(10)       Commitments and Contingencies

Litigation, Disputes, and Regulatory Matters

We are involved in various lawsuits, billing disputes, legal proceedings, and regulatory matters that have arisen from time to time in the normal course of business. While the ultimate results of these items cannot be predicted with certainty, we do not expect at this time for the resolution of them to have a material adverse effect on our financial position, results of operations or liquidity. In addition we are involved in the following matters:

• In September 2008, the FCC's Office of Inspector General ("OIG") initiated an investigation regarding Alaska DigiTel LLC's (“Alaska DigiTel”) compliance with program rules and requirements under the Lifeline Program. The request covered the period beginning January 1, 2004 through August 31, 2008 and related to amounts received for Lifeline service. Alaska DigiTel was an Alaska based wireless communications company of which we acquired an 81.9% equity interest on January 2, 2007 and the remaining 18.1% equity interest on August 18, 2008 and was subsequently merged with one of our wholly owned subsidiaries in April 2009. Prior to August 18, 2008, our control over the operations of Alaska DigiTel was limited as required by the FCC upon its approval of our initial acquisition completed in January 2007. We responded to this request on behalf of Alaska DigiTel and the GCI companies as affiliates. On January 18, 2011 we reached an agreement with the FCC and the Department of Justice to settle the matter, which required us to contribute $1.6 million to the United States Treasury and granted us a broad release of claims including those under the False Claims Act. The $1.6 million contribution, of which $154,000, $661,000 and $741,000 were recognized in selling, general and administrative expense in the income statements in the years ending December 31, 2010, 2009 and 2008, respectively, was paid in January 2011; and

• In August 2010, a company-owned aircraft was involved in an accident resulting in five fatalities and injuries to the remaining four passengers on board.  We had aircraft and liability insurance coverage in effect at the time of the accident. We cannot predict the likelihood or nature of the total potential claims related to the accident.

TERRA-Southwest

In January 2010, the U.S. Department of Agriculture's RUS approved our wholly-owned subsidiary, United Utilities, Inc.'s (“UUI”) application for an $88.2 million loan/grant combination to extend terrestrial broadband service for the first time to Bristol Bay and the Yukon-Kuskokwim Delta, an area in Alaska roughly the size of the state of North Dakota. Upon completion, this project, called TERRA-Southwest (“TERRA-SW”), will be able to serve over 9,000 households and over 700 businesses in the 65 covered communities. The project will also be able to serve numerous public/non-profit/private community anchor institutions and entities, such as regional health care providers, school districts, and other regional and Alaska native organizations. The RUS award, consisting of a $44.2 million loan and a $44.0 million grant, is made under the RUS Broadband Initiatives Program established pursuant to the American Recovery and Reinvestment Act. The award funds backbone network facilities that we would not otherwise be able to construct within our return-on-investment requirements. UUI began construction on TERRA-SW in 2010 and expects to complete the project in 2011. We have borrowed $15.4 million in loan funds, leaving $28.8 million remaining loan funds available as of September 30, 2011 for our TERRA-SW project. We have received $15.3 million in grant funds, leaving $28.7 million remaining grant funds available as of September 30, 2011 for our TERRA-SW project.

TERRA-Northwest

In September 2011, the Regulatory Commission of Alaska approved our application for a $5.3 million grant to help fund TERRA-NW. The NMTC arrangement, discussed in Note 9, and this grant award fund backbone network facilities that we would not otherwise be able to construct within our return-on-investment requirements. We plan to begin construction on TERRA-NW in 2012 and expect to complete the project in 2014 or earlier if possible.

Universal Service

On October 27, 2011, the FCC adopted an Order and Further Notice of Proposed Rulemaking that is expected to reform the methodology for distributing Universal Service Fund (“USF”) high cost support for voice and broadband services, as well as to the access charge regime for terminating traffic between carriers, and seeking comment on further implementation matters. Though the Order and Further Notice has not yet been released, the changes described in the publicly released “Executive Summary” are likely to alter how telecommunications providers, including us, will be compensated for providing telecommunications services in high cost areas.

We recorded USF high cost support revenue of $13.6 million and $15.1 million during the three months ended September 30, 2011 and 2010, respectively. We recorded USF high cost support revenue of $39.7 million and $40.1 million during the nine months ended September 30, 2011 and 2010, respectively. We recorded USF high cost support revenue of $51.7 million during the year ended December 31, 2010. At September 30, 2011, we have $44.1 million in accounts receivable related to the USF high cost program.

Changes to the USF high cost support programs that we participate in could result in a material decrease in revenue and accounts receivable, which could have an adverse effect on our business, financial position, results of operations or liquidity.