introduced, aft er much research into customer needs, a Pocket PC, which off ers users the consistency, simplicity and security of their offi ce desktop Microsoft -based computer in a device that fi ts in the palm of their hands. Life outside the offi ce is as stress-free as it can be with a quality device, full offi ce functionality, and a fast and reliable network, both in and outside of Alaska. Results in 2005 included a 15% growth in wireless subscribers, growth faster than the market, so ACS gained share with its premier wireless capabilities. Grow Within Our Cost Structure ACS exceeded our fi nancial goals in 2005. We funded top line growth by trimming costs everywhere, and in a sustainable manner, by driving effi ciencies through Process Improvement. Th e Process Improvement teams are central to how we work and the results we deliver. Th roughout the year, ACS also exercised smart capital market moves by lowering and fi xing interest rates on the majority of our debt and at the same time reducing total debt levels. We entered 2006 with strong cash fl ow, a strong balance sheet, an increased dividend, strong operating metrics and a team increasingly confi dent in its ability to deliver. Our work for the rest of this year, and always, centers on the understanding that loyal customers drive our results and that with our distinctive assets, we have the ability to deliver quality services at home, at work, on the road, and virtually anyplace in between. Th ank you for your support and I look forward to reporting to you on the progress realized in 2006. On the back of substantial operating progress and strategic refi nancing in 2005, ACS again increased its annual dividend early in 2006 to what is now $0.86 per share. Sincerely, We are pleased that the performance of ACS created the conditions appropriate for our largest investor, Fox Paine & Company, to sell its holdings in a two-step process concluded in the fi rst quarter of 2006. Th e sale diversifi ed our stockholder base and increased the liquidity of the stock. We welcome our new investors and appreciate the confi dence they demonstrate in the team at ACS. Liane Pelletier President, CEO and Board Chair Alaska Communications Systems 2005 Letter to Stockholders Corporate Headquarters Alaska Communications Systems 600 Telephone Avenue, Anchorage, AK 99503 Telephone: 907.297.3000 NASDAQ: ALSK Investors’ Web Address: www.alsk.com Corporate Web Address: www.acsalaska.com WIRELESS INTERNET LOCAL LONG DISTANCE TELEVISION Total Shareholder Return (TSR)*assuming initial purchase of ACS stock on 12/31/04, quarter-end pricing and no reinvestment of dividends.Q1 2005Q2 2005Q3 2005Q4 2005Q1 2006Stock$10.05$9.91$11.44$10.16$12.13Dividend$0.200$0.200$0.200$0.200$0.215TSR*19%20%40%27%52% Building the Business through Customer Focus Dear Fellow Stockholders: It gives me great pleasure to share with you the achievements of 2005 at Alaska Communications Systems, specifically against the three goals laid out last year – to enhance the overall customer experience, to be known as Alaska’s premier wireless provider, and to grow within our cost structure. Enhance the Overall Customer Experience At ACS, it is all about growing the number of loyal ACS customers – those who choose ACS, buy more from ACS, and refer ACS to others. Loyal customers are profitable. We win loyal customers through competitive differentiation, quality customer experience and effective marketing, sales and service. Competitive differentiation. ACS is the only statewide telecom provider in Alaska that owns the assets of local, long distance, wireless and Internet and therefore is the only company able to profitably combine and package products into valuable services for customers, who increasingly demand answers to their communications needs in an easy- to-use format. One expression of such packaging is ON ACS, launched mid-year 2005. ON ACS is a strategic program that encourages our customers to use more ACS services, and for that, ACS shares in the value created. It performs well in both acquiring and retaining our customers. The first expression of ON ACS offers free mobile-to-home and home-to-mobile calls for any and all members of a household who buy ACS residential service and ACS wireless service. It is a program so innovative that it earned a mention in the Wall Street Journal near its launch in 2005. Quality customer experience. ACS understands that a company easy to do business with is the one that wins loyal customers. The company is transforming itself through a strategy of tightly focused Process Improvement, with the aim of delivering streamlined, simpler, error- free and efficient operations. We organized the Process Improvement initiative into ten process teams - most of them concentrated on our many interfaces with customers, all of them focused on quality. Even those teams tackling internal processes derive important benefits that accrue to our customers. The transformation is entirely employee-driven, all resources deployed are internal, so that the knowledge developed and solutions deployed are completely retained and embraced by the organization. Effective marketing, sales and service. The creativity and professionalism of our marketing distinguishes ACS in Alaska. The organization of our sales and service teams and their participation in Process Improvement, is a direct translation of our customer centric strategy, as front line employees are asked to specialize in a customer segment and are cross trained on all products. The Process Improvement initiatives are eliminating seams conventionally found between the service delivered by a call center representative and the service delivered by a field technician. The targeted experience for our customers is one-stop-shopping and one-and-done servicing. Retail Relationships 430,000 420,000 410,000 400,000 390,000 380,000 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Our daily measure of success is growth in retail relationships. From the first quarter of 2005 through the first quarter of 2006, we grew ACS’ retail relationships by over 7%, to 425,000. Be Known as Alaska’s Premier Wireless Provider At ACS, we understand that what matters to wireless users is network ubiquity, service reliability, voice clarity, data speeds and a range of high performing devices. ACS invested $12 million in our CDMA network and more in our wireless customer functions during 2005, driven by these customer requirements. Wireless Subscribers 125,000 120,000 115,000 110,000 105,000 100,000 95,000 90,000 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 ACS is the only statewide wireless provider that offers third-generation (3G) services. For ACS, which deploys CDMA technology, that means we offer the fastest mobile data speeds possible, and the clearest voice quality possible. 2005 was a major build year for ACS as we expanded our CDMA footprint to 75% of the population at year end, and extended reach for our customers into the Lower 49 through roaming agreements for both voice and data. As the Alaska footprint expanded we implemented a quality measurement program via ‘drive testing’ to assure we deliver the most reliable service. Drive test results prove ACS has the fewest dropped calls when measured against competitors in the state; high end users value such differentiation. To bring alive the richness of the data capabilities embedded in the ACS network, we ACS understands that a company easy to do business with is the one that wins loyal customers. Liane Pelletier President, CEO and Board Chair