireline voice over copper over time will not be relevant. It is the way that it is.” (Q4 2008 Earnings Call) “We expect competition to intensify as a result of the entrance of new competitors and the rapid development of new technologies, products and services.” (2008 10-K) “We have lost access lines primarily because of competition, changing consumer behavior, economic conditions, [and] changing technology…” (2008 10-K) “As consumers look to reduce expenses, they may be more inclined to discontinue their land line and maintain their wireless phone.” (2008 10-K) “We continue to see an increasing correlation between our triple-play availability and line retention.” (Q4 2008 Earnings Call) “Competitive expansions primarily from cable facilities into our service areas are expected to slow in 2009, but we could experience some increased competition from high-speed Internet offerings of wireless competitors.” (2008 10-K)

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Source: Company filings, Company earnings calls, and Stifel Nicolaus analysis

Industry Update

RLECs are a declining industry (millions) RLEC access lines CLEC facility based lines Total access lines Access lines lost Rate of decline 2005 158.5

10.2

168.7

2006 149.8

11.1

160.9

7.8

4.6% 2007 142.0

11.7

153.7

7.2

4.6% 2008 128.5

11.8

140.3

13.4

8.7% Source: JSI Capital Advisors, Phone Lines 2009

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Industry Update

Change in service providers % HH served by telcos % HH served by cable telephony % HH served by wireless only % HH served by telco VOIP Totals 2005 83.7

4.9

8.4

.6

97.6

2006 77.1

7.7

12.8

2007 71.2

11.8

15.8

2008 63.0

15.2

20.2

1.4

2.0

2.9

99.0 100.8 101.3

Note: Assumed wireless will have multiple devices beginning in 2007 Source: NECA Trends Report 2008

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Industry Response

ILEC / Cable Battleground

Company (1) Deployment RGUs per Basic Sub Monthly ARPU Cable Modem Voice Penetration Cable Modem Voice Cablevision 3.3

$136.55

100.0% 100.0% 52.3% 40.6% Time Warner Cable 2.7

$111.29

99.5% Comcast Charter Communications Mediacom 2.6

2.5

$115.27

$110.32

2.3

$91.89

Source: Company filings, company press releases, and Stifel Nicolaus analysis Note:(1) Data is as of or for the three month period ended March 31, 2009.

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99.4% 94.9% 100.0% 97.5% 93.4% 88.8% 91.9% 33.5% 30.2% 26.1% 26.8% 15.1% 14.3% 13.5% 10.1%

Industry Response

Wireless Data ARPU Year-Over-Year Growth

Data RPU as a % of Total RPU

30.0% 25.0% 20.0% 17.6% 15.0% 23.2% 27.9% 16.0% 21.5% 27.8% 26.8% 15.7% 20.5% 10.0% 14.3% 16.6% 19.6% 9.0% 12.0% 16.0% 5.0% 0.0%

Verizon AT&T

1Q 2007

Sprint Nextel

1Q 2008

Source: Company press releases, research reports and Stifel Nicolaus analysis

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T-Mobile

1Q 2009

U.S. Cellular

Across the wireless industry, declining voice ARPU is increasingly offset by growing data service ARPU.

Since 4Q 2006, data ARPU as a percent of total ARPU has grown 33% on a compound annual basis.

Industry Update

Continuing decline in access minutes of use (mou): 2006 2007 Access mou Rate of decline 3.671B

3.291B

10.4% 2008 3.053B

7.24% Additionally, the revenue per mou is declining due to the increasing percentage of wireless minutes – negative effect on EBITDA Source: JSI study of 53 companies with access lines ranging from 352 to 80,000

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Industry Response

Service Provider Strategies

“Our strategy is to offset [our] line losses by increasing non-access-line-related revenues from customer connections for data, video and voice.” (2008 10-K) “We continue to focus on increasing our revenues per customer, primarily by improving our DSL and IPTV market penetration…” (2008 10-K) “We believe there is a high correlation between service quality and the likelihood that our customers will remain with us when presented with a competitive alternative.” (2008 10-K) “We are going to be able to offer a lot of new products and services to our customers… including customizable bundles [and] business services that leverage [our] high speed IP data network...” (2008 10-K) “Our message is that customers need not cut back on their must-have high-speed, video, and voice products when they bundle with Frontier.” (Q4 2008 Earnings Call) “We will utilize value added services such as speed, content, and features along with unparalleled customer service as a differentiator.” (2008 10-K) “We believe that broadband, having broadband in the homes is an important part of our service offering.” (Q4 2008 Earnings Call) “We understand that these are tough times and we want to be competitively priced for that.” (Q4 2008 Earnings Call) “In the consumer segment, we see the near-term competitive battle for data services moving to affordability rather than top end speed…We are very cognizant of the pocketbook, and [are] moving to introduce product sets focused on affordability.” (Q4 2008 Earnings Call) “In the current market environment, to stay competitive, we must be able to offer a Video product on par with our competitors at a competitive price.” (2008 10-K) Source: Company press releases, research reports and Stifel Nicolaus analysis

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Industry Response

Increased efforts to effectively manage costs and operations Offset access line losses by increasing revenues for data, video and other products Bundled service offerings

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Industry Response

Growth Trends (1)

4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0%

Revenue EBITDA

-10.0%

2005 2006 Source: Company filings, press releases and Stifel Nicolaus analysis Note: (1) Composite Index is comprised of CenturyTel, D&E, Embarq, Frontier, and Iowa Telecom.

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2007 Access Lines 2008

The increased pace of access line erosion in 2008 caused the ILECs to realize negative revenue growth.

Industry Response

Overall broadband availability to customers served by NECA TS pool companies members reached 92% in 2008 More than 500 NECA RLEC companies are offering video services Other products include data storage, transport services, fiber lease, etc.

Source: NECA Trend Report 2008

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Industry Response

Consolidation opportunities: Currently there are 784 independent telcos in the USA Combining operations provides economies of scale necessary to compete with wireless and cable operators Opportunities to improve margins by consolidation of administrative and certain back office functions Current difficulties for acquisitions include declining RLEC values and tight credit markets

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Industry Response

ILEC Enterprise Valuation Trends – LTM EBITDA

10.0x

9.6x

9.0x

8.0x

7.0x

6.7x

6.4x

6.0x

5.0x

5.3x

4.0x

3.0x

1Q 03 3Q 03 RBOCs 1Q 04 3Q 04 1Q 05 3Q 05 Integrated LECs 1Q 06

Source: Company filings, press releases, Stifel Nicolaus Research, Thompson Research, and Stifel Nicolaus analysis.

3Q 06 1Q 07 3Q 07 High Yielding LECs 14 1Q 08 3Q 08 1Q 09 Pure Play LECs

6.6x

5.3x

5.2x

4.8x

Independent ILEC valuations have decreased over time as access line loss continues and DSL and video growth slows.

Industry Response

LIBOR – OIS Spread (bps) (1)

400 350 300 250 200 150 100 50 9/14/07 Northern Rock Stable Financial System 9/15/08 Lehman Brothers 12/10/07 Bank Writedowns 3/17/08 Bear Stearns 10/10/08 Global Financial Crisis Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Source: Bloomberg and Stifel Nicolaus analysis Note: (1) LIBOR-OIS spread is the difference between the 3-month LIBOR and the Overnight Index Swap Rate.

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Other Items of Interest

Broadband Stimulus Fairpoint and Hawaii Telecom

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