Operating Highlights:

• Third quarter 2008 revenues increased 15% from second quarter 2008, above previous guidance of 12%, and a 63% increase from third quarter 2007
• Gross margin improved more than 10% sequentially, increasing to 64% during the third quarter 2008 as compared to 58% in the second quarter 2008
• Customer churn for the third quarter 2008 was 1.22%, as compared to 1.17% for the second quarter 2008 and 1.26% for the third quarter 2007
• Average revenue per user (ARPU) reached $827, an increase of 4% from second quarter 2008 and an increase of 19% from third quarter 2007
• "Cash burn" totaled $3.9 million in third quarter 2008, representing a 9% decrease from the second quarter 2008 and a 17% decrease from the first quarter 2008
• EBITDA before stock based compensation improved by 18% from the second quarter 2008, decreasing from a loss of $2.7 million to a loss of $2.2 million
• Cash and cash equivalents totaled $28 million on September 30, 2008

Management Comments:

"I am pleased to report that Towerstream has recorded another quarter of significant revenue growth with 63% percent year-over-year growth and 15% sequential quarterly growth," said Jeff Thompson, President and Chief Executive Officer. "We continue to deliver strong operating performance despite an extremely difficult economic environment and believe that our low cost, high quality suite of broadband products position us well going forward."

"We remain focused on driving revenues higher and cash burn lower," said Joseph Hernon, Chief Financial Officer. "We were able to improve EBITDA before stock based compensation by 18% on a sequential basis and our cash burn for the third quarter decreased by 9% from the second quarter. We expect that continued growth, careful cost controls and the leveraging of our business model will result in further decreases in cash burn. We ended the third quarter in a strong financial position with more than $28 million in cash and cash equivalents. We have the capital required to execute our business plan through the current economic downturn."

"Customers recognize that we provide high quality services at a lower price than the large telecommunication providers," added Thompson. "Churn remains well below industry standards and existing customers continue to upgrade to higher bandwidth products, especially our mid-range offering."

Analysis of Results of Operations and Financial Condition

Revenues for the third quarter 2008 increased 15% as compared to the second quarter 2008, and increased 63% from the third quarter 2007. These increases were driven by the continued growth in our customer base and higher ARPU.

ARPU of new subscribers in the third quarter 2008 decreased 18% as compared to the second quarter 2008, and decreased 2% as compared to the third quarter 2007. During the third quarter, a higher percentage of new subscribers purchased our lower priced multipoint service offering, partly in response to promotional programs offered during the third quarter. ARPU of all subscribers in the third quarter 2008 increased 4% as compared to the second quarter 2008, and increased 19% as compared to the third quarter 2007. Customer churn for the third quarter 2008 of 1.22% remained essentially flat as compared to 1.17% for the second quarter 2008 and 1.26% for the third quarter 2007.

Gross margin increased by 10% in the third quarter 2008 as compared to the second quarter 2008, and was relatively flat as compared to the third quarter 2007. Towerstream's gross margin can fluctuate from period to period due to the timing of when the Company expands into new markets or adds network capacity to existing markets. The effect of entering new markets can be substantial because the Company is required to incur significant costs to establish a market presence before generating new subscriber revenues.

Customer support expenses in the third quarter 2008 increased 1% as compared to the second quarter 2008, and increased 76% as compared to the third quarter 2007. These increases reflect staffing additions and other costs incurred to support our growing customer base. The number of customers increased 11% during the third quarter 2008.

Sales and marketing expenses in the third quarter 2008 increased 1% as compared to the second quarter 2008, and increased 96% as compared to the third quarter 2007. The increase in the 2008 period as compared to the 2007 period reflects higher payroll costs associated with the expansion of our sales team.

General and administrative expenses decreased 14% in the third quarter 2008 as compared to the second quarter 2008, and increased 14% as compared to the third quarter 2007. The decrease in the third quarter 2008 compared to the second quarter 2008 primarily related to lower stock-based compensation charges and lower professional services fees.

Net loss decreased 14% in the third quarter 2008 as compared to the second quarter 2008, and increased 84% as compared to the third quarter 2007. The 14% improvement on a sequential basis reflects the positive effect of a 15% increase in revenues and a 3% decrease in operating expenses.

Cash and cash equivalents totaled $28.1 million at September 30, 2008 as compared to $40.8 million at December 31, 2007 representing a "cash burn" of approximately $13 million for the first nine months of 2008. Capital expenditures totaled approximately $5.9 million during the nine months ended September 30, 2008 primarily related to network, base station, and customer premise equipment associated with installations for new customers and increases in our network capabilities. Net cash used in operating activities totaled approximately $6.3 million in the nine months ended September 30, 2008 with a significant portion attributable to a substantial increase in the Company's sales force.

Operating Outlook and Guidance:

• Revenues for the fourth quarter 2008 are expected to increase by approximately 10% on a sequential basis and by approximately 54% on a year-over-year basis.
• Operating focus will remain on reaching EBITDA break-even in existing markets before expanding into new markets.

Towerstream's wireless broadband solution network delivers high-speed Internet access supporting VoIP, bandwidth on demand, wireless redundancy, VPNs, disaster recovery, bundled data, and video services, and can be delivered in days.

Unlike cable Internet and DSL, Towerstream connections are symmetrical, which means that the upload and download speeds are identical. This creates a more stable connection, suitable for Voice Over IP and web hosting, as well as many other business applications. Companies utilizing multiple appliances simultaneously, such as streaming video and VoIP, can prioritize their bandwidth to secure mission-critical activities.

All of Towerstream's products are backed by its Service Level Agreement (SLA) and the ability to be up and running within a week. Towerstream currently serves businesses of all sizes in New York, Boston, Los Angeles, Chicago, the San Francisco Bay Area, Miami, Seattle, Dallas-Fort Worth and Providence/Newport, RI.

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