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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   -----------

                                    FORM 10-K

                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
            SECTION 13 OR 15D OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|X|  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

      For the fiscal year ended December 31, 2000

                                       or

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

                        For the transition period from to

                        Commission File Number: 000-21261

                                  VIATEL, INC.

             (Exact Name of Registrant as Specified in Its Charter)

               Delaware                                  13-3787366
    (State or Other Jurisdiction            (I.R.S. Employer Identification No.)
   of Incorporation or Organization)

    685 Third Avenue, New York, New York                   10017
  (Address of Principal Executive Offices)               (Zip Code)

       Registrant's telephone number, including area code: (212) 350-9200

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share

            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

            Indicate by check mark if disclosure of delinquent  filers  pursuant
to  Item  405 of  Regulation  S-K is  not  contained  herein,  and  will  not be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K |_|.

            The   aggregate   market   value  of  the   voting   stock  held  by
non-affiliates  of  the  registrant  as of  April  9,  2001,  was  approximately
$25,192,167.  As of April 9, 2001,  51,514,081 shares of the registrant's common
stock, $0.01 par value, were outstanding.

      Documents Incorporated by Reference. None.

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<PAGE>



                                TABLE OF CONTENTS




                                                                            Page

Part I........................................................................ 1
    Item 1.  Business......................................................... 1
             Overview......................................................... 1
             Developments Since December 31, 2000............................. 2
             Our Network...................................................... 2
             Local Fiber Optic Network........................................ 3
             Trans-Atlantic Capacity.......................................... 3
             Network Operations Centers....................................... 3
             Products and Services............................................ 4
             Basic Services................................................... 4
             Advanced Services................................................ 5
             Capacity Sales................................................... 6
             Sales and Marketing; Customer Service............................ 6
             Customer Support................................................. 6
             Information Systems.............................................. 7
             Competition...................................................... 8
             Government Regulation............................................11
             Employees........................................................16
    Item 2.  Properties.......................................................16
    Item 3.  Legal Proceedings................................................17
    Item 4.  Submission of Matters to a Vote of Securities Holders............17
Part II.......................................................................17
    Item 5.  Market for Registrant's Common Equity and Related Stockholder
             Matters..........................................................17
    Item 6.  Selected Consolidated Financial Data.............................18
    Item 7.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations............................................20
    Item 7A. Quantitative and Qualitative Disclosures About Market Risks......44
    Item 8.  Financial Statements and Supplementary Data......................45
    Item 9.  Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure............................................83
Part III......................................................................84
    Item 10. Directors and Executive Officers of the Registrant...............84
    Item 11. Executive Compensation...........................................88
    Item 12. Security Ownership of Certain Beneficial Owners and Management...97
    Item 13. Certain Relationships and Related Transactions...................98
Part IV.......................................................................99
    Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.99



<PAGE>


                                     PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

            This  report  contains   forward-looking   statements  that  involve
substantial  risks and  uncertainties.  You can  identify  these  statements  by
forward-looking  words such as  "anticipate,"  "believe,"  "could,"  "estimate,"
"expect,"  "intend,"  "may,"  "should,"  "will,"  "would" or similar words.  You
should read statements  that contain these words carefully  because they discuss
our future expectations, contain projections of our future results of operations
or of our financial position or state other  "forward-looking"  information.  We
believe that it is  important  to  communicate  our future  expectations  to our
investors. However, there may be events in the future that we may not be able to
accurately predict or control. The factors listed below in "Item 7. Management's
Discussion and Analysis of Financial  Condition and Results of  Operations--Risk
Factors," as well as any cautionary language in this report, provide examples of
risks,  uncertainties  and events  that may cause our  actual  results to differ
materially from the expectations we describe in our forward-looking statements.

ITEM 1. BUSINESS


OVERVIEW

            We are the builder-operator-owner of state-of-the-art  pan-European,
trans-Atlantic and metropolitan  fiber-optic networks and a provider of advanced
telecommunications products and services,  including bandwidth, to corporations,
carriers, Internet service providers, applications service providers and storage
network  providers  in Europe and North  America.  Our network is Europe's  most
advanced,  fresh  dig,  multi-conduit,   continuously  upgradeable  fiber  optic
network,  with international  gateways in New York City and London. We have full
public telecommunications  operator licenses in nine Western European countries,
Canada and the United States and  interconnection  agreements with the incumbent
telecommunications  provider  in  each  of  these  countries.  See  "Item  8. --
Financial  Statements and Supplementary  Data --Notes to Consolidated  Financial
Statements - Note (1)  Organization  and Going  Concern" for a discussion of our
announced plans to close operations in certain of these jurisdictions.

            Our principal  asset is our fiber optic  network,  which covers over
10,400 route  kilometers and links 59 major business  centers in Western Europe.
We also own significant trans-Atlantic capacity, including our fiber pair on the
Yellow  submarine  cable.  Our network has been  designed to allow  customers to
seamlessly  exchange  voice,  data and video  content  between North America and
Western Europe,  and within Western  Europe.  Our European  network  operates at
speeds of 20 to 80  gigabits  per second but can be  upgraded,  without  service
interruptions,  to at least 640  gigabits  per second per fiber pair through the
further application of dense wave division multiplexing  technology,  to support
Europe's growing demand for bandwidth intensive data services.

            We are also developing  metropolitan networks in London,  Amsterdam,
Paris,  Berlin,  Frankfurt  and  Dusseldorf  as well  as  through  the New  York
metropolitan area. Taken together,  we are able to link our pan-European,  North
American and local broadband networks with our high-speed,  trans-Atlantic fiber
network to offer our  customers a wide array of voice and data  services  over a
single integrated network.



                                       1
<PAGE>

DEVELOPMENTS SINCE DECEMBER 31, 2000

            In January 2001, we announced  that,  going forward,  we would focus
principally  on our corporate  and  Broadband/Enterprise  business  segments and
would conclude our provision of consumer voice and wholesale  telecommunications
services in countries ("Realignment Initiatives") that do not meet our long-term
corporate   objectives.   The  steps   announced   included   the   closing   of
consumer-oriented  businesses  in  France,  Germany,  The  Netherlands,   Spain,
Austria,  Greece and  Canada;  the  closure of our U.S.  prepaid  business;  the
consolidation  of operating  units;  the elimination of assets which are used in
the  countries  to be  exited  or  are  redundant;  and a 30%  reduction  in our
worldwide  workforce.  As a result of these decisions,  we expect  significantly
lower, but higher margin revenues from our businesses.

            In February 2001, we retained  Dresdner  Kleinwort  Wasserstein  and
Credit Suisse First Boston, as our financial advisors, and Skadden, Arps, Slate,
Meagher & Flom LLP, as our special counsel, to assist in evaluating our business
plan and developing  initiatives,  including restructuring our debt, identifying
funding opportunities, strategic partnerships, and other strategic alternatives.
Credit Suisse First Boston had originally  been retained by us during the middle
of 2000 to assist solely with regard to strategic alternatives.  At our expense,
on April 3, 2001, the holders of our bonds retained  Wachtell,  Lipton,  Rosen &
Katz.  We are  currently  developing a new business plan that will offer a basis
for a  restructuring  proposal that we will provide to our creditors.  If we are
unable to  effectuate  an out-of court  restructuring,  we may be forced to seek
protection under the federal bankruptcy laws.  Moreover,  our creditors may seek
to initiate involuntary proceedings against us.

            On March 6, 2001,  we were advised by NASDAQ that if by June 4, 2001
the  closing  bid price of our common  stock  fails to be at least  $5.00 for at
least 10  consecutive  trading  days,  NASDAQ will  commence a delisting  action
against  us. A delisting  action by NASDAQ  would  result in a material  adverse
effect on the liquidity of our common stock. We can provide no assurance that if
our common  stock is  delisted  from  NASDAQ,  there will be any future  trading
market for our common stock.

            On April 11, 2001,  we  announced  that our board had decided not to
pay the April 15, 2001 interest  payment on our 12.75% senior notes due 2008 and
on our  7.75%  convertible  junior  subordinated  debentures,  which are held by
Viatel  Financing Trust I, and as a result the trust was unable to pay the April
15 dividend payment on its 7.75% trust certificates.  Both the trust and we have
until May 15, 2001 to make such payments. Non-payment of interest on these notes
and dividend  payment on the trust preferred by May 15, 2001 would be "events of
default" under the terms of our various debt indentures,  the terms of the trust
preferred and the terms of our vendor financing  facilities.  Accordingly,  as a
result of our  decision not to pay the April 15, 2001  interest  payment and the
inability  of the trust to pay the  April 15,  2001  dividend  payment,  we have
classified all of our long-term debt as current.


OUR NETWORK

            Our principal asset is our high-capacity fiber optic network,  which
is connected to our own  trans-Atlantic  cable system and U.S. fiber assets.  We
began  constructing  our  European  fiber  network  in 1998.  To  date,  we have
completed construction of approximately 99% of the network.

            Our technologically advanced network employs ring configurations and
self-healing  synchronous  digital hierarchy systems to provide high reliability
and redundancy.  The network is equipped with technologically advanced fiber and
optical transmission  systems, and consists of a uniform  configuration of dense
wave division  multiplexing  optronics and Lucent fiber optic cable.  We believe
that this  uniform  configuration  allows us to ensure  high  levels of  service
quality while  maintaining low operating costs and ease of  upgradeability.  Our
network was designed from the outset to support Internet protocol,  asynchronous
transfer mode and traditional circuit switched services.



                                       2
<PAGE>

            The long-haul network that we have constructed in Western Europe has
at least 48 fibers  installed  throughout,  with between 72 and 96 fibers in one
conduit on most terrestrial  segments. In addition, we have constructed at least
one  additional  spare  conduit  on most  terrestrial  segments.  While  we have
constructed our European  long-haul  network  primarily for our own use, we have
sold and  exchanged  dark fibers and capacity on segments of our  network.  Such
capacity sales reduce our  construction  costs and such exchanges help us expand
our network  footprint.  See "Item 7.  Management's  Discussion  and Analysis of
Financial  Condition  and Results of  Operations  -- Overview -- Revenue," for a
discussion of the way in which we have  recorded  revenue from capacity and dark
fiber sales that qualified for sales type recognition.

LOCAL FIBER OPTIC NETWORKS

            Through  a  combination   of   self-constructed   assets  and  fiber
exchanges,  we intend to deploy 22,000 fiber kilometers of metropolitan fiber in
London, Amsterdam,  Paris, Berlin,  Frankfurt,  Dusseldorf and the New York City
metropolitan  area to link  customers to our  pan-European,  North  American and
trans-Atlantic  networks with broadband local fiber  connectivity  enabling high
speed  integrated data,  video and voice  communication  with higher quality and
lower cost,  compared to leasing all of our "last mile" lines from  others.  See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of  Operations  -- Risk  Factors -- We may not be able to deploy our local fiber
optic networks."

TRANS-ATLANTIC CAPACITY

            We own a 25% interest in the Yellow  Submarine  cable,  a four fiber
pair,  1.28 terabit  system,  which was completed in November  2000. The landing
stations for this cable are on Long Island in the United  States and on the west
coast of the United Kingdom.  As part of this acquisition,  we also obtained 128
STM-1s of capacity on the Atlantic  Crossing 1 cable  system  operated by Global
Crossing.

            In addition to the fiber pair we own on the Yellow  Submarine cable,
we also have significant  capacity on the Atlantic  Crossing 1 cable system used
primarily to provide multi-path redundancy.

            BROADBAND WIRELESS

            We  intend  to  continue  to  reduce  our  reliance  on "last  mile"
connections  leased  from  the  incumbent  carrier  or other  competitive  local
exchange  carriers  by  increasing  the  number of  customers  connected  to our
network. In some cases, we construct a fiber optic extension from the customer's
premises to our  network.  In other  cases,  we have  deployed a  high-bandwidth
wireless connection between an antenna on the customer's premises and an antenna
at a  central  location  that  is  directly  connected  to  our  network.  These
point-to-point  wireless  connections offer high quality broadband  capacity and
frequently cost less to install than direct fiber connections.

NETWORK OPERATIONS CENTERS

            We currently monitor the activity of our network from  international
network  operations  centers in Redditch and Egham,  England and  Somerset,  New
Jersey.  These  international  network  operations centers have been fitted with
sophisticated surveillance and control capability, fraud detection and real time
transmission quality  enhancements.  Our network operations centers in Egham and
Somerset  are  capable  of  acting  as a backup  to the  other  and  allow  full
capability to remotely monitor,  test and perform diagnostics on key elements of
our network.


                                       3
<PAGE>


PRODUCTS AND SERVICES

            We  provide  products  and  services  in  three  categories:   basic
services,  advanced  services and capacity  sales.  Our basic  services  include
switched and dedicated long distance, 800 services,  prepaid, postpaid and debit
calling cards, conference calling, and enhanced fax services. We provide many of
our basic  services  on a  wholesale  as well as a retail  basis.  Our  advanced
services  include  domestic and  international  private line services,  Internet
access, frame relay,  asynchronous  transfer mode and Internet protocol services
and managed  bandwidth.  These  services  are  provided on a wholesale  basis to
communication carriers, Internet service providers and other wholesale customers
as well as to end-users.  Capacity  sales include sales of dark fiber and leases
of capacity.  See "Item 8. Financial Statements and Supplementary Data -- "Notes
to Consolidated Financial Statements -- Note (1) Organization and Going Concern"
for a discussion  of our decision to stop  providing  basic  services in certain
countries  and  "Item 7.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations -- Overview -- Revenue," for a discussion of
how we account for  capacity and dark fiber  sales.  Our services are  discussed
below.


BASIC SERVICES

            INTERNATIONAL AND DOMESTIC LONG DISTANCE SERVICE.  International and
domestic  long  distance  service is service that is accessed  from a customer's
billing location,  i.e., their home or office, using "1xxx" access in the United
Kingdom  or  "1+"  access  in the  United  States  and  Canada.  In  France  and
Switzerland, long distance service is accessed by using either "1+" access or by
dialing "1xxxx" access.  In Germany,  long distance service is accessed by using
either "1+" access or by dialing "01099" prior to dialing "0+".

            CALLING CARD  SERVICES.  During 2000, our calling card services were
sold in all of our principal markets and could be used in over 65 countries.  In
continental  Europe,  we believe that a substantial  portion of our calling card
customers  used this service from their home or office as an  alternative to the
incumbent  carrier for international  calls. In contrast,  in the United Kingdom
and the United  States,  our calling cards were sold to customers  primarily for
convenience when traveling.

            PREPAID  SERVICES.  During 2000, our prepaid card services  provided
similar  features  and manner of use as our calling  cards.  Our  prepaid  cards
generally  could be used from the United  Kingdom,  the United States,  Belgium,
Canada,  Germany,  France, Israel,  Greece, The Netherlands and Switzerland.  We
also sold  prepaid  cards that could be used only from the country in which they
were sold.

            OTHER BASIC SERVICES.  During 2000, we also provided the  additional
retail services described below.



                                       4
<PAGE>

        o   WIRELESS  SERVICE.  In  the  United  Kingdom,  we  offered  wireless
            services to business customers through Wavetech Limited.  In the New
            York metropolitan  area, we offered domestic and international  long
            distance  services  to  cellular  telephone  users who  access  this
            service by dialing a local access  number or, in the case of Verizon
            Mobile  customers  in certain  area codes,  by selecting us as their
            long distance provider.

        o   CONFERENCING  SERVICE. We provided an audio conference service which
            allowed  automatic,  manual or  operator-assisted  establishment  of
            conference calls 24-hours-a-day, seven-days-a-week.

        o   TOLL-FREE SERVICE. We provided toll-free service, i.e., "800", "888"
            or "877"  service,  to  customers in the United  States,  the United
            Kingdom, Belgium, Germany,  Switzerland and The Netherlands. We also
            provided  international  toll-free  services  for our  customers  in
            Europe.

            We are currently in the process of exiting certain consumer-oriented
businesses,  including  prepaid  services  in the  United  States.  See "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations -- Overview," and "Item 8. Financial Statements and Supplemental Data
- Notes to  Consolidated  Financial  Statements -- Note (14)  Restructuring  and
Impairment," for a discussion of our closing of consumer-oriented businesses.


ADVANCED SERVICES

            During 2000, we provided the advanced data services described below.

        o   SWITCHED DATA SERVICES.  We offered frame relay,  Internet  protocol
            and asynchronous transfer mode services that allow for the effective
            transmission of large  quantities of data between  different  sites.
            These advanced  services are used for wide area network  connections
            and in text,  image and video  communications  that require  greater
            transmission  speed,   capacity  and  reliability  than  traditional
            telephony services.

        o   MANAGED  BANDWIDTH.  Our managed bandwidth service provided capacity
            of 2 megabits per second,  34 megabits  per second,  45 megabits per
            second and 155  megabits  per second.  Larger  bandwidths  up to 2.5
            gigabits per second could also be obtained upon request. Our managed
            bandwidth  product was designed  for  customers  that require  large
            transport  capacity between cities,  including carrier customers who
            use the bandwidth to service their  end-user  customers,  as well as
            large corporate customers and Internet-related customers.

        o   INTERNET  ACCESS  SERVICE.  We also offered  Internet  access to our
            retail  customers in the United  Kingdom,  Switzerland,  Belgium and
            Berlin, Germany.

        o   LOCAL ACCESS  SERVICE.  We also offered our CITYCONNEX  SERVICE(TM),
            which  enables   companies  to  bypass  local  loop  connections  of
            incumbent  operators  through   technologically   advanced,   highly
            reliable  "last  mile"  wireless  connectivity.   This  offering  is
            available within and between cities linked to our European  network.
            Connectivity is provided in a variety of ways: a single E1-voice and
            data;  two E1s-all  voice,  all data, or a combination  of voice and
            data;   and   10   megabits   per   second   local-area-network   to
            local-area-network connectivity.

        o   DEDICATED  ACCESS  SERVICE.  Customers  using this  service  lease a
            transmission line that connects the customer's  business directly to
            one of our switches or points of presence.  This service is marketed
            to high-volume  customers in the United States and Europe and can be
            used for voice, data, video and the Internet.




                                       5
<PAGE>

CAPACITY SALES

            While we constructed our network  primarily for our own use, we sell
bulk capacity to offset our construction costs. During 2000, such sales included
dark fiber and  long-term  leases of  capacity  that  qualified  for  sales-type
accounting treatment.  The dense wave division  multiplexing  technology used in
our network  allows us to offer  optical  wave or  "wavelength"  services to our
customers,  which  provides 2.5 gigabits per second or 10 gigabits per second of
capacity.  This service is designed for customers  who require  large  transport
capacities between cities, but who do not wish to purchase dark fiber and invest
in the optronics required to enable the fiber to carry traffic.  We believe that
the demand for  wavelength  services  will grow,  as optical  Internet  protocol
interfaces proliferate.  For a discussion of the accounting treatment associated
with  capacity  sales see "Item  7.  Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations--Revenue."


SALES AND MARKETING; CUSTOMER SERVICE

            During 2000, we utilized a variety of marketing channels,  including
a direct sales force, independent sales agents,  multilevel marketing,  customer
incentive programs,  advertising,  affinity programs and the Internet,  to reach
targeted customer groups. As part of our multi-channel  marketing  approach,  we
tailor our marketing to specific  geographic markets and services.  For example,
in September 2000 we hired Ben Stein, a  television/movie  personality known for
his frugality,  to promote certain of our lower market products and services and
in December 2000 we co-sponsored a cycling team to promote our upper tier brands
which are marketed to corporate and enterprise customers.

            In both the U.S.  and  Europe,  our  sales  and  marketing  staff is
currently divided into two categories: direct sales representatives and indirect
sales  representatives.  Direct sales  representatives are primarily responsible
for  face-to-face  sales  efforts  to larger  accounts  and sales to  commercial
accounts,  wholesale  customers and other  carriers.  Our local  internal  sales
forces also typically  advertise locally and provide support for our independent
sales representatives.  Indirect sales representatives are primarily responsible
for telesales to smaller accounts and residential sales.

            Our direct sales personnel are currently compensated on a salary and
commission basis, with potential commissions being paid on the basis of revenues
generated by new customers solely during their first three months as a customer.
After this three-month  period, the customer is turned over to proactive account
managers who manage the account and are compensated  based on the monthly growth
of such  account  above  certain  minimum  requirements.  We  believe  that this
compensation  structure  provides maximum incentive to our direct sales force to
continue to grow our customer base and revenue.

            Many of our  independent  sales  representatives  are  retained on a
non-exclusive/commission-only   basis,   with   commissions   being  subject  to
charge-back for revenues not collectible by us. We believe that our relationship
with our independent sales representatives is good.


CUSTOMER SUPPORT

            We are committed to providing our customers  with superior  customer
service and believe that we have developed the infrastructure necessary to serve
both our existing customer base and accommodate  substantial growth with minimal
additional investment. At each of our customer service facilities,  our customer
service representatives handle both service and billing inquiries.



                                       6
<PAGE>

            We have also  developed  our own  proprietary  software  systems  to
provide our customers with better service.  For example,  in each of our network
countries,  our monthly bills are in the  customer's  native  language and local
currency  (and we have the ability to bill in Euros).  We also provide  detailed
billing  information for commercial  customers that includes itemized breakdowns
of usage by account code and  department.  In addition,  we have  implemented an
interactive voice response system that permits  customers to obtain  information
concerning  their accounts and their most recent  invoices.  We believe that our
customer-oriented  philosophy,  backed by the strength of our  customer  support
infrastructure,   allows  us  to  differentiate   ourselves  from  many  of  our
competitors.


INFORMATION SYSTEMS

            We believe  that  integrated  and reliable  billing and  information
systems  are key  elements  for  growth and  success  in the  telecommunications
industry.  Accordingly,  we have made  significant  investments  to acquire  and
implement sophisticated information systems that are designed to enable us to:

        o   monitor  and  respond  to  customer  needs  by  developing  new  and
            customized services;

        o   manage least cost routing;

        o   provide customized billing information;

        o   provide high quality customer service;

        o   detect and control fraud;

        o   verify payables to suppliers; and

        o   rapidly integrate new customers.

            We believe  that our network  intelligence,  billing  and  financial
reporting  systems enhance our ability to meet  competitively  the  increasingly
complex and  demanding  requirements  of the  international  and  national  long
distance markets.  While we believe that these systems are currently  sufficient
for  our  operations,   these  systems  require  routine  upgrades  and  ongoing
investments.

            Our billing system provides  multi-currency  billing,  itemized call
detail,  city level detail for destination  reporting and electronic  output for
select accounts.  Customers are provided with several payment options, including
automated credit card processing and automated direct debiting.

            We have developed  software to provide  telecommunications  services
and customer support.  Each switch has a call detail recording function which is
designed to enable us to: (1) achieve  accelerated  collection  of call records;
(2) detect fraud and unauthorized usage; and (3) permit rapid call detail record
analysis.

            We also use  software to assist in  analyzing  traffic  patterns and
determining  network  usage and busy hour  percentage,  originating  traffic  by
switching  center,  terminating  traffic by supplier and originating  traffic by
customer.  This data is utilized to provide least cost routing, which may result
in call  traffic  being  transmitted  over our  transmission  facilities,  other
carriers'  transmission  facilities  or a  combination  of such  facilities.  If


                                       7
<PAGE>

traffic  cannot be handled over the least cost route due to overflow,  the least
cost routing system is designed to transmit the traffic over the next least cost
route.  The least cost routing  system  chooses  among the several  variables to
minimize the cost of a long distance  call over multiple  suppliers and multiple
choices of terminating  carrier per country.  The  performance of the least cost
routing  system is verified based on a daily  overflow  report  generated by our
network traffic management and a weekly/monthly  average termination cost report
generated by our billing system. Due to the current economic environment and our
current  financial  situation,  our routing options will likely be significantly
reduced  thereby  reducing  substantially  our ability to route traffic over the
least cost route. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Risk Factors -- Our dependence upon third
parties  for leased  capacity  and  interconnection  arrangements  may result in
suboptimal utilization of our network."

            We have developed a proprietary integrated customer service database
and billing system, called SERVICE ONE(TM),  which is currently in use primarily
for our retail and  wholesale  services.  SERVICE  ONE(TM)  will afford  greater
flexibility  as we  increase  service  offerings  and will  accommodate  greater
customer volume. In addition,  we have implemented an interactive voice response
system that permits customers to obtain up-to-date  information concerning their
account and their most recent invoice by telephone.

            Our systems development group has developed proprietary software and
intranet  systems  that  help us to better  manage  our  business  and price our
services.  For example, we have developed an interface with our network switches
that allows us to compile network  information,  including the number of minutes
being  routed  through  the  switch  (and  corresponding  revenue),   points  of
origination and termination,  sources of traffic and other traffic  information.
We use this information in connection with least cost routing,  pricing and cost
and margin analysis, among other things.


COMPETITION

EUROPE

            The European  telecommunications  industry is highly competitive and
significantly affected by regulatory changes, marketing and pricing decisions of
the larger  industry  participants  and the  introduction  of new  services  and
transmission  methods  made  possible  by  technological  advances.  Our success
depends on our ability to compete  with a variety of  communications  providers,
including  those  providing  competing  voice  services,  competing  value-added
services and competing networks.

            In voice services, we have three main categories of competitors. The
first  group  consists of the  incumbent  telecommunications  operators  in each
country  in which we  operate.  This group  includes  British  Telecom,  Cable &
Wireless,  Deutsche Telekom, France Telecom and SwissCom. The second category of
competitors  consists  of global  alliances  among some of the  world's  largest
telecommunications  carriers.  This  group  includes  Concert,  a joint  venture
between  British  Telecom and AT&T.  The third main category of  competitors  in
voice  services is comprised of the new entrants,  such as KPN/Qwest,  Versatel,
Energis     plc,      Carrier1,      Interoute      Telecommunications,      and
WorldAccess/WorldExchange.

            With  regard  to  our  bandwidth  services,  during  2000  we  faced
competition  from KPN/Qwest,  GTS, Level 3  Communications  and Global Crossing,
each of which currently has broadband networks in operation.

            In  value-added   services,  we  compete  with  two  main  types  of
competitors--the   incumbent   telecommunications   operators  and   traditional
value-added  Internet  service  providers.  During 2000,  Major Internet service
providers included UUNET, a subsidiary of WorldCom,  Ebone, a subsidiary of GTS,
InfoNet and PSINet.



                                       8
<PAGE>

            Many of our current and  potential  competitors  have  substantially
greater  financial,  marketing and other resources than we do and may be able to
deploy more  extensive  networks or may be better able to withstand  pricing and
other market  pressures.  In addition,  incumbent  telecommunications  operators
generally  have  additional  competitive  advantages,  such as control access to
local networks,  significant  operational economies and close ties with national
regulatory authorities.

NORTH AMERICA

            UNITED  STATES.  In the  United  States,  which  is  among  the most
competitive and deregulated long distance  markets in the world,  competition is
based primarily upon pricing, customer service, network quality, and the ability
to  provide  value-added  services.  As such,  the  long  distance  industry  is
characterized  by a high level of customer  attrition or "churn," with customers
frequently changing long distance providers in response to the offering of lower
rates or promotional  incentives by competitors.  We compete with major carriers
such as AT&T,  WorldCom and Sprint,  as well as other national and regional long
distance  carriers and resellers,  many of whom are able to provide  services at
costs that are lower than our  current  costs.  Many of these  competitors  have
greater financial,  technological and marketing  resources than we do. If any of
our  competitors  were  to  devote  additional  resources  to the  provision  of
international  or  domestic  long  distance  telecommunications  services to our
target customer base, there could be a material adverse effect on our business.

            As a result of the 1996  Telecommunications  Act, the regional  Bell
operating companies can compete with us in the long distance  telecommunications
industry,  both outside of their service  territory  and, upon  satisfaction  of
certain  conditions,  within their service territory.  These provisions permit a
regional Bell operating company to enter an "out-of-region" long distance market
immediately  upon the receipt of any state and/or federal  regulatory  approvals
otherwise  applicable in the provision of long distance service. To provide long
distance  service  "in-region,"  regional Bell operating  companies must satisfy
certain  procedural and substantive  requirements,  including  obtaining Federal
Communications  Commission  approval, upon a showing that, in certain instances,
facilities-based  competition is present in its market, that it has entered into
interconnection  agreements  that satisfy a 14-point  "checklist" of competitive
requirements  and that its entry into the "in-region" long distance market is in
the public  interest.  In December 1999,  Verizon was authorized to provide long
distance  service in New York, in June of 2000 it completed its  acquisition  of
GTE, and just this month it was  authorized to provide long distance  service in
Massachusetts.  Because a  substantial  portion of our customer base and traffic
originates  in  the  New  York  metropolitan  area,  Verizon  is a  particularly
formidable  competitor.  For long distance calls, Verizon has a substantial cost
advantage,  because  it does not have to pay access  fees to a local  carrier to
originate  the call.  Access fees  constitute a large portion of a long distance
carrier's  cost of services,  including  ours.  In addition,  in June 2000,  SBC
Communications  was authorized to provide long distance service in Texas, and in
January 2001, SBC was authorized to provide long distance  service in Kansas and
Oklahoma.  SBC also has pending an  application  at the FCC for the provision of
long distance service in Missouri.

            The continuing  trend toward business  combinations and alliances in
the  telecommunications  industry  is  also  creating  significant  new or  more
powerful  competitors.  The  proposed  acquisition  of Voice  Stream by Deutsche
Telekom,  the  acquisition  of Versatel by France  Telecom,  the  acquisition of
Ya.com by a subsidiary of Deutsche Telekom,  the acquisition of Orange by France
Telecom,  the acquisition of AirTouch by Vodafone,  the acquisition of Teleglobe


                                       9
<PAGE>

Inc. by Bell Canada,  the  acquisition of US West by Qwest,  the  acquisition of
Ameritech  by  SBC,  the  merger  of  WorldCom  and MCI  and  Global  Crossing's
acquisition  of  Frontier  Communications,  the  primary  provider  of our  U.S.
transmission  capacity,  are examples of some of the business  combinations that
are/ have been  formed.  Many of these  combined  entities  have,  or will have,
resources  far greater than ours.  These  combined  entities  may, now or in the
future,  be able to provide  bundled  packages of  telecommunications  products,
including local and long distance services,  data services and prepaid services,
in direct  competition with the products offered or to be offered by us, and may
be capable of offering these products sooner and at more competitive  rates than
us.

            During 1998, the World Trade Organization  concluded an agreement on
trade in basic telecommunications  services,  known as the WTO Agreement,  which
resulted in additional competitors entering the U.S. telecommunications markets.
Under  the WTO  Agreement,  the  U.S.  and  other  members  of the  World  Trade
Organization   committed  themselves  to,  among  other  things,  opening  their
telecommunications  markets  to foreign  carriers.  The  Federal  Communications
Commission  has adopted  streamlined  procedures  for  processing  market  entry
applications  from  foreign  carriers,  making it easier  for such  carriers  to
compete in the U.S.  There can be no assurance  that the WTO Agreement  will not
have a material impact on our business.

            We  also  expect  increasing  competition  from  Internet  telephony
service providers, including Internet service providers. The use of the Internet
to provide  telephone  service  is a recent  development.  To date,  the FCC has
determined not to subject such services to FCC regulation as  telecommunications
services.  Accordingly,  Internet  service  providers are, today, not subject to
universal  service  contributions,  access charge  requirements,  or traditional
common  carrier  regulation.  In an  April  1998  report  to  Congress,  the FCC
indicated  that it would  examine  the  question  of  whether  certain  forms of
"phone-to-phone"   Internet  protocol  telephony  are  information  services  or
telecommunications  services.  It noted  that  certain  forms of  phone-to-phone
Internet  telephony  appeared  to have the same  functionality  as  non-Internet
protocol  telecommunications  services and lacked the characteristics that would
render them information services. If the FCC or state public service commissions
were to  determine  that  certain  services  are subject to FCC  regulations  as
telecommunications  services,  the service  providers  could be required to make
universal service contributions, pay access charges or be subject to traditional
common carrier  regulation.  We cannot  predict the impact that this  continuing
lack of regulation will have on our business.

            CANADA. The Canadian telecommunications market is highly competitive
and is dominated  by a few  established  carriers  whose  marketing  and pricing
decisions  have  a  significant  impact  on  the  other  industry  participants,
including us. We compete with  facilities-based  carriers,  other  resellers and
rebillers,  primarily  on the basis of  price.  The  principal  facilities-based
competitors  include the former Stentor partner companies,  in particular,  Bell
Canada,  the  dominant  supplier  of local  and long  distance  services  in the
provinces  of  Ontario  and  Quebec,  and  Telus  Communications,   as  well  as
non-Stentor  companies,  such as AT&T  Canada,  and  Sprint  Canada.  The former
Stentor partner companies  discontinued their partnership on January 1, 1999 and
are now competing against one another.



                                       10
<PAGE>

GOVERNMENT REGULATION

OVERVIEW

            Regulation of the  telecommunications  industry is changing  rapidly
both  domestically  and  globally.  National  and  local  laws  and  regulations
governing  the provision of  telecommunications  services  differ  significantly
among  the   countries   in  which  we  operate  and  intend  to  operate.   The
interpretation  and enforcement of these laws and  regulations  varies and could
limit our  ability to provide  certain  telecommunications  services  in certain
markets.  We cannot provide any assurance that future  regulatory,  judicial and
legislative changes will not have a material adverse effect on us, that domestic
or international regulators or third parties will not raise material issues with
regard to our compliance  with applicable  laws and  regulations,  or that other
regulatory  activities will not have a material  adverse effect on our business,
financial condition and results of operations.


INTERNATIONAL TRAFFIC

            Under the WTO  Agreement,  countries  comprising  95% of the  global
market for basic  telecommunications  services agreed to permit competition from
foreign  carriers.  In addition,  most of these  countries  have  subscribed  to
specific  pro-competitive   regulatory  principles.  The  WTO  Agreement  became
effective on February 5, 1998 and has been implemented,  to varying degrees,  by
the  signatory  countries.  On November  26,  1997,  the FCC adopted the Foreign
Participation  Order to implement the U.S.  obligations under the WTO Agreement.
In this order,  the FCC adopted an open entry  standard  for  carriers  from WTO
member  countries,  generally  facilitating  market entry for such applicants by
eliminating certain existing tests. These tests remain in effect,  however,  for
carriers from non-member countries.

            International carriers serving the United States,  including Viatel,
are subject to the FCC's international  settlements policy,  which, as discussed
below, has been substantially relaxed. The international  accounting rate system
allows a U.S.  facilities-based  carrier to negotiate an accounting  rate with a
foreign  carrier for handling each minute of  international  telephone  service.
Each carrier's portion of the accounting rate, usually one-half,  is referred to
as the settlement rate. Historically, international settlement rates have vastly
exceeded  the  cost  of  terminating   telecommunications   traffic.  The  FCC's
international  settlements  policy  requires:  (1)  the  equal  division  of the
accounting  rate between the U.S.  and foreign  carrier,  (2)  nondiscriminatory
treatment of U.S. carriers, and (3) proportionate return of inbound traffic. The
FCC's International  Settlement Rates Order, adopted in 1998, generally requires
U.S.  facilities-based carriers to negotiate settlement rates with their foreign
correspondent at no greater than FCC-established  benchmark prices. In addition,
the  International  Settlement  Rates Order imposed new conditions  upon certain
carriers,  including us. In particular, the FCC conditioned any authorization to
provide switched services over either  facilities-based or resold  international
private  lines upon the  condition  that at least  half of the  facilities-based
international  message telephone service traffic on the subject route is settled
at or below the relevant benchmark rate.

            In the Foreign  Participation Order described above, however, if the
subject  route does not comply  with the  benchmark  requirement,  a carrier can
demonstrate that the foreign country provides "equivalent" resale opportunities.
Accordingly,  we are  permitted  to resell  private  lines for the  provision of
switched  services,  also known as international  simple resale,  to any country
that either has been found by the FCC to comply with the  benchmarks or has been
determined to be equivalent.



                                       11
<PAGE>

            In 1999, the FCC removed the international  settlements  policy for:
(1) all settlement  arrangements between U.S. carriers and foreign carriers that
lack market  power,  and (2) all  settlement  arrangements  on routes where U.S.
carriers  are able to  terminate  at least 50  percent  of their  traffic in the
foreign  market  at rates  that are at least 25  percent  below  the  applicable
benchmark  settlement rate. Finally,  the international  settlement policy order
expanded its rules to permit carriers to provide  international simple resale on
any route where the resale  carrier  exchanges  switched  traffic with a foreign
carrier that lacks market power.  Accordingly,  we will have more flexibility in
negotiating settlement  arrangements with many carriers on many routes, which we
expect will lower  costs of  terminating  international  traffic,  although  our
competitors  will  benefit from these new rules in the same way. On routes where
we are still subject to the international  settlement policy, the FCC could find
that,  absent a waiver,  certain terms of our foreign carrier  agreements or our
actions do not meet the  requirements of the  international  settlement  policy.
Although the FCC generally has not issued penalties in this area, it has issued
a Notice  of  Apparent  Liability  against  a U.S.  company  for  violating  the
international  settlement  policy,  and it could  take  other  action  against a
carrier violating the international settlement policy, including issuing a cease
and desist  order or  imposing  fines.  If the FCC were to impose  such fines or
other  penalties on us, we do not believe that it would have a material  adverse
effect on our business.

            Increasing    regulatory    liberalization    in   many   countries'
telecommunications  markets now permits more flexibility in the way we can route
calls.  Although  certain  FCC rules  limit the way in which some  international
calls  can  be  routed,  we do  not  believe  that  our  network  configuration,
specifically  the way in which traffic is routed  through our  facilities in the
U.K.,  is  specifically  prohibited  by, or undermines in any way, the intent of
these rules. It is possible,  however,  that the FCC could find that our network
configuration violates these rules. If we were found to be in violation of these
routing  restrictions,  and if the violation  were  sufficiently  severe,  it is
possible that the FCC could impose sanctions and penalties upon us.


INTERNATIONAL REGULATION

            The construction and operation of our telecommunications network and
the provision by us of telecommunications services in foreign countries requires
us to obtain a variety of licenses,  permits and  authorizations in the ordinary
course of business. In addition to  telecommunications  licenses and permits, we
may also be required to obtain  constructions,  zoning,  environmental and other
permits, licenses and authorizations. Further, the construction and operation of
our network  infrastructure  and the  provision of  communications  services may
subject us to regulation in other  countries at the national,  state,  cantonal,
provincial and local levels.

EUROPE

            In connection  with the  construction  of our fiber optic network in
Western Europe,  we have obtained  telecommunications  licenses in all countries
where   authorization   is   required   for   us  to   construct   and   operate
telecommunications facilities and to provide services.



                                       12
<PAGE>

            Our  activities  in Western  Europe are subject to regulation by the
European Union and the applicable national regulatory  authority in each country
in which we  operate.  The level of  regulation  and the rights that attach to a
license  vary in each  country.  In each  country  in which we  operate,  we are
considered to lack significant market power, which generally subjects us to less
regulation than companies that do possess such market power. In addition, we are
required to face local competition  issues such as  interconnection,  unbundling
and resale.  The laws and regulations of the member states of the European Union
(Austria,  Belgium,  Denmark,  Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg,  The Netherlands,  Portugal, Sweden and the United Kingdom), vary on
these issues.  The European  Commission  and various of the member states of the
European Union have opened or concluded  public  dialogue  relating to these and
other local competition issues. We cannot predict what decisions will be made by
the European  Union and the members  states in these ongoing  proceedings or the
effects of those decisions on our operations.


UNITED STATES

            In the United States,  our services are subject to the provisions of
the Communications Act of 1934, as amended by the 1996  Telecommunications  Act,
the  regulations  of the FCC  thereunder,  as well as the  applicable  laws  and
regulations of the various states  administered  by the relevant  public service
commission.  The recent  trend in the United  States for both  federal and state
regulation of telecommunications  service providers has been in the direction of
reduced regulation. Although this trend facilitates market entry and competition
by multiple  providers,  it has also given AT&T, the largest  international  and
domestic  long  distance  carrier in the United  States,  increased  pricing and
market entry  flexibility that has permitted it to compete more effectively with
smaller carriers,  such as us. In addition, the 1996  Telecommunications Act has
opened the United States market to increased  competition from the regional Bell
operating  companies.  We cannot be certain whether future regulatory,  judicial
and  legislative  changes  in the  United  States  will  materially  affect  our
business.

            The  FCC  currently  regulates  us as a  non-dominant  carrier  with
respect  to  both  our  international  and  domestic  interstate  long  distance
services.  Although  the FCC has  generally  chosen not to closely  regulate the
charges,  practices or  classifications  of non-dominant  carriers,  the FCC has
broad  authority  that  includes the power to impose more  stringent  regulatory
requirements on us, to change its regulatory classification,  to impose monetary
forfeiture,  and to  revoke  our  authority.  In this  increasingly  deregulated
environment, however, we believe that the FCC is unlikely to do so.

            In May 1994,  the FCC  authorized  us pursuant to Section 214 of the
Communications  Act to resell  public  switched  telecommunications  services of
other United  States  carriers.  This  authorization  requires  that services be
provided in a manner that is  consistent  with the laws of countries in which we
operate.  Additionally, in September 1996 we received final approval for another
Section 214 authorization from the FCC to provide both facilities-based services
and resale  services  (including  both the resale of switched  services  and the
resale  of  private  lines  for  the  provision  of  switched  services)  to all
permissible international points.

            FCC DOMESTIC INTERSTATE.  We are considered a non-dominant  domestic
interstate carrier subject to minimal regulation by the FCC. We are not required
to obtain  FCC  authority  to  provide  domestic  interstate  telecommunications
services.



                                       13
<PAGE>

            In late 1996, the FCC ruled that non-dominant interexchange carriers
are  no  longer  permitted  to  file  their  tariffs  for  domestic   interstate
interexchange  services.  Following  petitions  for  reconsideration  and  court
appeals,  non-dominant  interstate  interexchange  carriers must now  "detariff"
these  services  no  later  than  July  31,  2001.  In  conjunction   with  this
detariffing,  carriers must disclose their rates,  terms and conditions on their
web sites and in one business  office.  In March 2001,  the FCC ordered  similar
mandatory  detariffing  of  international   services  provided  by  non-dominant
carriers  such as  Viatel.  Carriers  have a 9-month  transition  period  ending
January 2002 in which to accomplish this detariffing,  which permits carriers to
implement  simultaneous  domestic and international  detariffing if they wish in
order to minimize  the costs of this  regulatory  transition.  As with  domestic
detariffing,  carriers must disclose their rates,  terms and conditions on their
web sites and in one business office.

            The 1996  Telecommunications Act is intended to increase competition
in the U.S.  telecommunications  markets.  Among other things,  the  legislation
contains  special  provisions that eliminate the restrictions on incumbent local
exchange  carriers such as the regional Bell operating  companies from providing
long distance service. These provisions permit a regional Bell operating company
to enter an "out-of-region" long distance market immediately upon the receipt of
any state or federal regulatory  approvals otherwise applicable in the provision
of long distance  service.  The provisions also permit a regional Bell operating
company to enter the "in-region" long distance market if it satisfies procedural
and   substantive   requirements,   including   showing  that   facilities-based
competition is present in its market,  that it has entered into  interconnection
agreements which satisfy a 14-point "checklist" of competitive  requirements and
that its entry  into the  "in-region"  long  distance  market  is in the  public
interest.  In December  1999,  Verizon was  authorized  to provide long distance
service in New York,  and just this  month it was  authorized  to  provide  long
distance service in  Massachusetts.  In addition,  SBC was authorized to provide
long distance  service in Texas in June 2000,  and to provide  service in Kansas
and Oklahoma in January 2001. SBC also has a pending application to provide long
distance service in Missouri.

            The FCC has also significantly revised the universal service subsidy
regime.  Beginning January 1, 1998, interstate carriers,  such as us, as well as
certain other entities, became obligated pursuant to the 1996 Telecommunications
Act  to  contribute  to  universal  service  funds  based  upon  interstate  and
international    revenues.    These   funds    subsidize    the   provision   of
telecommunications  services in high cost areas and to low-income customers,  as
well as the  provision  of  telecommunications  and  certain  other  services to
eligible  schools,  libraries  and rural  health  care  providers.  Contribution
factors  vary  quarterly  and we and other  carriers  are  billed  monthly.  The
contributions  factor for 2000 were 5.877% for the first quarter,  5.71% for the
second quarter, 5.536% for the third quarter and 5.6688% for the fourth quarter.
For the first quarter of 2001, the  percentage  was 6.6827%,  and for the second
quarter of 2001, the  percentage is 6.88%.

            Our costs of providing long distance  services will also be affected
by changes in the access  charge rates  imposed by local  exchange  carriers for
origination  and  termination  of  calls  over  local  facilities.  The  FCC has
significantly  revised  its  access  charge  rules in  recent  years  to  permit
incumbent  local  exchange  carriers  greater  pricing  flexibility  and relaxed
regulation  of new switched and special  access  services in those markets where
there are other providers of access services.  The FCC has also restructured the
charges the large local exchange  carriers  assess for switched  access,  moving
from usage-sensitive to non-usage sensitive charges to recover certain costs. In


                                       14
<PAGE>

May 2000, the FCC released an order  substantially  adopting the CALLS Coalition
access charge reform proposals, which eliminated the presubscribed interexchange
carrier  charge  ("PICC") that had been  assessed on long distance  carriers for
residential and single-line  business  subscribers  lines and capped it at $4.31
per month for multi-line  business lines.  Under the CALLS Order, the multi-line
business PICC will decrease  over time and will  virtually  disappear in several
years.  The CALLS Order also greatly  reduces  usage-based  charges paid by long
distance carriers.

            While we  currently  intend  to pass  through  the costs of both the
multi-line  business PICC and our universal  service fund  contributions  to our
customers, there can be no assurance that we will be able to do so or that doing
so will not  result in a loss of  customers.  Additionally,  we  currently  have
agreements  to  terminate,  originate  or  exchange  traffic  with a variety  of
carriers who, in turn, may be subject to similar  agreements with other carriers
or local exchange  carriers.  Any change in any of these agreements,  whether by
operation of law or otherwise, may affect our costs or could disrupt our ability
to  terminate,  originate or exchange  traffic and,  therefore,  have a material
adverse effect on us.

            The 1996 Telecommunications Act also requires interexchange carriers
to compensate  payphone  owners $0.24 for every  coinless call  originating at a
payphone that is routed to such  carrier.  For amounts past due, the FCC set the
per call rate at $0.238 for calls completed from October 1997 through April 1999
and $0.24 from April 1999  forward.  Additionally,  the FCC recently  held that,
after a six-month  transition period, the first  facilities-based  long distance
carrier  to  which  a  compensable  coinless  payphone  call is  routed  will be
responsible for paying such compensation for that call to the payphone operator.
Such carrier may then seek reimbursement for such compensation from any reseller
to which the call is subsequently routed. As a result of many factors, including
a complex and shifting  regulatory scheme, many long distance carriers have been
the subjects of compensation claims by payphone service providers.

            The FCC also  imposes  requirements  for the  marketing of telephone
services and for obtaining  customer  authorization  for changes in a customer's
primary long distance carriers. The FCC has imposed severe penalties on a number
of carriers for "slamming."

            STATES.   Many  states  also  impose  various  reporting  and  other
requirements.  A number of state public service  commissions  have adopted rules
governing   the  marketing  of  telephone   services  and   obtaining   customer
authorizations for changes of a customers' primary long distance carrier.  State
public service  commissions  also regulate  access charges and other pricing for
telecommunications  services  within  each  state.  We may also be  required  to
contribute  to  universal  service  funds in some states.  State public  service
commissions  generally  retain the right to sanction a carrier or to  condition,
modify, cancel, terminate or revoke authorization to provide  telecommunications
services  within the state for  failure to comply  with state law and/or  rules,
regulations and policies of the state regulatory authorities.

            REGULATION  OF THE  INTERNET.  The use of the  Internet  to  provide
telephone  service is a recent  development.  Currently,  the FCC is considering
whether or not to impose  surcharges  or  additional  regulations  upon  certain
providers of Internet  telephony.  In an April 1998 report to Congress,  the FCC
indicated  that it would  examine  the  question  of  whether  certain  forms of
"phone-to-phone"   Internet  protocol  telephony  are  information  services  or
telecommunications  services.  It noted  that  certain  forms of  phone-to-phone
Internet  telephony  appeared  to have the same  functionality  as  non-Internet


                                       15
<PAGE>

protocol  telecommunications  services and lacked the characteristics that would
render them information services. If the FCC or state public service commissions
were to  determine  that  certain  services  are subject to FCC  regulations  as
telecommunications  services,  these service providers could be required to make
universal service contributions, pay access charges or be subject to traditional
common  carrier  regulation.  State public service  commissions  may also retain
jurisdiction to regulate the provision of intrastate Internet telephony services
and could initiate proceedings to do so.

            PATENT RIGHTS  RELATING TO PREPAID  SERVICES.  Various  parties have
claimed that certain  prepaid card providers are  infringing  upon patent rights
held by these parties relating to the provision of prepaid card services.  We do
not expect that our prepaid  card  services  will be found to infringe  upon any
third-party  patent  rights,  although  there can be no assurance  that we would
prevail if a claim were asserted by a third party.  If we were unable to provide
our prepaid card services in the manner in which they currently are provided, it
could have a material adverse effect on our business and the price of our common
stock.


EMPLOYEES

            As  of  December  31,  2000,  we  had  2,058  full-time   employees,
approximately  1,039 of whom were  engaged  in  sales,  marketing  and  customer
service.  None of our employees are represented by a labor union or covered by a
collective  bargaining  agreement.  We believe  that our  relationship  with our
employees is generally  good. In January and February of 2001, we  implemented a
company wide workforce  reduction through which our employee base was reduced by
approximately 30%.

ITEM 2. PROPERTIES

            Our   tangible   assets   include  a   substantial   investment   in
telecommunications  equipment.  Our  network  and its  component  assets are the
principal   properties   we  own.   We  own  a   significant   portion   of  the
telecommunications  equipment  required for our business.  Our network  includes
installed  fiber optic cable  consisting  of lighted  (used) and dark (not used)
fibers,  which is  either  owned  or  leased  and is laid  pursuant  to  various
rights-of-way.  Other  fixed  assets are  located at  various  locations  in our
service areas.

            We currently occupy five sites in New York City, one of which serves
as our  principal  executive  office,  and  one of  which  serves  as one of our
international  gateway switching centers.  We also lease space in Somerset,  New
Jersey, which serves as our U.S. Voice Network Operations Center; Egham, England
which serves as our European Voice Network Operations Center;  Redditch England,
which  serves as our  European  Data  Network  Operations  Center;  and  College
Station,  Texas, where our billing center is currently located. We also maintain
switching and transmission  sites in several U.S. cities. In addition,  we lease
office space in London, England, which serves as our European headquarters.

            We have leased sales  offices in several  European  cities.  We also
maintain collocation  facilities,  switch sights,  repeater sights and points of
presence in numerous  countries  throughout  Europe. In general,  these European
locations are leased for a minimum term of 20 years,  including renewal options.
We attempt to structure  our leases of space for our network  switching  centers
and  rights-of-way  for our fiber optic  networks with initial terms and renewal
options so that the risk of relocation is minimized. We anticipate that prior to
termination  of any of the leases,  we will be able to renew such leases or make
other suitable arrangements.



                                       16
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

            We are involved from time to time in  litigation  that arises in the
ordinary  course  of  our  business.  We  believe  that  any  potential  adverse
determination  in any pending action will not have a material  adverse effect on
our business, financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            Our common stock is listed on the NASDAQ  National  Market under the
ticker symbol "VYTL".  As of April 9, 2001, there were 51,514,081  shares of our
common stock outstanding.  We believe we have in excess of 500 beneficial owners
of our common  stock.  The  following  table shows,  for the  calendar  quarters
indicated,  based on published sources, the high and low closing sale prices per
share of our common stock as reported on the NASDAQ National Market.


<TABLE>
<CAPTION>
                                                    VIATEL COMMON
                                                        STOCK
                                                 HIGH            LOW
<S>                                              <C>            <C>
1999
    First Quarter.........................       28.625         17.00
    Second Quarter........................       52.8755        28.125
    Third Quarter.........................       57.50          23.3125
    Fourth Quarter........................       54.625         27.0625
2000
    First Quarter.........................       75.375         33.375
    Second Quarter........................       45.4375        19.0625
    Third Quarter.........................       27.8125         9.4375
    Fourth Quarter........................        9.875          1.625
2001
    First Quarter.........................        5.75           0.5625
</TABLE>

            On April 16, 2001,  the reported last sale price of our common stock
on the NASDAQ National Market was $0.35 per share.

            On March 6,  2001,  NASDAQ  advised  us that if by June 4,  2001 the
closing bid price of our common stock fails to be at least $5.00 for at least 10
consecutive  trading days,  NASDAQ will commence a delisting  action against us.
Should  NASDAQ  take such a  delisting  action,  we will be  required  to decide
whether or not to appeal  such a decision to the NASDAQ  Listing  Qualifications
Hearing Board.  If such a delisting was to occur and we decide to appeal,  there
is no assurance  that we will prevail in our appeal.  If we decide not to appeal
or if the NASDAQ Listing  Qualification  Hearing Board denies our appeal, we may
seek to have our common stock listed on the NASDAQ Small Cap Market. Because our
common stock currently trades below $1.00, there can be no assurance that NASDAQ
would  permit us to list our common  stock on the Small Cap Market.  A delisting
action by NASDAQ would result in a material  adverse  effect on the liquidity of


                                       17
<PAGE>

our common  stock.  We can  provide  no  assurance  that if our common  stock is
delisted  from NASDAQ,  there will be any future  trading  market for our common
stock. See "Item 7. Management's  Discussion and Analysis of Financial Condition
and  Results  of  Operations  - Risk  Factors  -- We  may  file  for  bankruptcy
protection;  holders of our common  stock and  preferred  stock may be  severely
diluted  or  eliminated  entirely  in  connection  with a  bankruptcy  filing or
restructuring transaction."

            We have not paid any cash dividends on our common stock to date. The
payment of  dividends,  if any,  in the future is within the  discretion  of our
board and will  depend  on our  earnings,  capital  requirements  and  financial
condition.  It is our present  intention to retain future  earnings,  if any, to
finance  growth of our business.  Our ability to pay cash dividends is currently
restricted  under the terms of the various  indentures  relating to our existing
indebtedness.  On April 11, 2001, we announced that our board had decided not to
pay the April 15, 2001 interest  payment on our 12.75% senior notes due 2008 and
on our  7.75%  convertible  junior  subordinated  debentures,  which are held by
Viatel  Financing Trust I, and as a result the trust was unable to pay the April
15 dividend payment on its 7.75% trust certificates.  Both the trust and we have
until May 15, 2001 to make such payments. Non-payment of interest on these notes
and dividend  payment on the trust preferred by May 15, 2001 would be "events of
default" under the terms of our various debt indentures,  the terms of the trust
preferred and the terms of our vendor financing  facilities.  Accordingly,  as a
result of our  decision not to pay the April 15, 2001  interest  payment and the
inability of the trust to pay the  April  15,  2001  dividend  payment,  we have
classified all of our long-term debt as current.

             For a description of the terms of the 7.50% Cumulative  Convertible
Preferred Stock,  Series B, sold by us on March 9, 2000 pursuant to Section 4(2)
of the  Securities  Act of 1933,  as amended,  see our Form 10-Q for the quarter
ended March 31, 2000, filed with the SEC on May 14, 2000.



ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

            The following selected consolidated financial data should be read in
conjunction  with "Item 7.  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations" and our consolidated  financial statements,
including the notes thereto, and the other consolidated  financial data included
elsewhere in this report.  The  consolidated  statement of  operations  data and
consolidated balance sheet data as of and for the years ended December 31, 1996,
1997, 1998, 1999 and 2000 are derived from our consolidated financial statements
and the notes  related  thereto,  which were  audited  by KPMG LLP,  independent
certified  public  accountants.  The  consolidated  financial  statements  as of
December  31, 1999 and 2000 and for each of the years in the  three-year  period
ended  December  31,  2000 and the  report  of KPMG LLP  thereon,  are  included
elsewhere  in this  report.  The  report  of KPMG LLP  contains  an  explanatory
paragraph that states that the Company has suffered recurring net losses and net
operating cash deficiencies,  has a significant working capital deficiency and a
significant  shareholders'  deficiency  and does not presently  have  sufficient
funds  on hand  to meet  its  current  debt  obligations.  These  factors  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans  in  regard  to  these  matters  are  described  in "Item 8.
Financial Information and Supplementary Data -- Notes to Consolidated  Financial
Statements  -- Note  (1)  Organization  and  Going  Concern."  The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.



                                       18
<PAGE>

            We  capitalize  interest  costs that  relate to debt to finance  the
network,  until the related  portion of the network is placed into  service.  In
1996, 1997, 1998, 1999 and 2000, we capitalized $.1 million,  $.2 million,  $3.3
million,  $10.1  million and $24.2  million,  respectively,  of interest  costs.
EBITDA consists of earnings before  interest,  income taxes,  restructuring  and
impairment charges, extraordinary loss, dividends on convertible preferred stock
and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus the
non-cash cost of capacity sold, non-cash stock related compensation and the cash
portion of the change in deferred  revenue.  Capital  additions  for each period
consist of capital  expenditures,  the net change in accrued property and
equipment  purchases,  assets  acquired  under  capital  lease  obligations  and
capitalized interest during the period.

            On April 11, 2001,  we  announced  that our board had decided not to
pay the April 15, 2001 interest  payment on our 12.75% senior notes due 2008 and
on our  7.75%  convertible  junior  subordinated  debentures,  which are held by
Viatel  Financing Trust I, and as a result the trust was unable to pay the April
15 dividend payment on its 7.75% trust certificates.  Both the trust and we have
until May 15, 2001 to make such payments. Non-payment of interest on these notes
and dividend  payment on the trust preferred by May 15, 2001 would be "events of
default" under the terms of our various debt  indentures, the terms of the trust
preferred and the terms of our vendor financing. Accordingly, as a result of our
decision not to pay the April 15, 2001 interest payment and the inability of the
trust to pay the April 15, 2001 dividend payment,  we have classified all of our
long-term debt as current.

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                       1996       1997      1998       1999       2000
                                     ------------------------------------------------------
                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>       <C>      <C>        <C>         <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
Revenue:
  Communication services revenue...    $50,419   $73,018   $131,938    $248,600     $646,470
  Capacity sales...................         --        --      3,250      84,501      102,983
                                     -------------------------------------------------------
      Total revenue................     50,419    73,018    135,188     333,101      749,453
Operating expenses:
  Cost of services and sales.......     42,130    63,504    122,109     250,574      552,110
  Selling, general and
  administrative...................     32,866    36,077     44,893     100,559      354,274
  Depreciation and amortization....      4,802     7,717     16,268      75,911      303,168
  Restructuring and impairment.....         --        --         --      13,206      899,999
                                     -------------------------------------------------------
      Total operating expenses.....     79,798   107,298    183,270     440,250    2,109,551
                                     -------------------------------------------------------
Operating loss.....................    (29,379)  (34,280)   (48,082)   (107,149)  (1,360,098)
Interest income....................      1,852     3,686     28,259      26,722       31,981
Interest expense...................    (10,848)  (12,450)   (79,177)   (137,409)    (212,630)
                                     -------------------------------------------------------
Loss before extraordinary loss.....    (38,375)  (43,044)   (99,000)   (217,836)  (1,540,747)
Extraordinary loss on debt
  prepayment.......................         --        --    (28,304)         --           --
                                     -------------------------------------------------------
Net loss...........................    (38,375)  (43,044)  (127,304)   (217,836)  (1,540,747)
Dividends on redeemable convertible
  preferred securities.............         --        --     (3,301)     (1,341)     (32,954)
                                     -------------------------------------------------------
Net loss attributable to common
  stockholders.....................   $(38,375) $(43,044) $(130,605)  $(219,177) $(1,573,701)
                                     =======================================================
Net loss per common share
  attributable to common
  stockholders.....................     $(2.47)  $(1.90)      $(5.67)    $(7.43)     $(31.53)
                                     =======================================================
Weighted average common shares
  outstanding, basic and diluted...     15,514   22,620       23,054     29,518       49,905
                                     =======================================================

</TABLE>

                                       19
<PAGE>


<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                         1996      1997      1998       1999       2000
                                      -----------------------------------------------------
                                                     (DOLLARS IN THOUSANDS)
<S>                                    <C>       <C>       <C>        <C>       <C>
OTHER CONSOLIDATED FINANCIAL DATA:
EBITDA..............................   $(24,577) $(26,563) $(31,814)  $(18,032)  $(156,931)
Adjusted EBITDA.....................         --        --   (29,307)    12,315     (84,987)
Net cash used in operating activities   (26,331)  (22,525)  (60,318)  (134,825)   (271,698)
Net cash used in investing activities    (1,592)  (43,164) (349,992)  (405,971)   (565,332)
Net cash provided by financing
  activities........................     94,772    11,286   729,035    589,391     762,765
Capital additions...................      9,800    40,214   220,903    546,259     671,838
OTHER OPERATING DATA:
Billable minutes (000s).............     62,249   140,918   383,875  1,595,658   6,595,550
Switches............................         13        14        15         50          34

                                                    AS OF DECEMBER 31,
                                         1996      1997      1998       1999       2000
                                      -----------------------------------------------------
                                                     (DOLLARS IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...........     $92,982   $47,143  $329,511   $373,044   $305,293
Restricted cash equivalents and
    restricted marketable
    securities, current and
    non-current.....................          --        --   144,523    197,760     61,936
Cash securing letters of credit for
    network construction............          --        --        --     50,165     29,728
Working capital.....................      79,434     7,667   428,657    278,858 (2,004,514)
Property and equipment, net.........      21,886    54,918   267,316    884,328  1,385,917
Intangible assets, net..............       4,210     3,515    45,908  1,011,659    120,692
Total assets........................     134,664   126,809 1,009,111  2,704,097  2,155,387
Total long-term liabilities.........      77,904    99,610   921,139  1,767,548     91,860
Series A redeemable convertible
    preferred stock.................          --        --    47,121         --         --
Series B mandatorily redeemable (in
    2015) cumulative convertible
    preferred stock.................          --        --        --         --    328,616
Viatel-obligated   mandatorily
    redeemable  (in  2015)  convertible
    preferred securities of subsidiary
    grantor trust whose sole assets are
    junior subordinated debentures of
    Viatel...........................         --        --        --         --    180,000
Stockholders' equity (deficiency)...      38,483    (8,564) (137,292)   537,391 (1,056,722)
</TABLE>


ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS

            THE  FOLLOWING  DISCUSSION  SHOULD BE READ IN  CONJUNCTION  WITH OUR
FINANCIAL  STATEMENTS AND THE NOTES THERETO  INCLUDED  ELSEWHERE IN THIS REPORT.
THE FOLLOWING  DISCUSSION  INCLUDES CERTAIN  FORWARD-LOOKING  STATEMENTS.  FOR A
DISCUSSION OF IMPORTANT FACTORS,  INCLUDING,  BUT NOT LIMITED TO, THE LIKELIHOOD
OF US FILING FOR BANKRUPTCY PROTECTION,  THE GOING CONCERN OPINION ISSUED BY OUR
AUDITORS,  THE LIKELY  DELISTING  OF OUR COMMON STOCK FROM TRADING ON THE NASDAQ
NATIONAL  MARKET,  OUR SUBSTANTIAL  LEVERAGE,  THE CONTINUED  DEVELOPMENT OF OUR
BUSINESS, ACTIONS OF REGULATORY AUTHORITIES AND COMPETITORS,  PRICE DECLINES AND
OTHER FACTORS  WHICH COULD CAUSE ACTUAL  RESULTS TO DIFFER  MATERIALLY  FROM THE
RESULTS REFERRED TO IN THE FORWARD-LOOKING STATEMENTS SEE "--RISK FACTORS."



                                       20
<PAGE>

            THE  REPORT  OF  OUR  INDEPENDENT  ACCOUNTANTS,  KPMG  LLP,  ON  OUR
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2000, INCLUDES
AN EXPLANATORY  PARAGRAPH THAT STATES THAT WE HAVE SUFFERED RECURRING NET LOSSES
AND  NET  OPERATING  CASH  DEFICIENCIES,  HAVE  A  SIGNIFICANT  WORKING  CAPITAL
DEFICIENCY AND A SIGNIFICANT  SHAREHOLDERS' DEFICIENCY AND DO NOT PRESENTLY HAVE
SUFFICIENT  FUNDS ON HAND TO MEET OUR CURRENT DEBT  OBLIGATIONS.  THESE  FACTORS
RAISE  SUBSTANTIAL  DOUBT  ABOUT OUR  ABILITY TO  CONTINUE  AS A GOING  CONCERN.
MANAGEMENT'S  PLANS  IN  REGARD  TO  THESE  MATTERS  ARE  DESCRIBED  IN "ITEM 8.
FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA -- NOTES TO CONSOLIDATED  FINANCIAL
STATEMENTS  -- NOTE  (1)  ORGANIZATION  AND  GOING  CONCERN."  THE  CONSOLIDATED
FINANCIAL  STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS  THAT MIGHT RESULT FROM THE
OUTCOME OF THIS UNCERTAINTY.

            INVESTORS IN THE COMPANY SHOULD REVIEW  CAREFULLY THE REPORT OF KPMG
LLP.  THERE  CAN BE NO  ASSURANCE  THAT WE WILL BE ABLE TO  CONTINUE  AS A GOING
CONCERN.


OVERVIEW

            We are the builder-owner-operator of state-of-the-art  pan-European,
trans-Atlantic and metropolitan  fiber-optic networks and a provider of advanced
telecommunications products and services,  including bandwidth, to corporations,
carriers, Internet service providers, applications service providers and storage
network  providers  in Europe and North  America.  Our network is Europe's  most
advanced,  fresh  dig,  multi-conduit,   continuously  upgradeable  fiber  optic
network,  with international  gateways in New York City and London. We have full
public telecommunications  operator licenses in nine Western European countries,
Canada and the United States and  interconnection  agreements with the incumbent
telecommunications  provider in each of these countries.  See "Item 8. Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements -
Note (1) Organization and Going Concern" for a discussion of our announced plans
to close operations in certain of these jurisdictions.

            Our principal  asset is our fiber optic  network,  which covers over
10,400 route  kilometers and links 59 major business  centers in Western Europe.
We also own significant trans-Atlantic capacity, including our fiber pair on the
Yellow submarine cable. Since our inception in 1991, we have invested heavily in
developing our ability to provide international  communications  services within
and between Western Europe and North America and to expand our market  presence.
During the past nine years, we have  systematically  expanded  through  internal
growth by creating  both direct and  indirect  sales  organizations  and through
acquisitions.   Furthermore,   we   have   created   an   extensive   commercial
telecommunications  network in Western  Europe, which we believe is necessary to
economically  render  the data and voice  services  that we offer and  intend to
offer.

            In 2000, we also  continued to expand our network  capabilities  and
services and our ability to generate revenues through our strategic  acquisition
of AT&T Corporation's  subsidiary AT&T Communications (UK), Limited ("Comms UK")
a  provider  of voice  and data  communications  services  to  enterprise  level
corporate  customers.  This  acquisition  helped  accelerate  our entry into the
provision of data services, such as frame relay,  asynchronous transfer mode and
Internet protocol services.

            As a result of the  integration of the Destia  Communications,  Inc.
("Destia") and Comms UK acquisitions (the  "Acquisitions"),  commencing with the
third  quarter of 2000,  our  management  began  monitoring  and  measuring  our
operations   under  two   business   segments:   Wholesale/Consumer   Voice  and


                                       21
<PAGE>

Broadband/Enterprise.  These  business  segments are organized to market,  sell,
service and support different classes of customers.  Prior period  presentations
have been reclassified to conform to the current presentation.

            See "--Liquidity and Capital  Resources," for a discussion of events
that have occurred since December 31, 2001 that impact our liquidity position.


REVENUE

            During  the  past  three  years,  our  revenues  have  been  derived
primarily from the provision of  telecommunications  services in Europe and more
recently in North America. Communications services revenue is comprised of Basic
and  Advanced  Services.  These  services  are  marketed  and sold  through  our
Wholesale/Consumer  Voice segment and our  Broadband/Enterprise  segment.  These
respective  segments are organized to service and support  different  classes of
customers.  Our Basic  Services  revenue  includes  revenue  from  switched  and
dedicated  long  distance,   800/FreePhone  services,  conference  calling,  and
enhanced fax services as well as prepaid,  postpaid,  and debit  calling  cards.
Basic  Services  revenue is  primarily  generated  from  billed  minutes of use.
Advanced  Services is  comprised  of domestic  and  international  private  line
services, Internet access, frame relay, asynchronous transfer mode, and Internet
protocol services and managed bandwidth.  Advanced Services have been offered as
a response to the growing  demand for such  services  from our customers and are
anticipated  to continue  to grow as a  percentage  of  revenue.  Communications
services revenue per billable minute excludes fixed monthly fees associated with
our  other  products  and  service  offerings.  As a result  of the  Realignment
Initiatives, we expect significantly lower, but higher margin, revenues from our
businesses.

            Our  revenues  have also  included  revenues  from  capacity  sales.
Capacity sales mainly represent indefeasible rights of use for sales of portions
of our network that qualify for sales-type lease  accounting.  Transactions that
do not meet the criteria for  sales-type  lease  accounting are accounted for as
operating  leases and  revenue is  recognized  over the term of the lease and is
included in communications   services  revenue.



                                       22
<PAGE>

            In June 1999,  the Financial  Accounting  Standards  Board  ("FASB")
issued  Interpretation  No. 43, "Real Estate Sales,  an  interpretation  of FASB
Statement  No.  66"  ("FIN  43").  FIN 43  requires  that a  lease  of  property
improvements  or  integral  equipment  include  a  provision  allowing  title to
transfer  to the  lessee  in order  for  that  lease  to be  accounted  for as a
sales-type  lease.  We recognize  revenue in accordance  with FIN 43 and the SEC
Staff   Accounting   Bulletin  No.  101,   "Revenue   Recognition  in  Financial
Statements".   However,   accounting   practices   and  guidance  for  sales  of
indefeasible  rights-of-use are evolving.  Standard setting bodies are currently
reviewing  a number of issues  related to FIN 43 and other  related  issues will
probably be referred to these bodies.  Changes in the accounting  treatment as a
result of the  foregoing  could  affect the way that we  recognize  revenues and
costs associated with these capacity sales in the future.

            Each  revenue  source  has a  different  impact  on our  results  of
operations.   Revenue  from  capacity  sales  has  varied   substantially   from
quarter-to-quarter,  thus resulting in  fluctuations  in our operating  results.
Capacity  sales have  substantially  increased  our gross  profit  (i.e.,  total
revenue  less cost of  services  and sales)  because  our cost of  communication
services as a percentage of  communication  services revenue is currently higher
than the cost of capacity sales as a percentage of capacity sales.  Based on our
expectation  that future  capacity  sales will no longer  qualify for sales-type
lease  accounting  treatment,  gross profit will be lower going  forward,  as we
expect to recognize capacity sales over the life of the contract, rather than as
one-time  sales.

            During 2000, our communications services revenue was based primarily
on billed minutes of use and, to a lesser extent, on the additional services and
products provided through our network.  We derived our  communications  services
revenue principally from long distance telecommunications services.

            The table set forth below presents our total revenue by segment:
<TABLE>
<CAPTION>

                                                      YEAR ENDED DECEMBER 31,
                                                      ------------------------
                                                        1998    1999    2000
                                                      ------------------------

<S>                                                     <C>    <C>     <C>
Wholesale/Consumer Voice............................     63.2%  62.9%   63.8%
Broadband/Enterprise................................     36.8%  37.1%   36.2%
                                                      ------------------------
Consolidated........................................    100.0% 100.0%  100.0%
                                                      ========================
</TABLE>

                                       23
<PAGE>


            The table set forth below  presents our total revenue from different
regions:
<TABLE>
<CAPTION>

                                                      YEAR ENDED DECEMBER 31,
                                                      ------------------------
                                                        1998    1999    2000
                                                      ------------------------
<S>                                                     <C>    <C>     <C>
Western Europe......................................     46.6%  66.8%   61.2%
North America.......................................     41.6%  30.3%   37.8%
Other...............................................     11.8%   2.9%    1.0%
                                                      ------------------------
Consolidated........................................    100.0% 100.0%  100.0%
                                                      ========================
</TABLE>

            We have experienced, and expect to continue to experience, declining
revenue  per  minute in all of our  markets,  in part as a result of  increasing
worldwide  competition  within  the  telecommunications  industry.  We  believe,
however,  that the impact on our results of operations from price decreases will
be at  least  partially  offset  by (1)  continuing  decreases  in our  cost  of
providing  telecommunications  services,  particularly those decreases resulting
from our continued  efforts to convert from leased to owned  infrastructure  and
reduced  interconnection costs through the use of our network as it is expanded,
(2) the  introduction of new products and services and (3) our ability to reduce
access and termination costs (i.e., "last mile" connections) or through entering
into additional  interconnection agreements to obtain more cost-effective access
and termination from incumbent  telecommunications  operators.  We cannot assure
you,  however,  that the results  referred to in the  foregoing  forward-looking
statements,  including a decline in our cost of communications  services, can be
achieved.

            We exchange  capacity  on our  network  for  capacity on other cable
systems.  Depending on the structure of these transactions,  we generally do not
recognize  any revenue or  expense,  so there is no effect on our  statement  of
operations.


COST OF SERVICES AND SALES

            Our cost of services and sales can be  classified  into four general
categories:  access costs, network costs, termination costs and cost of capacity
sales.  Access costs generally  represent the costs associated with transporting
the  traffic  from a  customer's  premises to the  closest  access  point on our
network.  Access costs vary  depending upon the distance from our network to the
customer's  premises and from  country-to-country.  We currently expect that our
effective per minute access costs will be reduced as deregulation  continues and
competition   accelerates,   as  certain  European  Union  directives  requiring
cost-oriented pricing (i.e., costs that an effectively  competitive market would
yield) by incumbent telecommunications operators are enforced and as we are able
to obtain cost-effective interconnection agreements.  However, we can provide no
assurance  regarding the extent or timing of such cost decreases or whether they
will occur.  If such access  costs do not fall as fast as we expect,  or at all,
our gross margins could be adversely affected.



                                       24
<PAGE>

            Network  costs  represent the costs of  transporting  calls over our
network from its point of entry to its point of exit.  Network  costs  generally
consist of leased line rental costs and facility/network management costs. These
costs are expected to decrease  substantially as each additional  portion of our
constructed  network  is  placed  into  service  and  we  secure  infrastructure
ownership on other routes, which will enhance gross margins. However, there will
be an associated increase in depreciation and amortization expense (which is not
included in network costs).  See " --Depreciation and Amortization." In order to
succeed,  we will need our per minute  network  costs to  decline  substantially
compared to our per minute revenue.

            Termination costs currently represent the costs that we are required
to pay to other carriers from the point of exit from our network to the point of
destination.  Termination  costs are generally  variable with traffic volume and
traffic  mix.  If a call is  terminated  in a city in which we have a switch  or
point of  presence,  the call is  usually  transferred  to the  public  switched
telephone network for local  termination.  If the call is to a location in which
we do not have a switch or point of presence,  then the call must be transferred
to another carrier with which we are interconnected.

            Capacity sales have substantially  increased our gross profit (i.e.,
total revenue less cost of services and sales) because our cost of communication
services as a percentage of communications  services revenue is currently higher
than the cost of capacity sales as a percentage of capacity sales. We capitalize
all of the costs associated with designing,  building,  funding and placing each
portion of our constructed network into service.

            Cost of capacity sales  represents  non-cash charges of the PRO RATA
cost of the  network  asset  and is  determined  based  upon the  ratio of total
network  capacity sold to total estimated  network  capacity,  multiplied by the
total  capitalized  costs of the  related  network.  The  portion  of the  total
capitalized  cost of the  network  used to  provide  communication  services  is
included in property and  equipment  and is being  charged to  depreciation  and
amortization over its useful life.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

            Our selling, general and administrative expenses include advertising
and  promotional  costs;  commissions  paid to sales  representatives;  bad debt
expense;  repair and maintenance  costs;  and overhead costs associated with our
headquarters,  back-office,  network  topology and operations  centers and sales
offices.  The total amount of our selling,  general and administrative  expenses
have continued to increase since our inception as we have developed and expanded
our business.  We will continue to incur  additional  operating and  maintenance
expenses as additional portions of our network become operational.


DEPRECIATION AND AMORTIZATION

            Depreciation and  amortization  expense includes charges relating to
depreciation  of  property  and  equipment,  which  consist  principally  of our
fiber-optic  network,  as well as  telecommunications-related  equipment such as
switches  and points of  presence,  indefeasible  rights-of-use,  furniture  and
equipment,  leasehold  improvements,  and  amortization  of  intangible  assets,
including goodwill and costs associated with acquired customer base and employee
base. We depreciate  our network over periods  ranging from five to twenty years
and amortize our goodwill  and  acquired  customer  base and employee  base over


                                       25
<PAGE>

periods  ranging  from  four  to  seven  years.  We  expect   depreciation   and
amortization expense related to our network to increase as we place each portion
of our constructed network into service.

            As a result of our acquisitions of Destia and Comms UK, amortization
expense  increased  significantly  in 2000.  The  purchase  price for Destia was
$901.9  million and was allocated  based on estimated fair values at the date of
acquisition,  pending  final  determination.  The final  allocation  resulted in
intangible   assets  and  goodwill  of  $131.0   million  and  $855.6   million,
respectively,  which were being  amortized on a  straight-line  basis over their
estimated  useful  lives  which  were  four to  seven  years  and  seven  years,
respectively.  As part of our 2000 impairment  charge,  we wrote off at December
31, 2000,  $797.0 million of the intangible  assets and goodwill  related to the
acquisition of Destia. See "--Restructuring  and Impairment".  The net remaining
value of the  intangible  assets  related  to the Destia  acquisition  was $36.0
million at December 31, 2000. As a result of this year-end write-off,  we expect
that amortization expense will decrease significantly going forward.

            The  purchase  price for Comms UK was  $115.4  million,  net of cash
acquired of $23.6 million,  and was allocated  based on estimated fair values at
the date of acquisition,  pending final determination.  The final allocation has
resulted  in  goodwill  of  $23.8  million,   which  is  being  amortized  on  a
straight-line basis over its useful life of seven years.

RESTRUCTURING AND IMPAIRMENT

            The  telecommunications  landscape  in which we  operate  has become
increasingly competitive. Continued price erosion as well as projected decreases
in  volume  have led us to review  the  manner  in which we do  business  and to
reassess our ability to recover on certain assets.

            2001 RESTRUCTURING PLAN

            In January 2001, we announced  that,  going forward,  we would focus
principally  on our corporate  and  Broadband/Enterprise  business  segments and
would conclude our provision of consumer voice and wholesale  telecommunications
services in several countries  ("Realignment  Initiatives") that do not meet our
long-term  corporate  objectives.  The steps  announced  included the closing of
consumer-oriented  businesses  in  France,  Germany,  The  Netherlands,   Spain,
Austria,  Greece  and  Canada;  the  closure  of our US  prepaid  business;  the
consolidation  of operating  units;  the elimination of assets which are used in
the  countries  to be  exited  or  are  redundant;  and a 30%  reduction  in our
worldwide  workforce.  While  we have not  finalized  our  estimate  of the 2001
restructuring   and  impairment   charge,  we  anticipate  that  we  will  incur
approximately  $80  million  to  $100  million  of  assets  will be  subject  to
accelerated  depreciation  in connection  with such  restructuring  during their
remaining period of service in 2001.

            ASSET IMPAIRMENT CHARGES RECOGNIZED IN THE FOURTH QUARTER OF 2000

            In the fourth  quarter of 2000,  we performed an  assessment  of the
recoverability  and  measurement  of impairment of our  long-lived  assets based
first on the  undiscounted  future cash flows to be  generated  from  associated
businesses.  The  results  of our  analysis  indicated  that an  impairment  had
occurred  with regard to fixed  assets and  intangibles  related to the acquired
Destia and Flat Rate Communications, Inc. ("Flat Rate") businesses. As a result,
we estimated the fair market value of the related assets through a discounted


                                       26
<PAGE>

future cash flow valuation  techniques.  The results of this analysis  indicated
that the carrying  values of these assets  exceeded  their fair market values by
approximately $868.7 million and that an impairment charge was necessary.

            We have reduced the  carrying  value of these  intangible  assets by
approximately $807.5 million in 2000 consisting of a write-off of $733.9 million
in goodwill associated with the acquisitions of Destia and Flat Rate and a write
down of $73.6 million of intangible  assets  associated  with Destia's  acquired
customer  and  employee  bases.  During  2000,  we have also  written down $61.2
million in  carrying  value of  property  and  equipment  supporting  the Destia
consumer  and  wholesale  businesses  and $26.5  million  of  undeployed  assets
relating to the provisioning of digital  subscriber line services in Germany,  a
business  that we have  decided to no longer  pursue.  These  undeployed  assets
consist  primarily of leasehold  improvements at facilities of Deutsche  Telekom
AG, the incumbent  telecommunications  carrier,  for  collocation of our digital
subscriber  line  equipment.  We believe these  leasehold  improvements  have no
alternative use and cannot be remarketed.  In total, we have recorded impairment
charges related to long-lived assets aggregating $895.2 million in 2000.

            COMMS  UK  RELATED  RESTRUCTURING  PLAN  IMPLEMENTED  IN THE  SECOND
QUARTER OF 2000

            During the second  quarter of 2000,  we  recognized  $2.4 million in
restructuring  charges relating to streamlining  activities  associated with our
acquisition of Comms UK. These restructuring  charges were composed primarily of
anticipated  costs to terminate leases and other  contracts.  As of December 31,
2000,  we had $1.6  million  of  remaining  accruals  relating  to the  Comms UK
restructuring,  which we expect to  recognize  by June  2001.  During  2000,  we
reduced our Comms UK related restructuring  accrual by $0.8 million,  reflecting
$0.6 million in payments and $0.2 million in adjustments. We anticipate that all
restructuring   charges  associated  with  the  Comms  UK  acquisition  will  be
recognized by June 2001.

            DESTIA RELATED  RESTRUCTURING PLAN IMPLEMENTED IN THE FOURTH QUARTER
OF 1999

            During  the  fourth  quarter of 1999,  we  recognized  restructuring
charges  relating to the  streamlining of our  organizational  structure and the
strategic  repositioning  of certain  operations,  primarily  as a result of our
merger with  Destia.  These  restructuring  charges were  composed  primarily of
anticipated  costs to terminate  leases and other  contracts as well as employee
termination costs associated with workforce reductions. As of December 31, 2000,
approximately 285 employees had been made redundant through these initiatives.

            As of December 31, 2000,  we had $0.2 million of remaining  accruals
relating to the 1999 Destia  restructuring.  In 1999 we had accrued $3.9 million
for such  restructuring,  consisting  primarily of charges  relating to employee
terminations and lease and other contract  cancellation  costs. During 2000, the
reduction  of this  restructuring  accrual  by $3.7  million  consisted  of $1.2
million  in  payments  related  to  employee  terminations  and $3.1  million in
payments related to lease and other contract  cancellation costs, offset by $0.6
million in  adjustments.  We  recorded  restructuring  expenses  relating to the
Destia acquisition of $2.6 million during 2000,  primarily related to additional
employee termination costs. All restructuring charges associated with the Destia
acquisition were fully recognized by December 31, 2000.




                                       27
<PAGE>

RESULTS OF OPERATIONS

            The  following  table  summarizes  the  breakdown  of our results of
operations  as a  percentage  of  revenue.  Our  revenue,  and  therefore  these
percentages,  has fluctuated substantially from period-to-period due to revenues
from capacity sales, which have a substantially different impact on margins than
revenues from communications services.
<TABLE>
<CAPTION>

                                                      YEAR ENDED DECEMBER 31,
                                                   ----------------------------
                                                       1998     1999     2000
                                                   ----------------------------

<S>                                                   <C>       <C>      <C>
Cost of services and sales.......................      90.3%    75.2%     73.7%
Selling, general and administrative expenses.....      33.2%    30.2%     47.3%
Depreciation and amortization....................      12.0%    22.8%     40.5%
Restructuring and impairment.....................        --      4.0%    120.1%
EBITDA loss (1)..................................     (23.5)%   (5.4)%   (20.9)%
Adjusted EBITDA (2)..............................     (21.7)%    3.7%    (11.3)%
</TABLE>

-----------

(1)   As used herein,  "EBITDA"  consists of earnings  before  interest,  income
      taxes, restructuring and impairment charges, extraordinary loss, dividends
      on convertible  preferred stock and depreciation and amortization.  EBITDA
      is a measure commonly used in the  telecommunications  industry to analyze
      companies on the basis of operating  performance.  EBITDA is not a measure
      of financial  performance under generally accepted accounting  principles,
      is not  necessarily  comparable  to  similarly  titled  measures  of other
      companies and should not be considered as an  alternative to net income as
      a measure of  performance  nor as an alternative to cash flow as a measure
      of liquidity.

(2)   As used herein, "Adjusted EBITDA" is defined as "EBITDA" plus the non-cash
      cost of capacity sold, non-cash stock related  compensation,  and the cash
      portion of the change in deferred revenue.

2000 COMPARED TO 1999

            TOTAL REVENUE.  Total revenue  increased by 125.0% to $749.5 million
in 2000 from $333.1 million for 1999. This growth was primarily  attributable to
a 160.0% increase in  communications  services  revenue,  which includes revenue
from Basic and Advanced Services,  to $646.5 million in 2000 from $248.6 million
in 1999.  Revenue from Basic Services  represented  $558.4 million,  or 86.4% of
communications  services revenue in 2000, compared to $241.5 million or 97.1% of
communications services revenue, in 1999. Revenue from Advanced Services grew to
$88.1 million or 13.6% of communication  services  revenue, in 2000, compared to
$7.1  million  or 2.9% of  communications  services  revenue,  in  1999,  and is
expected to  continue to become an  increasingly  larger  component  of revenue.
Capacity sales  increased to $103.0 million,  or 13.7% of revenue,  in 2000 from
$84.5  million,  or  25.4%  of  revenue,  in 1999.  Revenue  growth  in 2000 was
generated primarily by growth from European operations,  capacity sales, and the
Acquisitions.



                                       28
<PAGE>

            Broadband/Enterprise  segment revenue  increased by 119.4% to $271.4
million  in 2000  from  $123.7  million  in  1999.  This  growth  was  primarily
attributable to an $18.5 million  increase in capacity sales and our acquisition
of Comms UK.  Wholesale/Consumer  Voice segment  revenue  increased by 128.3% to
$478.1 million in 2000 from $209.4 million in 1999,  primarily  attributable  to
our acquisition of Destia.

            Communication  services  revenue from the sale of Basic  Services to
retail customers  represented $394.5 million, or 52.6% of total revenue, in 2000
compared to $130.3  million,  or 39.1% of total  revenue,  in 1999. For the year
ended December 31, 2000 as compared to 1999, our Basic Services  revenue derived
from carrier  services grew on an absolute  basis to $163.9  million from $111.2
million,  but decreased on a percentage  basis to 21.9% of total revenue for the
year ended December 31, 2000 from 33.4% of total revenue for 1999.

            Billable minutes  increased to 6.6 billion for 2000 from 1.6 billion
for 1999.  Although  there was a substantial  increase in billable  minutes from
1999 to 2000, the effects of such growth were  partially  offset by a decline in
revenue per billable  minute,  as it declined by 46.7% to $.08 in 2000 from $.15
in  1999,   primarily  because  of  (1)  a  higher  percentage  of  lower-priced
intra-European  and  national  long  distance  traffic  on our  network  and (2)
reductions   in  prices  in   response   to  price   reductions   by   incumbent
telecommunications operators and other carriers in many of our markets.

            COST OF SERVICES AND SALES.  Cost of services and sales increased to
$552.1  million in 2000 from $250.6 million in 1999. As a percentage of revenue,
however,  cost of services  and sales  decreased  to 73.7% in 2000 from 75.2% in
1999,  due to our  continued  migration  from leased  infrastructure  to our own
network, higher capacity sales, network integration initiatives, and as a result
of the Acquisitions.  The beneficial effect associated with ongoing expansion of
network  infrastructure  ownership and of bringing traffic on-net,  however,  is
somewhat delayed because our leased line agreements require minimum notification
to terminate our obligations.

            Cost of  services  and sales for 2000 and 1999  also  include  costs
associated with capacity sales. The cost of capacity sales  represents  non-cash
charges of the PRO RATA cost of the network assets and is determined  based upon
the ratio of total network  capacity sold to total estimated  network  capacity,
multiplied by the total capitalized costs of the related network.

            SELLING, GENERAL AND ADMINISTRATIVE  EXPENSES.  Selling, general and
administrative  expenses increased to $354.3 million in 2000 from $100.6 million
in 1999 and, as a  percentage  of revenue,  increased  to 47.3% from 30.2%.  The
increase was attributable primarily to the Realignment Initiatives we understood
in the fourth  quarter of 2000,  as well as the  Acquisitions  and an  increased
focus on the  Broadband/Enterprise  business  segment,  necessitating  continued
investments  in our sales force,  operations,  branding,  and  advanced  service
product  development.  Much of the  expenses  related  to the  Acquisitions  are
attributable to overhead costs associated with our headquarters, back-office and
operations as well as maintaining a physical presence in multiple jurisdictions.

            Selling,  general and administrative  expenses in the fourth quarter
of 2000 included  charges of  approximately  $60 million  relating  primarily to
increased  reserves for doubtful  accounts and venture  investments, as a direct
consequence of our Realignment Initiatives.



                                       29
<PAGE>

            Bad debt  expense,  as a percentage  of total  selling,  general and
administrative  expenses, was 22.2% in 2000 compared to 10.7% in 1999. Total bad
debt  expense  increased  in  2000  due  to  the  Realignment  Initiatives  just
discussed,  and the current reality of the  telecommunication  sector.  Since we
provide  products and  services to other  telecommunications  carriers,  many of
which are experiencing financial and operating difficulties, management believes
that a higher  allowance  for doubtful  accounts was prudent.  While  management
believes its estimate for doubtful accounts is adequate at December 31, 2000, we
may be required to take additional  provisions for doubtful  accounts should the
telecommunications  environment further  deterorate.  See "--Risk Factors -- The
current general  economic  downturn is adversely  affecting our business and the
industry as a whole."

            Salaries and commissions,  as a percentage of total selling, general
and administrative  expenses, were 42.8% in 2000 compared to 44.7% in 1999. As a
percentage of total selling,  general and administrative  expenses,  advertising
and promotion  expenses were 5.6% in 2000 compared to 7.6% in 1999.  Advertising
and promotion  expenses will continue to be a significant  component of selling,
general and administrative expenses for the foreseeable future.

            Property  costs,  as a  percentage  of total  selling,  general  and
administrative  expenses,  were  5.0% in 2000  compared  to 6.8% in  1999.  As a
percentage of total selling,  general and administrative  expenses,  repairs and
maintenance costs were 4.7% compared to 4.9% in 1999.

            EBITDA AND ADJUSTED EBITDA.  EBITDA loss increased to $156.9 million
in 2000 from $18.0  million in 1999. As a percentage  of total  revenue,  EBITDA
loss increased to 20.9% in 2000 from 5.4% in 1999.  Broadband/Enterprise segment
EBITDA  loss  increased  to $58.8  million in 2000,  compared  to EBITDA of $3.8
million in 1999. Wholesale/Consumer Voice segment EBITDA loss increased to $98.1
million in 2000, compared to $21.9 million in 1999.

            Adjusted  EBITDA  decreased  to  $(85.0)  million in 2000 from $12.3
million in 1999. As a percentage of total revenue,  Adjusted EBITDA decreased to
(11.3)%  for the year  ended  December  31,  2000 from  3.7% for the year  ended
December 31, 1999.

            DEPRECIATION   AND   AMORTIZATION.   Depreciation  and  amortization
expense, which includes depreciation of our network, increased to $303.2 million
in 2000 from $75.9  million in 1999.  This  increase  was due  primarily  to the
increase in gross  property  and  equipment to $1.6 billion at December 31, 2000
from $960.3  million at December 31, 1999,  and an increase in  amortization  of
goodwill and other intangibles related to the Acquisitions.

            The purchase  price for Destia was $901.9  million and was allocated
based on estimated  fair values at the date of  acquisition.  The purchase price
allocation  resulted in  intangible  assets and  goodwill of $131.0  million and
$855.6  million,  respectively,  which were being  amortized on a  straight-line
basis over their estimated useful lives. The 2000 impairment  charge taken by us
significantly  reduced the intangible  assets and goodwill  associated  with the
Destia acquisition. See "--Restructuring and Impairment."

            The final  purchase  price for Comms UK was $115.4  million,  net of
cash acquired of $23.6 million, and was allocated based on estimated fair values
at the date of acquisition,  pending final  determination.  The final allocation
has  resulted  in  goodwill  of $23.8  million,  which is being  amortized  on a
straight-line basis over its estimated useful life of seven years.



                                       30
<PAGE>

            RESTRUCTURING AND IMPAIRMENT.  Restructuring and impairment  charges
of $900.0 million were recognized in 2000,  primarily in the fourth quarter.  Of
this amount,  $895.2 million was associated  with  impairment  charges for asset
write-offs  and write  downs  relating  to  certain  goodwill,  intangibles  and
property and equipment  related to our acquisitions of Destia and Flat Rate. The
remaining amount consisted of restructuring  charges of $2.6 million  associated
with  our  1999  Destia   acquisition  and  $2.2  million  associated  with  our
acquisition   of  Comms  UK.  In  total,   as  a  percentage  of  2000  revenue,
restructuring and impairment  charges were  approximately  120.1%. In the fourth
quarter of 1999, we recognized  $4.1 million of  restructuring  charges and $9.1
million of asset  impairment  charges  relating  to our  acquisition  of Destia.
Restructuring and impairment  charges in 1999 represented  approximately 4.0% of
1999 revenues. See "--Overview--Restructuring and Impairment."

            INTEREST.  Interest expense increased to $212.6 million in 2000 from
$137.4  million in 1999,  primarily as a result of increases in our  outstanding
indebtedness,   which  includes  notes  and  capital  lease  obligations,  which
increased to $2.1 billion at December 31, 2000 from $1.8 billion at December 31,
1999. During 2000, we capitalized  $24.2 million of interest costs,  compared to
$10.1 million in 1999.  Interest income  increased to $32.0 million in 2000 from
$26.7  million in 1999,  primarily as a result of the interim  investment of the
net proceeds from our second quarter 2000 debt and  convertible  trust preferred
offerings.

            DIVIDENDS.  Dividends on convertible  preferred securities increased
to $33.0 million in 2000 as a result of the $23.0  million in accrued  dividends
relating  to the  March 9, 2000  offering  of  Series B  cumulative  convertible
preferred stock and the $10.0 million in accrued  distributions  relating to the
April 12,  2000  offering of trust  convertible  securities.  Dividends  of $1.3
million were recorded for the year ended December 31, 1999.

1999 COMPARED TO 1998

            TOTAL  REVENUE.  Total  revenue  increased  by 146.4%,  from  $135.2
million in 1998 to $333.1 million in 1999.  This growth was  attributable  to an
88.4% increase in  communications  services revenue from $131.9 million on 383.9
million  billable  minutes in 1998 to $248.6  million on 1.596 billion  billable
minutes in 1999. Capacity sales increased from $3.3 million, or 2.4% of revenue,
in 1998 to $84.5 million,  or 25.4% of revenue,  in 1999. Revenue growth in 1999
was generated primarily by growth from European operations,  capacity sales, and
as a result of the Destia acquisition.

            Broadband/Enterprise  segment revenue  increased by 148.7% to $123.7
million in 1999 from $49.7 million in 1998.  This growth was  attributable to an
$81.3  million  increase in capacity  sales.  Wholesale/Consumer  Voice  segment
revenue  increased  by 145.1% to $209.4  million in 1999 from  $85.4  million in
1998. This growth was  attributable to our growth in wholesale  revenue and from
our German operations, and as a result of the Destia acquisition.



                                       31
<PAGE>

            Although there was a substantial  increase in billable  minutes from
1998 to 1999, the effects of such growth were  partially  offset by a decline in
revenue per billable  minute,  as it declined by 54.5% from $.33 in 1998 to $.15
in  1999,   primarily  because  of  (1)  a  higher  percentage  of  lower-priced
intra-European  and  national  long  distance  traffic  on our  network  and (2)
reductions   in  prices  in   response   to  price   reductions   by   incumbent
telecommunications  operators  and  other  carriers  in  many  of  our  markets.
Communications  services revenue per billable minute excludes fixed monthly fees
associated with our other products and service offerings.

            Communication  services revenue per billable minute from the sale of
services  to retail  customers,  which  represented  41.7% of  revenue  in 1998,
compared  to 39.4% in 1999,  decreased  65.8% from $.38 in 1998 to $.13 in 1999.
Communication  services revenue per billable minute from the sale of services to
carriers and other resellers decreased 33.3% from $.30 in 1998 to $.20 in 1999.

            During 1999, as compared to 1998,  our  wholesale  sales to carriers
grew on an absolute basis,  but decreased as a percentage of revenue because our
other  services  grew  at  a  faster  rate.  The  wholesale  sales  to  carriers
represented  approximately  55.9% of revenue and approximately 62.0% of billable
minutes for 1998 as compared to approximately 35.2% of revenue and approximately
34.5% of billable minutes for 1999.

            COST OF SERVICES  AND SALES.  Cost of services  and sales  increased
from  $122.1  million in 1998 to $250.6  million  in 1999.  As a  percentage  of
revenue,  however, cost of services and sales decreased from approximately 90.3%
in 1998 to  approximately  75.2%  in  1999,  due to our  migration  from  leased
infrastructure  to our own network and because of capacity sales and as a result
of the Destia acquisition.  The effect of bringing traffic on-net, however, will
be  somewhat  delayed  because  our  leased  line  agreements   require  minimum
notification to terminate our  obligations.  Cost of services and sales for 1999
includes costs associated with capacity sales.

            SELLING, GENERAL AND ADMINISTRATIVE  EXPENSES.  Selling, general and
administrative  expenses  increased from $44.9 million in 1998 to $100.6 million
in 1999 and, as a percentage of revenue,  decreased from approximately  33.2% in
1998 to approximately  30.2% in 1999. Much of these expenses are attributable to
overhead costs associated with our  headquarters,  back-office and operations as
well as maintaining a physical presence in multiple jurisdictions.  Salaries and
commissions,  as a  percentage  of total  selling,  general  and  administrative
expenses,  were  approximately  49.3% and 41.4% in 1998 and 1999,  respectively.
Advertising  and  promotion  expenses  have  increased  substantially  and  will
continue to be a significant  component of selling,  general and  administrative
expenses. As a percentage of total selling, general and administrative expenses,
advertising and promotion  expenses were approximately 3.6% and 7.6% in 1998 and
1999, respectively.

            EBITDA LOSS.  EBITDA loss  decreased  from $31.8  million in 1998 to
$18.0 million in 1999. As a percentage of revenue,  EBITDA loss  decreased  from
approximately 23.5% in 1998 to approximately 5.4% in 1999.


                                       32
<PAGE>

            DEPRECIATION   AND   AMORTIZATION.   Depreciation  and  amortization
expense,   which   includes   depreciation   of  our  network,   increased  from
approximately  $16.3 million in 1998 to approximately $75.9 million in 1999. The
increase was due primarily to the $666.5 million  increase in gross property and
equipment from $293.8 million at December 31, 1998 to $960.3 million at December
31, 1999, and an increase in amortization of goodwill related to our acquisition
of Destia.

            RESTRUCTURING AND IMPAIRMENT.  Restructuring and impairment  charges
of $13.2 million were  recognized in 1999 in connection  with the acquisition of
Destia,  consisting of anticipated  costs to terminate leases and other contract
cancellation  costs,  severance costs and charges for asset write-offs and write
downs  of  underutilized  assets.  Restructuring  and  impairment  charges  were
approximately 4.0% as a percentage of revenues.  There were no restructuring and
impairment charges in 1998.

            INTEREST.   Interest  expense  increased  from  approximately  $79.2
million in 1998 to approximately  $137.4 million in 1999,  primarily as a result
of increases in our outstanding  indebtedness,  which includes notes and capital
lease  obligations,  which increased from $930.1 million at December 31, 1998 to
$1.8 billion at December 31, 1999.  During 1999,  we  capitalized  approximately
$10.1 million of interest costs.  Interest income  decreased from  approximately
$28.3 million in 1998 to  approximately  $26.7  million in 1999,  primarily as a
result of the decrease in the balance of our outstanding investments.

LIQUIDITY AND CAPITAL RESOURCES

            Since our  inception,  we have  focused on building  our network and
developing our businesses.  During this period,  significant  expenditures  have
been made to build the infrastructure  that we believed was necessary to support
our  anticipated   growth  in  customers  and  volume.  As  a  result,  we  have
historically  generated significant negative cash flows from operations and have
financed these negative cash flows as well as its capital expenditures primarily
with funds raised through public and private debt and equity offerings.

            We have incurred  losses from  operating  activities in each year of
operations since our inception and expect to continue to incur operating and net
losses for the next several years.  Since inception,  we have used cash provided
by financing  activities to fund operating losses,  interest expense and capital
expenditures.  The sources of this cash have primarily been through  private and
public equity and debt financings and, to a lesser extent, vendor financing.  As
of December  31,  2000,  we had  aggregate  cash  resources  of $397.0  million,
comprised of $335.1 million in cash, cash  equivalents and cash securing letters
of  credit  for  network  construction  and $61.9  million  in  restricted  cash
equivalents and other restricted marketable  securities,  which primarily secure
interest  payments on some of our notes  through  April 2001. In 2000, we had an
operating loss of $1.4 billion and a net loss of $1.5 billion.



                                      33
<PAGE>

            The following 2000 private and public equity and debt financings and
equipment facilities provided liquidity during 2000.

            On February 1, 2000,  we executed a  securities  purchase  agreement
pursuant to which we agreed to sell, and affiliates of Hicks, Muse, Tate & Furst
and Chase Capital Partners committed to buy, $325 million in Series B cumulative
convertible  preferred  stock  for net  proceeds  to us of $306.1  million.  The
transaction  closed on March 9, 2000,  following  receipt  of  Hart-Scott-Rodino
Antitrust Improvements Act clearance.  Following the initial closing, affiliates
of Chase Capital  Partners  sold a portion of their Series B Preferred  stock to
certain  affiliates of The  Blackstone  Group.

            On April 12, 2000,  Viatel Financing Trust I, a 100%-owned  Delaware
statutory trust and  consolidated  subsidiary of ours, sold 3,600,000  shares of
7.75% trust convertible  preferred  securities.  The proceeds from this offering
were invested by the trust in $180.0 million  aggregate  principal amount of the
Company's 7.75% convertible  junior  subordinated  debentures.  In addition,  on
April 20,  2000,  we  completed  a high yield  offering of  (EURO)300.0  million
principal  amount of 12.75%  senior Euro notes due 2008.  The net proceeds  from
these two offerings  were $442.6  million.  On April 11, 2001, we announced that
our board of  directors  had  decided  not to pay the April  15,  2001  interest
payment on our 12.75% senior notes due 2008 and on our 7.75% convertible  junior
subordinated  debentures,  which are held by Viatel  Financing Trust I, and as a
result the trust was unable to pay the April 15,  2001  dividend  payment on its
7.75% trust certificates.  Both we and the trust have until May 15, 2001 to make
such payments.  Non-payment  of interest on these notes and dividend  payment on
the trust preferred by May 15, 2001 would be "events of default" under the terms
of our various debt  indentures,  the terms of the trust preferred and the terms
of our vendor financing facilities. Accordingly, as a result of our decision not
to pay the April 15, 2001 interest payment and the trust's  inability to pay the
April 15, 2001 dividend payment, we have classified all of our long-term debt as
current.

            Destia has a credit  facility  with NTFC  Capital Corporation, under
which Destia has borrowed  approximately  $24.1 million as of December 31, 2000.
This facility  requires  Destia to obtain NTFC's  consent or prepay the borrowed
amounts  outstanding  in the  event of a change in  control.  As a result of our
acquisition of Destia in December 1999,  NTFC had the right to request Destia to
repay  all  outstanding  obligations  under  the NTFC  facility  within  90 days
following our acquisition. NTFC had extended the date by which it would exercise
this right  periodically  throughout  2000 and provided a final  extension which
expired on January 31, 2001.  On February 14, 2001,  NTFC advised us that it had
concluded its review of our acquisition of Destia and determined that it did not
consent.  From  February  14, 2001 through  March 31,  2001,  we were engaged in
discussions  with NTFC  regarding  a  proposed  forbearance  arrangement.  These
discussions  ceased  during the first week in April  without an agreement  being
reached.  To date,  we have  not  exercised  our  right to  prepay  any  amounts
outstanding  under the facility as  requested by NTFC. A default  under the NTFC
Facility could result in a cross-default  under the terms of our senior debt and
our vendor facilities that would entitle such holders to accelerate the maturity
of such debt.


                                       34
<PAGE>

            On October 20,  2000,  Viatel U.K.  Limited  obtained a  (EURO)170.6
million lease  facility with Nortel  Networks PLC. The total amount  outstanding
relating to this lease facility was approximately (EURO)10.4 million at December
31, 2000. On October 27, 2000,  Viatel U.K.  Limited secured a $50 million lease
facility from Cisco Systems Capital.  There was no amount outstanding under this
lease facility at December 31, 2000. It is unlikely that we will be permitted to
finance any additional  equipment under these  facilities if one or more "events
of  default"  occur.  If an "event of  default"  occurs,  Nortel and Cisco could
accelerate  payment on all amounts currently financed under the respective lease
facilities.

            Since our completion of the various financing transactions described
above,  the   telecommunications   markets  in  which  we  operate  have  become
increasingly competitive.  These market changes, which included deterioration of
the broadband  market,  the economy's  impact on our customers'  viability,  and
significant  reductions in prices that  telecommunications  companies  have been
able to charge their customers as well as reductions in anticipated  volume, led
us to announce,  in January 2001, a  restructuring  of our operations  that will
significantly    curtail   our   consumer    voice,    prepaid   and   wholesale
telecommunications  businesses.  The announced steps, which are designed to help
our liquidity position, included the closing of consumer-oriented  businesses in
France, Germany, The Netherlands, Spain, Austria, Greece and Canada; the closure
of  our  US  prepaid  business;   the  consolidation  of  operating  units;  the
elimination  of  assets  which  are used in the  countries  to be  exited or are
redundant;  and a 30%  reduction  in  our  worldwide  workforce.  Despite  these
actions,  however,  our current cash position,  likely inability to draw further
under the NTFC  facility,  inability  to  further  finance  equipment  under the
foregoing  equipment  facilities and an inability to access the capital markets,
will require us to  restructure  our capital  structure  and could require us to
resort  to  extraordinary  measures,  including  making  sales of  assets  under
distressed conditions or, as described below, a bankruptcy filing.

            In  anticipation  of the fact  that  our  liquidity  position  might
require us to  restructure  our balance  sheet,  in February  2001,  we retained
Dresdner Kleinwort  Wasserstein and Credit Suisse First Boston, as our financial
advisors,  and Skadden, Arps, Slate, Meagher & Flom LLP, as our special counsel,
to assist in evaluating our business plan and developing initiatives,  including
restructuring   our   debt,   identifying   funding   opportunities,   strategic
partnerships,  and other strategic alternatives.  Credit Suisse First Boston had
originally  been  retained by us during the middle of 2000 to assist solely with
regard to strategic alternatives.  At our expense, on April 3, 2001, the holders
of our  bonds  retained  Wachtell,  Lipton,  Rosen  &  Katz.  We  are  currently
finalizing  a new  business  plan  that will  offer a basis for a  restructuring
proposal that we will provide to our creditors.  In addition,  the effect on our
financial  position  of future  developments  and  access to  further  financial
information  concerning our  customers,  suppliers,  financiers,  and others and
their ability to continue to transact with us cannot presently be determined.



                                       35
<PAGE>

            We may be unable to effectuate a restructuring  proposal  because we
may not be able to reach agreement with our various classes of creditors.  If we
are  unable  to  accomplish  an  out-of-court  restructuring,  we may  file  for
bankruptcy  protection.  Moreover, it is possible that our creditors may seek to
initiate  involuntary  bankruptcy  proceedings against us that would force us to
make a  defensive  voluntary  filing  of our own.  Each of these  factors  raise
substantial doubt about our ability to continue as a going concern.


CAPITAL ADDITIONS; COMMITMENTS

            The  development of our business has required  substantial  capital.
Capital  additions  consist  of  capital  expenditures,   the  net  increase  in
accrued property  and equipment purchases, assets  acquired  under capital lease
obligations and capitalized  interest  during the period.  During 1999,  capital
additions  totaled  $546.2  million and  consisted  of capital  expenditures  of
approximately $527.3 million, a net decrease of $9.5 million in accrued property
and equipment  purchases,  $18.3 million of assets  acquired under capital lease
obligations and capitalized  interest of $10.1 million. For 2000, we had capital
additions  of   approximately   $673.8  million,   which  consisted  of  capital
expenditures  of $574.7  million,  a net  increase  of $37.0  million in accrued
property and equipment purchases, $37.9 million of assets acquired under capital
lease obligations and capitalized  interest of approximately  $24.2 million.  We
have also entered into certain agreements  associated with our network build out
and upgrades  aggregating  approximately  $140 million at December 31, 2000.  We
expect to continue to have substantial capital expenditures in the future but at
a level significantly lower than those incurred by us in the past.


FOREIGN CURRENCY

            We have exposure to fluctuations in foreign  currencies  relative to
the U.S. Dollar as a result of billing portions of our  communications  services
revenue in the local European  currency in countries where the local currency is
relatively stable while many of our obligations, including a substantial portion
of our transmission  costs, are denominated in U.S.  dollars.  In countries with
less stable currencies,  we bill in U.S. dollars. Debt service on certain of the
notes issued by us is currently  payable in Euros. A substantial  portion of our
capital  expenditures is and will continue to be denominated in various European
currencies,  including the Euro. Most of the European  currencies in which we do
business converged  effective January 1, 1999, with the exception of the British
Pound Sterling. See "--Euro."

            A significant portion of our assets is  foreign-denominated  and, as
such, is subject to fluctuations  in value due to movements in foreign  exchange
rates. With the continued expansion of our network, a substantial portion of the
costs associated with the network,  such as local access and termination charges
and a portion of the leased line costs,  as well as a majority of local  selling
expenses and debt service related to the Euro denominated  notes, are charged to
us in the same  currencies  as revenue is billed.  These  developments  create a
natural hedge against a portion of our foreign exchange exposure.  Our financial
position as of December  31, 2000 and our results of  operations  for the fiscal
year 2000 were not significantly  affected by fluctuations in the U.S. Dollar in
relation to foreign currencies.



                                       36
<PAGE>

EURO

            On January 1, 1999,  eleven of the fifteen  member  countries of the
European Union  established  irrevocable  fixed  conversion  rates between their
existing  sovereign  currencies  and a single  currency  called the  "euro." The
sovereign  currencies are scheduled to remain legal tender as  denominations  of
the euro during a transition period from January 1, 1999 to January 1, 2002.

            We have  completed  an  internal  analysis  regarding  business  and
systems issues related to the euro conversion  and, as a result,  made necessary
modifications to our business  processes and software  applications.  Throughout
most of 1999 and all of 2000, we have been able to conduct  business in both the
euro and sovereign  currencies on a parallel  basis, as required by the European
Union.

            We  believe  that  the euro  conversion  has not and will not have a
significant  impact on our business in Europe.  The costs to convert all systems
to be euro  compliant  did not  have a  significant  impact  on our  results  of
operations.


INFLATION

            We do not believe that inflation has had a significant effect on our
operations to date.


RECENT ACCOUNTING PRONOUNCEMENTS

            In June 1998, the Financial  Accounting  Standards Board issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging Activities" ("SFAS
133").  This  statement  establishes  accounting  and  reporting  standards  for
derivative  instruments and hedging activities and, as amended, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The statement
requires  balance sheet  recognition  of  derivatives  as assets or  liabilities
measured at fair value.  Accounting for gains and losses  resulting from changes
in the values of  derivatives  is  dependent  on the use of the  derivative  and
whether  it  qualifies  for hedge  accounting.  The  adoption  of SFAS 133 could
increase the volatility of reported earnings and other  comprehensive  income in
the future.  In general,  the amount of  volatility  will vary with the level of
derivative  activities during any period. As of January 1, 2001, we have adopted
SFAS 133 and have not  identified  any  derivative  instruments  subject  to the
provisions of SFAS 133. Therefore, SFAS 133 will not have any impact on our 2001
financial statements upon adoption.


RISK FACTORS

OUR AUDITORS HAVE ISSUED A "GOING CONCERN" AUDIT OPINION

            Our consolidated  financial  statements as of December 31, 2000 have
been prepared on the assumption  that we will continue as a going  concern.  Our
independent  accountants  have issued a report dated April 11, 2001 stating that
our  recurring  net  losses and net  operating  cash  deficiencies,  significant
working  capital  deficiency  and  significant  stockholders'  deficiency,   and
insufficient   funds  on  hand  to  meet  our  current  debt  obligations  raise
substantial doubt as to our ability to continue as a going concern. Investors in
our securities  should review  carefully the report of KPMG LLP. There can be no
assurance that we will be able to continue as a going concern.



                                       37
<PAGE>

            The consolidated  financial statements do not include any adjustment
that might result from the outcome of this uncertainty.

WE HAVE DETERMINED THAT WE WILL PERMANENTLY  SUSPEND INTEREST/ DIVIDEND PAYMENTS
THAT WILL RESULT IN PAYMENT DEFAULTS; NTFC REPAYMENT REQUEST

            See  "--Overview"  and "--  Liquidity and Capital  Resources"  for a
discussion of certain  recent  actions taken by us that will,  after  applicable
grace  periods,  constitute  an "Event of Default"  under our  outstanding  debt
securities and credit facilities.

            Destia's credit facility with NTFC Capital Corporation,  under which
Destia has  borrowed  approximately  $24.1  million  as of  December  31,  2000,
required  Destia  to  obtain  NTFC's  consent  to  a  prior  change  of  control
transaction  or prepay  the  borrowed  amounts  outstanding.  As a result of our
acquisition of Destia in December 1999,  NTFC had the right to request Destia to
repay  all  outstanding  obligations  under  the NTFC  facility  within  90 days
following our acquisition. NTFC had extended the date by which it would exercise
this right  periodically  throughout  2000 and provided a final  extension which
expired on January 31, 2001.  On February 14, 2001,  NTFC advised us that it had
concluded its review of our acquisition of Destia and determined that it did not
consent.  From  February  14, 2001 through  March 31,  2001,  we were engaged in
discussions  with NTFC  regarding  a  proposed  forbearance  arrangement.  These
discussions  ceased  during the first week in April  without an agreement  being
reached.  To date,  we have  not  exercised  our  right to  prepay  any  amounts
outstanding  under the facility as  requested by NTFC. A default  under the NTFC
Facility could result in a cross-default  under the terms of our senior debt and
our vendor facilities that would entitle such holders to accelerate the maturity
of such debt.

WE ONLY HAVE CASH TO FUND OUR  OPERATIONS  THROUGH THE  BEGINNING  OF THE FOURTH
QUARTER OF 2001 AND PERHAPS EARLIER

As of March 31, 2001, we had approximately $175 million to $200 million of cash,
cash equivalents,  marketable securities and cash securing letters of credit for
network  construction.  We believe that we have sufficient liquidity to fund our
operations,  exclusive of suspended debt service and dividend  payments  through
the beginning of the fourth  quarter of 2001. Our ability to fund our operations
through such date,  however,  are subject to a number of contingencies.  We will
not be generating sufficient revenues after that date to continue operations. We
expect that our revised business plan and  restructuring  proposal will require,
in addition to a complete debt-to-equity conversion, additional funding to cover
operating  expenses  until we begin to  generate  positive  cash  flows.  We can
provide no  assurance  that we will be  successful  in  obtaining  the  required
consent of our creditors to a  restructuring  plan or that we will be successful
in raising the  additional  cash required to fund  operations  until we generate
sufficient cash flows to fund our operations.

WE MAY FILE FOR BANKRUPTCY PROTECTION; HOLDERS OF OUR COMMON STOCK AND PREFERRED
STOCK MAY BE  SEVERELY  DILUTED OR  ELIMINATED  ENTIRELY  IN  CONNECTION  WITH A
BANKRUPTCY FILING OR RESTRUCTURING TRANSACTION

            We are currently  developing a business plan that will offer a basis
for a restructuring proposal that we intend to provide to our creditors.  We may
be unable to  effectuate a  restructuring  proposal  because we may be unable to
reach  agreement  with our  various  classes of  creditors.  If we are unable to
accomplish an out-of-court restructuring, we may file for bankruptcy protection.
Moreover,  it is possible that our  creditors  may seek to initiate  involuntary
bankruptcy  proceedings against us or against one or more of our subsidiaries in
the United  States  and/or in Europe,  which  would  force us to make  defensive


                                      38
<PAGE>

voluntary  filing(s) of our own. Should we be forced to take action with respect
to one or more of our  foreign  subsidiaries,  such  filings  raise  substantial
additional risk to us and the success of our proposed restructuring  transaction
due to  both  the  uncertainty  created  by  foreign  bankruptcy  laws  and  the
additional  complexity that would be caused by such additional  filings.  We can
provide  no  assurance  that we would be able to  successfully  restructure  our
foreign  subsidiaries  should  such  filings be  required.  In  addition,  if we
restructure our debt or file for bankruptcy  protection,  it is very likely that
our common stock and preferred stock will be severely  diluted if not eliminated
entirely.

THE CURRENT GENERAL  ECONOMIC  DOWNTURN IS ADVERSELY  AFFECTING OUR BUSINESS AND
THE INDUSTRY AS A WHOLE

            Since March 2000, the U.S. economy has suffered a sharp decline. The
telecommunications industry has been particularly hard hit by this downturn. We,
like the vast  majority  of other  telecommunications  companies,  have seen our
stock price fall dramatically  (from a high of $75.38 per share to its April 16,
2001 closing sale price of $0.35 per share) and, more  importantly,  our ability
to raise additional funding in either the private or public markets  eliminated.
As  dramatically  demonstrated  by our lack of meaningful  capacity sales in the
fourth quarter of 2000, many of our customers have substantially  curtailed,  if
not  eliminated,  significant  additional  expenditures  for  telecommunications
services,  such as capacity.  Many of our  customers,  which are early stage and
emerging  businesses,  have experienced a sharp decline in their own businesses.
And, many of our other customers have either gone out of business or are seeking
protection under the federal  bankruptcy laws, calling into serious question our
ability to collect amounts that are owed to us by these customers.  Many, if not
most,  of  our  competitors   are  also   experiencing   significant   financial
difficulties  with  a  number  of  such  competitors  either  having  filed  for
bankruptcy  court  protection or announcing their intention to do so in the near
term.  Because we  constructed  our German Network with Carrier 1 and Metromedia
Fiber Network,  the possibility  exists that one or both of these partners could
become  bankrupt or default in  connection  with  required  obligations  thereby
forcing us to fulfill such obligations or causing us to lose essential  services
which  may only be  replaced  at  significant  cost.  Certain  of the  foregoing
developments  have already had an adverse impact on our business,  causing us to
reduce our projected 2001 revenues from  approximately  $750 million for 2000 to
between $500 to $550 million for 2001. A  continuation  of the current  economic
environment  will likely further  adversely  affect our business.  Our operating
results in one or more future periods are likely to fluctuate  significantly and
may fail to meet the expectations of our securities analysts and investors.

WE MAY BE SUBJECT TO A DELISTING ACTION BY NASDAQ

              On March 6,  2001,  NASDAQ  advised us that if by June 4, 2001 the
closing bid price of our common stock fails to be at least $5.00 for at least 10
consecutive  trading days, NASDAQ will commence a delisting action against us. A
delisting action by NASDAQ would have a material adverse effect on the liquidity
of our common stock and may have a material adverse effect on its trading value.
We can provide no assurance that if our common stock is delisted,  there will be
any future trading market for our common stock.




                                       39
<PAGE>

OUR  QUARTERLY  OPERATING  RESULTS  ARE  LIKELY  TO BE  SUBJECT  TO  SUBSTANTIAL
FLUCTUATIONS IN THE FUTURE DUE TO NUMEROUS FACTORS, MANY OF WHICH ARE OUTSIDE OF
OUR CONTROL

            Our future quarterly  operating  results are likely to be subject to
substantial fluctuations as a result of a variety of factors, including:

        o   our  ability  to   restructure   our  debt  and  obtain   meaningful
            concessions from our equipment vendors;

        o   general economic conditions;

        o   the conditions of the telecommunications industry in general;

        o   the collectability of accounts receivables from customers;

        o   further price depression in the industry;

        o   our ability to introduce new products and services;

        o   timing of capacity sales or long term contracts;

        o   changes in the mix of services sold or channels  through which those
            services are sold;

        o   changes in user demand,  customer  terminations of service,  capital
            expenditures and other costs relating to our network;

        o   the  timing  and  costs  of  any   acquisitions   of   services   or
            technologies;

        o   our ability to implement 2000 realignment initiatives;

        o   changes in vendor trade terms (payment terms);

        o   our ability to further cut overhead costs; and

        o   the effects of government regulation and regulatory changes.

            Variability in our operating  results could have a material  adverse
effect on our business, financial condition and results of operations.

WE MAY EXPERIENCE  DIFFICULTIES  WITH DEUTSCHE  TELEKOM  DUE TO OUR EXISTING DSL
LIABILITY

            We currently owe Deutsche  Telekom  approximately  $26.5 million for
digital  subscriber line collocation  facilities that were ordered several years
ago in anticipation of a rollout of such services in Germany. Due to a change in
our business model last year resulting, in part, due to the high cost associated
with a Germany DSL rollout and the lack of viable joint  ventures  partners,  we
decided to cancel our DSL initiative.  However,  at this time,  Deutsche Telekom
has not agreed to terminate  our  collocation  contract or take back  facilities
already accepted.  If we are unable to find a buyer for our DSL sites,  convince
Deutsche  Telekom to either  permit us to assign these sites to third parties or
return them for a nominal  cancellation  fee, or  terminate  the  contract  with
minimal  exposure,  we would be required to pay Deutsche Telekom for such sites.
Our failure to pay Deutsche Telekom, the dominant telecommunications operator in
Germany,  all that they claim we owe them could  subject our business in Germany
to significant risk should they decide to use their substantial leverage against
us. Any such action by Deutsche  Telekom could have a material adverse effect on
our business, operations and financial condition.


WE MAY NOT BE ABLE TO DEPLOY OUR LOCAL FIBER OPTIC NETWORKS

            Due to our current  financial  situation and a significant risk that
Metromedia Fiber Network,  the party responsible for constructing  approximately
15,000 route  kilometers of our local fiber,  may be  curtailing/abandoning  its
builds in Western  Europe due to its own financial  difficulties,  we may not be
able to deploy our proposed  22,000 fiber  kilometers of  metropolitan  fiber in
London, Amsterdam,  Paris, Berlin,  Frankfurt,  Dusseldorf and the New York City
metropolitan area in the near-term, and perhaps at all.



                                       40
<PAGE>

DUE TO  RESTRICTIONS  IN OUR  INDENTURES,  WE MAY  NOT BE ABLE  TO  OPERATE  OUR
BUSINESS AS WE DESIRE

            The  indentures  under which our debt was issued contain a number of
conditions  and  limitations  on the way in which we can operate  our  business.
These  limitations may force us to pursue less than optimal business  strategies
or forego business  arrangements which could have been financially  advantageous
to  our  stockholders  and  us.  The  indentures  restrict,  and in  some  cases
significantly limit or prohibit, among other things, our ability and the ability
of our respective subsidiaries to:

        o   incur additional indebtedness,

        o   create liens,

        o   engage in sale-leaseback transactions,

        o   pay  dividends  or make  distributions  with  respect to our capital
            stock,

        o   make certain investments,

        o   sell assets,

        o   redeem capital stock,

        o   issue or sell stock of restricted subsidiaries, or

        o   enter into  transactions with stockholders or affiliates or effect a
            consolidation or merger.


FAILURE TO SELL  CAPACITY ON OUR NETWORK AND ENTER INTO LONG TERM  CONTRACTS  OR
FURTHER PRICE REDUCTIONS FOR CROSS-BORDER  CAPACITY IN EUROPE COULD FURTHER HARM
OUR BUSINESS

            Our  future   success  and  our  ability  to  achieve  our  business
objectives  in a  post-restructured  balance  sheet  scenario  will  continue to
depend,  in part,  upon the sale of  capacity  on our network and our ability to
enter into long term contracts.  As evidenced by our lack of meaningful capacity
sales  in the  fourth  quarter  of 2000  and the  lack of  similar  sales by our
competitors, the market for capacity has experienced a significant slow down and
further  significant  price  declines.  Although we were  successful  in meeting
capacity sales objectives in the past, due the current  economic  environment we
cannot  provide  any  assurance  that we will be able to meet our  significantly
reduced  projections for 2001 and beyond. In addition,  due to the deterioration
of our current  financial  position,  our customers may also be reluctant to buy
capacity from us.  Furthermore,  even if our reduced capacity sales  projections
are realized, further price declines for cross-border capacity may further limit
operating  profitability or our ability to generate sufficient cash flow to meet
our working capital needs. If we are unable to sell capacity  effectively on our
network,  it  will  harm  our  business,  financial  condition  and  results  of
operations.


OUR BUSINESS WILL SUFFER IF WE LOSE CERTAIN KEY PERSONNEL OR FAIL TO ATTRACT AND
RETAIN OTHER QUALIFIED PERSONNEL

            Our  success  depends,  in  particular,  on the  performance  of our
officers and key  employees.  We have  employment  agreements  with only certain
members of senior  management  team and a key-man life insurance  policy only on
the life of our CEO.  Our  success  also  depends on our  ability  to  identify,
attract,  retain and motivate  qualified  management,  marketing,  technical and
sales  executives and other  personnel who are in high demand and who often have
multiple employment options.  The loss of the services of key personnel,  or the
inability to attract,  retain and motivate qualified  personnel,  could harm our
business,  financial condition and results of operations.  We have implemented a
retention  bonus program in 2001 in an effort to retain our executives and other
employees during this critical  restructuring  period. There can be no assurance
that  this  program  will be  successful  or  that  we  will be able to  attract
qualified  persons to replace  departing  personnel.  See  "Item.  11  Executive
Compensation -- 2001 Retention Program."



                                       41
<PAGE>

OUR ABILITY TO USE OUR NET OPERATING LOSS  CARRYFORWARDS  MAY BE LIMITED

            As of December 31,  2000,  we had federal  income tax net  operating
loss carryforwards of $994.8 million, which begin to expire in 2007. This amount
includes  acquired net operating  loss  carryforwards  of  approximately  $228.7
million  from our  acquisition  of  Destia.  A tax  asset  related  to this loss
carryforward  does not appear on our balance  sheet  because it is unclear if we
will generate  taxable  income prior to the expiration of the net operating loss
carryforwards. Our ability to use our net operating loss carryforwards to reduce
future tax  payments  would be limited if a 50%  ownership  change were to occur
over a three-year  period.  As a result of an ownership  change in October 1996,
certain  of our net  operating  loss  carryforwards  from  before  such time are
subject to this limitation.  It is possible that our acquisition of Destia, when
combined with prior or subsequent direct or indirect changes in the ownership of
our common stock  within the  relevant  three-year  period,  could  trigger this
limitation.  Additionally,  a  reorganization  in  connection  with a bankruptcy
proceeding  would likely result in a 50%  ownership  change.  In such case,  and
provided  certain  requirements  are  satisfied,  we  could  elect  to  apply an
exception  to  this  limitation.   If  we  so  elect,  the  net  operating  loss
carryforward  generally  will  not be  further  limited,  but,  if  another  50%
ownership  change  occurs  within the  two-year  period  following a  bankruptcy
proceeding,  none of the net operating loss carryforward could be used to offset
future income.


THE  TELECOMMUNICATIONS  INDUSTRY IS HIGHLY  COMPETITIVE WITH  PARTICIPANTS THAT
HAVE  GREATER  RESOURCES  THAN  WE DO,  AND  WE  MAY  NOT  BE  ABLE  TO  COMPETE
SUCCESSFULLY

            Our  success   depends  upon  our  ability  to  compete  with  other
communications  providers in each of our markets.  The markets in which we offer
and intend to offer our services are extremely  competitive  and  competition is
expected  to  intensify.  We cannot  assure  you that we will be able to compete
successfully.

            In Europe,  we compete  with  different  companies  depending on the
products and services being offered. Our competitors include KPN Qwest, Level 3,
Global Crossing, Carrier 1, UUNet and Ebone to name but a few.

            In the  United  States,  which is among  the  most  competitive  and
deregulated long distance  markets in the world,  competition is based primarily
upon pricing,  customer  service,  network  quality,  and the ability to provide
value-added  services. As such, the long distance industry is characterized by a
high level of customer attrition or "churn," with customers  frequently changing
long  distance  providers  in  response  to  the  offering  of  lower  rates  or
promotional  incentives by  competitors.  We compete with major carriers such as
AT&T,  WorldCom and Sprint, as well as other national and regional long distance
carriers and resellers,  many of whom are able to provide services at costs that
are  lower  than our  current  costs.  Many of these  competitors  have  greater
financial, technological and marketing resources than we do.


SYSTEM DISRUPTIONS OR FAILURES COULD ADVERSELY AFFECT OUR BUSINESS

            Our success will depend, in part, on our ability to provide seamless
technical  operation  of our network.  This network is subject to several  risks
which are outside of our  control,  such as the risk of damage to  software  and
hardware resulting from:

            o fire,

            o power loss,

            o natural disasters, and

            o general  transmission  failures  caused by a number of  additional
              factors.

            Any failure of our network or other  systems or hardware that causes
significant  interruptions to our operations could harm our business,  financial
condition and results of operations.

            Our  operations  are also  dependent on our ability to  successfully
integrate new and emerging  technologies  and equipment into the network,  which
could increase the risk of system failure and result in further strains upon our
network. In the event of a system disruption, we could seek to minimize customer
inconvenience  by routing  traffic to other  circuits and switches  which may be
owned by other carriers.  However,  prolonged or significant system failures, or
difficulties  for customers in accessing  and  maintaining  connection  with our
network, could seriously damage our reputation and result in customer attrition,
reduced margins and financial losses. Additionally,  any damage to our switching


                                       42
<PAGE>

centers  could  have a  material  adverse  effect on our  ability  to manage our
network  operations,  generate  accurate  call  detail  reports  and monitor our
systems.

FOREIGN CURRENCY EXCHANGE RATES COULD HAVE ADVERSE EFFECTS ON OUR BUSINESS

            Our payment obligations with respect to our outstanding indebtedness
are  denominated  in U.S.  Dollars and the Euro, but certain of our revenues are
denominated in Pound Sterling.  Any appreciation in the value of the U.S. Dollar
or the Euro relative to the Pound Sterling could have a material  adverse effect
on our ability to make payments on such obligations.

            In the  future,  we may  elect  to  manage  exchange  rate  exposure
presented  by our  Euro-denominated  obligations  through  the  use  of  hedging
transactions. There can be no assurance that exchange rate fluctuations will not
have  a  material  adverse  effect  on  our  ability  to  make  payments  on our
outstanding indebtedness.

            In  addition,  we  cannot  provide  any  assurance  that the laws or
administrative practices relating to taxation, foreign exchange or other matters
in countries within which we operate will not change in a manner that could have
a material  adverse effect on our business,  financial  condition and results of
operations.


OUR  DEPENDENCE  UPON THIRD  PARTIES  FOR LEASED  CAPACITY  AND  INTERCONNECTION
ARRANGEMENTS MAY RESULT IN SUBOPTIMAL UTILIZATION OF OUR NETWORK

            We currently lease capacity for  point-to-point  circuits with fixed
monthly   payments  and  buy  minutes  of  use  under  agreements  with  maximum
twelve-month  terms and are  vulnerable  to changes  in our lease  arrangements,
capacity limitations and service cancellations. These lease arrangements present
us with high fixed costs,  while revenues  generated by the utilization of these
leases will vary based on traffic  volume and  pricing.  Accordingly,  if we are
unable to  generate  sufficient  traffic  volume over  particular  routes or are
unable to charge appropriate rates, we could fail to generate revenue sufficient
to meet the fixed costs  associated  with the lease and may incur negative gross
margins with respect to those routes. A deterioration  of our relationship  with
one or more  carriers  could have a material  adverse  effect on our  ability to
effectively use our least cost routing systems, cost structure, service quality,
network coverage, financial condition and results of operations.



                                       43
<PAGE>

            Our  ability  to access  customers  and to utilize  effectively  our
network  is  dependent  upon our  ability  to secure  operative  interconnection
agreements,  providing access to and an exit from the public switched  telephone
network,  with the  respective  incumbent  telecommunications  operator  in each
market  in which we  operate.  Difficulties  or delays  in  obtaining  necessary
operative  interconnections in a satisfactory or timely manner may significantly
delay or prevent  the maximum  utilization  of our  network,  which could have a
material adverse effect on us.

WE ARE DEPENDENT UPON THIRD-PARTY SALES ORGANIZATIONS OVER WHICH WE CAN EXERCISE
ONLY LIMITED CONTROL

            We sell a  substantial  portion  of our  services  through  indirect
channels  of   distribution,   which  consist  of   independent   sales  agents,
distributors  and, to a lesser  extent,  resellers.  We do not have control over
such agents,  distributors and resellers and, therefore,  are not able to ensure
that they will perform in a satisfactory  manner or that their interests will be
aligned with our interests.  In addition, such entities also may terminate their
business  relationships  with us at any time, with little or no prior notice,  a
risk that is becoming more acute as we move to restructure  our debt and perhaps
file for bankruptcy protection.  Unsatisfactory performance by such entities, or
the termination by them of their business relationship with us, would hinder our
ability to grow and could harm our business.


WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION WHICH MAY AFFECT OUR ABILITY
TO OFFER CERTAIN SERVICES AND WHICH MAY BE CHANGED IN A MANNER ADVERSE TO US

            National and local laws and  regulations  governing the provision of
telecommunications services differ significantly among the countries in which we
currently operate and intend to operate.

            The  interpretation  and  enforcement  of such laws and  regulations
varies and could  limit our  ability to provide  telecommunications  services in
certain markets. We cannot assure you that:

      o     future  regulatory,  judicial  and legislative changes will not harm
            us;

      o     domestic or international regulators or third parties will not raise
            material  issues with regard to our compliance  with applicable laws
            and regulations; or

      o     other regulatory activities  will  not  harm our business, financial
            condition and results of operations.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

            We are subject to foreign  currency  exchange  rate risk relating to
receipts  from  customers,  payments to suppliers  and  interest  and  principal
payments on the outstanding  euro  denominated  senior notes and senior discount
notes in  foreign  currencies.  We do not  consider  the  market  risk  exposure
relating to foreign  currency  exchange to be material.  A 1% change in exchange
rates would increase or decrease our euro denominated debt by $5.9 million.  See
"Item 7.--Management's Discussion and Analysis of Financial Condition and Result
of Operations--Liquidity and Capital Resources--Foreign Currency."



                                       44
<PAGE>

            We have  financial  instruments  that are subject to  interest  rate
risk,  principally short-term investments and debt obligations issued at a fixed
rate.  Historically,  we have not  experienced  material  gains or losses due to
interest rate changes when selling  short-term  investments  and typically  hold
these  securities  until maturity.  Based on our current  holdings of short-term
investments, our exposure to interest rate risk is not material. Fixed-rate debt
obligations issued by us are generally not callable until maturity.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following statements are filed as part of this report:


                                                                       FORM 10-K
                                                                          PAGE
                                                                       ---------


Independent Auditors' Report............................................   46
Consolidated  Balance  Sheets  as of  December  31,  1999 and 2000......   47
Consolidated Statements of Operations for the Years Ended
   December 31, 1998, 1999 and 2000.....................................   48
Consolidated Statements of Comprehensive Loss for the Years Ended
   December 31, 1998, 1999 and 2000.....................................   49
Consolidated Statements of Stockholders' Equity (Deficiency) for
the Years Ended December 31, 1998, 1999 and 2000........................   50
Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1998, 1999 and 2000.....................................   53
Notes to Consolidated Financial Statements for the Years
   Ended December 31, 1998, 1999 and 2000...............................   54
II. Valuation and Qualifying Accounts...................................   83

            All  other   schedules  have  been  omitted   because  the  required
information  either is not applicable or is shown in the consolidated  financial
statements or notes thereto.




                                       45
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Viatel, Inc.:

            We have audited the  consolidated  financial  statements  of Viatel,
Inc. and  subsidiaries as listed in the  accompanying  index. In connection with
our  audits  of the  consolidated  financial  statements,  we also  audited  the
financial  statement  schedule  as  listed  in  the  accompanying  index.  These
consolidated  financial  statements  and  financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule based on our audits.

            We  conducted  our  audits in  accordance  with  auditing  standards
generally  accepted in the United States.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

            In our opinion,  the consolidated  financial  statements referred to
above present  fairly,  in all material  respects,  the  consolidated  financial
position of Viatel,  Inc. and subsidiaries as of December 31, 1999 and 2000, and
the  results of their  operations  and their cash flows for each of the years in
the  three-year  period ended  December 31, 2000 in conformity  with  accounting
principles  generally accepted in the United States.  Also, in our opinion,  the
related financial statement  schedule,  when considered in relation to the basic
consolidated  financial  statements,  taken as a whole,  presents fairly, in all
material respects, the information set forth therein.

      The  accompanying  consolidated  financial  statements  have been prepared
assuming that the Company will continue as a going concern. As discussed in note
1 to the consolidated  financial statements,  the Company has suffered recurring
net  losses and net  operating  cash  deficiencies,  has a  significant  working
capital  deficiency  and a  significant  shareholders'  deficiency  and does not
presently have  sufficient  funds on hand to meet its current debt  obligations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.  Management's plans in regard to these matters are described in
note 1. The  consolidated  financial  statements do not include any  adjustments
that might result from the outcome of this uncertainty.

                                                  /s/ KPMG LLP

New York, New York
April 11, 2001




                                       46
<PAGE>

<TABLE>
<CAPTION>
                          VIATEL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1999 AND 2000

                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                                                   1999        2000
                                                                ----------------------
                            ASSETS
Current Assets:
<S>                                                            <C>          <C>
   Cash and cash equivalents ...............................     $373,044     $305,293
   Restricted cash equivalent ..............................        9,632           82
   Restricted marketable securities ........................      125,581       61,854
   Trade accounts receivable, net of allowance for doubtful
       accounts of  $10,034 and $89,831, respectively ......      115,103      154,108
   VAT receivables, net ....................................       37,867       65,868
   Prepaid expenses and other current assets ...............       16,789       19,914
                                                               ------------------------

       Total current assets ................................      678,016      607,119

   Restricted marketable securities, non-current ...........       62,547           --
   Property and equipment, net .............................      884,328    1,385,917
   Cash securing letters of credit for network construction        50,165       29,728
   Intangible assets, net ..................................    1,011,659      120,692
   Other assets ............................................       17,382       11,931
                                                               ------------------------
       Total assets ........................................   $2,704,097   $2,155,387
                                                               ========================

       LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
   Accrued telecommunications costs ........................      $77,333     $100,232
   Accounts payable and other accrued expenses .............      156,218      300,494
   Accrued property and equipment purchases ................       87,810      124,858
   Accrued interest ........................................       37,545       47,475
   Liability under joint construction agreement ............        4,918           --
   Long-term debt reclassified as current liabilities ......           --    1,994,840
   Current installments of notes payable and notes payable
       reclassified as current liabilities..................       24,997       27,919
   Current installments of obligations under capital leases        10,337       15,815
                                                                -----------------------
       Total current liabilities ...........................      399,158    2,611,633
Long-term liabilities:
   Long-term debt, excluding current installments ..........    1,680,885           --
   Notes payable and obligations under capital leases
       excluding current installments.......................       86,663       91,860
                                                                -----------------------
       Total long-term liabilities .........................    1,767,548       91,860

Series B  mandatorily  redeemable  (in 2015)  cumulative
      convertible  preferred stock, $.01 par value:
      authorized 650,000 shares; issued and outstanding 0
      and 325,000 shares, respectively......................           --      328,616

Viatel-obligated mandatorily redeemable (in 2015) convertible
      preferred securities of subsidiary grantor trust whose
      sole assets are junior subordinated debentures of Viatel         --      180,000

Stockholders' equity (deficiency):
   Preferred Stock, $.01 par value: authorized 1,350,000               --           --
       shares, 0 shares issued and outstanding..............
   Common Stock, $.01 par value: authorized 300,000,000
       shares; issued and outstanding 47,093,361 and
       51,325,639 shares, respectively......................          471          513
   Additional paid-in capital...............................    1,066,964    1,119,931
   Unearned compensation....................................       (5,768)     (21,792)
   Accumulated other comprehensive loss.....................      (45,464)    (102,861)
   Accumulated deficit......................................     (478,812)  (2,052,513)
                                                                -----------------------
       Total stockholders' equity (deficiency)..............      537,391   (1,056,722)
                                                                -----------------------
       Total liabilities and stockholders'
         equity (deficiency)................................   $2,704,097   $2,155,387
                                                               ========================

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       47
<PAGE>

<TABLE>
<CAPTION>

                          VIATEL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



                                                 1998           1999             2000
                                             --------------------------------------------
Revenue:
<S>                                           <C>            <C>             <C>
  Communication services revenue ........      $131,938       $248,600         $646,470
  Capacity sales ........................         3,250         84,501          102,983
                                             --------------------------------------------

    Total revenue .......................       135,188        333,101          749,453

Operating expenses:
  Cost of services and sales ............       122,109        250,574          552,110
  Selling, general and administrative ...        44,893        100,559          354,274
  Depreciation and amortization .........        16,268         75,911          303,168
  Restructuring and impairment ..........            --         13,206          899,999
                                            ---------------------------------------------

    Total operating expenses ............       183,270        440,250        2,109,551

Other income (expense):
  Interest and other income .............        28,259         26,722           31,981
  Interest expense ......................       (79,177)      (137,409)        (212,630)
                                            ---------------------------------------------

Loss before extraordinary loss ..........       (99,000)      (217,836)      (1,540,747)
  Extraordinary loss on debt prepayment .       (28,304)             --               --
                                            ---------------------------------------------

Net loss ................................      (127,304)      (217,836)      (1,540,747)
  Dividends on convertible preferred
    securities ..........................        (3,301)        (1,341)         (32,954)
                                            ---------------------------------------------
  Net loss attributable to common
    stockholders ........................     $(130,605)     $(219,177)     $(1,573,701)
                                            ============================================

Loss per common share, basic and diluted:
  Before extraordinary item .............        $(4.44)        $(7.43)         $(31.53)
  From extraordinary item ...............        $(1.23)        $    --         $     --
                                            ---------------------------------------------

  Net loss per common share attributable
    to common Stockholders ..............        $(5.67)        $(7.43)         $(31.53)
                                            --------------------------------------------

  Weighted average common shares
    outstanding, basic and diluted ......        23,054         29,518           49,905
                                            ============================================
</TABLE>

                See accompanying notes to consolidated financial statements.




                                      48
<PAGE>

<TABLE>
<CAPTION>

                          VIATEL, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                                       (in thousands)

                                               1998        1999        2000
                                            ------------------------------------


<S>                                          <C>         <C>        <C>
Net loss.................................    $(127,304)  $(217,836) $(1,540,747)
Foreign currency translation adjustments.         (890)    (39,218)     (57,397)
                                            ------------------------------------
Comprehensive loss.......................    $(128,194)  $(257,054) $(1,598,144)
                                            ====================================


</TABLE>














                See accompanying notes to consolidated financial statements.








                                       49
<PAGE>

<TABLE>
<CAPTION>

                          VIATEL, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
                        (IN THOUSANDS, EXCEPT SHARE DATA)


                         NUMBER OF                                               ACCUMULATED
                          COMMON                   ADDITIONAL                       OTHER
                           STOCK      COMMON        PAID-IN      UNEARNED        COMPREHENSIVE    ACCUMULATED
                          SHARES      STOCK         CAPITAL     COMPENSATION        LOSS           DEFICIT         TOTAL

                       -------------------------------------------------------------------------------------------------------
<S>                     <C>           <C>        <C>           <C>               <C>            <C>          <C>
BALANCE AT DECEMBER
  31, 1997.......       22,635,267    $226         $125,661        $(65)           $(5,356)       $(129,030)     $(8,564)
Stock options
  exercised                174,198       2              945          --                 --               --          947
Issuance costs of
  Series A
  Redeemable
  Convertible                   --      --           (1,620)         --                 --               --       (1,620)
  Preferred Stock
Issuance of common
  stock related to
  business
  purchase.......          375,000       4            3,371          --                 --               --        3,375
Earned compensation             --      --               --          65                 --               --           65
Foreign currency
  translation
  adjustment.....               --      --               --          --               (890)              --         (890)
Dividends on
  Series A
  Redeemable                    --      --               --          --                 --           (3,301)      (3,301)
  Convertible
  Preferred Stock
Net loss.........               --      --               --          --                 --         (127,304)    (127,304)
                     -------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
  31, 1998.......       23,184,465    $232         $128,357         $--            $(6,246)       $(259,635)   $(137,292)
Conversion of
  Series A
  Redeemable
  Convertible
  Preferred Stock        3,671,316      37           48,425          --                 --               --       48,462
Conversion of
  subordinated debt        943,916       9           12,320          --                 --               --       12,329
Stock options
  exercised......          436,344       4            2,850          --                 --               --        2,854
Issuance of common
  stock for
  acquisition....       14,299,969     143          560,559          --                 --               --      560,702
Options and
  warrants issued               --      --          111,573          --                 --               --      111,573
  for acquisition
Restricted shares
  issued.........          152,351       2            6,550      (6,552)                --               --           --
Earned compensation             --      --               --         784                 --               --          784
Issuance of common
  stock for services        90,000       1            4,499          --                 --               --        4,500
Common stock
  offering.......        4,315,000      43          191,831          --                 --               --      191,874
Foreign currency
  translation
  adjustment.....               --      --               --          --            (39,218)              --      (39,218)
Dividends on
  Series A
  Redeemable
  Convertible
  Preferred Stock               --      --               --          --                 --           (1,341)      (1,341)

Net loss.........               --      --               --          --                 --         (217,836)    (217,836)

                     -------------------------------------------------------------------------------------------------------

                                       50
<PAGE>
BALANCE AT DECEMBER
  31, 1999.......       47,093,361    $471       $1,066,964     $(5,768)          $(45,464)       $(478,812)    $537,391
Issuance costs of
  Series B
  mandatorily
  redeemable (in
  2015) cumulative
  convertible
  preferred stock               --      --          (18,909)         --                 --               --      (18,909)
Issuance costs of
  Viatel-obligated
  mandatorily
  redeemable
  (in 2015)
  convertible
  preferred
  securities
  of subsidiary
  grantor trust
  whose sole
  assets are
  junior
  subordinated
  debentures of
  Viatel.........               --      --           (8,550)         --                 --               --       (8,550)
Warrants issued..               --      --           19,311          --                 --               --       19,311
Warrants converted          27,178      --               --          --                 --               --           --
Stock options
  exercised......        2,740,400      27           29,509          --                 --               --       29,536
Restricted shares
  issued.........        1,510,700      15           33,107     (33,122)                --               --           --
Restricted shares
  forfeited......          (46,000)     --           (2,218)      1,776                 --               --         (442)

</TABLE>

                                       51
<PAGE>

<TABLE>
<CAPTION>

                         NUMBER OF                                               ACCUMULATED
                          COMMON                   ADDITIONAL                       OTHER
                           STOCK      COMMON        PAID-IN      UNEARNED        COMPREHENSIVE    ACCUMULATED
                          SHARES      STOCK         CAPITAL     COMPENSATION        LOSS           DEFICIT         TOTAL

                       -------------------------------------------------------------------------------------------------------
<S>                     <C>           <C>        <C>           <C>               <C>            <C>          <C>
Earned compensation             --     $--             $717     $15,322                $--              $--      $16,039

Foreign currency
  translation
  adjustment.....               --      --               --          --            (57,397)              --      (57,397)
Dividends on Series
  B mandatorily
  redeemable (in
  2015) cumulative
  convertible
  preferred stock               --      --               --          --                 --          (22,928)     (22,928)
Dividends  on
  Viatel-obligated
  mandatorily
  redeemable
  (in 2015)
  convertible
  preferred
  securities of
  subsidiary
  grantor trust
  whose sole
  assets are
  junior
  subordinated
  debentures of
  Viatel.........               --      --               --          --                 --          (10,026)     (10,026)
Net loss.........               --      --               --          --                 --       (1,540,747)  (1,540,747)
                     -------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
  31, 2000              51,325,639    $513       $1,119,931    $(21,792)         $(102,861)     $(2,052,513) $(1,056,722)
                     =======================================================================================================
</TABLE>

                See accompanying notes to consolidated financial statements.





                                       52
<PAGE>

<TABLE>
<CAPTION>
                          VIATEL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
                                 (IN THOUSANDS)

                                                    1998       1999       2000
                                                 ----------------------------------
Cash flows from operating activities:
<S>                                              <C>        <C>        <C>
   Net loss..................................    $(127,304) $(217,836) $(1,540,747)
   Adjustments to reconcile net loss to net
       cash used in operating activities:
     Depreciation and amortization...........       16,268     75,911      303,168
     Accreted interest expense on long term
      debt...................................       35,417     38,047       52,955
     Provision for losses on accounts
      receivable.............................        4,225     11,511       81,176
     Restructuring and impairment............           --     13,206      899,999
     Extraordinary loss on debt prepayment...       28,304         --           --
     Earned stock compensation...............           65        784       15,322
   Changes in operating assets and
       liabilities, net of
       effect of acquisitions:
     Increase in accounts and notes receivable
      and accrued interest...................      (20,302)   (35,154)     (67,206)
     Increase in accrued interest expense on
      Senior Notes...........................       11,969     15,715       30,735
     (Increase)/Decrease in prepaid expenses
      and other receivables..................       (8,291)   (36,071)      15,798
     (Increase)/Decrease in other assets and
      intangible assets......................      (12,625)    (1,303)       1,831
     Increase/(Decrease) in accrued
       telecommunications costs, accounts
       payable, and other accrued expenses...       11,956        365      (64,729)
                                                 ----------------------------------
        Net cash used in operating activities      (60,318)  (134,825)    (271,698)
                                                 ----------------------------------
Cash flows from investing activities:
     Capital expenditures....................      (94,674)  (527,327)    (574,712)
     Cash paid for acquisitions, net of cash
      acquired...............................       (5,000)    39,998     (115,408)
     Purchase of marketable securities.......     (310,625)  (217,519)          --
     Proceeds from maturity of marketable
      securities.............................       60,307    349,042      105,574
     (Increase)/Decrease in cash securing
      letters of credit for network
      construction...........................           --    (50,165)      19,214
                                                 ----------------------------------
        Net cash used in investing activities     (349,992)  (405,971)    (565,332)
                                                 ----------------------------------
Cash flows from financing activities:
     Proceeds from issuance of senior notes,
       senior discount notes and convertible
       debentures............................      845,752    425,635      281,241
     Proceeds from issuance of convertible
       preferred securities..................       42,198         --      477,541
     Repayment of senior discount notes......     (119,282)        --           --
     Deferred financing and registration
       costs.................................      (31,547)   (22,166)     (14,850)
     Proceeds from exercise of stock options.          947      2,854       29,535
     Proceeds from common stock offering.....           --    191,874           --
     Payments under capital leases and notes
      payable................................       (9,033)    (8,806)     (10,702)
                                                 ----------------------------------
        Net cash provided by financing
        activities...........................      729,035    589,391      762,765
                                                 ---------------------------------
Effects of exchange rate changes on cash.....           --     (5,740)      (3,036)
                                                 ---------------------------------
Net increase (decrease) in cash and cash
  equivalents................................      318,725     42,855      (77,301)
Cash and cash equivalents at beginning of year      21,096    339,821      382,676
                                                 ---------------------------------
Cash and cash equivalents at end of year.....     $339,821   $382,676     $305,375
                                                 =================================
</TABLE>

                See accompanying notes to consolidated financial statements.


                                       53
<PAGE>

                          VIATEL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1998, 1999 AND 2000


(1) ORGANIZATION AND GOING CONCERN

BUSINESS, OPERATIONS, FUTURE ACTIVITIES AND CURRENT BUSINESS ENVIRONMENT


            Viatel, Inc. and its subsidiaries  (collectively,  the "Company") is
the  builder-owner-operator  of  pan-European,  trans-Atlantic  and metropolitan
fiber-optic networks and a provider of advanced  telecommunications products and
services,  including  bandwidth,  to  corporations,  carriers,  Internet service
providers,  applications  service  providers  and storage  network  providers in
Europe and North America.

            During  2000,  the  telecommunications  markets in which the Company
operates became increasingly  competitive.  These market changes, which included
significant  reductions in prices that  telecommunications  companies  have been
able to charge its customers as well as reductions in anticipated  volume,  have
caused the Company to evaluate its  long-lived  assets as well as its intangible
assets associated with recent  acquisitions.  Such evaluation has resulted in an
asset impairment charge of $895.2 million and an announced 2001 restructuring of
operations  (See  "Note  (14)   Restructuring   and   Impairment")   which  will
significantly    curtail   the   Company's    consumer   voice   and   wholesale
telecommunications  businesses. Actions taken and to be taken as a result of the
2001  restructuring  include a planned  reduction in workforce of  approximately
30%, closing of consumer businesses in France, Germany, The Netherlands,  Spain,
Austria,  Greece and Canada as well as the  elimination of assets which are used
in the  countries  to be exited or are  redundant.  While  the  Company  has not
finalized  its estimate of the 2001  restructuring  and  impairment  charge,  it
anticipates  that  approximately  $80 million to $100  million of assets will be
subject to accelerated depreciation in connection with such restructuring during
their  remaining  period of  service  in 2001.  Additionally,  current  industry
conditions have adversely affected other telecommunications  providers,  many of
whom are  customers  of the  Company.  Such  adverse  effects  could result in a
decrease in the use of the  Company's  services by these  carriers as well as an
inability  by such  customers  to  fulfill  their  obligations  to the  Company,
including payment of amounts owed for services provided.

            Since its inception, the Company has focused on building its network
and developing its businesses. During this period, significant expenditures have
been made to build the infrastructure that the Company believed was necessary to
support its anticipated growth in customers and volume. As a result, the Company
has historically  generated  significant negative cash flows from operations and
has  financed  these  negative  cash flows as well as its  capital  expenditures
primarily  with  funds  raised  through  public  and  private  debt  and  equity
offerings.

            Certain of the Company's  debt has been issued at a discount to face
and does not yet require cash interest payments,  however, a significant portion
of its debt does  require  interest  payments.  On April 11,  2001,  the Company
announced  that its Board of Directors had decided not to pay the April 15, 2001
interest  payment on the Company's 12.75% senior notes due 2008 and on its 7.75%



                                       54
<PAGE>

convertible junior subordinated  debentures,  which are held by Viatel Financing
Trust I, and as a result the trust was unable to pay the April 15, 2001 dividend
payment on its 7.75%  trust  certificates.  Both the  Company and the trust have
until May 15, 2001 to make such payments. Non-payment of interest on these notes
and dividend  payment on the trust preferred by May 15, 2001 would be "events of
default" under the terms of the Company's various debt indentures,  the terms of
the trust preferred and the terms of the Company's vendor financing  facilities.
Accordingly, as a result of the Company's decision not to pay the April 15, 2001
interest  payment  and the  inability  of the trust to pay the  April  15,  2001
dividend  payment,  the  Company has  classified  all of its  long-term  debt as
current.

            Additionally,   as  discussed   in  "Note  (8)  Notes   Payable  and
Obligations under Capital Leases,"  the Company has approximately  $24.1 million
of borrowings  outstanding under a facility with NTFC Capital Corporation.  As a
result of the Company's acquisition of Destia Communications, Inc. ("Destia") in
December  1999,  NTFC had the right to request  Destia to repay all  outstanding
obligations  under the NTFC facility  within 90 days following the  acquisition.
NTFC had extended the date by which it would  exercise  this right  periodically
throughout  2000 and  provided a final  extension  which  expired on January 31,
2001.  On February 14, 2001,  NTFC advised the Company that it had concluded its
review of the Company's  acquisition  of Destia and  determined  that it did not
consent.  To date, the Company has not exercised its right to prepay any amounts
outstanding  under the facility as  requested by NTFC. A default  under the NTFC
facility could result in a cross-default under the terms of the Company's senior
debt and the  Company's  vendor  facilities  that would  entitle such holders to
accelerate the maturity of such debt.

            In  February  2001,   the  Company   retained   Dresdner   Kleinwort
Wasserstein and Credit Suisse First Boston, as financial advisors,  and Skadden,
Arps, Slate,  Meagher & Flom LLP, as special counsel, to assist it in evaluating
its business plan and developing initiatives,  including restructuring its debt,
identifying funding opportunities,  strategic partnerships,  and other strategic
alternatives.  Credit  Suisse First Boston had  originally  been retained by the
Company  during the middle of 2000 to assist  solely  with  regard to  strategic
alternatives.  At the Company's  expense,  on April 3, 2001,  the holders of the
Company's  long-term  debt retained  Wachtell  Lipton Rosen & Katz. The Company,
with assistance of these advisors,  is currently  developing a new business plan
that will offer a basis for a restructuring  proposal that it intends to provide
to its  creditors.  The  Company  may be unable to  effectuate  a  restructuring
proposal  because it may not be able to reach agreement with its various classes
of creditors.  If it is unable to accomplish an out-of-court  restructuring,  it
may file for bankruptcy protection.  Moreover, it is possible that the Company's
creditors may seek to initiate  involuntary  bankruptcy  proceedings against the
Company that would force the Company to make a defensive voluntary filing of its
own.

            The   accompanying   financial   statements   reflect   management's
assessment of the impact of this economic situation on the financial position of
the Company.  Actual results could differ from management's  current assessments
and such differences could be material. In addition, the effect on the Company's
financial  position  of future  developments  and  access to  further  financial
information  concerning  the Company's  customers,  suppliers,  financiers,  and
others  and their  ability to  continue  to  transact  with the  Company  cannot
presently be determined.  The financial statements therefore may not include all
adjustments that might ultimately result from these adverse conditions.


GOING CONCERN

            The Company has suffered from recurring net losses and net operating
cash  deficiencies  and has a  significant  working  capital  and  stockholders'
deficiency.


                                       55
<PAGE>

In this  context,  the Company is currently  exploring a range of  restructuring
alternatives  as described  above.  However,  an inability  to  restructure  the
Company's  obligations or capital  structure could require the Company to resort
to  extraordinary  measures,  including  making sales of assets under distressed
conditions or ultimately seeking the protection of the bankruptcy courts.

            These factors raise substantial doubt about the Company's ability to
continue  as a going  concern.  The  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION

            The consolidated  financial  statements  include the accounts of the
Company and its majority-owned and controlled subsidiaries from their respective
dates of acquisition.  All significant  inter-company  balances and transactions
have been eliminated in consolidation.

(B) CASH AND CASH EQUIVALENTS

            The Company's  policy is to maintain its uninvested  cash at minimum
levels.  Unrestricted  cash  equivalents  include highly liquid debt instruments
purchased with an original maturity of three months or less.

(C) REVENUE AND COST OF SERVICES AND SALES

            The Company records communication  services revenue as earned at the
time  services  are  provided.  The related  cost of  communication  services is
reported in the same period.

            Revenue     from      capacity      sales     mainly      represents
indefeasible-rights-of-use ("IRUs") for portions of the network that qualify for
sales-type lease  accounting.  Revenue for capacity sales is recognized when the
capacity  is  delivered  to the  purchaser.  Transactions  that do not  meet the
criteria for sales-type  lease  accounting are accounted for as operating leases
and revenue is recognized over the term of the lease.

            Cost of capacity in any period is determined based upon the ratio of
total capacity sold and total anticipated  capacity to be utilized multiplied by
the related total costs of the relevant portion of the Company's network.

            In June 1999,  the Financial  Accounting  Standards  Board  ("FASB")
issued  Interpretation  No. 43, "Real Estate Sales,  an  interpretation  of FASB
Statement No. 66" ("FIN 43") which is applicable for all contracts  entered into
after June 30, 1999.  FIN 43 requires that a lease of property  improvements  or
integral  equipment include a provision allowing title to transfer to the lessee
in order for that lease to be accounted for as a sales-type lease.

            The Company  recognizes  revenue in  accordance  with FIN 43 and the
Securities and Exchange  Commission Staff Accounting  Bulletin No. 101, "Revenue
Recognition in Financial Statements". However, accounting practices and guidance
for sales of IRUs are evolving.  Standard setting bodies are currently reviewing
a number of issues  related to FIN 43 and other related  issues will probably be
referred to these bodies. Changes in the accounting treatment as a result of the
foregoing  could  affect the way that the Company  recognizes  revenue and costs
associated with these capacity sales in the future.



                                       56
<PAGE>

(D) PROPERTY AND EQUIPMENT

            Property and equipment  consists  principally of  telecommunications
related equipment such as switches,  fiber optic cable systems, remote nodes and
related computer  software and is stated at cost.  Assets acquired under capital
leases are stated at the present value of the future minimum lease payments. The
Company also capitalizes  certain software  development  costs for internal use.
Maintenance and repairs are expensed as incurred.

            Depreciation  is provided  using the  straight-line  method over the
estimated  useful  lives  of the  related  assets.  Leasehold  improvements  are
amortized over the life of the lease or useful life of the improvement whichever
is shorter. The estimated useful lives are as follows:

<TABLE>
<CAPTION>

<S>                                                       <C>
Communications systems                                    5 to 7 years
Fiber optic cable systems                                 10 to 20 years
Leasehold improvements                                    2 to 5 years
Furniture, office and computer equipment and other        2 to 5 years
</TABLE>

(E) INTANGIBLE ASSETS

            Deferred  financing  fees  represent  costs  incurred  to issue  and
register debt and are being amortized over the term of the related debt.

            Costs of licenses issued by governing  bodies are being amortized on
a straight-line basis over the lesser of 25 years or the term of the license.

            Goodwill,  which  represents  the excess of purchase price over fair
value of net assets  acquired,  is amortized on a  straight-line  basis over the
expected periods to be benefited, which are five to seven years.

            Acquired   customer  base  and  acquired   employee  base  represent
intangible  assets  associated  with  acquisitions  and are being amortized on a
straight-line basis over four to seven years.

(F) INCOME TAXES

            Deferred tax assets and  liabilities  are  recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is recognized in income or expense in the period it occurs.

(G) FOREIGN CURRENCY TRANSLATION

            A significant  portion of the Company's  assets are foreign currency
denominated and as such are subject to fluctuations in value due to movements in
foreign  exchange rates.  Foreign currency assets and liabilities are translated
using the  exchange  rates in effect  at the  balance  sheet  date.  Results  of
operations are translated using the average exchange rates prevailing throughout


                                       57
<PAGE>

the year.  The effects of exchange  rate  fluctuations  on  translating  foreign
currency assets and liabilities into U.S. dollars are accumulated as part of the
foreign  currency  translation  adjustment in  stockholders'  equity.  Gains and
losses from foreign currency  transactions are included in selling,  general and
administrative  expenses in the period in which they occur. For the years ending
December 31, 1998, 1999 and 2000, the Company  experienced no material  exchange
transaction gains or losses.

(H) NET LOSS PER SHARE

            Basic  earnings per share ("EPS") is computed by dividing  income or
loss  attributable  to common  stockholders  by the weighted  average  number of
common  shares  outstanding  for the period.  Diluted EPS reflects the potential
dilution from the exercise or conversion of securities into common stock.

            Net loss and weighted average shares  outstanding used for computing
diluted  loss per common  share were the same as that used for  computing  basic
loss per common share for each of the years ended  December  31, 1998,  1999 and
2000.

            The  Company  had  potentially  dilutive  securities  of 7.2 million
shares  (consists of 2.6 million of stock  options;  3.7 million of  convertible
preferred  stock on an "as if"  converted  basis;  and .9  million  subordinated
convertible debt on an "as if" converted basis), 6.0 million shares (consists of
5.7 million of stock options and .3 million of warrants) and 25.8 million shares
(consists  of 12.3  million  of  stock  options;  11.7  million  of  convertible
preferred stock on an "as if" converted  basis; and 1.8 million of warrants) for
the  years  ended  December  31,  1998,  1999  and  2000,  respectively.   These
potentially  dilutive securities were not included in the computation of diluted
net loss per  common  share  because  they  were  antidilutive  for the  periods
presented.

(I) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

            At December 31, 1999 and 2000, the Company's  financial  instruments
included cash, cash  equivalents,  investments,  receivables,  accounts payable,
accrued interest and borrowings. The fair values, at December 31, 1999 and 2000,
of cash and cash equivalents, receivables, accounts payable and accrued interest
approximated  their carrying  values  because of the short-term  nature of these
instruments. The estimated fair values of other financial instruments subject to
fair  value  disclosures,  determined  based on broker  quotes or quoted  market
prices or rates for the same or similar  instruments  and the  related  carrying
costs are as follows (in thousands):
<TABLE>
<CAPTION>

                                            1999                    2000
                                   ---------------------------------------------
                                    CARRYING     FAIR       CARRYING      FAIR
                                     AMOUNT     VALUE        AMOUNT       VALUE
                                   ---------------------------------------------

<S>                                <C>         <C>         <C>          <C>
Investments (see Note 3)........     $188,128    $188,128     $61,854    $61,854
Borrowings (see Note 9).........   $1,680,885  $1,665,462  $1,994,840   $605,500
</TABLE>



                                       58
<PAGE>

            Financial  instruments  that  potentially  subject  the  Company  to
concentration of credit risk consist primarily of temporary cash investments and
trade   receivables.   The  Company  restricts   investment  of  temporary  cash
investments to financial institutions with high credit standing. The Company has
a large  and  diverse  worldwide  customer  base,  but does  have a  significant
concentration   within  the   telecommunications   industry.   Current  industry
conditions have adversely affected other telecommunications  providers,  many of
whom are  customers of the  Company.  Such  adverse  effects  could result in an
inability to fulfill  their  obligations  to the Company,  including  payment of
amounts owed for services provided.

            During 1998, one customer,  LD Exchange.com,  accounted for 10.6% of
the  Company's  revenues.  No one  customer  represented  more  than  10% of the
Company's total revenues for 1999 and 2000.

(J) USE OF ESTIMATES

            The preparation of financial statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

(K) STOCK OPTION PLAN

            The Company  accounts for its stock option plans in accordance  with
Statement  of  Financial  Accounting  Standards  ("SFAS")  No. 123 which  allows
entities to continue to apply the  provisions  of  Accounting  Principles  Board
("APB")  Opinion No. 25 and provide pro forma net income and pro forma  earnings
per share  disclosures  for employee stock option grants made in 1995 and future
years as if the  fair-value-based  method,  as defined in SFAS No. 123, had been
applied.  The Company has elected to apply the  provisions of APB Opinion No. 25
and provide the pro forma  disclosure  required by SFAS No. 123. (See "Note (15)
Stock Incentive Plan".)

(L) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

            Long-lived assets and certain identifiable  intangibles are reviewed
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying  amount of an asset may not be  recoverable as required by Statement of
Financial  Accounting  Standards  No.  121  ("SFAS  121") -  Accounting  for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of.
Recoverability  of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset.  If such assets are  considered to be impaired,  the impairment to be
recognized is measured by the amount by which the carrying  amount of the assets
exceeds the fair value of the assets. Assets to be held and used for a period of
time which is less than their original  estimated life and which do not meet the
impairment criteria of SFAS 121 are not written down. Rather,  their useful life
is  adjusted  and the related  depreciation  expense is  adjusted.  Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell.

            Consistent  with SFAS 121 the  Company  performs  an  assessment  of
recoverability  and measurement of impairment of its long-lived  assets based on
their respective  businesses'  undiscounted  future cash flows. If an impairment
appears to have occurred under this criteria, the Company then tests and


                                       59
<PAGE>

evaluates the  recoverability  of its long-lived assets by estimating their fair
market value based on quoted market prices or by utilizing valuation  techniques
such as the discounted  future cash flows of the businesses to which such assets
relate.

(M) ADDITIONAL ACCOUNTING POLICIES

            Additional  accounting  policies  are  incorporated  into the  notes
herein.

(N) RECLASSIFICATIONS

            Certain  reclassifications  have  been  made  to  the  prior  years'
consolidated financial statements to conform to the current year's presentation.


(3) INVESTMENTS IN DEBT SECURITIES

            Management   determines  the  appropriate   classification   of  its
investments in debt  securities at the time of purchase and  classifies  them as
held to maturity or available for sale. These  investments are diversified among
high credit  quality  securities  in accordance  with the  Company's  investment
policy. Debt securities that the Company has both the intent and ability to hold
to maturity are carried at amortized cost. Debt securities for which the Company
does not have the  intent or  ability  to hold to  maturity  are  classified  as
available-for-sale.  Securities  available  for sale are  carried at fair value,
with the  unrealized  gains  and  losses,  net of tax,  reported  in a  separate
component of stockholders' equity. The Company does not invest in securities for
trading purposes and as such does not classify any securities as trading.

            The  cost of debt  securities  classified  as  held to  maturity  is
adjusted for  amortization  of premiums  and  accretion of discounts to maturity
over the estimated  life of the security.  Such  amortization  and accretion are
included  in  interest   income.   There  were  no   securities   classified  as
available-for-sale as of December 31, 1999 and 2000.

            The following is a summary of the amortized cost, which approximates
fair  value,  of  restricted  securities  held to  maturity  at  December 31 (in
thousands):
<TABLE>
<CAPTION>

                                              1999      2000
                                            --------------------
<S>                                         <C>       <C>
U.S. Treasury obligations...............    $147,586  $49,023
German government obligations...........      40,542   12,831
                                            --------------------
     Total..............................    $188,128  $61,854
                                            ====================
</TABLE>

            The amortized  cost,  which  approximates  fair value, of restricted
securities held to maturity at December 31, are shown below (in thousands):

                                       60
<PAGE>

<TABLE>
<CAPTION>

                                              1999      2000
                                            --------------------

<S>                                         <C>       <C>
Due within one year......................   $125,581  $61,854
Due after one year through two years.....     62,547       --
                                            --------------------
     Total...............................   $188,128  $61,854
                                            ====================
</TABLE>

            There were no changes in the  classification  of any securities held
to maturity or  securities  available  for sale from the time of purchase to the
time of maturity or sale.  Restricted  marketable  securities are restricted for
use in semi-annual  interest payments of certain long-term debt and are invested
in  U.S.  and  German  government   securities  maturing  on  a  schedule  which
approximates the required interest payments.


(4) PROPERTY AND EQUIPMENT

      Property  and  equipment  consists of the  following as of December 31 (in
thousands):
<TABLE>
<CAPTION>

                                              1999              2000
                                            ---------------------------
<S>                                         <C>              <C>
Communications systems...................   $698,483         $1,211,393
Construction in progress.................    210,671            298,910
Furniture, office and computer equipment
  and other..............................     25,707             44,355
Software.................................     13,481             17,011
Leasehold improvements...................     11,926             36,894
                                            ---------------------------
                                             960,268          1,608,563
Less accumulated depreciation and
  amortization...........................     75,940            222,646
                                            ---------------------------
                                            $884,328         $1,385,917
                                            ===========================
</TABLE>

            As a result of the  Company's  assessment of  recoverability  of its
long-lived  assets,  the  Company  has written  down the  carrying  value of its
property  and  equipment  by  approximately  $87.7  million  in  2000.  In 1999,
approximately  $9.1  million of property  and  equipment  was written  down as a
result of the 1999  restructuring  charge  associated  with the  acquisition  of
Destia (See "Note (14) Restructuring and Impairment").

            At December 31, 1999 and 2000,  construction  in progress  primarily
represents  construction  of the Company's  fiber optic  network.  For the years
ended December 31, 1998,  1999 and 2000,  $3.3 million,  $10.1 million and $24.1
million, respectively, of interest was capitalized.




                                       61
<PAGE>

(5) INTANGIBLE ASSETS

      Intangible  assets  consist  of  the  following  as  of  December  31  (in
thousands):


<TABLE>
<CAPTION>

                                               1999      2000
                                          ----------------------
<S>                                       <C>         <C>
Goodwill.................................   $842,555   $23,845
Acquired customer base and employee base.    130,956    36,000
Deferred financing.......................     53,714    68,564
Licenses, trademarks and servicemarks....      9,495    10,948
                                          ----------------------
                                           1,036,720   139,357
Less accumulated amortization............     25,061    18,665
                                          ----------------------
                                          $1,011,659  $120,692
                                          ======================
</TABLE>

            As a result of the  Company's  assessment of  recoverability  of its
long-lived  assets, the Company has reduced the carrying value of its intangible
assets by approximately $807.5 million for the year ended December 31, 2000. The
impairment  charge  consisted of the write off of goodwill  associated  with the
acquisitions   of  Destia   Communications,   Inc.   ("Destia")  and  Flat  Rate
Communications,  Inc. ("Flat Rate") of  approximately  $733.9  million,  and the
write-down of other intangibles  associated with Destia's acquired customer base
and employee base of approximately  $73.6 million (See "Note (14)  Restructuring
and Impairment").

            The  remaining   goodwill  at  December  31,  2000  relates  to  the
acquisition of AT&T Corporation's UK Subsidiary, New Comms (UK), Limited ("Comms
UK"). There were no impairment  charges associated with intangible assets during
1999.


(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

      Accounts  payable and accrued  expenses  consists of the  following  as of
December 31 (in thousands):
<TABLE>
<CAPTION>

                                              1999      2000
                                           ---------------------
<S>                                        <C>        <C>
Accounts payable.........................   $78,677   $148,098
Accrued expenses.........................    77,541    152,396
                                           ---------------------
                                           $156,218   $300,494
                                           =====================
</TABLE>




                                       62
<PAGE>

(7) ACQUISITIONS

FLAT RATE COMMUNICATIONS, INC.

            On  February  27,  1998,  the  Company  acquired  Flat Rate,  a long
distance  telecommunications  reseller,  for $5.0  million  of cash and  375,000
shares of the Company's common stock and a $12.0 million cash contingent payment
paid in 1999 based upon key operating performance targets achieved.  The Company
recorded the acquisition  under the purchase method of accounting.  The purchase
price was allocated to the assets acquired and liabilities  assumed,  based upon
the estimated fair values at the date of acquisition.  The excess purchase price
was  approximately  $20.4  million  and was being  amortized  through  2000 on a
straight-line  basis over its estimated  useful life,  which was five years.  At
December 31, 2000, the  unamortized  goodwill  related to this  acquisition  was
written off as part of the Company's  impairment  charge discussed in "Note (14)
Restructuring and Impairment".

DESTIA COMMUNICATIONS, INC.

            On December 8, 1999, the Company acquired Destia through a merger of
Destia  with one of the  Company's  subsidiaries.  Destia is a  facilities-based
provider of domestic and international long distance telecommunications services
in  Europe  and  North  America.  Its  customer  base  consists  of  residential
customers,  commercial  customers,  ethnic  groups and other  telecommunications
carriers.  Destia  offers  a  variety  of  retail  telecommunications  services,
including international and domestic long distance, Internet access and wireless
services.   On  February   13,   2000,   Destia   changed  its  name  to  Viatel
Communications, Inc.

            Holders of Destia common stock  received  0.445 shares (the exchange
ratio) of the Company's  common stock for each share of Destia common stock.  In
connection with the  acquisition,  the Company issued  14,299,969  shares of its
common stock valued at $39.21 per share  (total value of $560.7  million).  Each
outstanding  option and  warrant to acquire  shares of Destia  common  stock was
converted  into an option or  warrant to  acquire  shares of the  Company on the
basis of the exchange ratio described above.

            The purchase  price for Destia was $901.9  million and was comprised
of the issuance of common stock,  the fair value of existing  Destia options and
warrants exchanges, issuance of 11.5% senior notes, the cash portion of the debt
exchange offer and transaction costs. The Company recorded the acquisition under
the  purchase  method of  accounting.  The purchase  price was  allocated to the
assets acquired and liabilities assumed, based upon the estimated fair values at
the date of  acquisition.  The  allocation  resulted  in  intangible  assets and
goodwill of approximately $131.0 million and $855.6 million, respectively, which
were being amortized through 2000 on a straight-line  basis over their estimated
useful lives, which were four to seven years and seven years,  respectively.  At
December  31,  2000,  the  remaining  intangible  assets  were  written  down by
approximately  $73.6 million and the entire remaining goodwill balance of $723.4
million was written off as part of the Company's  impairment charge as discussed
in "Note (14) Restructuring and Impairment".


NEW COMMS (UK), LIMITED


            On February  29,  2000,  the Company  acquired all of the issued and
outstanding share capital of Comms UK. As a result of the transaction,  Comms UK
became a wholly owned subsidiary of the Company. Comms UK is a provider of voice
and data  solutions to  primarily  enterprise  level  customers.  Following  the
acquisition, Comms UK changed its name to Viatel Global Communications Limited.



                                       63
<PAGE>

            The  purchase  price for Comms UK was  $115.4  million,  net of cash
acquired of $23.6 million, and was comprised of a $125.0 million cash payment at
the time of closing,  certain post closing  payments in connection with acquired
working  capital,  and transaction  costs.  The Company recorded the acquisition
under the purchase method of accounting. The purchase price was allocated to the
assets acquired and liabilities assumed, based upon the estimated fair values at
the date of  acquisition.  The excess  purchase  price was  approximately  $23.8
million  and is being  amortized  on a  straight-line  basis over its  estimated
useful life, which is seven years.

            The following pro forma financial  information presents the combined
results of operations (in thousands,  except per share data) of Viatel,  Destia,
and Comms UK, as if the  acquisitions  had occurred as of the  beginning of 1999
and 2000, after giving effect to certain adjustments,  including amortization of
goodwill,  depreciation  expense, and interest income and expense. The pro forma
financial  information  does not  necessarily  reflect the results of operations
that would have occurred had Viatel,  Destia,  and Comms UK constituted a single
entity during such periods.
<TABLE>
<CAPTION>

                                            YEAR ENDED DECEMBER 31
                                               1999        2000
                                            -------------------------
<S>                                         <C>          <C>
Revenue..............................       $794,847       $769,071
Loss before extraordinary loss.......       (511,924)    (1,549,856)
Net loss attributable to common
  stockholders.......................       (513,265)    (1,582,810)
Net loss per common share attributable
  to common stockholders.............        $(11.96)       $(31.72)
</TABLE>

            Comms UK had significant  transactions and  relationships  with AT&T
Corp.   (its  former  parent)  and  its   affiliates.   As  a  result  of  these
relationships,  it is possible that the terms of these transactions were not the
same as those that would have resulted from transactions  among wholly unrelated
parties.

(8) NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES

            The Company was  obligated  under the  following  debt  arrangements
primarily in connection with equipment and capacity acquisitions (in thousands):
<TABLE>
<CAPTION>

                                                   DECEMBER 31, 1999
                                             -------------------------------
                                              CURRENT   LONG-TERM  TOTAL
                                             -------------------------------
<S>                                          <C>        <C>      <C>
Obligations under capital leases (a)......   $10,337    $37,164   $47,501
Notes payable (b).........................    16,954     25,211    42,165
NTFC note (c).............................     8,043     24,288    32,331
                                             -------------------------------
                                             $35,334    $86,663  $121,997
                                             ===============================
</TABLE>


                                       64
<PAGE>

<TABLE>
<CAPTION>
                                                   DECEMBER 31, 2000
                                             -------------------------------
                                              CURRENT   LONG-TERM   TOTAL
                                             -------------------------------
<S>                                          <C>        <C>      <C>
Obligations under capital leases (a)......   $15,815    $53,113   $68,928
Notes payable (b).........................     3,820     38,747    42,567
NTFC note (c).............................    24,099          -    24,099
                                             -------------------------------
                                             $43,734    $91,860  $135,594
                                             ===============================
</TABLE>
-----------


      (a) The Company has various lease agreements for IRUs,  buildings  housing
          switch sites, rights of way and other property.

      (b) The Company has assumed notes payable related to the purchase of cable
          lines and acquisitions entered into by Destia prior to its acquisition
          by the  Company.  These  notes final  maturity  dates from May 2001 to
          November 2008.

          The Company has entered into Loan and Security  Agreements pursuant to
          which the  Company  had  outstanding  borrowings  of $4.3  million  at
          December 31, 1999. The Loan and Security Agreements were entirely paid
          off in 2000.  Under the terms of these  agreements,  the  Company  was
          required to satisfy certain  covenants and  restrictions.  Obligations
          under these Loan and Security  Agreements were secured by the grant of
          a security interest in certain telecommunications equipment as well as
          a portion of the payment  obligations also being secured by letters of
          credit.

      (c) The Company's  subsidiary,  Destia, has entered into a credit facility
          with NTFC Capital Corporation ("NTFC"),  which provides for borrowings
          to fund certain equipment acquisition costs and related expenses.  The
          facility  provides  for an  aggregate  commitment  from  NTFC of $49.0
          million.  As of December 31, 2000, the aggregate amount borrowed under
          the facility was $24.1  million.  All of the equipment  purchased with
          the  proceeds  of the NTFC  facility  has been  pledged as security to
          NTFC. The terms of the NTFC facility require the Company's subsidiary,
          Viatel Communications, Inc. (formerly Destia Communications, Inc.), to
          maintain  certain  debt  service   coverage  ratios,   certain  EBITDA
          thresholds  (both as defined in the NTFC  facility),  and minimum cash
          balances. As a result of the Company's acquisition of Destia, NTFC had
          the right to request Destia to repay all outstanding obligations under
          the NTFC facility within 90 days following the  acquisition.  NTFC had
          extended the date by which it would  exercise this right  periodically
          throughout 2000 and provided a final extension that expired on January
          31, 2001.  On February 14, 2001,  NTFC advised the Company that it had
          concluded  its  review of the  Company's  acquisition  of  Destia  and
          determined  that it did not  consent.  To date,  the  Company  has not
          exercised  its  right to  prepay  any  amounts  outstanding  under the
          facility  as  requested  by NTFC.  As the Company  does not  currently
          intend to pay down the facility or have the ability to negotiate a new
          facility with NTFC, the Company has  classified the long-term  portion
          of the NTFC  borrowings  as a current  liability  included  in current
          installments of notes payable.



                                       65
<PAGE>

            Maturities  of notes  payable and  obligations  under  capital lease
arrangements over the next five years are as follows (in thousands):
<TABLE>
<CAPTION>

                <S>                                            <C>
                2001........................................    $43,734
                2002........................................     33,324
                2003........................................      2,230
                2004........................................      2,302
                2005........................................      1,808
                Thereafter..................................     52,196
                                                               ---------
                Total.......................................   $135,594
                                                               =========
</TABLE>

            On October 20, 2000, Viatel U.K. Limited,  a wholly owned subsidiary
of the  Company,  obtained a  (EURO)170.6  million  lease  facility  with Nortel
Networks PLC ("Nortel"). Viatel U.K. Limited plans to use the funds primarily to
support its network expansion and broaden its advanced services  offerings.  The
total  amount  outstanding  relating to this lease  facility  was  approximately
(EURO)10.4 million at December 31, 2000.

            On October 27, 2000,  Viatel U.K. Limited also secured a $50 million
lease facility from Cisco Systems Capital  ("Cisco").  Viatel U.K. Limited plans
to use the funds  primarily  to support  its network  expansion  and broaden its
advanced services  offerings.  There was no amount  outstanding under this lease
facility at December 31, 2000.

            As described in "Note (1) Organization and Going Concern",  on April
11, 2001,  the Company  announced that its Board of Directors had decided not to
pay the April 15, 2001 interest payment on the Company's 12.75% senior notes due
2008 and on its 7.75% convertible junior subordinated debentures, which are held
by Viatel Financing Trust I, and as a result the trust will be unable to pay the
April 15, 2001 dividend payment on its 7.75% trust certificates.  At this point,
it is unlikely  that the Company  will be  permitted  to finance any  additional
equipment under these facilities.  In addition, should the Company and the trust
fail to make such payments within the applicable grace period,  Nortel and Cisco
could accelerate  payment of all amounts currently financed under the respective
lease facilities. Accordingly, the Company has classified the amount outstanding
under these lease facilities as current.




                                       66
<PAGE>

(9)  LONG-TERM DEBT RECLASSIFIED AS CURRENT LIABILITIES

            Long-term  debt  consists  of the  following  as of  December 31 (in
thousands):
<TABLE>
<CAPTION>

                                                           DECEMBER 31,
                                                    ------------  -----------
                                                        1999          2000
                                                    ----------------------------

<S>                                                 <C>           <C>
11.25% Senior Notes (a).........................     $400,000      $400,000
12.50% Senior Discount Notes, less discount of
  $164,393 and $121,133, respectively (a).......      335,607       378,867
</TABLE>

<TABLE>
<CAPTION>
<S>                                                 <C>           <C>
11.50% Senior Notes, less discount of $3,486 and
    $3,107, respectively (c)....................      265,986       266,349
11.50% Senior Notes (b).........................      200,000       200,000
13.50% Senior Notes (e).........................      158,300       157,575
11.50% Senior Notes (E150,000)(b)...............      151,027       141,243
11.15% Senior Notes (E91,010)(a)................       91,633        85,697
12.75% Senior Notes (E300,000)(d)...............           --       282,486
12.40% Senior Discount Notes (E115,552), less
  discount of $38,011 (E37,752) and $26,183,
  (E27,806), respectively (a)...................       78,332        82,623
                                                    ----------------------------
                                                    $1,680,885    $1,994,840
                                                    ============================
</TABLE>

-----------

      (a)   On April 8, 1998,  the Company  completed  an offering of units (the
            "Units  Offering")  consisting  of senior notes and senior  discount
            notes due 2008 and  shares of 10%  Series A  Redeemable  Convertible
            Preferred  Stock due 2010 ("Series A Preferred")  $.01 par value per
            share,  of the  Company  and units  consisting  of senior  notes and
            senior  discount  notes  due  2008  and   subordinated   convertible
            debentures due 2011 (the "Subordinated Debentures") through which it
            raised  approximately  $889.6  million  of  gross  proceeds  ($856.6
            million of net proceeds). The Company utilized $118.9 million of the
            proceeds from the Units  Offering to retire its 15% Senior  Discount
            Notes due 2005 resulting in an extraordinary  loss of $28.3 million.
            A portion of the proceeds from the senior notes was used to purchase
            U.S. government and German government  securities which were pledged
            as security for the first six interest  payments on the Senior notes
            due 2008 and four  interest  payments on the Senior  notes due 2009.
            The  interest  on  the  senior  notes  is  payable  in   semi-annual
            installments.  The senior  discount notes accrete  through April 15,
            2003  and   interest   becomes   payable  in  cash  in   semi-annual
            installments thereafter.

      (b)   On March 19,  1999,  the  Company  completed  a high yield  offering
            through which the Company raised approximately $352.6 million of net
            proceeds in a  combination  of senior  dollar  notes and senior Euro
            notes due 2009. A portion of the proceeds  from the senior notes was
            used to purchase U.S.  government  and euro  denominated  securities
            which were pledged as security for the first four interest payments.



                                       67
<PAGE>

      (c)   In  connection  with the Destia  acquisition,  the holders of all of
            Destia's  11%  senior  discount  notes due 2008  ($213.3  million in
            accreted  principal  amount)  exchanged  their  Destia notes and all
            accreted but unpaid  interest on these notes through the date of the
            acquisition  for $205.8  million in  aggregate  principal  amount at
            maturity  of 11.5%  senior  notes  due 2009  from  the  Company.  In
            connection  with the exchange  offer,  the Company also  completed a
            private  placement of $63.7 million in gross principal amount of its
            11.5%  senior  dollar  notes.  A portion  of the  proceeds  from the
            private  placement was used to purchase U.S.  government  securities
            which  were  pledged  as  security  for  the  first  three  interest
            payments.

      (d)   On April 20, 2000,  the Company  completed a high yield  offering of
            (EURO)300 million ($281.2 million) principal amount of 12.75% senior
            Euro notes due 2008 pursuant to a private placement transaction.  In
            connection   therewith,   the  Company   received  net  proceeds  of
            approximately  $271.2  million.  Interest  on these notes is payable
            semi-annually  in cash on April 15 and October 15. The notes are not
            redeemable  prior  to  maturity.  On April  11,  2001,  the  Company
            announced  that its Board of  Directors  had  decided not to pay the
            April 15,  2001  interest  payment on the  Company's  12.75%  senior
            notes.  The  Company  has until May 15,  2001 to make such  payment.
            Non-payment  of  interest  on  these  notes  would be an  "event  of
            default" under the terms of the Company's  various bond  indentures,
            the terms of the  trust  preferred  and the  terms of the  Company's
            vendor  financing  facilities.  Accordingly,  as  a  result  of  the
            Company's  decision not to pay the April 15, 2001 interest  payment,
            the Company has classified all of its long-term debt as current.

The indentures pursuant to which the 1998, 1999 and 2000 senior notes and senior
discount notes were issued contain certain  covenants that,  among other things,
limit the ability of the Company to incur additional indebtedness, pay dividends
or make certain other  distributions,  enter into transactions with stockholders
and  affiliates  and create liens on its assets.  In addition,  upon a change of
control,  the Company is required to make an offer to purchase  the senior notes
and the senior discount notes at a purchase price equal to 101% of the principal
amount,  in the case of the senior notes,  and 101% of the accreted value of the
notes,  in the case of the  senior  discount  notes.  The  amount of  restricted
securities remaining pledged as security for these notes at December 31, 2000 is
$61.9 million.

      (e)   In  conjunction  with the Destia  acquisition,  the Company  assumed
            Destia's 13.5% 1997 notes,  which have an aggregate  principal value
            of $150.8  million.  The Company  determined  the fair value of this
            debt to be $158.3  million and is  amortizing  the premium  over the
            remaining term. These notes were unsecured obligations of Destia and
            mature in 2007. A portion of the proceeds  from the senior notes due
            2007 was used by Destia to purchase U.S.  government  securities and
            cash  equivalents,  which were pledged as security for the first six
            interest payments on such notes. The amount of restricted securities
            and cash equivalents  remaining  pledged as security for these notes
            was $21.1 million and $0 at December 31, 1999 and December 31, 2000,
            respectively.

            The indentures  pursuant to which the Destia 13.5% notes were issued
            contain  substantially similar covenants to the ones the Company has
            on its senior  notes,  which among other things limit the ability of
            the Company to incur additional indebtedness,  pay dividends or make
            certain   other   distributions,   enter  into   transactions   with
            stockholders  and  affiliates  and create  liens on its  assets.  In
            addition,  as a result of our acquisition of Destia, the Company was
            required to offer to repurchase  the notes at a purchase price equal
            to 101% of the outstanding  principal amount,  together with accrued
            and unpaid  interest.  The Company  launched this required  offer to
            purchase on December 22, 1999. In connection therewith,  the Company
            repurchased an aggregate amount of $.6 million.




                                       68
<PAGE>

(10) SERIES B MANDATORILY REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK

            On March 9, 2000, the Company  completed an offering of $325 million
of Series B  cumulative  convertible  preferred  stock for net  proceeds  to the
Company of $306.1  million.  Issuance  costs of $18.9  million  were  charged to
additional paid-in capital. The Series B preferred stock accrues dividends at an
annual  rate of  7.50%  of the  then-effective  liquidation  preference,  may be
converted at the option of the holder at a conversion  price of $46.25 per share
and is mandatorily redeemable in 2015. Dividends on the Series B preferred stock
accumulate until May 31, 2005. Thereafter  dividends,  to the extent not paid in
full in cash, shall accrue and shall be added to the liquidation preference. For
the year  ended  December  31,  2000,  the  Company  recorded  $22.9  million in
dividends  on the  Series B  preferred  stock.  As part of this  financing,  the
Company also issued warrants to purchase  753,116 shares of the Company's common
stock, 50% of which are exercisable for 5 years at a price of $75 per share, and
50% of which are  exercisable  for 7-1/2 years at a price of $100 per share.  In
addition,  the Company issued  warrants to purchase 7,532 shares of its Series C
preferred  stock  (each  share of which is  convertible  into 100  shares of the
Company's common stock),  50% of which are exercisable for 5 years at a price of
$7,500 per share and 50% of which are  exercisable for 7-1/2 years at a price of
$10,000 per share. The warrants,  in aggregate,  were valued at $19.3 million on
the date of the issue using the Black-Scholes option pricing model.


(11) VIATEL-OBLIGATED  MANDATORILY  REDEEMABLE (IN 2015)  CONVERTIBLE  PREFERRED
     SECURITIES  OF  SUBSIDIARY  GRANTOR  TRUST  WHOSE  SOLE  ASSETS  ARE JUNIOR
     SUBORDINATED DEBENTURES OF VIATEL

            On April 12,  2000,  a  Delaware  trust and a  100%-owned  statutory
consolidated   subsidiary  of  Viatel,  Inc.  sold  3,600,000  shares  of  trust
convertible preferred  securities,  which are convertible at the holder's option
into Viatel common stock,  to certain  placement  agents,  and 111,340 shares of
common  securities  to the  Company.  The  proceeds  from the sale of the  trust
convertible  preferred  securities  were invested by the trust in $180.0 million
aggregate   principal   amount  of  the  Company's  7.75%   convertible   junior
subordinated  debentures  due 2015 (the  "Debentures").  Issuance  costs of $8.6
million  associated with these  transactions were charged to additional  paid-in
capital.  The Debentures and the common securities  represent the sole assets of
the trust. The Debentures mature on April 15, 2015, bear interest at the rate of
7.75%,  payable quarterly,  and are redeemable by the Company beginning in April
2003 at 105.43% of the principal amount thereof.

            Holders of the trust preferred securities are entitled to cumulative
cash  distributions at an annual rate of 7.75% of the liquidation  amount of $50
per security.  For the year ended December 31, 2000, the Company  recorded $10.0
million in accrued  distributions  relating to the trust  preferred  securities.
Each trust preferred security is convertible into shares of the Company's common
stock at the rate of 1.048 shares of Company  common  stock per trust  preferred
security,  subject to adjustment in certain  circumstances.  The trust preferred
securities will be redeemed upon repayment of the Debentures and are callable by
the Company at 105.43% of the liquidation amount beginning in April 2003.

            The Company has guaranteed,  on a subordinated basis,  distributions
and other  payments  due on the  preferred  securities  (the  "Guarantee").  The
Guarantee,  when  taken  together  with  the  Company's  obligations  under  the
Debentures,  the indenture  pursuant to which the Debentures were issued and the
Amended and  Restated  Declaration  of Trust  governing  the  subsidiary  trust,
provides  a full  and  unconditional  guarantee  of  amounts  due  on the  trust
preferred  securities.  No  other  subsidiary  of  Viatel  has  guaranteed  such
securities.



                                       69
<PAGE>

            The Debentures and related trust investment in the common securities
have been eliminated in  consolidation  and the trust  preferred  securities are
reflected as outstanding in the accompanying consolidated financial statements.

            On April 11, 2001, the Company announced that its Board of Directors
had decided not to pay the April 15 dividend  payment on the  Debentures,  which
are held by the trust,  and as such,  the trust will be unable to make the April
15 dividend payment on its 7.75% trust certificates.


(12) STOCKHOLDERS' EQUITY (DEFICIENCY)

            At  the  Company's   2000  Annual  Meeting  of   Stockholders,   the
stockholders  approved  an  increase  in the  Company's  capital  stock from 152
million to 302 million.  This  increase  reflected an increase in the  available
shares of common stock from 150 million to 300 million.

            On December 16, 1999, the Company issued 90,000 shares of its common
stock,  valued at $4.5 million to a contractor as part of its  consideration for
construction  work being  performed on the Company's  network.  Such shares have
been valued based upon the closing market price on the date of issue.

            On June 29,  1999,  the Company  completed  an offering of 4,315,000
shares of its common stock at $47.00 per share. The net proceeds of the offering
were  approximately  $191.9  million and were used primarily to fund the further
development of the Company's  network as well as for working capital and general
corporate purposes.

            On May 13, 1999, the conditions  for mandatory  conversion  were met
for both the Series A Preferred and the Subordinated Debentures.  The conversion
rates for the Series A Preferred  and  Subordinated  Debentures  were $13.20 and
DM24.473,  respectively, at the then applicable exchange rates. Accordingly, the
Company  issued  4,615,232  shares  of its  common  stock  and paid cash for any
fractional shares due upon conversion.

(13) INCOME TAXES

            The  statutory  Federal  tax rate for the years ended  December  31,
1998, 1999 and 2000 was 35%. The effective tax rate was zero for the years ended
December  31, 1998,  1999 and 2000 due to the Company  incurring  net  operating
losses for which no tax benefit was recorded.

            For Federal and foreign income tax purposes,  the Company has unused
net operating  loss  carryforwards  of  approximately  $994.8  million.  Of this
amount, $597 million represents US net operating losses expiring in 2007 through
2020. The US amount  includes  acquired US net operating loss  carryforwards  of
approximately  $105  million  from the  Company's  acquisition  of  Destia.  The
availability of the net operating loss  carryforwards to offset income in future
years is restricted  as a result of the  Company's  issuance of its Common Stock
and may be further  restricted  as a result of future sales of Company stock and
other  events.  In  addition,   the  availability  of  the  net  operating  loss
carryforwards  acquired  from Destia  will be limited due to Destia's  change in
ownership.

            The  tax  effect  of  temporary   differences   that  give  rise  to
significant portions of the deferred tax assets are as follows as of December 31
(in thousands):

                                       70
<PAGE>

<TABLE>
<CAPTION>
                                                        1999        2000
                                                      ----------------------
<S>                                                   <C>       <C>
Accounts receivable principally due to
   allowance for doubtful accounts.................    $3,198    $23,961
Restructuring reserve..............................     2,796         --
OID Interest not deductible in current period......    27,826     46,179
Federal net operating loss carryforwards...........   142,611    208,951
Foreign net operating loss carryforwards...........    59,399    139,221
Deferred Compensation..............................        --      6,533
Fixed assets.......................................     5,797     42,628
                                                      ----------------------
    Total gross deferred tax assets................   241,627    467,473

Less valuation allowance...........................  (195,792)  (441,699)
                                                      ----------------------
                                                        45,835    25,774

Customer base......................................   (42,673)   (23,819)
Workforce..........................................    (3,162)    (1,955)
                                                      ----------------------
     Total gross deferred tax liabilities..........   (45,835)   (25,774)
                                                      ======================
     Net deferred tax assets.......................       $--        $--
                                                      ======================
</TABLE>

            Of the total  deferred  tax  assets of  approximately  $442  million
existing on December 31, 2000,  subsequently recognized benefits, if any, in the
amount of  approximately  $25 million  will be applied  directly to  contributed
capital when  realized.  This amount relates to the tax effect of deductions for
stock option included in the Company's net operating loss carryforward.

            In assessing the  realizability  of deferred tax assets,  management
considers  whether it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  The ultimate  realization of deferred
tax assets is dependent  upon the generation of future taxable income during the
periods in which  those  temporary  differences  become  deductible.  Management
considers the scheduled  reversal of deferred tax liabilities,  projected future
taxable  income,  and tax  planning  in  making  these  assessments.  Management
believes  that it is more likely than not that the tax benefit from the deferred
tax assets will not be  realized.  Accordingly,  management  has recorded a full
valuation  allowance  against the net deferred tax asset.  During 1999 and 2000,
the valuation allowance increased by $106.6 and $245.9 million, respectively.


(14) RESTRUCTURING AND IMPAIRMENT

2001 RESTRUCTURING PLAN

            In January 2001, the Company announced that, going forward, it would
focus  principally on its corporate and  Broadband/Enterprise  business segments
and  would   conclude   its   provision   of   consumer   voice  and   wholesale
telecommunications  services in several countries that do not meet its long-term
corporate   objectives.   The  steps   announced   included   the   closing   of
consumer-oriented  businesses  in  France,  Germany,  The  Netherlands,   Spain,
Austria,  Greece  and  Canada;  the  closure  of its US  prepaid  business;  the
consolidation  of operating  units;  the elimination of assets which are used in
the  countries  to be  exited  or  are  redundant;  and a 30%  reduction  in its
worldwide  workforce.  While the Company has not  finalized  its estimate of the
2001  restructuring and impairment charge, it anticipates that approximately $80
million to $100 million of assets will be subject to accelerated depreciation in
connection with such  restructuring  during their remaining period of service in
2001.


                                       71
<PAGE>

ASSET IMPAIRMENT CHARGES RECOGNIZED IN THE FOURTH QUARTER OF 2000

            As  discussed  in "Note (1)  Organization  and Going  Concern",  the
dynamics of the  telecommunications  landscape in which the Company operates has
become increasingly competitive.  Price reduction pressure for telecommunication
products  as well as  decreases  in  anticipated  volume have led the Company to
review the  manner in which it does  business  and to  reassess  its  ability to
recover certain assets.

            In the fourth quarter of 2000,  the Company  performed an assessment
of the  recoverability  and  measurement of impairment of its long-lived  assets
based  first on the  undiscounted  future  cash flows to be  generated  from the
associated businesses.  The results of its analysis indicated that an impairment
had occurred with regard to fixed assets and intangibles related to the acquired
Destia and Flat Rate  businesses.  As a result,  the Company  estimated the fair
market  value of the  related  assets  through  a  discounted  future  cash flow
valuation  technique.  The results of this analysis  indicated that the carrying
values of these assets exceeded their fair market values by approximately $868.7
million and that an impairment charge was necessary.

            The  Company  has reduced  the  carrying  value of these  intangible
assets by  approximately  $807.5  million in 2000  consisting  of a write off of
$733.9 million in goodwill  associated with the  acquisitions of Destia and Flat
Rate and a write down of $73.6  million of  intangible  assets  associated  with
Destia's acquired customer and employee bases. In addition, the Company has also
written  down  $61.2  million  in  carrying  value  of  property  and  equipment
supporting the Destia consumer and wholesale businesses.

            The Company has also written off $26.5 million of related undeployed
assets  relating to the  provisioning  of digital  subscriber  line  services in
Germany,  a service  that the  Company has  decided to no longer  pursue.  These
assets  consist  primarily of leasehold  improvements  at facilities of Deutsche
Telekom AG, the incumbent  telecommunications  carrier,  for  collocation of the
Company's  equipment.  These leasehold  improvements have no alternative use and
cannot be  remarketed  without  Deutsche  Telekom AG's  consent.

            In total,  the Company has recorded  impairment  charges  related to
long-lived assets aggregating $895.2 million in 2000.

COMMS UK RELATED RESTRUCTURING PLAN IMPLEMENTED IN THE SECOND QUARTER OF 2000

            During  the second  quarter of 2000,  the  Company  recognized  $2.4
million in restructuring charges relating to streamlining  activities associated
with its  acquisition  of Comms UK. These  restructuring  charges were  composed
primarily of anticipated  costs to terminate leases and other  contracts.  As of
December 31, 2000, the Company had $1.6 million of remaining  accruals  relating
to the Comms UK  restructuring.  During 2000,  the Company  reduced its Comms UK
related  restructuring  accrual  by $0.8  million,  reflecting  $0.6  million in
payments  and $0.2  million in  adjustments.  The Company  anticipates  that all
restructuring   charges  associated  with  the  Comms  UK  acquisition  will  be
recognized by June 2001.

DESTIA RELATED RESTRUCTURING PLAN IMPLEMENTED IN THE FOURTH QUARTER OF 1999

            During  the  fourth   quarter  of  1999,   the  Company   recognized
restructuring  charges  relating  to  the  streamlining  of  its  organizational
structure and the strategic repositioning of certain operations,  primarily as a
result of its merger with Destia.  These  restructuring  charges  were  composed
primarily of anticipated  costs to terminate  leases and other contracts as well
as employee  termination  costs  associated  with  workforce  reductions.  As of
December 31, 2000,  approximately  285 employees had been made redundant through
these initiatives.

            As of December 31,  2000,  the Company had $0.2 million of remaining
accruals  relating to the 1999 Destia  restructuring.  In 1999,  the Company had
accrued $3.9  million for such  restructuring,  consisting  primarily of charges
relating to employee  terminations  and lease and other  contract  cancellations
costs. During 2000, the reduction of this restructuring  accrual by $3.7 million
consisted of $1.2 million in payments related to employee  terminations and $3.1
million in  payments  related to lease and other  contract  cancellation  costs,
offset by $0.6  million  in  adjustments.  The  Company  recorded  restructuring
expenses relating to the Destia  acquisition of $2.6 million during fiscal 2000,
primarily related to additional  employee  termination  costs. All restructuring
charges associated with the Destia acquisition were fully recognized by December
31, 2000.


                                       72
<PAGE>
(15) STOCK INCENTIVE PLAN

            At  the  Company's   2000  Annual  Meeting  of   Stockholders,   its
stockholders  approved the Viatel,  Inc. 2000 Stock  Incentive Plan. The Company
had previously adopted,  with stockholder  approval,  an Amended Stock Incentive
Plan, the Amended and Restated 1999 Flexible Incentive Plan (previously a Destia
plan) and the Amended and Restated 1996 Flexible  Incentive  Plan  (previously a
Destia plan),  collectively  referred to as the "Plans".  Pursuant to the Plans,
"non-qualified"  stock options to acquire  shares of common stock may be granted
to the Company's  employees,  directors and consultants,  and "incentive"  stock
options to  acquire  shares of common  stock may be  granted  to its  employees,
including  employee-directors.  The Plans  also  provide  for the grant of stock
appreciation  rights  and shares of  restricted  common  stock to the  Company's
employees, directors and consultants.

            The Plans are currently  administered by the compensation  committee
of the Company's  Board of Directors.  The 2000 Stock  Incentive Plan allows for
the  issuance of up to a maximum of  5,200,000  shares of common  stock of which
1,487,500  shares  remain  available for grant.  In addition,  there are 641,222
shares that remain available for grant under the other Plans. As a result of the
Company's  acquisition of Destia,  virtually all options granted by Destia prior
to the  merger  under  either  the  1999  Flexible  Incentive  Plan and the 1996
Flexible Incentive Plan vested and became exercisable. Any options granted under
the 1999 Flexible  Incentive Plan and the 1996 Flexible Incentive Plan after the
Company's  acquisition  of Destia are  subject to  accelerated  vesting  only as
described below. Under the Plans, the option price of any incentive stock option
may not be less than the fair  market  value of a share of  common  stock on the
date on which the option is granted.  The option price of a non-qualified  stock
option  may be less  than the fair  market  value on the date the  non-qualified
stock option is granted if the Company's Board of Directors or the  compensation
committee so determines.  An incentive stock option may not be granted to a "ten
percent  stockholder"  (as that term is defined in Section  422A of the Internal
Revenue Code of 1986)  unless the exercise  price is at least 110.0% of the fair
market  value of the common stock and the term of the option may not exceed five
years  from the date of grant.  Each  option  granted  pursuant  to the Plans is
evidenced  by a written  agreement,  which  contains the terms,  provisions  and
conditions of the grant. Stock options may not be assigned or transferred during
the  lifetime  of the holder  except as may be  required by law or pursuant to a
qualified domestic  relations order.  Common stock subject to a restricted stock
purchase or bonus agreement is transferable  only as provided in that agreement.
The maximum term of each stock option  granted to persons other than ten percent
stockholders is ten years from the date of grant.

            The Plans provide that  outstanding  options,  restricted  shares of
common  stock or stock  appreciation  rights vest in their  entirety  and become
exercisable,  or with respect to  restricted  common  stock,  are released  from
restrictions  on transfer and  repurchase  rights,  in the event of a "corporate
transaction," unless assumed by the successor  corporation.  For purposes of the
Plans,    a   corporate    transaction    includes   any   of   the    following
stockholder-approved transactions to which the Company is a party:

            o   a merger  or  consolidation  in  which  the  Company  is not the
                surviving entity, other than a transaction the principal purpose
                of which is to  change  the  state  of its  incorporation,  or a
                transaction  in which  the  Company's  stockholders  immediately
                prior  to  the  merger  or  consolidation  hold  (by  virtue  of
                securities received in exchange for their shares in the Company)
                securities of the surviving entity  representing more than 50.0%
                of the total voting power of that entity  immediately  after the
                transaction,

            o   the sale,  transfer or other disposition of all or substantially
                all of the Company's assets unless its stockholders  immediately
                prior to the sale, transfer or other disposition hold (by virtue
                of  securities  received  in  exchange  for their  shares in the
                Company)   securities  of  the  purchaser  or  other  transferee
                representing  more than 50.0% of the total  voting power of that
                entity immediately after the transaction, or



                                       73
<PAGE>

            o   any reverse merger in which the Company is the surviving  entity
                but in which its stockholders immediately prior to the merger do
                not  hold  (by  virtue  of  their  shares  in the  Company  held
                immediately prior to such transaction) securities of the Company
                representing   more  than  50.0%  of  our  total   voting  power
                immediately after the transaction.

            In 1999 and 2000,  the  Company  granted  certain  members of senior
management  a total  of  152,351  and  1,510,700  shares  of its  common  stock,
respectively,   subject  to  certain   restrictions   on  employment  and  stock
performance ("restricted shares"). Such shares have been valued at approximately
$6.6  million and $33.1  million,  respectively,  which was based on the closing
market  prices of the Company's  common stock on the dates of grant.  The entire
amount has been recorded as unearned compensation in the consolidated  statement
of  stockholder's  equity  (deficit)  and is being  amortized as earned over the
restricted period.  Until all the restrictions  lapse, the restricted shares are
not deemed to vest other than that restricted  shares do give an immediate right
to normal  common stock  voting  rights.  As of December  31, 2000,  none of the
shares of restricted stock had vested.  In 2000,  approximately  $2.2 million of
restricted shares were forfeited as a result of employee terminations.

            On December 8, 1999, each outstanding  option previously  granted by
Destia to acquire  shares of Destia common stock was converted into an option to
acquire the Company's common stock. The number of shares that the new option was
exercisable for and the exercise price of the new option was adjusted to reflect
the 0.445 exchange ratio in the merger (See "Note (7) Acquisitions").  Excluding
the options related to the Destia  acquisition,  the per share weighted  average
fair  value of stock  options  granted  during  1998,  1999 and 2000 was  $6.40,
$14.98, and $14.90,  respectively,  on the date of grant using the Black-Scholes
option  pricing model with the following  assumptions:  (1) a risk free interest
rate of 5.0% in 1998 and 6.0% in 1999 and 2000; (2) an expected life of 10 years
for 1998 and 7 years for 1999 and 2000;  (3) volatility of  approximately  92.7%
for 1998,  50.0% for 1999 and 113.9% for 2000; and (4) an annual  dividend yield
of 0% for all years.

            The  Company  applies  the  provisions  of  APB  Opinion  No.  25 in
accounting for its Stock Incentive Plan and,  accordingly,  no compensation cost
has been recognized for its stock options in the financial  statements since the
exercise price was equal to or greater than the fair market value at the date of
grant. Had the Company  determined  compensation cost based on the fair value at
the grant date for its stock  options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:


                                       74
<PAGE>
<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                           ---------------------------------
                                              1998       1999       2000
                                           ---------------------------------
<S>                                        <C>       <C>        <C>
Net loss attributable to common
  stockholders, as reported
  (in thousands)........................  $(130,605) $(219,177) $(1,573,701)
Net loss attributable to common
  stockholders, pro forma
  (in thousands)........................   (135,458)  (227,003)  (1,625,519)
Net loss per common share attributable to
  common stockholders, as reported......      (5.67)     (7.43)      (31.53)
Net loss per common share attributable to
  common stockholders, pro forma........      (5.88)     (7.69)      (32.57)

</TABLE>

            Stock option activity, including activity related to the acquisition
of Destia under the Stock Incentive Plan, is shown below:

<TABLE>
<CAPTION>
                                                    WEIGHTED
                                                    AVERAGE      NUMBER OF
                                                    EXERCISE      SHARES
                                                    PRICES    (IN THOUSANDS)
                                                   -------------------------
<S>                                                <C>            <C>
Outstanding at December 31, 1997................   $7.40           1,052
Granted.........................................    7.19           1,794
Forfeited.......................................    7.14             (64)
Expired.........................................    5.05             (14)
Exercised.......................................    5.44            (174)
                                                   -------------------------
Outstanding at December 31, 1998................    7.41           2,594
Granted.........................................   16.68           3,641
Forfeited.......................................    9.52             (57)
Expired.........................................    5.85              (1)
Exercised.......................................    6.68            (436)
                                                   -------------------------
Outstanding at December 31, 1999................   13.33           5,741
Granted.........................................   16.62           9,487
Forfeited.......................................   41.12            (208)
Expired.........................................      --              --
Exercised.......................................   10.77          (2,741)
                                                   -------------------------
Outstanding at December 31, 2000................  $15.97          12,279
                                                  ==========================
</TABLE>

            The following  table  summarizes  weighted-average  option  exercise
price information:

                                       75
<PAGE>
<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                              -------------------------------------------------------------
                                  NUMBER                              NUMBER
          RANGE OF            OUTSTANDING AT  WEIGHTED  WEIGHTED  EXERCISABLE AT  WEIGHTED
          EXERCISE             DECEMBER 31,   AVERAGE   AVERAGE     DECEMBER 31,  AVERAGE
           PRICES                  2000      REMAINING  EXERCISE       2000       EXERCISE
                              (IN THOUSANDS)   LIFE      PRICE    (IN THOUSANDS)   PRICE
-------------------------------------------------------------------------------------------
<S>                              <C>         <C>       <C>             <C>        <C>
       $ 0.15 - $ 5.00            6,241       9 Years  $  1.74           121      $ 2.73
         5.01 - 10.00               683       7 Years     6.59           451        6.91
        10.01 - 15.00             1,682       8 Years    12.31           736       11.44
        15.01 - 25.00               648       8 Years    22.54           262       22.34
        25.01 - 55.00             2,650       9 Years    46.92           318       37.92
        55.01 - 85.00               375       9 Years    56.31            --          --
                                 ----------------------------------------------------------
                                 12,279                 $15.97         1,888      $15.78
                                 ==========================================================

</TABLE>
            The exercise price of all options approximates the fair market value
of the common stock on the date of grant.

            During 1998, 1999 and 2000 a total of .2 million, .4 million and 2.7
million,  respectively,  shares of common  stock of the Company were issued as a
result of granted  options to the  Company's  employees  being  exercised  at an
average exercise price of $5.44, $6.68 and $10.77 per share, respectively.


(16) STOCKHOLDER RIGHTS PLAN

            Effective December 6, 1999, the Company adopted a Stockholder Rights
Plan (the "Rights Plan").  Under the Rights Plan, each  stockholder of record on
December 24, 1999,  received one preferred  share purchase right (a "Right") for
each outstanding  share of common stock. Each share of common stock issued after
the distribution is accompanied by a Right. When a right becomes  exercisable it
entitles the holder to buy one two-hundred thousandth of a share of a new series
of  preferred  stock for $210.  The Rights are  subject to  adjustment  upon the
occurrence of certain dilutive events.  The Rights will become  exercisable only
when a  person  or  group  becomes  the  beneficial  owner of 15% or more of the
outstanding  shares of common stock or 10 days after a person or group announces
a tender offer to acquire beneficial ownership of 15% or more of the outstanding
shares of common stock. No certificates  representing  the Rights will be issued
unless the Rights become exercisable.

            Under certain  circumstances,  holders of Rights, except a person or
group described above, and certain related parties, will be entitled to purchase
shares of common  stock at 50% of the price at which  the  common  stock  traded
prior to the  acquisition  or  announcement.  In  addition,  if the  Company  is
acquired  after the Rights  become  exercisable,  the Rights will entitle  those
holders to buy the acquiring company's shares at a similar discount.

            The  Company is entitled to redeem the Rights for one cent per Right
under certain circumstances. If not redeemed, the Rights will expire on December
5, 2009. The preferred stock issuable upon exercise of Rights consists of Series
A Junior Participating Preferred Stock of the Company.




                                       76
<PAGE>

(17) LETTER OF CREDIT

            The  Company  has  guarantees  and   uncommitted   lines  of  credit
agreements to support  secured  letters of credit and  borrowings of up to $35.8
million,  as  amended.  At  December  31,  1999 and  2000,  the  Company  had no
borrowings under these lines of credit.  At December 31, 1999 and 2000,  standby
letters  of  credit  of   approximately   $15.4   million  and  $12.4   million,
respectively,  and guarantees of $0 and $10.8 million,  respectively,  have been
issued under these lines of credit agreement.

            In connection  with the Company's  joint  construction  of the civil
works  associated with a national  communications  network being  constructed in
Germany  during  1999,  the Company was required to obtain a letter of credit of
approximately $112.8 million (DM219.1 million) in support of its obligation. The
total  amount  outstanding  relating to this letter of credit was  approximately
$50.2 million (DM97.4  million) and $29.7 million  (DM61.7  million) at December
31,  1999 and  December  31,  2000,  respectively.  This  letter of  credit  was
collateralized by cash deposits.  The letter of credit was released in 2001 as a
result of the Company's payment of its related  obligations,  thus unencumbering
the collateralized cash deposits.


(18) COMMITMENTS AND CONTINGENCIES

(A) LEASES

            At December 31, 2000, the Company was committed under non-cancelable
operating and capital leases for the rental of office space,  network  locations
and communication systems.

            The Company's  future minimum  capital and operating  lease payments
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                 CAPITAL  OPERATING
                                                --------------------
<S>                                               <C>       <C>
2001.........................................     $24,088   $13,120
2002.........................................       5,552    11,757
2003.........................................       5,552     9,645
2004.........................................       5,552     8,081
2005.........................................       5,552     7,570
Thereafter...................................     103,863    37,797
                                                --------------------
      Total minimum lease payments...........     150,159   $87,970
                                                ====================

Less amounts representing interest...........     (81,231)
                                                ----------
                                                  $68,928
                                                ==========
</TABLE>

            Total rent expense amounted to $1.8 million,  $6.1 million and $14.6
million for the years ended December 31, 1998, 1999 and 2000, respectively.



                                       77
<PAGE>

(B) PURCHASE COMMITMENTS

            In connection  with the network build out and upgrades,  the Company
has entered into purchase  commitments to spend approximately $140 million,  the
majority  of which  the  Company  has  planned  to  finance  through  its  lease
facilities borrowings.

(C) LITIGATION

            From time to time,  the  Company  is subject  to  litigation  in the
normal course of business.  The Company  believes that any adverse  outcome from
litigation would not have a material adverse effect on its financial position or
results of operations.

(D) 401(K) PLANS

            The  Company  established  a 401(k) Plan on January 1, 1996 that was
available  to all of its  employees  for  enrollment  on the  first  day of the
quarter  following 90 days of service.  Under the Company plan,  employees  were
entitled to contribute up to 15 percent of their  salary.  At the  discretion of
management, the Company can make matching contributions to the 401(k) Plan up to
6% of the employees'  salary. The Company  contributed $.2 million,  $.4 million
and $0 for 1998, 1999 and 2000,  respectively.  On January 1, 2001, the original
Company plan was merged with the separate plan maintained by Destia prior to its
acquisition  by the  Company.  Under  the  terms of the new  combined  plan,  an
employee may  contribute  up to 15% of his or her annual base salary and, at the
discretion of management,  the Company may match,  in either common stock of the
Company or in cash,  up to 10% of the  contributions  made by the  employee.  In
connection with the merger of the two plans,  amounts held under the prior plans
were mapped to new investment options in the new plan.


(19) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
                                              1998     1999    2000
                                             -------------------------
                                                  (IN THOUSANDS)
<S>                                          <C>     <C>      <C>
Cash used in operating activities included:
Interest paid.............................   $31,560 $82,363  $167,006

Noncash investing and financing activities
included:
  Assets acquired under capital lease
  obligations.............................    30,359  18,335    37,923
  Common stock issued for network
  construction............................       --    4,500       --
  Conversion of preferred stock and
  convertible debentures..................       --   60,791       --
  Common stock issued for acquisitions....     3,375 560,702       --
  Value of options and warrants exchanged
  for options and warrants of Destia......       --  111,573
  Exchange of senior debt.................       --  205,790       --

</TABLE>


(20) CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

            The following is a summary of selected quarterly  financial data for
the years ended December 31, 2000 and 1999 (in thousands except per share data):


                                       78
<PAGE>
<TABLE>
<CAPTION>
                                             2000 QUARTERS ENDED
                               -------------------------------------------------
                                MARCH 31    JUNE 30   SEPTEMBER 30  DECEMBER 31
                               -------------------------------------------------
<S>                             <C>         <C>         <C>       <C>
Operating revenues.........     $180,678    $203,034    $200,549    $165,192 (a)
Restructuring and
impairment.................          571       3,359       1,168     894,901 (b)
Operating loss.............      (78,149)    (91,264)    (98,586) (1,092,099)(c)
Interest income............        7,346      10,813       8,243       5,579
Interest expense...........      (48,385)    (54,209)    (55,095)    (54,941)
Dividends on convertible
preferred securities.......       (1,780)     (9,946)    (10,507)    (10,721)
Net loss attributable to
common stockholders........     (120,968)   (144,606)   (155,945) (1,152,182)
                               -------------------------------------------------
Net loss per common share
attributable to common
stockholders...............       $(2.51)     $(2.87)     $(3.09)    $(22.80)
                               =================================================
</TABLE>


<TABLE>
<CAPTION>
                                             1999 QUARTERS ENDED
                               -------------------------------------------------
                                MARCH 31    JUNE 30   SEPTEMBER 30  DECEMBER 31
                               -------------------------------------------------
<S>                             <C>         <C>         <C>         <C>
Operating revenues.........     $61,641     $68,704     $80,032     $122,724 (d)
Restructuring and
impairment..................         --          --          --       13,206 (e)
Operating loss.............     (17,773)    (16,923)    (20,203)     (52,250)(f)
Interest income............       6,828       6,937       7,648        5,309
Interest expense...........     (26,166)    (35,498)    (35,681)     (40,064)
Dividends on convertible
preferred securities.......      (1,177)       (164)         --           --
Net loss attributable to
common stockholders........     (38,288)    (45,648)    (48,236)     (87,005)
                               -------------------------------------------------
Net loss per common share
attributable to common
stockholders...............      $(1.65)     $(1.77)     $(1.48)      $(2.40)
                               =================================================

</TABLE>

--------------
     (a) Operating  revenues  declined  during  the  quarter ended  December 31,
2000 as compared to the prior quarter primarily as a result of a decrease in the
amount of capacity sales revenues recognized.

     (b) Restructuring and impairment  charges  recognized in the fourth quarter
of 2000 consist  primarily  of  impairment  of goodwill  and certain  intangible
assets,  as well as the  write-down of certain  fixed assets.  These changes are
attributable  to the Company's  reassessment  of its ability to recover  certain
assets,  reflecting  changes in the  Company's  business and the dynamics of the
overall telecommunications environment.



                                       79
<PAGE>

     (c) Operating  loss  increased  during the fourth quarter of 2000 primarily
due to the decrease in the total amount of capacity sales  revenues  recognized,
the impairment of the Company's property and equipment at December 31, 2000 (See
"Note (14) Restructuring and Impairment"),  and an increase in selling,  general
and  administrative  expenses  related to  adjustments  to reserves for doubtful
accounts  and venture  investments  associated  with the 2001  restructuring  of
operations.

     (d) Operating revenues increased during the quarter ended December 31, 1999
as compared to the prior  quarter  primarily as a result of the  recognition  of
income  related to the  acquisition  of Destia and an  increase in the number of
revenue minutes billed from the third quarter to the fourth quarter of 1999.

     (e) Restructuring and impairment  charges  recognized in the fourth quarter
of  1999  represent  charges  related  to  the  streamlining  of  the  Company's
organizational  structure and the strategic repositioning of certain operations,
primarily as a result of the merger with Destia.

     (f) Operating  loss  increased  during the quarter ended  December 31, 1999
primarily  as a  result  of  increased  operating  expenses  (net  of  increased
operating  revenues)  related  to  the  Destia  acquisition,  restructuring  and
impairment charges, increased depreciation expense associated with the Company's
infrastructure  initiatives,  and goodwill  amortization expense associated with
the Destia acquisition.


(21) SEGMENT AND GEOGRAPHIC DATA

            As a  result  of  the  integration  of the  Company's  acquisitions,
commencing  with the  third  quarter  of 2000,  the  Company's  chief  operating
decision  maker began  monitoring  the Company's  operations  under two business
segments:  Wholesale/Consumer  Voice and  Broadband/Enterprise.  These  business
segments,  which were created following publication of the Company's 1999 annual
results,  were set up to market,  sell, service and support different classes of
customers.  This segment data is used by the Company's chief operating  decision
maker in his review of the  performance of these two business  segments,  and is
based on assumptions and  allocations  which he deems  reasonable.  Prior period
results have been reclassified to conform to the current period's  presentation.
Segment   data   reflects   the   acquisition   of  Destia,   included   in  the
Wholesale/Consumer  Voice segment for the year ended December 31, 2000, and also
the acquisition of Comms UK, included in the  Broadband/Enterprise  segment from
February 29, 2000, the date of acquisition.

            The Company markets and sells its products and services  through its
Wholesale/Consumer  Voice and  Broadband/Enterprise  segments.  The  information
below  summarizes  revenue and EBITDA(1) by segment for the years ended December
31 (in  thousands),  with the  exception  of EBITDA(1)  for 1998,  for which the
Company believes restatement is impractical:


                                       80
<PAGE>
<TABLE>
<CAPTION>

                                        1999                 2000
                           1998   -----------------------------------------
                         REVENUE   REVENUE  EBITDA(1)   REVENUE   EBITDA(1)
                       ----------------------------------------------------
<S>                      <C>       <C>      <C>       <C>       <C>
Wholesale/Consumer
  Voice...............    $85,447  $209,417 $(21,852) $478,065   $(98,132)
Broadband/Enterprise..     49,741   123,684    3,820   271,388    (58,799)
                       ----------------------------------------------------

Total.................   $135,188  $333,101 $(18,032) $749,453  $(156,931)
                       ====================================================

</TABLE>
-------------
     (1) As used herein,  EBITDA  consists of earnings before  interest,  income
taxes,  restructuring and impairment charges,  extraordinary loss,  dividends on
convertible  preferred  stock and  depreciation  and  amortization.  EBITDA is a
measure commonly used in the telecommunications industry to analyze companies on
the  basis of  operating  performance.  EBITDA  is not a  measure  of  financial
performance under generally accepted accounting  principles,  is not necessarily
comparable  to similarly  titled  measures of other  companies and should not be
considered as an alternative to net income as a measure of performance nor as an
alternative to cash flow as a measure of liquidity.

            The  information  below  summarizes  total  assets by  segment as of
December 31 (in thousands):

<TABLE>
<CAPTION>

                                    1999             2000
                               ---------------------------------
<S>                            <C>               <C>
Wholesale/Consumer Voice....   $1,316,916          $307,988
Broadband/Enterprise........      798,763         1,450,385
Corporate...................      588,418           397,014
                               ---------------------------------
Total.......................   $2,704,097        $2,155,387
                               =================================
</TABLE>

            The information below summarizes  revenue by geographic area for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>

                                                       1998     1999     2000
                                                   ----------------------------
<S>                                                <C>       <C>       <C>
Western Europe...................................   $62,946  $222,589  $458,612
North America....................................    56,172   100,925   283,589
Other............................................    16,070     9,587     7,252
                                                    ---------------------------
  Consolidated...................................  $135,188  $333,101  $749,453
                                                   ============================
</TABLE>



                                       81
<PAGE>

            The information  below  summarizes  long-lived  assets by geographic
area as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                           1999      2000
                                                        ----------------------
<S>                                                     <C>         <C>
Western Europe.........................................   $746,107  $1,286,629
North America (1)......................................  1,103,129     164,424
Latin America..........................................        201         356
                                                        ----------------------
  Consolidated......................................... $1,849,437  $1,451,409
                                                        ======================
</TABLE>

----------
(1)  Included in  long-lived  assets is net goodwill and other  identifiable
     intangibles  related to the  acquisition  of Destia of  approximately  $942
     million and $36 million as of December  31,  1999 and  December  31,  2000,
     respectively.


(22) REGULATORY MATTERS

            The Company is subject to  regulation  in countries in which it does
business.  The  Company  believes  that  an  adverse  determination  as  to  the
permissibility  of the Company's  services under the laws and regulations of any
such country would not have a material adverse long-term effect on its business.


(23) RELATED PARTY TRANSACTIONS

            On June 3,  1998,  the  Company  entered  into a Mutual  Cooperation
Agreement with Martin Varsavsky,  then a greater than ten percent stockholder of
the Company and Jazz Telecom  S.A.,  pursuant to which Mr.  Varsavsky  agreed to
lock-up his Viatel  shares for a  specified  period,  and the Company  agreed to
release any past claims  which the Company had against  either Jazz Telecom S.A.
or Mr. Varsavsky in exchange for their respective  release of any claims against
the Company.  On November 13, 1998,  Mr.  Varsavsky  entered into an  additional
lock-up  agreement with the Company  pursuant to which Mr. Varsavsky agreed that
he would not sell,  contract to sell,  announce an intention to sell,  pledge or
otherwise  dispose of his shares of the Company's common stock,  either directly
or  indirectly,  without the prior  written  consent of the Company  until after
August 12, 1999.

            During  1998 and 1999,  the Company  entered  into  agreements  with
Cignal Global  Communications,  Inc.  ("Cignal"),  pursuant to which the Company
sold network  transmission  systems.  Consideration  received was in the form of
650,000 and 350,000 shares of Cignal's common stock,  respectively.  The Company
recognized  $3.25  million  and  $1.75  million  of  revenue  in 1998 and  1999,
respectively,  the fair value of the network  transmission  systems.  In October
2000, Cignal was acquired by Priority Telecom.  The Company's Chairman and Chief
Executive Officer was a director of Cignal from 1998 to April 2000.

            During  1999,  the  Company   entered  into  agreements  with  Sonic
Telecommunications  International  ("Sonic")  pursuant to which the Company sold
network transmission  systems.  Consideration  received was in the form of notes


                                       82
<PAGE>

receivable  amounting to  approximately  $7.1 million at December 31, 1999.  The
Company  recognized $6.7 million of revenue in 1999,  which  represents the fair
value of the network transmission systems. In addition,  during 2000 the Company
purchased a total of $2.4  million of stock in Sonic for a  combination  of cash
and network capacity. Due to the unlikely collectibility of the notes receivable
and the doubtful  recoverability of the Company's investment,  the Company wrote
off these assets in the fourth quarter of 2000. The Company's Chairman and Chief
Executive Officer was a director of Sonic until March 2001.

            In  May  2000,  we  executed  definitive  agreements  relating  to a
strategic  alliance  with Intira  Corporation,  a provider of both  out-sourced,
electronic-commerce  solutions and complex Internet hosting services.  Under the
terms of this 10-year  alliance,  we were to provide  virtually  all of Intira's
trans-Atlantic  and  pan-European  bandwidth  requirements  and to also  provide
Intira with data center space at  in-service  network  centers.  In exchange for
these  services,  which were to be provided at specified  discounts  from market
rates,  we received  504,919 shares of Intira's common stock, an amount equal to
4.99%  of the  shares  of  common  stock  and  preferred  stock of  Intira  then
outstanding.  Under the terms of this arrangement,  Intira was to provide to us,
on a non-exclusive  basis,  back-office  and technical  expertise to allow us to
provide  advanced  hosting services to our existing and future customer base. On
September  12, 2000,  the Company sent a written  default  notice to Intira as a
result of their  failure to pay amounts  due in  connection  with the  Company's
development  of the data center  space on behalf of Intira.  We have since filed
suit to recover  damages of at least $26  million.  As a result,  we have denied
Intira access to our data center space,  and have been seeking and will continue
to seek  alternative  uses for such space.  From May 2000  through  December 19,
2000,  the  Company's  Chairman  and Chief  Executive  Officer was a director of
Intira.



(24)SUBSEQUENT EVENT

            On March 6, 2001,  the Company was advised by NASDAQ that if by June
4, 2001 the closing bid price of its common stock fails to be at least $5.00 for
at least 10 consecutive  trading days,  NASDAQ will commence a delisting  action
against the  Company.  A delisting  action by NASDAQ  would result in a material
adverse effect on the liquidity of the Company's common stock.




                          VIATEL, INC. AND SUBSIDIARIES
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>


                                           ADDITIONS
                                BALANCE     CHARGED                         BALANCE
                                   AT       TO COST                           AT
                               BEGINNING      AND                   OTHER   END OF
          DESCRIPTION          OF PERIOD    EXPENSES   RETIREMENTS CHANGES OF PERIOD
------------------------------------------------------------------------------------
<S>                              <C>         <C>          <C>       <C>      <C>
Reserves and allowances deducted
  from asset accounts:
Allowances for uncollectible
  accounts receivable
  Year ended December 31, 1998    1,041       4,225         544      --       4,722
  Year ended December 31, 1999    4,722      11,511       6,199      --      10,034
  Year ended December 31, 2000   10,034      81,176       1,379      --      89,831
Allowances for asset
  impairment
  Year ended December 31, 1998      560          --          --      --         560
  Year ended December 31, 1999      560          --          --      --         560
  Year ended December 31, 2000      560          --          --      --         560

</TABLE>

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURES

            None.



                                       83
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

            The following table sets forth certain  information  with respect to
our directors and executive officers as of April 9, 2001.

<TABLE>
<CAPTION>

NAME                             AGE                   POSITION
----                             ---    ----------------------------------------
<S>                              <C>    <C>
Michael J. Mahoney(1)(2)......   42     Chairman of the Board and Chief
                                        Executive Officer
William C. Murphy.............   46     President and Director
Allan L. Shaw(1)..............   37     Chief Financial Officer and Director
Francis J. Mount..............   59     Chief Technology Officer and Director
Lawrence G. Malone............   49     Executive Vice President, Managing
                                        Director Broadband
James P. Prenetta.............   38     Senior Vice President, General Counsel
                                        and Secretary
Wayne Myers...................   47     Senior Vice President, Business
                                        Development
Jan M. Sarro..................   46     Senior Vice President, Managing
                                        Director North America
David W. Robertson............   47     Senior Vice President, Managing
                                        Director Enterprise
Roger Paul....................   53     Senior Vice President, Engineering and
                                        Operations
Glenn K. Davidson.............   46     Senior Vice President, Corporate
                                        Communications and External Affairs
Ellen S. Rudin................   38     Senior Vice President, Global Real
                                        Estate Acquisition and Administration
John G. Graham(1)(2)(3).......   62     Director
Paul G. Pizzani(1)(2)(3)......   41     Director
Edward C. Schmults............   70     Director
John R. Muse..................   50     Director

</TABLE>

-----------
(1)   Member of the Directors Committee.
(2)   Member of the Compensation Committee.
(3)   Member of the Audit Committee.

            MICHAEL  J.  MAHONEY.  Mr.  Mahoney  has  served as Chief  Executive
Officer of Viatel  since  September  1997 and as its Chairman of the Board since
September  1998.  Mr.  Mahoney  has been a director of Viatel  since  1995.  Mr.
Mahoney was also Viatel's  President from September 1996 to February 2000, Chief
Operating  Officer  from  September  1996  to  September  1997,  Executive  Vice
President,  Operations  and  Technology  from  July 1994 to  September  1996 and
Managing  Director,  Intercontinental  from January 1996 to September 1996. From
August 1990 to June 1994,  Mr.  Mahoney was  employed  by SITEL  Corporation,  a
teleservices  company,  most recently as President,  Information Services Group.
From August 1987 to August 1990, Mr. Mahoney was employed by URIX Corporation, a
manufacturer of telecommunications  hardware and software, in a variety of sales
and marketing positions.



                                       84
<PAGE>

            WILLIAM C.  MURPHY.  Mr.  Murphy has served as  President  of Viatel
since  February  2000 and as a director  since March 2000.  From 1988 to January
2000, Mr. Murphy was employed by British Telecom,  most recently as its Director
of Customer  Service,  Sales and  Marketing,  United Kingdom  Corporate  Clients
Business  Division.  Before joining British  Telecom,  Mr. Murphy worked for ITT
WorldCom for eight years.

            ALLAN L. SHAW.  Mr.  Shaw has served as Chief  Financial  Officer of
Viatel since January 1996 and as a director  since June 1996. Mr. Shaw served as
Viatel's  Treasurer  from  September  1996 to April  1998  and as its  Corporate
Controller  from  November 1994 to December  1995.  From August 1987 to November
1994,  Mr.  Shaw was  employed  by  Deloitte & Touche  LLP,  most  recently as a
Manager.  Mr. Shaw is a Certified Public Accountant and a member of the American
Institute and New York State Society of Certified Public Accountants.

            FRANCIS J. MOUNT. Mr. Mount has served as Chief  Technology  Officer
of Viatel since March 2000 and as a director since June 1998.  Prior to assuming
such  position,  Mr.  Mount  served as Senior Vice  President,  Engineering  and
Network  Operations  from December 1997 to March 2000.  Prior to joining Viatel,
Mr.  Mount  was  Senior  Vice   President,   Business   Initiatives   of  Primus
Telecommunications  Group from October 1997 to December  1997,  responsible  for
Internet telephony,  European operations and network quality.  From June 1997 to
October 1997, Mr. Mount was Executive Vice President and Chief Operating Officer
of  Telepassport,  Inc. and was Vice  President and Chief  Operating  Officer of
Telepassport,  Inc.  from January 1996 to June 1997.  From 1990 to January 1996,
Mr.  Mount was employed by MCI,  most  recently as  Director,  Global  Technical
Services, responsible for international development, alliance management and all
technical  operations  and services  outside the United  States,  including  the
construction  and maintenance of large networks such as  Hyperstream,  "Concert"
and private networks for large accounts such as J.P. Morgan,  Procter and Gamble
and I.B.M.  From March 1967 to December  1989, Mr. Mount was employed by AT&T in
various positions.

            LAWRENCE  G.  MALONE.  Mr.  Malone  has  served  as  Executive  Vice
President,  Managing  Director  Broadband since January 2001.  Prior to assuming
such position,  Mr. Malone served as Executive Vice  President,  Wholesale Sales
and Marketing from March 2000 to January 2001, as Senior Vice President,  Global
Sales and Marketing  from May 1997 to March 2000, as Vice President and Managing
Director,  Intercontinental  from  September  1996 to May  1997  and as its Vice
President of Sales for  Carriers/Wholesale  from January 1995 to September 1996.
From  December  1993 to December  1994,  Mr.  Malone was employed by Frame Relay
Technologies,  a communications  equipment  manufacturer,  as Director of Sales.
From December 1987 to November 1993, Mr. Malone was employed by Republic  Telcom
Systems,  a voice/data  networking  company,  most recently as Vice President of
Sales and Marketing.

            JAMES P. PRENETTA.  Mr. Prenetta has served as Senior Vice President
and General Counsel of Viatel since March 2000. Prior to assuming such position,
Mr.  Prenetta  served as Vice President and General  Counsel from August 1999 to
March 2000. Mr. Prenetta has also served as Secretary since December 1999. Prior
to joining  Viatel,  Mr. Prenetta was a partner at the law firm of Kelley Drye &
Warren LLP from January 1998 to August 1999,  where he  specialized in a variety
of areas of corporate  representation,  including  securities,  venture capital,
finance and mergers and acquisitions. Prior to becoming a partner at Kelley Drye
& Warren LLP, Mr.  Prenetta was an associate at that firm from  November 1995 to
January  1998.  From  September  1987 to  November  1995,  Mr.  Prenetta  was an
associate at the law firm of Mudge Rose Guthrie Alexander & Ferdon. Since August
1999,  Mr.  Prenetta has been Of Counsel to the law firm of Kelley Drye & Warren
LLP.



                                       85
<PAGE>

            WAYNE MYERS. Mr. Myers has served as Senior Vice President, Business
Development of Viatel since January 2001.  Prior to assuming such position,  Mr.
Myers  served as  President,  European  Operations  of Viatel from March 2000 to
January 2001, as Vice President,  European Sales from January 1999 to March 2000
and as General  Manager,  European  Sales from July 1997 to January  1999.  From
February  1996 to June 1997,  Mr. Myers was Channel  Sales  Director of PSI Net.
From  November  1994 to  February  1996,  Mr.  Myers  was a Sales  Director  for
LDDS/WorldCom.  From June 1993 to November  1994, Mr. Myers was President of the
Gold Club, a direct mail Company. From February 1988 to June 1993, Mr. Myers was
employed by Cable & Wireless  Communications,  Inc. in various capacities,  most
recently as a National Account Director.

            JAN M.  SARRO.  Ms.  Sarro  has  served as  Senior  Vice  President,
Managing  Director  North America  since  January  2001.  Prior to assuming such
position,  Ms. Sarro served as President,  North American  Operations from March
2000 to January  2001,  as Vice  President,  Carrier  Sales from January 1999 to
March 2000, and as Viatel's General Manager,  Carrier Sales from January 1998 to
January 1999. Prior to joining Viatel,  Ms. Sarro was a Vice President of Primus
Telecommunications Group from October 1997 to December 1997. From September 1995
to  October  1997,  Ms.  Sarro  was  Vice  President,  Sales  and  Marketing  of
Telepassport,  Inc.  From 1987 to  August  1995,  Ms.  Sarro  served in  various
positions at a  predecessor  of  WorldCom,  most  recently as Vice  President of
Product  Development  and Carrier  Sales.  From 1983 until 1987,  Ms.  Sarro was
Director of Sales Administration and Customer Service for Argo Communications.

            DAVID  W.  ROBERTSON.  Mr.  Robertson  has  served  as  Senior  Vice
President,  Managing Director  Enterprise of Viatel since January 2001. Prior to
becoming Senior Vice President,  Managing  Director,  Enterprise,  Mr. Robertson
served as Managing Director,  Viatel Global  Communications,  Limited from March
2000 to January 2001.  Prior to joining Viatel through its  acquisition of Comms
UK, Mr. Robertson had been employed with AT&T for  approximately  eighteen years
where he served in a variety of senior  management  positions both in the United
States and the United Kingdom.

            ROGER  PAUL.   Mr.  Paul  has  served  as  Senior  Vice   President,
Engineering and Operations since March 2000. Prior to joining Viatel through its
acquisition of Comms UK, Mr. Paul had been employed by AT&T for more than twenty
years where he served in a variety of senior management positions, including the
Director of Network  Services,  in which he was  responsible for the development
and implementation of AT&T's first pan-European data network.

            GLENN K. DAVIDSON. Mr. Davidson has served as Senior Vice President,
Corporate  Communications  and  External  Affairs  since  March  2000.  Prior to
assuming  such  position,  Mr.  Davidson  served  as Vice  President,  Corporate
Communications  and External  Affairs  from August 1998 to March 2000.  Prior to
joining  Viatel,  Mr.  Davidson was  employed by the  Computer &  Communications
Industry  Association as Executive Vice President,  Chief Operating  Officer and
Corporate  Secretary  from  September  1995 to July 1998.  From November 1994 to
September  1995, Mr.  Davidson was an independent  consultant.  From May 1994 to
November 1994, Mr.  Davidson was the Campaign  Manager for Douglas  Wilder's bid
for election to the United States Senate.  From August 1991 to January 1994, Mr.
Davidson was employed by the Office of Governor,  Commonwealth of Virginia, most
recently as Chief of Staff.  From January 1990 to August 1991, Mr.  Davidson was
the Director of the Virginia Liaison Office, Commonwealth of Virginia. From 1985
to 1990,  Mr.  Davidson was employed by the Computer &  Communications  Industry
Association in various capacities.



                                       86
<PAGE>

            ELLEN S.  RUDIN.  Ms.  Rudin has  served as Senior  Vice  President,
Global Real Estate  Acquisition and  Administration  since March 2000.  Prior to
becoming  Senior Vice  President,  Ms. Rudin served as Vice President and Deputy
General  Counsel of Viatel from  September  1998 to March 2000 and as  Assistant
Secretary  from  September  1997 to March 2000.  Ms.  Rudin  served as Assistant
General  Counsel from October 1997 to September 1998, as Counsel from March 1997
to October  1997 and as a staff  attorney  from August 1996 to March 1997.  From
September  1987 to August 1996,  Ms. Rudin was  associated  with the law firm of
Wien, Malkin & Bettex.

            JOHN G. GRAHAM.  Mr. Graham has served as a director of Viatel since
June 1998.  Mr.  Graham has been the President  and Chief  Executive  Officer of
Utilities  Mutual  Insurance  Company  since May 1999,  a  position  he  assumed
following his retirement from GPU Service,  Inc. From December 1998 to May 1999,
Mr. Graham was an Executive Vice President of GPU Service, Inc. and from 1987 to
December  1998, was Senior Vice  President and Chief  Financial  Officer of GPU,
Inc.,  a domestic  and  international  electric  utility and  independent  power
generation  company.  Mr. Graham was employed by GPU in various other capacities
from 1976 to 1987.  From 1970 to 1976,  Mr. Graham was a partner in the law firm
of Ruprecht and Graham, Newark, New Jersey. From 1993 to 1997, Mr. Graham served
as a Director and Chairman of the Audit  Committee  of Edisto  Resources,  Inc.,
which was engaged in the  exploration,  production  and marketing of natural gas
and oil. Mr.  Graham is also a director  and chairman of the Audit  Committee of
CoHo Energy, Inc., of Dallas, Texas, an oil and gas production company.

            PAUL G.  PIZZANI.  Mr.  Pizzani  has served as a director  of Viatel
since April 1996.  Mr.  Pizzani is  currently a partner at eVentures  LLC.  From
November  1997 to March  1999,  Mr.  Pizzani  served as a Managing  Director  of
Wasserstein  Perella  Emerging  Markets L.P.  where he had been  employed  since
November 1997.  Prior to November  1997, Mr. Pizzani was associated  with COMSAT
Corporation  and its  subsidiaries  in various  capacities from November 1985 to
October 1997, most recently as Treasurer.

            EDWARD C. SCHMULTS.  Mr. Schmults has served as a director of Viatel
since  December  1999 and was a director of Destia prior to its  acquisition  by
Viatel.  Mr. Schmults served as Senior Vice President and General Counsel of GTE
Corporation  from  February  1984 to June 1994.  Mr.  Schmults  has held various
positions in government,  including Deputy Attorney General of the United States
and Under Secretary of the U.S. Treasury Department.  Mr. Schmults was a partner
with White & Case,  a law firm in New York City.  Mr.  Schmults is a Director of
Greenpoint  Financial  Corp., The Germany Fund, The Central European Equity Fund
and Deutsche Asset  Management VIT Funds.  Mr.  Schmults is also Chairman of the
Board  of  Trustees  of  The  Edna  McConnell  Clark  Foundation,  a  charitable
foundation.

            JOHN R. MUSE.  Mr.  Muse has been a Director  of Viatel  since March
2000.  Mr.  Muse is the Chief  Operating  Officer of Hicks,  Muse,  Tate & Furst
Incorporated,  a private investment firm. Before joining Hicks Muse in 1989, Mr.
Muse was with Prudential  Securities,  heading its  investment/merchant  banking
activities  for the  Southwest  region of the  United  States.  Prior to joining
Prudential  Securities,  from  1980 to 1984 Mr.  Muse  served  as a Senior  Vice
President and Director of Schneider,  Bernet & Hickman, Inc. and was responsible
for  its  investment  banking  activities.  Mr.  Muse  is  Chairman  of  Sunrise
Television Corp., Arena Brands Holding Corp. and Glass's  Information  Services.
Mr. Muse serves as a director of several portfolio companies in which Hicks Muse
has invested,  including Regal Cinemas Inc.,  Suiza Foods  Corporation,  Olympus
Real  Estate  4  Corporation,   LIN  Television   Corporation,   Premier  Brands
International  and Media  Capital.  Mr.  Muse also  serves as a director  of the
Southern  Methodist  University Edwin L. Cox School of Business and the Andersen
School of Management at the University of California at Los Angeles.




                                       87
<PAGE>

BOARD OF DIRECTORS

            Our   board  of   directors   currently   is   comprised   of  eight
directorships.  The board consists of three classes:  Class A, Class B and Class
C.  One  of  the  three  classes,  comprising  approximately  one-third  of  the
directors,  is  elected  each year to  succeed  the  directors  whose  terms are
expiring.  Class A directors were elected at our annual meeting of  stockholders
in 2000,  Class B directors  will be elected at our annual meeting to be held in
the year 2001 and Class C directors  will be elected at our annual meeting to be
held in the year 2002.  In connection  with our March 2000 $325 million  private
placement  of shares of  preferred  stock,  certain  holders of such shares were
granted the right to elect, as a class, one director to our board. This director
has been elected as a Class C director.  Directors  hold office until the annual
meeting for the year in which their terms expire and until their  successors are
elected and qualified unless, prior to that date, they have resigned, retired or
otherwise left office.

            Our board has established three standing committees,  a Compensation
Committee,  an Audit Committee and a Directors  Committee.  In January 2001, our
Board  also  established  a  Special  Committee.  The  current  members  of  the
Compensation  Committee  are Messrs.  Mahoney,  Graham and Pizzani;  the current
members of the Audit  Committee  are  Messrs.  Graham and  Pizzani;  the current
members  of the  Directors  Committee  are  Messrs.  Mahoney,  Shaw,  Graham and
Pizzani;  and the current members of the Special Committee are Messrs.  Mahoney,
Graham,  Pizzani,  Schmults and Muse. The Compensation Committee reviews general
policy  matters  relating to  compensation  and  benefits of our  employees  and
officers  and  administers  our  stock  incentive  plans.  The  Audit  Committee
recommends to our board the firm of independent  public accountants to audit our
financial  statements,  reviews with management and the independent  accountants
our  interim and  year-end  operating  results,  considers  the  adequacy of our
internal controls and audit procedures and reviews the non-audit  services to be
performed by the independent  accountants.  The Directors Committee searches for
and interviews  prospective  directors,  makes  recommendations to the our board
regarding the size of the board and  candidates to fill  vacancies on the board,
including  vacancies  created by reason of an  increase in the size of the board
and nominates  candidates for election to the board.  The Special  Committee has
been  established  to consider any strategic  proposals that may be presented to
the Company.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            Section 16(a) of the Securities Exchange Act requires our directors,
certain  officers and persons holding more than 10% of a registered class of our
equity  securities  to file  reports  of  ownership  and  reports  of changes in
ownership  with  the SEC and the  NASDAQ  National  Market.  Directors,  certain
officers and greater than 10%  stockholders are also required by SEC regulations
to furnish us with copies of all reports that they file.  Based on our review of
copies of such forms  provided  to us, we believe  that all filing  requirements
were  complied with during the fiscal year ended  December 31, 2000,  except for
one late Form 4 filing by Ellen Rudin, Senior Vice President, Global Real Estate
Acquisition and  Administration,  reporting one transaction.  Ms. Rudin's filing
was made one day late.

ITEM 11.  EXECUTIVE COMPENSATION

            The following table sets forth information  concerning  compensation
for  services  in all  capacities  awarded  to,  earned by, or paid to our chief
executive  officer  during  2000,  and our other  four most  highly  compensated
executive  officers  during  2000  whose  aggregate  cash  and  cash  equivalent
compensation exceeded $100,000.


                                       88
<PAGE>

<TABLE>
<CAPTION>
                                 ANNUAL COMPENSATION             LONG TERM COMPENSATION
                                 -------------------             ----------------------
                                                       OTHER
                                                       ANNUAL    RESTRICTED   SECURITIES       ALL
NAME AND PRINCIPAL                                  COMPENSATION   STOCK      UNDERLYING      OTHER
POSITION                YEAR  SALARY($) BONUS($)(1)    ($)(2)    AWARDS($)(3) OPTIONS(#)  COMPENSATION(4)
--------                ----  --------- ----------- ------------ ------------ ----------- --------------

<S>                     <C>   <C>       <C>             <C>      <C>            <C>           <C>
Michael J. Mahoney,..   2000  $562,497  $337,500        $--      $8,526,230     779,560       $    --
CHAIRMAN AND CHIEF      1999   367,833   425,000         --       1,885,937      90,474        10,000
EXECUTIVE OFFICER       1998   289,583   260,000                         --     360,771        10,000

Alfred West (5),.....   2000   400,008        --         --       1,058,760          --            --
VICE CHAIRMAN OF THE
BOARD OF DIRECTORS

William C. Murphy (6),  2000   395,000   451,813(7)      --       2,306,712     426,500            --
PRESIDENT


Lawrence G. Malone,..   2000   348,008   180,965         --       2,631,618     311,800            --
EXECUTIVE VICE          1999   232,850   245,000         --         693,289      42,642        10,000
PRESIDENT, WHOLESALE    1998   155,833   110,000         --              --     138,140         9,350
SALES AND MARKETING

Francis J. Mount,....   2000   300,000   180,000         --       2,631,618     311,800            --
CHIEF TECHNOLOGY        1999   228,417   250,000         --         693,289      42,642        10,000
OFFICER                 1998   175,000   107,500         --              --     122,500        10,000

</TABLE>

-----------

    (1)  Amounts  reported  for 1999  include  $39,000,  $43,720 and $50,000 for
         Messrs. Mahoney, Malone and Mount,  respectively,  taken in the form of
         shares of restricted common stock.

    (2)  The aggregate  value of the  perquisites  and other  personal  benefits
         received by each named  executive  has not been  reported  because such
         amount was below the SEC's required reporting threshold.

    (3)  Calculated  based on the fair market  value of our common  stock on the
         date the  restricted  stock was  granted  --  $43.00  per share for the
         shares  granted  on June 1,  1999,  $52.938  per share  for the  shares
         granted on January 3,  2000,  $44.688  per share for shares  granted on
         February 2, 2000 (shares at this price  granted  solely to Mr.  Murphy)
         and $1.625 per share for the shares  granted on December 27, 2000.  The
         stock  performance  criteria  associated  with the shares of restricted
         stock  granted in June 1999,  January 2000 and February  2000 vested on
         March 29, 2000 when our common  stock  traded at or above $60 per share
         for a twenty (20) consecutive  business day period. These shares remain
         subject to a minimum  two-year  employment  requirement  but would vest
         upon a change  of  control  or a  termination  of the  named  executive
         without  "cause" or upon his  resignation  for "good reason".  The fair
         market value of the shares of restricted stock held by Messrs. Mahoney,
         West,  Murphy,  Malone and Mount at December  31, 2000 was  $1,473,836,
         $74,380, $548,553, $445,808 and $445,808.



                                       89
<PAGE>

    (4)  Represents matching contributions under our 401(k) plan.

    (5)  Mr. West resigned as the Vice Chairman of our board in February 2001.

    (6)  Mr. Murphy began his employment with us in February 2000.

    (7)  Includes a one time  special  signing  bonus in the amount of  $200,000
         paid to Mr. Murphy when he commenced employment with Viatel.


STOCK OPTION GRANTS

            The  following  table sets  forth  information  regarding  grants of
options  to  purchase  common  stock  made by us during  the  fiscal  year ended
December 31, 2000 to each of the  executives  named in the summary  compensation
table. No stock appreciation rights were granted during 2000.

<TABLE>
<CAPTION>

                                 OPTION GRANTS IN 2000
                                   INDIVIDUAL GRANTS                    POTENTIAL REALIZABLE
                 ---------------------------------------------------        VALUE AT
                                PERCENT OF                                 ASSUMED ANNUAL
                  NUMBER OF       TOTAL                                 RATES OF STOCK PRICE
                 SECURITIES      OPTIONS                                  APPRECIATION FOR
                 UNDERLYING     GRANTED TO     EXERCISE                    OPTION TERM (3)
                   OPTIONS     EMPLOYEES IN     PRICE     EXPIRATION    -----------------------
NAME             GRANTED (#)     2000(1)     ($/SHARE)(2)    DATE          (5%)        (10%)
----             ----------    ------------  ------------ ----------     -------      -------
<S>              <C>               <C>          <C>         <C>       <C>          <C>
Michael J.
  Mahoney......  411,000(4)(5)     6.7%         $49.313     01/04/10  $12,746,211  $32,301,403
                 368,560(4)(6)     6.0            1.625     12/27/10      376,651      954,508


Alfred West....       --            --               --           --           --           --

William C.
  Murphy.......  189,000(4)(5)     3.1           49.313     01/04/10    5,861,397   14,853,930
                  50,000(4)(7)     0.8           14.00      07/31/10      440,226    1,115,620
                 187,500(4)(6)     3.1            1.625     12/27/10      191,616      485,593

Lawrence G.
  Malone.......  126,000(4)(5)     2.1           49.313     01/04/10    3,907,598    9,902,620
                 185,800(4)(6)     3.0            1.625     12/27/10      189,879      481,191

Francis J.
  Mount........  126,000(4)(5)     2.1           49.313     01/04/10    3,907,598    9,902,620
                 185,800(4)(6)     3.0            1.625     12/27/10      189,879      481,191

</TABLE>

-----------

(1)  We granted  options to purchase a total of  6,117,902  shares of our common
     stock during 2000.

(2)  The  exercise  price was equal to the fair  market  value of the  shares of
     common stock underlying the options on the grant date.



                                       90
<PAGE>

(3)  Amounts  reported in these columns  represent  amounts that may be realized
     upon exercise of options  immediately prior to the expiration of their term
     assuming the specified compounded rates of appreciation (5% and 10%) on the
     common stock over the term of the options.  These  assumptions are based on
     rules  promulgated  by the SEC and do not  reflect  our  estimate of future
     stock  price  appreciation.  Actual  gains,  if any,  on the  stock  option
     exercises  and common stock  holdings  are  dependent on the timing of such
     exercise and the future  performance  of our common stock.  There can be no
     assurance  that the  rates of  appreciation  assumed  in this  table can be
     achieved  or that the  amounts  reflected  will be  received  by the option
     holder.  See "Item 7.  Management's  Discussion  and  Analysis of Financial
     Condition and  Results of  Operations  -- Risk  Factors  -- We may file for
     bankruptcy protection;  holders of our common stock and preferred stock may
     be severely diluted or eliminated  entirely in connection with a bankruptcy
     filing or restructuring transaction."

(4)  Options granted to the executives named in the summary  compensation  table
     vest upon a change in control. See "--Employment Agreements."

(5)  Options  to  purchase   shares  of  our  common  stock  vested  and  became
     exercisable  as to  33.34%  of these  options  on  January  4, 2001 and the
     remainder will vest and become  exercisable on each successive  anniversary
     date thereafter to the extent of 33.33% of these options.

(6)  Options  to  purchase  shares of our  common  stock  will  vest and  become
     exercisable  as to 33.34% of these  options on  December  27,  2001 and the
     remainder will vest and become  exercisable on each successive  anniversary
     date thereafter to the extent of 33.33% of these options.

(7)  Options  to  purchase  shares of our  common  stock  will  vest and  become
     exercisable  as to  33.34%  of  these  options  on July  31,  2001  and the
     remainder will vest and become  exercisable on each successive  anniversary
     date thereafter to the extent of 33.33% of these options.





                                       91
<PAGE>

AGGREGATED OPTION EXERCISES IN 2000 AND FISCAL YEAR-END OPTION VALUES

            The following table sets forth  information  regarding the number of
options  exercised by each of the executives  named in the summary  compensation
table during 2000 and the year-end value of unexercised options held at December
31, 2000. No stock appreciation rights were exercised by these executives during
2000.
<TABLE>
<CAPTION>
                                             NUMBER OF SECURITIES        VALUE OF UNEXERCISED
                    SHARES                       UNDERLYING                 "IN-THE-MONEY"
                   ACQUIRED                     UNEXERCISED               OPTIONS AT FISCAL
                      ON         VALUE       OPTIONS AT FISCAL                YEAR-END ($)
                   EXERCISE    REALIZED         YEAR-END (#)           EXERCISABLE/UNEXERCISABLE
     NAME             (#)         ($)     EXERCISABLE/UNEXERCISABLE              (1)
     ----          --------    --------   -------------------------    -------------------------

<S>                 <C>      <C>               <C>                            <C>
Michael J.
  Mahoney.....      100,000  $6,408,800(2)     582,636/768,169                $0/771,765
                     13,333     647,824(3)
                     20,000     303,000(4)

Alfred West...           --          --             --/--                      0/0

William C.
  Murphy......           --          --             --/426,500                 0/392,625

Lawrence G.
  Malone......       23,333   1,385,980(5)     196,219/315,673                 0/389,065
                     22,223   1,305,601(5)
                     25,000   1,506,250(5)
                      7,000     418,250(5)

Francis J.
  Mount.......       13,335     865,108(6)      92,054/307,877                 0/389,065
                     20,333   1,308,937(6)
                      7,501     447,247(6)
                     12,842     603,574(6)
</TABLE>
---------------
(1)   Options  are  "in-the-money"  if the fair market  value of the  underlying
      securities  exceeds the  exercise  price of the  options.  The fair market
      value of our common stock  issuable  upon  exercise of options at December
      31, 2000 was $3.719.

(2)   The amount set forth represents the difference  between $69.938 per share,
      the fair market value of our common stock  issuable upon exercise of these
      options at March 9, 2000, and the exercise price of the option, multiplied
      by the applicable number of options.

(3)   The amount set forth represents the difference  between $54.438 per share,
      the fair market value of our common stock  issuable upon exercise of these
      options  at  March  30,  2000,  and  the  exercise  price  of the  option,
      multiplied by the applicable number of options.

(4)   The amount set forth  represents the difference  between $21.00 per share,
      the fair market value of our common stock  issuable upon exercise of these
      options at May 23, 2000, and the exercise price of the option,  multiplied
      by the applicable number of options.



                                       92
<PAGE>

(5)  The amount set forth  represents the difference  between $65.25 per share,
      the fair market value of our common stock  issuable upon exercise of these
      options  at  March  14,  2000,  and  the  exercise  price  of the  option,
      multiplied by the applicable number of options.

(6)  The amount set forth represents the difference  between $69.875 per share,
      the fair market value of our common stock  issuable upon exercise of these
      options at March 7, 2000, and the exercise price of the option, multiplied
      by the applicable number of options.


EMPLOYMENT AGREEMENTS

            We have executed employment agreements with Messrs. Mahoney, Murphy,
Malone and Mount,  pursuant to which Mr. Mahoney  serves as our Chief  Executive
Officer, Mr. Murphy serves as our President,  Mr. Malone serves as our Executive
Vice President,  Managing  Director  Broadband and Mr. Mount serves as our Chief
Technology Officer.  The term of the Mahoney employment  agreement extends for a
period  of three  years,  and the term of the  employment  agreement  of each of
Messrs. Murphy, Malone and Mount extends for a period of two years, in each case
unless  earlier  terminated  in  accordance  with the  terms  of the  respective
agreement.  Pursuant to the  respective  employment  agreements,  Mr. Mahoney is
entitled  to receive an annual  base  salary of at least  $450,000  (subject  to
adjustments),  Mr.  Murphy is  entitled  to receive an annual  base salary of at
least  $395,000  and  Messrs.  Malone and Mount are each  entitled to receive an
annual base salary of at least  $250,000,  subject,  in each case,  to increases
approved  from time to time by the  compensation  committee  of our board in its
sole discretion. In addition, Mr. Mahoney's is eligible for an annual cash bonus
payment  equal to 140% of his base salary,  Mr. Murphy is eligible for an annual
cash bonus payment equal to 100% of their base salary and each of Messrs.  Mount
and Malone are eligible for an annual cash bonus  payment  equal to 80% of their
respective base salaries,  in each case  multiplied by a bonus multiple  ranging
from 0.6 to 2.0  determined  based upon a comparison of actual  versus  budgeted
EBITDA  and  revenue  figures.  Each of  these  employment  agreements  also (1)
provides  that the  executive  is  entitled  to receive  annual  grants of stock
options or restricted stock in amounts to be determined by the our board (or any
committee  thereof)  in its sole and  absolute  discretion,  (2)  provides  that
following a change in control (defined therein), we will be obligated to pay the
executive an amount equal to the severance amount (defined  therein),  together,
in the case of Messrs. Mahoney,  Murphy, Mount and Malone, any applicable excise
tax gross up on such amount,  if the executive's  employment is terminated,  and
(3) with  respect to each  executive,  includes a  non-competition  covenant and
contains a prohibition on the solicitation of our employees.

            For purposes of each of the foregoing employment agreements, "change
in control"  is defined to mean such time as (1) a "person"  or "group"  (within
the  meaning of Sections  13(d) and  14(d)(2) of the  Securities  Exchange  Act,
becomes  the  ultimate  "beneficial  owner"  (as  defined  in Rule  13d-3 of the
Securities  Exchange Act) of more than 50% of the total voting power of our then
outstanding  voting stock on a fully diluted basis or (2) individuals who at the
beginning of any period of two consecutive  calendar years constituted our board
(together with any new directors whose election by our board or whose nomination
for election by our  stockholders  was approved by a vote of at least two-thirds
of the members of our board then still in office who either were  members of our
board at the  beginning  of this  period or whose  election  or  nomination  for
election  was  previously  so  approved)  cease for any reason to  constitute  a
majority of the members of our board then in office.




                                       93
<PAGE>

STOCK INCENTIVE PLANS

            At our stockholders' meeting in 2000, our stockholders  approved the
Viatel,  Inc.  2000  Stock  Incentive  Plan.  We had  previously  adopted,  with
stockholder  approval, an Amended Stock Incentive Plan, the Amended and Restated
1999  Flexible  Incentive  Plan  (previously  a Destia plan) and the Amended and
Restated 1996 Flexible  Incentive Plan (previously a Destia plan),  collectively
referred to as the "Plans". Pursuant to the Plans, "non-qualified" stock options
to acquire shares of common stock may be granted to our employees, directors and
consultants, and "incentive" stock options to acquire shares of common stock may
be  granted  to our  employees,  including  employee-directors.  The Plans  also
provide  for the grant of stock  appreciation  rights and  shares of  restricted
common stock to our employees, directors and consultants.

            The Plans are currently  administered by the compensation  committee
of our board.  The 2000 Stock  Incentive Plan allows for the issuance of up to a
maximum of 5,200,000  shares of common stock of which  1,487,500  shares  remain
available for grant. In addition, there are 641,222 shares that remain available
for grant  under the other  Plans.  As a result of our  acquisition  of  Destia,
virtually  all options  granted by Destia  prior to the merger  under either the
1999 Flexible  Incentive  Plan and the 1996 Flexible  Incentive  Plan vested and
became  exercisable.  Any options granted under the 1999 Flexible Incentive Plan
and the 1996 Flexible Incentive Plan after our acquisition of Destia are subject
to  accelerated  vesting only as described  below.  Under the Plans,  the option
price of any  incentive  stock option may not be less than the fair market value
of a share of common  stock on the date on which  the  option  is  granted.  The
option  price of a  non-qualified  stock option may be less than the fair market
value on the date the non-qualified  stock option is granted if our board or the
compensation  committee  so  determines.  An  incentive  stock option may not be
granted to a "ten percent  stockholder" (as that term is defined in Section 422A
of the Internal  Revenue  Code of 1986)  unless the  exercise  price is at least
110.0% of the fair market  value of the common  stock and the term of the option
may not exceed five years from the date of grant.  Each option granted  pursuant
to the Plans is  evidenced  by a written  agreement,  which  contains the terms,
provisions  and  conditions  of the grant.  Stock options may not be assigned or
transferred  during the lifetime of the holder  except as may be required by law
or pursuant to a qualified domestic  relations order.  Common stock subject to a
restricted stock purchase or bonus agreement is transferable only as provided in
that  agreement.  The maximum term of each stock option granted to persons other
than ten percent stockholders is ten years from the date of grant.

            For options to qualify as incentive  stock  options,  the  aggregate
fair market value,  determined on the date of grant,  of the shares with respect
to which the incentive  stock options are  exercisable for the first time by the
grantee  during any  calendar  year may not exceed  $100,000.  Payment by option
holders  upon  exercise of an option may be made in cash or, with the consent of
the compensation committee, in whole or in part,

            o   with shares of common stock,

            o   by  irrevocable  direction to an approved  securities  broker to
                sell shares and deliver all or a portion of the proceeds to us,

            o   by delivery of a promissory  note with any  provisions  that our
                board determines appropriate, or

            o   in any combination of these three possibilities.



                                       94
<PAGE>

            In addition, our compensation committee, in its sole discretion, may
authorize  the surrender by an optionee of all or part of an  unexercised  stock
option and  authorize a payment in  consideration  thereof of an amount equal to
the  difference  between the aggregate fair market value of the shares of common
stock  subject to the stock option and the  aggregate  option price per share of
such common stock.  In the discretion of our board,  this payment may be made in
cash,  shares of common  stock with a fair market value on the date of surrender
equal to the payment amount or some combination of the two.

            The Plans provide that  outstanding  options,  restricted  shares of
common  stock or stock  appreciation  rights vest in their  entirety  and become
exercisable,  or with respect to  restricted  common  stock,  are released  from
restrictions  on transfer and  repurchase  rights,  in the event of a "corporate
transaction," unless assumed by the successor  corporation.  For purposes of the
Plans,    a   corporate    transaction    includes   any   of   the    following
stockholder-approved transactions to which we are a party:

            o   a merger  or  consolidation  in  which we are not the  surviving
                entity,  other than a transaction the principal purpose of which
                is to change the state of our incorporation, or a transaction in
                which  our  stockholders  immediately  prior  to the  merger  or
                consolidation hold (by virtue of securities received in exchange
                for  their  shares in us)  securities  of the  surviving  entity
                representing  more than 50.0% of the total  voting power of that
                entity immediately after the transaction,

            o   the sale,  transfer or other disposition of all or substantially
                all of our assets unless our stockholders  immediately  prior to
                the  sale,  transfer  or other  disposition  hold (by  virtue of
                securities   received  in  exchange  for  their  shares  in  us)
                securities  of the  purchaser or other  transferee  representing
                more  than  50.0%  of the  total  voting  power  of that  entity
                immediately after the transaction, or

            o   any reverse  merger in which we are the surviving  entity but in
                which our  stockholders  immediately  prior to the merger do not
                hold (by virtue of their shares in us held immediately  prior to
                such transaction)  securities of us representing more than 50.0%
                of our total voting power immediately after the transaction.


EMPLOYEE STOCK PURCHASE PLAN

            We have adopted an Employee Stock  Purchase Plan, the "ESPP",  which
was approved by our  stockholders  at our 2000 annual meeting of stockholders in
September 2000.

            Under  the ESPP,  eligible  employees  are  permitted  to  authorize
payroll  deductions  of 1% to 20% of his or her base  salary for the  purpose of
purchasing  shares  of our  common  stock.  The  amounts  deducted  during  each
six-month  period are  accumulated  and, at the end of such period,  are used to
purchase  shares of our common  stock at the lower of 85% of the closing  market
price on the first  trading day of the relevant  participation  period or 85% of
the closing market price on the final day of the relevant period.

            The  ESPP,  which is  administered  by the  compensation  committee,
allows for the  issuance of up to a maximum of five hundred  thousand  (500,000)
shares  of  common  stock.  Under the  ESPP,  a  participant  has no rights as a
stockholder  until  he or she  acquires  the  stock  at the end of the  relevant
participation period.



                                       95
<PAGE>

            The  ESPP  provides  that  in  the  event  of  any   reorganization,
recapitalization,  stock split, reverse stock split, stock dividend, combination
of shares, merger, consolidation,  offering of rights or other similar change in
our capital  structure,  the administrator of the plan may make such adjustment,
if any, as it deems  appropriate  in the number,  kind and purchase price of the
shares available for purchase under the plan and in the maximum number of shares
that may be issued under the plan,  subject to the approval of our board.  If we
are acquired in a transaction  whereby we are not the surviving entity or all or
substantially  all of our assets are acquired,  the administrator of the plan is
permitted  to  determine a plan  termination  date.  This date must  precede the
expected effective date of such acquisition by not more than sixty (60) days. In
the  event  the  ESPP is  terminated  and  the  acquisition  transaction  is not
consummated,   the  plan  may  be  reactivated  on  a  date  determined  by  the
compensation committee.

            The ESPP is designed to qualify as an "employee stock purchase plan"
within the meaning of Section 423 or any  successor  provisions  of the Internal
Revenue Code and related regulations.

            Due to the current market conditions, we elected to suspend the ESPP
effective March 15, 2001.


MANAGEMENT SEVERANCE PLAN

            On December 8, 1999,  we  implemented a Management  Severance  Plan,
which provides that any of our employees who hold the title of director or above
and who are selected to participate in the plan are entitled to receive at least
six months base salary and accelerated  vesting of options and restricted  stock
in the event the  employee is  terminated  without  "cause" or resigns for "good
reason" within eighteen (18) months following a change in control of Viatel. For
purposes of this plan,  a  resignation  for "good  reason"  includes a voluntary
termination  due  to a  reduction  in  the  employee's  base  pay  and a  forced
relocation  of the  employee to a site in excess of sixty (60) miles from his or
her worksite.  For purposes of this plan, change in control has the same meaning
described   above  under   "Employment   Agreements."   Decisions  of  the  plan
administrator  concerning eligibility and entitlement to benefits under the plan
are final and binding on all parties.


2001 RETENTION PROGRAM

            Recognizing  the  importance  of retaining  our  talented  employees
during our current  situation,  in March 2001 the special committee of the board
approved a  company-wide  retention  bonus program that is designed to recognize
the  service,  dedication  and loyalty of our  employees  during  this  critical
period.  Under  this  program,  which  was  developed  with  the  assistance  of
PricewaterhouseCoopers,  each employee will receive a specified bonus in three
increments  -- 25% on April 30, 2001,  25% on August 31, 2001 and the  remaining
50% on December 31, 2001.  Under this program,  bonuses  totaling  approximately
$12.0  million  have been  allocated to our  employees in the United  States and
Europe. As part of this program,  we also modified our existing severance policy
to provide  that  should an  employee be  terminated  prior to a scheduled  2001
retention  bonus,  such employee will receive the next  scheduled  payment as an
additional part of his or her severance benefit.




                                       96
<PAGE>

COMPENSATION OF DIRECTORS

            We pay an annual  fee to  non-employee  directors  in the  amount of
$30,000 in cash,  paid in quarterly  installments  and 1,000 options to purchase
shares of common stock. In addition,  non-employee directors also receive $1,200
for each board  meeting  attended  and held  separately  and $600 for each board
meeting or committee  meeting  participated  in by telephone.  Directors who are
also our employees are not separately  compensated for serving on our board. All
directors are reimbursed for out-of-pocket  expenses incurred in attending board
and committee meetings.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

            During 2000, the members of our compensation  committee were Messrs.
Mahoney,  Pizzani and Graham. Mr. Mahoney is the chairman of our board and Chief
Executive  Officer.  None of our  executive  officers  currently  serves  on the
compensation  committee of another entity or any other committee of the board of
another entity performing  functions similar to the compensation  committee.  No
interlocking relationships exist between our board or our compensation committee
and the board of directors or compensation committee of any other company.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

            The  following  table sets forth certain  information  regarding the
beneficial  ownership of our common  stock,  as of March 28,  2001,  by (1) each
person known to us to own beneficially more than 5% of our outstanding shares of
common stock,  (2) each of our  directors,  (3) each person named in the summary
compensation  table, and (4) all of our executive  officers and directors,  as a
group. All information  with respect to beneficial  ownership has been furnished
to us by the respective stockholders.

<TABLE>
<CAPTION>
                                                AMOUNT AND NATURE
NAME AND ADDRESS OF                                OF BENEFICIAL      PERCENTAGE
BENEFICIAL OWNER                                    OWNERSHIP(1)       OF CLASS
-------------------                             -----------------     ----------

<S>                                                  <C>                 <C>
College Retirement Equities Fund(2).........         3,142,047           6.1%
730 Third Avenue
New York, NY 10017
Alfred West(3)..............................         3,502,144           6.8
Michael J. Mahoney(4).......................         1,212,883           2.3
William C. Murphy(4)........................           210,513            *
Allan L. Shaw(4)............................           423,281            *
Lawrence G. Malone(4).......................           329,665            *
Francis J. Mount(4).........................           219,936            *
Edward C. Schmults(4).......................             8,202            *
John G. Graham(4)...........................             3,800            *
Paul G. Pizzani(4)..........................             5,300            *
John R. Muse(5).............................                --            *
Thomas O. Hicks(6)..........................         4,608,677           8.9
200 Crescent Court
Dallas, Texas 75201
Chase Equity Associates, LLC(7).............         3,449,956           6.7
380 Madison Avenue
12th Floor
New York, New York 10017
All directors and executive
officers as a group (16 persons)............         3,012,400           5.7

</TABLE>
-----------------
*     Represents  beneficial ownership of less than 1% of our outstanding shares
      of common stock.



                                       97
<PAGE>

(1)   Beneficial  ownership is determined  in  accordance  with the rules of the
      SEC. In computing the number of shares  beneficially owned by a person and
      the percentage ownership of that person, shares of common stock subject to
      options and warrants held by that person that are currently exercisable or
      exercisable within 60 days of March 28, 2001 are deemed outstanding.  Such
      shares,  however,  are not deemed outstanding for the purpose of computing
      the percentage  ownership of any other person.  Except as indicated in the
      footnotes  to this  table,  the  stockholder  named in the  table has sole
      voting and investment  power with respect to the shares set forth opposite
      such  stockholder's  name. Except as otherwise  indicated,  the address of
      each person listed in the table is c/o Viatel, Inc., 685 Third Avenue, New
      York, New York 10017. Attn: General Counsel.

(2)   Includes 900 shares held by TIAA Separate Account VA-1; 95,529 shares held
      by TIAA-CREF Mutual Funds;  12,121 shares held by TIAA-CREF  Institutional
      Mutual Funds; 8,641 shares held by TIAA-CREF Life Funds and 44 shares held
      by NYS College Choice Tuition LLC. The amount shown assumes  conversion of
      150,000  shares  of  Viatel  Financing  Trust I 7 3/4%  trust  convertible
      preferred securities beneficially owned by such entities.

(3)   The amount  shown for Mr. West is based upon a Schedule 13G filed on March
      1, 2001 and includes  397,593 shares held by AT Econ Ltd.  Partnership and
      39,297 shares held by AT Econ Ltd. Partnership No. 2.

(4)   Includes shares of common stock which these  individuals have the right to
      acquire  through the exercise of options within 60 days of March 28, 2001,
      as follows: Michael J. Mahoney,  582,636; William C. Murphy, 63,013; Allan
      L. Shaw, 261,911;  Lawrence G. Malone, 196,219;  Francis J. Mount, 92,054;
      Edward C. Schmults,  5,673;  John G. Graham,  1,796;  and Paul G. Pizzani,
      1,796.

(5)   Mr. Muse,  one of our  directors,  was appointed to our board on behalf of
      the  holders  of our  Series B-1 7.50%  cumulative  convertible  preferred
      stock.

(6)   The  amount  shown for Mr.  Hicks is based  upon a  Schedule  13D filed on
      August 8, 2000 by Mr. Hicks,  Chief Executive Officer of Hicks, Muse, Tate
      & Furst  Incorporated,  Hicks,  Muse, Tate & Furst Europe Fund, L.P.; HMEU
      Viatel  Qualified Fund,  LLC; HMEU Viatel Private Fund, LLC; Hicks,  Muse,
      Tate & Furst Europe  Private  Fund,  L.P.;  HMEU GP LLC;  HMEU Viatel I-EQ
      Coinvestors,   LLC;  HMEU  I-EQ  Coinvestors,   L.P.;  HMEU  Viatel  I-SBS
      Coinvestors, LLC; HMEU I-SBS Coinvestors, L.P.; HMEU Intermediate Partners
      I-C, L.P.; HM Viatel PG Europe,  LLC; HM PG Europe I, C.V.; HMEU Fund I-C,
      Inc.; HMTF Bridge Viatel, LLC; HMTF Bridge Partners, L.P.; and HMTF Bridge
      Partners,  LLC. The amount shown  assumes  conversion of all of our Series
      B-1 7.50% cumulative  convertible  preferred stock  beneficially  owned by
      such  entities.  The  shares  shown  are  subject  to  shared  voting  and
      investment power.

(7)   The amount shown  assumes  conversion  of all Series B-2 7.50%  cumulative
      convertible preferred stock beneficially owned by Chase Equity Associates,
      LLC.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            Through  August 1999,  James  Prenetta,  Senior Vice  President  and
General Counsel of Viatel, was a partner at the law firm of Kelley Drye & Warren
LLP, Viatel's U.S. general outside counsel. Mr. Prenetta is currently Of Counsel
to Kelley Drye & Warren LLP and, in such capacity,  continues to receive certain
payments from such firm.



                                       98
<PAGE>

            Alfred West borrowed  approximately $234,000 from Destia pursuant to
unsecured,  interest  bearing notes,  repayable upon demand.  The full amount of
this borrowing was foregone in connection  with Mr. West's  separation  from the
Company in February 2001.

            On February 1, 2000, we entered into a securities purchase agreement
to issue and sell to entities affiliated with HMTF Europe Acquisition Corp., for
a  purchase  price of  $162.5  million,  shares  of our  Series  B-1  cumulative
convertible  preferred stock. The Series B-1 preferred stock is convertible into
our common  stock at any time at the option of the  holders.  In  addition,  the
Series B-1  preferred  stock is  redeemable,  in whole or in part, by us, at any
time on or after the fifth  anniversary  date of it  issuance  and is subject to
mandatory  redemption  on the  fifteenth  anniversary  of  its  issue  date.  In
connection  with the placement of the Series B-1 preferred  stock,  we agreed to
provide  HMTF Europe  Acquisition  Corp.  and its  affiliates  with the right to
appoint one director.  John R. Muse was elected to our board as a result of this
agreement.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM  8-K

(A)  1. Financial Statements.

            The  financial  statements  are  included in Part II, Item 8 of this
            report.

     2. Financial  Statement Schedules and  Supplementary  Information  Required
        to  be Submitted.

            Any required financial  statement schedules are included in Part II,
            Item 8 of this report.

(B)  Report on Form 8-K.

     Viatel filed a Report on Form 8-K dated October 5, 2000, pursuant to Item 5
     thereof.

     Viatel filed a Report on Form 8-K dated October 25, 2000,  pursuant to Item
     5 thereof.

     Viatel filed a Report on Form 8-K dated November 8, 2000,  pursuant to Item
     5 thereof.

(C)  Index to Exhibits.

     The following is a list of all Exhibits filed as part of this report:


EXHIBIT
NUMBER                                 DESCRIPTION

2.1          Agreement  and Plan of Merger,  dated as of August 27, 1999, by and
             among  Viatel,   Inc.,   Viatel   Acquisition   Corp.   and  Destia
             Communications,  Inc.  (incorporated herein by reference to Exhibit
             2.1 to Viatel, Inc.'s Registration  Statement on Form S-4, filed on
             October 15, 1999,  Registration No. 333-89143)  ("VIATEL'S  OCTOBER
             1999 FORM S-4").



                                       99
<PAGE>

2.2          Agreement  for the sale and  purchase  of the entire  issued  share
             capital  of AT&T  Communications  (UK)  Limited,  by and among AT&T
             Communications Services  International,  Inc., Global Card Holdings
             Inc., Viatel, Inc. and Viatel Global Communications  Limited, dated
             February 29, 2000 (incorporated  herein by reference to Exhibit 2.2
             to  Viatel,  Inc.'s  Form 8-K,  filed on March 13,  2000,  File No.
             000-21261).

3.1(i)       Amended and Restated  Certificate of Incorporation of Viatel,  Inc.
             (incorporated  herein by reference to Exhibit  3.1(i)(b) to Viatel,
             Inc.'s  Registration   Statement  on  Form  S-1,  Registration  No.
             333-09699,   filed  on  August  7,  1996  ("VIATEL'S  FORM  S-1"));
             Certificate of Designations, Preferences and Rights of 10% Series A
             Redeemable  Convertible  Preferred Stock,  $.01 par value per share
             (incorporated  herein by  reference  to Exhibit  3(i)(b) to Viatel,
             Inc.'s Registration  Statement on Form S-4, filed on July 10, 1998,
             File No.  333-58921  ("VIATEL'S  1998 FORM S-4"));  Certificate  of
             Amendment to Viatel,  Inc.'s  Amended and Restated  Certificate  of
             Incorporation  (incorporated  herein by reference to Exhibit 4.9 to
             Viatel,  Inc.'s quarterly report on Form 10-Q for the quarter ended
             September 30, 1998,  File No.  000-21261);  Second  Certificate  of
             Amendment to Viatel,  Inc.'s  Amended and Restated  Certificate  of
             Incorporation  (incorporated  herein by reference to Exhibit 3.1(i)
             to Viatel's October 1999 Form S-4);  Certificate of Designations of
             Series A Junior  Participating  Preferred  Stock  of  Viatel,  Inc.
             (incorporated  herein by  reference  to Exhibit  3(i)(2) to Viatel,
             Inc.'s Form 8-K, filed on December 29, 1999,  File No.  000-21261);
             Certificate  of  Designations,  Preferences  and  Rights  of  7.50%
             Cumulative   Convertible   Preferred  Stock  Series  B-1  Due  2015
             (incorporated  herein by  reference  to  Exhibit  3.1(i) to Viatel,
             Inc.'s Annual  Report on Form 10-K for the year ended  December 31,
             1999, filed on April 14, 2000, File No.  000-21261  ("VIATEL'S 1999
             Form 10-K"); Certificate of Designations, Preferences and Rights of
             7.50%  Cumulative  Convertible  Preferred Stock Series B-2 Due 2015
             (incorporated  herein by  reference  to Exhibit  3.1(i) to Viatel's
             1999 Form 10-K); Certificate of Designations,  Preferences;  Rights
             of Convertible  Preferred  Stock Series C  (incorporated  herein by
             reference to Exhibit 3.1(i) to Viatel's 1999 Form 10-K);  and Third
             Certificate  of  Amendment to Viatel,  Inc.'s  Amended and Restated
             Certificate of Incorporation  (incorporated  herein by reference to
             Exhibit 4.23 to Viatel, Inc.'s Registration  Statement on Form S-8,
             Registration No. 333-50460, filed on November 22, 2000).

3.1(ii)      Third  Amended and Restated  Bylaws of Viatel,  Inc.  (incorporated
             herein by  reference  to Exhibit  3.1(ii) to Viatel's  October 1999
             Form S-4).

3.1(iii)     Certificate of Trust of Viatel  Financing  Trust I, dated March 30,
             2000  (incorporated  herein by  reference  to Exhibit  3.1(iii)  to
             Viatel,  Inc.'s  Quarterly  Report on Form  10-Q for the  quarterly
             period ended March 31, 2001, File No.  000-21261,  filed on May 14,
             2000 ("VIATEL'S MARCH 2000 FORM 10-Q")).

3.1(iv)      Amended and Restated Declaration of Trust of Viatel Financing Trust
             I, dated and effective as of April 12, 2000 (incorporated herein by
             reference to Exhibit 3.1(iv) to Viatel's March 2000 Form 10-Q).

4.1          Specimen of Viatel common stock certificate (incorporated herein by
             reference to Exhibit 4.4 to Viatel's Form S-1).



                                      100
<PAGE>

4.2          Indenture,  dated as of April 8, 1998, between Viatel, Inc. and The
             Bank of New York,  as Trustee,  relating to Viatel,  Inc.'s  12.50%
             Senior  Discount  Notes Due 2008  (including  form of 12.50% Senior
             Discount Note) (incorporated  herein by reference to Exhibit 4.1 to
             Viatel's 1998 Form S-4).

4.3          Indenture,  dated as of April 8, 1998, between Viatel, Inc. and The
             Bank of New York,  as Trustee,  relating to Viatel,  Inc.'s  11.25%
             Senior  Notes  Due 2008  (including  form of  11.25%  Senior  Note)
             (incorporated  herein by reference to Exhibit 4.2 to Viatel's  1998
             Form S-4).

4.4          Indenture,  dated as of April 8, 1998, among Viatel, Inc., The Bank
             of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft,  as
             German Paying Agent and  Co-Registrar,  relating to Viatel,  Inc.'s
             12.40% Senior  Discount  Notes Due 2008  (including  form of 12.40%
             Senior Discount Note) (incorporated  herein by reference to Exhibit
             4.3 to Viatel's 1998 Form S-4).

4.5          Indenture,  dated as of April 8, 1998, among Viatel, Inc., The Bank
             of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft,  as
             German Paying Agent and  Co-Registrar,  relating to Viatel,  Inc.'s
             11.15%  Senior Notes Due 2008  (including  form 11.15% Senior Note)
             (incorporated  herein by reference to Exhibit 4.4 to Viatel's  1998
             Form S-4).

4.6          Indenture, dated as of March 19, 1999, between Viatel, Inc. and The
             Bank of New York,  as  Trustee,  relating  to Viatel,  Inc.'s  U.S.
             dollar  denominated 11.50% Senior Notes Due 2009 (including form of
             11.50%  Senior  Dollar Note)  (incorporated  herein by reference to
             Exhibit 4.9 to Viatel,  Inc.'s Registration  Statement on Form S-3,
             filed on February 12, 1999, File No. 333-72309  ("VIATEL'S FEBRUARY
             1999 FORM S-3")).

4.7          Indenture, dated as of March 19, 1999, between Viatel, Inc. and The
             Bank of New York,  as  Trustee,  relating  to Viatel,  Inc.'s  Euro
             denominated  11.50% Senior Notes due 2009 (including form of 11.50%
             Senior Euro Note) (incorporated herein by reference to Exhibit 4.10
             to Viatel's February 1999 Form S-3).

4.8          Indenture, dated as of July 1, 1997, between Destia Communications,
             Inc.  and The Bank of New  York,  as  Trustee,  relating  to Destia
             Communications  Inc.'s 13.50% Senior Notes due 2007 (including form
             of 13.50% Senior Note) (incorporated herein by reference to Exhibit
             4.5 to Destia  Communication's  Registration Statement on Form S-4,
             File No. 333-47711 filed on August 7, 1997).

4.9          Indenture,  dated as of December 8, 1999, between Viatel,  Inc. and
             The Bank of New York, as Trustee,  relating to Viatel,  Inc.'s U.S.
             dollar  denominated 11.50% Senior Notes due 2009 (including form of
             11.50%  Senior  Dollar Note)  (incorporated  herein by reference to
             Exhibit 4.13 to Viatel, Inc.'s Current Report on Form 8-K, File No.
             000-21261, filed on December 9, 1999).

4.10         Rights  Agreement,  dated as of December 6, 1999,  between  Viatel,
             Inc. and The Bank of New York, as Rights Agent (incorporated herein
             by reference to Viatel, Inc.'s Registration  Statement on Form 8-A,
             File No. 000-21261, filed on December 24, 1999).



                                      101
<PAGE>

4.11         Indenture, dated as of April 20, 2000, between Viatel, Inc. and The
             Bank of New York,  as Trustee,  relating  to Viatel  Inc.'s 12 3/4%
             Senior  Notes  Due 2008  (including  form of 12 3/4%  Senior  Note)
             (incorporated herein by reference to Exhibit 4.11 to Viatel's March
             2000 Form 10-Q).

4.12         Indenture, dated as of April 12, 2000, between Viatel, Inc. and The
             Bank of New York,  as Trustee,  relating  to Viatel,  Inc.'s 7 3/4%
             Convertible Junior Subordinated Debentures  (incorporated herein by
             reference to Exhibit 4.12 to Viatel's March 2000 Form 10-Q).

4.13         First  Supplemental  Indenture,  dated as of June 19, 2000, between
             Viatel,  Inc.  and The Bank of New York,  as Trustee  (incorporated
             herein by reference to Exhibit 4.18 to Viatel,  Inc.'s Registration
             Statement on Form S-3,  Registration No.  333-40692,  filed on June
             30, 2000).

4.14         Amendment  to  Rights  Agreement,  dated as of  February  1,  2000,
             between  Viatel,  Inc.  and The Bank of New York,  as Rights  Agent
             (incorporated herein by reference to Exhibit 4.16 to Viatel, Inc.'s
             Quarterly  Report on Form 10-Q for the quarterly  period ended June
             30, 2000, File No.  000-21261,  filed on August 15, 2000 ("VIATEL'S
             JUNE 2000 FORM 10-Q")).

4.15         Amendment No. 2 to Rights  Agreement  between Viatel,  Inc. and The
             Bank of New York, as Rights Agent (incorporated herein by reference
             to Exhibit 4.17 to Viatel, Inc.'s Quarterly Report on Form 10-Q for
             the quarterly period ended September 30, 2000, File No.  000-21261,
             filed on November 14, 2000).

10.1         Stockholder  Agreement,  dated as of August 27, 1999,  among Alfred
             West, AT Econ Limited Partnership,  AT Econ Ltd. Partnership No. 2,
             Viatel,  Inc., Viatel Acquisition Corp. and Destia  Communications,
             Inc.  (incorporated herein by reference to Exhibit 10.1 to Viatel's
             October 1999 Form S-4).

10.2         Stockholder  Agreement,  dated as of August 27, 1999,  among Steven
             West, SS Econ Limited Partnership,  SS Econ Ltd. Partnership No. 2,
             Viatel,  Inc., Viatel Acquisition Corp. and Destia  Communications,
             Inc.  (incorporated herein by reference to Exhibit 10.2 to Viatel's
             October 1999 Form S-4).

10.3         Stockholder  Agreement,  dated as of August  27,  1999,  among Gary
             Bondi, GS Econ Limited Partnership, GS Econ Ltd. Partnership No. 2,
             Viatel,  Inc., Viatel Acquisition Corp. and Destia  Communications,
             Inc.  (incorporated herein by reference to Exhibit 10.3 to Viatel's
             October 1999 Form S-4).

10.4         Mercury  Carrier  Services  Agreement,  dated as of March 1,  1994,
             between   Viatel,   Inc.   and   Mercury   Communications   Limited
             (incorporated herein by reference to Exhibit 10.8 to Viatel, Inc.'s
             1995 Form S-4,  Registration  No.  33-92696,  filed on May 24, 1995
             ("VIATEL'S 1995 S-4")).

10.5         Commercial  Lease  Agreement,  dated as of  November  1, 1993,  and
             Addendum,  dated as of December 8, 1994,  between Viatel,  Inc. and
             123rd Street Partnership in connection with Viatel, Inc.'s premises
             located in Omaha,  Nebraska  (incorporated  herein by  reference to
             Exhibit 10.24 to Viatel's 1995 Form S-4).



                                      102
<PAGE>

10.6         Facilities Management and Services Agreement, dated as of August 4,
             1995, between Viatel U.K. Limited and Telemedia  International Ltd.
             (incorporated herein by reference to Exhibit 10.32 to Viatel's 1995
             Form S-4).

10.7         Agreement of Lease, dated August 7, 1995, between Viatel,  Inc. and
             Joseph P. Day Realty  Corp.  (incorporated  herein by  reference to
             Exhibit 10.33 to Viatel's 1995 Form S-4).

10.8**       Viatel,  Inc. Employee Stock Purchase Plan (incorporated  herein by
             reference to Exhibit 4.9 to Viatel,  Inc.'s Registration  Statement
             on Form S-8,  Registration  No.  333-92235,  filed on  December  7,
             1999).

10.9**       Viatel, Inc. 1999 Amended Stock Incentive Plan (incorporated herein
             by reference to Exhibit 10.12 to Viatel's October 1999 Form S-4).

10.10**      Viatel,  Inc.  Amended and Restated 1999 Flexible  Stock  Incentive
             Plan (incorporated  herein by reference to Exhibit 4.11 to Viatel's
             Registration  Statement on Form S-8,  Registration  No.  333-92339,
             filed on December 8, 1999 (the "VIATEL 1999 S-8")).

10.11**      Viatel,  Inc.  1996 Flexible  Stock  Incentive  Plan  (incorporated
             herein by reference to Exhibit 4.12 to the Viatel 1999 S-8).

10.12**      Employment  Agreement  between Viatel,  Inc. and Michael J. Mahoney
             (incorporated herein by reference to Exhibit 10.11 to Viatel's 1999
             Form 10-K).

10.13**      Employment  Agreement  between  Viatel,  Inc.  and  Allan  L.  Shaw
             (incorporated herein by reference to Exhibit 10.12 to Viatel's 1999
             Form 10-K).

10.14**      Employment  Agreement  between  Viatel,  Inc.  and Francis J. Mount
             (incorporated herein by reference to Exhibit 10.14 to Viatel's 1999
             Form 10-K).

10.15**      Employment  Agreement  between Viatel,  Inc. and Lawrence G. Malone
             (incorporated herein by reference to Exhibit 10.15 to Viatel's 1999
             Form 10-K).

10.16**      Employment  Agreement  between  Viatel,  Inc. and William C. Murphy
             (incorporated herein by reference to Exhibit 10.17 to Viatel's 1999
             Form 10-K).

10.17        Equipment Purchase Agreement,  dated June 29, 1998, between Viatel,
             Inc.  and Nortel PLC  (incorporated  herein by reference to Exhibit
             10.16 to Viatel's 1998 Form S-4).

10.18        Agreement of Lease,  dated June 24, 1998,  between 685  Acquisition
             Corp.  and Viatel,  Inc., as amended by a letter  agreement,  dated
             July 27, 1998 (incorporated herein by reference to Exhibit 10.17 to
             Viatel's 1998 Form S-4).

10.19        Lease,  dated June 23, 1998,  between VC Associates  and Viatel New
             Jersey, Inc.  (incorporated herein by reference to Exhibit 10.18 to
             Viatel's 1998 Form S-4).



                                      103
<PAGE>

10.20        Software License Agreement, dated October 22, 1998, between Viatel,
             Inc. and Lucent Technologies Inc. (incorporated herein by reference
             to Exhibit  10.19 to Viatel  Inc.'s  Annual Report on Form 10-K for
             the year ended December 31, 1998 ("VIATEL'S 1998 FORM 10-K")).

10.21        Equipment  Purchase  Agreement,  dated  December 31, 1998,  between
             Viatel, Inc. and Nortel plc.  (incorporated  herein by reference to
             Exhibit 10.21 to Viatel's 1998 Form 10-K).

10.22        Project Services  Agreement,  dated as of January 11, 1999, between
             Viatel, Inc. and Bechtel Limited  (incorporated herein by reference
             to Exhibit 10.22 to Viatel,  Inc.'s  Quarterly  Report on Form 10-Q
             for the quarter  ended March 31,  1999  ("VIATEL'S  MARCH 1999 FORM
             10-Q")).

10.23        Development   Agreement   by  and  among   Vicaine   Infrastructure
             Development GMBH, Viatel German Asset GMBH, Carrier 1 Fiber Network
             GMBH &Co. OH,  Metromedia  Fiber  Network  GMBH,  Viatel,  Inc. and
             Metromedia  Fiber  Network,  Inc.,  dated as of  February  19, 1999
             (incorporated  herein by  reference  to Exhibit  10.23 to  Viatel's
             March 1999 Form 10-Q).

10.24        Third Amended and Restated  Equipment Loan and Security  Agreement,
             dated as of November 5, 1999, between Destia  Communications,  Inc.
             and NTFC Capital Corporation  (incorporated  herein by reference to
             Exhibit 10.36 to Viatel, Inc.'s Form 8-K, File No. 000-21261, filed
             December 29, 1999).

10.25        Securities Purchase Agreement, dated as of February 1, 2000, by and
             among  Viatel,  Inc. and HMTF Europe  Acquisition  Corp.  and Chase
             Equity Associates LLC (incorporated  herein by reference to Exhibit
             4.13 to  Viatel,  Inc.'s  Form 8-K,  File No.  000-21261,  filed on
             February 16, 2000).

10.26        Viatel  Employee  Stock  Purchase  Plan  (incorporated   herein  by
             reference to Exhibit 4.9 to Viatel,  Inc.'s Registration  Statement
             on Form S-8,  Registration  No.  333-92339,  filed on  December  8,
             1999).

10.27***     Viatel,  Inc.  Management  Severance Plan  (incorporated  herein by
             reference to Exhibit 10.28 to Viatel's 1999 Form 10-K).

10.28        Telecommunications     Services    Agreement    between    Frontier
             Communications of the West, Inc. and Destia  Communications,  Inc.,
             dated  November  17,  1998  (incorporated  herein by  reference  to
             Exhibit  10.16 of  Destia's  Registration  Statement  on Form  S-1,
             Registration No. 333-70463, filed on January 29, 1999).

10.29        Trust Convertible  Preferred Securities Guarantee Agreement,  dated
             as of April 12,  2000,  executed  and  delivered  by  Viatel,  Inc.
             (incorporated  herein by  reference  to Exhibit  10.32 to  Viatel's
             March 2000 Form 10-Q).

10.30        Common Securities Guarantee Agreement,  dated as of April 12, 2000,
             executed and  delivered  by Viatel,  Inc.  (incorporated  herein by
             reference to Exhibit 10.33 to Viatel's March 2000 Form 10-Q).



                                      104
<PAGE>

10.31+       Amended and  Restated  Engineering,  Procurement  and  Construction
             Contract,  dated  as of  November  15,  1999  and  effective  as of
             February 19, 1999 between  Bechtel  Limited  ViCaMe  Infrastructure
             Development  GmbH,  Viatel  German  Asset  GmbH,  Metromedia  Fiber
             Network   GmbH  and  Carrier  1  Fiber   Network  GmbH  &  Co.  OHG
             (incorporated  herein by  reference  to Exhibit  10.34 to  Viatel's
             March 2000 Form 10-Q).

10.32**      Viatel,  Inc. 2000 Stock  Incentive  Plan  (incorporated  herein by
             reference to Annex A to Viatel,  Inc.'s  Definitive Proxy Statement
             on Schedule 14A, File No. 000-21261, filed on September 13, 2000).

10.33***     Viatel, Inc.'s 401(k) Savings Plan.

10.34+       Fiber  Purchase  Agreement,  dated as of  April  11,  2000,  by and
             between Level 3 Landing Station,  Inc., Level 3 (Bermuda)  Limited,
             Level Communications  Limited and Viatel, Inc. (incorporated herein
             by reference to Exhibit 10.34 to Viatel's June 2000 Form 10-Q).

10.35+       Capacity and Dark Fiber IRU Purchase  Agreement,  dated as of April
             11, 2000, by and between  Level 3 Landing  Station,  Inc.,  Level 3
             (Bermuda) Limited,  Level  Communications  Limited and Viatel, Inc.
             (incorporated herein by reference to Exhibit 10.35 to Viatel's June
             2000 Form 10-Q).

10.36*++     Master Lease  Purchase  Agreement,  dated  October 20, 2000 between
             Dresdner  Kleinwort Benson Finance Limited,  as Lessor,  and Viatel
             U.K. Limited, as Lessee.

10.37*       Guarantee and Indemnity,  dated October 20, 2000,  between  Viatel,
             Inc. and Dresdner Kleinwort Benson Finance Limited.

10.38*++     Master  Lease  Agreement,  dated  October 27, 2000,  between  Cisco
             Systems Capital (also known as Leasetec UK Limited), as Lessor, and
             Viatel U.K. Limited, as Lessee.

10.39*++     Facility Letter, dated October 26, 2000, from Cisco Systems Capital
             to Viatel U.K. Limited.

10.40*       Guaranty,  executed as of October 27,  2000,  by Viatel,  Inc.,  as
             Guarantor, and Cisco Systems Capital, as Lessor.

10.41***     Severance Agreement between Viatel, Inc. and Sheldon M. Goldman.

10.42***     Severance Agreement between Viatel, Inc. and Alfred West.

10.43***     Severance Agreement between Viatel, Inc. and Alan L. Levy.

10.44***     Severance Agreement between Viatel, Inc. and Abe Grohman.

10.45***     Employment Agreement between Viatel, Inc. and James P. Prenetta.

11.1*        Statement of Computation of Earnings Per Share.

21.1*        Subsidiaries of Viatel, Inc.

23.1*        Consent of KPMG LLP.

24.1*        Power of Attorney (included on the signature page).

------------------

*   Filed herewith.
**  Management  contract or  compensatory  plan or  arrangement.
+   Confidential treatment  granted as to certain  portions of these  exhibits.
++  Confidential treatment requested as to certain portions of these exhibits.


                                      105
<PAGE>


                                   SIGNATURES

            Pursuant  to  the  requirements  of  Section  13  or  15(d)  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,  in the
City and State of New York, on the 16th day of April, 2001.

                                        VIATEL, INC.


                                        By:    /s/ MICHAEL J. MAHONEY
                                           -----------------------------------
                                        Name:  Michael J. Mahoney
                                        Title: Chairman of the Board and Chief
                                               Executive Officer

            KNOWN BY ALL MEN BY THESE PRESENTS, that each person whose signature
appears below  constitutes  and appoints  Michael J. Mahoney,  Allan L. Shaw and
James P. Prenetta,  his true and lawful  attorney-in-fact  and agent,  with full
power of substitution  and  resubstitution,  for him and in his name,  place and
stead, in any and all capacities,  to sign any and all amendments to this Annual
Report on Form 10-K, and to file the same,  with all exhibits  thereto and other
documents in connection therewith,  with the Securities and Exchange Commission,
granting unto said  attorney-in-fact  and agent,  full power and authority to do
and perform each and every act and thing  requisite  and necessary to be done in
and  about  the  premises,  as fully as he might or could do in  person,  hereby
ratifying and  confirming all that said  attorney-in-fact  and agent or their or
his  substitutes  or  substitute,  may lawfully do or cause to be done by virtue
hereof.

            Pursuant to the requirements of the Securities Exchange Act of 1934,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on the 16th day of April, 2001.



               SIGNATURE                    TITLE(S)

          /S/ MICHAEL J. MAHONEY            Chief Executive Officer and
------------------------------------------- Director
          Michael J. Mahoney                (Principal Executive Officer)

          /S/ WILLIAM C. MURPHY
------------------------------------------- President and Director
           William C. Murphy

             /S/ ALLAN L. SHAW
------------------------------------------- Chief Financial Officer and
             Allan L. Shaw                  Director
                                            (Principal Financial Officer and
                                            Principal Accounting Officer)

            /S/ FRANCIS J. MOUNT
------------------------------------------- Chief Technology Officer and
           Francis J. Mount                 Director

             /S/ PAUL G. PIZZANI
------------------------------------------- Director
            Paul G. Pizzani

            /S/ JOHN G. GRAHAM
------------------------------------------- Director
            John G. Graham



                                      106
<PAGE>


           /S/ EDWARD SCHMULTS
------------------------------------------- Director
            Edward Schmults

             /S/ JOHN R. MUSE
------------------------------------------- Director
             John R. Muse








                                      107
<PAGE>


                                  EXHIBIT INDEX


EXHIBIT
NUMBER                                 DESCRIPTION
-------                                -----------

2.1          Agreement  and Plan of Merger,  dated as of August 27, 1999, by and
             among  Viatel,   Inc.,   Viatel   Acquisition   Corp.   and  Destia
             Communications,  Inc.  (incorporated herein by reference to Exhibit
             2.1 to Viatel, Inc.'s Registration  Statement on Form S-4, filed on
             October 15, 1999,  Registration No. 333-89143)  ("VIATEL'S  OCTOBER
             1999 FORM S-4").

2.2          Agreement  for the sale and  purchase  of the entire  issued  share
             capital  of AT&T  Communications  (UK)  Limited,  by and among AT&T
             Communications Services  International,  Inc., Global Card Holdings
             Inc., Viatel, Inc. and Viatel Global Communications  Limited, dated
             February 29, 2000 (incorporated  herein by reference to Exhibit 2.2
             to  Viatel,  Inc.'s  Form 8-K,  filed on March 13,  2000,  File No.
             000-21261).

3.1(i)       Amended and Restated  Certificate of Incorporation of Viatel,  Inc.
             (incorporated  herein by reference to Exhibit  3.1(i)(b) to Viatel,
             Inc.'s  Registration   Statement  on  Form  S-1,  Registration  No.
             333-09699,   filed  on  August  7,  1996  ("VIATEL'S  FORM  S-1"));
             Certificate of Designations, Preferences and Rights of 10% Series A
             Redeemable  Convertible  Preferred Stock,  $.01 par value per share
             (incorporated  herein by  reference  to Exhibit  3(i)(b) to Viatel,
             Inc.'s Registration  Statement on Form S-4, filed on July 10, 1998,
             File No.  333-58921  ("VIATEL'S  1998 FORM S-4"));  Certificate  of
             Amendment to Viatel,  Inc.'s  Amended and Restated  Certificate  of
             Incorporation  (incorporated  herein by reference to Exhibit 4.9 to
             Viatel,  Inc.'s quarterly report on Form 10-Q for the quarter ended
             September 30, 1998,  File No.  000-21261);  Second  Certificate  of
             Amendment to Viatel,  Inc.'s  Amended and Restated  Certificate  of
             Incorporation  (incorporated  herein by reference to Exhibit 3.1(i)
             to Viatel's October 1999 Form S-4);  Certificate of Designations of
             Series A Junior  Participating  Preferred  Stock  of  Viatel,  Inc.
             (incorporated  herein by  reference  to Exhibit  3(i)(2) to Viatel,
             Inc.'s Form 8-K, filed on December 29, 1999,  File No.  000-21261);
             Certificate  of  Designations,  Preferences  and  Rights  of  7.50%
             Cumulative   Convertible   Preferred  Stock  Series  B-1  Due  2015
             (incorporated  herein by  reference  to  Exhibit  3.1(i) to Viatel,
             Inc.'s Annual  Report on Form 10-K for the year ended  December 31,
             1999, filed on April 14, 2000, File No.  000-21261  ("VIATEL'S 1999
             Form 10-K"); Certificate of Designations, Preferences and Rights of
             7.50%  Cumulative  Convertible  Preferred Stock Series B-2 Due 2015
             (incorporated  herein by  reference  to Exhibit  3.1(i) to Viatel's
             1999 Form 10-K); Certificate of Designations,  Preferences;  Rights
             of Convertible  Preferred  Stock Series C  (incorporated  herein by
             reference to Exhibit 3.1(i) to Viatel's 1999 Form 10-K);  and Third
             Certificate  of  Amendment to Viatel,  Inc.'s  Amended and Restated
             Certificate of Incorporation  (incorporated  herein by reference to
             Exhibit 4.23 to Viatel, Inc.'s Registration  Statement on Form S-8,
             Registration No. 333-50460, filed on November 22, 2000).



                                      108
<PAGE>

3.1(ii)      Third  Amended and Restated  Bylaws of Viatel,  Inc.  (incorporated
             herein by  reference  to Exhibit  3.1(ii) to Viatel's  October 1999
             Form S-4).

3.1(iii)     Certificate of Trust of Viatel  Financing  Trust I, dated March 30,
             2000  (incorporated  herein by  reference  to Exhibit  3.1(iii)  to
             Viatel,  Inc.'s  Quarterly  Report on Form  10-Q for the  quarterly
             period ended March 31, 2001, File No.  000-21261,  filed on May 14,
             2000 ("VIATEL'S MARCH 2000 FORM 10-Q")).

3.1(iv)      Amended and Restated Declaration of Trust of Viatel Financing Trust
             I, dated and effective as of April 12, 2000 (incorporated herein by
             reference to Exhibit 3.1(iv) to Viatel's March 2000 Form 10-Q).

4.1          Specimen of Viatel common stock certificate (incorporated herein by
             reference to Exhibit 4.4 to Viatel's Form S-1).

4.2          Indenture,  dated as of April 8, 1998, between Viatel, Inc. and The
             Bank of New York,  as Trustee,  relating to Viatel,  Inc.'s  12.50%
             Senior  Discount  Notes Due 2008  (including  form of 12.50% Senior
             Discount Note) (incorporated  herein by reference to Exhibit 4.1 to
             Viatel's 1998 Form S-4).

4.3          Indenture,  dated as of April 8, 1998, between Viatel, Inc. and The
             Bank of New York,  as Trustee,  relating to Viatel,  Inc.'s  11.25%
             Senior  Notes  Due 2008  (including  form of  11.25%  Senior  Note)
             (incorporated  herein by reference to Exhibit 4.2 to Viatel's  1998
             Form S-4).

4.4          Indenture,  dated as of April 8, 1998, among Viatel, Inc., The Bank
             of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft,  as
             German Paying Agent and  Co-Registrar,  relating to Viatel,  Inc.'s
             12.40% Senior  Discount  Notes Due 2008  (including  form of 12.40%
             Senior Discount Note) (incorporated  herein by reference to Exhibit
             4.3 to Viatel's 1998 Form S-4).

4.5          Indenture,  dated as of April 8, 1998, among Viatel, Inc., The Bank
             of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft,  as
             German Paying Agent and  Co-Registrar,  relating to Viatel,  Inc.'s
             11.15%  Senior Notes Due 2008  (including  form 11.15% Senior Note)
             (incorporated  herein by reference to Exhibit 4.4 to Viatel's  1998
             Form S-4).

4.6          Indenture, dated as of March 19, 1999, between Viatel, Inc. and The
             Bank of New York,  as  Trustee,  relating  to Viatel,  Inc.'s  U.S.
             dollar  denominated 11.50% Senior Notes Due 2009 (including form of
             11.50%  Senior  Dollar Note)  (incorporated  herein by reference to
             Exhibit 4.9 to Viatel,  Inc.'s Registration  Statement on Form S-3,
             filed on February 12, 1999, File No. 333-72309  ("VIATEL'S FEBRUARY
             1999 FORM S-3")).

4.7          Indenture, dated as of March 19, 1999, between Viatel, Inc. and The
             Bank of New York,  as  Trustee,  relating  to Viatel,  Inc.'s  Euro
             denominated  11.50% Senior Notes due 2009 (including form of 11.50%
             Senior Euro Note) (incorporated herein by reference to Exhibit 4.10
             to Viatel's February 1999 Form S-3).



                                      109
<PAGE>

4.8          Indenture, dated as of July 1, 1997, between Destia Communications,
             Inc.  and The Bank of New  York,  as  Trustee,  relating  to Destia
             Communications  Inc.'s 13.50% Senior Notes due 2007 (including form
             of 13.50% Senior Note) (incorporated herein by reference to Exhibit
             4.5 to Destia  Communication's  Registration Statement on Form S-4,
             File No. 333-47711 filed on August 7, 1997).

4.9          Indenture,  dated as of December 8, 1999, between Viatel,  Inc. and
             The Bank of New York, as Trustee,  relating to Viatel,  Inc.'s U.S.
             dollar  denominated 11.50% Senior Notes due 2009 (including form of
             11.50%  Senior  Dollar Note)  (incorporated  herein by reference to
             Exhibit 4.13 to Viatel, Inc.'s Current Report on Form 8-K, File No.
             000-21261, filed on December 9, 1999).

4.10         Rights  Agreement,  dated as of December 6, 1999,  between  Viatel,
             Inc. and The Bank of New York, as Rights Agent (incorporated herein
             by reference to Viatel, Inc.'s Registration  Statement on Form 8-A,
             File No. 000-21261, filed on December 24, 1999).

4.11         Indenture, dated as of April 20, 2000, between Viatel, Inc. and The
             Bank of New York,  as Trustee,  relating  to Viatel  Inc.'s 12 3/4%
             Senior  Notes  Due 2008  (including  form of 12 3/4%  Senior  Note)
             (incorporated herein by reference to Exhibit 4.11 to Viatel's March
             2000 Form 10-Q).

4.12         Indenture, dated as of April 12, 2000, between Viatel, Inc. and The
             Bank of New York,  as Trustee,  relating  to Viatel,  Inc.'s 7 3/4%
             Convertible Junior Subordinated Debentures  (incorporated herein by
             reference to Exhibit 4.12 to Viatel's March 2000 Form 10-Q).

4.13         First  Supplemental  Indenture,  dated as of June 19, 2000, between
             Viatel,  Inc.  and The Bank of New York,  as Trustee  (incorporated
             herein by reference to Exhibit 4.18 to Viatel,  Inc.'s Registration
             Statement on Form S-3,  Registration No.  333-40692,  filed on June
             30, 2000).

4.14         Amendment  to  Rights  Agreement,  dated as of  February  1,  2000,
             between  Viatel,  Inc.  and The Bank of New York,  as Rights  Agent
             (incorporated herein by reference to Exhibit 4.16 to Viatel, Inc.'s
             Quarterly  Report on Form 10-Q for the quarterly  period ended June
             30, 2000, File No.  000-21261,  filed on August 15, 2000 ("VIATEL'S
             JUNE 2000 FORM 10-Q")).

4.15         Amendment No. 2 to Rights  Agreement  between Viatel,  Inc. and The
             Bank of New York, as Rights Agent (incorporated herein by reference
             to Exhibit 4.17 to Viatel, Inc.'s Quarterly Report on Form 10-Q for
             the quarterly period ended September 30, 2000, File No.  000-21261,
             filed on November 14, 2000).

10.1         Stockholder  Agreement,  dated as of August 27, 1999,  among Alfred
             West, AT Econ Limited Partnership,  AT Econ Ltd. Partnership No. 2,
             Viatel,  Inc., Viatel Acquisition Corp. and Destia  Communications,
             Inc.  (incorporated herein by reference to Exhibit 10.1 to Viatel's
             October 1999 Form S-4).

10.2         Stockholder  Agreement,  dated as of August 27, 1999,  among Steven
             West, SS Econ Limited Partnership,  SS Econ Ltd. Partnership No. 2,
             Viatel,  Inc., Viatel Acquisition Corp. and Destia  Communications,
             Inc.  (incorporated herein by reference to Exhibit 10.2 to Viatel's
             October 1999 Form S-4).



                                      110
<PAGE>

10.3         Stockholder  Agreement,  dated as of August  27,  1999,  among Gary
             Bondi, GS Econ Limited Partnership, GS Econ Ltd. Partnership No. 2,
             Viatel,  Inc., Viatel Acquisition Corp. and Destia  Communications,
             Inc.  (incorporated herein by reference to Exhibit 10.3 to Viatel's
             October 1999 Form S-4).

10.4         Mercury  Carrier  Services  Agreement,  dated as of March 1,  1994,
             between   Viatel,   Inc.   and   Mercury   Communications   Limited

             (incorporated herein by reference to Exhibit 10.8 to Viatel, Inc.'s
             1995 Form S-4,  Registration  No.  33-92696,  filed on May 24, 1995
             ("VIATEL'S 1995 S-4")).

10.5         Commercial  Lease  Agreement,  dated as of  November  1, 1993,  and
             Addendum,  dated as of December 8, 1994,  between Viatel,  Inc. and
             123rd Street Partnership in connection with Viatel, Inc.'s premises
             located in Omaha,  Nebraska  (incorporated  herein by  reference to
             Exhibit 10.24 to Viatel's 1995 Form S-4).

10.6         Facilities Management and Services Agreement, dated as of August 4,
             1995, between Viatel U.K. Limited and Telemedia  International Ltd.
             (incorporated herein by reference to Exhibit 10.32 to Viatel's 1995
             Form S-4).

10.7         Agreement of Lease, dated August 7, 1995, between Viatel,  Inc. and
             Joseph P. Day Realty  Corp.  (incorporated  herein by  reference to
             Exhibit 10.33 to Viatel's 1995 Form S-4).

10.8**       Viatel,  Inc. Employee Stock Purchase Plan (incorporated  herein by
             reference to Exhibit 4.9 to Viatel,  Inc.'s Registration  Statement
             on Form S-8,  Registration  No.  333-92235,  filed on  December  7,
             1999).

10.9**       Viatel, Inc. 1999 Amended Stock Incentive Plan (incorporated herein
             by reference to Exhibit 10.12 to Viatel's October 1999 Form S-4).

10.10**      Viatel,  Inc.  Amended and Restated 1999 Flexible  Stock  Incentive
             Plan (incorporated  herein by reference to Exhibit 4.11 to Viatel's
             Registration  Statement on Form S-8,  Registration  No.  333-92339,
             filed on December 8, 1999 (the "VIATEL 1999 S-8")).

10.11**      Viatel,  Inc.  1996 Flexible  Stock  Incentive  Plan  (incorporated
             herein by reference to Exhibit 4.12 to the Viatel 1999 S-8).

10.12**      Employment  Agreement  between Viatel,  Inc. and Michael J. Mahoney
             (incorporated herein by reference to Exhibit 10.11 to Viatel's 1999
             Form 10-K).

10.13**      Employment  Agreement  between  Viatel,  Inc.  and  Allan  L.  Shaw
             (incorporated herein by reference to Exhibit 10.12 to Viatel's 1999
             Form 10-K).

10.14**      Employment  Agreement  between  Viatel,  Inc.  and Francis J. Mount
             (incorporated herein by reference to Exhibit 10.14 to Viatel's 1999
             Form 10-K).

10.15**      Employment  Agreement  between Viatel,  Inc. and Lawrence G. Malone
             (incorporated herein by reference to Exhibit 10.15 to Viatel's 1999
             Form 10-K).



                                      111
<PAGE>

10.16**      Employment  Agreement  between  Viatel,  Inc. and William C. Murphy
             (incorporated herein by reference to Exhibit 10.17 to Viatel's 1999
             Form 10-K).

10.17        Equipment Purchase Agreement,  dated June 29, 1998, between Viatel,
             Inc.  and Nortel PLC  (incorporated  herein by reference to Exhibit
             10.16 to Viatel's 1998 Form S-4).

10.18        Agreement of Lease,  dated June 24, 1998,  between 685  Acquisition
             Corp.  and Viatel,  Inc., as amended by a letter  agreement,  dated
             July 27, 1998 (incorporated herein by reference to Exhibit 10.17 to
             Viatel's 1998 Form S-4).

10.19        Lease,  dated June 23, 1998,  between VC Associates  and Viatel New
             Jersey, Inc.  (incorporated herein by reference to Exhibit 10.18 to
             Viatel's 1998 Form S-4).

10.20        Software License Agreement, dated October 22, 1998, between Viatel,
             Inc. and Lucent Technologies Inc. (incorporated herein by reference
             to Exhibit  10.19 to Viatel  Inc.'s  Annual Report on Form 10-K for
             the year ended December 31, 1998 ("VIATEL'S 1998 FORM 10-K")).

10.21        Equipment  Purchase  Agreement,  dated  December 31, 1998,  between
             Viatel, Inc. and Nortel plc.  (incorporated  herein by reference to
             Exhibit 10.21 to Viatel's 1998 Form 10-K).

10.22        Project Services  Agreement,  dated as of January 11, 1999, between
             Viatel, Inc. and Bechtel Limited  (incorporated herein by reference
             to Exhibit 10.22 to Viatel,  Inc.'s  Quarterly  Report on Form 10-Q
             for the quarter  ended March 31,  1999  ("VIATEL'S  MARCH 1999 FORM
             10-Q")).

10.23        Development   Agreement   by  and  among   Vicaine   Infrastructure
             Development GMBH, Viatel German Asset GMBH, Carrier 1 Fiber Network
             GMBH &Co. OH,  Metromedia  Fiber  Network  GMBH,  Viatel,  Inc. and
             Metromedia  Fiber  Network,  Inc.,  dated as of  February  19, 1999
             (incorporated  herein by  reference  to Exhibit  10.23 to  Viatel's
             March 1999 Form 10-Q).

10.24        Third Amended and Restated  Equipment Loan and Security  Agreement,
             dated as of November 5, 1999, between Destia  Communications,  Inc.
             and NTFC Capital Corporation  (incorporated  herein by reference to
             Exhibit 10.36 to Viatel, Inc.'s Form 8-K, File No. 000-21261, filed
             December 29, 1999).

10.25        Securities Purchase Agreement, dated as of February 1, 2000, by and
             among  Viatel,  Inc. and HMTF Europe  Acquisition  Corp.  and Chase
             Equity Associates LLC (incorporated  herein by reference to Exhibit
             4.13 to  Viatel,  Inc.'s  Form 8-K,  File No.  000-21261,  filed on
             February 16, 2000).

10.26        Viatel  Employee  Stock  Purchase  Plan  (incorporated   herein  by
             reference to Exhibit 4.9 to Viatel,  Inc.'s Registration  Statement
             on Form S-8,  Registration  No.  333-92339,  filed on  December  8,
             1999).

10.27**      Viatel,  Inc.  Management  Severance Plan  (incorporated  herein by
             reference to Exhibit 10.28 to Viatel's 1999 Form 10-K).



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<PAGE>

10.28        Telecommunications     Services    Agreement    between    Frontier
             Communications of the West, Inc. and Destia  Communications,  Inc.,
             dated  November  17,  1998  (incorporated  herein by  reference  to
             Exhibit  10.16 of  Destia's  Registration  Statement  on Form  S-1,
             Registration No. 333-70463, filed on January 29, 1999).

10.29        Trust Convertible  Preferred Securities Guarantee Agreement,  dated
             as of April 12,  2000,  executed  and  delivered  by  Viatel,  Inc.
             (incorporated  herein by  reference  to Exhibit  10.32 to  Viatel's
             March 2000 Form 10-Q).

10.30        Common Securities Guarantee Agreement,  dated as of April 12, 2000,
             executed and  delivered  by Viatel,  Inc.  (incorporated  herein by
             reference to Exhibit 10.33 to Viatel's March 2000 Form 10-Q).

10.31+       Amended and  Restated  Engineering,  Procurement  and  Construction
             Contract,  dated  as of  November  15,  1999  and  effective  as of
             February 19, 1999 between  Bechtel  Limited  ViCaMe  Infrastructure
             Development  GmbH,  Viatel  German  Asset  GmbH,  Metromedia  Fiber
             Network   GmbH  and  Carrier  1  Fiber   Network  GmbH  &  Co.  OHG
             (incorporated  herein by  reference  to Exhibit  10.34 to  Viatel's
             March 2000 Form 10-Q).

10.32+       Viatel,  Inc. 2000 Stock  Incentive  Plan  (incorporated  herein by
             reference to Annex A to Viatel,  Inc.'s  Definitive Proxy Statement
             on Schedule 14A, File No. 000-21261, filed on September 13, 2000).

10.33***     Viatel, Inc.'s 401(k) Savings Plan.

10.34+       Fiber  Purchase  Agreement,  dated as of  April  11,  2000,  by and
             between Level 3 Landing Station,  Inc., Level 3 (Bermuda)  Limited,
             Level Communications  Limited and Viatel, Inc. (incorporated herein
             by reference to Exhibit 10.34 to Viatel's June 2000 Form 10-Q).

10.35+       Capacity and Dark Fiber IRU Purchase  Agreement,  dated as of April
             11, 2000, by and between  Level 3 Landing  Station,  Inc.,  Level 3
             (Bermuda) Limited,  Level  Communications  Limited and Viatel, Inc.
             (incorporated herein by reference to Exhibit 10.35 to Viatel's June
             2000 Form 10-Q).

10.36*++     Master Lease  Purchase  Agreement,  dated  October 20, 2000 between
             Dresdner  Kleinwort Benson Finance Limited,  as Lessor,  and Viatel
             U.K. Limited, as Lessee.

10.37*       Guarantee and Indemnity,  dated October 20, 2000,  between  Viatel,
             Inc. and Dresdner Kleinwort Benson Finance Limited.

10.38*++     Master  Lease  Agreement,  dated  October 27, 2000,  between  Cisco
             Systems Capital (also known as Leasetec UK Limited), as Lessor, and
             Viatel U.K. Limited, as Lessee.

10.39*++     Facility Letter, dated October 26, 2000, from Cisco Systems Capital
             to Viatel U.K. Limited.

10.40*       Guaranty,  executed as of October 27,  2000,  by Viatel,  Inc.,  as
             Guarantor, and Cisco Systems Capital, as Lessor.

10.41***     Severance Agreement between Viatel, Inc. and Sheldon M. Goldman.



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<PAGE>

10.42***     Severance Agreement between Viatel, Inc. and Alfred West.

10.43***     Severance Agreement between Viatel, Inc. and Alan L. Levy.

10.44***     Severance Agreement between Viatel, Inc. and Abe Grohman.

10.45***     Employment Agreement between Viatel, Inc. and James P. Prenetta.

11.1*        Statement of Computation of Earnings Per Share.

21.1*        Subsidiaries of Viatel, Inc.

23.1*        Consent of KPMG LLP.

24.1*        Power of Attorney (included on the signature page).

------------------

*   Filed herewith.
**  Management  contract or  compensatory  plan or  arrangement.
+   Confidential treatment  granted as to certain  portions of these  exhibits.
++  Confidential treatment requested as to certain portions of these exhibits.


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