##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

|                                              |  |                                                         
|--------------------------------------------- |  | --------------------------------------------------------
|[X]                                           |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
|                                              |  | SECURITIES EXCHANGE ACT OF 1934                         
|                                             
|For the Quarterly Period Ended March 31, 2000
|OR                                           
|[    ]                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|                                              |  | SECURITIES EXCHANGE ACT OF 1934                         
|                                             
|For the Transition Period from     to        

Commission File Number: 0-24581

Caprock Communications Corp.



|                                                                |  |                                     
|--------------------------------------------------------------- |  | ------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|Texas                                                           |  | 75-2765572                          
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer Identification No.)

15601 Dallas Parkway, Suite 700

Dallas, Texas 75001




Registrants Telephone Number, Including Area Code: 
(972) 982-9500

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 
[   ]

The number of shares of the registrants Common Stock
outstanding as of April 30, 2000 was 33,459,879.



---






---

TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|INDEX                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                                  
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                        
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|ITEM 3. Quantitative and Qualitative Disclosure About Market Risk                            
|PART II. OTHER INFORMATION                                                                   
|Item 1. Legal Proceedings                                                                    
|Item 6. Exhibits and Reports on Form 8-K                                                     
|INDEX TO EXHIBITS                                                                            



---



CAPROCK COMMUNICATIONS CORP.

FORM 10-Q


FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000







INDEX


|          |          |                                                                                                       |                                                                                        |        |    |    | 
|--------- | -------- | ----------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------ | -- | -- | 
|          |          |                                                                                                       |                                                                                        | Page  
|          |          |                                                                                                       |                                                                                        | Number
|          |          |                                                                                                       |                                                                                        |       
|PART I.   |          | FINANCIAL INFORMATION                                                                                 |                                                                                        |        | 1  |   
|         
|         
|         
|         
|          | Item  1. |                                                                                                       | Financial Statements                                                                   |        |    | 1  | 
|          |          | Consolidated Balance Sheets at December 31, 1999 and
	March  31, 2000 (unaudited)                     |                                                                                        |        | 1  |   
|         
|         
|         
|         
|          |          | Consolidated Statements of Operations (unaudited) for the Three
	Months Ended March 31, 1999 and 2000 |                                                                                        |        | 2  |   
|         
|         
|         
|         
|          |          | Consolidated Statements of Cash Flows (unaudited) for the Three
	Months Ended March 31, 1999 and 2000 |                                                                                        |        | 3  |   
|         
|         
|         
|         
|          |          | Notes to Consolidated Financial Statements                                                            |                                                                                        |        | 4  |   
|         
|         
|         
|         
|          | Item  2. |                                                                                                       | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |        |    | 8  | 
|         
|         
|         
|         
|          | Item  3. |                                                                                                       | Quantitative and Qualitative Disclosures About Market Risk                             |        |    | 15 | 
|         
|         
|         
|         
|PART  II. |          | OTHER INFORMATION                                                                                     |                                                                                        |        | 16 |   
|         
|         
|         
|         
|          | Item  1. |                                                                                                       | Legal Proceedings                                                                      |        |    | 16 | 
|         
|         
|         
|         
|          | Item  6. |                                                                                                       | Exhibits and Reports on Form 8-K                                                       |        |    | 16 | 
|         
|         
|         
|         
|          |          | SIGNATURE PAGE                                                                                        |                                                                                        |        | 17 |   



---



##### Table of Contents



PART I.

FINANCIAL INFORMATION

Item 1.  Financial Statements

CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         |         | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ----------- | ------- |  | ------- | ------- | ------- | 
|                                                     |                                                                                                                                                                                | December 31,                               |         | March 31,  
|                                                     |                                                                                                                                                                                | 1999                                       |         | 2000       
|                                                     |                                                                                                                                                                                |                                            |         |            
|                                                     |                                                                                                                                                                                |                                            |         | (Unaudited)
|ASSETS                                              
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Current assets:                                      |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash and cash equivalents                                                                                                                                                      |                                            | $       | 5,692       |         |  | $       | 5,126   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Marketable securities                                                                                                                                                          |                                            |         | 182,636     |         |  |         | 105,087 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accounts receivable and unbilled services, less allowance for
	doubtful accounts of $5,208 and $4,393 at December 31, 1999
	and March 31, 2000, respectively                   |                                            |         | 116,380     |         |  |         | 113,478 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Income tax receivable                                                                                                                                                          |                                            |         | 411         |         |  |         | 249     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Costs and estimated earnings in excess of billings                                                                                                                             |                                            |         | 870         |         |  |         | 4,496   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Inventory                                                                                                                                                                      |                                            |         | 1,761       |         |  |         | 1,377   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Prepaid expenses and other                                                                                                                                                     |                                            |         | 2,775       |         |  |         | 2,467   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Deferred income taxes                                                                                                                                                          |                                            |         | 6,594       |         |  |         | 7,414   |        
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                     |                                                                                                                                                                                | Total current assets                       |         |             | 317,119 |  |         |         | 239,694 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Property, plant and equipment                        |                                                                                                                                                                                |                                            | 249,969 |             |         |  | 325,285 |        
|                                                    
|                                                    
|                                                    
|                                                    
|Accumulated depreciation                             |                                                                                                                                                                                |                                            | (21,368 | )           |         |  | (25,400 | )      
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                     |                                                                                                                                                                                | Property, plant and equipment, net         |         |             | 228,601 |  |         |         | 299,885 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Other assets                                         |                                                                                                                                                                                |                                            | 3,115   |             |         |  | 3,499   |        
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                     |                                                                                                                                                                                | Total assets                               |         | $           | 548,835 |  |         | $       | 543,078 | 
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                    
|LIABILITIES AND STOCKHOLDERS EQUITY                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Current liabilities:                                 |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accounts payable                                                                                                                                                               |                                            | $       | 62,594      |         |  | $       | 60,613  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accrued expenses                                                                                                                                                               |                                            |         | 26,131      |         |  |         | 22,438  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Billings in excess of costs and earnings                                                                                                                                       |                                            |         | 11,541      |         |  |         | 8,751   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Unearned revenue                                                                                                                                                               |                                            |         | 708         |         |  |         | 1,419   |        
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                     |                                                                                                                                                                                | Total current liabilities                  |         |             | 100,974 |  |         |         | 93,221  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior notes, net of unamortized debt issuance costs |                                                                                                                                                                                |                                            | 347,502 |             |         |  | 347,860 |        
|                                                    
|                                                    
|                                                    
|                                                    
|Deferred income taxes                                |                                                                                                                                                                                |                                            | 4,329   |             |         |  | 4,324   |        
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                     |                                                                                                                                                                                | Total liabilities                          |         |             | 452,805 |  |         |         | 445,405 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Stockholders equity:                                |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred stock, $.01 par value; 20,000,000 shares
	authorized; none issued                                                                                                    |                                            |         |            |         |  |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Common stock, $.01 par value; 200,000,000 shares
	authorized; issued and outstanding, 33,242,351 and
	33,442,541 shares at December 31, 1999 and
	March 31, 2000, respectively |                                            |         | 333         |         |  |         | 335     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Additional paid-in capital                                                                                                                                                     |                                            |         | 94,543      |         |  |         | 95,965  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retained earnings                                                                                                                                                              |                                            |         | 2,067       |         |  |         | 2,271   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accumulated other comprehensive loss                                                                                                                                           |                                            |         | (6          | )       |  |         | (11     | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Unearned compensation                                                                                                                                                          |                                            |         | (229        | )       |  |         | (209    | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Treasury stock, at cost                                                                                                                                                        |                                            |         | (678        | )       |  |         | (678    | )      
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                     |                                                                                                                                                                                | Total stockholders equity                 |         |             | 96,030  |  |         |         | 97,673  | 
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        
|                                                     |                                                                                                                                                                                | Total liabilities and stockholders equity |         | $           | 548,835 |  |         | $       | 543,078 | 
|                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |        

See accompanying notes to consolidated financial statements.

1



---



##### Table of Contents



CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES






CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share data)


(Unaudited)


|                                     |                                     |                                   |        |        |        |   |        |        |        | 
|------------------------------------ | ----------------------------------- | --------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                     |                                     |                                  
|                                     |                                     | Three Months Ended March 31,     
|                                     |                                     |                                  
|                                     |                                     | 1999                              |        | 2000  
|                                     |                                     |                                   |        |       
|Revenues:                            |                                     |                                   |        |        |        |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Carriers carrier                   |                                   | $      | 24,452 |        |   | $      | 55,111 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Integrated services                 |                                   |        | 4,504  |        |   |        | 9,680  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Systems services                    |                                   |        | 8,080  |        |   |        | 5,900  |       
|                                     |                                     |                                   |        |        |        |   |        |       
|                                     |                                     | Total revenues                    |        |        | 37,036 |   |        |        | 70,691 | 
|                                    
|                                    
|                                    
|                                    
|Cost of services                     |                                     |                                   | 22,381 |        |        |   | 42,778 |       
|                                     |                                     |                                   |        |        |        |   |        |       
|                                     |                                     | Gross profit                      |        |        | 14,655 |   |        |        | 27,913 | 
|                                    
|                                    
|                                    
|                                    
|Operating expenses:                  |                                     |                                   |        |        |        |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Selling, general and administrative |                                   |        | 12,551 |        |   |        | 19,095 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation and amortization       |                                   |        | 1,480  |        |   |        | 4,089  |       
|                                     |                                     |                                   |        |        |        |   |        |       
|                                     |                                     | Total operating expenses          |        |        | 14,031 |   |        |        | 23,184 | 
|                                     |                                     |                                   |        |        |        |   |        |       
|Operating income                     |                                     |                                   | 624    |        |        |   | 4,729  |       
|                                    
|                                    
|                                    
|                                    
|Interest expense                     |                                     |                                   | (4,256 | )      |        |   | (6,533 | )     
|                                    
|                                    
|                                    
|                                    
|Interest income                      |                                     |                                   | 845    |        |        |   | 2,236  |       
|                                    
|                                    
|                                    
|                                    
|Other expenses                       |                                     |                                   | (19    | )      |        |   | (42    | )     
|                                     |                                     |                                   |        |        |        |   |        |       
|                                     |                                     | Income (loss) before income taxes |        |        | (2,806 | ) |        |        | 390    | 
|                                    
|                                    
|                                    
|                                    
|Income tax expense (benefit)         |                                     |                                   | (1,101 | )      |        |   | 186    |       
|                                     |                                     |                                   |        |        |        |   |        |       
|                                     |                                     | Net income (loss)                 |        | $      | (1,705 | ) |        | $      | 204    | 
|                                     |                                     |                                   |        |        |        |   |        |       
|Earnings (loss) per common share:    |                                     |                                   |        |        |        |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Basic                               |                                   | $      | (0.06  | )      |   | $      | 0.01   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Diluted                             |                                   | $      | (0.06  | )      |   | $      | 0.01   |       
|                                    
|                                    
|                                    
|                                    
|Weighted average shares outstanding: |                                     |                                   |        |        |        |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Basic                               |                                   |        | 28,943 |        |   |        | 33,336 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Diluted                             |                                   |        | 28,943 |        |   |        | 36,006 |       

See accompanying notes to consolidated financial statements.

2



---



##### Table of Contents



CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)


|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |         |       |        |        |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | ------ | ------- | ------ | ------- | ----- | ------ | ------ | -
|                                                     |                                                                                                                                              |                                                                                
|                                                     |                                                                                                                                              | Three Months Ended March 31,                                                   
|                                                     |                                                                                                                                              |                                                                                
|                                                     |                                                                                                                                              | 1999                                                                            |                                                    | 2000                                     
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                          
|Cash flows from operating activities:                |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income (loss)                                                                                                                            |                                                                                 | $                                                  | (1,705                                    | )      |         | $      | 204     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income (loss) to net cash used in
	operating activities:                                                        |                                                                                 |                                                    |                                           |        |         |        |         |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              | Depreciation and amortization                                                   |                                                    |                                           | 1,480  |         |        |         | 4,089 |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              | Deferred income taxes                                                           |                                                    |                                           | (1,114 | )       |        |         | (5    | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              | Equity in earnings of unconsolidated joint ventures                             |                                                    |                                           | 46     |         |        |         |      |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              | Amortization of discount and debt issuance costs, included in
	interest expense |                                                    |                                           | 121    |         |        |         | 358   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              | Changes in operating assets and liabilities:                                    |                                                    |                                           |        |         |        |         |       |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              |                                                                                 | Accounts receivable and unbilled services          |                                           |        | (15,508 | )      |         |       | 2,902  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              |                                                                                 | Income taxes receivable                            |                                           |        | (616    | )      |         |       | 162    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              |                                                                                 | Costs and earnings in excess of billings           |                                           |        | 3,664   |        |         |       | (3,626 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              |                                                                                 | Inventory                                          |                                           |        | 28      |        |         |       | 385    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              |                                                                                 | Prepaid expenses and other                         |                                           |        | (488    | )      |         |       | (108   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              |                                                                                 | Accounts payable and accrued liabilities           |                                           |        | 4,414   |        |         |       | (5,675 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              |                                                                                 | Billings in excess of costs and estimated earnings |                                           |        |        |        |         |       | (2,790 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                                                              |                                                                                 | Unearned revenue                                   |                                           |        | (12     | )      |         |       | 712    |       
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|                                                     |                                                                                                                                              |                                                                                 |                                                    | Net cash used in operating activities     |        |         | (9,690 | )       |       |        | (3,392 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from investing activities:                |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases of property, plant and equipment                                                                                                   |                                                                                 |                                                    | (23,819                                   | )      |         |        | (87,039 | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of marketable securities                                                                                                  |                                                                                 |                                                    | 49,979                                    |        |         |        | 77,549  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from disposal of property, plant and equipment                                                                                      |                                                                                 |                                                    | 3,136                                     |        |         |        | 11,718  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in unconsolidated subsidiary                                                                                                      |                                                                                 |                                                    | (15,515                                   | )      |         |        |        |      
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|                                                     |                                                                                                                                              |                                                                                 |                                                    | Net cash provided by investing activities |        |         | 13,781 |         |       |        | 2,228  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from financing activities:                |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of treasury stock                                                                                                                   |                                                                                 |                                                    | (16                                       | )      |         |        |        |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from issuance of common stock                                                                                                       |                                                                                 |                                                    | 86                                        |        |         |        | 602     |      
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|                                                     |                                                                                                                                              |                                                                                 |                                                    | Net cash provided by financing activities |        |         | 70     |         |       |        | 602    |  
|                                                    
|                                                    
|                                                    
|                                                    
|Effect of exchange rate on cash and cash equivalents |                                                                                                                                              |                                                                                 | (8                                                 | )                                         |        |         | (4     | )      
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|Net increase in cash and cash equivalents            |                                                                                                                                              |                                                                                 | 4,153                                              |                                           |        |         | (566   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                                                                              |                                                                                 | 294                                                |                                           |        |         | 5,692  |        
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|Cash and cash equivalents at end of period           |                                                                                                                                              | $                                                                               | 4,447                                              |                                           |        | $       | 5,126  |        
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|Supplemental disclosure of cash flow information:    |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash paid for interest including interest capitalized of $361 and
	 $4,442 for the three months ended March 31, 1999 and 2000,
	respectively |                                                                                 | $                                                  | 8,950                                     |        |         | $      | 9,000   |      
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|Non-cash investing activity:                         |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of restricted stock                                                                                                                 |                                                                                 | $                                                  |                                          |        |         | $      | 167     |      
|                                                     |                                                                                                                                              |                                                                                 |                                                    |                                           |        |         |        |        

See accompanying notes to consolidated financial statements.

3



---



##### Table of Contents



CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  Summary of Significant Accounting Policies



| |                                                 
| | ------------------------------------------------
| | (a) Basis of Presentation and Nature of Business

The consolidated financial statements include CapRock
Communications Corp. (CapRock or the
Company) and its majority owned subsidiaries. The
Company was formed on February 3, 1998, to serve as a
holding company for the operations of CapRock Telecommunications
Corp., a Texas corporation (CapRock
Telecommunications), CapRock Fiber Network Ltd., a
Texas limited partnership (CapRock Fiber), and
IWL Communications, Incorporated, a Texas corporation, doing
 business as CapRock Services Corp. (CapRock
Services), and its wholly owned subsidiaries upon the
consummation of the business combination of those companies (the
Combination). All significant inter-company
transactions are eliminated in the consolidation. The equity
method is used to account for unconsolidated investments in
companies in which the Company exercises significant influences
over operating and financial policies, but does not have a
controlling interest.

The Company is a regional facilities-based integrated
communications provider offering local, long distance, Internet,
data and private line services to small and medium-sized
businesses. The Company also provides switched and dedicated
access, regional and international long distance, private lines
and dark fiber to carrier customers. The Company is in the
process of building an advanced fiber network throughout Texas,
Louisiana, Oklahoma, Arkansas, New Mexico and Arizona.
Additionally, the Company, through its wholly owned
subsidiary  CapRock Services, provides communications
solutions to customers with operations in remote,
difficult-access regions. The Company markets its services
through its internal sales representatives and a network of
independent agents.

The accompanying unaudited consolidated financial statements,
which should be read in conjunction with the consolidated
financial statements and footnotes included in the Companys
 1999 Annual Report on Form 10-K, have been prepared in
accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
 In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) considered necessary for a fair
presentation have been included. Accounting measurements at
interim dates inherently involve greater reliance on estimates
than at year-end. The results of operations for the three months
ended March 31, 2000 are not necessarily indicative of the
results to be expected for the entire fiscal year ending
December 31, 2000.

(2)  Public Offerings

In May 1999, the Company completed a secondary public offering of
 common stock, issuing 4,000,000 shares at $22.00 per
share. The proceeds, net of commissions and expenses, from this
offering totaled $81.9 million.

On March 21, 2000, the Company filed a shelf registration
statement with the Securities and Exchange Commission
(SEC) to sell up to $900 million in debt
securities, preferred stock and common stock, which was declared
effective on April 11, 2000. On April 14, 2000 the
Company filed two prospectus supplements with the SEC under this
registration statement to sell 5,000,000 shares of common
stock and 2,500,000 shares of convertible preferred stock.
The Company currently expects to complete both of these offerings
 in the second or third quarter of 2000, however, no assurances
can be made as to when or if the offerings will be completed.

(3)  Credit Facility

We recently obtained a commitment letter from The Chase Manhattan
 Bank for a $100 million senior secured credit facility,
which is subject to the satisfaction of various conditions. The
final terms and conditions of the credit facility will depend on
negotiation of definitive documentation, which we expect will
contain customary restrictive covenants, including financial
covenants.

4



---



##### Table of Contents



CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(4)  Senior Note Offering

In May 1999, the Company issued $210 million aggregate
principal amount of its 11 1/2% Senior Notes due 2009
(the 1999 Senior Notes), which closed on May 18,
 1999. Interest on the 1999 Senior Notes is payable semi-annually
 in arrears on May 1 and November 1 of each year, commencing
November 1, 1999, at the rate of 11 1/2% per year.
 The Company received net proceeds from the offering, after
deducting the initial purchasers discount and expenses, of
approximately $201.3 million. The 1999 Senior Notes are
senior unsecured obligations and as such rank pari passu
in right of payment with the Companys existing senior notes
 issued in July 1998 (the 1998 Senior Notes) and with
 all the Companys future unsecured and unsubordinated
indebtedness. The indenture governing the 1999 Senior Notes has
restrictions similar to those which currently exist for the
Companys 1998 Senior Notes. The proceeds have been, and
will be, used to fund capital expenditures for the construction
of the fiber optic network, switching equipment and other capital
 expenditures and to expand the Companys sales offices, for
 potential acquisitions and for general working capital purposes.
 Unutilized funds have been invested in short-term, high-grade
investment securities classified as available for sale.

In July 1999, the Company filed an exchange offer Registration
Statement (Exchange Offer Registration Statement)
with the SEC for the registration of $210 million of
principal amount of its registered senior notes due May 1,
2009 (the Exchange Notes) to be offered in exchange
for the 1999 Senior Notes (the Exchange Offer). All
of the 1999 Senior Notes were exchanged for Exchange Notes
pursuant to the Exchange Offer. The terms of the Exchange Notes
are identical in all material respects to the 1999 Senior Notes
except that the Exchange Notes have been registered under the
Securities Act of 1933, as amended.

(5)  Earnings per share

The following table sets forth the computation of basic and
diluted earnings (loss) per share (in thousands, except per share
 amounts):

|                               |                                                                                        |                              |   |        |   |  |   |        | 
|------------------------------ | -------------------------------------------------------------------------------------- | ---------------------------- | - | ------ | - |  | - | ------ | 
|                               |                                                                                        |                             
|                               |                                                                                        | Three Months Ended March 31,
|                               |                                                                                        |                             
|                               |                                                                                        | 1999                         |   | 2000  
|                               |                                                                                        |                              |   |       
|Numerator:                     |                                                                                        |                              |   |        |   |  |   |       
|                              
|                              
|                              
|                              
|                               | Net income (loss)                                                                      |                              | $ | (1,705 | ) |  | $ | 204    | 
|                              
|                              
|                              
|                              
|Denominator:                   |                                                                                        |                              |   |        |   |  |   |       
|                              
|                              
|                              
|                              
|                               | Denominator for basic earnings (loss) per share-weighted average
	shares outstanding   |                              |   | 28,943 |   |  |   | 33,336 | 
|                              
|                              
|                              
|                              
|Effect of dilutive securities: |                                                                                        |                              |   |        |   |  |   |       
|                              
|                              
|                              
|                              
|                               | Employee stock options and warrants                                                    |                              |   |       |   |  |   | 2,670  | 
|                               |                                                                                        |                              |   |        |   |  |   |       
|                               | Denominator for diluted earnings (loss) per share-weighted
	average shares outstanding |                              | $ | 28,943 |   |  | $ | 36,006 | 
|                               |                                                                                        |                              |   |        |   |  |   |       
|                               | Basic and diluted earnings (loss) per share                                            |                              | $ | (0.06  | ) |  | $ | 0.01   | 
|                               |                                                                                        |                              |   |        |   |  |   |       

For the three months ended March 31, 1999, the effect of the
 Companys potential common stock equivalents was omitted
from the computation of diluted net loss per common share as
their effect would be antidilutive.

5



---



##### Table of Contents



CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(6)  Segment Reporting

The Company identifies segments based on management
responsibility. The Company measures segment profit as operating
income, which is defined as income before interest income and
expense, other income and expenses and income taxes. The
Carriers Carrier division includes all carrier revenues
generated from the sale of domestic and international switched
services, from the sale of T-1 and DS-3 broadband capacity and
from the sale and lease of dark fiber through indefeasible rights
 of use agreements (IRUs). The Integrated Services
segment includes all revenues generated from the sale of
telecommunications products to business and residential
customers. These products include local, long distance, Internet,
 data and private line services. The Systems Services segment
includes revenues generated from the design, installation,
leasing and sale of voice and data systems and products,
primarily to companies in the oil and gas industry. The Corporate
 division includes certain general and administrative functions
and operating expenses. Information regarding operating segments
is as follows (in thousands):

|                                 |              |                                   |        |            |  |          |        |           |  |              |       |        |  |   |        |        |  |   |        |         | 
|-------------------------------- | ------------ | --------------------------------- | ------ | ---------- |  | -------- | ------ | --------- |  | ------------ | ----- | ------ |  | - | ------ | ------ |  | - | ------ | ------- | 
|                                 |              |                                  
|                                 |              | Three Months Ended March 31, 1999
|                                 |              |                                  
|                                 |              | Carriers                         |        | Integrated |  | Systems  |        |          
|                                 |              | Carrier                           |        | Services   |  | Services |        | Corporate |  | Consolidated
|                                 |              |                                   |        |            |  |          |        |           |  |             
|Revenues from external customers |              | $                                 | 24,452 |            |  | $        | 4,504  |           |  | $            | 8,080 |        |  | $ |       |        |  | $ | 37,036 |        
|                                
|                                
|                                
|                                
|Depreciation and amortization    |              |                                   | 602    |            |  |          | 138    |           |  |              | 740   |        |  |   |       |        |  |   | 1,480  |        
|                                
|                                
|                                
|                                
|Capitalized interest             |              |                                   | 361    |            |  |          |       |           |  |              |      |        |  |   |       |        |  |   | 361    |        
|                                
|                                
|                                
|                                
|Operating income                 |              |                                   | 4,452  |            |  |          | (1,142 | )         |  |              | 344   |        |  |   | (3,030 | )      |  |   | 624    |        
|                                
|                                
|                                
|                                
|                                 | Total assets |                                   |        | 87,844     |  |          |        | 7,896     |  |              |       | 32,533 |  |   |        | 65,612 |  |   |        | 193,885 | 

|                                 |              |                                   |        |            |  |          |        |           |  |              |       |        |  |   |        |         |  |   |        |         | 
|-------------------------------- | ------------ | --------------------------------- | ------ | ---------- |  | -------- | ------ | --------- |  | ------------ | ----- | ------ |  | - | ------ | ------- |  | - | ------ | ------- | 
|                                 |              |                                  
|                                 |              | Three Months Ended March 31, 2000
|                                 |              |                                  
|                                 |              | Carriers                         |        | Integrated |  | Systems  |        |          
|                                 |              | Carrier                           |        | Services   |  | Services |        | Corporate |  | Consolidated
|                                 |              |                                   |        |            |  |          |        |           |  |             
|Revenues from external customers |              | $                                 | 55,111 |            |  | $        | 9,680  |           |  | $            | 5,900 |        |  | $ |       |         |  | $ | 70,691 |        
|                                
|                                
|                                
|                                
|Depreciation and amortization    |              |                                   | 2,590  |            |  |          | 712    |           |  |              | 787   |        |  |   |       |         |  |   | 4,089  |        
|                                
|                                
|                                
|                                
|Capitalized interest             |              |                                   | 4,442  |            |  |          |       |           |  |              |      |        |  |   |       |         |  |   | 4,442  |        
|                                
|                                
|                                
|                                
|Operating income                 |              |                                   | 14,987 |            |  |          | (6,673 | )         |  |              | 202   |        |  |   | (3,787 | )       |  |   | 4,729  |        
|                                
|                                
|                                
|                                
|                                 | Total assets |                                   |        | 276,879    |  |          |        | 35,204    |  |              |       | 29,474 |  |   |        | 201,521 |  |   |        | 543,078 | 

All revenue was derived from unaffiliated customers.

(7)  Fiber Build Agreements

In February 1999, the Company completed a joint build agreement
with Enron Broadband Services, Inc. (formerly Enron
Communications, Inc.) for approximately 1,070 miles of
fiber network in Texas. The joint build arrangement is complete,
connecting Amarillo, Lubbock, Dallas, Fort Worth, Waco,
Bryan, Austin, San Marcos, San Antonio and Houston,
Texas. After the sales of IRUs and the division of fiber and
conduits between us and Enron Broadband Services, Inc., the
Company received 56 fibers and one spare conduit.

In November 1999, the Company entered into a project with Pathnet
 to jointly build a 350-mile fiber network between Albuquerque,
New Mexico and El Paso, Texas. We will each own one conduit
and will jointly own the two remaining conduits. Construction
began in the first quarter of 2000 with completion expected in
2001.

In December 1999, the Company entered into a regional joint build
 construction effort with AT&T to jointly build approximately
 1,450 miles of fiber network. The fiber ring passes through
 Dallas and Tyler, Texas; Shreveport and Monroe, Louisiana; Pine
Bluff, Little Rock and Fort Smith, Arkansas; Muskogee,
Oklahoma City, Norman and Lawton, Oklahoma; and Wichita Falls,
Denton, and Fort Worth, Texas. We are installing a four
conduit facility with AT&T, with each company owning one
conduit and sharing the other two. In the past, we have jointly
constructed segments with Teleport Communications Inc., a
competitive local phone company, and with TCI
Communications Inc., a cable television company, both of
which are now owned by AT&T.

6



---



##### Table of Contents



CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

In January 2000, the Company entered into a regional joint
build construction agreement with 360networks (formerly Worldwide
 Fiber) to jointly build approximately 1,300 miles of fiber
network through Texas, New Mexico and Arizona. This will also
allow us to increase the speed to market of our voice and
high-speed data services to cities along the route, including
Tucson, Arizona; Santa Fe and Albuquerque, New Mexico; and
El Paso, Midland, San Angelo, and Temple, Texas. The
co-build agreement calls for us to construct a Texas fiber route
from El Paso through Temple to Austin, while 360networks is
responsible for laying fiber west of El Paso through Tucson
and into Phoenix. We will each own one conduit and will jointly
own the two remaining conduits. Construction began in the first
quarter of 2000 with completion expected in early 2001.

These joint build agreements provide several benefits, including
reduction of construction costs, accelerated acquisition of
rights of way, the majority of which are substantially completed,
 and the freeing up of resources to focus attention on the
construction of other portions of the network. Each city-pair
segment of our fiber network is operational upon completion of
construction. Should network construction be slowed or postponed,
 our existing network is still operational and our integrated
services strategy can continue essentially unchanged.

7



---



##### Table of Contents








|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
	Condition and Results of Operations

The following discussion and analysis should be read in
conjunction with CapRocks consolidated financial statements
 and notes thereto for the year ended December 31, 1999. The
 Company believes that all necessary adjustments (consisting of
normal recurring adjustments) have been included in the amounts
stated below to present fairly the following quarterly
information. Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year-end. The
results for interim periods are not necessarily indicative of
results to be expected for the year. In this Form 10-Q, the
Company, CapRock, we,
us and our refer to CapRock and its
subsidiaries, including CapRock Telecommunications, CapRock Fiber
 and CapRock Services, which are our three predecessor companies,
 as well as CapRock Network Services, L.P., CapRock
Telecommunications Leasing Corp. and CapRock Design
Services, L.P., unless the context otherwise requires.

Forward Looking Information

This Quarterly Report on Form 10-Q includes forward-looking
statements. We have based these forward-looking statements on our
 current expectations and projections about future events. These
forward-looking statements are subject to risks, uncertainties
and assumptions about CapRock, including:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | our anticipated growth strategies,                                                                                                  
|
| |  | anticipated trends in our business, including trends in
	technology and the growth of communications network products and
	services,
|
| |  | future expenditures for capital projects, and                                                                                       
|
| |  | our ability to continue to control costs and maintain quality.                                                                      

Our actual results could differ materially from those anticipated
 in these forward-looking statements as a result of various
factors, including risks related to, among other things, our
evolving business model, our limited operating history, rapid
growth, the need for additional capital, debt and interest
payment obligations, restrictions in our senior note indentures,
dependence on and retention of key personnel, successful
completion of our networks, dependence on information systems,
interconnection with incumbent local exchange carriers
(ILECs), our inability to obtain sufficient
collocations with ILECs, competition, supply and demand for data
and communications services and profitability of such services,
the quality and condition of the infrastructure of the ILECs
(including, but not limited to, last mile connectivity), our
ability to profitably market and sell our services and develop
positive cash flow, government regulation and the uncertainty of
deregulation, delays by the ILECs in connecting our customers,
reliance on equipment suppliers and other carriers, regulation of
 access charges, rapid technological change, service
interruptions, security risks, system failures and equipment
failures, dependence on major carrier customers and joint build
partners, building a fiber network (including obtaining the
necessary rights of way, permits and regulatory approvals),
potential liability as an Internet service provider and
protection of our intellectual property.

We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise. Because of these risks,
uncertainties and assumptions, the forward-looking events
discussed in this Form 10-Q might not occur.

Overview

We are a leading facilities-based integrated communications
service provider to small and medium-sized business and
communications carrier customers in the Southwestern United
States. We offer business customers an integrated bundle of
communications products and services including local exchange,
domestic and international long distance, enhanced voice, data,
Internet and dedicated private line services. Additionally, we
offer our communications-intensive business and carrier customers
 dark fiber, high bandwidth dedicated fiber infrastructure,
terminating access for domestic and international long distance
and ATM, frame relay and IP data transport services. We believe
that our current and planned networks will provide our customer
base the most comprehensive service alternative to the incumbent
and other competitive communications service providers in our
region.

8



---



##### Table of Contents



Our communications services are provided over our scalable fiber,
 voice and data networks which, upon completion, will connect
nearly every primary, secondary and tertiary market in the
six-state region of Texas, Louisiana, Arkansas, Oklahoma, New
Mexico and Arizona. At March 31, 2000, our inter-city
long-haul fiber network covered approximately 3,700 route miles,
which we expect to expand to approximately 6,500 route miles by
year-end 2000, assuming certain financial activities occur. See
 Liquidity and Capital Resources.

Building and expanding our network and infrastructure has
required and will continue to require us to incur significant
capital expenditures, primarily consisting of the costs to build
our fiber network, deploy our voice and data switches and
increase the number of our central office collocations. As of
March 31, 2000, we had 51 central office collocations and
intend to expand that number to 200 collocations by the end of
2000. We plan to equip approximately 100 of these collocations so
 that we can provide DSL services on a wholesale and retail
basis. These collocations enable us to provide local exchange and
 other services on our own network infrastructure, which
significantly lowers our cost of providing these services.
Additionally, we had 15 data switches as of March 31, 2000,
which we expect to expand to 17 data switches by the end of 2000.

We have strategically entered into several joint build fiber
arrangements, which will significantly reduce the construction
costs of our networks. To date, we have entered into joint build
fiber arrangements with Enron Broadband Services, Inc.,
AT&T, 360networks Inc. and Pathnet. The joint build
fiber arrangements provide several benefits, including reduction
of construction costs, accelerated acquisition of rights of way,
and the freeing up of resources to focus attention on the
construction of other portions of our network. To further reduce
the cost of building our network, we intend to sell excess dark
fiber and retain at least 24 fiber strands for our own use.

Results of Operations

To measure our progress, we classify our revenue into three
categories: carriers carrier, integrated services and
systems services.

Carriers Carrier.Carriers carrier revenue
includes all carrier revenues generated from the sale of domestic
 and international long distance, from the sale of T-1 and DS-3
broadband capacity and from the sale and lease of dark fiber. The
 revenue generated from the international long distance
represents minutes of traffic generated by U.S.-based long
distance carriers terminating in foreign countries. These
revenues are recognized when the services are provided. The cost
of these services is based primarily on the direct costs
associated with owned and leased transmission capacity and the
cost of transmitting and terminating traffic on other
carriers facilities. Commissions paid to sales
representatives or independent sales agents to acquire customer
call traffic are expensed in the period when associated call
revenues are recognized.

Dark fiber sales are generally referred to as IRUs (indefeasible
right to use). These sales are non-recurring. Revenues are
recognized immediately on IRUs sold from available fiber on
completed network segments and on the percentage of completion
basis on IRUs sold from network segments under construction.
Payment is generally received at the time of sale, or shortly
thereafter, for IRUs sold on completed network segments. Payment
is generally received over contractual milestones for IRUs sold
from network segments under construction. In both scenarios,
payments are received within one year from the time of sale.
Revenue attributed to IRUs was $11.1 million during the
three months ended March 31, 1999 and $37.7 million
during the three months ended March 31, 2000. Revenue
attributed to IRUs beyond 2001 is anticipated to decline as we
deplete our dark fiber available for sale. We expect revenues
from our new service offerings to offset this decline in our IRU
revenues.

Recent accounting pronouncements have affected the recognition of
 revenue associated with IRUs entered into after June 30,
1999. See  New Accounting Pronouncements.
Accordingly, revenue from the sale of IRUs that convey title to
the purchaser will be recognized as a sale either on a
percentage-of-completion basis or in its entirety if the fiber
build has been completed. Revenue from IRU sales that do not
convey title to the purchaser will be recognized over the life of
 the IRU. All of our IRU sales since July 1, 1999 have
conveyed title to the purchaser and, accordingly, revenue from
such sales has been recognized on a percentage-of completion
basis or in its entirety.

Revenues generated from dark fiber and capacity leases are
generally recognized in monthly installments over the lease term,
 which is generally a lease term of less than ten years.

9



---



##### Table of Contents



Integrated Services.Integrated services revenue includes
all revenues generated from the sale of communications services
primarily to small and medium-sized business customers. These
services include local exchange, domestic and international long
distance, enhanced voice, data, Internet and dedicated private
line services, and soon, DSL services. We record revenues and the
 related cost of services at the time of customer usage.

Our local services include revenues from local switched and
enhanced services, such as caller ID and call waiting. We began
offering local exchange services to our customers in 1998. We
have been successful in selling our integrated services to
customers and have sold 85,500 local access lines as of
March 31, 2000 of which 57,040 were installed lines. The
remaining 28,460 local access lines were in various stages of
customer provisioning at March 31, 2000. We are currently
introducing initiatives to reduce the provisioning cycle time and
 our backlog of lines. These initiatives include, among other
things, electronic bonding with the ILEC, which allows our
systems to communicate with those of the ILEC on an automated
basis.

Our long distance revenue consists of both switched access and
dedicated access. Switched access services include one plus
 long distance, whereby a customer has selected CapRock as
their long distance provider, toll free 800/888/877 service and
calling cards. These services are offered for both domestic and
international calling. Dedicated access service is generally for
larger users with sufficient traffic volume to warrant the use of
 dedicated private lines that directly connect the end user to
our switch.

Revenues from integrated services are the foundation for our
future growth and will expand as we increase our customer base
and our product offerings to small and medium-sized business
customers. Our primary competitors are the ILECs. The table below
 provides key operational data relating to our integrated
services offering:

|                          |  |           |        |      |  |  |        | 
|------------------------- |  | --------- | ------ | ---- |  |  | ------ | 
|                          |  |          
|                          |  | March 31,
|                          |  |          
|                          |  | 1999      |        | 2000
|                          |  |           |        |     
|Markets served            |  |           | 7      |      |  |  | 10     | 
|                         
|                         
|                         
|                         
|Business customers served |  |           | 5,055  |      |  |  | 16,808 | 
|                         
|                         
|                         
|                         
|Sales force employees     |  |           | 118    |      |  |  | 230    | 
|                         
|                         
|                         
|                         
|Voice switches            |  |           | 6      |      |  |  | 12     | 
|                         
|                         
|                         
|                         
|ATM and frame switches    |  |           |       |      |  |  | 15     | 
|                         
|                         
|                         
|                         
|Collocations completed    |  |           | 13     |      |  |  | 51     | 
|                         
|                         
|                         
|                         
|Lines sold                |  |           | 11,403 |      |  |  | 85,500 | 
|                         
|                         
|                         
|                         
|Lines installed           |  |           | 9,085  |      |  |  | 57,040 | 

Due to our expanding switching platform and collocations, we
anticipate that in 2000 we will have additional revenue sources
from access charges and from the offering of new services, such
as DSL. Access charges represent fees for connecting CapRock
local service customers to their selected long distance carriers
(originating access) and for delivering inbound long distance to
CapRock customers (terminating access). Additionally, we believe
that we will be able to offer dedicated access to our customers
for voice and data services on our network through private lines
and virtual private networks. These services and charges will be
recognized as revenue as the services are provided.

Systems Services. Systems services revenue includes
revenues generated from the design, installation, leasing and
sale of voice and data systems and products typically to offshore
 oil and gas industry customers in the Gulf of Mexico. Satellite
and microwave transmission media are used depending on the type
and location of the drilling rig involved. We also install
telephone and switchboard equipment to offshore customers. These
revenues are recognized as the services are provided. We will
continue to provide these services to our customer base, however,
 as our other revenue sources continue to grow, this component of
 our business will become a smaller percent of revenues.

10



---



##### Table of Contents



The following table represents the various sources of revenues
(in thousands):

|          |                     |                              |   |        |        |  |   |        |        | 
|--------- | ------------------- | ---------------------------- | - | ------ | ------ |  | - | ------ | ------ | 
|          |                     |                             
|          |                     | Three Months Ended March 31,
|          |                     |                             
|          |                     | 1999                         |   | 2000  
|          |                     |                              |   |       
|Revenues: |                     |                              |   |        |        |  |   |       
|         
|         
|         
|         
|          | Carriers carrier   |                              | $ | 24,452 |        |  | $ | 55,111 |       
|         
|         
|         
|         
|          | Integrated services |                              |   | 4,504  |        |  |   | 9,680  |       
|         
|         
|         
|         
|          | Systems services    |                              |   | 8,080  |        |  |   | 5,900  |       
|          |                     |                              |   |        |        |  |   |       
|          |                     | Total revenues               |   | $      | 37,036 |  |   | $      | 70,691 | 
|          |                     |                              |   |        |        |  |   |       

The following table sets forth for the periods indicated
CapRocks statement of operations as a percentage of its
operating revenues:

|                                  |                                     |                 |     |      |   |  |     |    |  
|--------------------------------- | ----------------------------------- | --------------- | --- | ---- | - |  | --- | -- | -
|                                  |                                     |                
|                                  |                                     | Three Months   
|                                  |                                     | Ended March 31,
|                                  |                                     |                
|                                  |                                     | 1999            |     | 2000
|                                  |                                     |                 |     |     
|Revenues                          |                                     |                 | 100 | %    |   |  | 100 | % 
|                                 
|                                 
|                                 
|                                 
|Cost of services                  |                                     |                 | 60  | %    |   |  | 60  | % 
|                                  |                                     |                 |     |      |   |  |     |   
|Gross margin                      |                                     |                 | 40  | %    |   |  | 40  | % 
|                                 
|                                 
|                                 
|                                 
|Operating expenses:               |                                     |                 |     |      |   |  |     |   
|                                 
|                                 
|                                 
|                                 
|                                  | Selling, general and administrative |                 |     | 34   | % |  |     | 28 | %
|                                 
|                                 
|                                 
|                                 
|                                  | Depreciation and amortization       |                 |     | 4    | % |  |     | 6  | %
|                                  |                                     |                 |     |      |   |  |     |   
|Total operating expenses          |                                     |                 | 38  | %    |   |  | 34  | % 
|                                  |                                     |                 |     |      |   |  |     |   
|Operating income                  |                                     |                 | 2   | %    |   |  | 6   | % 
|                                 
|                                 
|                                 
|                                 
|Interest expense                  |                                     |                 | (12 | )%   |   |  | (9  | )%
|                                 
|                                 
|                                 
|                                 
|Interest income                   |                                     |                 | 2   | %    |   |  | 3   | % 
|                                 
|                                 
|                                 
|                                 
|Other expenses                    |                                     |                 |    | %    |   |  |    | % 
|                                  |                                     |                 |     |      |   |  |     |   
|Income (loss) before income taxes |                                     |                 | (8  | )%   |   |  |    | % 
|                                 
|                                 
|                                 
|                                 
|Income tax expense (benefit)      |                                     |                 | (3  | )%   |   |  |    | % 
|                                  |                                     |                 |     |      |   |  |     |   
|Net income (loss)                 |                                     |                 | (5  | )%   |   |  |    | % 
|                                  |                                     |                 |     |      |   |  |     |   

Three Months Ended March 31, 1999 Compared to Three
Months Ended March 31, 2000

Revenues. Total revenues increased $33.7 million, or
91%, from $37.0 million during the three months ended
March 31, 1999 to $70.7 million during the three months
 ended March 31, 2000. This increase was attributable to
increases of 125% in carriers carrier, 116% in integrated
services and offset by a decrease of 27% in systems services
revenue.

Carriers carrier revenue increased $30.6 million from
$24.5 million during the three months ended March 31,
1999 to $55.1 million during the three months ended
March 31, 2000. The 125% increase resulted primarily from
the sale of IRUs and dark fiber leases. Minutes of use associated
 with our carrier business increased from approximately
217.8 million minutes during the three months ended
March 31, 1999 to 263.3 million during the three months
 ended March 31, 2000. The average revenue per carrier
minute was approximately $0.08 per minute during the three
months ended March 31, 1999 and $0.06 per minute during
 the three months ended March 31, 2000. The decrease in the
revenue per minute is attributable to a decrease in domestic and
international rates. We anticipate that long distance competitive
 pressures will continue to drive down prices, but the price
decline will be partially offset by increased volumes. Fiber
related revenues, attributed to IRUs, increased
$26.6 million from $11.1 million during the three
months ended March 31, 1999 to $37.7 million during the
 three months ended March 31, 2000. We anticipate revenue
relating to IRUs to continue at comparable levels through 2000
and decline in subsequent years. However, period-to-period
fluctuations can be expected as this type of revenue is affected
by the negotiation and terms of these contracts and the build out
 of our network. We derived approximately $5.6 million and
$9.7 million or 15% and 14% of our revenue from traffic
terminated to international countries during the three months
ended March 31, 1999 and 2000, respectively.

11



---



##### Table of Contents



Revenue per minute for a majority of the international countries,
 particularly Mexico, continues to decrease as a result of
deregulation in the countries and increased competition.

Integrated services revenue increased $5.2 million from
$4.5 million during the three months ended March 31,
1999 to $9.7 million during the three months ended
March 31, 2000. The 116% increase was attributable to growth
 in the number of business customers both from increased
penetration in our existing markets and from the deployment of
our network into new markets. Access lines sold increased from
11,403 at March 31, 1999 to 85,500 at the end of
March 31, 2000. Installed access lines increased from 9,085
at March 31, 1999 to 57,040 at March 31, 2000. Our
direct sales force increased from 118 at March 31, 1999 to
230 at March 31, 2000. We now have sales offices in Dallas,
Fort Worth, Houston, San Antonio, Austin, Corpus
Christi and Victoria, Texas, Lafayette and New Orleans, Louisiana
 and Phoenix, Arizona. We anticipate increased revenue from
integrated services as our networks are further deployed in new
markets and as our sales force for this revenue segment continues
 to grow.

Systems services revenue decreased $2.2 million from
$8.1 million during the three months ended March 31,
1999 to $5.9 million during the three months ended
March 31, 2000. The 27% decrease was attributable to a
reduction in the leasing and sale of voice and data systems and
fewer projects involving the engineering and integration of
telecommunications systems and sales, service and maintenance of
telecommunications equipment. We anticipate systems services
revenue in 2000 will remain at comparable levels.

Cost of Services. Cost of services increased
$20.4 million, or 91%, from $22.4 million during the
three months ended March 31, 1999 to $42.8 million
during the three months ended March 31, 2000. The increase
in cost of services was primarily attributable to the continued
growth in revenue. Gross margins were 40% for the three month
periods ended March 31, 1999 and 2000. Gross margins on
minutes of use associated with our carrier customers have
decreased from the three months ended March 31, 1999 to the
three months ended March 31, 2000 as a result of competitive
 pressures. This decrease was offset by a higher volume of IRU
sales during the three months ended March 31, 2000 compared
to the three months ended March 31, 1999, which carry a
higher gross margin.

Selling, General and Administrative Expenses. Selling,
general and administrative expenses (SG&A)
include salaries, benefits, occupancy costs, commissions, sales
and marketing expenses and administrative expenses. SG&A
increased $6.5 million, or 52%, from $12.6 million
during the three months ended March 31, 1999 to
$19.1 million during the three months ended March 31,
2000. The increase resulted primarily from the additional
personnel required to support our growth, advertising to increase
 name recognition and brand awareness and additional sales
commission payments.

Depreciation and Amortization Expense. Depreciation and
amortization expense increased $2.6 million, or 173%, from
$1.5 million during the three months ended March 31,
1999 to $4.1 million during the three months ended
March 31, 2000. This increase resulted primarily from
additional fiber segments placed in service and purchases of
additional equipment and other fixed assets to accommodate our
growth. We expect that depreciation and amortization expense will
 continue to increase in subsequent periods as we continue to
expand our facilities and place additional fiber segments in
service.

Interest Expense. Interest expense increased
$2.2 million from $4.3 million during the three months
ended March 31, 1999 to $6.5 million during the three
months ended March 31, 2000. The increase resulted from
interest expense related to our 1999 Senior Notes. See
 Liquidity and Capital Resources.

Interest Income. Interest income increased
$1.4 million from $845,000 during the three months ended
March 31, 1999 to $2.2 million during the three months
ended March 31, 2000. The increase was attributable to the
interest and investment accretion associated with the marketable
securities purchased with the proceeds from our 1999 Senior
Notes.

Income Tax Expense (Benefit).During the three months
ended March 31, 1999, we incurred income tax benefit of
$1.1 million compared to an income tax expense of $186,000
during the three months ended March 31, 2000. The expense or
 benefit resulted from the income or loss for the respective
periods.

12



---



##### Table of Contents



Net Income (Loss).Net income increased $1.9 million
from a net loss of $1.7 million during the three months
ended March 31, 1999 to net income of $204,000 during the
three months ended March 31, 2000 as a result of the factors
 discussed above.

Liquidity and Capital Resources

We had cash, cash equivalents and marketable securities of
$188.3 million at December 31, 1999, as compared with
$110.2 million at March 31, 2000. The decrease was
attributable to the utilization of cash, cash equivalents and
marketable securities for the build out of our fiber network and
increase in corporate overhead to support our growth.

CapRocks cash flow used in operating activities for the
three months ended March 31, 1999 was $9.7 million as
compared to $3.4 million used in operating activities during
 the three months ended March 31, 2000. The change was
primarily attributable to an increase in accounts receivable and
unbilled services, and the timing of certain capital expenditure
payments to vendors relating to our fiber optic network build
out. IRU transactions for network segments under construction
typically have longer payment terms than other accounts
receivable activity due to contractual milestones that must be
met before payments are made.

Cash provided by investing activities during the three months
ended March 31, 1999 was $13.8 million as compared to
cash provided by investing activities during the three months
ended March 31, 2000 of $2.2 million. Capital resources
 used for the purchase of property, plant and equipment increased
 $63.2 million from $23.8 million during the three
months ended March 31, 1999 to $87.0 million during the
 three months ended March 31, 2000. This increase primarily
related to the purchase of telecommunications equipment and costs
 incurred with the build out of our fiber optic network. Cash
received from the sale of marketable securities was
$50.0 million during the three months ended March 31,
1999 as compared to $77.5 million during the three months
ended March 31, 2000.

In July 1998, we issued $150 million aggregate principal
amount of our 1998 Senior Notes. Interest on the 1998 Senior
Notes is payable semi-annually in arrears on January 15 and
July 15 of each year, which commenced January 15, 1999,
 at the rate of 12% per year. The net proceeds from the
offering of our 1998 Senior Notes was approximately
$145 million, a portion of which was used to repay all of
our then-existing debt obligations, totaling $26.8 million.

In May 1999, we sold 4,000,000 shares of our Common Stock at
 a price of $22.00 per share in a public offering. We
received net proceeds, after deducting underwriting discounts and
 expenses payable by us, of approximately $81.9 million from
 the sale of our Common Stock.

In May 1999, we issued $210 million aggregate principal
amount of our 1999 Senior Notes. Interest on the 1999 Senior
Notes is payable semi-annually in arrears on May 1 and November 1
 of each year, which commenced November 1, 1999, at the rate
 of 11 1/2% per year. We received net proceeds from
that offering, after deducting the initial purchasers
discount and estimated expenses, of approximately
$201.2 million.

The indentures governing the 1998 Senior Notes and the 1999
Senior Notes contain certain restrictive operating and financial
covenants, including restrictive covenants relating to borrowing
additional money, paying dividends or making other distributions
to our shareholders, limiting the ability of subsidiaries to make
 payments to us, making certain investments, creating certain
liens on our assets, selling certain assets and using the
proceeds from those sales for certain purposes, entering into
transactions with affiliates and engaging in certain mergers or
consolidations. The 1999 Senior Notes are senior unsecured
obligations and as such rank pari passu in right of
payment with our existing 1998 Senior Notes and with all of our
future unsecured and unsubordinated indebtedness. All of the
covenants are subject to a number of important qualifications and
 exceptions. These covenants may adversely affect our ability to
finance our future operations or capital needs or to engage in
other business activities that may be in our best interests.

The remaining proceeds from the 1998 Senior Notes, the 1999
Senior Notes and the Common Stock sold in May of 1999 have been,
and will be, used to fund capital expenditures for the
construction of our fiber network, switching equipment and other
capital expenditures and to expand our sales offices, for
potential acquisitions and for general working capital purposes.
Unutilized funds have been invested in short-term, high-grade
investment securities classified as available for sale.

13



---



##### Table of Contents



On March 21, 2000, the Company filed a shelf registration
statement with the SEC to sell up to $900 million in debt
securities, preferred stock and common stock, which was declared
effective on April 11, 2000. On April 14, 2000 the
Company filed two prospectus supplements with the SEC under this
registration statement to sell 5,000,000 shares of common
stock and 2,500,000 shares of convertible preferred stock.
The Company currently expects to complete both of these offerings
 in the second or third quarter of 2000, however, no assurances
can be made as to when or if the offerings will be completed.

We recently obtained a commitment letter from The Chase Manhattan
 Bank for a $100 million senior secured credit facility,
which is subject to the satisfaction of various conditions. The
final terms and conditions of the credit facility will depend on
negotiation of definitive documentation, which we expect will
contain customary restrictive covenants, including financial
covenants.

We expect to require significant financing for future capital
expenditure and working capital requirements. Capital will be
required to, among other things, (1) fund the construction
and operation of our fiber network, including the portion to be
constructed through joint build arrangements with AT&T,
Pathnet, 360networks Inc. and Enron Broadband Services, to
approximately 6,500 route miles throughout the Southwest region
by the end of 2000 and to approximately 7,500 route miles by the
end of 2001, (2) fund the purchase and installation of voice
 and data switches, (3) fund the installation of equipment
associated with DSL services and the build out of collocation
facilities, (4) fund the further development of our
operations support systems and information technology equipment,
and (5) open an additional seven sales offices in 2000 and
add sales support and customer service personnel in markets
throughout Texas, Louisiana, Oklahoma, Arkansas, New Mexico and
Arizona. We currently estimate that our aggregate capital
requirements will total approximately $485 million for 2000
and approximately $285 million for 2001. We believe our
cash, cash equivalents and marketable securities, and cash flow
from operations, together with the expected net proceeds from our
 anticipated common and convertible preferred stock offerings and
 the $100 million credit facility, will be sufficient to
fund our capital requirements through at least the next
12 months. However, we cannot assure you that we will
complete our anticipated offerings or enter into the proposed
credit facility. In addition, we will require additional sources
of capital to fund our capital expenditure requirements for 2001.
 We cannot assure you that the additional sources of capital will
 be available, that the anticipated sources of working capital
will continue to be available, that we have anticipated all
future costs, or that our expected financial resources will be
sufficient to cover future expenditures. If we are unable to
obtain additional sources of capital, we may have to curtail our
level of expenditures and our rate of expansion.

We may require additional capital in the future for new business
activities related to our current and planned businesses, or in
the event we decide to make acquisitions, enter into joint
venture and strategic alliances or expand into new geographic
regions. Sources of additional capital may include cash flow from
 operations, public or private equity and debt financings, bank
debt and vendor financings. In addition, we may enter into joint
construction agreements with carriers, thereby reducing our
capital expenditure requirements. However, we cannot assure you
that we will be successful in producing sufficient cash flow or
raising sufficient debt or equity capital to meet our strategic
business objectives or that such funds, if available, will be
available on a timely basis and on terms that are acceptable to
us. If we are unable to obtain such capital, the build out of
portions of our expanded network may be significantly delayed,
curtailed or abandoned. In addition, we may accelerate the rate
of deployment of our network, which in turn may accelerate our
need for additional capital. Our actual capital requirements will
 also be affected, possibly materially, by various factors,
including the timing and actual cost of the deployment of our
network, the timing and cost of expansion into new markets, the
extent of competition and the pricing of dark fiber and
telecommunications services in our markets.

New Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, Accounting
 for Derivative Instruments and Hedging Activity
(SFAS 133) which requires that all derivatives
be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition,
all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS No. 133. In
June 1999, FASB delayed the effectiveness of SFAS 133 to
fiscal years beginning after June 15, 2000. The adoption of
SFAS 133 will not have an impact on our financial position,
results of operations and cash flow.

14



---



##### Table of Contents



In December 1999, the SEC staff issued Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements (SAB 101). SAB 101
summarizes certain of the staffs views in applying General
Accepted Accounting Principles to revenue recognition and
accounting for deferred costs in the financial statements. Based
on our current revenue recognition policies, SAB 101 is not
expected to materially impact our financial position, results of
operations and cash flow.

Contingencies

We are party to ordinary litigation incidental to our business.
No currently pending litigation is expected to have a material
adverse effect on our business, financial condition, results of
operations and cash flow.






|        |                                                          
|------- | ---------------------------------------------------------
|ITEM 3. | Quantitative and Qualitative Disclosure About Market Risk

CapRock is exposed to market risk from changes in marketable
securities (which consist of money market and commercial paper).
At March 31, 2000, marketable securities of CapRock were
recorded at a fair value of approximately $105 million, with
 an overall weighted average return of approximately 5% and an
overall weighted average life of less than 1 year. The
marketable securities held by CapRock have exposure to price
risk, which is estimated as the potential loss in fair value due
to a hypothetical change of 50 basis points (10% of
CapRocks overall average return on marketable securities)
in quoted market prices. This hypothetical change would have an
immaterial effect on the recorded value of the marketable
securities.

CapRock is not exposed to material future earnings or cash flow
fluctuations from changes in interest rates on long-term debt
since 100% of its long-term debt is at a fixed rate as of
March 31, 2000. The fair value of CapRocks long-term
debt at March 31, 2000 was estimated to be $339 million
 based on the overall rate of the long-term debt of 11.71% and an
 overall maturity of 9 years compared to terms and rates
currently available in long-term financing markets. Market risk
is estimated as the potential decrease in fair value of
CapRocks long-term debt resulting from a hypothetical
increase of 117 basis points in interest rates (ten percent of
CapRocks overall borrowing rate). Such an increase in
interest rates would result in approximately a $8 million
decrease in fair value of CapRocks long-term debt. To date,
 CapRock has not entered into any derivative financial
instruments to manage interest rate risk and is currently not
evaluating the future use of any such financial instruments.

CapRock does not currently have any material exposure to foreign
currency transaction gains or losses. Substantially all business
transactions are in U.S. dollars. To date, CapRock has not
entered into any derivative financial instrument to manage
foreign currency risk and is currently not evaluating the future
use of any such financial instruments.

15



---



##### Table of Contents






PART II.

OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

Information pertaining to this item is incorporated herein from
Part I. Financial Information (Item 2 
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Contingencies).






|        |                                 
|------- | --------------------------------
|Item 6. | Exhibits and Reports on Form 8-K

(a)  Exhibits

|        |       |             |  |                                                                                                                                                                                                         
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 3.1   |             |  |  Articles of Incorporation of the Company
	(incorporated by reference to Exhibit 3.1 to the
	Registration Statement on Form S-4, as amended, SEC
	Registration No. 333-57365 (the Merger
	Form S-4)).
|        | 3.2   |             |  |  Bylaws of the Company (incorporated by reference to
	Exhibit 3.2 to the Registration Statement on Form S-4,
	as amended, SEC Registration No. 333-64699 (the 1998
	Exchange Offer Form S-4)).       
|        | +10.1 |             |  |  First Amendment to the Companys 1998 Equity
	Incentive Plan.                                                                                                                                         
|        | +27.1 |             |  |  Financial Data Schedule.                                                                                                                                                                              



---

+  Filed herewith.

(b)  Reports on Form 8-K



| |      
| | -----
| | None.

16



---



##### Table of Contents



CAPROCK COMMUNICATIONS CORP.

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.



| |                             
| | ----------------------------
| | CAPROCK COMMUNICATIONS CORP.



| |     |                        
| | --- | -----------------------
| | By: | /s/ MATTHEW M. KINGSLEY

| |                               
| | ------------------------------
| |                               
| | Matthew M. Kingsley           
| | Corporate Controller          
| | (Principal Accounting Officer)

Date: May 11, 2000

17



---



##### Table of Contents






INDEX TO EXHIBITS

|        |       |             |  |                                                                                                                                                                                                         
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 3.1   |             |  |  Articles of Incorporation of the Company
	(incorporated by reference to Exhibit 3.1 to the
	Registration Statement on Form S-4, as amended, SEC
	Registration No. 333-57365 (the Merger
	Form S-4)).
|        | 3.2   |             |  |  Bylaws of the Company (incorporated by reference to
	Exhibit 3.2 to the Registration Statement on Form S-4,
	as amended, SEC Registration No. 333-64699 (the 1998
	Exchange Offer Form S-4)).       
|        | +10.1 |             |  |  First Amendment to the Companys 1998 Equity
	Incentive Plan.                                                                                                                                         
|        | +27.1 |             |  |  Financial Data Schedule.                                                                                                                                                                              



---

+  Filed herewith.