~~Table~~UNITED ofSTATES ~~Contents~~SECURITIES AND EXCHANGE COMMISSION

~~UNITED~~Washington, ~~STATES~~D.C. ~~SECURITIES AND EXCHANGE COMMISSION~~ 20549

~~Washington, D.C. 20549~~ ___________________

FORM 10-Q

___________________

xT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, ~~2007~~ 2009

¨£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from to

Commission file number 333-115602

~~Grande Communications Holdings, Inc.~~ ___________________

~~(Exact~~Grande ~~name~~Communications ofHoldings, ~~registrant as specified in its charter)~~ Inc.

Delaware		74-3005133
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification Number)
401 Carlson Circle, San Marcos, TX		78666
(Address of principal executive offices)		(Zip Code)

(Exact name of registrant as specified in its charter)

~~Registrant’s telephone number including area code: (512) 878-4000~~ ___________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Delaware	74-3005133
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

401 Carlson Circle, San Marcos, TX	78666
(Address of principal executive offices)	(Zip Code)

~~Large~~Registrant’s ~~accelerated~~telephone ~~filer~~number ¨including ~~Accelerated~~area ~~filer~~code: ¨(512) ~~Non~~878-~~accelerated filer x~~4000

Indicate by check mark whether the registrant is(1) ahas ~~shell~~filed ~~company~~all ~~(as~~reports ~~defined~~required into ~~Rule~~be ~~12b-2~~filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)., and (2) has been subject to such filing requirements for the past 90 days: Yes ¨ T No x £

~~The~~Indicate ~~number~~by ofcheck ~~shares~~mark ofwhether the registrant’s ~~Common~~has ~~Stock~~submitted ~~outstanding~~electronically asand ofposted ~~April 30,~~on ~~2007~~its ~~was~~corporate 12Web site,~~598~~ if any,~~140~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). * Yes £ No £

~~Table~~* The registrant is not subject to the requirements of ~~Contents~~Rule 405 of Regulation S-T at this time.

~~GRANDE~~Indicate ~~COMMUNICATIONS~~by ~~HOLDINGS~~check mark whether the registrant is a large accelerated filer, ~~INC~~an accelerated filer, a non-accelerated filer, or a smaller reporting company. See ~~AND~~the ~~SUBSIDIARY~~definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

~~Index~~Large accelerated filer £ Accelerated filer £ Non-accelerated filer T Smaller reporting company £

		Page No.
Part I.	Financial Information	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	Controls and Procedures	16
Part II.	Other Information	17
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
Signatures		18

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

~~Table~~The number of ~~Contents~~shares of the registrant’s Common Stock outstanding as of April 30, 2009 was 12,784,072.

~~PART~~GRANDE ICOMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

~~FINANCIAL INFORMATION~~ Index

ITEM 1. FINANCIAL STATEMENTS

			Page No.
Part I.		Financial Information	1
	Item 1.	Financial Statements	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Cash Flows	3
		Notes to Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
	Item 4T.	Controls and Procedures	22
Part II.		Other Information	23
	Item 1.	Legal Proceedings	23
	Item 1A.	Risk Factors	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 3.	Defaults Upon Senior Securities	23
	Item 4.	Submission of Matters to a Vote of Security Holders	23
	Item 5.	Other Information	23
	Item 6.	Exhibits	23
	Signatures		25

~~GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY~~ Index

~~CONDENSED~~PART ~~CONSOLIDATED~~I ~~BALANCE~~FINANCIAL ~~SHEETS~~ INFORMATION

~~(In~~ITEM ~~thousands,~~1. ~~except~~FINANCIAL ~~share data)~~ STATEMENTS

	December 31,2006			March 31,2007
				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	43,948		$	43,844
Accounts receivable, net		17,241			17,228
Prepaid expenses		1,823			2,704
Total current assets		63,012			63,776
Property, plant and equipment, net		271,939			265,607
Intangible assets, net		1,748			1,685
Debt issue costs, net		5,115			4,863
Other assets		3,227			3,223
Total assets	$	345,041		$	339,154
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,981		$	12,220
Accrued liabilities		20,436			24,483
Note payable		9			9
Deferred revenue		6,546			7,135
Current portion of capital lease obligations		3,859			3,404
Total current liabilities		42,831			47,251
Deferred rent		1,268			1,264
Deferred revenue		4,551			4,382
Capital lease obligations, net of current portion		16,634			15,814
Long term debt		160,797			161,102
Total liabilities		226,081			229,813
Commitments and contingencies (Note 3)
Stockholders’ equity:
Senior series preferred stock:
Series G preferred stock, $0.001 par value per share; 34,615,384 shares authorized, 34,615,330 shares issued and outstanding; liquidation preference of $135,000		35			35
Junior series preferred stock:
Series A preferred stock, $0.001 par value per share; 232,617,839 shares authorized, 232,617,838 shares issued and outstanding; liquidation preference of $232,618		233			233
Series B preferred stock, $0.001 par value per share; 20,833,333 shares authorized, issued and outstanding; liquidation preference of $25,000		21			21
Series C preferred stock, $0.001 par value per share; 30,000,000 shares authorized, 17,005,191 shares issued and outstanding; liquidation preference of $20,406		17			17
Series D preferred stock, $0.001 par value per share; 115,384,615 shares authorized, 114,698,442 shares issued and outstanding; liquidation preference of $149,108		115			115
Series E preferred stock, $0.001 par value per share; 8,000,000 shares authorized, 7,999,099 shares issued and outstanding; liquidation preference of $19,998		8			8
Series F preferred stock, $0.001 par value per share; 12,307,792 shares authorized, 11,758,278 shares issued and outstanding; liquidation preference of $15,286		12			12
Series H preferred stock, $0.001 par value per share; 30,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.001 par value per share; 828,835,883 shares authorized, 13,091,140 and 13,092,140 shares issued, 12,591,140 and 12,592,140 shares outstanding, at December 31, 2006 and March 31, 2007, respectively		13			13
Additional paid-in capital		508,736			508,853
Treasury stock, at cost		(5	)		(5	)
Accumulated deficit		(390,225	)		(399,961	)
Total stockholders’ equity		118,960			109,341
Total liabilities and stockholders’ equity	$	345,041		$	339,154

GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

~~The~~CONDENSED ~~accompanying~~CONSOLIDATED ~~notes~~BALANCE ~~are~~SHEETS an(In ~~integral~~thousands, ~~part~~except ofshare ~~these condensed consolidated financial statements.~~ data)

	December 31, 2008			March 31, 2009
				(unaudited)
Assets
Current assets:
Cash and cash equivalents, net of restricted cash of $3,129	$	26,988		$	36,809
Accounts receivable, net of allowance for doubtful accounts of $1,311 and $1,358		17,047			15,860
Prepaid expenses and other current assets		2,090			2,639

Total current assets		46,125			55,308
Property, plant and equipment, net of accumulated depreciation of $368,907 and $382,843		223,034			213,505
Intangible assets, net of accumulated amortization of $1,661 and $1,721		1,154			1,093
Debt issue costs, net		3,203			2,940
Restricted cash		3,129			3,129
Deposits and other long-term assets		790			774
Total assets	$	277,435		$	276,749
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	13,111		$	14,044
Accrued liabilities		15,938			15,231
Accrued interest payable		6,755			13,510
Deferred revenue and customer deposits		7,598			8,211
Current portion of long-term debt		1,655			1,542
Current portion of capital lease obligations		4,405			6,374
Total current liabilities		49,462			58,912
Deferred rent		1,177			1,161
Deferred revenue		4,759			5,038
Capital lease obligations, net of current portion		13,380			14,340
Long term debt, net of current portion		189,629			189,646
Total liabilities		258,407			269,097
Stockholders’ equity:
Senior series preferred stock:
Series G preferred stock, $0.001 par value per share; 34,615,384 shares authorized, 34,615,330 shares issued and outstanding; liquidation preference of $134,999,787		35			35
Junior series preferred stock:
Series A preferred stock, $0.001 par value per share; 232,617,839 shares authorized, 232,617,838 shares issued and outstanding; liquidation preference of $232,617,838		233			233
Series B preferred stock, $0.001 par value per share; 20,833,333 shares authorized, issued and outstanding; liquidation preference of $25,000,000		21			21
Series C preferred stock, $0.001 par value per share; 30,000,000 shares authorized, 17,005,191 shares issued and outstanding; liquidation preference of $20,406,229		17			17
Series D preferred stock, $0.001 par value per share; 115,384,615 shares authorized, 114,698,442 shares issued and outstanding; liquidation preference of $149,107,975		115			115
Series E preferred stock, $0.001 par value per share; 8,000,000 shares authorized, 7,999,099 shares issued and outstanding; liquidation preference of $19,997,748		8			8
Series F preferred stock, $0.001 par value per share; 12,307,792 shares authorized, 11,758,278 shares issued and outstanding; liquidation preference of $15,285,761		12			12
Series H preferred stock, $0.001 par value per share; 30,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.001 par value per share; 786,835,883 shares authorized, 13,284,072 shares issued, and 12,784,072 shares outstanding, as of December 31, 2008 and March 31, 2009		13			13
Additional paid-in capital		509,696			509,767
Treasury stock, at cost		(5	)		(5	)
Accumulated deficit		(491,117	)		(502,564	)
Total stockholders’ equity		19,028			7,652
Total liabilities and stockholders’ equity	$	277,435		$	276,749

~~Table~~The accompanying notes are an integral part of ~~Contents~~these condensed consolidated financial statements.

~~GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY~~ 1

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~ Index

~~(UNAUDITED)~~GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

~~(In~~CONDENSED ~~thousands,~~CONSOLIDATED ~~except~~STATEMENTS ~~per~~OF ~~share data)~~ OPERATIONS

	Three Months EndedMarch 31,
	2006			2007
Operating revenues	$	47,636		$	48,395
Operating expenses:
Cost of revenues (excluding depreciation and amortization)		16,525			16,528
Selling, general and administrative		23,772			22,298
Depreciation and amortization		13,882			13,044
Total operating expenses		54,179			51,870
Operating loss		(6,543	)		(3,475	)
Other income (expense):
Interest income		141			433
Interest expense		(5,106	)		(6,669	)
Gain (loss) on sale of assets		1,872			(25	)
Total other income (expense)		(3,093	)		(6,261	)
Net loss	$	(9,636	)	$	(9,736	)
Basic and diluted net loss per share	$	(0.77	)	$	(0.77	)
Basic and diluted weighted average number of common shares outstanding		12,497			12,592

(UNAUDITED)

~~The~~(In ~~accompanying~~thousands, ~~notes~~except ~~are~~per anshare ~~integral part of these condensed consolidated financial statements.~~ data)

	Three Months Ended March 31,
	2008			2009
Operating revenues	$	49,886		$	51,763
Operating expenses:
Cost of revenues (excluding depreciation and amortization)		16,855			18,193
Selling, general and administrative		22,790			20,868
Provision for doubtful accounts		624			614
Depreciation and amortization		14,669			15,492
Total operating expenses		54,938			55,167
Operating loss		(5,052	)		(3,404	)
Other income (expense):
Interest income		329			18
Interest expense, net of capitalized interest		(7,792	)		(7,891	)
Net gain on sale/disposal of assets		30			134
Other expense		—			(12	)
Total other income (expense)		(7,433	)		(7,751	)
Loss before income tax expense		(12,485	)		(11,155	)
Income tax expense		(279	)		(292	)
Net loss	$	(12,764	)	$	(11,447	)
Basic and diluted net loss per share	$	(1.00	)	$	(0.90	)
Basic and diluted weighted average common shares outstanding		12,733			12,784

~~Table~~The accompanying notes are an integral part of ~~Contents~~these condensed consolidated financial statements.

~~GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY~~ 2

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~ Index

~~(UNAUDITED)~~GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

~~(In~~CONDENSED ~~thousands)~~CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months EndedMarch 31,
	2006			2007
Cash flows from operating activities:
Net loss	$	(9,636	)	$	(9,736	)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation		13,807			12,981
Amortization of intangible assets		75			63
Amortization of debt issue costs		245			252
Provision for bad debts		944			513
Accretion of debt discount		222			305
Non-cash compensation expense		33			117
(Gain) loss on sale of assets		(1,872	)		25
Changes in operating assets and liabilities:
Accounts receivable		1,448			(500	)
Prepaid expenses		(1,215	)		(877	)
Accounts payable		(2,291	)		(140	)
Accrued liabilities		3,103			4,047
Deferred revenue		(243	)		508
Deferred rent		(43	)		(4	)
Net cash provided by operating activities		4,577			7,554
Cash flows from investing activities:
Purchases of property, plant and equipment		(7,311	)		(7,978	)
Proceeds from sale of assets and sales tax refund		2,452			1,216
Other investing activity		(4	)		—
Net cash used in investing activities		(4,863	)		(6,762	)
Cash flows from financing activities:
Net proceeds from borrowings		30,581			—
Payments of long-term debt		(231	)		(1,275	)
Net borrowings (repayments) on zero-balance cash account		(1,270	)		379
Other financing activity		3			—
Net cash provided by (used in) financing activities		29,083			(896	)
Net change in cash and cash equivalents		28,797			(104	)
Cash and cash equivalents, beginning of period		26,719			43,948
Cash and cash equivalents, end of period	$	55,516		$	43,844

(UNAUDITED)

~~The~~(In ~~accompanying notes are an integral part of these condensed consolidated financial statements.~~ thousands)

	Three Months Ended March 31,
	2008			2009
Cash flows from operating activities:
Net loss	$	(12,764	)	$	(11,447	)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation		14,608			15,431
Amortization of intangible and other assets		61			65
Amortization of deferred financing costs		263			263
Provision for doubtful accounts		624			614
Amortization of debt discounts/premiums		299			347
Non-cash compensation expense		113			71
Net gain on sale/disposal of assets		(30	)		(134	)
Changes in operating assets and liabilities:
Accounts receivable		1,294			592
Prepaid expenses and other assets		(955	)		(533	)
Accounts payable		100			1,527
Accrued liabilities and interest payable		4,544			6,048
Deferred rent, revenue and customer deposits		440			210
Net cash provided by operating activities		8,597			13,054
Cash flows from investing activities:
Purchases of property, plant and equipment		(8,545	)		(5,457	)
Proceeds from sale of assets		84			136
Net cash used in investing activities		(8,461	)		(5,321	)
Cash flows from financing activities:
Proceeds from sale leaseback arrangement		—			4,532
Payments of long-term debt and capital lease obligations		(1,259	)		(1,850	)
Net borrowings (repayments) on zero-balance cash account		(533	)		(594	)
Other financing activity		5			—
Net cash provided by (used in) financing activities		(1,787	)		2,088
Net change in cash and cash equivalents		(1,651	)		9,821
Cash and cash equivalents, beginning of period		48,138			26,988
Cash and cash equivalents, end of period	$	46,487		$	36,809
Non-cash investing and financing activity:
Capital lease obligations	$	26		$	4,336

~~Table~~The accompanying notes are an integral part of ~~Contents~~these condensed consolidated financial statements.

~~GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY~~ 3

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ Index

~~(UNAUDITED)~~GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

1.NOTES ~~Background~~TO ~~and~~CONDENSED ~~Basis~~CONSOLIDATED ofFINANCIAL ~~Presentation~~ STATEMENTS

~~The primary business of Grande Communications Holdings, Inc. and its consolidated subsidiary, Grande Communications Networks, Inc.~~ (~~collectively “the Company”~~UNAUDITED) is providing residential and small and medium sized business customers in Texas with a bundled package of cable television, telephone, and broadband Internet and other services. The Company provides these services in seven markets in the state of Texas using local broadband networks that the Company constructed. In addition, the Company provides broadband transport services to medium and large enterprises and communications carriers as well as providing network services by offering telecommunications and data products to medium and large enterprises and communications carriers within the wholesale markets.

~~The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with U~~1.S. ~~generally~~Background ~~accepted accounting principles (“GAAP”) for interim financial information~~ and ~~with~~Basis ~~the rules and regulations~~ of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments necessary for a fair presentation of the financial position of the Company as of March 31, 2006 and 2007, and for the three months ended March 31, 2006 and 2007. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007. The December 31, 2006 balance sheet is derived from the audited financial statements for the year ended December 31, 2006. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2006 and notes thereto, together with management’s discussion and analysis of financial condition and results of operations contained in the Company’s Annual Report for the year ended December 31, 2006 on Form 10-K filed with the SEC on March 30, 2007. Presentation

~~Preparation~~The ofprimary ~~financial~~business ~~statements~~of inGrande ~~conformity~~Communications ~~with~~Holdings, ~~GAAP~~Inc. ~~requires~~and ~~management~~its toconsolidated ~~make~~subsidiary, ~~estimates~~Grande ~~and~~Communications ~~assumptions~~Networks, ~~that~~Inc. ~~affect~~(collectively, the ~~amounts~~“Company”) ~~reported~~is inproviding ~~the consolidated~~a ~~financial~~bundled ~~statements~~package of cable television (“video”), telephone (“voice”), and ~~accompanying~~broadband ~~disclosures~~Internet (“HSD”) and other services to residential and business customers in Texas. ~~These~~The ~~estimates~~Company ~~are~~provides ~~based~~these onservices ~~management’s~~in ~~best~~seven ~~knowledge~~markets in the state of ~~current~~Texas ~~events~~using ~~and~~local ~~actions~~broadband networks that the Company ~~may~~acquired ~~undertake~~and/or inconstructed. In addition, the ~~future.~~Company ~~Actual~~provides ~~results~~broadband ~~may~~transport ~~ultimately~~services ~~differ~~to ~~from~~medium ~~these estimates~~and large enterprises and communication carriers. The Company also provides network services by offering telecommunications and HSD products to medium and large enterprises and communication carriers within wholesale markets.

2The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with U.S. ~~Income~~generally ~~Taxes~~accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments necessary for a fair presentation of the financial position of the Company as of March 31, 2008 and 2009, and for the three months ended March 31, 2008 and 2009. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009. The December 31, 2008 balance sheet is derived from the audited financial statements for the year ended December 31, 2008. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2008 and notes thereto, together with management’s discussion and analysis of financial condition and results of operations contained in the Company’s Annual Report for the year ended December 31, 2008 on Form 10-K filed with the SEC on March 20, 2009.

The ~~Company~~ ~~adopted~~consolidated ~~the~~financial ~~provisions~~statements ofinclude ~~FASB~~the ~~Interpretation~~accounts ~~No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation~~ of ~~FASB~~Grande ~~Statement~~Communications ~~No. 109” (“FIN 48”)~~Holdings, ~~on January 1, 2007~~Inc.’s ~~FIN~~wholly 48owned ~~clarifies~~subsidiary. All ~~the~~inter-company ~~accounting for~~transactions ~~uncertainty~~and inbalances ~~income~~have ~~taxes~~been ~~recognized~~eliminated. inPreparation anof ~~enterprise’s~~ financial statements in ~~accordance~~conformity with ~~FASB~~GAAP ~~Statement~~requires ~~109,~~management ~~“Accounting~~to ~~for~~make ~~Income~~estimates ~~Taxes”,~~ and ~~prescribes~~assumptions athat ~~recognition~~affect ~~threshold~~the ~~and~~amounts reported ~~measurement~~in ~~process~~the ~~for~~consolidated financial ~~statement~~ ~~recognition~~statements and ~~measurement~~accompanying ofdisclosures. aThese ~~tax~~estimates ~~position~~are ~~taken~~based oron ~~expected~~management’s tobest beknowledge ~~taken~~of incurrent aevents ~~tax~~and ~~return.~~actions ~~FIN~~the 48Company ~~also~~may ~~provides~~undertake ~~guidance~~in onthe ~~derecognition,~~future. ~~classification,~~Actual ~~interest~~results ~~and~~may ~~penalties,~~ultimately ~~accounting~~differ infrom ~~interim~~these ~~periods, disclosure and transition~~estimates.

~~Based~~As ondescribed ~~our~~under ~~evaluation,~~Note we5 ~~have~~“Long ~~concluded~~Term ~~that~~Debt” ~~there~~below, ~~are~~the noCompany’s ~~significant~~14% ~~unrecognized~~senior ~~tax~~notes ~~benefits~~due ~~requiring~~April ~~recognition~~1, in2011 ~~our~~(“senior ~~financial statements.~~notes”) ~~Our~~are ~~evaluation~~governed ~~was~~by ~~performed~~the ~~for~~indenture between the ~~tax~~Company ~~years~~and ~~ended~~U.S. ~~December 31~~Bank National Association, ~~2003~~as Indenture Trustee, ~~2004~~dated March 23, ~~2005~~2004 (“Indenture”). The Indenture contains a covenant restricting certain capital expenditures if such expenditures would result in the Company having less than $20 million in cash and ~~2006~~cash equivalents after giving effect to such expenditures. If cash and cash equivalents fall below $20 million, the ~~tax~~Company ~~years~~would ~~that~~not ~~remain~~be ~~subject~~permitted to ~~examination~~make bycertain ~~federal~~capital ~~jurisdiction~~expenditures until such time as ofcash ~~March 31~~and cash equivalents, ~~2007~~including such proposed certain capital expenditures, increase above $20 million. If ~~The~~the ~~tax~~Company ~~years~~made certain capital expenditures that ~~remain~~would ~~subject~~cause tocash and ~~examination~~cash equivalents to fall below $20 million, the Company would be required to notify the Trustee of such default. If the Company receives notification from the Trustee or holders of at least 25% in aggregate principal amount of the then outstanding senior notes, the Company would have 60 days to comply with the covenant. If after 60 days, the Company has not complied with the covenant, the senior notes may be declared due and payable immediately by ~~Texas~~notice ~~include~~from the ~~previously~~Trustee ~~mentioned~~or ~~tax~~holders of ~~years~~at asleast ~~well~~25% asin aggregate principal amount of the ~~tax~~then ~~year~~outstanding ~~ended~~senior ~~December~~ notes. This covenant could adversely affect the Company’s ability to make planned capital expenditures. Cash and cash equivalents were $36.8 million at March 31, ~~2002~~2009.

We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it has been classified in the financial statements as interest expense and selling, general and administrative expense, respectively. 4

4 Index

~~Table~~The Company expects that the available cash and cash equivalents and cash generated from operations will be sufficient to fund existing operations, planned capital spending and other commitments over the next twelve months through March 31, 2010. The Company also believes that over the next twelve months through March 31, 2010 it will manage its cash position above $20 million in accordance with the covenant restricting certain capital expenditures set forth in the Indenture. The Company’s current business plan is based on estimates regarding expected future costs and expected revenues. Actual costs may exceed or revenues may fall short of ~~Contents~~the estimates, the estimates may change, and future developments may affect the estimates. Any of these factors may increase the need for funds, which would require the Company to consider asset sales or seek additional financing to fund operations, to undertake initiatives not contemplated by the current business plan or obtain additional cushion against possible shortfalls. Future financings may include a range of different sizes or types of financing, including capital lease transactions and the sale of additional debt or equity securities. These financings could increase the Company’s level of indebtedness or result in dilution to the equity holders. Additionally, the Company can call the existing senior notes at any time giving the Company the near term ability to refinance the senior notes in the event better pricing and terms were available to the Company in the market. However, the Company may not be able to raise additional funds on favorable terms or at all. The Company’s ability to obtain additional financing depends on several factors, including: future market conditions and the state of the credit markets; the Company’s success or lack of success in penetrating the markets the Company serves and growing overall income; the Company’s future creditworthiness; and restrictions contained in agreements with the Company’s investors or lenders, including the restrictions contained in the Indenture.

3.Recent ~~Contingencies~~Accounting Pronouncements

~~Legal~~In ~~Proceedings~~April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Statement of Financial Accounting Standard (“SFAS”) No. 107-1 and Accounting Principles Board 28-1 “Interim Disclosures about Fair Value of Financial Instruments”. The FSP amends SFAS No. 107 “Disclosures about Fair Value of Financial Instruments” to require an entity to provide disclosures about fair value of financial instruments in interim financial information. This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. This Statement does not impact the consolidated financial results as it is disclosure-only in nature. The Company will include the required disclosures in its quarter ending June 30, 2009.

WeIn ~~are~~December ~~subject~~2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141(R)”). SFAS 141(R) will significantly change the accounting for business combinations. Under SFAS 141(R), an acquiring entity will be required to ~~litigation~~recognize all the assets acquired and liabilities assumed in a transaction at the ~~normal~~acquisition-date ~~course~~fair ofvalue ~~our~~with limited exceptions. SFAS 141(R) will change the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred; (2) valuing noncontrolling interests at fair value at the acquisition date; and (3) expensing restructuring costs associated with an acquired business. ~~However,~~SFAS ~~there~~141(R) ~~are~~also noincludes ~~pending proceedings~~a ~~that~~substantial ~~are~~number ~~currently~~of ~~anticipated~~new disclosure requirements. SFAS 141(R) is to ~~have~~be aapplied prospectively ~~material~~to ~~adverse~~business ~~effect~~combinations for which the acquisition date is on ~~our~~or ~~business~~after January 1, ~~financial~~2009. ~~condition~~There orwas ~~results~~no impact upon adoption, and its effects on future periods will depend on the nature and significance of ~~operations.~~business combinations subject to this statement.

~~Insurance~~In April 2009, the FASB issued FSP SFAS No. 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This FSP requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS No. 5, “Accounting for Contingencies” and FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss”. Further, the FASB removed the subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS No. 141(R). The requirements of this FSP carry forward without significant revision the guidance on contingencies of SFAS No. 141, “Business Combinations” which was superseded by SFAS No. 141(R) (see previous paragraph). The FSP also eliminates the requirement to disclose an estimate of the range of possible outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, the FASB requires that entities include only the disclosures required by SFAS No. 5. This FSP was adopted effective January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.

The Company carries a broad range of insurance coverage, including property, business, auto liability, general liability, directors and officers, workers’ compensation and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies. 5

The Company utilizes self-insurance with respect to employee medical coverage. Such self-insurance is provided in connection with a plan that includes certain stop-loss coverage on a per employee and total claims basis. The Company estimates the liability for claims based on Company experience. Additionally, the Company utilizes self-insurance for its distribution line equipment. Management believes that the risk of loss related to this equipment is not significant. Index

4In April 2008, the FASB issued FSP FAS No. ~~Subsequent~~142-3, ~~Events~~“Determination of the Useful Life of Intangible Assets”. The FSP states that in developing assumptions about renewal or extension options used to determine the useful life of an intangible asset, an entity needs to consider its own historical experience adjusted for entity-specific factors. In the absence of that experience, an entity shall consider the assumptions that market participants would use about renewal or extension options. This FSP is to be applied to intangible assets acquired after January 1, 2009. The adoption of this FSP did not have an impact on the consolidated financial statements.

~~Interest~~In ~~Payment~~November 2008, the FASB ratified EITF Issue 08-7, “Accounting for Defensive Intangible Assets”. A defensive intangible asset is an asset acquired in a business combination or in an asset acquisition that an entity does not intend to actively use. According to the guidance, defensive intangible assets are considered to be a separate unit of account and valued based on their highest and best use from the perspective of an external market participant. The company adopted EITF 08-7 on January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of the business combinations subject to this statement.

~~In April 2007, we paid $11~~2.~~8 million~~ ofNet ~~interest~~Loss ~~due~~Per on our 14% senior secured notes due 2011 (“senior notes”). The senior notes are governed by the indenture between Grande and U.S. Bank National Association, as Indenture Trustee, dated March 23, 2004 (“Indenture.”) Share

~~Long~~The ~~Term~~Company ~~Debt~~follows the provisions of SFAS No. 128, Earnings Per Share. Basic earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the weighted average number of common shares outstanding and the number of equivalent shares which would be issued related to the stock options and warrants using the treasury method, and convertible preferred stock using the if-converted method, unless such additional equivalent shares are anti-dilutive.

~~During~~For ~~May 2007,~~ the ~~Company~~three ~~completed~~months ~~new~~ended ~~financing~~March of31, up2008 toand ~~$3.5 million on a secured credit facility with a term of 24 months~~2009, ~~which will be available to support~~ the Company’s ~~purchase~~reported ofa ~~network~~net ~~equipment.~~loss; ~~The~~therefore, ~~financing is secured by~~ the ~~network~~following ~~equipment~~equivalent ~~purchased~~shares ~~from the proceeds~~ of ~~the~~common ~~facility~~stock ~~and~~were ~~includes~~not ~~interest~~included atin ~~an effective rate of approximately 15.3% with monthly payments based on 4.2% multiplied by~~ the ~~total~~computation ~~amounts drawn for network equipment purchases. The first draw~~ of ~~approximately~~diluted ~~$3.1 million occurred on May 4~~EPS, ~~2007.~~as ~~This~~their ~~financing~~effect iswas ~~permitted under the Indenture.~~ anti-dilutive:

	Three Months Ended March 31,
	2008		2009
Convertible preferred stock		439,527,511		439,527,511
Common stock warrants		152,107,016		152,107,016
Common stock options		50,157,178		40,402,046
Series H preferred stock options		26,415,110		22,691,110
Total anti-dilutive shares		668,206,815		654,727,683

~~Table~~3. ofAccrued ~~Contents~~Liabilities

~~ITEM 2. MANAGEMENT’S~~Accrued ~~DISCUSSION~~liabilities ~~AND~~consist ~~ANALYSIS~~of OFthe ~~FINANCIAL~~following: ~~CONDITION AND RESULTS OF OPERATIONS~~

This management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “should,” “intend,” “plan” and similar expressions as they relate to Grande Communications Holdings, Inc. or our management are intended to identify these forward-looking statements. All statements by us regarding our expected future financial position and operating results, our business strategy, our financing plans, forecasted trends relating to the markets in which we operate and similar matters are forward-looking statements. We cannot assure you that our expectations expressed or implied in these forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of various factors, including those discussed below and under the caption “Risk Factors—Risks Relating to Our Business” in our Annual Report on Form 10-K, filed with the SEC on March 30, 2007. The following management’s discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto included herewith and with our Management’s Discussion and Analysis of Financial Condition and Results of Operation and Consolidated Financial Statements and Notes thereto for the three-year period ended December 31, 2006, included in our Annual Report on Form 10-K filed with the SEC on March 30, 2007.

	December 31, 2008		March 31, 2009
	(in thousands)
Accrued property taxes	$	3,829	$	1,752
Accrued compensation		2,660		3,200
Accrued taxes—other		3,171		3,525
Accrued programming		3,045		3,389
Accrued other		3,233		3,365
Accrued liabilities	$	15,938	$	15,231

Unless we indicate otherwise, references below to “we,” “us,” “our,” “the Company” and “Grande” mean Grande Communications Holdings, Inc. and our consolidated subsidiary, Grande Communications Networks, Inc., taken as a whole. 6

~~Overview~~ Index

Grande’s primary business is providing residential and small and medium sized business customers in Texas with a bundled package of cable television, telephone, and broadband Internet and other services. We provide these services in seven markets in the state of Texas using local broadband networks that we constructed. We refer to the homes and businesses that our network is capable of providing services to as “marketable homes passed.” As of March 31, 2007, we had the ability to market services to 338,852 distinct homes and businesses over our networks and had 139,226 residential and business customers. Our operating revenues were $47.6 million and $48.4 ~~million for the three months ended March 31, 2006 and 2007, respectively~~. Income Taxes

~~Grande~~The ~~was~~Company ~~founded~~utilizes ~~in October~~the ~~1999~~liability ~~and~~method ~~was~~of ~~funded~~accounting ~~with~~for ~~$232~~income ~~million~~taxes, ofas ~~initial~~set ~~equity~~forth ~~capital~~in toStatement ~~pursue~~of aFinancial ~~retail~~Accounting ~~strategy~~Standards ofNo. ~~constructing~~109, ~~broadband~~Accounting ~~networks~~for inIncome ~~order~~Taxes. toUnder ~~offer~~the ~~bundled~~liability ~~cable television~~method, ~~telephone,~~deferred ~~and~~taxes ~~broadband~~are ~~Internet~~determined ~~services~~based toon ~~customers.~~the ~~Operating revenues~~difference ~~from~~between ~~bundled~~the ~~services~~financial ~~were~~and ~~$35.9~~tax bases ~~million~~of assets and ~~$37.8~~liabilities ~~million~~using ~~for~~enacted tax rates in effect in the ~~three~~years ~~months~~in ~~ended~~which ~~March 31,~~the ~~2006~~differences ~~and~~are ~~2007,~~expected ~~respectively.~~to reverse.

WeThe ~~believe~~Company’s ~~that~~effective anincome ~~important~~tax ~~measure~~rate offor ~~our~~the ~~growth~~interim ~~potential~~periods presented is ~~the~~based ~~number~~on ofmanagement’s ~~marketable~~estimate ~~homes~~of ~~passed~~the byCompany’s ~~our~~effective ~~networks.~~tax ~~Marketable~~rate ~~homes~~for ~~passed are~~ the ~~number~~applicable ofyear ~~residential~~ and ~~business~~differs ~~units,~~from ~~such~~the asfederal ~~single~~statutory ~~residential~~income ~~homes,~~tax ~~apartments and~~rate ~~condominium~~primarily ~~units,~~due ~~passed~~to bynondeductible ~~our~~permanent ~~networks~~differences, ~~other~~state ~~than~~income ~~those~~taxes weand ~~believe~~changes ~~are~~in ~~covered~~the byvaluation allowance ~~exclusive~~for ~~arrangements~~deferred ~~with~~income ~~other providers of competing services~~taxes. ~~Since~~In ~~2001,~~assessing ~~we have grown our marketable homes passed through~~ the ~~construction~~realizability of ~~our networks.~~deferred ~~The~~tax ~~expansion~~assets, ofmanagement ~~our~~considers ~~networks~~whether ~~has,~~it inis ~~turn,~~more ~~allowed~~likely usthan tonot ~~pursue~~that asome ~~retail~~portion ~~strategy~~or all of ~~offering~~the ~~bundled~~deferred ~~cable~~tax ~~television,~~assets ~~telephone~~will ~~and~~not ~~broadband~~be ~~Internet~~realized. ~~services~~The toultimate ~~residential~~realization ~~and~~of ~~business~~deferred ~~customers.~~tax Weassets ~~have~~is ~~derived~~dependent anupon ~~increasing percentage~~the generation of ~~our~~future ~~revenues~~taxable ~~from~~income ~~our~~during ~~bundled~~the ~~services~~periods ~~and~~in wewhich ~~expect~~those ~~this~~temporary ~~trend~~differences tobecome ~~continue~~deductible. ~~Because~~The ofCompany ~~our~~has ~~local~~established ~~networks~~a ~~and~~valuation ~~fixed~~allowance ~~infrastructure~~equal into the ~~markets~~net indeferred ~~which~~tax weasset ~~currently~~due ~~operate, we believe we can continue~~ to ~~grow~~uncertainties ~~our~~regarding the ~~business~~realization ~~without incurring~~of the ~~significant~~deferred ~~capital~~tax ~~investment~~asset ~~required~~based toon ~~launch~~the ~~operations~~Company’s inlack ~~new~~of ~~markets.~~earnings history.

In addition, we have leveraged our retail metro network build-out with the 2003 acquisition of a long haul network, primarily located in Texas, to allow us to provide broadband transport services to medium and large enterprises and communications carriers5. ~~Operating~~Long ~~revenues~~Term ~~for broadband transport services were $2.3 million and $2.4 million for the three months ended March 31, 2006 and 2007, respectively.~~ Debt

In14% ~~July~~Senior ~~2000, when~~Secured our network construction was still in a very early stage, we acquired Thrifty Call, which had an established telephone and data network that served as the platform for the provisioning of residential telephone and broadband Internet services and that still provides network services to medium and large enterprises and communications carriers in the wholesale market. Operating revenues for network services were $9.4 million and $8.2 million for the three months ended March 31, 2006 and 2007, respectively. Notes

~~Our~~Long-term ~~network~~Debt. ~~services~~In ~~are~~March ~~primarily~~2004, ~~provided~~the ~~using~~Company ~~our~~completed ~~existing~~a ~~infrastructure~~private placement offering for 136,000 units, each consisting of (1) $1,000 of senior notes due April 1, 2011 (“senior notes”) and ~~personnel~~(2) ~~with~~a ~~minimal~~warrant to purchase 100.336 shares of common stock. The senior notes accrue interest ~~incremental~~at ~~operating~~the ~~costs~~rate ~~and~~of ~~capital~~14% ~~expenditures~~per ~~for~~annum ~~maintenance~~with the interest payable semi-annually in cash in arrears on April 1 and October 1. ByThe ~~leveraging~~senior ~~our~~notes ~~brand~~are governed by the indenture between the Company and U.S. Bank National Association, ~~communications~~as ~~infrastructure~~Indenture Trustee, ~~voice~~dated ~~and~~March 23, 2004 (“Indenture”).

6In March 2006 and July 2007, Grande Communications Holdings, Inc. (“Holdings”) raised net proceeds of approximately $30.5 million and $25.8 million, respectively, in a private placement of an additional $32 million and $25 million, respectively, in aggregate principal amount of senior notes. These additional senior notes were issued under the Indenture and are part of the same series of senior notes as those issued in March 2004.

~~Table~~Holdings’ subsidiary, Grande Communications Networks, Inc. (the “Subsidiary Guarantor”), has unconditionally guaranteed, jointly and severally, the payment of ~~Contents~~the principal, premium and interest (including any additional interest on the senior notes) on a senior secured basis. Holdings is a holding company with no independent assets and conducts all of its operations through the Subsidiary Guarantor and is therefore dependent on the receipt of funds from the Subsidiary Guarantor to pay the interest and principal on the senior notes. Limitations or restrictions contained in the Indenture could adversely affect Holdings’ ability to make such payments on the senior notes.

~~data~~The ~~volume,~~senior notes and ~~personnel~~the ~~that~~Subsidiary ~~predominately~~Guarantor’s ~~support~~guarantees ~~our~~thereof ~~core~~are ~~retail~~secured ~~business~~by ~~and~~a ~~its~~first ~~products~~priority weperfected ~~have~~security ~~gained~~interest, ~~efficiencies~~subject to certain permitted encumbrances, in substantially all of ~~scale~~the bySubsidiary ~~offering telecommunications~~Guarantor’s property and ~~data~~assets, ~~products~~including ~~into~~substantially ~~the~~all ~~wholesale~~of ~~markets.~~its property, plant and equipment.

WeThe ~~have~~senior ~~incurred~~notes ~~net~~may ~~losses~~be ~~for~~redeemed, ~~the~~at ~~past~~Holdings’ ~~five~~election, ~~years~~as ~~and~~a ~~expect~~whole ~~to continue~~or tofrom ~~incur~~time ~~net~~to ~~losses~~time in ~~the~~part ~~future.~~at ~~However,~~any wetime ~~had~~upon ~~positive~~not ~~Adjusted~~less ~~EBITDA~~than ~~during~~10 ~~the~~nor ~~fiscal~~more ~~years~~than ~~ended~~60 ~~2002~~days’ ~~through~~notice ~~2006~~to aseach ~~well~~holder asof ~~for~~senior ~~the~~notes ~~three~~to ~~months~~be ~~ended March 31~~redeemed, ~~2006~~subject ~~and~~to ~~2007.~~the ~~See~~conditions ~~“EBITDA/Adjusted~~and ~~EBITDA”~~at ~~below~~the ~~for a~~redemption ~~discussion~~prices of(expressed ~~this~~as ~~non-GAAP~~percentages ~~measure~~ of ~~our~~principal ~~operating~~amount) ~~performance~~set asforth ~~well~~below, astogether with ~~our~~accrued ~~use~~and ofunpaid ~~Adjusted~~interest ~~EBITDA.~~and ~~Our~~Liquidating ~~financial~~Damages ~~results~~(as ~~depend~~defined ~~upon~~in ~~many~~the ~~factors~~Indenture), ~~that~~if ~~significantly~~any, ~~affect~~to ~~our~~the ~~results~~applicable ofredemption ~~operations including, without limitation:~~ date.

• the availability of, and our ability to obtain additional funding, if necessary,

April 1,	Percentage
2009		103.50	%
2010 and thereafter		100.00	%

•If ~~our~~the ~~ability~~Company experiences specific kinds of change of control events, each holder of senior notes may require the Company to ~~obtain~~repurchase ~~enough~~all ~~customers~~or ~~for~~any ~~our~~portion ~~services~~of such holder’s senior notes at a purchase price equal to ~~offset~~101% of the ~~costs~~principal amount of ~~operating~~the ~~our~~senior ~~networks~~notes, plus accrued and unpaid interest to the date of repurchase.

~~• increasing programming and other costs.~~7

~~Availability of Capital~~ Index

AsThe ~~described~~Indenture ~~more~~contains ~~fully~~covenants ~~under~~that, ~~“Liquidity~~among ~~and~~other ~~Capital Resources” below~~things, ~~our~~limit ~~principal sources of capital going forward will primarily be cash on hand and cash flow from operations. If we do not continue to increase~~ the ~~number~~Company’s ofability ~~customers and the average prices received for our services, cash flow from operations will be adversely effected and cash on hand will decline.~~ to:

~~Since~~• ~~inception,~~incur weadditional ~~have~~indebtedness, ~~been~~issue ~~funded~~disqualified ~~primarily~~capital ~~with~~stock ~~private~~(as ~~equity~~defined ~~investments~~in ~~and~~ the ~~issuance~~Indenture) ~~of debt securities. Between February 2000~~ and ~~October 2003~~, wein ~~completed~~the acase ~~series~~ of ~~private~~restricted ~~placements~~subsidiaries, ofissue ~~our~~ preferred stock, raising aggregate gross proceeds of $338.2 million. The net proceeds from these private placements have been used to fund our network build-out, operations, and our acquisitions. As a result of these equity investments and our merger with ClearSource in 2002, where stock was used as consideration, we now have $509 million of total invested equity capital and a base of over 20 institutional private equity investors. ;

~~Since~~• ~~2004,~~create weliens ~~have~~on also raised net proceeds of approximately $155.0 million of senior secured debt. On March 23, 2004, we raised net proceeds of approximately $124.5 million in a private placement of 136,000 units, with each unit consisting of a $1,000 principal amount of 14% senior secured note due 2011 (“senior notes”) and a warrant to purchase 100.336 shares of our common stock. The senior notes are governed by the indenture between Grande and U.S. Bank National Association, as Indenture Trustee, dated March 23, 2004 (“Indenture.”) We used a portion of the net proceeds from the offering to repay all amounts outstanding under our then-existing senior credit facility. That facility was terminated upon repayment. assets;

On• ~~March 24,~~pay ~~2006~~dividends on, weredeem ~~raised~~or ~~net~~repurchase proceeds of approximately $30.5 million in a private placement of an additional $32.0 million in aggregate principal amount of senior notes. These additional notes were issued under the Indenture. We are using the proceeds for capital ~~expenditures~~stock ~~and~~or ~~working~~make ~~capital~~other ~~purposes.~~restricted payments;

~~During~~• ~~May~~make ~~2007,~~investments ~~the~~in ~~Company~~other completed new financing of up to $3.5 million on a secured credit facility with a term of 24 months, which will be available to support the Company’s purchase of network equipment. The financing is secured by the network equipment purchased from the proceeds of the facility and includes interest at an effective rate of approximately 15.3% with monthly payments based on 4.2% multiplied by the total amounts drawn for network equipment purchases. The first draw of approximately $3.1 million occurred on May 4, 2007. This financing is permitted under the Indenture. companies;

~~Marketable~~• ~~Homes~~enter ~~Passed,~~into ~~Customers~~transactions ~~and~~with ~~Connections~~ affiliates;

We• ~~report~~enter ~~marketable~~into ~~homes~~sale ~~passed as the number of residential~~ and ~~business~~ ~~units,~~leaseback such as single residence homes, apartments and condominium units, passed by our networks other than those we believe are covered by exclusive arrangements with other providers of competing services. As of March 31, 2007, our networks passed 338,852 marketable homes and we had 139,226 residential and business customers. transactions;

~~Because~~• wesell deliver multiple services to our customers, we report our total number of connections for cable television, telephone and broadband Internet and other services in addition to our total number of customers. We count each cable television, telephone and broadband Internet and other service purchase as a separate connection. For example, a single customer who purchases cable television, telephone and broadband Internet service would count as three connections. Similarly, a single customer who purchases our broadband Internet service and our wireless security service would count as two connections. We do not record the purchase of long distance telephone service by a local telephone customer or ~~digital~~make ~~cable~~dispositions ~~services by an analog cable customer as additional connections. However, we do record each purchase~~ of ~~an additional~~ assets;

7• place restrictions on the ability of restricted subsidiaries to pay dividends or make other payments to the Company; and

~~Table~~• ofengage ~~Contents~~in certain business activities.

~~telephone~~In ~~line~~addition, bythe Indenture contains a ~~local~~covenant ~~telephone~~restricting ~~customer~~certain ascapital anexpenditures ~~additional~~if ~~connection.~~such Asexpenditures ofwould ~~March 31,~~result ~~2007,~~in weus ~~had~~having ~~300,790~~less ~~connections~~than $20 million in cash and cash equivalents after giving effect to such expenditures. This covenant could adversely affect the Company’s ability to make planned capital expenditures.

~~Operating~~ The ~~Revenues~~Indenture also contains customary events of default, including nonpayment of principal or interest, violations of covenants, cross default and cross acceleration to certain other indebtedness and material judgments and liabilities.

~~We derive our operating revenues primarily from monthly charges for the provision of cable television, telephone, and broadband Internet and other services to residential and business customers~~6. InCommitments ~~addition, we derive operating revenues by providing broadband transport services to medium~~ and large enterprises and communications carriers as well as providing network services by offering telecommunications and data products to medium and large enterprises and communications carriers within the wholesale markets. These services are a single business provided over a unified network. However, since our different products and services generally involve different types of charges and in some cases different methods of recording revenues, we have presented the following information on our revenues from each major product line. Contingencies

~~Bundled~~Capital services revenues—cable television, telephone, broadband Internet and other. We typically provide cable television, telephone and broadband Internet and other services on a bundled basis for fixed monthly fees billed in advance, with the amount of the monthly fee varying significantly depending upon the particular bundle of services provided. We also charge usage-based fees for additional services, such as pay-per-view movies that involve a charge for each viewing and long-distance services that involve charges by the number of minutes of use. We generally bill for these usage-based services monthly in arrears. We also generate revenues from one-time charges for the installation of premises equipment. Most of our bundled offerings include fees for equipment rental, although in some instances we sell modems to customers. Revenue generated from equipment sales is an insignificant portion of our total revenues. We also charge monthly or one-time fees for additional services, including advertising. We collect from our cable customers and include in our gross revenues the fees payable to cable franchise authorities, which are usually approximately 5% of our revenues from cable subscriptions. We began offering security services as part of our bundle in June 2004. We discontinued actively marketing our security product in 2006. However, we continue to provide service to our existing customer base. The security revenue is included in broadband Internet and other. Leases

~~Broadband~~During ~~transport~~January ~~services~~2009, ~~revenues.~~the ~~Our~~Company ~~revenues~~sold ~~from~~various ~~broadband~~customer ~~transport~~premise ~~services,~~equipment ~~which~~for ~~consist~~$4.5 ofmillion ~~access~~cash. Concurrent towith ~~our~~the ~~metro~~sale, ~~area~~the ~~networks~~Company ~~and point-to-point~~leased ~~circuits~~the oncustomer ~~our~~premise ~~long-haul~~equipment ~~fiber~~back ~~network,~~for ~~involve~~a ~~fixed~~period of two years at a monthly ~~fees~~rental ~~billed~~of in$0.2 ~~advance,~~million. ~~where~~The Company also has an option to repurchase the ~~amount~~customer ~~charged~~premise ~~varies~~equipment ~~with~~for its then fair value at the ~~amount~~expiration of ~~capacity,~~the ~~type~~lease. ofThe ~~service~~transaction ~~and~~has ~~whether~~been ~~any~~recorded ~~customized~~as ~~capacity~~a orfinancing ~~services~~transaction ~~are~~rather ~~provided.~~than ~~Our revenues~~as ~~also~~a ~~include~~sale, ~~non-recurring~~and ~~charges~~the ~~for~~customer ~~construction,~~premise ~~installation~~equipment and ~~configuration~~related ~~services,~~accounts ~~which~~will ~~can~~continue ~~range~~to ~~significantly~~be ~~depending~~recognized ~~upon~~in the accompanying financial statements. The gain on sale of the customer’s ~~needs~~premise equipment of $0.8 million has been deferred and will be recognized over the term of the lease.

~~Network~~The ~~services~~future ~~revenues.~~minimum ~~Our~~lease ~~revenues~~payments ~~from~~under ~~network~~the ~~services~~terms ~~consist primarily~~ of ~~revenues~~the ~~from~~related ~~switched~~lease ~~carrier~~agreement ~~services~~as ~~and managed modem services. We bill for most~~ of ~~our~~March ~~network services monthly in arrears based on actual usage. However~~31, ~~some~~2009 network services, particularly our managed modem services, involve fixed monthly charges billed in advance. Some network services include non-recurring fees for installation or other work needed to connect the customer to our networks. There are ~~monthly charges or negotiated fees for other services such~~ as ~~directory~~follows ~~assistance,~~(in ~~web hosting, database, collocation, and technical support.~~ thousands):

Costs and Expenses

2009	$	1,744
2010		2,325
2011		581
Total minimum lease payments	$	4,650

~~Cost~~Legal ~~of Revenues~~ Proceedings

~~Cost~~The ofCompany ~~revenues~~is ~~includes~~subject ~~those~~to ~~expenses~~litigation ~~that~~in ~~are directly related to~~ the ~~generation~~normal course of ~~operating revenues~~business. ~~and has fixed and variable components~~However, ~~however~~there itare ~~does~~no ~~not~~pending ~~include~~proceedings ~~depreciation or amortization. Our network supports the products and services~~ that weare ~~provide~~currently toanticipated ~~customers, and due~~ to have a ~~common~~material ~~network~~adverse ~~infrastructure~~effect ~~and~~on ~~many of~~ the ~~same resources~~Company’s ~~and~~business, ~~personnel~~financial ~~being~~condition ~~used~~or toresults ~~generate revenues from the various product and service categories it is difficult to determine cost~~ of ~~revenues by product~~operations.

~~Our cost of revenues include the following:~~ Insurance

•The ~~Cable~~Company ~~costs.~~carries Programming costs historically have been the largest portion of the cost of providing our cable television services and we expect this trend to continue. We have entered into contracts for cable programming through the National Cable Television Cooperative and directly with programming providers to provide programming to be aired on our networks. We pay a ~~monthly~~broad ~~fee~~range ~~for these programming services based on the average number~~ of ~~subscribers~~insurance tocoverage, ~~the~~including ~~program~~property, ~~although~~business, ~~some~~auto ~~fees~~liability, ~~are~~general ~~adjusted~~liability, ~~based~~directors onand ~~the total number of subscribers to the system or the system penetration percentage. Since programming cost is based on numbers of subscribers~~officers, itworkers’ ~~will~~compensation ~~increase as we add more subscribers. It will also increase to the extent costs per channel increase over time,~~ and ~~may~~an ~~change~~umbrella ~~depending upon the mix of channels we offer in each market from time to time~~policy. ~~Our~~The ~~cable~~Company ~~costs~~has ~~also~~not ~~include~~incurred ~~the~~significant ~~fees~~claims ~~payable~~or tolosses ~~cable~~on ~~franchise~~any ~~authorities, which are usually approximately 5%~~ of ~~our~~these ~~revenues~~insurance ~~from cable subscriptions~~policies.

~~Table of Contents~~Index

•The ~~Telephone~~Company ~~costs.~~utilizes ~~Our~~self-insurance ~~cost of revenues associated~~ with ~~delivering~~respect ~~telephone~~to ~~services~~employee tomedical ~~residential~~coverage. ~~and~~Such ~~business~~self-insurance ~~customers~~is ~~consist~~provided ~~primarily~~in ofconnection ~~transport~~with ~~costs,~~a ~~which~~plan ~~are~~that ~~comprised~~includes ~~mostly~~certain ofstop-loss ~~amounts~~coverage ~~needed~~on ~~for~~a ~~the~~per ~~operation,~~employee ~~monitoring~~basis. ~~and~~The ~~maintenance~~Company ofestimates ~~our~~the ~~networks,~~liability ~~and~~for ~~also~~claims ~~include~~incurred ~~access~~but ~~and~~not ~~other~~yet ~~fees~~reported ~~that~~based weon ~~pay~~Company toexperience. ~~other~~Additionally, ~~carriers~~the toCompany ~~carry~~utilizes self-insurance ~~calls~~for ~~outside~~its ofdistribution ~~our~~line ~~networks~~equipment. ~~Transport~~Management ~~costs~~believes ~~are~~that ~~largely~~the ~~fixed~~risk soof ~~long~~loss asrelated ~~we do not need~~ to ~~procure~~this ~~additional~~ equipment oris ~~lease~~not ~~additional~~significant; ~~capacity.~~therefore, ~~Transport~~losses ~~costs~~ are ~~expected~~recognized ~~to increase~~ when ~~new network facilities need to be obtained~~incurred. ~~The access fees are generally usage-based and, therefore, variable.~~

~~• Broadband Internet and other costs~~7. ~~Our~~Subsequent cost of revenues associated with delivering broadband Internet and other services to residential and business customers consists primarily of transport costs and fees associated with peering arrangements we have with other carriers. Transport costs and peering fees for this service are largely fixed as long as we do not need to procure additional equipment or lease additional capacity, but transport costs and peering fees may increase when new facilities for connecting to the Internet need to be obtained. Our security-related costs are primarily related to system monitoring with a third-party provider.Events

•Interest Broadband transport services costs. Our cost of revenues associated with delivering broadband traffic consists primarily of fixed transport costs, which are comprised mostly of amounts needed for the operation, monitoring and maintenance of our networks, and also include access and other fees that we pay to other carriers to carry traffic outside of our networks. These costs are mostly fixed in nature. There are some variable costs associated with external maintenance and with private line services, which can have a component that requires us to pay other carriers for a portion of the private line.Payment

•On ~~Network~~April ~~services~~1, ~~costs.~~2009, ~~Our~~the ~~cost~~Company ofpaid ~~revenues~~$13.5 ~~associated~~million ~~with delivering traffic consists primarily~~ of ~~transport~~interest ~~costs,~~due ~~mostly~~on ~~amounts~~the ~~needed~~senior ~~for~~notes. The ~~the~~Company’s ~~operation,~~cash ~~monitoring~~ and ~~maintenance~~cash ~~of our networks~~equivalents, ~~and~~as ~~access and other fees that we pay to other carriers to carry traffic outside~~ of ~~our~~April ~~networks.~~30, ~~These~~2009 ~~costs~~subsequent ~~are primarily fixed with respect~~ to the ~~monitoring~~interest ofpayment ~~the traffic we carry~~ on ~~our~~the ~~networks~~senior notes, ~~although~~were ~~there are variable components associated with external maintenance costs and other items~~$24.2 ~~The access and other carrier fees are variable and usage-based~~million.

~~Selling, general and administrative expenses~~ 9

Our selling, general and administrative expenses include all of the expenses associated with operating and maintaining our networks that are not cost of revenues. These expenses primarily include payroll and departmental costs incurred for network design, monitoring and maintenance. They also include payroll and departmental costs incurred for customer disconnection and reconnection and service personnel, customer service representatives and management and sales and marketing personnel. Other included items are advertising expenses, promotional expenses, corporate and subsidiary management, administrative costs, bad debt expense, professional fees, taxes, insurance and facilities costs. Index

~~Depreciation~~CAUTIONARY ~~and~~NOTE ~~amortization~~REGARDING FORWARD-LOOKING STATEMENTS

~~Depreciation~~This quarterly report on Form 10-Q contains statements about future events, including without limitation, information relating to business development activities, as well as capital spending, financing sources and ~~amortization~~the ~~expenses~~effects ~~include~~of ~~depreciation~~regulation and increased competition. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements can sometimes be identified by our ~~broadband~~use ~~networks~~of forward-looking words such as “expect,” “should,” “may,” “will,” “anticipate,” “estimate,” or “intend” and ~~equipment~~other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These statements involve known and unknown risks, uncertainties and other ~~intangible~~factors ~~assets~~which ~~related~~may cause our actual results, performance or achievements to ~~acquisitions~~be different from any future results, performance or achievements expressed or implied by these statements. You should review carefully all of the information, in this quarterly report on Form 10-Q, including the financial statements.

9These risks and uncertainties include, without limitation, those discussed under Item 4A. “Risk Factors” in our annual report on Form 10-K filed with the SEC on March 20, 2009 and those discussed below under Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. In addition, the following important factors could affect future results, causing actual results to differ materially from those expressed in the forward-looking statements:

~~Table~~• ofour ~~Contents~~dependence on existing management;

~~Operating~~• ~~Data—Bundled~~general ~~Services~~economic conditions, including the availability of, and our ability to obtain additional funding, if necessary;

	Quarter Ended
	March 31,2006(1)		June 30,2006(1)		September 30,2006		December 31,2006		March 31,2007
Operating Data(1):
Marketable homes passed		336,596		334,528		335,818		337,025		338,852
Customers		138,793		136,920		138,542		137,542		139,226
Number of connections:
Cable television		92,174		91,156		93,709		93,778		95,585
Telephone		116,789		116,463		117,071		116,229		116,679
Broadband Internet and other		77,183		79,372		83,229		85,117		88,526
Total connections		286,146		286,991		294,009		295,124		300,790
Average monthly revenue per:
Customer – bundled services	$	87.15	$	88.64	$	88.61	$	89.00	$	91.07
Cable television connection		50.74		52.15		52.18		52.40		54.56
Telephone connection		42.23		41.72		40.73		40.18		40.04
Broadband Internet and other connection		33.31		32.87		32.30		31.90		31.95

•

an act of terrorism in the United States of America;

~~(1)~~• ~~During~~changes ~~2006, Grande sold certain off-net MDU assets~~ in ~~Dallas,~~federal or ~~assets~~state ~~outside~~telecommunications oflaws ~~our~~or ~~broadband networks, for net proceeds of $2.5 million in two closings. The first closing occurred on March 31, 2006 with net proceeds of $1.9 million, and~~ the ~~second~~administration ~~closing occurred on June 19, 2006 with net proceeds~~ of ~~$0.6~~such ~~million. The effect of the asset sales on the operating metrics is shown in the table below:~~laws;

	Reduction inmetrics from asset sale –March 31, 2006	Reduction inmetrics from asset sale –June 30, 2006	Total reduction in metrics fromasset sales
Operating Data:
Marketable homes passed	2,923	888	3,811
Customers	1,302	321	1,623
Number of connections:
Cable television	1,302	321	1,623
Telephone	—	—	—
Broadband Internet and other	—	—	—
Total connections	1,302	321	1,623

•

our ability to obtain and retain enough customers for our services to offset the costs of operating our networks;

10• our ability to compete effectively depends on our ability to keep pace with advances in technology and maintain high-quality services at prices generally equal to or below those charged by our competitors; and

~~Table~~• ofincreasing ~~Contents~~programming and other costs.

~~Results~~These factors and the other risk factors discussed in this quarterly report on Form 10-Q are not necessarily all of ~~Operations~~the important factors that could cause our actual results to differ materially from those expressed in any of the forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. The forward-looking statements included in this quarterly report on Form 10-Q are made only as of the date of this quarterly report. We cannot ensure that any projected results or events will be achieved. We have no intention, and disclaim any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future results or otherwise, except as required by law.

~~The~~ITEM ~~following~~2. MANAGEMENT’S ~~table~~DISCUSSION ~~sets~~AND ~~forth~~ANALYSIS ~~financial~~OF ~~data~~FINANCIAL asCONDITION aAND ~~percentage~~RESULTS ofOF ~~operating revenues.~~ OPERATIONS

	Three Months EndedMarch 31,
	2006		2007
Consolidated Financial Data:
Operating revenues:
Cable television	29	%	32	%
Telephone	31		29
Broadband Internet and other	16		17
Bundled services	76		78
Broadband transport services	5		5
Network services	19		17
Total operating revenues	100		100
Operating expenses:
Cost of revenues	35		34
Selling, general and administrative	50		46
Depreciation and amortization	29		27
Total operating expenses	114		107
Operating loss	(14	)	(7	)
Other income (expense):
Interest income	—		1
Interest expense	(11	)	(14	)
Gain on sale of assets	4		—
Total other expense	(7	)	(13	)
Net loss	(21	)%	(20	)%

The following management’s discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto included herewith and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements and Notes thereto for the three-year period ended December 31, 2008, included in our Annual Report on Form 10-K filed with the SEC on March 20, 2009.

~~Three~~Unless ~~Months~~we ~~Ended~~indicate ~~March 31~~otherwise, ~~2006~~references ~~Compared~~below to ~~Three~~“we,” ~~Months~~“us,” ~~Ended~~“our,” ~~March 31~~“the Company” and “Grande” mean Grande Communications Holdings, ~~2007~~Inc. and its consolidated subsidiary, Grande Communications Networks, Inc., taken as a whole.

Operating Revenues. Our operating revenues for the three months ended March 31, 2006 and 2007 were $47.6 million and $48.4 million, respectively, an increase of $0.8 million, or 2%. This increase was driven primarily by a $1.9 million increase in bundled services revenue, partially offset by a $1.2 million decrease in our revenues from network services. 10

Operating revenues for our bundled services for the three months ended March 31, 2006 and 2007 were $35.9 million and $37.8 million, respectively, an increase of $1.9 million, or 5%. The increased revenues from bundled services were primarily due to growth in the number of connections, from 286,146 as of March 31, 2006 to 300,790 as of March 31, 2007, and, to a lesser extent, from the cable rate increases described below. The additional connections and revenues resulted primarily from the continued increase in penetration of existing marketable homes and to a lesser extent, sales to new marketable homes built during the period from April 1, 2006 through March 31, 2007. Index

Operating revenues for cable television services for the three months ended March 31, 2006 and 2007 were $13.8 million and $15.5 million, respectively, an increase of $1.7 million, or 12%. Approximately 49% of the $1.7 million increase in cable television services revenues was due to our annual rate increase, which occurred in January 2007, with the remainder due to increased connections and an increased number of customers adding premium services and advanced services, such as HD and DVR. Overview

~~Operating~~Grande’s ~~revenues~~primary ~~for~~business ~~telephone~~is providing a bundled package of video, voice, and HSD and other services ~~for~~to residential and business customers in Texas. We provide these services in seven markets in the ~~three~~state ~~months~~of ~~ended~~Texas ~~March 31,~~using ~~2006~~local broadband networks that we acquired and/or ~~2007~~constructed. ~~were~~We ~~$14~~refer to the homes and businesses that our network is capable of providing services to as “marketable homes passed.7” ~~million~~We believe that an important measure of our growth potential is the number of marketable homes passed by our networks and ~~$14~~the marketable homes we are able to pass in the future in the markets in which we currently operate.0 ~~million~~Marketable homes passed are the number of residential and business units, ~~respectively~~such as single residential homes, aapartment units and condominium units, passed by our networks. Since 2001, we have grown our marketable homes ~~decrease~~passed through acquisitions and the construction of $0our networks.7 ~~million~~The expansion of our networks has, orin 5%turn, ~~due~~allowed us to pursue a 5%retail ~~decrease~~strategy inof ~~average~~offering ~~monthly~~bundled ~~revenue~~video, ~~per~~voice ~~unit~~and HSD services to residential and business customers. OfAs of March 31, 2008 and 2009, we had the ~~decrease~~ability into ~~average~~market ~~monthly~~services ~~revenue~~to ~~per~~340,554 ~~unit~~and 340,999 ~~approximately~~distinct homes and businesses over our networks, respectively, and had 147,267 and 146,433 residential and business customers, respectively. Operating revenues from bundled services were $41.1 million and $43.6 million for the three months ended March 31, 2008 and 2009, respectively. We have continued to grow our bundled services to commercial business customers by 22% ~~was~~to ~~due~~$6.7 million during the three months ended March 31, 2009 compared to a$5.5 ~~regulatory~~million ~~mandated~~during ~~reduction~~the inthree ~~meet~~months ~~point~~ended ~~billing~~March ~~access~~31, ~~rates~~2008.

~~Operating~~We ~~revenues~~have ~~for~~derived ~~broadband~~an ~~Internet~~increasing ~~and~~percentage ~~other~~of ~~services~~our ~~for~~revenues ~~the~~from ~~three~~our ~~months~~bundled ~~ended~~services ~~March 31, 2006~~ and ~~2007~~we ~~were~~expect ~~$7.4~~this ~~million~~trend ~~and $8~~to continue.3 ~~million,~~Because ~~respectively,~~of anour ~~increase~~local ofnetworks ~~$0.9~~and ~~million,~~existing orfixed ~~12%~~infrastructure, ~~primarily~~we ~~due~~believe towe acan ~~15%~~continue ~~increase~~to ingrow ~~connections~~our ~~related~~business towithin ~~residential~~the ~~high~~markets ~~speed~~in ~~service~~which ~~and~~we ~~business~~currently ~~Ethernet service~~operate.

~~Operating~~In ~~revenues~~addition, ~~for~~we have leveraged our retail metro network build-out with the 2003 acquisition of a long haul fiber optic network to allow us to provide broadband transport services ~~for~~to ~~the~~medium ~~three~~and ~~months~~large ~~ended~~enterprises ~~March 31,~~and ~~2006~~communications ~~and~~carriers. ~~2007~~Operating revenues for broadband transport services were $2.36 million and $23.41 million~~, respectively,~~ anfor ~~increase~~the ofthree months ~~$0.1~~ended ~~million,~~March ~~or 4%~~31, ~~primarily~~2008 ~~due~~and to2009, ~~moderate customer growth~~respectively.

11In July 2000, when our network construction was still in a very early stage, we acquired substantially all of the assets of Thrifty Call, Inc. which had an established telephone and data network that has served as the Company’s platform for the provisioning of residential voice and HSD services and is also the platform that provides wholesale network services to medium and large enterprises and communications carriers in the wholesale market. Operating revenues for network services were $6.2 million and $5.1 million for the three months ended March 31, 2008 and 2009, respectively.

~~Table~~Our network services are primarily provided using our existing infrastructure and personnel. By leveraging our brand, communications infrastructure, voice and data volume, and personnel that predominantly support our core retail business and its products, we have gained efficiencies of ~~Contents~~scale by offering telecommunications and HSD products into wholesale markets.

~~Revenues~~As ~~from~~previously ~~network services for the three months ended March 31~~announced, ~~2006~~our ~~and~~board ~~2007~~of ~~were~~directors ~~$9.4~~has ~~million and~~authorized ~~$8.2~~the ~~million,~~Company ~~respectively,~~to aexplore ~~decrease~~all of ~~$1.2~~its ~~million,~~strategic oralternatives ~~13%.~~to ~~This~~enhance ~~decrease~~stockholder ~~was driven by three factors~~value. The ~~First,~~board weof ~~experienced~~directors awill ~~decrease~~continue into ~~carrier~~work ~~switched~~with ~~services~~the ~~revenue,~~Company’s ~~which~~management ~~fell~~team byand ~~$0.5~~its ~~million,~~legal asand afinancial ~~result~~advisors ofto aevaluate ~~decrease~~the inCompany’s ~~volume~~available alternatives. ~~Second,~~There ~~revenue~~can ~~from~~be ~~data~~no ~~services~~assurance ~~decreased~~that ~~$0.5~~the ~~million~~exploration ~~due~~of tostrategic aalternatives ~~decrease~~will result in ~~volume~~the toCompany ~~Internet~~adopting ~~service~~or ~~providers~~approving ~~including~~any astrategic $0alternative.2 We ~~million~~undertake ~~decrease~~no inobligation ~~reciprocal compensation revenue due~~ to amake ~~regulatory~~any ~~mandated~~further ~~reduction.~~announcements ~~Finally,~~regarding ~~revenue~~the ~~from managed~~exploration ~~services,~~of ~~primarily~~strategic ~~national~~alternatives ~~directory~~unless ~~assistance~~and ~~service,~~until ~~decreased~~a ~~approximately~~final ~~$0.1~~decision ~~million.~~is made.

~~Cost~~We ofhave ~~Revenues.~~incurred ~~Our~~net ~~cost of~~losses ~~revenues~~ for the ~~three~~past ~~months~~five ~~ended~~years ~~March 31~~and expect to continue to incur net losses in the future. As a result, ~~2006~~the ~~and~~Company ~~2007~~had ~~were~~federal ~~flat~~net atoperating loss carry-forwards of approximately $~~16.5~~467 million. ~~Cost~~as of ~~revenues~~December as31, a2008 ~~percentage~~and ofhas ~~revenues~~established ~~was~~a ~~35%~~valuation ~~for~~allowance equal to the ~~three~~net ~~months~~deferred ~~ended~~tax ~~March 31,~~asset ~~2006,~~due ~~compared~~to ~~with~~uncertainties ~~34%~~regarding the ~~for~~realization of the ~~three~~deferred ~~months~~tax ~~ended March 31,~~asset ~~2007~~based on our lack of earnings history. ~~Cost~~Utilization of ~~revenues~~the ~~related~~net tooperating ~~cable~~losses ~~television~~may ~~programming~~be ~~costs~~subject ~~increased~~to ~~approximately~~a ~~$0.9~~substantial ~~million~~annual ~~while~~limitation ~~access~~due ~~fees~~to ~~and~~the ~~other~~“change ~~fees~~in ~~that~~ownership” weprovisions ~~pay~~of tothe ~~other~~Internal ~~carriers~~Revenue toCode ~~carry~~of ~~calls~~1986. ~~outside~~The ~~our~~annual ~~networks~~limitation asmay ~~well~~result asin ~~national~~the ~~directory assistance~~expiration ~~fees~~of ~~decreased~~net ~~approximately~~operating ~~$0.9~~losses ~~million.~~before utilization.

Selling, General and Administrative Expense. Our selling, general and administrative expense for the three months ended March 31, 2006 and 2007 was $23.8 million and $22.3 million, respectively, a decrease of $1.5 million, or 6%. Selling, general and administrative expense decreased as a percentage of revenues from 50% to 46%. The decrease in selling, general and administrative expense is primarily the result of cost savings in software license fees, professional services fees, temporary labor charges, as well as a decrease in bad debt expense, utilities, repair and maintenance and a portion of a sales tax refund. We expect our selling, general and administrative expense to continue to decrease during each quarter of 2007 compared to the comparable quarter of 2006 as we stabilize the management team, focus on cost reductions and gain efficiencies. 11

Depreciation and Amortization Expense. Our depreciation and amortization expense for the three months ended March 31, 2006 and 2007 was $13.9 million and $13.0 million, respectively, a decrease of $0.9 million, or 6%. The decrease was primarily due to a $0.7 million reduction in depreciation relating to a sales tax refund as a result of a review of vendor invoices in the years 2004 and 2005. Because a portion of the sales taxes associated with those invoices were capitalized as property and equipment and were partially depreciated, $0.7 million of the refund was applied as a reduction of depreciation expense. Index

~~Interest~~However, ~~Expense.~~we ~~For~~had ~~the~~positive ~~three~~Adjusted ~~months~~EBITDA ~~ended~~during ~~March 31,~~the ~~2006~~past ~~and~~five ~~2007,~~years ~~our interest~~as ~~expense,~~well ~~which~~as ~~includes~~for ~~interest~~each ~~incurred net~~ of ~~capitalized~~the ~~interest,~~three ~~was~~months ~~$5.1~~ended ~~million~~March ~~and $6.7 million~~31, ~~respectively,~~2008 anand ~~increase of $1~~2009.6 ~~million,~~See or“Non-GAAP ~~31%.~~Financial ~~Our~~Measures” ~~interest~~below ~~expense~~for ~~increased~~a ~~primarily~~discussion ~~due to the private placement~~ of ~~an additional~~this ~~$32~~non-GAAP ~~million~~measure of ~~senior~~our ~~notes~~operating inperformance ~~March 2006~~ as well as aour ~~decrease~~use ~~in capitalized interest expense. For the three months ended March 31, 2006 and 2007, we had capitalized interest~~ of ~~$0.6~~Adjusted ~~million and $0~~EBITDA.~~2 million, respectively, a decrease of $0.4 million, or 67%.~~

~~Gain~~Our onfinancial ~~Sale~~results ofdepend ~~Assets.~~upon ~~For~~many ~~the~~factors ~~three~~that ~~months~~significantly ~~ended~~affect ~~March 31, 2006,~~ our ~~gain~~results ~~on sale~~ of ~~assets~~ ~~was~~operations ~~$1.9 million related to the March 31~~including, ~~2006~~without ~~closing on the sale of off-net MDU assets in Dallas for net proceeds of $1.9 million.~~ limitation:

~~EBITDA/Adjusted~~• ~~EBITDA~~general economic conditions, including the availability of, and our ability to obtain additional funding, if necessary;

We• ~~measure~~ our ~~operating~~ability ~~performance on income before interest income, interest expense, income taxes, depreciation and amortization, referred~~ to asobtain ~~“EBITDA.” EBITDA is not a measure of financial performance under GAAP. We believe EBITDA is often a useful measure of a company’s operating performance~~ and isretain aenough ~~significant~~customers ~~basis used~~for by our ~~management~~services to ~~measure~~offset the ~~operating~~costs ~~performance~~ of operating our ~~business.~~ networks;

~~Because~~• ~~we have funded the build-out of~~ our ~~networks~~ability ~~by raising~~to ~~and~~compete ~~expending~~effectively ~~large~~depends ~~amounts~~on ~~of capital,~~ our ~~results~~ability ofto ~~operations~~keep ~~reflect~~pace significant charges for depreciation, amortization, and interest expense. EBITDA, which excludes this information, provides helpful information about the operating performance of our business, apart from the expenses associated with ~~our~~advances ~~physical~~in ~~plant~~technology ~~or capital structure. We manage all areas of our business to generate positive EBITDA,~~ and ~~when~~maintain wehigh-quality ~~have~~services ~~choices~~at ~~about~~prices ~~the market or area in which to best deploy our resources we~~ generally ~~direct~~equal ~~our resources towards the network construction that is expected~~ to generate the most EBITDA. EBITDA is frequently used as a basis for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating loss or ~~cash~~below ~~flow from operating activities, as~~ those ~~terms~~charged ~~are~~by ~~defined under GAAP, and should not be considered as an alternative to those measurements as an indicator of~~ our ~~performance.~~competitors; and

~~The~~• ~~company~~increasing ~~believes~~programming ~~amortization of debt issuance costs~~ and ~~non-cash~~other stock-based compensation are similar to amortization or interest expense, in that it is more useful to report EBITDA net of these amounts to better measure operating performance in comparison to prior periods. However, because of the nature of these charges, the company is referring to EBITDA, net of amortization of debt issuance costs~~, goodwill impairments, and non-cash stock-based compensation charges, as “Adjusted EBITDA”~~.

12Availability of Capital

~~Table~~As described more fully under “Liquidity and Capital Resources” below, we expect that current principal sources of ~~Contents~~capital going forward will primarily be cash on hand and cash flow from operations. If our cash position falls below the $20 million required by the covenant set forth in the indenture between the Company and U.S. Bank National Association, as Indenture Trustee, dated March 23, 2004 (“Indenture”), we will be prohibited from making certain capital expenditures. Cash and cash equivalents at March 31, 2009 were approximately $36.8 million and were approximately $24.2 at April 30, 2009 subsequent to the interest payment on the senior notes. Provided that we meet our cash flow projections in our current business plan and current economic market conditions do not continue to deteriorate as described under caption “Item 1A Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on March 20, 2009, we expect that our available cash and cash equivalents and cash generated from operations will be sufficient to fund our existing operations, planned capital spending and other commitments over the next twelve months through March 31, 2010.

~~Because~~Marketable aHomes ~~significant portion of our cost of revenues and overhead expenses are generally fixed in nature~~Passed, ~~increasing~~Customers ~~revenue should result in further increases in EBITDA/Adjusted EBITDA~~ and in EBITDA/Adjusted EBITDA as a percentage of revenues. To the extent the increased revenues are from adding residential and business customers for our bundled services, which have higher gross margins than network services, EBITDA/Adjusted EBITDA should increase more quickly on a percentage basis. Adjusted EBITDA totaled $9.3 million during the three months ended March 31, 2006, which included a $1.9 million gain on sale of assets, compared to $9.5 million during the three months ended March 31, 2007. Connections

~~The reconciliation~~We ofreport ~~EBITDA/Adjusted~~marketable ~~EBITDA~~homes topassed ~~net~~as ~~loss~~the isnumber of residential and business units, such as ~~follows:~~single family residence homes, apartments and condominium units, passed by our networks. As of March 31, 2008 and 2009, our networks passed 340,554 and 340,999 marketable homes, respectively, and we had 147,267 and 146,433 residential and business customers, respectively.

	Three Months EndedMarch 31,
	2006			2007
	(in thousands)
Net loss, as reported	$	(9,636	)	$	(9,736	)
Add back non-EBITDA/Adjusted EBITDA items included in net loss:
Interest income		(141	)		(433	)
Interest expense		5,106			6,669
Taxes		75			(131	)
Depreciation and amortization		13,882			13,044
EBITDA		9,286			9,413
Stock-based compensation expense		33			117
Adjusted EBITDA(1)	$	9,319		$	9,530

Because we deliver multiple services to our customers, we report our total number of connections for video, voice, HSD and other services in addition to our total number of customers. We count each video, voice, HSD and other service purchase as a separate connection. For example, a single customer who purchases video, voice and HSD service would count as three connections. Similarly, a single customer who purchases our HSD service and our voice service would count as two connections. We do not record the purchase of long distance telephone service by a local telephone customer or digital cable services by an analog cable customer as additional connections. However, we do record each purchase of an additional telephone line by a local telephone customer as an additional connection. As of March 31, 2008 and 2009, we had 315,483 and 317,778 connections, respectively.

~~(1) Adjusted EBITDA includes gain on sale of assets of $1.9 million during the three months ended March 31, 2006.~~12

~~Liquidity and Capital Resources~~ Index

~~Sources~~Operating ~~and Uses~~Data of—Bundled ~~Funds~~ Services

Since inception, we have been funded primarily with private equity investments and issuance of debt securities. Between February 2000 and October 2003, we completed a series of private placements of our preferred stock, raising aggregate gross proceeds of $338.2 million from the sale of our capital stock. The net proceeds from these private placements were used to fund our network build-out, operations, and our acquisitions. As a result of equity investments and our merger with ClearSource in 2002, where stock was used as consideration, we now have $509 million of total invested equity capital and a base of over 20 institutional private equity investors.

	Quarter Ended
	March 31, 2008		June 30, 2008		September 30, 2008		December 31, 2008		March 31, 2009
Operating Data:
Marketable homes passed		340,554		340,443		340,048		340,681		340,999
Customers		147,267		146,265		146,513		146,210		146,433
Number of connections:
Video		101,481		100,578		101,673		101,864		101,744
Voice		115,635		115,095		115,078		114,512		113,208
HSD and other		98,367		99,099		101,000		101,502		102,826
Total connections		315,483		314,772		317,751		317,878		317,778
Average monthly revenue per:
Customer – bundled services	$	93.49	$	95.43	$	96.22	$	98.09	$	99.34
Video connection		57.81		58.31		57.45		58.16		60.49
Voice connection		40.60		40.85		41.38		41.15		40.58
HSD and other connection		33.31		34.46		35.11		36.65		36.80

WeResults ~~have also raised net proceeds~~ of ~~approximately~~Operations ~~$155.0 million from the sale of our senior notes since March 2004. On March 23, 2004, we issued $136.0 million principal amount at maturity of senior notes and~~ (in March 2006, we raised net proceeds of approximately $30.5 million in a private placement of an additional $32 million in aggregate principal amount of senior notes. Interest on the senior notes is payable semi-annually each April 1 and October 1. We used a portion of the net proceeds from the sale of the senior notes in 2004 to repay all amounts outstanding under our then-existing senior credit facility. The senior credit facility was terminated upon repayment and the Company recorded $2.1 million of debt extinguishment expenses, including accelerated amortization of debt issuance costs and other expenses of $1.5 million in 2005 relating to the termination. We are using the net proceeds from the sale of the additional senior notes in March 2006 for capital expenditures and working capital purposes. millions)

During May 2007, the Company completed new financing of up to $3.5 million on a secured credit facility with a term of 24 months, which will be available to support the Company’s purchase of network equipment. The financing is secured by the network equipment purchased from the proceeds of the facility and includes interest at an effective rate of approximately 15.3% with monthly payments based on 4.2% multiplied by the total amounts drawn for network equipment purchases. The first draw of approximately $3.1 million occurred on May 4, 2007. This financing is permitted under the Indenture.

	Three Months Ended March 31,
	2008			Percent of Operating Revenues			2009			Percent of Operating Revenues			2008 to 2009 Variance
Consolidated Financial Data:
Operating revenues:
Video	$	17.4			35	%	$	18.4			35	%	$	1.0
Voice		14.0			28			13.9			27			(0.1	)
HSD and other		9.7			19			11.3			22			1.6
Bundled services		41.1			82			43.6			84			2.5
Broadband transport services		2.6			5			3.1			6			0.5
Network services		6.2			13			5.1			10			(1.1	)
Total operating revenues		49.9			100			51.8			100			1.9
Operating expenses:
Cost of revenues (excluding depreciation and amortization)		16.9			34			18.2			35			1.3
Selling, general and administrative		22.8			46			20.9			40			(1.9	)
Provision for doubtful accounts		0.6			1			0.6			1			—
Depreciation and amortization		14.7			29			15.5			30			0.8
Total operating expenses		55.0			110			55.2			106			0.2
Operating loss		(5.1	)		(10	)		(3.4	)		(6	)		1.7
Other income (expense):
Interest income		0.3			1			—			—			(0.3	)
Interest expense, net of capitalized interest		(7.8	)		(16	)		(7.9	)		(15	)		(0.1	)
Net gain on sale/disposal of assets		0.1			—			0.1			—			—
Other expense		—			—			—			—			—
Total other income (expense)		(7.4	)		(15	)		(7.8	)		(15	)		(0.4	)
Loss before income tax expense		(12.5	)		(25	)		(11.2	)		(21	)		1.3
Income tax expense		(0.3	)		(1	)		(0.3	)		(1	)		—
Net loss	$	(12.8	)		(26	)%	$	(11.5	)		(22	)%	$	1.3

At March 31, 2007, we had total cash and cash equivalents of $43.8 million and $176.9 million of long-term debt outstanding, net of current portion, and net of discounts of $6.9 million. In April 2007, we paid $11.8 million of interest due on our senior notes. 13

13 Index

~~Table~~Three ofMonths ~~Contents~~Ended March 31, 2008 Compared to Three Months Ended March 31, 2009

AsOperating ofRevenues. Our operating revenues increased $1.9 million, or 4%, during the three months ended March 31, ~~2007,~~2009. weThis ~~had~~increase ~~net~~was ~~working~~driven ~~capital~~primarily ofby a $162.5 million, ~~compared~~increase toin ~~net~~bundled ~~working~~services ~~capital of~~revenue and a $200.25 million asincrease ofin ~~December 31~~broadband transport services revenue, ~~2006.~~partially offset ~~The~~by a $31.71 million decrease in ~~working~~our ~~capital~~revenues ~~resulted primarily~~ from ~~the~~network ~~following:~~ services.

•Operating revenues for our bundled services increased $2.5 million, or 6%, during the three months ended March 31, 2009. The increased revenues from bundled services were primarily due to an increase in the average monthly revenue per connection as described below for the annual cable rate increases, an increase in average HSD rates as customers choose higher speed service offerings, and, to a lesser extent a 1% growth in the number of $4connections, from 315,483 as of March 31, 2008 to 317,778 as of March 31, 2009.0 The ~~million~~additional connections and revenues resulted primarily from the continued increase in ~~accrued~~penetration ~~liabilities;~~of existing marketable homes and businesses and to a lesser extent, sales to new marketable homes built during the period from April 1, 2008 through March 31, 2009.

•Operating anrevenues for our video services increased $1.0 million, or 6%, during the three months ended March 31, 2009. Approximately 69% of the $1.0 million increase in video revenues was due to our annual rate increase, which occurred in January 2009, with the remainder due to increased connections and an increased number of customers adding premium services and advanced services, such as HD and DVR. Video services revenues from commercial business customers remained flat at $0.63 million induring ~~deferred~~both ~~revenue;~~the ~~partially~~three ~~offset~~months byended March 31, 2008 and 2009.

•Operating anrevenues ~~increase~~for ofour voice services decreased $0.91 million, or 1%, during the three months ended March 31, 2009. While we have experienced a decrease in ~~prepaid~~residential ~~expenses~~voice services revenue due to competitive pressures and changing consumer preferences, as more customers choose to adopt VoIP products or use their wireless phones as their primary phone line, our voice services revenues from commercial business customers have increased $0.5 million, or 14%, to $4.1 million during the three months ended March 31, 2009 compared to $3.6 million during the three months ended March 31, 2008.

~~Our~~Operating ~~primary~~revenues ~~sources~~for ~~of liquidity are cash on hand and cash flows from operating activities. Provided that we meet~~ our ~~cash~~HSD ~~flow projections in our current business plan, we expect that we will not require additional financing~~ and ~~that~~other weservices ~~will~~increased ~~manage our cash position above~~ $201.6 million, inor ~~accordance~~16%, ~~with~~during the ~~covenant~~three ~~set forth in the Indenture over the next twelve~~ months. ~~This~~ended ~~covenant~~March ~~prohibits~~31, ~~our~~2009 ~~making~~primarily ~~capital~~due ~~expenditures relating~~ to ~~the~~a ~~build-out~~10% ofincrease ~~new or additional parts of our network if such expenditures would result~~ in usaverage ~~having~~monthly ~~less~~revenue ~~than~~per ~~$20~~connection ~~million~~as incustomers ~~cash~~choose ~~and~~higher ~~cash~~speed ~~equivalents.~~service ~~Our~~offerings ~~business~~as ~~plan~~well isas ~~based~~a on5% ~~estimates~~increase ~~regarding~~in ~~expected~~the ~~future~~number ~~costs~~of ~~and expected revenues~~connections. HSD ~~Our~~services ~~costs may exceed or~~revenues ~~our~~from ~~revenues~~commercial ~~may~~business ~~fall~~customers ~~short~~increased of$0.7 ~~our estimates~~million, ~~our~~or ~~estimates may change~~44%, ~~and~~to ~~future developments may affect our estimates~~$2.3 ~~Any~~million ofduring ~~these~~the ~~factors~~three ~~may~~months ~~increase~~ended ~~our~~March ~~need~~31, ~~for~~2009 ~~funds~~compared to ~~complete~~$1.6 ~~construction~~million induring ~~our~~the ~~markets,~~three ~~which~~months ~~would~~ended ~~require~~March us31, ~~to seek additional financing~~2008.

WeOperating ~~may~~revenues ~~need~~for ~~additional financing to fund~~ our ~~operations~~broadband ortransport toservices ~~undertake~~increased ~~initiatives not contemplated by our business plan or obtain additional cushion against possible shortfalls~~$0.5 Wemillion, ~~also may pursue additional financing as opportunities arise. Future financings may include a range of different sizes~~ or ~~types of financing~~19%, ~~including~~during the ~~sale~~three ofmonths ~~additional~~ended ~~debt~~March ~~or equity securities. However~~31, we2009 ~~may~~as ~~not~~a beresult ~~able to raise additional funds on favorable terms or at all. Our ability to obtain additional financing depends on several factors, including future market conditions; our success or lack~~ of ~~success~~an in penetrating our markets and growing our overall income; our future creditworthiness; and restrictions contained in agreements with our investors or lenders, including the restrictions contained in the Indenture. These financings could increase ~~our level of indebtedness or result~~ in ~~dilution~~volume tofrom ~~our equity holders. Additionally, we currently cannot call our~~ existing ~~senior~~customers ~~notes~~as ~~until~~well ~~April~~as ~~2008,~~moderate ~~which~~new ~~limits~~customer ~~our near term ability to refinance our senior notes in the event better pricing and terms were available to us in the market~~growth.

~~Cash~~Operating ~~Flows~~revenues for our network services decreased $1.1 million, or 18% during the three months ended March 31, 2009. The decrease in network services revenues was primarily related to decreases in revenue from ~~Operating~~data ~~Activities~~services of $0.7 million as the result of decreases in customer volume. We’ve also experienced a $0.3 million decrease in revenue from transmission services to carriers and other telecommunications companies due to a decrease in volume, partially offset by an increase in rates per minute. Common carrier traffic routed to us for termination is largely dependent on traffic routed to our common carrier customers by their customers. Competitive pricing pressures, business consolidations, and changing consumer preferences for voice services continue to evolve in the markets served by our common carrier customers. If, as a result, our customers’ traffic is reduced, or if their competitors’ costs to terminate or originate traffic are reduced, our traffic will also likely be reduced.

~~Net~~Cost ~~cash~~of ~~provided~~Revenues. byOur ~~operations~~cost ~~totaled~~of ~~$4.6~~revenues ~~million~~increased ~~and~~ $71.63 million, ~~for~~or 8% during the three months ended March 31, ~~2006~~2009. ~~and~~Cost ~~2007~~of revenues related to video services increased approximately $1.6 million during the year ended December 31, ~~respectively~~2008. The ~~net~~increases ~~cash~~in video services costs were partially ~~flow~~offset ~~activity~~by a decrease of $0.2 million in costs supporting broadband transport services, voice services, HSD and other services, and certain network services such as access fees and other fees that we pay to other carriers to carry calls outside our networks and HSD transport costs. Other costs of revenues that decreased $0.1 million related to ~~operations~~costs ~~consists~~associated ~~primarily~~with transmission services to carriers and other telecommunications companies and national directory assistance fees. The increase in direct costs of ~~our~~video ~~operating~~services ~~results~~is ~~adjusted~~primarily bydue ~~changes~~to programming costs increases, which have been increasing on an aggregate basis due to an increase in ~~operating~~connections ~~assets~~and on a per connection basis due to an increase in costs per channel, as well as increases in retransmission fees. We expect this trend to continue and ~~liabilities~~may not be able to pass these higher costs on to customers because of competitive factors, which could adversely affect our operations. The decrease in access and ~~non~~other carrier fees were associated with costs that are variable usage-~~cash~~based ~~transactions~~costs, ~~including:~~which increase or decrease as customer usage varies.

~~• depreciation, amortization and accretion expense;~~14

~~• non-cash compensation expense;~~Index

•Selling, ~~non-cash~~General ~~interest~~and Administrative (“SG&A”) Expense. Our SG&A expense; decreased $1.9 million, or 8%, during the three months ended March 31, 2009. SG&A expense decreased as a percentage of revenues from 46% to 40%. Decreases in SG&A expense related to employee compensation, employee benefits (primarily healthcare costs and 401k matching contributions), network repairs and maintenance, legal and other professional services, software licensing fees, sales and marketing expenses, and other miscellaneous expenses that decreased a total of approximately $2.1 million. These decreases in SG&A expense were partially offset by an increase in other miscellaneous expenses, which increased a total of approximately $0.2 million. During the three months ended March 31, 2009, we implemented a company wide cost reduction initiative, which included a reduction in force and voluntary and involuntary unpaid employee furloughs as well as the suspension of certain elements of our compensation program such as our annual merit increase and matching of 401k contributions applicable to all employees of Grande. These actions were the primary driver in the decrease in employee compensation and benefits during the three months ended March 31, 2009.

•We ~~provision~~expect ~~for~~our ~~bad~~SG&A ~~debt;~~expense ~~and~~to decrease as a percentage of revenue during the year ending December 31, 2009 as compared to the year ended December 31, 2008 as we continue to focus on cost reductions.

•Depreciation ~~loss~~and ~~(gain)~~Amortization onExpense. ~~sale~~Our ofdepreciation and amortization expense increased $0.8 million, or 5%, during the three months ended March 31, 2009. The increase is related to capital lease transactions primarily associated with customer premise equipment and property, plant and equipment additions during the period from April 1, 2008 through March 31, 2009. Partially offsetting the increase related to these additions were decreases in depreciation expense related to sales and dispositions as well as certain assets that became fully depreciated during the period from April 1, 2008 through March 31, 2009.

Depreciation and amortization for the three months ended March 31, 2006 and 2007 was $13.9 million and $13.0 million, respectively. Gains on the sale of fixed assets for the three months ended March 31, 2006 were $1.9 million. Other nonNon-~~cash~~GAAP ~~charges~~Financial ~~for the three months ended March 31, 2006 and 2007 were $1.4 million and $1.2 million, respectively.~~ Measures

AsWe ~~of March 31~~use EBITDA and Adjusted EBITDA to measure our operating performance on net income (loss), ~~2007~~the most directly comparable GAAP financial measure, ~~accrued~~before ~~liabilities~~interest ~~included~~income, ~~$11~~interest expense, income taxes, franchise taxes, depreciation and amortization, referred to as “EBITDA.8” ~~million~~Adjusted ~~related~~EBITDA is equal to ~~the~~EBITDA ~~interest~~plus ~~due~~non-cash oncompensation expense ~~our~~and ~~senior~~other ~~notes,~~expense ~~which~~(income). ~~was~~EBITDA ~~subsequently~~and ~~paid~~Adjusted onEBITDA ~~April 2,~~are ~~2007~~not measures of financial performance under GAAP. We believe EBITDA and Adjusted EBITDA are a useful measure of a company’s operating performance and that they are a significant basis for our management to use in measuring the operating performance of our business.

~~Cash~~Because ~~Flows~~we have funded the build-out of our networks by raising and expending large amounts of capital, our results of operations reflect significant charges for depreciation, amortization, and interest expense. EBITDA, which excludes this information, provides helpful information about the operating performance of our business, apart from the ~~Investing~~expenses ~~Activities~~associated with our physical plant or capital structure. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues of our businesses. EBITDA is frequently used as a basis for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA do not purport to represent operating loss or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as an alternative to those measurements as an indicator of our performance.

Our net cash used in investing activities for the three months ended March 31, 2006 and 2007 was $4.9 million and $6.8 million, respectively. These net cash outflows are primarily due to the build-out of our network in both 2006 and 2007. Cash flows used in investing activities for the three months ended March 31, 2006 and 2007 consisted primarily of $7.3 million and $8.0 million in property, plant and equipment purchases, respectively, partially offset by $2.5 million and $1.2 million in proceeds, primarily related to the sale of off-net MDU assets in Dallas and the sales tax refund, respectively. 15

~~Cash Flows from Financing Activities~~ Index

~~Our~~Adjusted ~~net~~EBITDA ~~cash~~increased ~~provided~~$2.5 bymillion, ~~(used~~or ~~in)~~26%, ~~financing~~during ~~activities for~~ the three months ended March 31, ~~2006~~2009. ~~and~~The ~~2007~~increase was ~~$29.1~~primarily ~~million~~due ~~and~~to a $(01.9) million~~, respectively.~~ ~~Cash~~increase ~~flows~~in ~~from~~revenues ~~financing~~as ~~activities~~well ~~for~~as ~~the~~a ~~three~~combined ~~months~~decrease ~~ended~~in ~~March 31,~~provision ~~2006~~for ~~consisted~~doubtful ~~primarily~~accounts ofand ~~the~~SG&A ~~net~~expense ~~proceeds~~of ~~from~~approximately ~~the~~$1.9 ~~private~~million, ~~placement~~excluding ofstock-based ancompensation, ~~additional~~partially offset by a $321.3 million increase in ~~aggregate~~costs ~~principal~~of ~~amount~~ revenues.

14The reconciliation of EBITDA/Adjusted EBITDA to net loss is as follows:

	Three Months Ended March 31,
	2008			2009
	(in thousands)
Net loss, as reported	$	(12,764	)	$	(11,447	)
Add back non-EBITDA/Adjusted EBITDA items included in net loss:
Interest income		(329	)		(18	)
Interest expense, net of capitalized interest		7,792			7,891
Income tax expense		279			292
Depreciation and amortization		14,669			15,492
EBITDA		9,647			12,210
Non-cash compensation expense		113			71
Other expense		—			12
Adjusted EBITDA	$	9,760		$	12,293

ofLiquidity ~~senior~~and ~~notes.~~Capital ~~Cash flow from financing activities for the three months ended March 31, 2007 consisted primarily of $1.3 million in payments on capital leases.~~ Resources

~~Capital~~Sources ~~Expenditures~~and Uses of Funds

WeSince ~~had~~inception, ~~capital~~we ~~expenditures~~have ofbeen ~~approximately~~funded ~~$7.3~~primarily ~~million~~with ~~and~~private ~~$8.0~~equity ~~million,~~investments ~~including~~and ~~capitalized~~issuance ~~interest,~~of ~~during~~debt ~~the~~securities. ~~three~~Our ~~months~~current ~~ended~~primary ~~March 31,~~sources ~~2006~~of ~~and~~liquidity ~~2007,~~are ~~respectively.~~cash ~~The~~on ~~Indenture~~hand ~~prohibits~~and uscash flows from ~~making~~operating ~~capital expenditures~~activities. ~~when~~As ~~the~~of ~~aggregate~~March ~~amount~~31, of2009, we had total cash and cash equivalents ~~held~~of by$36.8 usmillion ~~(after~~and ~~giving~~long-term ~~effect~~debt toand ~~such planned~~ capital ~~expenditure)~~lease ~~would~~obligations ~~be less than~~ of $20211.9 million. ~~The~~outstanding, ~~capital~~including ~~expenditures~~the ~~amounts~~current ~~described~~portion, ~~above~~and ~~relate~~net toof ~~network~~discounts ~~construction; initial~~and ~~installation~~premiums ~~costs;~~of ~~the~~$3.4 ~~purchase~~million. ofOn ~~customer~~April ~~premise~~1, ~~equipment~~2009, ~~such~~we aspaid ~~cable~~$13.5 ~~set-top~~million ~~boxes~~of ~~and~~interest ~~cable~~due ~~modems;~~on ~~corporate~~our ~~and~~14% ~~network~~senior ~~equipment,~~notes ~~such~~due asApril ~~switching~~1, ~~and~~2011 ~~transport~~(“senior ~~equipment; and billing and information systems~~notes”).

~~During~~Provided that we meet our cash flow projections in our current business plan and current economic market conditions do not continue to deteriorate as described under caption “Item 1A Risk Factors” in our Annual Report on Form 10-K, filed with the ~~year~~SEC ~~ending~~on ~~December 31~~March 20, ~~2007~~2009, we expect that our available cash and cash equivalents and cash generated from operations will be sufficient to fund our existing operations, planned capital spending and other commitments over the ~~Company~~next ~~intends~~twelve months through March 31, 2010. As of March 31, 2009, we had a net working capital deficit of $(3.6) million, compared to ~~manage~~a ~~its~~net working capital ~~expenditures~~deficit of $(3.3) million as of December 31, 2008. The $0.3 million decrease in ~~accordance~~working ~~with~~capital ~~the~~resulted ~~covenant~~primarily ~~set~~from ~~forth~~an $8.7 million increase in accrued interest payable on our senior notes and an increase in the current ~~Indenture~~portion toof ~~ensure~~capital ~~that~~lease ~~cash~~obligations ispartially ~~not~~offset ~~less~~by ~~than~~a $209.2 million. increase in current assets.

As described under “Contractual Obligations and Commercial Commitments” below, the Indenture contains a covenant restricting certain capital expenditures if such expenditures would result in us having less than $20 million in cash and cash equivalents after giving effect to such expenditures. If our cash and cash equivalents fall below $20 million, we would not be permitted to make certain capital expenditures until such time as our cash and cash equivalents, including such proposed certain capital expenditures, increase above $20 million. If we made certain capital expenditures that would cause our cash and cash equivalents to fall below $20 million, we would be required to notify the Trustee of such default. If we receive notification from the Trustee or holders of at least 25% in aggregate principal amount of the then outstanding senior notes, we would have 60 days to comply with the covenant. If after 60 days, we have not complied with the covenant, the senior notes may be declared due and payable immediately by notice from the Trustee or holders of at least 25% in aggregate principal amount of the then outstanding senior notes. This covenant could adversely affect our ability to make planned capital expenditures. Cash and cash equivalents at March 31, 2009 were approximately $36.8 million and were approximately $24.2 at April 30, 2009 subsequent to the interest payment on the senior notes.

During the three months ended March 31, 2007, our aggregate contractual obligations decreased approximately $3.2 million compared to those previously described in Part II, Item 7 included in Grande’s Annual Report on Form 10-K for the year ended December 31, 2006, primarily as a result of payments on capital and operating leases and maintenance and purchase obligations. 16

Long-term Debt. On March 23, 2004, the Company completed a private placement offering for 136,000 units, with each unit consisting of (1) $1,000 of senior notes and (2) a warrant to purchase 100.336 shares of common stock. The senior notes accrue interest at the rate of 14% per annum with the interest payable semi-annually in cash in arrears on April 1 and October 1. On March 24, 2006, we raised net proceeds of approximately $30.5 million in a private placement of an additional $32.0 million in aggregate principal amount of senior notes. These additional notes were issued under the Indenture and are part of the same series of senior notes as those issued in March 2004. Index

~~The~~Our ~~Indenture~~current ~~contains~~business ~~covenants~~plan ~~that~~is based on our estimates regarding expected future costs and expected revenues. Our costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds, which would require us to consider ~~among~~asset ~~other~~sales ~~things~~or seek additional financing to fund our operations, ~~limit~~to undertake initiatives not contemplated by our business plan or obtain additional cushion against possible shortfalls. Future financings may include a range of different sizes or types of financing, including capital lease transactions and the sale of additional debt or equity securities. These financings could increase our level of indebtedness or result in dilution to our equity holders. Additionally, we can call our existing senior notes at any time giving us the near term ability to refinance our senior notes in the event better pricing and terms were available to us in the market. However, we may not be able to raise additional funds on favorable terms or at all. Our ability to obtain additional financing depends on several factors, including: future market conditions and the state of the credit markets; our success or lack of success in penetrating our markets and growing our overall income; our future creditworthiness; and restrictions contained in agreements with our investors or lenders, including the restrictions contained in the Indenture.

•Cash ~~incur~~Flows ~~additional~~from ~~indebtedness,~~Operating ~~issue disqualified capital stock (as defined in the Indenture) and, in the case of our restricted subsidiary, issue preferred stock;~~Activities

•Net ~~create~~cash ~~liens~~provided onby ~~our~~operating ~~assets;~~activities consisted of the following components:

• pay dividends on, redeem or repurchase our capital stock or make other restricted payments;

	Three Months ended March 31,
	2008			2009
	(in thousands)
Cash collected from customers	$	51,620		$	52,565
Interest income received		329			18
Payments to vendors and employees		(42,877	)		(39,003	)
Interest expense paid		(475	)		(526	)
Net cash provided by operating activities	$	8,597		$	13,054

•The ~~make~~increase ~~investments~~in cash collected from customers is due to the increase in ~~other~~operating ~~companies;~~revenues and timing of collections. The decrease in payments to vendors and employees is the result of the decrease in SG&A expenses requiring cash outlays and the timing of cash payments partially offset by the increase in cost of revenues.

•Cash ~~enter~~Flows ~~into~~from ~~transactions~~Investing ~~with affiliates;~~Activities

•Net ~~enter~~cash ~~into~~used ~~sale~~in ~~and~~investing ~~leaseback~~activities ~~transactions;~~consisted of the following components:

• sell or make dispositions of assets;

	Three Months ended March 31,
	2008			2009
	(in thousands)
Purchases of property, plant and equipment	$	(8,545	)	$	(5,457	)
Proceeds from sale of assets		84			136
Net cash used in investing activities	$	(8,461	)	$	(5,321	)

•The ~~place~~decrease ~~restrictions~~in oncapital expenditures during the ~~ability~~three ofmonths ~~our~~ended ~~subsidiary~~March 31, 2009 primarily related to ~~pay~~a ~~dividends~~reduction orin ~~make~~purchases ~~other~~of ~~payments~~customer topremise ~~us;~~equipment and network equipment. See “Capital Expenditures” below for a more detailed discussion of capital expenditures.

~~• engage in certain business activities.~~17

In addition, the Indenture contains a covenant restricting our capital expenditures relating to the build-out of new or additional parts of our network if such expenditures would result in us having less than $20 million in cash and cash equivalents. Index

~~The~~Cash ~~Indenture~~Flows ~~also~~from ~~contains~~Financing customary events of default, including nonpayment of principal or interest, violations of covenants, cross default and cross acceleration to certain other indebtedness and material judgments and liabilities. Activities

~~Critical~~Net ~~Accounting~~cash ~~Policies~~provided ~~and~~by ~~Estimates~~(used in) financing activities consisted of the following components:

Our consolidated financial statements are prepared in accordance with GAAP. To prepare these financial statements, we must make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. We periodically evaluate our estimates and assumptions and base our estimates and assumptions on our best knowledge of current events and actions we may undertake in the future. Actual results may ultimately differ from these estimates.

	Three Months ended March 31,
	2008			2009
	(in thousands)
Proceeds from sale leaseback arrangement	$	—		$	4,532
Payments of long-term debt and capital lease obligations		(1,259	)		(1,850	)
Net borrowings (repayments) on zero-balance cash account		(533	)		(594	)
Other financing activity		5			—
Net cash provided by (used in) financing activities	$	(1,787	)	$	2,088

~~There~~During ~~have~~January ~~been~~2009, nothe ~~material~~Company ~~changes~~sold tovarious ~~the~~customer ~~critical~~premise ~~accounting~~equipment ~~policies~~for ~~and~~$4.5 ~~estimates~~million ~~previously~~cash. Concurrent ~~described~~with inthe ~~Part II~~sale, ~~Item 7 included~~the inCompany ~~Grande’s~~leased ~~Annual~~the ~~Report~~customer onpremise ~~Form~~equipment ~~10-K~~back for ~~the~~a ~~year~~period ~~ended~~of ~~December 31,~~two ~~2006~~years at a monthly rental of $0.2 million.

15Capital Expenditures

~~Table~~We had capital expenditures of ~~Contents~~approximately $8.5 million and $5.5 million, including capitalized interest, during the three months ended March 31, 2008 and 2009, respectively. These capital expenditures relate to: network construction; initial installation costs; the purchase of customer premise equipment, such as cable set-top boxes and cable modems; corporate and network equipment, such as switching and transport equipment; and billing and information systems. The decrease in capital expenditures during the three months ended March 31, 2009 primarily related to a reduction in purchases of customer premise equipment and network equipment.

~~ITEM 3~~As described under “Liquidity and Capital Resources—Sources and Uses of Funds”, the Indenture contains a covenant restricting certain capital expenditures if such expenditures would result in us having less than $20 million in cash and cash equivalents after giving effect to such expenditures. During the year ending December ~~QUANTITATIVE~~31, ~~AND~~2009, ~~QUALITATIVE~~the ~~DISCLOSURES~~Company ~~ABOUT~~intends ~~MARKET~~to ~~RISK~~manage its capital expenditures in accordance with the covenant set forth in the Indenture to ensure that cash is not less than $20 million.

~~Our~~Contractual ~~exposure~~Obligations to market risk relates primarily to changes in interest rates on our investment portfolio. Our marketable investments consist primarily of short-term fixed income securities. We invest only with high credit quality issuers and weCommercial do not use derivative financial instruments in our investment portfolio. We do not believe that a significant increase or decrease in interest rates would have a material impact on the fair value of our investment portfolio. Commitments

~~ITEM 4~~During the three months ended March 31, 2009, our aggregate contractual obligations decreased approximately $2. 5 million compared to those previously described in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation” under the caption “Contractual Obligations and Commercial ~~CONTROLS~~Commitments” ~~AND~~included ~~PROCEDURES~~in Grande’s Annual Report on Form 10-K for the year ended December 31, 2008, primarily as a result of $3.6 million in payments on equipment financing, capital and operating leases and maintenance obligations partially offset by increases in obligations of $6.1 million related to a new customer premise equipment capital lease and vehicle and office equipment operating leases as well as renewals of certain real estate operating leases,.

~~Our~~We ~~management,~~are ~~with~~obligated ~~the~~to ~~participation~~make ofpayments our Chief Executive Officer, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e), as applicable, under ~~the~~ ~~Securities~~a ~~Exchange~~variety ~~Act~~ of ~~1934)~~contracts ~~as of March 31, 2007. Based upon that evaluation, the Chief Executive Officer~~ and ~~Chief~~other ~~Financial~~commercial ~~Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Grande~~arrangements, including ~~its consolidated subsidiary, required to be included in this report and~~ the ~~other reports that we file or submit under the Securities Exchange Act of 1934.~~ following:

~~During~~Long-term ~~the~~Debt ~~three~~and ~~months~~Equipment ~~ended~~Financing. In March 31 2004, ~~2007~~Grande Communications Holdings, ~~there~~Inc. ~~were~~(“Holdings”) nocompleted ~~changes~~a inprivate ~~our~~placement ~~internal~~offering ~~control~~for ~~over~~136,000 ~~financial~~units, ~~reporting~~with ~~that~~each ~~have~~unit ~~materially~~consisting ~~affected~~of (1) $1, or000 ~~that~~of ~~are~~senior ~~reasonably~~notes ~~likely~~and (2) a warrant to ~~materially~~purchase ~~affect~~100.336 shares of common stock. The senior notes mature on April 1, ~~our~~2011 ~~internal~~and ~~control~~accrue ~~over~~interest ~~financial~~at ~~reporting~~the rate of 14% per annum with the interest payable semi-annually in cash in arrears on April 1 and October 1. In March 2006 and July 2007, Holdings raised net proceeds of approximately $30.5 million and $25.8 million, respectively, in a private placement of an additional $32 million and $25 million, respectively, in aggregate principal amount of senior notes. These additional senior notes were issued under the Indenture and are part of the same series of senior notes as those issued in March 2004.

16 18

~~Table of Contents~~Index

~~PART~~Holdings’ IIsubsidiary, Grande Communications Networks, Inc. (the “Subsidiary Guarantor”), has unconditionally guaranteed, jointly and severally, the payment of the principal, premium and interest (including any additional interest on the senior notes) on a senior secured basis. The senior notes and the Subsidiary Guarantor’s guarantees thereof are secured by a first priority perfected security interest, subject to certain permitted encumbrances, in substantially all of the Subsidiary Guarantor’s property and assets, including substantially all of its property, plant and equipment.

The senior notes may be redeemed, at Holdings election, as a whole or from time to time in part at any time upon not less than 10 nor more than 60 days’ notice to each holder of senior notes to be redeemed, subject to the conditions and at the redemption prices (expressed as percentages of principal amount) set forth below, together ~~OTHER~~with ~~INFORMATION~~accrued and unpaid interest and Liquidating Damages (as defined in the Indenture), if any, to the applicable redemption date.

ITEM 1. LEGAL PROCEEDINGS

April 1,	Percentage
2009		103.50	%
2010 and thereafter		100.00	%

WeIf ~~are~~Holdings ~~subject~~experiences tospecific ~~litigation~~kinds inof ~~the~~change ~~normal~~of ~~course~~control events, each holder of ~~our~~senior ~~business.~~notes ~~However,~~may ~~there~~require ~~are~~Holdings ~~no pending~~to ~~proceedings,~~repurchase ~~which~~all ~~are~~or ~~currently~~any ~~anticipated~~portion toof ~~have~~such holder’s senior notes at a ~~material~~purchase ~~adverse~~price ~~effect~~equal onto ~~our~~101% ~~business~~of the principal amount of the senior notes, ~~financial~~plus ~~condition~~accrued orand ~~results~~unpaid interest to the date of ~~operations~~repurchase.

~~ITEM 1A. RISK~~The ~~FACTORS~~Indenture contains covenants that, among other things, limit our ability to:

~~There~~• ~~have~~incur ~~been~~additional noindebtedness, ~~material~~issue ~~changes~~disqualified tocapital ~~the~~stock ~~risk~~(as ~~factors~~defined ~~previously described~~ in ~~Part~~the IIndenture) and, ~~Item 1A~~ ~~included~~ in ~~Grande’s~~the ~~Annual~~case ~~Report~~of onour ~~Form~~restricted ~~10-K for the year ended December 31~~subsidiaries, ~~2006.~~issue preferred stock;

~~ITEM 2. UNREGISTERED~~• ~~SALES~~create OFliens ~~EQUITY~~on ~~SECURITIES~~our ~~AND USE OF PROCEEDS~~ assets;

~~None~~• pay dividends on, redeem or repurchase our capital stock or make other restricted payments;

~~ITEM 3. DEFAULTS~~• ~~UPON~~make ~~SENIOR~~investments ~~SECURITIES~~in other companies;

~~None~~• enter into transactions with affiliates;

~~ITEM 4. SUBMISSION~~• OFenter ~~MATTERS~~into TOsale Aand ~~VOTE~~leaseback ~~OF SECURITY HOLDERS~~ transactions;

~~There~~• ~~were~~sell noor ~~matters~~make ~~submitted~~dispositions ~~to a vote~~ of ~~security holders of Grande during the three months ended March 31, 2007.~~ assets;

~~ITEM 5. OTHER~~• ~~INFORMATION~~place restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; and

~~None~~• engage in certain business activities.

~~ITEM 6~~In addition, the Indenture contains a covenant restricting certain capital expenditures if such expenditures would result in us having less than $20 million in cash and cash equivalents after giving effect to such expenditures. ~~EXHIBITS~~ This covenant could adversely affect our ability to make planned capital expenditures.

~~Unless~~The ~~designated~~Indenture byalso ancontains ~~asterisk~~customary ~~indicating~~events ~~that~~of ~~such document has been filed herewith~~default, ~~the~~including ~~Exhibits listed~~nonpayment ~~below~~of ~~have~~principal ~~been heretofore filed by the Company pursuant to Section 13~~ or ~~15(d)~~interest, violations of ~~the~~covenants, ~~Exchange~~cross ~~Act~~default and ~~are~~cross ~~hereby~~acceleration ~~incorporated~~to ~~herein~~certain byother ~~reference~~indebtedness toand ~~the~~material ~~pertinent~~judgments ~~prior~~and ~~filing~~liabilities.

Exhibit No.		Description
3.1		Restated Certificate of Incorporation of Grande Communications Holdings, Inc. (previously filed as exhibit 3.1 to Form 10-K dated March 31, 2006).
3.2		Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.2 to Form S-1 dated May 18, 2004).
3.3		Amendment No. 1 to Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.3 to Form 10-Q dated November 5, 2004).
3.4		Amendment No. 2 to Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.4 to Form 10-K dated March 30, 2007).
10.1+		Employment Agreement, entered into as of May 2, 2007, by and between Grande Communications Networks, Inc. and William C. “Chad” Jones, Jr. (previously filed as exhibit 10.1 to Form 8-K dated May 8, 2007).
24*		Power of Attorney of Grande Communications Holdings, Inc. (included on signature page).
31.1*		Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sabanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
31.2*		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.1*		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

During 2007, we completed equipment financing of $4.1 million with a term of 24 months which was utilized for the purchase of network equipment. During December 2008, the term of the equipment financing was extended 12 months through March 2010. The financing is secured by the network equipment purchased with the proceeds of the borrowing and bears interest at an effective annual rate of approximately 15.3% with monthly payments equal to 4.2% multiplied by the total amount borrowed. This financing is permitted under the Indenture governing the senior notes.

*Capital ~~Filed~~Leases. ~~herewith~~We lease office and facilities space under leasing arrangements. We also have certain capital leases for customer premise equipment, telecom switching equipment, software, computers and office equipment.

~~+ Management compensatory plan or agreement.~~19

17 Index

~~Table~~Operating ofLeases. ~~Contents~~We lease office space, vehicles and other assets for varying periods. Leases that expire are evaluated for renewal based on operational necessity.

~~SIGNATURES~~Maintenance Agreements. We have numerous agreements for the maintenance of leased fiber optic capacity.

~~Pursuant~~Purchase toCommitments. During January 2005, we entered into a minimum purchase agreement, as amended, with a vendor for the ~~requirements~~purchase of ~~the~~fiber ~~Securities~~optic ~~Exchange~~equipment ~~Act~~and ofinstallation ~~1934~~and maintenance services through December 31, 2009. If we do not make the ~~registrant~~minimum ~~has~~purchases ~~duly~~through the expiration ~~caused~~or termination of this ~~report~~agreement, towe will be ~~signed~~required onto ~~its~~pay ~~behalf~~a byfee of 30% of the ~~undersigned~~remaining ~~thereunto~~unfulfilled ~~duly~~amount. The ~~authorized~~balance as of March 31, 2009 was $2.2 million.

	Grande Communications Holdings, Inc. (Registrant)
Date: May 11, 2007	By:	/s/ MICHAEL L. WILFLEY
		Michael L. Wilfley Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

Our plans with respect to network construction and other capital expenditures are discussed above under the caption “Capital Expenditures.” We believe those planned expenditures do not constitute contractual obligations or binding commitments because, in general, we have the ability to accelerate or postpone construction of our networks depending upon cash availability, subject to the need to eventually complete the network in accordance with our single-family residential development agreements.

18We have also entered into several employment agreements with key executives of the Company. For a discussion surrounding the terms of these agreements, please refer to Part III, Item 10 “Executive Compensation” under the caption “Employment Agreements, Severance Benefits and Change in Control Provisions” included in Grande’s Annual Report on Form 10-K for the year ended December 31, 2008.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. To prepare these financial statements, we must make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. We periodically evaluate our estimates and assumptions and base our estimates and assumptions on our best knowledge of current events and actions we may undertake in the future. Actual results may ultimately differ from these estimates.

There have been no material changes to the critical accounting policies and estimates previously described in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation” under the caption “Critical Accounting Policies and Estimates” included in Grande’s Annual Report on Form 10-K for the year ended December 31, 2008.

Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Statement of Financial Accounting Standard (“SFAS”) No. 107-1 and Accounting Principles Board 28-1 “Interim Disclosures about Fair Value of Financial Instruments”. The FSP amends SFAS No. 107 “Disclosures about Fair Value of Financial Instruments” to require an entity to provide disclosures about fair value of financial instruments in interim financial information. This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. This Statement does not impact the consolidated financial results as it is disclosure-only in nature. The Company will include the required disclosures in its quarter ending June 30, 2009.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141(R)”). SFAS 141(R) will significantly change the accounting for business combinations. Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred; (2) valuing noncontrolling interests at fair value at the acquisition date; and (3) expensing restructuring costs associated with an acquired business. SFAS 141(R) also includes a substantial number of new disclosure requirements. SFAS 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.

Index

In April 2009, the FASB issued FSP SFAS No. 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This FSP requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS No. 5, “Accounting for Contingencies” and FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss”. Further, the FASB removed the subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS No. 141(R). The requirements of this FSP carry forward without significant revision the guidance on contingencies of SFAS No. 141, “Business Combinations” which was superseded by SFAS No. 141(R) (see previous paragraph). The FSP also eliminates the requirement to disclose an estimate of the range of possible outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, the FASB requires that entities include only the disclosures required by SFAS No. 5. This FSP was adopted effective January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.

In April 2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of Intangible Assets”. The FSP states that in developing assumptions about renewal or extension options used to determine the useful life of an intangible asset, an entity needs to consider its own historical experience adjusted for entity-specific factors. In the absence of that experience, an entity shall consider the assumptions that market participants would use about renewal or extension options. This FSP is to be applied to intangible assets acquired after January 1, 2009. The adoption of this FSP did not have an impact on the consolidated financial statements.

In November 2008, the FASB ratified EITF Issue 08-7, “Accounting for Defensive Intangible Assets”. A defensive intangible asset is an asset acquired in a business combination or in an asset acquisition that an entity does not intend to actively use. According to the guidance, defensive intangible assets are considered to be a separate unit of account and valued based on their highest and best use from the perspective of an external market participant. The company adopted EITF 08-7 on January 1, 2009. There was no impact upon adoption, and its effects on future periods will depend on the nature and significance of the business combinations subject to this statement.

Also refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation” under the caption “Recent Accounting Pronouncements” included in our Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes to our market risk since December 31, 2008.

Index

ITEM 4T.

CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e), as applicable, under the Exchange Act) as of March 31, 2009. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2009, our disclosure controls and procedures are effective. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports that are filed under the Exchange Act, is accumulated and communicated to management, including our chief Executive Officer and our Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, 2009, there was no change in our internal control over financial reporting that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Index

PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are subject to litigation in the normal course of our business. However, there are no pending proceedings which are currently anticipated to have a material adverse effect on our business, financial condition or results of operations.

ITEM 1A.

RISK FACTORS

There have been no material changes to the risk factors previously described in Part I, Item 1A “Risk Factors” included in Grande’s Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Certain matters that were submitted to a vote of security holders during the first quarter of 2009 were previously disclosed in Part I, Item 4 “Submission of Matters to a Vote of Security Holders” included in Grande’s Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS

Unless designated by an asterisk indicating that such document has been filed herewith, the Exhibits listed below have been heretofore filed by the Company pursuant to Section 13 or 15(d) of the Exchange Act and are hereby incorporated herein by reference to the pertinent prior filing.

Exhibit No.		Description

3.1		Restated Certificate of Incorporation of Grande Communications Holdings, Inc. (previously filed as exhibit 3.1 to Form 10-K dated March 31, 2006).

3.2		Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.2 to Form S-1 dated May 18, 2004).

3.3		Amendment No. 1 to Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.3 to Form 10-Q dated November 5, 2004).

3.4		Amendment No. 2 to Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.4 to Form 10-K dated March 30, 2006).

4.1		Indenture, dated as of March 23, 2004, by and among Grande Communications Holdings, Inc., the Guarantors named therein and U.S. Bank National Association (previously filed as exhibit 4.1 to Form S-1 dated May 18, 2004).

4.2		Registration Rights Agreement dated as of March 23, 2004, by and among Grande Communications Holdings, Inc., the Guarantors named therein, Bear, Stearns & Co. Inc. and Deutsche Bank Securities Inc. (previously filed as exhibit 4.2 to Form S-1 dated May 18, 2004).

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Exhibit No.		Description

4.3		Form of 14% Senior Secured Note due 2011 issued in connection with March 2004 offering (previously filed as exhibit 4.3 to Form S-1 dated May 18, 2004).

4.4		Pledge and Security Agreement, dated March 23, 2004, by and among Grande Communications Holdings, Inc., Grande Communications Networks, Inc., Grande Communications ClearSource, Inc., Grande Communications, Inc., Grande Communications Houston, Inc., Denton Telecom Holdings I, L.L.C., Denton Telecom Investors I, L.L.C, Denton Telecom Partners I, L.P., and U.S. Bank National Association (previously filed as exhibit 4.4 to Form S-1 dated May 18, 2004).

4.5		Form of 14% Senior Secured Notes due 2011 issued in connection with March 2006 private placement (previously filed as exhibit 4.5 to Form 10-K dated March 31, 2006).

4.6		Supplemental Indenture, dated as of July 18, 2007, by and among Grande Communications Holdings, Inc., the Guarantor named therein and U.S. Bank National Association (previously filed as exhibit 10.1 to Form 8-K dated July 18, 2007).

10.1*		Amendment No. 2 to Purchase and License Agreement by and between Grande Communications Networks, Inc. and Nortel Networks, Inc., dated as of April 3, 2009.

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a – 14(a) promulgated under the Exchange Act.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a – 14(a) promulgated under the Exchange Act.

32.1*		Certification pursuant to Rule 13a – 14(b) promulgated under the Exchange Act and 18 U.S.C. Section 1350.

___________________

*	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Grande Communications Holdings, Inc.
		(Registrant)

Date: May 14, 2009	By:	/s/ MICHAEL L. WILFLEY
		Michael L. Wilfley
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

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