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                                  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 September 30, 1997

                                       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 1-8611

                                 U S WEST, Inc.

A Delaware Corporation                             IRS Employer No. 84-0926774

             7800 East Orchard Road, Englewood, Colorado 80111-2526

                         Telephone Number 303-793-6500

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 each class of U S WEST,  Inc.'s common stock outstanding
(net of shares held in treasury), at October 31, 1997, was:

U S WEST Communications  Group Common Stock - 483,635,464 shares; U S WEST Media
Group Common Stock - 607,051,955 shares

================================================================================


<PAGE>


                                 U S WEST, INC.
                                   FORM 10-Q
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

Item                                                                     Page
                         PART I - FINANCIAL INFORMATION
<S>   <C>                                                                <C>

1.    U S WEST, Inc. Financial Information
         Consolidated Statements of Operations -
            Three and Nine Months Ended September 30, 1997 and 1996       3
         Consolidated Balance Sheets -
            September 30, 1997 and December 31, 1996                      5
         Consolidated Statements of Cash Flows -
            Nine Months Ended September 30, 1997 and 1996                 7
         Notes to Consolidated Financial Statements                       8
2.    U S WEST, Inc. Management's Discussion and Analysis of Financial
         Condition and Results of Operations                             15

1.    U S WEST Communications Group Financial Information
         Combined Statements of Operations -
            Three and Nine Months Ended September 30, 1997 and 1996      26
         Combined Balance Sheets -
            September 30, 1997 and December 31, 1996                     28
         Combined Statements of Cash Flows -
            Nine Months Ended September 30, 1997 and 1996                30
         Notes to Combined Financial Statements                          31
2.    U S WEST Communications Group Management's Discussion and
         Analysis of Financial Condition and Results of Operations       35


1.    U S WEST Media Group Financial Information
         Combined Statements of Operations -
            Three and Nine Months Ended September 30, 1997 and 1996      45
         Combined Balance Sheets -
            September 30, 1997 and December 31, 1996                     46
         Combined Statements of Cash Flows -
            Nine Months Ended September 30, 1997 and 1996                48
         Notes to Combined Financial Statements                          49
2.    U S WEST Media Group Management's Discussion and
         Analysis of Financial Condition and Results of Operations       55

<CAPTION>
                          PART II - OTHER INFORMATION
<S>   <C>                                                                <C>

1.    Legal Proceedings                                                  70
6.    Exhibits and Reports on Form 8-K                                   70
</TABLE>



<PAGE>



Form 10-Q - Part I
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS                         U S WEST, Inc.
(Unaudited)
-------------------------------------------- ------------------- ------------------
                                             Three Months Ended   Nine Months Ended
                                                September 30,       September 30,
Dollars in millions                          1997          1996   1997         1996
-------------------------------------------- -------------------  -----------------
<S>                                          <C>         <C>      <C>        <C>    

Sales and other revenues                     $3,918      $3,179   $11,471    $9,353

Operating expenses:
   Employee-related expenses                  1,269       1,105     3,632     3,246
   Other operating expenses                     910         623     2,572     1,823
   Taxes other than income taxes                120         101       359       319
   Depreciation and amortization                835         624     2,495     1,796
                                             -------------------  -----------------
        Total operating expenses              3,134       2,453     9,058     7,184
                                             -------------------  -----------------

Income from operations                          784         726     2,413     2,169

Interest expense                                279         140       823       411
Equity losses in unconsolidated ventures        177          81       495       224
Gains on sales of investments                    13           -       108         -
Gains on sales of rural telephone exchanges      30           2        77        51
Guaranteed minority interest expense             22          12        66        36
Other expense - net                              16           1        66        47
                                             -------------------  -----------------
Income before income taxes, extraordinary
   item and cumulative effect of change in
   accounting                                   333         494     1,148     1,502
principle
Provision for income taxes                      135         190       485       588
                                             -------------------  -----------------
Income before extraordinary item
   and cumulative effect of change in
   accounting principle                         198         304       663       914
Extraordinary item:
   Early extinguishment of debt - net of tax     (6)          -        (3)        -
                                             -------------------  -----------------
Income before cumulative effect of change
   in accounting principle                      192         304       660       914
Cumulative effect of change in accounting
   principle - net of tax                         -           -         -        34
                                             ===================  =================
NET INCOME                                   $  192      $  304   $   660    $  948
                                             ===================  =================

Dividends on preferred stock                     14           1        39         3
                                             -------------------  -----------------
EARNINGS AVAILABLE FOR
   COMMON STOCK                              $  178      $  303   $   621    $  945
                                             ===================  =================
</TABLE>

See Notes to Consolidated Financial Statements.


<PAGE>


Form 10-Q - Part I
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS                            U S WEST, Inc.
(Unaudited), continued
-------------------------------------------- -------------------- -------------------
                                              Three Months Ended   Nine Months Ended
                                                 September 30,        September 30,
 In thousands (except per share amounts)      1997          1996   1997         1996
-------------------------------------------- -------------------- -------------------
<S>                                          <C>         <C>      <C>        <C>   

COMMUNICATIONS GROUP EARNINGS
   PER COMMON SHARE:
   Income before extraordinary item and
     cumulative effect of change in
     accounting principle                      $0.70       $0.60    $2.09      $1.90
   Extraordinary item:
      Early extinguishment of debt             (0.01)          -    (0.01)         -
   Cumulative effect of change in
     accounting principle                          -           -        -       0.07
                                             -------------------- -------------------
COMMUNICATIONS GROUP EARNINGS
   PER COMMON SHARE                            $0.69       $0.60    $2.08      $1.97
                                             ==================== ===================

COMMUNICATIONS GROUP DIVIDENDS
   PER COMMON SHARE                           $0.535      $0.535   $1.605     $1.605
                                             ==================== ===================
COMMUNICATIONS GROUP AVERAGE
   COMMON SHARES OUTSTANDING                 483,218     478,356  482,374    476,744
                                             ==================== ===================


MEDIA GROUP EARNINGS (LOSS) PER
   COMMON SHARE                               $(0.26)      $0.04   $(0.64)     $0.01
                                             ==================== ===================

MEDIA GROUP AVERAGE COMMON
   SHARES OUTSTANDING                        606,729     473,902  606,568    473,501
                                             ==================== ===================
</TABLE>








See Notes to Consolidated Financial Statements.



<PAGE>


Form 10-Q - Part I
<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS                                      U S WEST, Inc.
(Unaudited)

-------------------------------------------------------------------------------------
                                                 September 30,     December 31,
Dollars in millions                                      1997              1996
-------------------------------------------------------------------------------------

ASSETS
<S>                                                  <C>             <C>    
Current assets:
     Cash and cash equivalents                       $     259       $     201
     Accounts and notes receivable  - net                2,107           2,113
     Inventories and supplies                              216             159
     Deferred directory costs                              250             259
     Deferred tax asset                                    206             213
     Prepaid and other                                      95             167
                                                     ----------       ---------

Total current assets                                     3,133           3,112
                                                     ----------       ---------

Gross property, plant and equipment                     39,149          37,756
Accumulated depreciation                                20,600          19,475
                                                     ----------       ---------

Property, plant and equipment - net                     18,549          18,281

Investment in Time Warner Entertainment                  2,483           2,477
Net investment in international ventures                 1,370           1,548
Intangible assets - net                                 12,385          12,595
Net investment in assets held for sale                     410             409
Other assets                                             2,224           2,433
                                                     ----------       ---------

Total assets                                           $40,554         $40,855
                                                     ==========       =========
</TABLE>



See Notes to Consolidated Financial Statements.


<PAGE>


Form 10-Q - Part I
<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS                                     U S WEST, Inc.
(Unaudited), continued
---------------------------------------------------------------------------------------
                                                        September 30,    December 31,
Dollars in millions                                              1997             1996
---------------------------------------------------------------------------------------
<S>                                                           <C>              <C>    

LIABILITIES AND SHAREOWNERS' EQUITY

Current liabilities:
     Short-term debt                                          $ 2,286          $ 1,051
     Accounts payable                                           1,447            1,316
     Due to Continental Cablevision shareowners                     -            1,150
     Employee compensation                                        455              470
     Dividends payable                                            267              263
     Other                                                      2,110            1,824
                                                             ---------        ---------

Total current liabilities                                       6,565            6,074
                                                             ---------        ---------

Long-term debt                                                 13,422           14,300
Postretirement and other postemployment
     benefit obligations                                        2,502            2,479
Deferred income taxes                                           4,308            4,349
Deferred credits and other                                      1,055              973

Contingencies (See Note F to the Consolidated
     Financial Statements)

Company-obligated mandatorily redeemable preferred
   securities of subsidiary trust holding solely
   Company-guaranteed debentures                                1,080            1,080
Preferred stock subject to mandatory redemption                   100               51

Shareowners' equity:
   Preferred stock                                                921              920
   Common shares                                               10,800           10,741
   Retained earnings (deficit)                                    (45)              18
   LESOP guarantee                                                (72)             (91)
   Foreign currency translation adjustments                       (82)             (39)
                                                             ---------        ---------
Total shareowners' equity                                      11,522           11,549
                                                             ---------        ---------

Total liabilities and shareowners' equity                     $40,554          $40,855
                                                             =========        =========
</TABLE>

See Notes to Consolidated Financial Statements.


<PAGE>


Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS                            U S WEST, Inc.
(Unaudited)
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------
                                                            Nine Months Ended
                                                              September 30,
Dollars in millions                                          1997         1996
-------------------------------------------------------------------------------

<S>                                                       <C>          <C>    
OPERATING ACTIVITIES
   Net income                                             $   660      $   948
   Adjustments to net income:
      Depreciation and amortization                         2,495        1,796
      Equity losses in unconsolidated ventures                495          224
      Gains on sales of investments                          (108)           -
      Gains on sales of rural telephone exchanges             (77)         (51)
      Cumulative effect of change in accounting principle       -          (34)
      Deferred income taxes and amortization of investment
         tax credits                                         (110)         (68)
   Changes in operating assets and liabilities:
      Restructuring payments                                  (59)        (126)
      Postretirement medical and life costs, net of
         cash fundings                                         21          (20)
      Accounts and notes receivable                           (12)         (87)
      Inventories, supplies and other current assets          (82)          (9)
      Accounts payable and accrued liabilities                378          171
   Other adjustments - net                                    180           33
                                                          ---------    --------
   Cash provided by operating activities                    3,781        2,777
                                                          ---------    --------
INVESTING ACTIVITIES
   Expenditures for property, plant and equipment          (2,394)      (2,252)
   Payment to Continental Cablevision shareowners          (1,150)           -
   Investment in international ventures                      (315)        (227)
   Proceeds from sales of investments                         703            -
   Proceeds from disposals of property, plant
      and equipment                                            80          129
   Cash from net investment in assets held for sale           242          176
   Other - net                                               (256)         (41)
                                                          ---------    --------
   Cash (used for) investing activities                    (3,090)      (2,215)
                                                          ---------    --------
FINANCING ACTIVITIES
   Net (repayments of) proceeds from short-term debt       (3,212)         187
   Proceeds from issuance of long-term debt                 4,123          346
   Repayments of long-term debt                              (787)        (561)
   Dividends paid on common and preferred stock              (769)        (706)
   Proceeds from issuance of common stock                      65          140
   Purchases of treasury stock                                (53)           -
                                                          ---------    --------
   Cash (used for) financing activities                      (633)        (594)
                                                          ---------    --------
CASH AND CASH EQUIVALENTS
   Increase (decrease)                                         58          (32)
   Beginning balance                                          201          192
                                                          =========    ========
   Ending balance                                         $   259      $   160
                                                          =========    ========
</TABLE>

See Notes to Consolidated Financial Statements.


<PAGE>


Form 10-Q - Part I

                                 U S WEST, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               For the Three and Nine Months Ended September 30,
                                      1997
                             (Dollars in millions)
                                  (Unaudited)

A.  Summary of Significant Accounting Policies

Basis of  Presentation.  U S WEST,  Inc. ("U S WEST" or the  "Company")  has two
classes of common stock that are intended to reflect  separately the performance
of its  communications and multimedia  businesses.  One class of stock, U S WEST
Communications  Group  ("Communications  Group"),  reflects  the  communications
businesses  of U S WEST and the  other  class of  stock,  U S WEST  Media  Group
("Media Group"), reflects the multimedia businesses of U S WEST.

The Consolidated Financial Statements have been prepared by U S WEST pursuant to
the interim  reporting  rules and  regulations  of the  Securities  and Exchange
Commission  ("SEC").  Certain  information  and  footnote  disclosures  normally
accompanying financial statements prepared in accordance with generally accepted
accounting  principles  ("GAAP") have been condensed or omitted pursuant to such
SEC  rules  and  regulations.  In the  opinion  of U S  WEST's  management,  the
Consolidated  Financial  Statements include all adjustments,  consisting of only
normal  recurring  adjustments,   necessary  to  present  fairly  the  financial
information set forth therein. It is suggested that these Consolidated Financial
Statements be read in conjunction with the 1996 U S WEST Consolidated  Financial
Statements and notes thereto  included in U S WEST's proxy  statement  mailed to
all shareowners on April 7, 1997.

 B.   U S WEST Split

On October 27, 1997, the Company announced its intention to split Communications
Group and Media Group into separate public companies.  Communications Group will
be  renamed U S WEST,  Inc.  ("new U S WEST")  and Media  Group  will be renamed
MediaOne  Group,  Inc.  ("MediaOne  Group").  Under  the  terms of the  proposed
transaction,  new U S  WEST  will  include  the  telephone,  data  and  wireless
operations  of the  Communications  Group,  as  well  as the  Yellow  Pages  and
electronic  directory businesses of U S WEST Dex, Inc. ("Dex"). Dex is currently
part of the Media Group and will be transferred to the  Communications  Group as
part of the  proposed  transaction  (the "Dex  Transfer").  MediaOne  Group will
include  the   cable/broadband,   wireless,   and  domestic  and   international
investments of the Media Group.

Under the terms of the proposed split,  Communications  Group  shareowners  will
receive one share of new U S WEST common stock for each share of  Communications
Group common stock.  Media Group  shareowners will receive one share of MediaOne
Group  common  stock for each share of Media Group  common  stock.  In addition,
Media Group shareowners will receive

<PAGE>


Form 10-Q - Part I

                                 U S WEST, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

 B.   U S WEST Split (continued)

shares of new U S WEST common  stock for each share of Media Group  common stock
which represents their interest in Dex, totaling  approximately  $850. Under the
terms of the Dex Transfer,  Media Group debt will be reduced and  Communications
Group debt will be increased by $3.9 billion.

The  transaction  is subject to a number of  approvals,  including  approvals by
regulators and both shareowner  groups,  and receipt of a favorable  ruling from
the Internal Revenue Service. The split is expected to be complete in the second
half of 1998.

C.  AirTouch Transaction

During  1994,  U S  WEST  entered  into a  definitive  agreement  with  AirTouch
Communications,  Inc. ("AirTouch") to combine their domestic cellular properties
into a partnership in a multi-phased transaction (the "AirTouch Joint Venture").
During Phase I, which commenced on November 1, 1995, the cellular properties are
owned separately. A wireless management company has been formed and is providing
services to both companies, as requested, on a contract basis.

In February  1997,  the King County  Superior  Court (the "Court") in Washington
state  ruled  that a  subsidiary  of  Media  Group  violated  the  terms  of its
partnership  agreement  with  its  minority  partners  in the  Seattle  cellular
partnership by entering into the AirTouch Joint Venture.  The Company  currently
is complying  with the Court's order which requires the Company to issue a right
of first  refusal to the  minority  partners  with  respect to the  subsidiary's
limited partnership interest.  The Court authorized the limited partners to take
legally appropriate steps to secure unanimous agreement for a substitute for the
Company as the general  partner.  A motion is pending before the Court to extend
the August 15, 1997 deadline for such  agreement.  The Company retains its right
to appeal unfavorable  rulings before  transferring any partnership  interest in
the Seattle  cellular  partnership.  Similar  litigation has been filed in other
jurisdictions regarding other cellular partnerships by the same minority partner
that brought the Seattle  litigation.  The Company is also  seeking  declaratory
relief from the Delaware Chancery Court. The Company believes it will ultimately
be successful in all litigation  asserting that the Company's  entering into the
AirTouch Joint Venture  violated its  partnership  agreements  with its minority
partners.

Media Group and AirTouch  have agreed not to proceed to Phase II of the AirTouch
Joint Venture before May 5, 1998. In Phase II of the AirTouch Joint Venture, the
partners   will  combine   those   domestic   cellular   properties   for  which
authorizations and partnership approvals have been obtained. Media Group has the
right under Phase III of the  AirTouch  Joint  Venture  agreement to convert its
joint venture interest into AirTouch stock.


<PAGE>


Form 10-Q - Part I

                                 U S WEST, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

D.  Asset Sales and Restructurings

During the third quarter of 1997,  Media Group sold 1,840,000 shares of Teleport
Communications  Group,  Inc. ("TCG") for a pretax gain of $13. In November 1997,
Media Group sold its remaining interest in TCG for net proceeds of $433.

Pursuant to a settlement  agreement,  Media Group  transferred its investment in
Optus  Vision,  an Australian  cable and  telecommunications  venture,  to Optus
Communications    Pty   Ltd.,    ("Optus    Communications"),    an   Australian
telecommunications carrier, in the third quarter of 1997. Media Group received a
convertible note which can be converted to shares of Optus  Communications  upon
satisfaction  of  various  conditions,  such  as  a  public  offering  of  Optus
Communications'  shares. The settlement released the Company from litigation and
future claims.

E.  Debt Extinguishment

During August 1997, U S WEST  redeemed its Liquid Yield Option Notes  ("LYONs").
The  convertible  zero coupon  subordinated  notes were due June 25, 2011.  Upon
redemption,  the notes had a  recorded  value of $571.  The debt  extinguishment
resulted in a loss of $6 (net of income tax benefits of $4) primarily related to
the  write-off of deferred  debt  issuance  costs.  This loss is reflected as an
extraordinary charge in the accompanying  Consolidated Statements of Operations.
U S WEST financed the redemption with floating rate commercial paper.

F. Contingencies

At U S WEST Communications,  Inc. ("U S WEST Communications")  there are pending
regulatory  actions  in local  regulatory  jurisdictions  that  call  for  price
decreases, refunds or both.

On May 1, 1996,  the Oregon  Public  Utilities  Commission  ("OPUC")  approved a
stipulation terminating prematurely U S WEST Communications' alternative form of
regulation  ("AFOR")  plan,  and  it  then  undertook  a  review  of  U  S  WEST
Communications'  earnings. In May 1997, the OPUC ordered U S WEST Communications
to reduce its annual  revenues  by $97,  effective  May 1, 1997,  and to issue a
one-time  refund,  including  interest,  of  approximately  $102 to reflect  the
revenue  reduction  for the  period  May 1, 1996  through  April 30,  1997.  The
one-time  refund is for interim  rates which  became  subject to refund when U S
WEST Communications' AFOR plan was terminated on May 1, 1996.


<PAGE>


Form 10-Q - Part I

                                 U S WEST, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

F. Contingencies (continued)

U S WEST Communications  filed an appeal of the order and asked for an immediate
stay of the  refund  with the  Oregon  Circuit  Court  for the  County of Marion
("Oregon Circuit Court"). On June 26, 1997, the Oregon Circuit Court granted U S
WEST  Communications'  request  for a stay,  pending a full review of the OPUC's
order.  The Oregon Circuit Court is scheduled to hear arguments on the appeal in
December 1997. The one-time refund and cumulative  amount of revenues  collected
subject  to  refund,  including  interest,  as of  September  30,  1997,  totals
approximately $150.

In 1996, the Washington State Utilities and Transportation  Commission  ("WUTC")
acted on U S WEST Communications' 1995 rate request. U S WEST Communications had
sought to increase  revenues by raising rates  primarily  for basic  residential
services over a four-year period.  Instead of granting U S WEST  Communications'
request, the WUTC ordered $91.5 in annual net revenue reductions,  effective May
1, 1996.

Based on the WUTC ruling, U S WEST Communications  filed a lawsuit with the King
County Superior Court (the "Court") for an appeal of the order, a temporary stay
of the  ordered  rate  reduction  and an  authorization  to  implement a revenue
increase.  The Court declined to change the WUTC order. U S WEST  Communications
appealed the Court's  decision to the Washington State Supreme Court (the "State
Supreme Court") which, on January 22, 1997, granted a stay of the order, pending
the State Supreme  Court's full review of the appeal.  Oral arguments were heard
in June 1997. U S WEST Communications is waiting a decision by the State Supreme
Court.

Effective May 1, 1996, U S WEST Communications began collecting revenues subject
to refund.  The cumulative amount of revenues  collected subject to refund as of
September 30, 1997, including interest, is approximately $155.

In another  proceeding,  the Utah Supreme Court  remanded a Utah Public  Service
Commission  ("PSC")  order  to the PSC for  hearing,  thereby  establishing  two
exceptions  to the  rule  against  retroactive  ratemaking:  1)  unforeseen  and
extraordinary events, and 2) misconduct. The PSC's initial order denied a refund
request from interexchange  carriers and other parties related to the Tax Reform
Act of 1986. The potential exposure,  including interest, at September 30, 1997,
is approximately $160.



<PAGE>


Form 10-Q - Part I

                                 U S WEST, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

 F.   Contingencies (continued)

The  Communications  Group  has  accrued  $125  at  September  30,  1997,  which
represents  its estimated  liability  for state  regulatory  proceedings.  It is
possible that the ultimate  liability could exceed the recorded  liability by an
amount up to approximately  $340. The Communications  Group continues to monitor
and evaluate the risks  associated with its state  regulatory  environment,  and
will adjust estimates as new information becomes available.

G.  Subsequent Event

On October 27, 1997, Media Group sold its 90 percent interest in Fintelco, S.A.,
("Fintelco"),  a cable and telecommunications  venture located in Argentina, for
proceeds of  approximately  $640.  Media Group acquired an additional 40 percent
interest in Fintelco in August 1997, to bring its total  interest in Fintelco to
90 percent.

H.  Net Investment in Assets Held for Sale

The capital  assets  segment is being  accounted  for in  accordance  with Staff
Accounting  Bulletin  No. 93,  issued by the SEC,  which  requires  discontinued
operations  not  disposed  of  within  one  year of the  measurement  date to be
accounted  for  prospectively  in continuing  operations  as "net  investment in
assets held for sale." The net realizable value of the assets is being evaluated
on an ongoing basis with  adjustments  to the existing  reserve,  if any,  being
charged to continuing operations. No such adjustment has been required. Prior to
January  1,  1995,  the entire  capital  assets  segment  was  accounted  for as
discontinued  operations in accordance with Accounting  Principles Board Opinion
No. 30.



<PAGE>


Form 10-Q - Part I

                                 U S WEST, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

H.  Net Investment in Assets Held for Sale (continued)
<TABLE>
<CAPTION>

The components of net investment in assets held for sale follow:

--------------------------------------------------------------------------------------- 
                                                          September 30,   December 31,
                                                                   1997           1996
---------------------------------------------------------------------------------------
<S>                                                             <C>           <C>    

ASSETS
Cash and cash equivalents                                       $    52       $     21
Finance receivables - net                                           806            869
Investment in real estate - net of valuation allowance              158            182
Bonds, at market value                                              118            146
Investment in FSA                                                   351            326
Other assets                                                        179            165
                                                               ---------      ---------

Total assets                                                     $1,664         $1,709
                                                               =========      =========

LIABILITIES
Debt                                                             $  421         $  481
Deferred income taxes                                               685            671
Accounts payable, accrued liabilities and other                     137            137
Minority interests                                                   11             11
                                                              ----------      ---------

Total liabilities                                                 1,254          1,300
                                                              ----------      ---------

Net investment in assets held for sale                           $  410         $  409
=======================================================================================
</TABLE>

Building sales and operating evenues of the capital assets segment were $13 and
$91  for  the  three-  and   nine-month   periods  ended   September  30,  1997,
respectively,  and $110 and $161 for the three-  and  nine-month  periods  ended
September 30, 1996, respectively.



<PAGE>


Form 10-Q - Part I

                                 U S WEST, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

H.  Net Investment in Assets Held for Sale (continued)

Revenues of U S WEST Financial Services, Inc. ("USWFS"), a member of the capital
assets  segment,  were $5 and $16 for the three- and  nine-month  periods  ended
September 30, 1997,  respectively,  and $6 and $20 for the three- and nine-month
periods ended  September 30, 1996,  respectively.  Selected  financial  data for
USWFS follows:
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------
                                            September 30,      December 31,
                                                     1997              1996
-------------------------------------------------------------------------------
<S>                                                <C>              <C>

Net finance receivables                            $  850           $   859
Total assets                                        1,208             1,058
Total debt                                            397               236
Total liabilities                                   1,139               998
Equity                                                 69                60
-------------------------------------------------------------------------------
</TABLE>

In September 1997, USWFS pledged certain finance receivables as collateral for a
nonrecourse loan totaling $173. The loan bears interest at an annual rate of 7.2
percent and matures in the year 2009.



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussio and Analysis of Financial Condition and Results
of Operations (Dollars in millions)

Some  of  the  information  presented  in  or in  connection  with  this  report
constitutes  "forward-looking  statements"  within the  meaning  of the  Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
expectations  are  based on  reasonable  assumptions  within  the  bounds of its
knowledge of its business and operations,  there can be no assurance that actual
results will not differ  materially  from its  expectations.  Factors that could
cause  actual  results to differ from  expectations  include:  (i) greater  than
anticipated  competition  from new entrants into the local  exchange,  intraLATA
toll, cable, telephone, wireless and directories markets, (ii) changes in demand
for the  Company's  products and services,  including  optional  custom  calling
features,   (iii)   different  than   anticipated   employee   levels,   capital
expenditures,  and operating expenses at the Communications Group as a result of
unusually  rapid,  in-region  growth,  (iv)  the  gain or  loss  of  significant
customers,   (v)  pending  regulatory  actions  in  state  jurisdictions,   (vi)
regulatory  changes  affecting  the  cable  and  telecommunications  industries,
including  changes that could have an impact on the  competitive  environment in
the local exchange market,  (vii) a change in economic conditions in the various
markets served by the Company's operations that could adversely affect the level
of demand for cable, telephone,  wireless, directories or other services offered
by the Company,  (viii) greater than anticipated  competitive activity requiring
new pricing for services, (ix) higher than anticipated start-up costs associated
with new business  opportunities,  (x)  increases in  fraudulent  activity  with
respect to wireless  services,  or (xi) delays in the development of anticipated
technologies,  or the  failure  of such  technologies  to perform  according  to
expectations.

Results of Operations - Three and Nine Months Ended September 30, 1997 Compare
with 1996
<TABLE>
<CAPTION>

Net Income (Loss)

--------------------------------------------------------------------------------------------------
                         Three Months Ended      Increase        Nine Months Ended    Increase
                           September 30,        (Decrease)         September 30,     (Decrease)
                            1997     1996      $       %          1997      1996    $       %
--------------------------------------------------------------------------------------------------
<S>                        <C>       <C>       <C>      <C>      <C>      <C>       <C>     <C>

Communications Group       $ 336     $286      $   50    17.5    $1,007    $938     $   69    7.4
Media Group                 (144)      18        (162)      -      (347)     10       (357)    -
                           -----------------------------------------------------------------------
Total net income           $ 192     $304       $(112)  (36.8)   $  660    $948     $ (288) (30.4)
================================================================================================== 
</TABLE>



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Result
of Operations (Dollars in millions, except per share amounts), continued

Communications Group Net Income

Following  are details of the  Communications  Group's  reported  net income and
earnings per common share  ("earnings  per  share"),  normalized  to exclude the
effects of certain nonoperating items.
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
                                       Three Months Ended    Increase        Nine Months Ended      Increase
                                         September 30,      (Decrease)         September 30,       (Decrease)
Net Income:                              1997      1996      $         %       1997      1996       $       $
----------------------------------------------------------------------------------------------------------------

<S>                                      <C>       <C>       <C>      <C>       <C>         <C>     <C>    <C>
Reported net income                      $336      $286      $50      17.5      $1,007      $938    $69    7.4
Adjustments to reported net
  income:
  Gains on sales of rural
    telephone exchanges                  (19)        (1)     (18)        -         (48)      (31)   (17)  54.8
  Early extinguishment of debt             3          -        3         -           3         -      3      -
  Cumulative effect of change in
     accounting principle (1)              -          -        -         -           -       (34)    34      -
  Current year effect of change
     in accounting principle (1)           -         (3)       3         -           -       (13)    13      -
                                     ---------------------------------------------------------------------------
Normalized income                       $320       $282      $38      13.5        $962      $860   $102   11.9
================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------
                                    Three Months Ended    Increase       Nine Months Ended       Increase
                                      September 30,      (Decrease)        September 30,        (Decrease)
Earnings per Share:                   1997     1996      $        %        1997     1996        $       %
-------------------------------------------------------------------------------------------------------------
<S>                                  <C>       <C>       <C>      <C>      <C>      <C>       <C>      <C>

Reported earnings per share          $0.69     $0.60     $0.09    15.0     $2.08    $1.97     $0.11    5.6
Adjustments to reported
  earnings per share:
  Gains on sales of rural
     telephone exchanges             (0.04)        -     (0.04)      -     (0.10)   (0.06)    (0.04)  66.7
  Early extinguishment of debt        0.01         -      0.01       -      0.01        -      0.01      -
  Cumulative effect of change in
     accounting principle (1)<F1>        -         -         -       -         -    (0.07)     0.07      -
  Current year effect of change
     in accounting principle (1)<F1>     -     (0.01)     0.01       -         -    (0.03)     0.03      -
                                     ------------------------------------------------------------------------
Normalized earnings per share        $0.66     $0.59     $0.07    11.9     $1.99    $1.81     $0.18    9.9
=============================================================================================================
<FN>
<F1>
(1)  Effective  January  1,  1996,  U S  WEST  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
</FN>
</TABLE>

The Communications  Group's normalized income increased $38, or 13.5 percent, to
$320, and $102, or 11.9 percent,  to $962, for the three- and nine-month periods
ended September 30, 1997, respectively. Normalized earnings per share was $0.66,
an increase of $0.07,  or 11.9 percent,  and $1.99, an increase of $0.18, or 9.9
percent for the three- and nine-month periods, respectively.



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Result
of Operations (Dollars in millions, except per share amounts), continued

The increases are primarily due to higher demand for services and continued cost
control  efforts in the core business  which  accelerated  in the latter half of
1996.  Partially  offsetting  the  increases  for both periods  were  additional
expenses   related  to   interconnection.   Accruals  to   recognize  U  S  WEST
Communications'   estimated  state  regulatory  liability  further  reduced  the
nine-month  period  increase.  (See  Note  F -  Contingencies  - to the U S WEST
Consolidated  Financial  Statements.) The Communications  Group anticipates that
spending  increases  related  to  interconnection  requirements  and entry  into
wireless personal  communications  services ("PCS") and interLATA  long-distance
markets, combined with rate reductions resulting from the Federal Communications
Commission's (the "FCC") price cap regulation,  will partially offset future net
income growth.

During August 1997, the  Communications  Group incurred an extraordinary loss of
$3 (net of income tax benefits of $2), or $0.01 per share,  related to the early
extinguishment  of  debt.  See  Note E - Debt  Extinguishment  - to the U S WEST
Consolidated Financial Statements.

Effective  January 1, 1996, U S WEST adopted SFAS No. 121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,"
which, among other things, requires that companies no longer record depreciation
expense on assets  held for sale.  Adoption  of SFAS No. 121  resulted in a 1996
one-time  gain of $34 (net of income tax  expenses of $22),  or $0.07 per share,
related to the cumulative effect of change in accounting principle.

Media Group Net Loss

Media  Group net income  decreased  to a loss of $144  ($0.26 per share) for the
three-month  period,  and to $347 ($0.64 per share) for the  nine-month  period.
Excluding the after tax effects of the gains on sales of investments totaling $7
($0.01  per  share)  during the  three-month  period,  and $63 ($0.10 per share)
during nine-month period, Media Group net income decreased $169 and $420 for the
three- and nine-month  periods,  respectively.  The November 15, 1996, merger of
Continental Cablevison, Inc. ("Continental") into a wholly owned subsidiary of U
S WEST (the "Continental Merger" or "Merger") contributed  approximately $118 of
the  decrease  during the  three-month  period,  and $301 during the  nine-month
period. The Continental Merger resulted in significant increases in interest and
depreciation and amortization  charges.  The remaining decrease in net income is
primarily due to greater losses from unconsolidated  ventures,  partially offset
by increased earnings from domestic cellular and directories operations.

During third-quarter 1997, Media Group incurred an extraordinary loss of $3 (net
of income tax benefits of $2) related to the early  extinguishment  of debt. See
Note  E -  Debt  Extinguishment  -  to  the  U  S  WEST  Consolidated  Financial
Statements.  During  second-quarter  1997, Media Group incurred an extraordinary
gain of $3 (net  of  income  tax  expenses  of $2)  also  related  to the  early
extinguishment of debt.



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Sales and Other Revenues
<TABLE>
<CAPTION>

---------------------------------- ----------------------------- ------------------ --- ------------- -----------------
                                                                                                           Pro forma
                                          Three Months Ended            Increase                           Increase
                                               September 30,          (Decrease)         Pro forma        (Decrease)
                                            1997          1996        $          %         1996            $         %
---------------------------------- -------------- ------------- -------- ----------    ------------- -------- ---------
<S>                                      <C>            <C>         <C>     <C>              <C>         <C>    <C>

Communications Group                      $2,673        $2,515      $158       6.3           $2,515      $158      6.3
Media Group                                1,270           694       576      83.0            1,161       109      9.4
Intergroup eliminations                     (25)          (30)         5    (16.7)             (30)         5   (16.7)
                                   ============== ============= ========= =========    ============= ========= ========
Total                                     $3,918        $3,179      $739      23.2           $3,646      $272      7.5
================================== ============== ============= ========= =========    ============= ========= ========
</TABLE>

<TABLE>
<CAPTION>
---------------------------------- ----------------------------- ------------------    ------------- -----------------
                                                                                                         Pro forma
                                             Nine Months Ended         Increase                           Increase
                                                September 30,        (Decrease)         Pro forma       (Decrease)
                                            1997          1996        $          %         1996            $        %
---------------------------------- -------------- ------------- -------- ----------    ------------- -------- --------

<S>                                      <C>            <C>        <C>       <C>            <C>         <C>     <C>
Communications Group                      $7,803        $7,480       $323      4.3           $7,480      $323     4.3
Media Group                                3,754         1,965      1,789     91.0            3,368       386    11.5
Intergroup eliminations                     (86)          (92)          6    (6.5)             (92)         6   (6.5)
                                   ============== ============= ========== ======== == ============= ========= =======
Total                                    $11,471        $9,353     $2,118     22.6          $10,756      $715     6.6
================================== ============== ============= ========== ======== == ============= ========= =======
</TABLE>

Communications Group Sales and Other Revenues

The Communications  Group's operating revenues increased 6.3 percent, to $2,673,
and  4.3  percent,  to  $7,803,   during  the  three-  and  nine-month  periods,
respectively,  primarily as a result of access line growth and increased  demand
for new product and service offerings and central office features. Higher demand
for private line  services and  increases in billed  interstate  and  intrastate
minutes of use also contributed to the revenue growth.  Partially offsetting the
increases for both periods were lower  long-distance  network  service  revenues
primarily due to the effects of competition and the  implementation  of multiple
toll carrier  plans.  Accruals to recognize U S WEST  Communications'  estimated
state regulatory liability also reduced operating revenues during the nine-month
period.  (See Note F -  Contingencies - to the U S WEST  Consolidated  Financial
Statements.)  For a detailed  discussion  of  Communications  Group's  operating
revenues, see U S WEST Communications Group Management's Discussion and Analysis
of Financial Condition and Results of Operations - Operating Revenues.

Media Group Sales and Other Revenues

Media Group sales and other revenues increased 83.0 percent, to $1,270, and 91.0
percent,  to $3,754, for the three- and nine-month periods,  respectively.  On a
pro forma basis,  Media Group sales and other revenues increased 9.4 percent and
11.5 percent,  for the three- and nine-month  periods,  respectively.  Growth in
domestic cable and broadband  revenues and domestic  cellular  service  revenues
accounts for  the  majority of the pro forma increase.  The increase in domestic

<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

cable and broadband is due to price  increases of  approximately 6 to 8 percent,
the addition of new channels and basic  subscriber  increases of approximately 2
percent. A 32.1 percent increase in cellular  subscribers  partially offset by a
10.2  percent  decrease in average  revenue per  subscriber  contributed  to the
increase in domestic cellular service revenue. For a detailed discussion,  see U
S WEST Media Group - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Sales and Other Revenues.

Operating Income
<TABLE>
<CAPTION>
-------------------------------------- -------------------------- ----------------- -- ------------- -----------------
                                          Three Months Ended                                               Pro forma
                                             September 30,             Increase         Pro forma          Increase
                                            1997          1996        $                    1996            $      %
                                                                             %
---------------------------------- -------------- ------------- -------- ----------    ------------- -------- --------
<S>                                         <C>           <C>        <C>      <C>              <C>        <C>    <C>

Communications Group                        $616          $574       $42       7.3             $574       $42     7.3
Media Group                                  168           152        16      10.5              137        31    22.6
                                   ============== ============= ========= =========    ============= ========= =======
Total operating income                      $784          $726       $58       8.0             $711       $73    10.3
================================== ============== ============= ========= ========= == ============= ========= =======
</TABLE>

<TABLE>
<CAPTION>
-------------------------------------- ------------------------ ------------------- -- ------------- -----------------
                                          Nine Months Ended                                                Pro
                                             September 30,             Increase         Pro forma         forma
                                                                                                           Increase
                                            1997          1996        $       %            1996            $      %
---------------------------------- -------------- ------------- -------- ----------    ------------- -------- --------
<S>                                       <C>           <C>         <C>       <C>            <C>         <C>     <C>
Communications Group                      $1,880        $1,744      $136       7.8           $1,744      $136     7.8
Media Group                                  533           425       108      25.4              384       149    38.8
                                   ============== ============= ========= =========    ============= ========= =======
Total operating income                    $2,413        $2,169      $244      11.2           $2,128      $285    13.4
================================== ============== ============= ========= ========= == ============= ========= =======
</TABLE>

Communications Group Operating Income

The Communications  Group's operating income increased 7.3 percent, to $616, and
7.8 percent, to $1,880, during the three- and nine-month periods,  respectively.
Revenue  increases  combined  with  continued  cost control  efforts in the core
business,  which  accelerated  in the latter  half of 1996,  contributed  to the
increase in  operating  income.  The growth in  operating  income was  partially
offset in both  periods by  expenses  related to  interconnection.  Accruals  to
recognize U S WEST Communications'  estimated state regulatory liability further
reduced the nine-month  period increase (See Note F - Contingencies - to the U S
WEST  Consolidated   Financial   Statements).   For  a  detailed  discussion  of
Communications  Group's costs and expenses,  see U S WEST Communications Group -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations - Costs and Expenses.

Media Group Operating Income

During the three- and nine-month  periods ended September 30, 1997,  Media Group
operating  income  increased  10.5 percent and 25.4  percent,  to $168 and $533,


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

respectively.  On a pro forma basis, operating income increased 22.6 percent and
38.8  percent,  for the  same  periods.  The pro  forma  increases  were  driven
primarily by growth in domestic wireless  communications  and domestic directory
operations.  Domestic  cellular  revenue  growth  combined  with a 19.8  percent
decrease in the costs to acquire and support customers  contributed to growth in
operating income. Revenue increases in the domestic directory operations related
to price  and  volume  increases,  combined  with  cost  savings  as a result of
headcount  reductions  also  contributed  to growth in operating  income.  For a
detailed  discussion,  see U S WEST Media Group -  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations - Operating Income.

Interest Expense and Other
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                     Three Months Ended                       Nine Months Ended
                                        September 30,       Increase             September 30,      Increase
                                      1997        1996      $        %         1997        1996    $        %
------------------------------------ --------- --------- -------- ---------  --------- ---------  --------- --------
<S>                                   <C>        <C>        <C>      <C>       <C>         <C>     <C>      <C>

Interest expense                      $279       $140       $139     99.3      $823        $411    $412        -
Equity losses in
  unconsolidated ventures              177         81         96        -       495         224     271        -
Gains on sales of investments           13          -         13        -       108          -      108        -
Gains on sales of rural
  telephone exchanges                   30          2         28        -        77          51      26     51.0
Guaranteed minority interest
  expense                               22         12         10     83.3        66          36      30     83.3
Other expense                           16          1         15        -        66          47      19     40.4
------------------------------------ --------- --------- -------- ---------  --------- ---------- --------- --------
</TABLE>

Interest  expense  increased  $139 and $412  during the  three-  and  nine-month
periods, respectively, primarily as a result of the Continental Merger. U S WEST
assumed  Continental debt totaling $6,525 (at market value) and incurred debt of
$1,150 to finance the cash portion of the Merger consideration.

Equity  losses  increased  $96 and $271 for the three- and  nine-month  periods,
respectively,  predominantly due to greater losses generated from  international
ventures and the domestic  investment in PrimeCo  Personal  Communications  L.P.
("PrimeCo").  PrimeCo launched  service in November 1996, and losses  associated
with this venture have increased as a result of start-up and other costs.

The  increase  in  international  equity  losses  primarily  relates  to foreign
exchange  transaction  losses at the Malaysian and  Indonesian  operations,  and
amortization  of license  fees  related to a wireless  investment  in India.  In
addition,  costs  associated  with the  significant  increase in  customers  and
network  coverage at One 2 One  contributed to the increase in losses during the
  

<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

nine-month  period.  Fluctuations in foreign  exchange rates could impact future
equity losses.

During the third quarter of 1997,  Media Group sold 1,840,000  million shares of
TCG for a pretax gain of $13.  Also during the  nine-month  period,  Media Group
sold its shares of Time Warner,  Inc. acquired in the Continental Merger and its
5 percent interest in a wireless venture in France. These transactions  resulted
in pretax gains totaling $108.

During the  nine-month  period,  the  Communications  Group sold selected  rural
telephone  exchanges in Iowa, South Dakota,  Nebraska,  Idaho, and Minnesota for
pretax gains of $77.  Certain  Minnesota  rural  telephone  exchanges  were sold
during third-quarter 1997 for a pretax gain of $30. The 1996 gains were a result
of sales in Utah, North Dakota and South Dakota.

Guaranteed  minority  interest expense  increased $10 and $30 for the three- and
nine-month  periods,  respectively.  The increases  were a result of the October
1996 issuance of Company-obligated  mandatorily  redeemable preferred securities
of subsidiary  trust holding solely  Company-guaranteed  debentures  ("Preferred
Securities") totaling $480.

Other  expense  increased  $15, to $16,  and $19, to $66,  during the three- and
nine-month periods,  respectively.  The three-month period increase is partially
due to foreign exchange transaction losses related to receivables denominated in
foreign  currencies.   The  nine-month  period  increase  is  primarily  due  to
additional   interest  expense  associated  with  the   Communications   Group's
interstate  sharing  and  state  regulatory  liabilities  partially  offset by a
second-quarter  1996  pretax  charge  of $31  associated  with the sale of Media
Group's cable television interests in Norway, Sweden and Hungary.

Provision for Income Taxes
<TABLE>
<CAPTION>
------------------------------------------ ------------------------- ---------- ------------------------ ----------
                                                 Three Months Ended                   Nine Months Ended
                                                    September 30,      Percent          September 30,      Percent
                                                  1997        1996      Change        1997        1996      Change
------------------------------------------ ------------ ----------- ----------- ----------- ----------- -----------
<S>                                               <C>         <C>       <C>           <C>         <C>       <C>
Provision for income taxes                        $135        $190      (28.9)        $485        $588      (17.5)
Effective tax rate                                   -           -          -         42.2%       39.1%         -
------------------------------------------ ------------ ----------- ----------- ----------- ----------- -----------
</TABLE>

The  increase in the  effective  tax rate is  primarily a result of lower pretax
earnings and additional  goodwill  amortization  associated with the Continental
Merger.




<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Liquidity and Capital Resources

Operating Activities
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                           Nine Months Ended
                                                             September 30,
                                                        1997              1996
--------------------------------------------------------------------------------
<S>                                                    <C>              <C>   

Communications Group                                   $2,892           $2,357
Media Group                                               889              420
                                                   -----------------------------
Total cash provided by operating activities            $3,781           $2,777
================================================================================
</TABLE>

Cash  provided by operating  activities  increased  $1,004 during the first nine
months of 1997.  The increase is primarily due to growth in both  Communications
Group and Media Group  operations.  The increase in the  Communications  Group's
operating cash flow reflects continued cost control efforts, lower restructuring
expenditures,  and a decrease  in the cash  funding of  postretirement  benefits
during 1997.  Operating cash flow at the Media Group increased  primarily due to
the Continental  Merger and growth in operations from the domestic  cellular and
directories  businesses.  Partially offsetting the increase was higher financing
costs resulting from greater debt levels associated with the Continental Merger.

Investing Activities
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                                        Nine Months Ended
                                                           September 30,
                                                    1997                 1996
-------------------------------------------------------------------------------

<S>                                                <C>                <C>     
Communications Group                               $(1,286)           $(1,762)
Media Group                                         (1,804)              (453)
                                              ---------------------------------
Total cash (used for) investing activities         $(3,090)           $(2,215)
===============================================================================
</TABLE>

Investing  activities  at  Communications  Group  consists  primarily of capital
expenditures of $1,307,  on a cash basis, for the first nine months of 1997. The
majority of the 1997  expenditures  related to access line growth and  continued
improvement   of   the   telecommunications    network.   Also   included   were
interconnection  costs  and  expenditures   associated  with  entering  wireless
communications  markets  with  the  launch  of  PCS.  The  Communications  Group
anticipates capital  expenditures will accelerate during fourth quarter and will
include expenditures to launch PCS in additional markets and for interconnection
requirements related to the Telecommunications Act.

Investing  activities of the Media Group include capital expenditures of $1,087,
on a cash basis, for the first nine months of 1997. The majority of expenditures
in 1997 were devoted to

<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

upgrading  the  domestic  cable  network and  expanding  the  domestic  cellular
network.  Media Group also invested $315 in international  ventures during 1997,
primarily for an additional 40 percent interest in Fintelco,  with the remainder
being primarily  capital  contributions  to a wireless  venture in India.  Other
investing  activities  include an  investment  in  Continental  of $1,150  which
represents payment of the cash portion of the Merger consideration.

During the first nine months of 1997,  Media Group  received  proceeds  totaling
$945  related to asset  sales as  follows:  (a) $246 from the sale of  7,915,000
shares of TCG stock,  (b) $ 242 from  asset  sales and other  proceeds  from the
capital assets  segment,  which is held for sale, (c) $220 from the sale of Time
Warner,  Inc. shares acquired in the Continental  Merger, (d) $121 from the sale
of  Thomson  Directories,  (e) $81  from the sale of  Media  Group's  5  percent
interest in a wireless venture in France,  and (f) $35 from other  miscellaneous
sales.

On October 27,  1997,  Media Group sold its 90 percent  interest in Fintelco for
proceeds of approximately  $640. Also in October 1997, Media Group sold U S WEST
Polska,  its wholly  owned  directory  operation  in  Poland,  for  proceeds  of
approximately  $30. In November 1997, Media Group sold its remaining interest in
TCG for net proceeds of $433.

Financing Activities
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                                      Nine Months Ended
                                                         September 30,
                                                  1997                  1996
------------------------------------------------------------------------------
<S>                                               <C>                 <C>    

Communications Group                              $(1,490)            $ (661)
Media Group                                           857                 67
                                               -------------------------------
Total cash (used for) financing activities        $  (633)            $ (594)
==============================================================================
</TABLE>

On October 27, 1997, the Company announced its intention to split Communications
Group and Media Group into  separate  public  companies.  Under the terms of the
proposed transaction, new U S WEST will include the telephone, data and wireless
operations  of the  Communications  Group,  as  well  as the  Yellow  Pages  and
electronic directory businesses of Dex. Dex is currently part of the Media Group
and will be  transferred  to the  Communications  Group as part of the  proposed
transaction.  MediaOne  Group will  include the  cable/broadband,  wireless  and
domestic and international investments of the Media Group.

Under the terms of the Dex Transfer, Media Group shareowners will receive shares
of new U S WEST common stock for each share of Media Group common  stock,  which
represents their interest in Dex, totaling approximately $850. Also, Media Group
debt will be reduced and  Communications  Group debt will be  increased  by $3.9
billion.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued


The  transaction  is subject to a number of  approvals,  including  approvals by
regulators and both shareowner  groups,  and receipt of a favorable  ruling from
the Internal Revenue Service. The split is expected to be complete in the second
half of 1998

As a result of the proposed split announcement,  certain U S WEST credit ratings
are under  review.  Standard  & Poor's  placed U S WEST  Communications'  senior
unsecured debt rating on credit watch with positive  implications and reaffirmed
U S WEST Communications' commercial paper ratings. Duffs & Phelps reaffirmed U S
WEST  Communications'  senior unsecured debt and commercial  paper ratings.  U S
WEST  Communications'  senior  unsecured  debt rating  remains  under  review by
Moody's, which may result in a downgrading.

The  credit  ratings  for U S WEST  Capital  Funding,  Inc.  and  for  Preferred
Securities are under review by Standard & Poor's (with  negative  implications),
Moody's  and  Duff  &  Phelps.   Senior  debt  at  MediaOne,   Inc.,   (formerly
Continental),  was downgraded by Moody's from Baa2 to Baa3 and subordinated debt
from Baa3 to Ba1,  and is under  review by  Standard  &  Poor's,  with  negative
implications.   The  MediaOne,  Inc.  debt  remains  under  review  for  further
downgrading by Moody's. For all outstanding debt securities issued or guaranteed
by U S WEST,  Inc., the Company  intends to take  appropriate  steps to preserve
bondholder value.

Total debt at September 30, 1997 was $15,708,  an increase of $357 compared with
December 31, 1996. The Company  incurred  additional debt in 1997 to finance the
cash portion of the Continental  Merger  consideration  which totaled $1,150. In
January  1997,  the Company  issued  medium- and  long-term  debt  totaling $4.1
billion,  at a weighted average rate of 7.47 percent.  The proceeds were used to
refinance debt incurred in conjunction with the Continental Merger. Increases in
debt at Media  Group  were  partially  offset  by  decreases  in debt of $748 at
Communications Group. The decrease in debt at Communications Group was driven by
increased operating cash flows and lower capital expenditures.

During August,  1997, U S WEST redeemed its LYONs with a recorded value of $571.
During the second  quarter of 1997,  MediaOne,  Inc.  redeemed a 10 5/8  percent
senior  subordinated note with a recorded value of $110,  including a premium of
$10. U S WEST financed the redemptions with floating rate commercial paper.

During second quarter of 1997, Media Group acquired cable systems serving 40,000
subscribers  in the state of Michigan for cash of $25 and  approximately  $50 of
Series E Convertible Preferred Stock (the "Preferred Stock") issued by U S WEST.
The Preferred  Stock is redeemable at U S WEST's option starting five years from
the acquisition  date, or upon dissolution of Media Group. The stockholders have
the right to elect cash upon  redemption,  or to convert their  Preferred  Stock
into Media Group common stock based on a predetermined formula.



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Excluding  debt  associated  with the  capital  assets  segment,  the  Company's
percentage  of debt to total  capital at  September  30,  1997 was 55.3  percent
compared with 54.8 percent at December 31, 1996.  Including debt associated with
the capital assets  segment,  Preferred  Securities and  mandatorily  redeemable
preferred  stock,  the  Company's  percentage  of debt to total capital was 60.0
percent at September 30, 1997,  compared with 59.5 percent at December 31, 1996.
The percentage of debt to total capital has increased as a result of higher debt
associated with the Continental Merger.

U S WEST  from  time  to  time  engages  in  preliminary  discussions  regarding
restructurings,   dispositions   and  other  similar   transactions.   Any  such
transaction  may include,  among other things,  the transfer of certain  assets,
businesses or interests,  or the incurrence or assumption of  indebtedness,  and
could be material to the  financial  condition  and results of operations of U S
WEST.  There is no  assurance  that  any such  discussions  will  result  in the
consummation of any such transaction.

Contingencies

For a discussion of contingencies at Communications Group, see Note D -
Contingencies - to the U S WEST Communications Group Combined Financial
Statements.

Regulatory Environment

For a discussion of Communications Group's regulatory environment,  see U S WEST
Communications Group Management's Discussion and Analysis of Financial Condition
and Results of Operations - Regulatory Environment.


<PAGE>


Form 10-Q - Part I
<TABLE>
<CAPTION>
COMBINED  STATEMENTS OF                           U S WEST COMMUNICATIONS GROUP
OPERATIONS (Unaudited)
--------------------------------------------- --------------------------- --------------------------
                                                    Three Months Ended         Nine Months Ended
                                                       September 30,             September 30,
Dollars in millions                                  1997          1996        1997          1996
--------------------------------------------- -------------- ------------ ------------ -------------
<S>                                                  <C>          <C>         <C>            <C>    

Operating revenues:
  Local service                                      $1,314       $1,208      $3,739         $3,532
  Interstate access service                             663          606       2,028          1,854
  Intrastate access service                             208          192         608            571
  Long-distance network services                        231          272         721            840
  Other services                                        257          237         707            683
                                              -------------- ------------ ------------ -------------
     Total operating revenues                         2,673        2,515       7,803          7,480

Operating expenses:
  Employee-related expenses                             951          900       2,719          2,688
  Other operating expenses                              469          402       1,305          1,177
  Taxes other than income taxes                         103           94         308            291
  Depreciation and amortization                         534          545       1,591          1,580
                                                -------------- ------------ ------------ -------------
     Total operating expenses                         2,057        1,941       5,923          5,736
                                                -------------- ------------ ------------ -------------

Income from operations                                  616          574       1,880         1,744

Interest expense                                        100          111         303           332
Gains on sales of rural telephone exchanges              30            2          77            51
Other expense                                            11           10          52            22
                                                -------------- ------------ ------------ -------------
Income before income taxes,
  extraordinary item and cumulative
  effect of change in accounting principle
                                                        535          455       1,602         1,441
Provision for income taxes                              196          169         592           537
                                                -------------- ------------ ------------ -------------
Income before extraordinary item
  and cumulative effect of change in
  accounting principle                                  339          286       1,010           904
Extraordinary item - early extinguishment
  of debt - net of tax                                   (3)           -          (3)            -
                                                -------------- ------------ ------------ -------------
Income before cumulative effect of change
  in accounting principle                               336          286       1,007           904
Cumulative effect of change in accounting
  principle - net of tax                                  -            -           -            34
                                                -------------- ------------ ------------ -------------

NET INCOME                                             $336         $286      $1,007          $938
                                                ============== ============ ============ =============

</TABLE>

See Notes to Combined Financial Statements.


<PAGE>


Form 10-Q - Part I
<TABLE>
<CAPTION>
COMBINED  STATEMENTS OF                            U S WEST COMMUNICATIONS GROUP
OPERATIONS (Unaudited), continued
-----------------------------------------------------------------------------------------------------
                                                   Three Months Ended           Nine Months Ended
                                                      September 30,                 September 30,
In thousands (except per share amounts)             1997          1996          1997           1996
-----------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>         <C>             <C>    
 
EARNINGS PER COMMON SHARE:
   Income before extraordinary item and
      cumulative effect of change in
      accounting principle                          $  0.70      $0.60      $  2.09          $1.90
   Extraordinary item - early
      extinguishment of debt                          (0.01)         -        (0.01)             -
   Cumulative effect of change in
      accounting principle                                -          -            -           0.07
                                               -------------- ---------- ------------- --------------

EARNINGS PER COMMON SHARE                           $  0.69      $0.60      $  2.08          $1.97
                                               ============== ========== ============= ==============


DIVIDENDS PER COMMON SHARE                           $0.535      $0.535      $1.605         $1.605
                                               ============== ========== ============= ==============

AVERAGE COMMON SHARES
   OUTSTANDING                                      483,218     478,356     482,374        476,744
                                               ============== ========== ============= ==============

</TABLE>








See Notes to Combined Financial Statements.


<PAGE>



Form 10-Q - Part I
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS                           U S WEST COMMUNICATIONS GROUP
(Unaudited)
-------------------------------------------------------------------------------
                                               September 30,     December 31,
Dollars in millions                                    1997             1996
-------------------------------------------------------------------------------
<S>                                                 <C>             <C>    
ASSETS

Current assets:
     Cash and cash equivalents                      $    196        $      80
     Accounts and notes receivable  - net              1,587            1,622
     Inventories and supplies                            195              144
     Deferred tax asset                                  169              171
     Prepaid and other                                    66               65
                                             ---------------- ----------------

Total current assets                                   2,213            2,082
                                             ---------------- ----------------


Gross property, plant and equipment                   33,040           32,645
Less accumulated depreciation                         19,253           18,639
                                             ---------------- ----------------

Property, plant and equipment - net                   13,787           14,006

Other assets                                             921              827
                                             ---------------- ----------------

Total assets                                         $16,921          $16,915
                                             ================ ================

</TABLE>


See Notes to Combined Financial Statements.


<PAGE>



Form 10-Q - Part I
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS                           U S WEST COMMUNICATIONS GROUP
(Unaudited), continued
-------------------------------------------------------------------------------
                                              September 30,     December 31,
Dollars in millions                                    1997             1996
-------------------------------------------------------------------------------
<S>                                               <C>              <C>    

LIABILITIES AND EQUITY

Current liabilities:
     Short-term debt                              $     726        $     834
     Accounts payable                                 1,193              989
     Employee compensation                              341              342
     Dividends payable                                  259              257
     Advanced billing and customer deposits             286              250
     Other                                              940              795
                                            ---------------- ----------------

Total current liabilities                             3,745            3,467
                                            ---------------- ----------------


Long-term debt                                        5,024            5,664
Postretirement and other postemployment
     benefit obligations                              2,400            2,387
Deferred income taxes                                   755              749
Deferred credits and other                              756              731

Contingencies (See Note D to the Combined
     Financial Statements)

Communications Group equity                           4,241            3,917
                                            ---------------- ----------------

Total liabilities and equity                        $16,921          $16,915
                                            ================ ================

</TABLE>






See Notes to Combined Financial Statements.


<PAGE>


Form 10-Q - Part I
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF                           U S WEST COMMUNICATIONS GROUP
CASH FLOWS (Unaudited)
-------------------------------------------------------------------------------------------
                                                                     Nine Months Ended
                                                                       September 30,
Dollars in millions                                                  1997              1996
-------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>   

OPERATING ACTIVITIES
   Net income                                                    $  1,007           $   938
   Adjustments to net income:
      Depreciation and amortization                                 1,591             1,580
      Gains on sales of rural telephone exchanges                     (77)              (51)
      Cumulative effect of change in accounting principle               -               (34)
      Deferred income taxes and amortization
         of investment tax credits                                     (4)              (11)
   Changes in operating assets and liabilities:
      Restructuring payments                                          (55)             (114)
      Postretirement medical and life costs, net
         of cash fundings                                              11               (28)
      Accounts receivable                                              35                24
      Inventories, supplies and other current assets                  (69)              (14)
      Accounts payable and accrued liabilities                        332                72
   Other adjustments - net                                            121                (5)
                                                               ----------- -----------------
   Cash provided by operating activities                            2,892             2,357
                                                               ----------- -----------------

INVESTING ACTIVITIES
   Expenditures for property, plant and equipment                  (1,307)           (1,891)
   Purchase of  PCS wireless licenses                                 (57)                -
   Proceeds from sales of rural telephone exchanges                    51               130
   Proceeds from (payments on) disposals of property,
      plant and equipment                                              27                (1)
                                                               ----------- -----------------
   Cash (used for) investing activities                            (1,286)           (1,762)
                                                               ----------- -----------------

FINANCING ACTIVITIES
   Net (repayments of) proceeds from short-term debt                 (397)              195
   Proceeds from issuance of long-term debt                             -                16
   Repayments of long-term debt                                      (410)             (278)
   Dividends paid on common stock                                    (733)             (703)
   Proceeds from issuance of common stock                              50               109
                                                               ----------- -----------------
   Cash (used for) financing activities                            (1,490)             (661)
                                                               ----------- -----------------

CASH AND CASH EQUIVALENTS
   Increase (decrease)                                                116               (66)
   Beginning balance                                                   80               172
                                                               =========== =================
   Ending balance                                                 $   196           $   106
                                                               =========== =================
</TABLE>

See Notes to Combined Financial Statements.


<PAGE>


Form 10-Q - Part I

                         U S WEST COMMUNICATIONS GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
        For the Three and Nine Months Ended September 30, 1997 and 1996
                             (Dollars in millions)
                                  (Unaudited)

A.   Summary of Significant Accounting Policies

Basis of  Presentation.  U S WEST,  Inc. ("U S WEST" or the  "Company")  has two
classes of common stock that are intended to reflect  separately the performance
of its  communications and multimedia  businesses.  One class of stock, U S WEST
Communications  Group  ("Communications  Group"),  reflects  the  communications
businesses  of U S WEST and the  other  class of  stock,  U S WEST  Media  Group
("Media Group"), reflects the multimedia businesses of U S WEST.

The Combined Financial Statements have been prepared by U S WEST pursuant to the
interim   reporting  rules  and  regulations  of  the  Securities  and  Exchange
Commission  ("SEC").  Certain  information  and  footnote  disclosures  normally
accompanying financial statements prepared in accordance with generally accepted
accounting  principles  ("GAAP") have been condensed or omitted pursuant to such
SEC rules and regulations. In the opinion of U S WEST's management, the Combined
Financial  Statements  include  all  adjustments,   consisting  of  only  normal
recurring adjustments, necessary to present fairly the financial information set
forth therein. It is suggested that these Combined Financial  Statements be read
in conjunction with the 1996 U S WEST Consolidated Financial Statements, the U S
WEST Communications  Group Combined Financial  Statements and the U S WEST Media
Group Combined  Financial  Statements  and notes thereto  included in U S WEST's
proxy statement mailed to all shareowners on April 7, 1997.

 B.   U S WEST Split

On October 27, 1997, the Company announced its intention to split Communications
Group and Media Group into separate public companies.  Communications Group will
be  renamed U S WEST,  Inc.  ("new U S WEST")  and Media  Group  will be renamed
MediaOne  Group,  Inc.  ("MediaOne  Group").  Under  the  terms of the  proposed
transaction,  new U S  WEST  will  include  the  telephone,  data  and  wireless
operations  of the  Communications  Group,  as  well  as the  Yellow  Pages  and
electronic  directory businesses of U S WEST Dex, Inc. ("Dex"). Dex is currently
part of the Media Group and will be transferred to the  Communications  Group as
part of the  proposed  transaction  (the "Dex  Transfer").  MediaOne  Group will
include  the   cable/broadband,   wireless,   and  domestic  and   international
investments of the Media Group.

Under the terms of the proposed split,  Communications  Group  shareowners  will
receive one share of new U S WEST common stock for each share of  Communications
Group common stock.  Media Group  shareowners will receive one share of MediaOne
Group  common  stock for each share of Media Group  common  stock.  In addition,
Media Group shareowners will receive shares

<PAGE>


 Form 10-Q - Part I

                         U S WEST COMMUNICATIONS GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                (Dollars in millions, except per share amounts)
                                  (Unaudited)

 B.   U S WEST Split (continued)

of new U S WEST common  stock for each share of Media Group  common  stock which
represents their interest in Dex, totaling  approximately  $850. Under the terms
of the Dex Transfer,  Media Group debt will be reduced and Communications  Group
debt will be increased by $3.9 billion.

The  transaction  is subject to a number of  approvals,  including  approvals by
regulators and both shareowner  groups,  and receipt of a favorable  ruling from
the Internal Revenue Service. The split is expected to be complete in the second
half of 1998.

C.  Debt Extinguishment

During August 1997, U S WEST  redeemed its Liquid Yield Option Notes  ("LYONs").
The  convertible  zero coupon  subordinated  notes were due June 25, 2011.  Upon
redemption,  the recorded  value of the notes  attributed to the  Communications
Group was $303. The debt extinguishment  resulted in a loss of $3 (net of income
tax benefits of $2), or $0.01 per share,  primarily  related to the write-off of
deferred debt issuance costs. This loss is reflected as an extraordinary  charge
in the  accompanying  Combined  Statements  of  Operations.  U S WEST  allocated
floating-rate  debt, due on demand, to the  Communications  Group to finance the
redemption.

D. Contingencies

At U S WEST Communications,  Inc. ("U S WEST Communications")  there are pending
regulatory  actions  in local  regulatory  jurisdictions  that  call  for  price
decreases, refunds or both.

On May 1, 1996,  the Oregon  Public  Utilities  Commission  ("OPUC")  approved a
stipulation terminating prematurely U S WEST Communications' alternative form of
regulation  ("AFOR")  plan,  and  it  then  undertook  a  review  of  U  S  WEST
Communications'  earnings. In May 1997, the OPUC ordered U S WEST Communications
to reduce its annual  revenues  by $97,  effective  May 1, 1997,  and to issue a
one-time  refund,  including  interest,  of  approximately  $102 to reflect  the
revenue  reduction  for the  period  May 1, 1996  through  April 30,  1997.  The
one-time  refund is for interim  rates which  became  subject to refund when U S
WEST Communications' AFOR plan was terminated on May 1, 1996.


<PAGE>


Form 10-Q - Part I

                         U S WEST COMMUNICATIONS GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

D. Contingencies (continued)

U S WEST Communications  filed an appeal of the order and asked for an immediate
stay of the  refund  with the  Oregon  Circuit  Court  for the  County of Marion
("Oregon Circuit Court"). On June 26, 1997, the Oregon Circuit Court granted U S
WEST  Communications'  request  for a stay,  pending a full review of the OPUC's
order.  The Oregon Circuit Court is scheduled to hear arguments on the appeal in
December 1997. The one-time refund and cumulative  amount of revenues  collected
subject  to  refund,  including  interest,  as of  September  30,  1997,  totals
approximately $150.

In 1996, the Washington State Utilities and Transportation  Commission  ("WUTC")
acted on U S WEST Communications' 1995 rate request. U S WEST Communications had
sought to increase  revenues by raising rates  primarily  for basic  residential
services over a four-year period.  Instead of granting U S WEST  Communications'
request, the WUTC ordered $91.5 in annual net revenue reductions,  effective May
1, 1996.

Based on the WUTC ruling, U S WEST Communications  filed a lawsuit with the King
County Superior Court (the "Court") for an appeal of the order, a temporary stay
of the  ordered  rate  reduction  and an  authorization  to  implement a revenue
increase.  The Court declined to change the WUTC order. U S WEST  Communications
appealed the Court's  decision to the Washington State Supreme Court (the "State
Supreme Court") which, on January 22, 1997, granted a stay of the order, pending
the State Supreme  Court's full review of the appeal.  Oral arguments were heard
in June 1997. U S WEST Communications is waiting a decision by the State Supreme
Court.

Effective May 1, 1996, U S WEST Communications began collecting revenues subject
to refund.  The cumulative amount of revenues  collected subject to refund as of
September 30, 1997, including interest, is approximately $155.

In another  proceeding,  the Utah Supreme Court  remanded a Utah Public  Service
Commission  ("PSC")  order  to the PSC for  hearing,  thereby  establishing  two
exceptions  to the  rule  against  retroactive  ratemaking:  1)  unforeseen  and
extraordinary events, and 2) misconduct. The PSC's initial order denied a refund
request from interexchange  carriers and other parties related to the Tax Reform
Act of 1986. The potential exposure,  including interest, at September 30, 1997,
is approximately $160.


<PAGE>


Form 10-Q - Part I

                         U S WEST COMMUNICATIONS GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

D.  Contingencies (continued)

The  Communications  Group  has  accrued  $125  at  September  30,  1997,  which
represents  its estimated  liability  for state  regulatory  proceedings.  It is
possible that the ultimate  liability could exceed the recorded  liability by an
amount up to approximately  $340. The Communications  Group continues to monitor
and evaluate the risks  associated with its state  regulatory  environment,  and
will adjust estimates as new information becomes available.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Result
of Operations (Dollars in millions, except per share amounts)

Results of Operations - Three and Nine Months Ended September 30, 1997 Compared
with 1996

Following  are details of the  Communications  Group's  reported  net income and
earnings per common share  ("earnings  per  share"),  normalized  to exclude the
effects of certain nonoperating items.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                      Three Months Ended     Increase        Nine Months Ended          Increase
                                         September 30,      (Decrease)          September 30,          (Decrease)
Net Income:                              1997      1996     $            %      1997      1996     $           %
                                                                                                     
-------------------------------------------------------------------------------------------------------------------

<S>                                      <C>       <C>       <C>      <C>      <C>         <C>       <C>     <C>
Reported net income                      $336      $286      $50      17.5     $1,007      $938      $69      7.4
Adjustments to reported net
  income:
  Gains on sales of rural
     telephone exchanges                  (19)       (1)     (18)        -        (48)      (31)     (17)    54.8
  Early extinguishment of debt              3         -        3         -          3         -        3        -
  Cumulative effect of change in
     accounting principle (1)               -         -        -         -          -       (34)      34        -
  Current year effect of change
     in accounting principle (1)            -        (3)       3         -          -       (13)      13        -
                                     --------- --------- -------- ---------  --------- --------- -------- ----------
Normalized income                        $320      $282      $38      13.5       $962      $860     $102     11.9
==================================== ========= ========= ======== ========= ========== ========= ======== ==========
</TABLE>

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------
                                      Three Months Ended   Increase       Nine Months Ended     Increase
                                          September 30,   (Decrease)         September 30,     (Decrease)
Earnings per Share:                      1997      1996    $         %      1997      1996      $         %
---------------------------------------------------------------------------------------------------------------
<S>                                    <C>        <C>      <C>       <C>      <C>       <C>      <C>      <C>

Reported earnings per share             $0.69     $0.60    $0.09     15.0     $2.08      $1.97   $0.11     5.6
Adjustments to reported
  earnings per share:
  Gains on sales of rural
     telephone exchanges                (0.04)        -    (0.04)       -     (0.10)     (0.06)  (0.04)   66.7
  Early extinguishment of debt           0.01         -     0.01        -      0.01          -    0.01       -
  Cumulative effect of change in
     accounting principle (1)<F1>           -         -        -        -         -      (0.07)   0.07       -
  Current year effect of change
     in accounting principle (1)<F1>        -     (0.01)    0.01        -         -      (0.03)   0.03       -
                                     --------- --------- -------- --------  -------- ---------- -------- ------
Normalized earnings per share           $0.66     $0.59    $0.07     11.9     $1.99      $1.81   $0.18     9.9
===============================================================================================================
<FN>
<F1>
(1)  Effective  January  1,  1996,  U S  WEST  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
</FN>
</TABLE>

The Communications  Group's normalized income increased $38, or 13.5 percent, to
$320, and $102, or 11.9 percent,  to $962, for the three- and nine-month periods
ended September 30, 1997, respectively. Normalized earnings per share was $0.66,
an increase of $0.07,  or 11.9 percent,  and $1.99, an increase of $0.18, or 9.9
percent for the three- and nine-month periods, respectively.

<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued

The increases are primarily due to higher demand for services and continued cost
control  efforts in the core business  which  accelerated  in the latter half of
1996.  Partially  offsetting  the  increases  for both periods  were  additional
expenses   related  to   interconnection.   Accruals  to   recognize  U  S  WEST
Communications'   estimated  state  regulatory  liability  further  reduced  the
nine-month  period  increase.  (See  Note  D -  Contingencies  - to the U S WEST
Communications  Group Combined Financial  Statements.) The Communications  Group
anticipates that spending increases related to interconnection  requirements and
entry into  wireless  personal  communications  services  ("PCS") and  interLATA
long-distance markets,  combined with rate reductions resulting from the Federal
Communications  Commission's  (the "FCC") price cap  regulation,  will partially
offset future net income growth.

During August 1997, the  Communications  Group incurred an extraordinary loss of
$3 (net of income tax benefits of $2), or $0.01 per share,  related to the early
extinguishment  of  debt.  See  Note C - Debt  Extinguishment  - to the U S WEST
Communications Group Combined Financial Statements.

Effective  January 1, 1996, U S WEST adopted SFAS No. 121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,"
which, among other things, requires that companies no longer record depreciation
expense on assets  held for sale.  Adoption  of SFAS No. 121  resulted in a 1996
one-time  gain of $34 (net of income tax  expenses of $22),  or $0.07 per share,
related to the cumulative effect of change in accounting principle.

<TABLE>
<CAPTION>
Operating Revenues

----- ---------------------------------------------------------------------------------------------------------------
                                     Three Months Ended        Increase       Nine Months Ended       Increase
                                        September 30,         (Decrease)        September 30,        (Decrease)
                                         1997      1996        $        %         1997       1996        $         %
---------------------------------------------------------------------------------------------------------------------
<S>                                    <C>       <C>        <C>    <C>          <C>        <C>        <C>     <C>

Local service                          $1,314    $1,208     $106      8.8       $3,739     $3,532     $207       5.9
Interstate access service                 663       606       57      9.4        2,028      1,854      174       9.4
Intrastate access service                 208       192       16      8.3          608        571       37       6.5
Long-distance network services            231       272     (41)   (15.1)          721        840    (119)    (14.2)
Other services                            257       237       20      8.4          707        683       24       3.5
                                     --------- --------- -------- --------    --------- ---------- -------- ---------
Total                                  $2,673    $2,515     $158      6.3       $7,803     $7,480     $323       4.3
==================================== ========= ========= ======== ======== == ========= ========== ======== =========
</TABLE>

Local Service Revenues.  Local service revenues  increased during the three- and
nine-month  periods  predominately  as a  result  of  access  line  growth,  and
increased  demand for new product and service  offerings  and  existing  central
office features.  Total reported access lines increased 576,000, or 3.8 percent,
during the past 12 months,  of which 274,000 was  attributable  to second lines.
Second-line installations increased 28 percent during the past 12 months. Access
lines grew 663,000,  or 4.3 percent,  when  adjusted for sales of  approximately
87,000 rural telephone access lines during the past 12 months. Also contributing
to the revenue  increase for both periods were rate  increases in various states
and interim compensation revenue from interexchange  carriers as a result of the
FCC's payphone orders which took effect in April 1997.


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Partially  offsetting the increases were lower wireless  interconnection  access
prices mandated by the Telecommunications  Act of 1996 (the  "Telecommunications
Act").  Local  service  revenue  growth  was also  partially  offset  during the
nine-month  period by  accruals  of  approximately  $100 to  recognize  U S WEST
Communications'   estimated  state  regulatory   liabilities.   (See  Note  D  -
Contingencies  -  to  the  U S  WEST  Communications  Group  Combined  Financial
Statements.)

Interstate  Access Service  Revenues.  Higher interstate access service revenues
resulted from increased demand for private line services, access line growth and
increases of 6.0 and 6.2 percent in billed  interstate access minutes of use for
the  three- and  nine-month  periods,  respectively.  Also  contributing  to the
increases  were  the  effects  of   sharing-related   accruals  for  refunds  to
interexchange  carriers  recorded in 1996. These increases were partially offset
by 1997 price  reductions.  Beginning  July 1, 1997,  the  Communications  Group
reduced  prices for  interstate  services as a result of the FCC's current price
cap plan. The access rate  reductions  have an on-going annual revenue impact of
approximately  $165 which is  reflected  in lower  interstate  rates over twelve
months beginning July 1, 1997.



Intrastate Access Service Revenues. Intrastate access service revenues increased
largely as a result of increases  of 13.3 and 11.4 percent in billed  intrastate
minutes  of use  for  the  three-  and  nine-month  periods,  respectively,  and
increased demand for private line services.

Long-Distance  Network Service Revenues.  Long-distance network service revenues
decreased  15.1  and  14.2  percent  for  the  three-  and  nine-month  periods,
respectively, primarily due to the effects of competition and the implementation
of multiple  toll carrier plans  ("MTCPs") in Iowa and Nebraska in 1996,  and in
several  states  in 1997.  The MTCPs  essentially  allow  independent  telephone
companies to act as toll carriers and are net income  neutral with the reduction
in toll revenues  largely  offset by increased  intrastate  access  revenues and
lower access expense.

Excluding  the  effects of the MTCPs,  long-distance  network  service  revenues
decreased  by 11.0  and 9.4  percent  for the  three-  and  nine-month  periods,
respectively.  The  Communications  Group believes that erosion of long-distance
network  service  revenues  will continue due to the loss of  exclusivity  of 1+
dialing  in  Minnesota  and  Arizona,  effective  in  February  and April  1996,
respectively,  and continued  competitive  dial-around  activity in other states
within the Communications  Group's 14 state region. The Communications  Group is
responding to competition through competitive pricing of intraLATA long-distance
services and increased promotional efforts to retain customers.



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Other Services Revenues. Other services revenues increased primarily as a result
of continued market penetration of voice messaging services and greater sales of
inside wire maintenance and other unregulated  products and services.  Partially
offsetting  these  increases  was a reduction  in contract  revenues  due to the
completion of a large federal government telephony project in 1996.

Revenue growth at U S WEST  Communications may be affected by pending regulatory
actions in federal and local regulatory jurisdictions.
<TABLE>
<CAPTION>
Costs and Expenses

----------------------------------------------------------------------------------------------------------------
                                     Three Months Ended    Increase        Nine Months Ended        Increase
                                       September 30,      (Decrease)          September 30,        (Decrease)
                                      1997      1996       $       %         1997      1996           $       %
----------------------------------------------------------------------------------------------------------------
<S>                                   <C>       <C>       <C>    <C>         <C>        <C>         <C>     <C>

Employee-related expenses             $951      $900      $51      5.7       $2,719     $2,688      $31      1.2
Other operating expenses               469       402       67     16.7        1,305      1,177      128     10.9
Taxes other than income taxes          103        94        9      9.6          308        291       17      5.8
Depreciation and amortization          534       545      (11)    (2.0)       1,591      1,580       11      0.7
Interest expense                       100       111      (11)    (9.9)         303        332      (29)    (8.7)
Gains on sales of rural telephone
   exchanges                            30         2       28        -           77         51       26     51.0
Other expense                           11        10        1     10.0           52         22       30        -
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Employee-Related  Expenses.  Employee-related  expenses  increased  $51,  or 5.7
percent,  and $31, or 1.2  percent,  during the three- and  nine-month  periods,
respectively.  The  increases are  primarily a result of higher  contract  labor
costs.  The contract  labor  increase  reflects  increased  marketing  and sales
efforts,   systems   development   work  (which  include   expenses  related  to
interconnection),  and the launch of new products and services.  Higher overtime
costs also  contributed  to the  employee-related  expense  increase  during the
three-month period; however, for the nine-month period, overtime costs decreased
compared to the prior year. Additionally, during both periods lower salaries and
wages  related to employee  reductions,  which  totaled 3,134 during the last 12
months,  and lower  conference  and travel  expenses were offset by increases in
certain employee-related benefit costs.

Other  Operating  Expenses.  Other  operating  expenses  increased  $67, or 16.7
percent,  and $128, or 10.9 percent,  during the three- and nine-month  periods,
respectively.  The increases  are  predominantly  a result of increased  network
software   purchases  (which  include  expenses  related  to   interconnection),
advertising  costs  and  professional  fees.  Additionally,  for the  nine-month
period,  operating  expenses  increased  as a  result  of a  reserve  adjustment
associated with billing and collection  activities  performed for  interexchange
carriers and repair costs associated with flooding in North Dakota.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Partially  offsetting  the increases  were reduced  access  expenses  (primarily
related to the  implementation  of the MTCPs in 1996 and 1997),  completion of a
large  federal  government  telephony  project  in  1996  and a 1996  charge  to
discontinue  the Omaha  broadband  video  service  trial.  Lower  materials  and
supplies  expense also reduced other  operating  expenses  during the nine-month
period.

Taxes Other Than Income  Taxes.  Taxes other than income taxes  increased $9, or
9.6 percent,  and $17, or 5.8 percent,  for the three- and  nine-month  periods,
respectively.  The increase for the  three-month  period is a result of property
tax true-ups in 1996. In addition to the property tax true-ups,  the  nine-month
period increase was largely attributed to increased 1997 use taxes.

Earnings Before  Interest,  Taxes,  Depreciation  and  Amortization  ("EBITDA").
EBITDA increased 2.8 percent,  to $1,150,  and 4.4 percent,  to $3,471,  for the
three- and nine-month periods,  respectively. The increases are primarily due to
higher  demand for  services  and  continued  cost  control  efforts in the core
business which accelerated in the latter half of 1996.  Partially offsetting the
increases for both periods were additional  expenses related to interconnection.
Accruals  to  recognize  U S WEST  Communications'  estimated  state  regulatory
liability  further  reduced  the  nine-month  period  increase.  (See  Note  D -
Contingencies  -  to  the  U S  WEST  Communications  Group  Combined  Financial
Statements.)   EBITDA  excludes  gains  on  sales  of  certain  rural  telephone
exchanges. The Communications Group believes EBITDA is an important indicator of
the operational  performance of its businesses.  EBITDA,  however, should not be
considered as an  alternative  to operating or net income as an indicator of the
performance of the Communications  Group's business or as an alternative to cash
flows  from  operating  activities  as a  measure  of  liquidity,  in each  case
determined in accordance with GAAP.

Depreciation  and   Amortization.   Depreciation   expense   decreased  for  the
three-month  period and  increased  during  the  nine-month  period.  During the
three-month  period,  the effects of a higher depreciable asset base were offset
by a third-quarter 1996 depreciation adjustment.

Interest Expense.  Interest expense  decreased $11, or 9.9 percent,  and $29, or
8.7 percent, for the three- and nine-month periods,  respectively,  due to lower
average debt levels as compared to 1996.  Partially  offsetting the decrease for
the  nine-month  period was a reduction  in the amount of  interest  capitalized
resulting  from a  lower  average  balance  of  telecommunications  plant  under
construction.

Gains on Sales of Rural Telephone  Exchanges.  During the nine-month period, the
Communications  Group sold selected  rural  telephone  exchanges in Iowa,  South
Dakota,  Nebraska,  Idaho,  and  Minnesota  for  pretax  gains  of $77.  Certain
Minnesota rural telephone  exchanges were sold during  third-quarter  1997 for a
pretax gain of $30. The 1996 gains were a result of sales in Utah,  North Dakota
and South Dakota.



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Other Expense.  Other expense for the nine-month period increased  primarily due
to  additional  interest  expense  associated  with the  Communications  Group's
interstate sharing and state regulatory liabilities.
<TABLE>
<CAPTION>
Provision for Income Taxes

------------------------------------------------------------------------------------------------
                               Three Months Ended                  Nine Months Ended
                                  September 30,      Percent          September 30,    Percent
                                1997        1996      Change        1997        1996    Change
------------------------------------------------------------------------------------------------
<S>                             <C>         <C>         <C>         <C>         <C>       <C>

Provision for income taxes      $196        $169        16.0        $592        $537      10.2
Effective tax rate                 -           -           -        37.0%       37.3%        -
------------------------------------------------------------------------------------------------
</TABLE>

The increase in the provision for income taxes  resulted  primarily  from higher
pretax earnings and lower amortization of investment tax credits.

Restructuring Charge

During the nine-month period ended September 30, 1997, the restructuring reserve
decreased  $55 to a  balance  of $68.  Reserve  usage is  primarily  a result of
expenditures for 492 employee  separations  during the first nine months of 1997
and  systems  development  costs.  The  restructuring  plan  is  expected  to be
substantially  complete by the end of 1997. Management continues to evaluate the
remaining reserve balance and employee separations.


Liquidity and Capital Resources

Operating Activities

Cash provided by operations increased $535, to $2,892, for the nine-month period
ended September 30, 1997, compared with the same period in 1996. The increase in
operating  cash flow is  primarily  due to business  growth and  continued  cost
control  efforts  in the core  business,  including  efforts  to manage  working
capital.  Lower  restructuring  expenditures  along with a decrease  in the cash
funding of postretirement benefits also contributed to the increase.  Higher tax
payments partially offset these increases.

Investing Activities

The  Communications  Group's capital  expenditures were $1,307, on a cash basis,
during the first nine  months of 1997.  The  majority  of the 1997  expenditures
related   to   access   line   growth   and   continued   improvement   of   the
telecommunications   network.  Also  included  were  interconnection  costs  and
expenditures  associated with entering wireless  communications markets with the
launch of PCS. The Communications  Group anticipates  capital  expenditures will
accelerate during fourth quarter and will include  expenditures to launch PCS in
additional  markets  and  for  interconnection   requirements   related  to  the
Telecommunications Act.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in, millions), continued

Financing Activities

On October 27, 1997, the Company announced its intention to split Communications
Group and Media Group into  separate  public  companies.  Under the terms of the
proposed transaction, new U S WEST will include the telephone, data and wireless
operations  of the  Communications  Group,  as  well  as the  Yellow  Pages  and
electronic directory businesses of Dex. Dex is currently part of the Media Group
and will be  transferred  to the  Communications  Group as part of the  proposed
transaction.  MediaOne  Group will  include the  cable/broadband,  wireless, and
domestic and international investments of the Media Group.

Under the terms of the Dex Transfer, Media Group shareowners will receive shares
of new U S WEST common  stock for each share of Media Group  common  stock which
represents their interest in Dex, totaling approximately $850. Also, Media Group
debt will be reduced and  Communications  Group debt will be  increased  by $3.9
billion.

The  transaction  is subject to a number of  approvals,  including  approvals by
regulators and both shareowner  groups,  and receipt of a favorable  ruling from
the Internal Revenue Service. The split is expected to be complete in the second
half of 1998.

In  connection  with the  Company's  announcement  of its intention to split the
Communications  Group  and the  Media  Group  into  separate  public  companies,
Standard & Poor's placed U S WEST  Communications'  senior unsecured debt rating
on  credit  watch  with   positive   implications   and   reaffirmed  U  S  WEST
Communications'  commercial  paper ratings.  Duffs & Phelps  reaffirmed U S WEST
Communications'  senior  unsecured debt and commercial  paper ratings.  U S WEST
Communications'  senior  unsecured  debt rating remains under review by Moody's,
which may result in a downgrading.

During the first nine months of 1997,  debt decreased $748 and the percentage of
debt to total capital  decreased from 62.4 percent at December 31, 1996, to 57.6
percent,  at September 30, 1997. The decrease in the percentage of debt to total
capital  is  primarily  a result of  increased  equity  balances  and lower debt
levels. The lower debt levels have been partially driven by increased  operating
cash flows and lower capital expenditures.

During August 1997, U S WEST  redeemed its LYONs.  The  convertible  zero coupon
subordinated notes had a recorded value of $303 attributed to the Communications
Group.  U  S  WEST  allocated   floating-rate   debt,  due  on  demand,  to  the
Communications Group to finance the redemption.



<PAGE>



Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Communications  Group  from  time to time  engages  in  preliminary  discussions
regarding restructurings,  dispositions and other similar transactions. Any such
transaction  may include,  among other things,  the transfer of certain  assets,
businesses or interest,  or the  incurrence or assumption of  indebtedness,  and
could be material to the  financial  condition  and results of operations of U S
WEST  and  the  Communications  Group.  There  is no  assurance  that  any  such
discussion will result in the consummation of any such transaction.

Contingencies

At U S WEST  Communications  there  are  pending  regulatory  actions  in  local
regulatory  jurisdictions that call for price decreases,  refunds or both. For a
discussion of the specific pending  regulatory items, see Note D Contingencies -
to the U S WEST Communications Group Combined Financial Statements.

The  Communications  Group  has  accrued  $125  at  September  30,  1997,  which
represents  its estimated  liability  for state  regulatory  proceedings.  It is
possible that the ultimate  liability could exceed the recorded  liability by an
amount up to approximately  $340. The Communications  Group continues to monitor
and evaluate the risks  associated with its state  regulatory  environment,  and
will adjust estimates as new information becomes available.

Regulatory Environment

Interconnection

In August  1996,  the FCC  issued  an order  (the "FCC  Order")  establishing  a
framework of mandatory  national  rules that would enable the states and the FCC
to begin implementing the local competition provisions of the Telecommunications
Act.  Among other things,  the FCC Order  established  rigid costing and pricing
rules which, from U S WEST's  perspective,  significantly  impeded  negotiations
with new entrants to the local exchange market,  state public utility commission
("PUC")   interconnection    rulemakings,    and   interconnection   arbitration
proceedings.

On July 18, 1997,  the Eighth  Circuit  Court of Appeals (the "Eighth  Circuit")
vacated significant  portions of the FCC Order. Most  significantly,  the Eighth
Circuit ruled that jurisdiction over local interconnection prices rests with the
states,  not the FCC.  The effect of the Eighth  Circuit's  decision  is to have
interconnection  and  unbundled  network  element  pricing be  resolved  through
negotiations or state PUC arbitration proceedings.  Some of the FCC's unbundling
rules,  as well as its "pick and  choose"  provision,  were also  vacated by the
Eighth Circuit.



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

On  October   14,   1997,   the  Eighth   Circuit   clarified   that   incumbent
telecommunications   providers  are  not  required  to  make  rebundled  service
offerings  available to competitors at unbundled element pricing.  This decision
substantially  reduces new  entrants'  ability to  arbitrage  between  resale of
finished services and the pricing of unbundled network elements.

The Eighth Circuit is reviewing the FCC's August 1997 order that required shared
transport be made available in combination  with local switching as an unbundled
element. This review is pending.

Number Portability

Among other  things,  the  Telecommunications  Act requires  all local  exchange
carriers  ("LECs") to provide  permanent number  portability to facilitate local
exchange  competition.  The FCC has  established  a schedule for  deployment  of
number  portability  during 1998. This schedule  includes 10 markets in U S WEST
Communications' 14 state region. The FCC, however,  has not issued cost recovery
rules as required by the  Telecommunications  Act. On October 23, 1997, U S WEST
filed a petition in the Tenth  Circuit  Court of Appeals (the "Tenth  Circuit"),
seeking an order which would require the FCC to issue its cost recovery rules. U
S WEST  Communications  will also seek cost recovery  through  state  ratemaking
proceedings and  interconnection  cost recovery dockets. U S WEST Communications
expects its estimated  costs to deploy number  portability  will be  significant
over the next few years.  Due to legal and  regulatory  uncertainties,  U S WEST
Communications  cannot provide  assurance the one-time costs of deploying number
portability will ultimately be recovered.

Universal Service, Access Reform and Price Cap

On May 7, 1997, the FCC announced  three  decisions that will establish rules to
implement the Universal  Service  provision of the  Telecommunications  Act (the
"Universal  Service  Order"),  as well as rules to restructure the access charge
system (the "Access  Reform  Order") and the FCC's  current  price cap plan (the
"Price Cap Order").

Universal Service

On July 17, 1997, U S WEST filed a petition with the FCC for reconsideration and
clarification  of certain  issues in the Universal  Service  Order.  Among other
things, the Company requested the FCC to reconsider:  1) establishing a national
fund to ensure high-cost support is sufficient,  and 2) assessing  contributions
as  explicit  end-user  surcharges.  Appeals of other  issues  addressed  by the
Universal Service Order have been filed by various other companies.



<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Federal Access Reform

The FCC has ordered a substantial  restructuring of interstate access pricing. A
significant portion of the services that have been charged using  minutes-of-use
pricing  will  now be  charged  using a  combination  of  minutes-of-use  rates,
presubscribed  interexchange  carrier  charges  ("PICCs")  and  subscriber  line
charges ("SLCs").  Although an increase in the SLC to multi-line  business users
occurred on July 1, 1997, the bulk of the mandated pricing changes will occur on
January 1, 1999.  Additional mandated pricing changes will also occur on January
1, 1999  through  2001.  The net  effect of these  changes  will be to  decrease
minutes-of-use  charges up to 60 percent and increase  flat-rate  charges  (i.e.
PICCs and SLCs).  Although the effects of the mandated pricing changes beginning
January 1, 1998 will  initially  be revenue  neutral,  the Access  Reform  Order
coupled with the Price Cap Order, will over time reduce the revenues the Company
derives from interstate  access charges.  Competition from competitive LECs will
also affect the Company's access revenues.

U S WEST and other  incumbent  LECs have appealed the Access  Reform Order.  U S
WEST's  primary  challenge  is  that  the  FCC  acted  unlawfully  by  exempting
purchasers  of unbundled  network  elements  from payment of  interstate  access
charges,  while  not  providing  for  the  immediate  replacement  of  subsidies
contained  within those same access charges.  This case is pending in the Eighth
Circuit and will be heard in January 1998.

Price Cap Order

The FCC's Price Cap Order requires LECs that are subject to price cap regulation
to increase their price cap index productivity factor to 6.5 percent.  The order
eliminated  the lower  productivity  factor  options  (i.e.  4.0 percent and 4.7
percent) that required  sharing of earnings above a specified level and required
LECs to set their 1997 price cap index  assuming that the 6.5 percent factor had
been in effect at the time of the 1996 tariff filing.

As  mandated  by  the  Price  Cap  Order,  the  price  cap  index  in  U S  WEST
Communications'  1997 interstate  access tariff filing was established  assuming
that the 6.5 percent  productivity  factor had been in effect at the time of the
1996 tariff filing.  The access rate  reductions have an on-going annual revenue
impact of approximately  $165 which are being reflected through lower interstate
rates over twelve months beginning July 1, 1997.

On June 23,  1997,  U S WEST  petitioned  the Tenth  Circuit for a review of the
Price Cap Order. The Tenth Circuit has transferred review of the Price Cap Order
to the District of Columbia Court of Appeals.  Among other things,  U S WEST and
other  appellants  are  requesting  the District of Columbia Court of Appeals to
review  the  use  of a 6.5  percent  productivity  factor  and  the  retroactive
application  of the  6.5  percent  productivity  factor  to July  1,  1996  when
determining the price cap index for the 1997 price cap filing. This case will be
heard in 1998.




<PAGE>


Form 10-Q - Part I
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS                          U S WEST MEDIA GROUP
(Unaudited)
---------------------------------------------------------------------------------------------------------
                                                    Three Months Ended             Nine Months Ended
                                                       September 30,                 September 30,
Dollars in millions (except per share amounts)      1997           1996           1997           1996
---------------------------------------------------------------------------------------- --------------
<S>                                                <C>         <C>             <C>            <C>    
Sales and other revenues:
   Cable and broadband                                $590        $ 60          $1,735           $176
   Wireless communications                             373         315           1,071            869
   Directory and information services                  299         316             927            908
   Other                                                 8           3              21             12
                                                  --------- ----------- --------------- --------------
      Total sales and other revenues                 1,270         694           3,754          1,965

Operating expenses:
   Cost of sales and other revenues                    416         221           1,252            626
   Selling, general and administrative expenses        385         242           1,065            698
   Depreciation and amortization                       301          79             904            216
                                                  --------- ----------- --------------- --------------
      Total operating expenses                       1,102         542           3,221          1,540
                                                  --------- ----------- --------------- --------------

Income from operations                                 168         152             533            425

Interest expense                                       179          30             520             80
Equity losses in unconsolidated ventures               177          81             495            224
Gains on sales of investments                           13           -             108              -
Guaranteed minority interest expense                    22          12              66             36
Other income (expense) - net                            (5)         10             (14)           (24)
                                                  --------- ----------- --------------- --------------

Income (loss) before income taxes and
    extraordinary item                                (202)         39            (454)            61
Provision (benefit) for income taxes                   (61)         21            (107)            51
                                                  --------- ----------- --------------- --------------
Income (loss) before extraordinary item               (141)         18            (347)            10
Extraordinary item:
    Early extinguishment of debt, net of tax            (3)          -               -              -
                                                  --------- ----------- --------------- --------------
NET INCOME (LOSS)                                    $(144)        $18           $(347)           $10
                                                  ========= =========== =============== ==============

Dividends on preferred stock                            14           1              39              3
                                                  --------- ----------- --------------- --------------

EARNINGS (LOSS) AVAILABLE FOR
    COMMON STOCK                                     $(158)        $17           $(386)            $7
                                                  ========= =========== =============== ==============

EARNINGS (LOSS) PER COMMON SHARE                    $(0.26)      $0.04          $(0.64)         $0.01
                                                  ========= =========== =============== ==============

AVERAGE COMMON SHARES
    OUTSTANDING (thousands)                        606,729     473,902         606,568        473,501

</TABLE>

See Notes to Combined Financial Statements.



<PAGE>


Form 10-Q - Part I

<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS                                    U S WEST MEDIA GROUP
(Unaudited)
-------------------------------------------------------------------------------
                                                September 30,     December 31,
Dollars in millions                                      1997             1996
-------------------------------------------------------------------------------
<S>                                                 <C>              <C>   

ASSETS

Current assets:
     Cash and cash equivalents                      $      63        $     121
     Accounts and notes receivable - net                  533              508
     Deferred directory costs                             250              259
     Receivable from Communications Group                  90               92
     Marketable securities                                  -               58
     Other                                                 87              101
                                              ---------------- ----------------

Total current assets                                    1,023            1,139
                                              ---------------- ----------------

Gross property, plant and equipment                     6,109            5,111
Accumulated depreciation                                1,347              836
                                              ---------------- ----------------

Property, plant and equipment - net                     4,762            4,275

Investment in Time Warner Entertainment                 2,483            2,477
Net investment in international ventures                1,370            1,548
Intangible assets - net                                12,327           12,595
Net investment in assets held for sale                    410              409
Other assets                                            1,372            1,618
                                              ---------------- ----------------

Total assets                                          $23,747          $24,061
                                              ================ ================

</TABLE>




See Notes to Combined Financial Statements.


<PAGE>


Form 10-Q - Part I

<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS                                    U S WEST MEDIA GROUP
(Unaudited), continued
---------------------------------------------------------------------------------------------
                                                           September 30,         December 31,
Dollars in millions                                                 1997                 1996
---------------------------------------------------------------------------------------------
<S>                                                           <C>                    <C>    

LIABILITIES AND EQUITY

Current liabilities:
     Short-term debt                                          $    1,560             $    217
     Due to Continental Cablevision shareowners                        -                1,150
     Accounts payable                                                347                  425
     Deferred revenue and customer deposits                          126                  129
     Other                                                           890                  795
                                                             ------------   -----------------

Total current liabilities                                          2,923                2,716
                                                         ----------------   -----------------


Long-term debt                                                     8,398                8,636
Deferred income taxes                                              3,553                3,600
Deferred credits and other                                           412                  346

Company-obligated mandatorily redeemable preferred
   securities of subsidiary trust holding solely Company-
   guaranteed debentures                                           1,080                1,080
Preferred stock subject to mandatory redemption                      100                   51

Media Group equity                                                 7,281                7,632
                                                         ----------------   -----------------

Total liabilities and equity                                     $23,747              $24,061
                                                         ================   =================
</TABLE>






See Notes to Combined Financial Statements.


<PAGE>


Form 10-Q - Part I

<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS                          U S WEST MEDIA GROUP
(Unaudited)
-------------------------------------------------------- -----------------------
                                                           Nine Months Ended
                                                             September 30,
Dollars in millions                                       1997           1996
-------------------------------------------------------- ---------- ---------
<S>                                                        <C>        <C>    

OPERATING ACTIVITIES
   Net income (loss)                                       $  (347)   $    10
   Adjustments to net income (loss):
      Depreciation and amortization                            904        216
      Equity losses in unconsolidated ventures                 495        224
      Gains on sales of investments                           (108)         -
      Deferred income taxes                                   (106)       (57)
      Provision for uncollectibles                              70         46
   Changes in operating assets and liabilities:
      Accounts and notes receivable                           (111)      (115)
      Deferred directory costs and other                       (14)         5
      Accounts payable and accrued liabilities                  41         45
   Other adjustments - net                                      65         46
                                                         ---------- ---------
   Cash provided by operating activities                       889        420
                                                         ---------- ---------

INVESTING ACTIVITIES
   Expenditures for property, plant and equipment           (1,087)      (361)
   Payment to Continental Cablevision shareowners           (1,150)         -
   Investment in international ventures                       (315)      (227)
   Proceeds from sales of investments                          703          -
   Cash from net investment in assets held for sale            242        176
   Other - net                                                (197)       (41)
                                                         ---------- ---------
   Cash (used for) investing activities                     (1,804)      (453)
                                                         ---------- ---------

FINANCING ACTIVITIES
   Repayments of short-term debt - net                      (2,815)        (8)
   Proceeds from issuance of long-term debt                  4,123        330
   Repayments of long-term debt                               (377)      (283)
   Dividends paid on preferred stock                           (36)        (3)
   Proceeds from issuance of common stock                       15         31
   Purchases of treasury stock                                 (53)         -
                                                         ----------  ---------
   Cash provided by financing activities                       857         67
                                                         ----------  ---------

CASH AND CASH EQUIVALENTS
   Increase (decrease)                                         (58)        34
   Beginning balance                                           121         20
                                                         ==========  =========
   Ending balance                                        $      63   $     54
                                                         ==========  =========
</TABLE>

See Notes to Combined Financial Statements.    


<PAGE>


Form 10-Q - Part I

                              U S WEST MEDIA GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
        For the Three and Nine Months Ended September 30, 1997 and 1996
                             (Dollars in millions)
                                  (Unaudited)

A.   Summary of Significant Accounting Policies

Basis of  Presentation.  U S WEST,  Inc. ("U S WEST" or the  "Company")  has two
classes of common stock that are intended to reflect  separately the performance
of its  communications and multimedia  businesses.  One class of stock, U S WEST
Communications  Group  ("Communications  Group"),  reflects  the  communications
businesses  of U S WEST and the  other  class of  stock,  U S WEST  Media  Group
("Media Group"), reflects the multimedia businesses of U S WEST.

The Combined Financial Statements have been prepared by U S WEST pursuant to the
interim   reporting  rules  and  regulations  of  the  Securities  and  Exchange
Commission  ("SEC").  Certain  information  and  footnote  disclosures  normally
accompanying financial statements prepared in accordance with generally accepted
accounting  principles  ("GAAP") have been condensed or omitted pursuant to such
SEC rules and regulations. In the opinion of U S WEST's management, the Combined
Financial  Statements  include  all  adjustments,   consisting  of  only  normal
recurring adjustments, necessary to present fairly the financial information set
forth therein. It is suggested that these Combined Financial  Statements be read
in conjunction with the 1996 U S WEST Consolidated Financial Statements, the U S
WEST Media Group Combined Financial  Statements and the U S WEST  Communications
Group Combined  Financial  Statements  and notes thereto  included in U S WEST's
proxy statement mailed to all shareowners on April 7, 1997.

 B.   U S WEST Split

On October 27, 1997, the Company announced its intention to split Communications
Group and Media Group into separate public companies.  Communications Group will
be  renamed U S WEST,  Inc.  ("new U S WEST")  and Media  Group  will be renamed
MediaOne  Group,  Inc.  ("MediaOne  Group").  Under  the  terms of the  proposed
transaction,  new U S  WEST  will  include  the  telephone,  data  and  wireless
operations of  Communications  Group, as well as the Yellow Pages and electronic
directory  businesses of U S WEST Dex, Inc.  ("Dex").  Dex is currently  part of
Media  Group  and will be  transferred  to  Communications  Group as part of the
proposed  transaction  (the "Dex  Transfer").  MediaOne  Group will  include the
cable/broadband,  wireless, and domestic and international  investments of Media
Group.

Under the terms of the proposed split,  Communications  Group  shareowners  will
receive one share of new U S WEST common stock for each share of  Communications
Group common stock.  Media Group  shareowners will receive one share of MediaOne
Group  common  stock for each share of Media Group  common  stock.  In addition,
Media Group  shareowners  will  receive  shares of new U S WEST common stock for
each share of Media Group common stock which  represents  their interest in Dex,
totaling  approximately  $850. Under the terms of the Dex Transfer,  Media Group
debt will be reduced and  Communications  Group debt will be  increased  by $3.9
billion.


<PAGE>


Form 10-Q - Part I

                              U S WEST MEDIA GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

 B.   U S WEST Split (continued)

The  transaction  is subject to a number of  approvals,  including  approvals by
regulators and both shareowner  groups,  and receipt of a favorable  ruling from
the Internal Revenue Service. The split is expected to be complete in the second
half of 1998.

C.  AirTouch Transaction

During  1994,  U S  WEST  entered  into a  definitive  agreement  with  AirTouch
Communications,  Inc. ("AirTouch") to combine their domestic cellular properties
into a partnership in a multi-phased transaction (the "AirTouch Joint Venture").
During Phase I, which commenced on November 1, 1995, the cellular properties are
owned separately. A wireless management company has been formed and is providing
services to both companies, as requested, on a contract basis.

In February  1997,  the King County  Superior  Court (the "Court") in Washington
state  ruled  that a  subsidiary  of  Media  Group  violated  the  terms  of its
partnership  agreement  with  its  minority  partners  in the  Seattle  cellular
partnership by entering into the AirTouch Joint Venture.  The Company  currently
is complying  with the Court's order which requires the Company to issue a right
of first  refusal to the  minority  partners  with  respect to the  subsidiary's
limited partnership interest.  The Court authorized the limited partners to take
legally appropriate steps to secure unanimous agreement for a substitute for the
Company as the general  partner.  A motion is pending before the Court to extend
the August 15, 1997 deadline for such  agreement.  The Company retains its right
to appeal unfavorable  rulings before  transferring any partnership  interest in
the Seattle  cellular  partnership.  Similar  litigation has been filed in other
jurisdictions regarding other cellular partnerships by the same minority partner
that brought the Seattle  litigation.  The Company is also  seeking  declaratory
relief from the Delaware Chancery Court. The Company believes it will ultimately
be successful in all litigation  asserting that the Company's  entering into the
AirTouch Joint Venture  violated its  partnership  agreements  with its minority
partners.

Media Group and AirTouch  have agreed not to proceed to Phase II of the AirTouch
Joint Venture before May 5, 1998. In Phase II of the AirTouch Joint Venture, the
partners   will  combine   those   domestic   cellular   properties   for  which
authorizations and partnership approvals have been obtained. Media Group has the
right under Phase III of the  AirTouch  Joint  Venture  agreement to convert its
joint venture interest into AirTouch stock.


<PAGE>


Form 10-Q - Part I

                              U S WEST MEDIA GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

D.  Asset Sales and Restructurings

Marketable  Securities and Investments.  During the third quarter of 1997, Media
Group sold 1,840,000 shares of Teleport Communications Group, Inc. ("TCG") for a
pretax gain of $13. In November 1997, Media Group sold its remaining interest in
TCG for net proceeds of $433.

Pursuant to a settlement  agreement,  Media Group  transferred its investment in
Optus  Vision,  an Australian  cable and  telecommunications  venture,  to Optus
Communications    Pty   Ltd.,    ("Optus    Communications"),    an   Australian
telecommunications carrier, in the third quarter of 1997. Media Group received a
convertible note which can be converted to shares of Optus  Communications  upon
satisfaction  of  various  conditions,  such  as  a  public  offering  of  Optus
Communications'  shares. The settlement released the Company from litigation and
future claims.

Cable Systems. During the second quarter of 1997, Media Group reached definitive
agreements to sell its cable  systems in Minnesota  and Idaho.  The system sales
are subject to federal and local regulatory approvals, including the transfer of
franchises,  and are scheduled to close in early 1998.  In accordance  with SFAS
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company has stopped depreciating the systems held
for sale. These cable systems contributed $12 and $19 of operating income during
the three- and nine-month periods ended September 30, 1997, respectively.

E.  Debt Extinguishment

During August 1997, U S WEST  redeemed its Liquid Yield Option Notes  ("LYONs").
The  convertible  zero coupon  subordinated  notes were due June 25, 2011.  Upon
redemption,  the recorded value of the notes attributed to Media Group was $268.
The debt extinguishment  resulted in a loss of $3 (net of income tax benefits of
$2) primarily  related to the write-off of deferred  debt issuance  costs.  This
loss is  reflected  as an  extraordinary  charge  in the  accompanying  Combined
Statements of Operations.  U S WEST financed the  redemption  with floating rate
commercial paper.


<PAGE>


Form 10-Q - Part I

                              U S WEST MEDIA GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

F.  Media Group Equity
<TABLE>
<CAPTION>
Following is a reconciliation of Media Group equity:
     <S>                                                           <C>    
     Beginning balance, January 1, 1997                            $7,632
        Net loss                                                     (347)
        Market value adjustment for debt and equity securities         88
        Treasury stock purchases                                      (53)
        Foreign currency translation                                  (43)
        Preferred dividends                                           (39)
        Company LESOP guarantee                                        19
        Common stock issuances                                         15
        Other                                                           9
                                                                 ---------
     Ending balance, September 30, 1997                            $7,281
                                                                 =========
</TABLE>

Market value adjustments of $88 (net of income tax expenses of $69) result
primarily  from  recording TCG equity securities at market value.

The foreign currency translation adjustment of $43 (net of income tax benefits
of $28) is primarily related to investments in Malaysia and Hungary.

G.  MediaOne, Inc. Relocation

On August 6, 1997, Media Group announced it will relocate the corporate  offices
of its domestic cable  operations,  MediaOne,  Inc., from Boston to Denver.  The
move is designed to improve  operations  through better alignment and focus, and
will occur in phases through  mid-1998.  Media Group incurred a pretax charge of
$30 ($18  after  tax) in  third-quarter  1997 for costs  related to the move and
management changes.

H.  Subsequent Events

Fintelco,  S.A. On October 27, 1997, Media Group sold its 90 percent interest in
Fintelco, S.A., ("Fintelco"),  a cable and telecommunications venture located in
Argentina,   for  proceeds  of  approximately  $640.  Media  Group  acquired  an
additional  40 percent  interest in Fintelco in August 1997,  to bring its total
interest in Fintelco to 90 percent.

International Directories. On October 1, 1997, Media Group sold U S WEST Polska,
its wholly owned directory  operation in Poland,  for proceeds of  approximately
$30. This sale combined with the second-quarter 1997 sale of Thomson Directories
has resulted in the  disposition  of Media  Group's  wholly owned  international
directory operations.


<PAGE>


Form 10-Q - Part I

                              U S WEST MEDIA GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

I.  Net Investment in Assets Held for Sale

The capital  assets  segment is being  accounted  for in  accordance  with Staff
Accounting  Bulletin  No. 93,  issued by the SEC,  which  requires  discontinued
operations  not  disposed  of  within  one  year of the  measurement  date to be
accounted  for  prospectively  in continuing  operations  as "net  investment in
assets held for sale." The net realizable value of the assets is being evaluated
on an ongoing basis with  adjustments  to the existing  reserve,  if any,  being
charged to continuing operations. No such adjustment has been required. Prior to
January  1,  1995,  the entire  capital  assets  segment  was  accounted  for as
discontinued  operations in accordance with Accounting  Principles Board Opinion
No. 30.
<TABLE>
<CAPTION>
The components of net investment in assets held for sale follow:

------------------------------------------------------- --------------- ---------------
                                                         September 30,    December 31,
                                                                  1997            1996
------------------------------------------------------- --------------- ---------------
<S>                                                           <C>             <C>    
ASSETS
Cash and cash equivalents                                     $     52        $     21
Finance receivables - net                                          806             869
Investment in real estate - net of valuation allowance             158             182
Bonds, at market value                                             118             146
Investment in FSA                                                  351             326
Other assets                                                       179             165
                                                        --------------- ---------------
Total assets                                                    $1,664          $1,709
                                                        =============== ===============

LIABILITIES
Debt                                                            $  421          $  481
Deferred income taxes                                              685             671
Accounts payable, accrued liabilities and other                    137             137
Minority interests                                                  11              11
                                                        --------------- ---------------
Total liabilities                                                1,254           1,300
                                                        --------------- ---------------

Net investment in assets held for sale                          $  410          $  409
======================================================= =============== ===============
</TABLE>

Building sales and operating revenues of the capital assets segment were $13 and
$91  for  the  three-  and   nine-month   periods  ended   September  30,  1997,
respectively,  and $110 and $161 for the three-  and  nine-month  periods  ended
September 30, 1996, respectively.



<PAGE>


Form 10-Q - Part I

                              U S WEST MEDIA GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                             (Dollars in millions)
                                  (Unaudited)

I.  Net Investment in Assets Held for Sale (continued)

Revenues of U S WEST Financial Services, Inc. ("USWFS"), a member of the capital
assets  segment,  were $5 and $16 for the three- and  nine-month  periods  ended
September 30, 1997,  respectively,  and $6 and $20 for the three- and nine-month
periods ended  September 30, 1996,  respectively.  Selected  financial  data for
USWFS follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                            September 30,          December 31,
                                                     1997                  1996
-------------------------------------------------------------------------------
<S>                                                <C>                  <C>

Net finance receivables                            $  850               $   859
Total assets                                        1,208                 1,058
Total debt                                            397                   236
Total liabilities                                   1,139                   998
Equity                                                 69                    60
---------------------------------------------------------- ---------------------
</TABLE>

In September 1997, USWFS pledged certain finance receivables as collateral for a
nonrecourse loan totaling $173. The loan bears interest at an annual rate of 7.2
percent and matures in the year 2009.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions)

The following discussion is based on the U S WEST Media Group Combined Financial
Statements  prepared in accordance  with GAAP. The discussion  should be read in
conjunction  with  the U S WEST,  Inc.  Consolidated  Financial  Statements.  On
November 15, 1996, Continental Cablevision, Inc. ("Continental") was merged into
a wholly owned  subsidiary  of U S WEST (the  "Continental  Merger").  Pro forma
discussions  give effect to the Continental  Merger as though it had occurred as
of January 1, 1996. A discussion of Media Group's  operations on a proportionate
basis follows the GAAP discussion.

Results of Operations - Three and Nine Months Ended September 30, 1997 Compared
with 1996
<TABLE>
<CAPTION>
Sales and Other Revenues
-----------------------------------------------------------------------------------------
                                                                                Pro forma
                                                           Percent   Pro forma   Percent
Three Months Ended September 30,          1997      1996   Change      1996      Change
-------------------------------------- -------- --------- --------  ----------  ---------
<S>                                     <C>       <C>      <C>        <C>        <C>    
Cable and broadband:
     Domestic                           $  584    $   60        -      $ 527      10.8
     International                           6         -        -          -         -
                                       -------- --------- --------  ----------  ---------
                                           590        60        -        527      12.0
Wireless communications:
     Domestic:
        Cellular service                   331       286     15.7        286      15.7
        Cellular equipment                  42        29     44.8         29      44.8
                                       -------- --------- -------- ----------   ---------
                                           373       315     18.4        315      18.4
Directory and information services:
     Domestic                              296       276      7.2        276       7.2
     International                           3        40    (92.5)        40     (92.5)
                                       -------- --------- -------- ----------   ---------
                                           299       316     (5.4)       316      (5.4)
Other                                        8         3        -          3         -
                                       -------- --------- -------- ----------   ---------
Sales and other revenues                $1,270      $694     83.0     $1,161       9.4
====================================== ======== ========= ======== ==========   =========
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                                                Pro forma
                                                          Percent   Pro forma    Percent
Nine Months Ended September 30,           1997      1996   Change      1996      Change
-----------------------------------------------------------------------------------------
<S>                                     <C>      <C>       <C>       <C>        <C>    
Cable and broadband:
     Domestic                           $1,721   $   176       -     $1,579       9.0
     International                          14         -       -          -         -
                                       -------- --------- -------- ---------- ---------
                                         1,735       176       -      1,579       9.9
Wireless communications:
     Domestic:
        Cellular service                   961       792    21.3        792      21.3
        Cellular equipment                 110        77    42.9         77      42.9
                                       -------- --------- -------- ---------- ---------
                                         1,071       869    23.2        869      23.2
Directory and information services:
     Domestic                              879       826     6.4        826       6.4
     International                          48        82   (41.5)        82     (41.5)
                                       -------- --------- -------- ---------- ---------
                                           927       908     2.1        908       2.1
Other                                       21        12    75.0         12      75.0
                                       -------- --------- -------- ---------- ---------
 Sales and other revenues               $3,754    $1,965    91.0     $3,368      11.5
=======================================================================================
</TABLE>


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Media Group sales and other revenues increased 83.0 percent, to $1,270, and 91.0
percent,  to $3,754,  for the three- and nine-month  periods ended September 30,
1997,  respectively.  On a pro forma basis, Media Group sales and other revenues
increased 9.4 percent and 11.5 percent,  for the three- and nine-month  periods,
respectively.  The pro  forma  increases  were  primarily  a result of growth in
domestic cable and broadband revenues, and domestic cellular service revenues.

Cable and Broadband. On a pro forma basis, domestic cable and broadband revenues
increased 10.8 percent,  to $584, and 9.0 percent, to $1,721, for the three- and
nine-month  periods  ended  September  30,  1997,  respectively.  The  increases
resulted  primarily from price increases of  approximately  6 to 8 percent,  the
addition of new  channels and basic  subscriber  increases  of  approximately  2
percent.  Increases in direct broadcast satellite ("DBS") service, and equipment
and  installation  revenues also  contributed  to the increases in revenue.  DBS
service revenues  increased  primarily as a result of a 41.9 percent increase in
DBS customers in 1997. During the nine-month period,  pay-per-view revenues also
contributed to the revenue increase.

Results  for  1997  international  cable  and  broadband  revenues  reflect  the
fourth-quarter  1996  consolidation  of Kabel Plus a.s.  ("Kabel  Plus"),  Media
Group's cable operation in the Czech Republic.

Wireless  Communications.  Cellular service revenues increased 15.7 percent,  to
$331, and 21.3 percent,  to $961,  for the three- and  nine-month  periods ended
September 30, 1997, respectively. These increases are a result of a 32.1 percent
increase in  subscribers  during the last twelve months,  partially  offset by a
10.2 percent  decrease  (12.7  percent  decrease in the  three-month  period) in
average revenue per subscriber to $47.99 per month.  The increase in subscribers
relates to continued growth in demand for wireless services, as well as the 1997
introduction of digital wireless services in several major markets.  Media Group
believes that increasing competition in Media Group wireless markets,  including
new market entrants offering personal communication services ("PCS") technology,
will  contribute to continued  decreases in revenue per  subscriber  and slowing
subscriber growth.

Cellular equipment revenues increased 44.8 percent, to $42, and 42.9 percent, to
$110,  for  the  three-  and  nine-month   periods  ended  September  30,  1997,
respectively.  These  increases  are  primarily  a result of an increase in unit
sales  associated  with increased gross customer  additions  during 1997 and the
introduction of digital  handsets.  These volume increases were partially offset
by a decrease in selling price per analog unit.

In Phase II of the AirTouch Joint Venture, Media Group and AirTouch will combine
those domestic  cellular  properties for which  authorizations  and  partnership
approvals have been  obtained.  Media Group has the right under Phase III of the
AirTouch  Joint  Venture  agreement to convert its joint  venture  interest into
AirTouch stock. See Note C - AirTouch  Transaction - to the U S WEST Media Group
Combined Financial Statements.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Directory and Information Services.  Revenues  related to Yellow Pages directory
advertising represent 99 percent of domestic directory and information services.
Yellow Pages directory  advertising  revenues increased 6.9 percent, to $293 and
$868,  during  the  three-and  nine-month  periods  ended  September  30,  1997,
respectively.  The increases  are largely a result of a 7.2 percent  increase in
revenue per local advertiser,  on a comparable basis,  primarily  resulting from
price  increases  of 4.6 percent and an  increase  in volume and  complexity  of
advertisements  sold.  These increases are offset slightly by decreased  revenue
associated  with exited product lines which were  nonstrategic  to the directory
business.  Revenues  related to  interactive  and other  services  comprise  the
remaining  domestic  directory and information  services revenues and totaled $3
and $11 for the three- and nine-month periods, respectively.

In October  1997,  U S WEST  announced  its  intention  to split Media Group and
Communications  Group into separate public companies.  Concurrently,  the Yellow
Pages and electronic  directory businesses of Dex will be transferred from Media
Group to  Communications  Group.  See Note B - U S WEST  Split - to the U S WEST
Media Group Combined Financial Statements.

In October 1997,  Media Group sold U S WEST Polska,  its directory  operation in
Poland.  In June 1997,  Media  Group sold  Thomson  Directories,  its  directory
operation  in the  United  Kingdom.  These  transactions  have  resulted  in the
disposition of Media Group's wholly owned  international  directory  operations.
See Note H - Subsequent Events - to the U S WEST Media Group Combined  Financial
Statements.
<TABLE>
<CAPTION>
Operating Income

-----------------------------------------------------------------------------------------
                                                                                Pro forma
                                                          Percent   Pro forma    Percent
Three Months Ended September 30,         1997     1996    Change      1996      Change
-----------------------------------------------------------------------------------------
<S>                                     <C>      <C>        <C>        <C>      <C>    

Cable and broadband:
     Domestic                           $(16)    $ (5)          -      $(20)     (20.0)
     International                        (2)        -          -         -          -
                                      -------- --------  ---------  ----------  ----------
                                         (18)      (5)          -       (20)     (10.0)
Wireless communications:
    Domestic                              107       90       18.9        90       18.9
    International                          (3)       -          -         -          -
                                      -------- -------- ----------  ---------   ----------
                                          104       90       15.6        90       15.6
Directory and information services:
    Domestic                              135      101       33.7       101       33.7
    International                          (2)       3          -         3          -
                                      -------- -------- ----------  ---------   ----------
                                          133      104       27.9       104       27.9
Other (see Note 1)<F1>                    (51)     (37)      37.8       (37)      37.8
                                      -------- -------- ----------  ---------   ----------

Operating income                         $168     $152       10.5      $137       22.6
============================================== ======== ========== ========= ==========
<FN>
<F1>
Note 1 -  Primarily  includes  headquarters  expenses  for shared  services  and
divisional expenses associated with international equity investments.
</FN>
</TABLE>


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued
<TABLE>
<CAPTION>
Operating Income (continued)

--------------------------------------- --------------------------- ---------- ------------- ------------
                                                                                              Pro forma
                                                                      Percent   Pro forma      Percent
Nine Months Ended September 30,                1997          1996      Change      1996        Change
--------------------------------------- ------------- ------------- ---------- ------------- ------------
<S>                                            <C>           <C>        <C>         <C>        <C>
Cable and broadband:
     Domestic                                  $(35)         $   3          -       $(38)        (7.9)
     International                               (9)             -          -          -            -
                                        ------------- ------------- ---------- ------------- ------------
                                                (44)             3          -        (38)        15.8
Wireless communications:
     Domestic                                   302            200       51.0        200         51.0
     International                              (12)             -          -          -            -
                                        ------------- ------------- ---------- ------------- ------------
                                                 290           200       45.0        200         45.0
Directory and information services:   
    Domestic                                     397           326       21.8        326         21.8
    International                                (11)           (8)      37.5         (8)        37.5
                                        ------------- ------------- ---------- ------------- ------------
                                                 386           318       21.4        318         21.4
Other (see Note 1)<F1>                           (99)          (96)       3.1        (96)         3.1
                                        ------------- ------------- ---------- ------------- ------------

Operating income                                $533          $425       25.4       $384         38.8
======================================= ============= ============= ========== ============= ============

<FN>
Note 1 -  Primarily  includes  headquarters  expenses  for shared  services  and
divisional expenses associated with international equity investments.
</FN>
</TABLE>

During the three- and nine-month  periods ended September 30, 1997,  Media Group
operating  income  increased  10.5 percent and 25.4  percent,  to $168 and $533,
respectively.  On a pro forma basis, operating income increased 22.6 percent and
38.8 percent,  for the same periods.  The pro forma increases were due primarily
to growth in domestic wireless and domestic directory operations.

Media Group EBITDA more than doubled in 1997, to $469 and $1,437, for the three-
and nine-month periods ended September 30, 1997, respectively,  due primarily to
the Continental  Merger. On a pro forma basis,  Media Group EBITDA increased 9.1
percent and 15.8  percent,  for the same  periods,  due  primarily  to growth in
domestic  wireless  and domestic  directory  operations.  Media Group  considers
EBITDA an important indicator of the operational strength and performance of its
businesses.  EBITDA,  however,  should  not  be  considered  an  alternative  to
operating  or net income as an  indicator of the  performance  of Media  Group's
businesses,  nor as an alternative to cash flows from operating  activities as a
measure of liquidity, in each case determined in accordance with GAAP.

Cable and Broadband.  On a pro forma basis, cable and broadband operating losses
decreased $2, to $18, and  increased  $6, to $44, for the three- and  nine-month
periods  ended  September  30,  1997,  respectively.   International  cable  and
broadband results contributed  operating losses of $2 and $9, for the three- and
nine-month  periods,  respectively.  Consolidated  results  for  Kabel  Plus are
reflected in Media Group's results beginning in fourth-quarter of 1996.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Domestic cable and broadband  operating  losses decreased $4 for the three-month
period  compared with pro forma 1996. The decrease was a result of a $3 increase
in EBITDA, to $227, and a $1 decrease in depreciation and amortization  expense.
An increase of $12, or 5.1 percent, in core cable EBITDA was partially offset by
increased  costs of $9,  primarily  related to the deployment of high-speed data
services and change in brand name to "MediaOne".  The core cable EBITDA increase
is  primarily  a result  of  increased  revenues,  partially  offset  by  higher
programming fees resulting from rate increases and subscriber growth.  Increased
personnel costs related to customer  service  initiatives also offset the growth
in EBITDA.

During the  nine-month  period,  domestic cable and broadband  operating  losses
decreased $3, to $35, compared with pro forma 1996. The decrease was a result of
a $15 increase in EBITDA,  to $687, offset by a $12 increase in depreciation and
amortization expense. Increases of $42, or 6.1 percent, in core cable EBITDA and
$5 in DBS  service  EBITDA  were  partially  offset by  increased  costs of $32.
Deployment of high-speed data services and the brand name change  contributed to
cost  increases.  Core cable  EBITDA  growth is  primarily a result of increased
revenues,  partially  offset  by higher  programming  fees  resulting  from rate
increases and subscriber growth.  Increased  personnel costs related to customer
service  initiatives  also offset the growth in EBITDA.  Media Group  expects to
incur  additional costs related to the brand name change during the remainder of
1997, as well as for the deployment of high-speed data.

Wireless  Communications.  Domestic  wireless  communications  operating  income
increased 18.9 percent,  to $107, and 51.0 percent,  to $302, for the three- and
nine-month  periods,  respectively.  These  increases  are a result  of  revenue
increases  associated  with  32.1  percent  subscriber  growth,   combined  with
efficiency gains.  These increases were somewhat offset by decreased revenue per
subscriber,  caused primarily by promotional  pricing to retain  subscribers and
remain  competitive with other wireless service  providers.  On a per subscriber
basis,  the 1997 decline in revenue of 10.2 percent has been more than offset by
a 19.8 percent  decrease in the costs to acquire and support  customers.  During
third-quarter  1997,  marketing and related costs to launch digital  services in
three  markets  combined with the  promotional  pricing  contributed  to slowing
growth in operating income and EBITDA.  Domestic  cellular EBITDA increased 20.5
percent,  to $153,  and 41.7  percent,  to $435,  for the three- and  nine-month
periods,  respectively.  Efficiencies  have  contributed  to an increase in 1997
domestic cellular EBITDA margins to 46.2 percent and 45.3 percent for the three-
and  nine-month  periods,  respectively,  compared  with 44.4  percent  and 38.8
percent in 1996. Media Group believes that increasing competition in Media Group
wireless markets,  including new market entrants  offering PCS technology,  will
contribute  to  continued  decreases  in  revenue  per  subscriber  and  slowing
subscriber growth.

Domestic cellular depreciation increased 18.9 percent, to $44, and 22.4 percent,
to $131,  respectively,  for the three- and nine-month periods.  These increases
are largely a result of network upgrades.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

International  wireless  communications  operating  losses of $3 and $12 for the
three- and nine-month  periods,  respectively,  reflect the fourth-quarter  1996
consolidation of Russian Telecommunications Development Corporation, ("RTDC"), a
Russian venture, which holds wireless investments.

Directory and Information Services.  During the three- and  nine-month  periods
ended  September 30, 1997,  operating  income  related to domestic  Yellow Pages
directory  advertising increased 9.0 percent, to $145, and 6.8 percent, to $422,
respectively,  excluding the one-time effect of a  third-quarter  1996 charge of
$25 to  reorganize  and reduce  headcount.  Revenue  increases  and cost savings
associated with headcount  reductions  (primarily in the nine-month period) were
partially  offset by increased  printing,  paper and sales support costs.  These
cost increases were  associated with an increase in the volume and complexity of
advertisements sold.

Operating losses associated with ongoing product development  activities,  which
include  development  costs for  internet  content  services,  are  included  in
domestic   directory  and  information   services   operating  income.  For  the
three-month  period,  the operating  losses  increased  $3, to $10,  partially a
result of  developing  internet  content  services in 1997.  For the  nine-month
period  operating  losses  decreased  $18,  to  $25,  primarily  the  result  of
discontinuing various product development activities in 1996.

EBITDA related to domestic Yellow Pages directory  advertising service increased
10.2 percent,  to $151, and 9.6 percent,  to $446, for the three- and nine-month
periods,  respectively,  excluding the one-time effect of the third-quarter 1996
charge of $25 to reorganize and reduce headcount. The EBITDA margin for both the
three- and nine-month  periods ended September 30, 1997 was 51 percent  compared
to 50 percent for the same periods in 1996, on a comparable basis.

Other.  During the three- and nine-month  periods,  other operating  losses
increased  $14, to $51, and $3, to $99,  respectively.  The  increases  were due
primarily  to a  third-quarter  1997  charge of $30 for  management  changes and
moving costs  related to the  MediaOne,  Inc.  move from Boston to Denver.  This
charge was partially offset by savings associated with lower international staff
levels in 1997,  combined with a third-quarter 1996 charge of $10 related to the
staff reductions.
<TABLE>
<CAPTION>
Interest Expense and Other

----------------------------------------------------------------------------------------------------------
                                                                                            Pro forma
                                                                     Percent   Pro forma     Percent
Three Months Ended September 30,                1997        1996     Change      1996        Change
------------------------------------------- --------- ----------- ------------ ----------  ----------
<S>                                            <C>         <C>       <C>            <C>         <C>    
Interest expense                               $ 179       $  30         -          $176         1.7
Equity losses in unconsolidated ventures         177          81         -            94        88.3
Gains on sales of investments                     13           -         -             -           -
Guaranteed minority interest expense              22          12      83.3            12        83.3
Other income (expense) - net                     (5)          10         -             8           -
------------------------------------------- --------- ----------- ------------ ----------  ----------
</TABLE>


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Interest Expense and Other (continued)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                                        Pro forma
                                                                  Percent   Pro forma    Percent
Nine Months Ended September 30,               1997        1996    Change      1996       Change
------------------------------------------ --------- --------- ----------  -----------  ----------
<S>                                          <C>       <C>       <C>           <C>        <C>   

Interest expense                             $ 520     $  80          -        $516         0.8
Equity losses in unconsolidated ventures       495       224          -         260        90.4
Gains on sales of investments                  108         -          -           -           -
Guaranteed minority interest expense            66        36       83.3          36        83.3
Other expense - net                             14        24      (41.7)         32       (56.3)
------------------------------------------ --------- --------- ---------- ----------- ----------
</TABLE>

Interest  expense  increased  $149 and $440  during the  three-  and  nine-month
periods, respectively, primarily as a result of the Continental Merger. U S WEST
assumed  Continental debt totaling $6,525 (at market value) and incurred debt of
$1,150 to finance the cash portion of the Continental Merger consideration.

Equity  losses  increased  $96 and $271 for the three- and  nine-month  periods,
respectively,  predominantly due to greater losses generated from  international
ventures and the domestic  investment in PrimeCo  Personal  Communications  L.P.
("PrimeCo").  PrimeCo launched  service in November 1996, and losses  associated
with this venture have increased as a result of start-up and other costs.

The  increase  in  international  equity  losses  primarily  relates  to foreign
exchange  transaction  losses at the Malaysian and  Indonesian  operations,  and
amortization  of license  fees  related to a wireless  investment  in India.  In
addition,  costs  associated  with the  significant  increase in  customers  and
network  coverage at One 2 One  contributed to the increase in losses during the
nine-month  period.  Fluctuations in foreign  exchange rates could impact future
equity losses.

During the third quarter of 1997,  Media Group sold 1,840,000  million shares of
Teleport  Communications  Group  for a  pretax  gain of  $13.  Also  during  the
nine-month  period,  Media Group sold its shares of Time Warner,  Inc. and its 5
percent interest in a wireless venture in France. These transactions resulted in
pretax gains totaling $108.

Guaranteed  minority  interest expense  increased $10 and $30 for the three- and
nine-month  periods,  respectively.  The increases  were a result of the October
1996 issuance of Company-obligated  mandatorily  redeemable preferred securities
of subsidiary  trust holding solely  Company-guaranteed  debentures  ("Preferred
Securities") totaling $480.

Other income decreased $15, to a loss of $5, and other expense decreased $10, to
$14,  during the three- and nine-month  periods,  respectively.  The three-month
period decrease is due partially to foreign  exchange  transaction  losses.  The
nine-month  period  decrease is due  primarily to a  second-quarter  1996 pretax
charge  of $31  associated  with  the  sale of Media  Group's  cable  television
interests  in Norway,  Sweden and  Hungary,  partially  offset by the  increased
foreign exchange transaction losses in 1997.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
<TABLE>
<CAPTION>
Income Tax Provision (Benefit)

-----------------------------------------------------------------------------------------------
                                                                       Pro forma     Pro forma
Three Months Ended September 30,        1997      1996   (Decrease)      1996        Increase
-----------------------------------------------------------------------------------------------
<S>                                    <C>       <C>        <C>          <C>          <C>   

Income tax provision (benefit)        $ (61)     $  21      $ (82)       $ (28)        $  33
----------------------------------- --------- --------- ------------- ------------ ------------
</TABLE>

<TABLE>
<CAPTION>
----------------------------------- ------------------- ------------- ------------ ------------
                                                                       Pro forma     Pro forma
Nine Months Ended September 30,         1997      1996   (Decrease)      1996        (Decrease)
----------------------------------- --------- --------- ------------- ------------ ------------
<S>                                  <C>         <C>        <C>          <C>            <C>

Income tax provision (benefit)       $ (107)     $  51      $ (158)      $(121)         $ (14)
Effective tax rate                     23.6%     83.6%           -       26.3%              -
----------------------------------- --------- --------- ------------- ------------ ------------
</TABLE>

The  decrease in the  effective  tax rate is  primarily a result of a shift from
pretax earnings to pretax losses and additional goodwill amortization associated
with the Continental Merger.

Net Income (Loss)

Media  Group net income  decreased  to a loss of $144  ($0.26 per share) for the
three-month  period,  and to $347 ($0.64 per share) for the  nine-month  period.
Excluding the after tax effects of the gains on sales of investments totaling $7
($0.01  per  share)  during the  three-month  period,  and $63 ($0.10 per share)
during the nine-month period, Media Group net income decreased $169 and $420 for
the  three-  and  nine-month  periods,   respectively.  The  Continental  Merger
contributed  approximately  $118 of the decrease during the three-month  period,
and $301  during the  nine-month  period.  The  Continental  Merger  resulted in
significant increases in interest and depreciation and amortization charges. The
remaining  decrease  in net  income is  primarily  due to  greater  losses  from
unconsolidated  ventures,  partially offset by increased  earnings from domestic
cellular and directories operations.

During third-quarter 1997, Media Group incurred an extraordinary loss of $3 (net
of income tax benefits of $2) related to the early  extinguishment  of debt. See
Note E - Debt  Extinguishment  - to the U S WEST Media Group Combined  Financial
Statements.  During  second-quarter  1997, Media Group incurred an extraordinary
gain of $3 (net  of  income  tax  expenses  of $2)  also  related  to the  early
extinguishment of debt.

Liquidity and Capital Resources

Operating Activities

Cash provided by operating  activities of the Media Group  increased $469 in the
first nine months of 1997, compared with 1996. The Continental Merger and growth
in operations from the domestic cellular and directories  businesses contributed
to the increase.  Also  contributing  were  decreased tax payments  during 1997.
Partially  offsetting the increase were higher  financing  costs  resulting from
greater debt levels associated with the Continental Merger.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Investing Activities

Media Group capital  expenditures were $1,087 for the first nine months of 1997.
The majority of  expenditures  in 1997 were  devoted to  upgrading  the domestic
cable  network and  expanding the domestic  cellular  network.  Media Group also
invested $315 in international ventures during 1997, primarily for an additional
40 percent interest in Fintelco, and capital contributions to a wireless venture
in India.  Other  investing  activities  include an investment in Continental of
$1,150 which  represents  payment of the cash portion of the Continental  Merger
consideration.

During the first nine months of 1997,  Media Group  received  proceeds  totaling
$945  related to asset  sales as  follows:  (a) $246 from the sale of  7,915,000
shares of Teleport  Communications  Group  stock,  (b) $242 from asset sales and
other proceeds from the capital assets segment, which is held for sale, (c) $220
from the sale of Time Warner,  Inc. shares  acquired in the Continental  Merger,
(d) $121 from the sale of  Thomson  Directories,  (e) $81 from the sale of Media
Group's 5 percent  interest  in a wireless  venture in France,  and (f) $35 from
other miscellaneous sales.

On October 27,  1997,  Media Group sold its 90 percent  interest in Fintelco for
proceeds of approximately  $640. Also in October 1997, Media Group sold U S WEST
Polska,  its wholly  owned  directory  operation  in  Poland,  for  proceeds  of
approximately  $30. In November 1997, Media Group sold its remaining interest in
TCG for net proceeds of $433.

Financing Activities

On October 27, 1997, the Company announced its intention to split Communications
Group and Media Group into  separate  public  companies.  Under the terms of the
proposed transaction, new U S WEST will include the telephone, data and wireless
operations of  Communications  Group, as well as the Yellow Pages and electronic
directory  businesses  of Dex. Dex is currently  part of Media Group and will be
transferred  to  Communications  Group  as  part  of the  proposed  transaction.
MediaOne  Group will  include the  cable/broadband,  wireless,  and domestic and
international investments of Media Group.

Under the terms of the Dex Transfer, Media Group shareowners will receive shares
of new U S WEST common stock for each share of Media Group common  stock,  which
represents their interest in Dex, totaling approximately $850. Also, Media Group
debt will be reduced and  Communications  Group debt will be  increased  by $3.9
billion.

The  transaction  is subject to a number of  approvals,  including  approvals by
regulators and both shareowner  groups,  and receipt of a favorable  ruling from
the Internal Revenue Service. The split is expected to be complete in the second
half of 1998.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

As a result of the  proposed  split  announcement,  credit  ratings for U S WEST
Capital Funding,  Inc. and for Preferred Securities are under review by Standard
& Poor's (with negative  implications),  Moody's, and Duff & Phelps. Senior debt
at MediaOne,  Inc. (formerly Continental) was downgraded by Moody's from Baa2 to
Baa3 and  subordinated  debt from Baa3 to Ba1, and is under review by Standard &
Poor's, with negative implications. The MediaOne, Inc. debt remains under review
for further  downgrading by Moody's.  For all outstanding debt securities issued
or guaranteed by U S WEST, Inc., the Company intends to take  appropriate  steps
to preserve bondholder value.

Media  Group debt at  September  30,  1997 was  $9,958,  an  increase  of $1,105
compared with December 31, 1996. In 1997,  Media Group incurred  additional debt
to  finance  the cash  portion of the  Continental  Merger  consideration  which
totaled  $1,150.  In January 1997, the Company issued medium- and long-term debt
totaling $4.1 billion, at a weighted average rate of 7.47 percent.  The proceeds
were used to refinance debt incurred in conjunction with the Continental Merger.

During  August 1997,  U S WEST  redeemed  its Liquid  Yield  Option  Notes.  The
convertible  zero  coupon  subordinated  notes  had a  recorded  value  of  $268
attributed to Media Group.  During the second  quarter of 1997,  MediaOne,  Inc.
redeemed a 10 5/8  percent  senior  subordinated  note with a recorded  value of
$110,  including  a premium  of $10.  U S WEST  financed  the  redemptions  with
floating rate commercial paper.

During second quarter of 1997, Media Group acquired cable systems serving 40,000
subscribers  in the state of Michigan for cash of $25 and  approximately  $50 of
Series E Convertible Preferred Stock (the "Preferred Stock") issued by U S WEST.
The Preferred  Stock is redeemable at U S WEST's option starting five years from
the acquisition  date, or upon dissolution of Media Group. The stockholders have
the right to elect cash upon  redemption,  or to convert their  Preferred  Stock
into Media Group common stock based on a predetermined formula.

Excluding debt  associated  with the capital assets  segment,  the Media Group's
percentage  of debt to total  capital at September  30,  1997,  was 54.1 percent
compared with 50.3 percent at December 31, 1996.  Including debt associated with
the capital assets  segment,  Preferred  Securities and  mandatorily  redeemable
preferred stock, the Media Group's  percentage of debt to total capital was 61.4
percent at September 30, 1997,  compared with 57.8 percent at December 31, 1996.
The percentage of debt to total capital has increased as a result of higher debt
associated with the Continental Merger.

Due to the significant capital  requirements  associated with the domestic cable
upgrade,  Media Group expects that cash from  operations will not be adequate to
fund expected cash requirements in the next several years.
Additional financing will come primarily from new debt.

Media  Group from time to time  engages  in  preliminary  discussions  regarding
restructurings,   dispositions   and  other  similar   transactions.   Any  such
transaction  may include,  among other things,  the transfer of certain  assets,
businesses or interests,  or the incurrence or assumption of  indebtedness,  and
could be material to the  financial  condition  and results of operations of U S
WEST and Media  Group.  There is no  assurance  that any such  discussions  will
result in the consummation of any such transaction.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Selected Proportionate Data

The  following  table and  discussion  is not  required  by GAAP or  intended to
replace the Combined Financial  Statements  prepared in accordance with GAAP. It
is presented  supplementally  because Media Group  believes  that  proportionate
financial and operating data facilitate the  understanding and assessment of its
Combined Financial Statements.  The table does not reflect financial data of the
capital assets  segment,  which had net assets of $410 and $409 at September 30,
1997 and December 31, 1996,  respectively.  The financial  information  included
below  departs  materially  from GAAP  because it  aggregates  the  revenues and
operating  income of entities  not  controlled  by Media Group with those of the
consolidated operations of Media Group.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                         Pro forma    Percent
Nine Months Ended September 30,                  1997     1996 (1)     Change
--------------------------------------------------------------------------------
<S>                                             <C>       <C>          <C>   
Revenues
Cable and broadband:
     Domestic (2)                               $3,808    $3,571         6.6
     International                                 365       256        42.6

Wireless communications:
     Domestic                                    1,009       787        28.2
     International                                 522       298        75.2

Directory and information services:
    Domestic                                       881       826         6.7
    International                                   91       131       (30.5)

Corporate and other                                 12         9        33.3
                                        --------------- --------- -----------

Total revenues                                  $6,688    $5,878        13.8
======================================= =============== ========= ===========


EBITDA (3)
Cable and broadband:
     Domestic (2)                               $1,196    $1,116         7.2
     International                                  38      (13)           -

Wireless communications:
     Domestic                                      330       253        30.4
     International                                  20         1           -

Directory and information services:
    Domestic                                       419       349        20.1
    International                                    1         5      (80.0)

Corporate and other                               (60)      (30)           -
                                        --------------- --------- -----------

Total EBITDA                                    $1,944    $1,681        15.6
======================================= =============== ========= ===========
</TABLE>


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Selected Proportionate Data, continued
<TABLE>
<CAPTION>
--------------------------------------- ---------- -------------- -------------
                                                     Pro forma       Percent
Nine Months Ended September 30,              1997     1996 (1)        Change
--------------------------------------- ---------- -------------- -------------
<S>                                        <C>          <C>            <C>    
Operating Income
Cable and broadband:
     Domestic (2)                          $  172       $  131          31.3
     International                           (117)        (106)         10.4

Wireless communications:
     Domestic                                 183          154          18.8
     International                           (122)         (63)         93.7

Directory and information services:
    Domestic                                  386          327          18.0
    International                              (8)          (7)         14.3

Corporate and other                           (68)         (37)         83.8
                                        ---------- -------------- ------------

Total operating income                     $  426       $  399           6.8
==============================================================================

Net Income (Loss)
Cable and broadband:
     Domestic (2)                         $  (344)      $ (375)         (8.3)
     International                           (198)        (157)         26.1

Wireless communications:
     Domestic                                  76           88         (13.6)
     International                           (108)         (70)         54.3

Directory and information services:
    Domestic                                  229          193          18.7
    International                              (9)          (9)            -

Corporate and other                             7           (9)            -
                                        ---------- -------------- ------------

Total net loss                              $(347)       $(339)          2.4
==============================================================================
</TABLE>


<PAGE>


Form 10-Q - Part I

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued
<TABLE>
<CAPTION>
Selected Proportionate Data, continued

------------------------------------- --------- ------------- -------------
Nine Months Ended September 30,                  Pro forma       Percent
(in thousands)                            1997    1996 (1)        Change
------------------------------------- --------- ------------- -------------

<S>                                     <C>         <C>           <C>    
Subscribers/advertisers:
Cable and broadband:
     Domestic (2)                        7,696       7,462          3.1
     International                       1,483         961         54.3

Wireless communications:
     Domestic                            2,263       1,664         36.0
     International                         871         419        107.9

Directory and information services:
    Domestic                               481         482         (0.2)
    International                           42         264        (84.1)
                                      ---------  -----------   -----------

Total subscribers/advertisers           12,836      11,252         14.1
===================================== =========  ===========   ===========
<FN>

(1) 1996 pro forma  proportionate  results  reflect the  following  for the nine
    months:  (i)  Media  Group  historical   proportionate   results;  (ii)  the
    Continental  Merger;  (iii)  Continental's   acquisition  of  the  remaining
    interest in Meredith/New Heritage; (iv) the reclassification of the Teleport
    Communications  Group  investment to equity  method;  and (v)  Continental's
    cable investments in Argentina and Singapore.
(2) The  proportionate  results are based on the Media Group's 25.51 percent pro
    rata  priority  and  residual  equity  interests  in  reported  Time  Warner
    Entertainment  Company L.P.  ("TWE")  results.  The reported TWE results are
    prepared in  accordance  with GAAP and have not been  adjusted to report TWE
    results on a proportionate basis.
(3) Proportionate  EBITDA  represents the Media Group's  equity  interest in the
    entities  multiplied by the entity's EBITDA. As such,  proportionate  EBITDA
    does not represent cash available to the Media Group.
</FN>
</TABLE>



<PAGE>


 Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions), continued

Proportionate Results of Operations - Nine Months Ended September 30, 1997
Compared with Pro Forma 1996

For the first nine months of 1997,  proportionate Media Group revenues increased
13.8 percent,  to $6.7 billion,  EBITDA increased 15.6 percent, to $1.9 billion,
and  subscribers/advertisers  increased 14.1 percent,  to $12.8 million.  Strong
growth in domestic and international wireless and cable and broadband operations
contributed to the increase in proportionate  revenue and growth in subscribers.
Strong  growth in domestic  wireless  and cable  contributed  to the increase in
proportionate EBITDA.

Cable and  Broadband.  During  the  first  nine  months  of 1997,  proportionate
revenues for the domestic cable and broadband  operations increased 6.6 percent,
to $3.8 billion.  This is a result of increases in  subscribers  and revenue per
subscriber  mainly due to price  increases.  Proportionate  EBITDA increased 7.2
percent, to $1.2 billion. Proportionate EBITDA related to the domestic cable and
broadband operations of MediaOne,  increased 2.2 percent to $687, primarily as a
result  of  higher  revenues,  partially  offset  by  higher  programming  fees,
increased  personnel  costs  related  to  customer  service  initiatives,  costs
associated  with  deployment  of high  speed  data  services,  and to change the
domestic  cable brand name to  "MediaOne".  Proportionate  EBITDA related to TWE
operations increased 14.6 percent to $509. TWE's results benefited from improved
cable and programming operations and gains realized by asset sales.

During  the  first  nine  months  of 1997,  international  cable  and  broadband
proportionate revenues increased 42.6 percent, to $365, and proportionate EBITDA
increased  $51,  to  $38.  Customer  growth  at  Telewest  Communications,  Inc.
("Telewest")  and new  investments in Malaysia and Indonesia  contributed to the
increase in  proportionate  revenue.  A reduction  in Media Group  international
staff costs as well as improved operations at Telewest and Malaysia  contributed
to the increase in proportionate EBITDA.

Proportionate  international cable subscribers totaled approximately 1.5 million
at September 30, 1997, a 9 percent increase,  on a comparable basis.  Telewest's
cable television subscribers increased 27 percent compared with last year.

Wireless Communications. During the first nine months of 1997, domestic wireless
proportionate   revenues   increased   28.2  percent,   to  $1.0  billion,   and
proportionate  EBITDA  increased 30.4 percent,  to $330.  Excluding  revenue and
losses  generated by the start-up of PrimeCo,  domestic  cellular  proportionate
revenue increased 24.3 percent and proportionate  EBITDA increased 41.8 percent.
The  increase  in  proportionate  revenue  is  a  result  of  revenue  increases
associated  with strong domestic  cellular  subscriber  growth.  The increase in
proportionate  EBITDA is a result of revenue increases  combined with efficiency
gains.


<PAGE>


Form 10-Q - Part I

Item 2.  Management's Discussion and Analysis of Financial Condition and Result
of Operations (Dollars in millions), continued

During  the  first  nine  months  of  1997,   proportionate   revenues  for  the
international   wireless  operations   increased  75.2  percent,  to  $522,  and
proportionate EBITDA increased $19 to $20. The increase in proportionate revenue
and EBITDA is the result of the international wireless subscriber base more than
doubling to 871,000. The digital wireless operations in Hungary, Czech Republic,
Slovakia,  Malaysia and Poland  contributed  significantly to the increase.  The
personal communications services venture in the United Kingdom, One 2 One, added
174,000 proportionate customers, a 76 percent increase, from a year ago.

Directory  and  Information  Services.   Proportionate   revenues  for  domestic
directory  and  information   services  increased  6.7  percent,  to  $881,  and
proportionate  EBITDA increased 20.1 percent,  to $419. The increases are due to
price and volume increases,  reduction in new product development activities and
employee reductions.

Media Group sold its wholly  owned  international  directory  operations  in the
United  Kingdom and Poland on June 4, 1997,  and October 1, 1997,  respectively.
These two  operations  comprise  the  majority  of  proportionate  international
directories results.



<PAGE>


 Form 10-Q - Part II

                          PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

U S WEST and its subsidiaries  are subject to claims and proceedings  arising in
the ordinary course of business.  While complete assurance cannot be given as to
the  outcome of any  contingent  liabilities,  in the  opinion of U S WEST,  any
financial  impact  to which U S WEST and its  subsidiaries  are  subject  is not
expected  to be  material  in  amount  to U S WEST's  operating  results  or its
financial position.

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

Exhibit
Number

11   Statement regarding computation of earnings per share of U S WEST, Inc.

12   Statement regarding  computation of earnings to fixed charges ratio of
      U S WEST,  Inc. and U S WEST Financial Services, Inc.

27   Financial Data Schedule


(b)  Reports on Form 8-K filed during the Third Quarter of 1997

(i)  Form 8-K report  dated July 25,  1997  concerning  the  releases of
     earnings issued on July 25, 1997 by U S WEST  Communications  Group
     and on  July  29,  1997 by U S WEST  Media  Group,  for the  second
     quarter ended June 30, 1997.
(ii) Form 8-K report dated August 7, 1997  concerning  the press release
     issued  August 7, 1997  entitled  "Jan Peters Named  MediaOne  CEO;
     Corporate Offices Moving to Denver."



<PAGE>



                                   SIGNATURES



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




                                    /S/  Michael P. Glinsky

November 13, 1997                   U S WEST, Inc.
                                    Michael P. Glinsky
                                    Executive Vice President and
                                    Chief Financial Officer