Operating Expenses

Operating expenses in the three months ended June 30, 2013 decreased 27.8% to $14.5 million from $20.2 million in the three months ended June 30, 2012. Cost of services decreased 16.2% to $8.9 million from $10.6 million for the three months ended June 30, 2012. Costs associated with TWC decreased $0.7 million and network efficiencies reflecting lower toll and employee expenses contributed to an additional reduction of $1.0 million. Selling, general and administrative expenses decreased 36.0% to $2.3 million in the three months ended June 30, 2013, from $3.6 million in the three months ended June 30, 2012. The decrease included $0.5 million in operational efficiencies in several areas from continued cost control; $0.1 million in lower property taxes; and $0.4 million from the settlement of disputed charges, partially offset by an increase of $0.1 million in insurance costs. Reorganization expenses are excluded as operating expenses for 2013 and are included in selling, general and administrative expenses in the amount of $0.4 million in 2012. Depreciation and amortization for second quarter 2013 decreased 44.0% to $3.3 million from $5.9 million in the second quarter 2012. The amortization of intangible assets associated with the TWC contract decreased $1.7 million; other intangible assets decreased $0.4 million; RLEC and CLEC depreciation decreased $0.4 million; and a telephone plant adjustment decreased $0.1 million. There was no impairment of goodwill or long-lived assets in second quarter 2013 compared to $152.6 million in the same period of 2012.

Interest Expense

Interest expense decreased 60.7% to $2.2 million in the quarter ended June 30, 2013, from $5.7 million a year ago. The decrease in interest expense is associated with the exchange of the Company’s senior subordinated notes for new Class A common stock during second quarter 2013 compared to interest paid on those notes in the same period of 2012.