D&E Communications Reports First Quarter 2007 Results

D&E Communications, Inc. ("D&E" or "Company") (NASDAQ: DECC), a leading provider of integrated communications services in central and eastern Pennsylvania, today announced the results of its operations for the first quarter ended March 31, 2007.

For the first quarter of 2007 the Company reported total operating revenues of $38.4 million, compared to $40.3 million in the first quarter of 2006. The revenue decrease of $1.9 million was primarily the result of a decline in directory revenue of $2.5 million, due to the terms of a directory contract which became effective in the fourth quarter of 2006 and which covers three of the four directories that we publish. Directory expenses decreased $2.3 million as a result of this contract, under which the responsibility for publication and distribution of the directory and the related financial risks became the responsibility of the publisher. As a result, our directory revenue, as the new directories that are covered by this contract are published, will only be the annual fee paid to the Company for access to our customers.

Operating income for the first quarter of 2007 was $5.5 million compared to operating income of $4.9 million in the first quarter of 2006. Net income for the first quarter of 2007 was $2.6 million, or $0.18 per share, compared to a net income of $1.6 million, or $0.11 per share, for the same period last year. The primary reasons for the increase in net income were the operating income increase of $0.6 million and a first quarter 2007 gain of $0.6 million ($0.6 million, or $0.04 per share, after tax) from life insurance proceeds.

"We are very pleased with the start we have had in 2007," noted James W. Morozzi, D&E's President and CEO. "Our focus continues to be on increasing our On-Net CLEC subscribers and acquiring broadband customers through dedicated Internet access and Ethernet networking services such as Dynamic T, MPLS VPN, and Transparent LAN services. In the first quarter we experienced improved operating results in our Systems Integration segment compared to the same period of last year and will work to continue making improvements in this segment."

Customer Connections

Customer Connections

                                March 31,  March 31,
                                  2007       2006       Change   % Change
                                ---------- ---------- ---------  ---------
RLEC access lines                  128,538    133,387    (4,849)    (3.6%)
CLEC access lines                   44,267     41,818     2,449      5.9%
DSL/High-speed Internet
 subscribers                        33,726     25,327     8,399     33.2%
Dial-up Internet subscribers         4,864      7,163    (2,299)   (32.1%)
Video subscribers                    7,606      6,760       846     12.5%
Web-hosting customers                  975        959        16      1.7%
                                ---------- ---------- ---------
Total                              219,976    215,414     4,562      2.1%
                                ========== ========== =========

Effective January 1, 2007, the Company reorganized its internal management reporting in order to better align it with the current management structure. Based on the similar nature of services and products, operating processes and service delivery methods, the rural local exchange carrier ("RLEC"), competitive local exchange carrier ("CLEC"), Internet services and video operations are managed as one reportable segment, "Wireline." The Systems Integration and Corporate and Other units continue as distinct, reportable business segments. Segment information reported for the prior year has been recast to conform to the current year presentation.

On a segment-by-segment basis, the Company reported the following information:

Wireline

First quarter 2007 revenues from the Wireline segment were $36.2 million, as compared to $38.4 million for first quarter 2006. The decrease was due in large part to lower NECA settlement revenues of $0.7 million and lower directory revenue of $2.5 million, partially offset by increased DSL revenue of $0.8 million due to subscriber growth.

Wireline operating expenses for the first quarter of 2007 were $29.6 million, compared to $31.8 million during the same period last year, with the reduction caused primarily by a decrease in directory expense of $2.3 million. Operating income was $6.6 million for both the first quarters of 2007 and 2006.

Systems Integration

System Integration revenues for the quarter were $1.8 million, compared to $1.4 million for the same period last year. Communication services revenue increased $0.3 million primarily from increased billings to one customer whose contract expired March 31, 2007. The contract expiration is expected to have a minimal impact on its operating loss.

First quarter 2007 operating expenses were $2.7 million, compared to $2.9 million in the first quarter of 2006. The decrease was due primarily to lower labor and benefits costs. The operating loss for the first quarter 2007 was $0.9 million compared to an operating loss of $1.5 million in the first quarter of 2006.