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

                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(MARK ONE)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934.

         FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM ________ TO _________

         COMMISSION FILE NUMBER: 0-22610


                           DAVEL COMMUNICATIONS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           DELAWARE                                               59-3538257
-------------------------------                                -----------------
(State or other jurisdiction of                                (I.R.S. Employer)
 incorporation or organization)                                     I.D. No.)


                      10120 WINDHORST ROAD, TAMPA, FL 33619
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                  Registrant's telephone number: (813) 628-8000


Indicate by check mark whether the Registrant has (1) 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  [ ]

As of May 10, 2001, there were 11,169,540 shares of the Registrant's Common
Stock outstanding.

================================================================================
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
                           FORM 10-Q QUARTERLY REPORT
                                TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION

ITEM 1

Financial Statements:

Consolidated Balance Sheets...............................................     1

Consolidated Statements of Operations.....................................     2

Consolidated Statements of Cash Flows.....................................     3

Notes to Consolidated Financial Statements................................     4

ITEM 2

Management's Discussion and Analysis of Financial Condition and
  Results of Operations...................................................    10

Liquidity and Capital Resources...........................................    15

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk................    21

PART II OTHER INFORMATION

ITEM 1

Legal Proceedings.........................................................    22


ITEM 6

Exhibits and Reports on Form 8-K..........................................    24
<PAGE>


PART I   FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                 MARCH 31,      DECEMBER 31,
                                                                    2001            2000
                                                                 ---------       ---------
                                                                (Unaudited)      (Audited)
<S>                                                              <C>             <C>
                                     ASSETS

CURRENT ASSETS
Cash and cash equivalents                                        $   6,335       $   6,104
Trade accounts receivable, net of allowance for doubtful
   accounts of $1,515 and $1,515, respectively                      12,010          14,307
Other current assets                                                 1,115             626
                                                                 ---------       ---------

        TOTAL CURRENT ASSETS                                        19,460          21,037

Property and equipment, net                                         60,474          64,702
Location contracts, net                                              2,398           2,571
Other assets                                                         3,826           4,877
                                                                 ---------       ---------

        TOTAL ASSETS                                             $  86,158       $  93,187
                                                                 =========       =========

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
   Current maturities of long-term debt and
      obligations under capital leases                           $ 239,086       $ 239,083
   Accounts payable and accrued liabilities                         45,398          39,532
                                                                 ---------       ---------
        TOTAL CURRENT LIABILITIES                                  284,484         278,615
                                                                 ---------       ---------

Long-term debt and obligations under capital leases                    651             839
Deferred revenue                                                        83             125
                                                                 ---------       ---------

        TOTAL LIABILITIES                                          285,218         279,579
                                                                 ---------       ---------

Shareholders' Deficit
   Preferred stock - $.01 par value, 1,000,000 shares
      authorized, none issued and outstanding                           --              --
   Common stock - $.01 par value, 50,000,000
      shares authorized, 11,169,540 shares
      issued and outstanding                                           112             112
   Additional paid-in capital                                      128,503         128,503
   Accumulated other comprehensive loss                                (40)             --
   Accumulated deficit                                            (327,635)       (315,007)
                                                                 ---------       ---------
        TOTAL SHAREHOLDERS' DEFICIT                               (199,060)       (186,392)
                                                                 ---------       ---------
        TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT              $  86,158       $  93,187
                                                                 =========       =========
</TABLE>


The accompanying Notes to Consolidated Financial Statements are an integral part
                         of these financial statements.

                                        1
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                       FOR THE THREE MONTHS ENDED MARCH 31
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                                    2001               2000
                                                ------------       ------------

REVENUES
   Coin calls                                   $     15,574       $     21,707
   Non-coin calls                                      7,661             14,694
                                                ------------       ------------

TOTAL REVENUES                                        23,235             36,401
                                                ------------       ------------

COSTS AND EXPENSES
   Telephone charges                                   8,960              9,918
   Commissions                                         5,264              8,655
   Service, maintenance and network costs              6,221              7,677
   Depreciation and amortization                       4,632              8,669
   Selling, general and administrative                 3,073              4,223
                                                ------------       ------------

TOTAL OPERATING COSTS AND EXPENSES                    28,150             39,142
                                                ------------       ------------

OPERATING LOSS                                        (4,915)            (2,741)
   Interest expense                                    7,813              6,702
   Other (income) expense                               (100)               (99)
                                                ------------       ------------

LOSS FROM OPERATIONS BEFORE INCOME TAXES             (12,628)            (9,344)
   Income tax expense                                     --                 --
                                                ------------       ------------

NET LOSS                                        $    (12,628)      $     (9,344)
                                                ============       ============

BASIC AND DILUTED LOSS PER SHARE                $      (1.13)      $      (0.84)
                                                ============       ============

WEIGHTED AVERAGE SHARES OUTSTANDING               11,169,540         11,058,629
                                                ============       ============



The accompanying Notes to Consolidated Financial Statements are an integral part
                         of these financial statements.


                                        2
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                       FOR THE THREE MONTHS ENDED MARCH 31
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          2001           2000
                                                                        --------       --------
<S>                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                             $(12,628)      $ (9,344)
   Adjustments to reconcile net loss to cash flows
      from operating activities:
         Depreciation and amortization                                     4,632          8,669
         Amortization of deferred financing charges                          885            652
         Payment for certain location contracts                              (71)        (1,797)
         Write-off of fixed assets/asset valuation charge                     24            420
         Increase in allowance for doubtful accounts                          --           (491)
         Stock issued as payment for services provided                        --            173
   Changes in assets and liabilities:
         Accounts receivable                                               2,297          1,475
         Other assets                                                       (452)        (1,582)
         Accounts payable and accrued liabilities                          3,330         (6,241)
         Deferred revenue                                                  2,494            (62)
                                                                        --------       --------

         NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES           511         (8,128)
                                                                        --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Capital expenditures                                                      (95)        (1,627)
                                                                        --------       --------

         NET CASH FLOWS (USED IN) INVESTING ACTIVITIES                       (95)        (1,627)
                                                                        --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Payments on long-term debt                                                 --         (5,237)
   Net proceeds under revolving line of credit                                --         15,700
   Principal payments under capital leases                                  (185)           (98)
                                                                        --------       --------

         NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES          (185)        10,365
                                                                        --------       --------

         NET INCREASE IN CASH AND CASH EQUIVALENTS                           231            610

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                             6,104          7,950
                                                                        --------       --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                $  6,335       $  8,560
                                                                        ========       ========

CASH PAID FOR INTEREST                                                  $     --       $  6,024
                                                                        ========       ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
                         of these financial statements.

                                        3
<PAGE>


                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1.   BASIS OF PRESENTATION

     The accompanying consolidated balance sheet of Davel Communications, Inc.
and subsidiaries (the "Company") as of March 31, 2001 and the related
consolidated statements of operations for the three-month periods ended March
31, 2001 and 2000 and of cash flows for the three-month periods ended March 31,
2001 and 2000 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such consolidated financial statements have
been included. Such adjustments consist only of normal, recurring items. Certain
information and footnote disclosures normally included in audited financial
statements have been omitted, in accordance with generally accepted accounting
principles for interim financial reporting. These interim consolidated financial
statements should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing elsewhere in
this Form 10-Q and with the Company's audited consolidated financial statements
and the notes thereto in the Company's Form 10-K for the year ended December 31,
2000. The results of operations for the three-month periods ended March 31, 2001
and 2000 are not necessarily indicative of the results for the full years.

     The Company was incorporated on June 9, 1998 under the laws of the state of
Delaware to effect the merger, on December 23, 1998, of Davel Communications
Group, Inc. ("Old Davel") with Peoples Telephone Company, Inc. (the "Peoples
Merger"). As a result of the Peoples Merger, the Company is the largest domestic
independent payphone service provider in the United States, with approximately
twice the number of payphones as the second largest domestic independent
payphone service provider. The Company operates in a single business segment
within the telecommunications industry, operating, servicing and maintaining a
system of approximately 66,000 payphones in 44 states and the District of
Columbia. The Company's headquarters is located in Tampa, Florida, with
divisional and administrative facilities in 27 geographically dispersed
locations.

2.   LIQUIDITY

     The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred losses of approximately $111.5 million and $12.6 million for the year
ended December 31, 2000 and quarter ended March 31, 2001, respectively. These
losses were primarily attributable to increased competition from providers of
wireless communication services and the impact on the Company's revenue of
certain regulatory changes. As of March 31, 2001, the Company had a working
capital deficit of $265.0 million and its liabilities exceeded it assets by
$199.1 million. In addition, the Company was unable to meet its debt principal
payments of $15.7 million and interest payments of $12.5 million, which would
have been due and payable on January 12, 2001 but for the Company's execution of
the Sixth Amendment to its loan agreement, which calls for interim principal
payments of $1.1 million due on April 15, 2001 (which was timely paid), $2.2
million due on July 15, 2001, $3.3 million due on October 15, 2001 and the
remainder due on January 11, 2002. In the absence of improved operating results
or cash flows, modifications to the Senior Credit Facility, or the completion of
possible strategic combinations, the Company will face liquidity problems and
might be required to dispose of material assets or operations to fund its
operations and to meet its debt service and other obligations. There can be no
assurances as to the ability of the Company to execute such sales, or the timing
thereof or the proceeds that the Company could realize from such sales. As a
result of these matters, substantial doubt exists 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.


                                       4
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
                                   (CONTINUED)

     The Company's plans to increase liquidity include efforts to substantially
reduce costs, including through possible strategic combinations. Management
believes this will result in expansion of its market presence and further
leveraging of its infrastructure. In order to pursue this strategy, the Company
will need to obtain additional modifications to the Senior Credit Facility, and
may require forgiveness of a portion of its debt. The Company may also need to
obtain additional debt or equity financing. There can be no assurance that such
debt modifications or financings will be available to the Company, or that they
will be available on terms acceptable to the Company. Further, any additional
equity financing may be dilutive to existing shareholders.

3.   ACCOUNTING CHANGE - DERIVATIVE FINANCIAL INSTRUMENTS

     Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), and its corresponding amendments under
SFAS 138. SFAS 133 requires the Company to measure all derivatives at fair value
on the accompanying consolidated balance sheet. For derivatives designated as
cash flow hedges, the effective portions of changes in fair value of the
derivative are reported in other comprehensive income ("OCI") and are
subsequently reclassified into earnings when the hedged item affects earnings.
Changes in fair value of derivative instruments not designated as hedging
instruments and ineffective portions of hedges are recognized in earnings in the
current period. The adoption of SFAS 133 at January 1, 2001, resulted in a
cumulative after tax reduction to OCI of $51. For the three months ended March
31, 2001, the change in fair market value of derivative instruments was recorded
as interest expense and was not material.

4.   PROVISION FOR DIAL-AROUND COMPENSATION

     On September 20, 1996, the Federal Communications Commission (FCC) adopted
rules in a docket entitled IN THE MATTER OF IMPLEMENTATION OF THE PAYPHONE
RECLASSIFICATION AND COMPENSATION PROVISIONS OF THE TELECOMMUNICATIONS ACT OF
1996, FCC 96-388 (the "1996 Payphone Order"), implementing the payphone
provisions of Section 276 of the Telecommunications Act of 1996 (the "Telcom
Act"). The 1996 Payphone Order, which became effective November 7, 1996,
initially mandated dial-around compensation for both access code calls and 800
subscriber calls at a flat rate of $45.85 per payphone per month (131 calls
multiplied by $0.35 per call). Commencing October 7, 1997, and ending October 6,
1998, the $45.85 per payphone per month rate was to transition to a per-call
system at the rate of $0.35 per call. Several parties filed petitions for
judicial review of certain of the FCC regulations including the dial-around
compensation rate. On July 1, 1997, the U.S. Court of Appeals for the District
of Columbia Circuit (the "Court") responded to appeals related to the 1996
Payphone Order by remanding certain issues to the FCC for reconsideration. These
issues included, among other things, the manner in which the FCC established the
dial-around compensation for 800 subscriber and access code calls, the manner in
which the FCC established the interim dial-around compensation plan and the
basis upon which interexchange carriers (IXCs) would be required to compensate
payphone service providers ("PSP"s). The Court remanded the issue to the FCC for
further consideration, and clarified on September 16, 1997 that it had vacated
certain portions of the FCC's 1996 Payphone Order, including the dial-around
compensation rate. Specifically, the Court determined that the FCC did not
adequately justify (i) the per-call compensation rate for 800 subscriber and
access code calls at the deregulated local coin rate of $0.35, because it did
not sufficiently justify its conclusion that the costs of local coin calls are
similar to those of 800 subscriber and access code calls; and (ii) the
allocation of the payment obligation among the IXCs for the period November 7,
1996 to October 6, 1997.


                                       5
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
                                   (CONTINUED)

     In accordance with the Court's mandate, on October 9, 1997, the FCC adopted
and released its SECOND REPORT AND ORDER in the same docket, FCC 97-371 (the
"1997 Payphone Order"). This order addressed the per-call compensation rate for
800 subscriber and access code calls that originate from payphones in light of
the decision of the Court which vacated and remanded certain portions of the
FCC's 1996 Payphone Order. The FCC concluded that the rate for per-call
compensation for 800 subscriber and access code calls from payphones is the
deregulated local coin rate adjusted for certain cost differences. Accordingly,
the FCC established a rate of $0.284 ($0.35-$0.066) per call for the first two
years of per-call compensation (October 7, 1997 through October 6, 1999). The
IXCs were required to pay this per-call amount to PSPs, including the Company,
beginning October 7, 1997.

     On March 9, 1998, the FCC issued a Memorandum Opinion and Order, FCC
98-481, which extended and waived certain requirements concerning the provision
by the LECs of payphone-specific coding digits which identify a call as
originating from a payphone. Without the transmission of payphone-specific
coding digits, some of the IXCs have claimed they are unable to identify a call
as a payphone call eligible for dial-around compensation. With the stated
purpose of ensuring the continued payment of dial-around compensation, the FCC,
by Memorandum and Order issued on April 3, 1998, left in place the requirement
for payment of per-call compensation for payphones on lines that do not transmit
the requisite payphone-specific coding digits, but gave the IXCs a choice for
computing the amount of compensation for payphones on LEC lines not transmitting
the payphone-specific coding digits of either accurately computing per-call
compensation from their databases or paying per-phone, flat-rate compensation
computed by multiplying the $0.284 per call rate by the nationwide average
number of 800 subscriber and access code calls placed from RBOC payphones for
corresponding payment periods. Accurate payments made at the flat rate are not
subject to subsequent adjustment for actual call counts from the applicable
payphone.

     On May 15, 1998, the Court again remanded the per-call compensation rate to
the FCC for further explanation without vacating the $0.284 per call rate. The
Court opined that the FCC had failed to explain adequately its derivation of the
$0.284 default rate. The Court stated that any resulting overpayment would be
subject to refund and directed the FCC to conclude its proceedings within a
six-month period from the effective date of the Court's decision.

     In response to the Court's second remand, the FCC conducted further
proceedings and sought additional comment from interested parties to address the
relevant issues posed by the Court. On February 4, 1999, the FCC released its
Third Report and Order, and Order on Reconsideration of the Second Report and
Order (the "1999 Payphone Order"), in which the FCC abandoned its efforts to
derive a "market-based" default dial-around compensation rate and instead
adopted a "cost-based" rate of $0.24 per dial-around call.

     On June 16, 2000, the Court affirmed the 1999 Payphone Order setting a
24-cent dial-around compensation rate. On all the issues, including those raised
by the IXCs and the payphone providers, the court applied the "arbitrary and
capricious" standard of review, and found that the FCC's rulings were lawful and
sustainable under that standard. As a result of the Court's June 16, 2000
decision, the 24-cent dial-around compensation rate is likely to remain in place
until at least the end of 2001, when the FCC has promised to complete a
third-year review of the rate. Certain payphone providers have filed with the
FCC a Petition for Reconsideration of the 1999 Payphone Order. This Petition is
still pending and has yet to be ruled on by the FCC. In view of the Court's
affirmation of the 1999 Payphone Order, it is unlikely that the FCC will adopt
material changes to the key components of the Order pursuant to the pending
Reconsideration Petition, although no assurances can be given.


                                       6
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
                                   (CONTINUED)

     On April 5, 2001, the FCC released an order that is expected to have a
significant impact on the obligations of telecommunications carriers to pay
dial-around compensation to PSPs. The effect of the decision is to clarify that
the first carrier to handle a dial-around call originating from a pay telephone
has the obligation to track and pay compensation on the call, regardless of
whether other carriers may subsequently transport or complete the call. Under
the FCC ruling, implementation of this system modification is scheduled to occur
on November 27, 2001. The Company believes that this modification to the
dial-around compensation system will result in a significant increase to the
number of calls upon which the Company is able to collect such compensation.
Because, however, the FCC ruling is potentially subject to administrative
reconsideration or judicial appeal and the system modification is as yet
untested, no assurances can be given as to the precise timing or magnitude of
revenue impact that may flow from the decision.

     The new 24-cent rate became effective April 21, 1999, and will serve as the
default rate through January 31, 2002. The new rate will also be applied
retroactively to the period beginning on October 7, 1997, less a $0.002 amount
to account for FLEX ANI payphone tracking costs, for a net compensation of
$0.238. The 1999 Payphone Order deferred a final ruling on the interim period
(November 7, 1996 to October 6, 1997) treatment to a later, as yet unreleased,
order; however, it appears that the $0.238 rate will be applied to the period
from November 7, 1996 to October 6, 1997. Upon establishment of the interim
period rate, the FCC has further ruled that a true-up may be made for all
payments or credits (with applicable interest) due and owing between the IXCs
and the PSPs, including the Company, for the payment period commencing on
November 7, 1996 through the effective date of the new $0.24 per call rate. It
is possible that the final implementation of the 1999 Payphone Order, including
resolution of this retroactive adjustment and the outcome of any related
administrative or judicial review, could have a material adverse effect on the
Company. Based on the FCC's tentative conclusion in the 1997 Payphone Order, the
Company during 1997 adjusted the amounts of dial-around compensation previously
recorded relating to the period November 7, 1996 to June 30, 1997 from the
initial $45.85 rate to $37.20 ($0.284 per call multiplied by 131 calls). As a
result of this adjustment, the provision recorded for the year ended December
31, 1997 relating to reduced dial-around compensation is approximately $3.3
million. Based on the reduction in the per-call compensation rate in the 1999
Payphone Order, the Company further reduced non-coin revenues by $9.0 million
for 1998. The adjustment included approximately $6.0 million to adjust revenue
recorded during the period November 7, 1996 to October 6, 1997 from $37.20
per-phone per-month to $31.18 per phone per month ($0.238 per call multiplied by
131 calls). The remaining $3.0 million of the adjustment was to adjust revenues
recorded during the period October 7, 1997 to December 31, 1998 to actual
dial-around call volumes for the period multiplied by $0.238 per call. The
Company recorded dial-around compensation revenue, net of adjustments of
approximately $22.9 million, $35.9 million, and $27.2 million for 2000, 1999,
and 1998, respectively.

     The Company's counsel, Dickstein, Shapiro, Morin & Oshensky, is of the
opinion that the Company is legally entitled to fair compensation under the
Telcom Act for dial-around calls the Company delivered to any carrier during the
period November 7, 1996 to October 6, 1997. Based on the information available,
the Company believes that the minimum amount it is entitled to as fair
compensation under the Telcom Act for the period November 7, 1996 to October 6,
1997 is $31.18 per payphone per month and the Company, based on the information
available to it, does not believe that it is reasonably possible that the amount
will be materially less than $31.18 per payphone per month. While the amount of
$0.24 per call ($0.238 for retroactive periods) constitutes the Company's
position of the appropriate level of fair compensation, certain IXCs have
asserted in the past, are asserting, and are expected to assert in the future
that the appropriate level of fair compensation should be lower than $0.24 per
call. If the level of fair compensation is ultimately determined to be an amount
less than $0.24 per call, such determination could have a material adverse
effect on the Company's results of operations and financial position. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


                                       7
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
                                   (CONTINUED)

5.   EARNINGS PER SHARE

     The treasury stock method was used to determine the dilutive effect of the
options and warrants on earnings per share data. Diluted loss per share is equal
to basic loss per share since the exercise of the 1,405,000 outstanding options
and the 299,513 warrants outstanding would be anti-dilutive for all periods
presented. In accordance with SFAS No. 128 and the requirement to report
"Earnings Per Share" data, the basic and diluted loss from continuing operations
per weighted average common shares outstanding were $(1.13) and $(0.84) for the
three months ended March 31, 2001 and 2000, respectively.

6.   COMMITMENTS & CONTINGENCIES

LITIGATION

     In December 1995, Cellular World, Inc. filed suit in Dade County Circuit
Court against the Company's affiliates, Peoples Telephone and PTC Cellular,
Inc., alleging tortious interference with Cellular World's trade secrets. The
trial court previously entered partial summary judgment in favor of the Company
as to the plaintiff's trade secrets claim, leaving the tortious interference
claim for trial.

     Trial on the tortious interference claim commenced on February 29, 2000.
The Company had several meritorious legal and factual defenses to plaintiff's
claims. Although the Company believed that it had a reasonable possibility of
prevailing at trial or through an appeal, if necessary, the case presented
significant risks to the Company because the plaintiff intended to ask the jury
to award damages of up to $18 million. Following three days of trial, the
Company and Cellular World agreed to settle and resolve the dispute in its
entirety. Pursuant to the parties' agreement, the Company agreed to pay Cellular
World a total of $1.5 million as follows: (a) $500,000.00 by March 9, 2000; (b)
$250,000.00 by January 5, 2001; and (c) $750,000.00 in 15 equal monthly
installments of $50,000.00 commencing on January 15, 2001 (the "Settlement
Agreement"). Due to the Company's default under the Settlement Agreement, the
parties entered into discussions for purposes of negotiating a revised payment
schedule. Notwithstanding the parties' negotiations, on April 12, 2001, Cellular
World obtained a judgment against Davel Communications Group, Inc., PTC
Cellular, Inc., and Peoples Telephone Company, Inc. in the amount of $750,000.00
plus interest in accordance with the Settlement Agreement (the "Judgment"). On
April 26, 2001, Cellular World obtained an amended judgment, which substituted
Davel Communications, Inc. for Davel Communications Group, Inc. under the
Judgment. The Company is currently evaluating its legal options and intends to
vigorously defend against collection efforts by Cellular World.

     On September 29, 1998, the Company announced that it was exercising its
contractual rights to terminate a merger agreement (the "Davel/PhoneTel Merger
Agreement") with PhoneTel Technologies, Inc. ("PhoneTel"), based on breaches of
representations, warranties and covenants by PhoneTel. On October 1, 1998, the
Company filed a lawsuit in Delaware Chancery Court seeking damages, rescission
of the Davel/PhoneTel Merger Agreement and a declaratory judgment that such
breaches occurred. On October 27, 1998, PhoneTel answered the complaint and
filed a counterclaim against the Company alleging that the Davel/PhoneTel Merger
Agreement had been wrongfully terminated. At the same time, PhoneTel also filed
a third party claim against Peoples Telephone (acquired by the Company on
December 23, 1998) alleging that Peoples Telephone wrongfully caused the
termination of the Davel/PhoneTel Merger Agreement. The counterclaim and third
party claim seek specific performance by the Company of the transactions
contemplated by the Davel/PhoneTel Merger Agreement and damages and other
equitable relief from the Company and


                                       8
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
                                   (CONTINUED)

Peoples Telephone. The Company, at this time, cannot predict the outcome of this
litigation, but the parties have both indicated a willingness to discuss
settlement of the case.

     In December 1999, the Company and its affiliate Telaleasing Enterprises,
Inc. were sued in the United States District Court, Central District of
California, by Telecommunications Consultant Group, Inc. ("TCG") and U.S.
Telebrokers, Inc. ("UST"), two payphone consulting companies which allege to
have assisted the Company in obtaining a telephone placement agreement with CSK
Auto, Inc. The suit alleges that the Company breached its commission agreement
with the plaintiffs based on the Company's alleged wrongful rescission of its
agreement with CSK Auto, Inc. Plaintiffs' amended complaint alleges damages in
excess of $700,000. The Company moved to dismiss the complaint, and, on August
24, 2000, the Court denied the Company's motion. The Company subsequently
answered the complaint and asserted a counterclaim, seeking declaratory relief.
On October 13, 2000, plaintiffs answered the counterclaim, denying its material
allegations. Discovery has commenced in the matter; however, the matter remains
in its early stages, and the Company intends to vigorously defend itself in the
case. While the Company believes it possesses certain meritorious defenses to
the claims, the matter remains in its initial stages, and, accordingly, the
Company cannot at this time predict its likelihood of success on the merits.

     In March 2000, the Company and its affiliate, Telaleasing Enterprises,
Inc., were sued in a related action in Maricopa County, Arizona Superior Court
by CSK Auto, Inc. ("CSK"). The suit alleges that the Company breached a location
agreement between the parties. CSK's complaint alleges damages in excess of $5
million. The Company removed the case to the U.S. District Court for Arizona and
moved to have the matter transferred to facilitate consolidation with the
related case in California brought by TCG and UST. On October 16, 2000, the U.S.
District Court for Arizona denied the Company's transfer motion and ordered the
case remanded back to Arizona state court. On November 13, 2000, the Company
filed its Notice of Appeal of the remand order to the United States Court of
Appeals for the Ninth Circuit. The appeal and underlying suit are in their
initial stages, and no discovery has commenced. The Company intends to
vigorously defend itself in the case. While the Company believes it possesses
certain meritorious defenses to the claims, the matter remains in its initial
stages, and, accordingly, the Company cannot at this time predict its likelihood
of success on the merits.

     On or about December 15, 2000, the Company filed and served its Amended
Complaint against LDDS WorldCom, Inc., MCI WorldCom Network Services, Inc., MCI
WorldCom Communications, Inc., and MCI WorldCom Management Company, Inc.
(collectively "Defendants"), claiming a violation of the Telecom Act and breach
of contract and seeking damages and equitable and injunctive relief associated
with Defendants' wrongful withholding of approximately $3.1 million in
dial-around compensation due to the Company, based upon an alleged, unrelated
indebtedness. The Company believes that the majority of Defendants' claims
consists of charges for fraudulent calls, improperly assessed payphone
surcharges or other erroneous billings, and the Company contends that it is not
liable for the alleged indebtedness. The Company filed a motion with the Court
for a preliminary injunction, and oral arguments were heard on February 12,
2001. Additionally, Defendants filed a motion with the Court to dismiss the
Amended Complaint, and oral arguments were heard on April 16, 2001. Both the
injunction and the motion to dismiss are currently pending before the Court. On
April 25, 2001, the Court ordered parties to mediate the case on or around June
18, 2001, expressly deferring its ruling on the Company's preliminary injunction
motion and Defendants' motion to dismiss until after such time as the parties
have participated in the mediation conference. Although the Company believes it
possesses meritorious claims in the case and intends to vigorously prosecute the
suit, the matter is in its initial stages. Accordingly, the Company cannot at
this time predict its likelihood of success on the merits.


                                       9
<PAGE>

                   DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
                                   (CONTINUED)

     In February 2001, Picus Communications, LLC, a debtor in Chapter 11
bankruptcy in the United States Bankruptcy Court for the Eastern District of
Virginia, brought suit against the Company and its wholly owned subsidiary,
Telaleasing Enterprises, Inc., in the United States District Court for the
Eastern District of Virginia, claiming unpaid invoices of over $600,000 for
local telephone services in Virginia, Maryland, and the District of Columbia.
The Company sought relief from the Bankruptcy Court to assert claims against
Picus and answered Picus's complaint in the District Court, denying its material
allegations. On or about April 2, 2001, Picus moved the District Court to
dismiss its case and indicated that it may file its claim as an adversary
proceeding with the Bankruptcy Court. In such an event, the Company intends to
reassert its counterclaim in Bankruptcy Court. The Company believes it has
meritorious defenses and counterclaims against Picus and intends to vigorously
defend itself and pursue recovery from Picus on its counterclaims. The Company
cannot at this time predict its likelihood of success on the merits.

     The Company is involved in other litigation arising in the usual course of
business which it believes will not materially affect its financial position,
results of operations, or liquidity.

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and notes thereto appearing
elsewhere herein.

     With the exception of historical information (information relating to the
Company's financial condition and results of operations at historical dates or
for historical periods), the matters discussed in this Management's Discussion
and Analysis of Financial Condition and Result of Operations ("MD&A") are
forward-looking statements that necessarily are based on certain assumptions and
are subject to certain risks and uncertainties. The forward-looking statements
are based on management's expectations as of the date hereof. Actual future
performance and results could differ materially from that contained in or
suggested by these forward-looking statements as a result of the factors set
forth in this MD&A and related filings with the Securities and Exchange
Commission. The Company assumes no obligation to update any such forward-looking
statements.

GENERAL

     During 2001, the Company derived its revenues from two principal sources:
coin calls and non-coin calls. Coin calls represent calls paid for by callers
with coins deposited in the payphone. Coin call revenues are recorded in the
amount of coins deposited in the payphones.

     Non-coin calls include credit card, calling card, collect, and third party
billed calls, handled by operator service providers selected by the Company.
Non-coin call revenues are recognized based upon the commission received by the
Company from the carriers of these calls.

     The Company also recognizes non-coin revenues from calls that are dialed
from its payphones to gain access to a long distance company other than the one
pre-programmed into the telephone or to make a traditional "toll free" call
(dial-around calls). Revenues from dial-around calls are recognized based on
estimates of calls made using most recent actual historical data and the Federal
Communications Commission mandated dial-around compensation rate in effect. This
is commonly referred to as "dial-around" access.


                                       10
<PAGE>

     The principal costs related to the ongoing operation of the Company's
payphones include telephone charges, commissions, and service, maintenance and
network costs. Telephone charges consist of payments made by the Company to LECs
and long distance carriers for line charges and use of their networks.
Commission expense represents payments to Location Owners. Service, maintenance
and network costs represent the cost of servicing and maintaining the payphones
on an ongoing basis.

REGULATORY IMPACT ON REVENUE

LOCAL COIN RATES

     In ensuring "fair compensation" for all calls, the FCC previously
determined that local coin rates from payphones should be generally deregulated
by October 7, 1997, but provided for possible modifications or exemptions from
deregulation upon a detailed showing by an individual state that there are
market failures within the state that would not allow market-based rates to
develop. On July 1, 1997, a federal court issued an order which upheld the FCC's
authority to deregulate local coin call rates. In accordance with the FCC's
ruling and the court order, certain LECs and IPPs, including the Company,
increased rates for local coin calls from $0.25 to $0.35. In 2001, the Company
experienced lower coin call volumes on its payphones resulting from the
increased rates, growth in wireless communication services and changes in call
traffic and the geographic mix of the Company's payphones.

DIAL-AROUND COMPENSATION

     In September and November 1996, the FCC issued its rulings implementing
Section 276 (the "1996 Payphone Order"). In the 1996 Payphone Order, the FCC
determined that the best way to ensure fair compensation to independent and LEC
PSPs for each and every call was to deregulate, to the maximum extent possible,
the price of all calls originating from payphones. For local coin calls, the FCC
mandated that deregulation of the local coin rate would not occur until October
1997 in order to provide a period of orderly transition from the previous system
of state regulation.

     To achieve fair compensation for dial-around calls through deregulation and
competition, the FCC in the 1996 Payphone Order directed a two-phase transition
from a regulated market. In the first phase, November 1996 to October 1997, the
FCC prescribed flat-rate compensation payable to the PSPs by the IXCs in the
amount of $45.85 per month per payphone. This rate was arrived at by determining
that the deregulated local coin rate was a valid market-based surrogate for
dial-around calls. The FCC applied a market-based, deregulated coin rate of
$0.35 per call to a finding from the record that there was a monthly average of
131 compensable dial-around calls per payphone. This total included both carrier
access code calls dialed for the purpose of reaching a long distance company
other than the one designated by the PSP as well as 800 "toll free" calls. The
monthly, per phone flat-rate compensation of $45.85 was to be assessed only
against IXCs with annual toll-call revenues in excess of $100 million and
allocated among such IXCs in proportion to their gross long-distance revenues.
During the second phase of the transition to deregulation and market-based
compensation (initially from October 1997 to October 1998, but subsequently
extended in a later order by one year to October 1999), the FCC directed the
IXCs to pay the PSPs on a per-call basis for dial-around calls at the assumed
deregulated coin rate of $0.35 per call. At the conclusion of the second phase,
the FCC set the market-based local coin rate, determined on a
payphone-by-payphone basis, as the default per-call compensation rate in the
absence of a negotiated agreement between the PSP and the IXC. To facilitate
per-call compensation, the FCC required the PSPs to transmit payphone-specific
coding digits which would identify each call as originating from a payphone and
required the LECs to make such coding available to the PSPs as a tariffed item
included in the local access line service.

     In July 1997, a federal court (the "Court") responded to an appeal of the
1996 Payphone Order, finding that the FCC erred in (1) setting the default
per-call rate at $0.35 without considering the differences in


                                       11
<PAGE>

underlying costs between dial-around calls and local coin calls, (2) assessing
the flat-rate compensation against only the carriers with annual toll-call
revenues in excess of $100 million, and (3) allocating the assessment of the
flat-rate compensation based on gross revenues rather than on a factor more
directly related to the number of dial-around calls processed by the carrier.
The Court also assigned error to other aspects of the 1996 Payphone Order
concerning inmate payphones and the accounting treatment of payphones
transferred by an RBOC to a separate affiliate.

     In response to the Court's remand, the FCC issued its modified ruling
implementing Section 276 (the "1997 Payphone Order") in October of 1997. The FCC
determined that distinct and severable costs of $0.066 were attributable to coin
calls that did not apply to the costs incurred by the PSPs in providing access
for dial-around calls. Accordingly, the FCC adjusted the per call rate during
the second phase of interim compensation to $0.284 (which is $0.35 less $0.066).
While the FCC tentatively concluded that the $0.284 default rate should be
utilized in determining compensation during the first phase and reiterated that
PSPs were entitled to compensation for each and every call during the first
phase, it deferred a decision on the precise method of allocating the initial
interim period (November 1996 through October 1997) flat-rate payment obligation
among the IXCs and the number of calls to be used in determining the total
amount of the payment obligation.

     On March 9, 1998, the FCC issued a Memorandum Opinion and Order, FCC
98-481, which extended and waived certain requirements concerning the provision
by the LECs of payphone-specific coding digits which identify a call as
originating from a payphone. Without the transmission of payphone-specific
coding digits, some of the IXCs have claimed they are unable to identify a call
as a payphone call eligible for dial-around compensation. With the stated
purpose of ensuring the continued payment of dial-around compensation, the FCC's
Memorandum and Order issued on April 3, 1998 left in place the requirement for
payment of per-call compensation for payphones on lines that do not transmit the
requisite payphone-specific coding digits but gave the IXCs a choice for
computing the amount of compensation for payphones on LEC lines not transmitting
the payphone-specific coding digits of either accurately computing per-call
compensation from their databases or paying per-phone, flat-rate compensation
computed by multiplying the $0.284 per call rate by the nationwide average
number of 800 subscriber and access code calls placed from RBOC payphones for
corresponding payment periods. Accurate payments made at the flat rate are not
subject to subsequent adjustment for actual call counts from the applicable
payphone.

     On May 15, 1998, the Court again remanded the per-call compensation rate to
the FCC for further explanation without vacating the $0.284 per call rate. The
Court opined that the FCC had failed to explain adequately its derivation of the
$0.284 default rate. The Court stated that any resulting overpayment would be
subject to refund and directed the FCC to conclude its proceedings within a
six-month period from the effective date of the Court's decision.

     In response to the Court's second remand, the FCC conducted further
proceedings and sought additional comment from interested parties to address the
relevant issues posed by the Court. On February 4, 1999, the FCC released the
Third Report and Order and Order on Reconsideration of the Second Report and
Order (the "1999 Payphone Order"), in which the FCC abandoned its efforts to
derive a "market-based" default dial-around compensation rate and instead
adopted a "cost-based" rate of $0.24 per dial-around call. Both PSPs and IXCs
petitioned the Court for review of the 1999 Payphone Order's determination of
the dial-around compensation rate. On June 16, 2000, the Court affirmed the 1999
Payphone Order setting a 24-cent dial-around compensation rate. On all the
issues, including those raised by the IXCs and the payphone providers, the Court
applied the "arbitrary and capricious" standard of review, and found that the
FCC's rulings were lawful and sustainable under that standard. As a result of
the Court's June 16, 2000 decision, the 24-cent dial-around compensation rate is
likely to remain in place until at least the end of 2001, when the FCC has
promised to complete a third-year review of the rate. With respect to the
Petition for Reconsideration of the 1999 Payphone Order filed with the FCC by
the payphone providers, this Petition is still pending and has yet to be ruled
on by the FCC. In view of the Court's affirmation of the 1999 Payphone Order, it
is unlikely that the FCC will adopt material changes to the key components of
the Order pursuant to the pending Reconsideration Petition, although no
assurances can be given.


                                       12
<PAGE>

         On April 5, 2001, the FCC released an order that is expected to have a
significant impact on the obligations of telecommunications carriers to pay
dial-around compensation to PSPs. The effect of the decision is to clarify that
the first carrier to handle a dial-around call originating from a pay telephone
has the obligation to track and pay compensation on the call, regardless of
whether other carriers may subsequently transport or complete the call. Under
the FCC ruling, implementation of this system modification is scheduled to occur
on November 27, 2001. The Company believes that this modification to the
dial-around compensation system will result in a significant increase to the
number of calls upon which the Company is able to collect such compensation.
Because, however, the FCC ruling is potentially subject to administrative
reconsideration or judicial appeal and the system modification is as yet
untested, no assurances can be given as to the precise timing or magnitude of
revenue impact that will flow from the decision.

     The new 24-cent rate became effective April 21, 1999, and will serve as the
default rate through January 31, 2002. The new rate will also be applied
retroactively to the period beginning on October 7, 1997, less a $0.002 amount
to account for FLEX ANI payphone tracking costs, for a net compensation of
$0.238. The 1999 Payphone Order deferred a final ruling on the interim period
(November 7, 1996 to October 6, 1997) treatment to a later, as yet unreleased,
order; however, it appears that the $0.238 rate will be applied to the period
November 7, 1996 to October 6, 1997. Upon establishment of the interim period
rate, the FCC has further ruled that a true-up may be made for all payments or
credits (with applicable interest) due and owing between the IXCs and the PSPs,
including Davel, for the payment period commencing on November 7, 1996 through
the effective date of the new $0.24 per call rate. It is possible that the final
implementation of the 1999 Payphone Order, including resolution of this
retroactive adjustment and the outcome of any related administrative or judicial
review, could have a material adverse effect on the Company.

     The payment levels for dial-around calls prescribed in the 1996 and 1997
Payphone Orders significantly increase per-call dial-around compensation
revenues to the Company over the levels received prior to implementation of the
1996 Telecom Act (although the 1999 Payphone Order has now moderated those
increases). However, market forces and factors outside the Company's control
could significantly affect these per-call revenue increases. These factors
include the following: (i) the resolution by the FCC of the "true up" of the
initial interim period flat-rate and "per call" assessment periods, (ii) the
possibility of other administrative proceedings or litigation seeking to modify
or overturn the 1999 Payphone Order or portions thereof, (iii) the IXC's
reaction to the FCC's recognition that existing regulations do not prohibit an
IXC from blocking 800 subscriber numbers from payphones in order to avoid paying
per-call compensation on such calls, and (iv) ongoing technical or other
difficulties in the responsible carriers' ability and willingness to properly
track or pay for dial-around calls actually delivered to them.

THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000

         For the three months ended March 31, 2001, total revenues decreased
approximately $13.2 million, or 36.2%, to approximately $23.2 million in the
three months ended March 31, 2001 from approximately $36.4 million in the same
period of 2000. This decrease was primarily attributable to the removal of
unprofitable phones, and lower call volumes, due to increased competition from
the wireless communications industry, resulting in lower average revenue per
phone.

         Coin call revenues decreased approximately $6.1 million, or 28.3%, to
approximately $15.6 million in the three months ended March 31, 2001 from
approximately $21.7 million in the first quarter of 2000. The decrease in coin
call revenues was primarily attributable to a reduction in the number of average
payphones per month from approximately 76,000 phones at March 31, 2000 to
approximately 66,000 at March 31, 2001, as a result of the Company's ongoing
strategy to remove unprofitable phones, and from lower call volumes on the
Company's payphones resulting from increased competition from wireless
communication services and changes in call traffic.


                                       13
<PAGE>

         Non-coin call revenues, which is comprised primarily of dial-around
revenue and long distance revenue, decreased approximately $7.0 million, or
47.9%, to approximately $7.7 million in the three months ended March 31, 2001
from approximately $14.7 million in the three months ended March 31, 2000. The
decrease was primarily attributable to the removal of unprofitable phone
locations, and lower call volumes on the Company's payphones resulting from the
growth in wireless communication services and changes in call traffic.
Dial-around revenue decreased approximately $3.9 million, to approximately $4.6
million in the three months ended March 31, 2001 from approximately $8.5 million
in the first quarter of 2000. The dial-around decrease is primarily attributable
to the net removal of approximately 10,000 unprofitable phones, or 13.1% of the
total payphone base over the 12-month period, and lower calls per phone due to
increased competition from wireless services. Long-distance revenues decreased
approximately $2.2 million, to approximately $3.1 million in the first quarter
of 2001 from approximately $5.3 million in the three months ended March 31,
2000. The decrease is attributable to fewer payphones in service, fewer long
distance calls made per phone, and reduced call time per call.

         Telephone charges decreased approximately $958,000, or 9.7%, to
approximately $9.0 million for the quarter ended March 31, 2001 from
approximately $9.9 million in the three months ended March 31, 2000. Such
charges, however, increased as a percentage of revenues to 38.6% in the first
quarter of 2001 from 27.2% in the first quarter of 2000, due to the decline in
revenues. Average monthly telephone bill charges were $45.40 per phone in the
first quarter of 2001 compared with $42.96 per phone in the first quarter of
2000. Telephone charges for the quarter ended March 31, 2001 would have been
impacted by a $2.1 million refund received from BellSouth for prior period
charges pursuant to a recently adopted Tennessee `New Service Test', however,
the Company did not recognize the refund in its first quarter Statement of
Operations due to the pending court ruling on BellSouth's appeal. The Company is
currently negotiating contracts and pursuing additional regulatory relief that
it believes will further reduce local access charges on a per-phone basis, but
is unable to estimate the impact of further telephone charge reductions at this
time.

         Commissions decreased approximately $3.4 million, or 39.2%, to
approximately $5.3 million in the three months ended March 31, 2001 from
approximately $8.7 million in the three months ended March 31, 2000. Commissions
for the quarter ended March 31, 2001 included the reversal of a prior year
commission expense accrual of approximately $576,000 reflecting an adjustment to
the expense in accordance with changes made to a contract. Excluding the accrual
reversal, commissions as a percentage of revenues have begun to rise due to
revenue mix changes as well as the removal of phones that had lower commission
rates. The shift in revenue mix to the higher commissioned sources has given
rise to higher average commissions per phone. The Company is actively reviewing
its strategies related to contract renewals in order to maintain its competitive
position while retaining its customer base.

         Service, maintenance and network costs decreased approximately $1.5
million, or 19.0%, to approximately $6.2 million in the three months ended March
31, 2001 from approximately $7.7 million in the three months ended March 31,
2000. The decrease was primarily attributable to reductions in headcount and
wage related costs of approximately $1.5 million generated from rationalization
of field office expenses, increased geographic and route density of the phones
and the Company's ability to improve efficiency on servicing the Company's
payphones. Reductions in service and collection expenses of approximately
$387,000, service vehicle expenses of approximately $178,000 and lower field
office expenses of approximately $65,000 occurred as a result of lower phone
count and field office reorganizations. Regulatory fees and surcharges were
approximately $94,000 in the three months ended March 31, 2001 compared with a
$526,000 credit recorded in the first quarter of 2000 due to favorable rate
changes related to FCC mandated "Universal Service Fund" fees.

         Depreciation expense in the three months ended March 31, 2001 declined
to approximately $4.3 million from approximately $4.6 million recorded in the
three months ended March 31, 2000. Amortization expense in the three months
ended March 31, 2001 declined to approximately $333,000 from approximately $4.1
million recorded in the three months ended March 31, 2000. The decrease in
depreciation and amortization expense is primarily attributable to impairment
charges in the fourth quarter of 2000 for installed phones, goodwill and site
contract intangibles.


                                       14
<PAGE>

         Selling, general and administrative expenses decreased approximately
$1.1 million, or 27.3%, to approximately $3.1 million in the three months ended
March 31, 2001 from approximately $4.2 million in the three months ended March
31, 2000. The decrease in expense was primarily attributable to a reduction in
salaries and salary-related expenses of approximately $1.2 million which
occurred as a result of continued rationalization of overhead expenses in light
of a declining revenue base. In addition, legal fees declined approximately
$198,000, offset by an increase in fees for accounting and other professional
services of approximately $258,000 and an increase in insurance expenses,
primarily for workers' compensation coverage, of $106,000. Modest declines
totaling approximately $166,000 in several other areas such as travel and
general office expenses were also realized.

         Interest expense in the three months ended March 31, 2001 increased
approximately $1.1 million, or 16.6%, compared to the prior-year period, to
approximately $7.8 million in the first quarter of 2001 from approximately $6.7
million in the first quarter of 2000. The increase in recorded interest is the
result of an acceleration of loan origination fee amortization of approximately
$678,000 and higher average outstanding debt on which interest is computed in
the first quarter of 2001 compared with the first quarter of 2000.

         Net loss increased approximately $3.3 million, or 35.1%, to
approximately $12.6 million in the three months ended March 31, 2001 from
approximately $9.3 million in the first quarter of 2000.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

     Historically, the Company's primary sources of liquidity have been cash
from operations, borrowings under various credit facilities and, periodically,
proceeds from the issuance of common stock and proceeds from the issuance of
preferred stock. There was no stock issued in the most recent two years, and
borrowings under the Company's credit facilities ceased after the third quarter
of 2000.

     The Company's payphone revenues by operating region are affected by
seasonal variations, geographic distribution of payphones, removal of
unprofitable phones and type of location. Because many of the payphones are
located outdoors, weather patterns have differing effects on the Company's
results depending on the region of the country where the payphones are located.
Payphones located in the southern United States produce substantially higher
call volume in the first and second quarters than at other times during the
years, while the Company's payphones throughout the midwestern and eastern
United States produce their highest call volumes during the second and third
quarters.

     In the three months ended March 31, 2001, operating activities provided
approximately $511,000 of net cash. Operating activities used approximately $8.1
million of net cash in the three months ended March 31, 2000. The $12.6 million
operating loss was impacted by a decrease of $2.3 million in trade receivables,
increases of $3.3 million in payables and accruals, and $4.6 million in
depreciation and amortization during the quarter ended March 31, 2001. The
increase in payables and accrued liabilities reflects, in part, an extension of
payment terms with certain vendors and an effort to shift a greater number of
customers from monthly to quarterly commission payments, as well as a refund of
approximately $2.6 million received from BellSouth relating to Tennessee's
recently adopted "New Services Test" which is under appeal by BellSouth.

     Capital expenditures for the three months ended March 31, 2001 were $95,000
compared to $1.6 million in the three months ended March 31, 2000. The current
strategy of removing under-performing phones, combined with the existence of an
extensive inventory of phone components, allows for minimal capital equipment
expenditures.

     The Company's principal source of liquidity in the three months ended March
31, 2001 came from cash flow generated from operating activities. The Company's
primary uses of liquidity are to provide working


                                       15
<PAGE>

capital and to meet debt service requirements. At March 31, 2001, the Company no
longer had borrowing availability through a revolving line of credit under the
Senior Credit Facility. See "Credit Agreement" section below for a discussion of
the amendments that have restructured the Senior Credit Facility and a
description of current indebtedness. All outstanding debt in connection with the
senior credit facility has been reclassified to current liabilities. The Company
made principal payments of $5.2 million and borrowed $15.7 under the Company's
Senior Credit Facility in the three months ended March 31, 2000. A principal
payment of $1.1 million was paid in April 2001 as required under the Sixth
Amendment to the Senior Credit Facility.

CREDIT AGREEMENT

     In connection with the Peoples Telephone Merger, the Company entered into a
senior credit facility ("Senior Credit Facility") with Bank of America, formerly
known as NationsBank, N.A. (the "Administrative Agent"), and the other lenders
named therein. The Senior Credit Facility provides for borrowings by Davel from
time to time of up to $245.0 million, including a $45 million revolving
facility, for working capital and other corporate purposes.

     Indebtedness of the Company under the Senior Credit Facility is secured by
substantially all of its and its subsidiaries' assets, including but not limited
to their equipment, inventory, receivables and related contracts, investment
property, computer hardware and software, bank accounts, and all other goods and
rights of every kind and description and is guaranteed by Davel and all its
subsidiaries.

     The Company's borrowings under the original Senior Credit Facility bore
interest at a floating rate and may be maintained as Base Rate Loans (as defined
in the Senior Credit Facility) or, at the Company's option, as Eurodollar Loans
(as defined in the Senior Credit Facility). Base Rate Loans bear interest at the
Base Rate (defined as the higher of (i) the applicable prime lending rate of
Bank of America or (ii) the Federal Reserve reported certificate of deposit rate
plus 1%). Eurodollar Loans bear interest at the Eurodollar Rate (as defined in
the Senior Credit Facility).

     The Company is required to pay the lenders under the Senior Credit Facility
a commitment fee, payable in arrears on a quarterly basis, on the average unused
portion of the Senior Credit Facility during the term of the facility. The
Company is also required to pay an annual agency fee to the Agent. In addition,
the Company was also required to pay an arrangement fee for the account of each
bank in accordance with the banks' respective pro rata share of the Senior
Credit Facility. The Administrative Agent and the other lenders will receive
such other fees as have been separately agreed upon with the Administrative
Agent.

     The Senior Credit Facility requires the Company to meet certain financial
tests and contains certain covenants that, among other things, limit the
incurrence of additional indebtedness, prepayments of other indebtedness, liens
and encumbrances and other matters customarily restricted in such agreements.

FIRST AMENDMENT

     In the first quarter of 1999, the Company gave notice to the Administrative
Agent that lower than expected performance in the first quarter of 1999 would
result in the Company's inability to meet certain financial covenants contained
in the Senior Credit Facility. On April 8, 1999, the Company and the Lenders
agreed to the First Amendment to Credit Agreement and Consent and Waiver (the
"First Amendment") which waived compliance, for the fiscal quarter ended March
31, 1999, with the financial covenants set forth in the Senior Credit Facility.
In addition, the First Amendment waived any event of default related to two
acquisitions made by the Company in the first quarter of 1999, and waived the
requirement that the Company deliver annual financial statements to the Lenders
within 90 days of December 31, 1998, provided that such financial statements be
delivered no later than April 15, 1999. The First Amendment contained amendments
that provided for the following:


                                       16
<PAGE>

     o    Amendment of the applicable percentages for Eurodollar Loans for the
          period between April 1, 1999 and June 30, 2000 at each pricing level
          to 0.25% higher than those in the previous pricing grid

     o    Payment of debt from receipt of dial-around compensation accounts
          receivable related to the period November 1996 through October 1997

     o    Further limitations on permitted acquisitions as defined in the Credit
          Agreement through June 30, 2000

     o    During the period April 1, 1999 to June 30, 2000, required lenders'
          consent for the making of loans or the issuance of letters of credit
          if the sum of revolving loans outstanding plus letter of credit
          obligations outstanding exceeds $50.0 million

     o    The introduction of a new covenant to provide certain operating data
          to the Lenders on a monthly basis

     o    Increases in the maximum allowable ratio of funded debt to EBITDA
          through the quarter ended June 30, 2000

     o    Decreases in the minimum allowable interest coverage ratio through the
          quarter ended June 30, 2000

     o    Decreases in the minimum allowable fixed charge coverage ratio through
          the quarter ended June 30, 2000.

     The First Amendment also places limits on capital expenditures and required
the payment of an amendment fee equal to the product of the Lender's commitment
multiplied by 0.35%.

SECOND AMENDMENT

     In the first quarter of 2000, the Company gave notice to the Administrative
Agent that lower than expected performance in the first quarter of 2000 would
result in the Company's inability to meet certain financial covenants contained
in the Senior Credit Facility. Effective March 9, 2000, the Company and the
Lenders agreed to the Second Amendment to Credit Agreement and Consent and
Waiver (the "Second Amendment"), which waived certain covenants through January
15, 2001. In exchange for the covenant relief, the Company agreed to a lowering
of the available credit facility to $245 million (through a permanent reduction
of the revolving line of credit to $45 million), placement of a block on the
final $10 million of borrowing under the revolving credit facility (which
requires that all of the Lenders be notified in order to access the final $10.0
million of availability on that facility), a fee of 35 basis points of the
Lenders commitment and a moratorium on acquisitions. The Second Amendment
contained amendments that provided for the following:

     o    Amendment of the applicable percentages for Eurodollar Loans to:

          (a)  3.50% for all Revolving Loans which are Eurodollar Loans, all
               Tranche A Term Loans which are Eurodollar Loans, and all Letter
               of Credit Fees;

          (b)  4.25% for all Tranche B Term Loans which are Eurodollar Loans;

          (c)  2.00% for all Revolving Loans which are Base Rate Loans and all
               Tranche A Term Loans which are Base Rate Loans; (d) 2.75% for all
               Tranche B Term Loans which are Base Rate Loans; and (e) 0.75% for
               all Commitment Fees;

     o    After March 9, 2000, introduction of a new covenant requiring lenders'
          consent for the making of loans or the issuance of letters of credit
          if the sum of revolving loans outstanding plus letter of credit


                                       17
<PAGE>

          obligations outstanding exceeds $35.0 million;

     o    The addition of a new covenant to provide financial statements to the
          Lenders on a monthly basis;

     o    Increases in the maximum allowable ratio of funded debt to EBITDA
          through the maturity date of the loan;

     o    Decreases in the minimum allowable interest coverage ratio through the
          maturity date of the loan;

     o    Decreases in the minimum allowable fixed charge coverage ratio through
          the maturity date of the loan;

     o    Decreases in permitted capital expenditures to $10 million annually;
          and

     o    Reduction of the maximum interest period for Eurodollar loans to 30
          days.

THIRD AMENDMENT

     In the second quarter of 2000, the Company gave notice to the
Administrative Agent that lower than expected performance during the first six
months of 2000 would result in the Company's inability to meet certain financial
covenants contained in the Senior Credit Facility as well as the June 30, 2000
debt amortization and interest payments. On June 22, 2000, the Company and the
Lenders who are party to the agreement agreed to the Third Amendment to Credit
Agreement (the "Third Amendment"), which eliminated the financial covenant
compliance test for the fiscal quarter ended June 30, 2000, as was set forth in
the Senior Credit Facility. The Third Amendment also provided for the following:

     o    Term Loan A amortization payments totaling $5.0 million scheduled for
          June 30, 2000 would be due on September 30, 2000 together with the
          $5.0 million amortization payment scheduled for that date. The total
          Term A amortization payments due on September 30, 2000 are $10.0
          million;

     o    Term Loan B amortization payments totaling approximately $0.2 million
          scheduled for June 30, 2000 would be due on September 30, 2000
          together with the approximately $0.2 million amortization payment
          scheduled for that date. The total Term B amortization payments due on
          September 30, 2000 are approximately $0.5 million;

     o    Interest payments due on June 30, 2000 became due and were paid on
          July 10, 2000; and

     o    All interest otherwise due and payable on each interest payment date
          occurring after June 30, 2000 and before September 30, 2000 continued
          to accrue on the applicable loans from and after such interest payment
          date and were to have been due and payable in arrears on September 30,
          2000.

FOURTH AMENDMENT

         In the third quarter of 2000, the Company gave notice to the
Administrative Agent that lower than expected performance during the first nine
months of 2000 would result in the Company's inability to meet certain financial
covenants contained in the Senior Credit Facility as well as the September 30,
2000 debt amortization and interest payments. On September 28, 2000, the Company
and the Lenders who are party to the agreement agreed to the Fourth Amendment to
Credit Agreement, which eliminated the financial covenants in their entirety
with respect to all periods ending on and after September 30, 2000 and also
provided for the following:

     o    Term Loan A, Term Loan B and Revolving Loan amortization payments
          totaling $15.7 million were to have been due on January 12, 2001. In
          addition, amortization payments of approximately $7.7


                                       18
<PAGE>

          million are due on each of March 31, June 30, September 30 and
          December 31, 2001, and the balance of the then outstanding principal
          amount of all loan obligations is due on January 11, 2002;

     o    Interest payments otherwise due and payable on any interest payment
          date prior to January 12, 2001 will continue to accrue were to have
          been payable in arrears on January 12, 2001;

     o    Applicable percentages for adjusted LIBOR interest rates after
          September 29, 2000 were generally lowered from those set forth in the
          Third Amendment to 2.75% for all Loans, except that rates will
          continue to equal 3.50% for all Letter of Credit Fees and 0.75% for
          all Commitment Fees;

     o    Positive net cash on hand in excess of $2.0 million at the end of each
          month will be paid to the Lenders as a prepayment of the Loans;

     o    The Revolving Loan commitment was terminated;

     o    Capital expenditures for the period October 1, 2000 to January 12,
          2001 were limited to $400,000; and

     o    The provision regarding the application of prepayments was modified,
          and a new provision was added requiring the Company to submit to the
          Lenders bi-weekly cash flow forecasts and a revised business plan for
          the 2001 fiscal year.

FIFTH AMENDMENT

     On November 29, 2000, the Borrower requested that the Lenders waive its
noncompliance with the requirements of the Credit Agreement resulting from the
Borrower's non-delivery of a revised business plan to the Lenders on or before
November 15, 2000. In exchange, the Borrower agreed to amend certain provisions
of the Credit Agreement that had permitted the Borrower to dispose of certain
property outside the ordinary course of business and to make certain investments
outside the ordinary course of business so as to require, in each case, the
Lenders' prior written approval for any such disposition or investment.

SIXTH AMENDMENT

     In the fourth quarter of 2000, the Company gave notice to the new
Administrative Agent that the Company would not be able to make the January 12,
2001 debt amortization and interest payments. On March 23, 2001, the Company and
the Lenders entered into the Sixth Amendment to Credit Agreement and Waiver,
effective as of January 12, 2001 (the "Sixth Amendment"), which provided for the
following:

     o    Principal amortization payments would be made in the amounts of $1.1
          million on April 15, 2001 (which was timely paid), $2.2 million on
          July 15, 2001 and $3.3 million on October 15, 2001;

     o    The remaining outstanding principal amount of all loans, together with
          all accrued and unpaid interest, will be due on January 11, 2002;

     o    The Company will provide monthly budget reconciliation reports to the
          Lenders;

     o    The Company will comply with an agreed-upon budget for expenses in
          2001;

     o    The Company will be subject to a limit on capital expenditures and
          certain location signing bonuses in 2001 and a minimum EBITDA covenant
          for 2001; and


                                       19
<PAGE>

     o    The Company agreed to the substitution of a new administrative agent
          for the Lenders, to pay such new agent a monthly fee of $30,000 and to
          pay certain earned fees of the professional advisors to the Lenders.

     The Company was in compliance with all covenants contained in the Sixth
Amendment, including the minimum EBITDA requirements for the first quarter. In
addition, the Company made a required $1.1 million principal payment as
scheduled in April, 2001.

     The Senior Credit Facility contains customary events of default, including
without limitation, payment defaults, defaults for breaches of representations
and warranties, covenant defaults, cross-defaults to certain other indebtedness,
defaults for certain events of bankruptcy and insolvency, judgment defaults,
failure of any guaranty or security document supporting the Senior Credit
Facility to be in full force and effect, and defaults for a change of control of
the Company.

     The Company incurred losses of approximately $111.5 million and $12.6
million for the year ended December 31, 2000 and the quarter ended March 31,
2001, respectively. These losses were primarily attributable to increased
competition from providers of wireless communication services and the impact on
the Company's revenue of certain regulatory changes. As of March 31, 2001, the
Company had a working capital deficit of $265.0 million and its liabilities
exceed its assets by $199.1 million. In addition, the Company was unable to meet
its debt principal payments of $15.7 million and interest payments of $12.5
million, which would have been due and payable on January 12, 2001 but for the
Company's execution of the Sixth Amendment to its loan agreement, which calls
for interim principal payments of $1.1 million due on April 15, 2001 (which was
timely paid), $2.2 million due on July 15, 2001, $3.3 million due on October 15,
2001 and the remainder due on January 11, 2002. In the absence of improved
operating results or cash flows, modifications to the Senior Credit Facility, or
the completion of possible strategic combinations, the Company will face
liquidity problems and might be required to dispose of material assets or
operations to fund its operations and to meet its debt service and other
obligations. There can be no assurances as to the ability of the Company to
execute such asset sales, or the timing thereof or the proceeds that the Company
could realize from such sales. As a result of these matters, substantial doubt
exists about the Company's ability to continue as a going concern.

     The Company's plans to increase liquidity include efforts to substantially
reduce costs, including through possible strategic combinations. Management
believes this will result in expansion of its market presence and further
leveraging of its infrastructure. In order to pursue this strategy, the Company
will need to obtain additional modifications to the Senior Credit Facility, and
may require forgiveness of a portion of its debt. The Company may also need to
obtain additional debt or equity financing. There can be no assurance that such
debt modifications or financings will be available to the Company, or that they
will be available on terms acceptable to the Company. Further, any additional
equity financing may be dilutive to existing shareholders.

IMPACT OF INFLATION

         Inflation is not considered a material factor affecting the Company's
business. General operating expenses such as salaries, employee benefits and
occupancy costs are, however, subject to normal inflationary pressures.

SEASONALITY

         The Company's revenues from its payphone operation regions are affected
by seasonal variations, geographic distribution of payphones and type of
location. Because many of the Company's payphones are located outdoors, weather
patterns have differing effects on the Company's results depending on the region
of the country where they are located. Most of the Company's payphones in the
southeastern United States produce


                                       20
<PAGE>

substantially higher call volume in the first and second quarters than at other
times during the year, while the Company's payphones throughout the midwestern
and eastern United States produce their highest call volumes during the second
and third quarters. While the aggregate effect of the variations in different
geographical regions tend to counteract the effect of one another, the Company
has historically experienced higher revenue and income in the second and third
quarters than in the first and fourth quarters. Changes in the geographical
distribution of its payphones may in the future result in different seasonal
variations in the Company's results.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to certain market risks inherent in the Company's
financial instruments that arise from transactions entered into in the normal
course of business. The Company is subject to variable interest rate risk on its
existing Senior Credit Facility and any future financing requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

     In connection with the provisions of its Senior Credit Facility and the
Company's overall interest rate management objectives, the Company utilizes
derivative financial instruments to reduce its exposure to market risks from
significant increases in interest rates. The Company's strategy is to purchase
interest rate swaps, collars and caps from large financial institutions to limit
the impact of increases in interest rates on the Company's variable rate
long-term debt.

     As of March 31, 2001, the Company has an interest rate cap agreement with a
notional amount of $15 million that terminates in September 2001. The interest
rate cap agreement requires premium payments to the counterparty based on the
notional amount of the contracts that are capitalized and amortized to interest
expense over the life of the contract. This agreement entitles the Company to
receive quarterly payments from the counterparties for amounts, if any, by which
the U.S. three month LIBOR rate exceeds 7%. In addition, the Company entered
into an interest rate collar agreement with a large financial institution that
terminates in February 2002. The notional amount of the interest rate collar is
$25 million and the agreement has a cap rate of 6.5% and a floor rate of 4.8%
based on the U.S. one month LIBOR rate.

     As of March 31, 2001, the Company has an interest rate swap agreement with
an aggregate notional amount of $7.5 million with a termination date of June
2001. The interest rate swap requires the Company to pay fixed rates of 6.4% in
exchange for variable rate payments based on the U.S. three month LIBOR (4.9% as
of March 31, 2001). Interest rate differentials are paid or received every three
months and are recognized as adjustments to interest expense.

     Based upon the Company's variable rate indebtedness and weighted average
interest rates at March 31, 2001, a ten percent (or one thousand basis points)
increase in market interest rates would decrease future earnings and cash flows
by approximately $5.7 million per quarter. A ten percent (or one thousand basis
points) decrease in market interest rates would increase future earnings and
cash flows by approximately $6.2 million per quarter.

     These amounts were determined by considering the impact of hypothetical
interest rates and equity prices on the Company's financial instruments. These
analyses do not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of specific
actions that would be taken and their possible effects, this analysis assumes no
changes in the Company's financial arrangements or capital structure.


                                       21
<PAGE>

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     In December 1995, Cellular World, Inc. filed suit in Dade County Circuit
Court against the Company's affiliates, Peoples Telephone and PTC Cellular,
Inc., alleging tortious interference with Cellular World's trade secrets. The
trial court previously entered partial summary judgment in favor of the Company
as to the plaintiff's trade secrets claim, leaving the tortious interference
claim for trial.

     Trial on the tortious interference claim commenced on February 29, 2000.
The Company had several meritorious legal and factual defenses to plaintiff's
claims. Although the Company believed that it had a reasonable possibility of
prevailing at trial or through an appeal, if necessary, the case presented
significant risks to the Company because the plaintiff intended to ask the jury
to award damages of up to $18 million. Following three days of trial, the
Company and Cellular World agreed to settle and resolve the dispute in its
entirety. Pursuant to the parties' agreement, the Company agreed to pay Cellular
World a total of $1.5 million as follows: (a) $500,000.00 by March 9, 2000; (b)
$250,000.00 by January 5, 2001; and (c) $750,000.00 in 15 equal monthly
installments of $50,000.00 commencing on January 15, 2001 (the "Settlement
Agreement"). Due to the Company's default under the Settlement Agreement, the
parties entered into discussions for purposes of negotiating a revised payment
schedule. Notwithstanding the parties' negotiations, on April 12, 2001, Cellular
World obtained a judgment against Davel Communications Group, Inc., PTC
Cellular, Inc., and Peoples Telephone Company, Inc. in the amount of $750,000.00
plus interest in accordance with the Settlement Agreement (the "Judgment"). On
April 26, 2001, Cellular World obtained an amended judgment, which substituted
Davel Communications, Inc. for Davel Communications Group, Inc. under the
Judgment. The Company is currently evaluating its legal options and intends to
vigorously defend against collection efforts by Cellular World.

     On September 29, 1998, the Company announced that it was exercising its
contractual rights to terminate a merger agreement (the "Davel/PhoneTel Merger
Agreement") with PhoneTel Technologies, Inc. ("PhoneTel"), based on breaches of
representations, warranties and covenants by PhoneTel. On October 1, 1998, the
Company filed a lawsuit in Delaware Chancery Court seeking damages, rescission
of the Davel/PhoneTel Merger Agreement and a declaratory judgment that such
breaches occurred. On October 27, 1998, PhoneTel answered the complaint and
filed a counterclaim against the Company alleging that the Davel/PhoneTel Merger
Agreement had been wrongfully terminated. At the same time, PhoneTel also filed
a third party claim against Peoples Telephone (acquired by the Company on
December 23, 1998) alleging that Peoples Telephone wrongfully caused the
termination of the Davel/PhoneTel Merger Agreement. The counterclaim and third
party claim seek specific performance by the Company of the transactions
contemplated by the Davel/PhoneTel Merger Agreement and damages and other
equitable relief from the Company and Peoples Telephone. The Company, at this
time, cannot predict the outcome of this litigation, but the parties have both
indicated a willingness to discuss settlement of the case.

     In December 1999, the Company and its affiliate Telaleasing Enterprises,
Inc. were sued in the United States District Court, Central District of
California, by Telecommunications Consultant Group, Inc. ("TCG") and U.S.
Telebrokers, Inc. ("UST"), two payphone consulting companies which allege to
have assisted the Company in obtaining a telephone placement agreement with CSK
Auto, Inc. The suit alleges that the Company breached its commission agreement
with the plaintiffs based on the Company's alleged wrongful rescission of its
agreement with CSK Auto, Inc. Plaintiffs' amended complaint alleges damages in
excess of $700,000. The Company moved to dismiss the complaint, and, on August
24, 2000, the Court denied the Company's motion. The Company subsequently
answered the complaint and asserted a counterclaim, seeking declaratory relief.
On October 13, 2000, plaintiffs answered the counterclaim, denying its material
allegations. Discovery has commenced in the matter; however, the matter remains
in its early stages, and the Company intends to vigorously defend itself in the
case. While the Company believes it possesses certain meritorious


                                       22
<PAGE>

defenses to the claims, the matter remains in its initial stages, and,
accordingly, the Company cannot at this time predict its likelihood of success
on the merits.

     In March 2000, the Company and its affiliate, Telaleasing Enterprises,
Inc., were sued in a related action in Maricopa County, Arizona Superior Court
by CSK Auto, Inc. ("CSK"). The suit alleges that the Company breached a location
agreement between the parties. CSK's complaint alleges damages in excess of $5
million. The Company removed the case to the U.S. District Court for Arizona and
moved to have the matter transferred to facilitate consolidation with the
related case in California brought by TCG and UST. On October 16, 2000, the U.S.
District Court for Arizona denied the Company's transfer motion and ordered the
case remanded back to Arizona state court. On November 13, 2000, the Company
filed its Notice of Appeal of the remand order to the United States Court of
Appeals for the Ninth Circuit. The appeal and underlying suit are in their
initial stages, and no discovery has commenced. The Company intends to
vigorously defend itself in the case. While the Company believes it possesses
certain meritorious defenses to the claims, the matter remains in its initial
stages, and, accordingly, the Company cannot at this time predict its likelihood
of success on the merits.

     On or about December 15, 2000, the Company filed and served its Amended
Complaint against LDDS WorldCom, Inc., MCI WorldCom Network Services, Inc., MCI
WorldCom Communications, Inc., and MCI WorldCom Management Company, Inc.
(collectively "Defendants"), claiming a violation of the Telecom Act and breach
of contract and seeking damages and equitable and injunctive relief associated
with Defendants' wrongful withholding of approximately $3.1 million in
dial-around compensation due to the Company, based upon an alleged, unrelated
indebtedness. The Company believes that the majority of Defendants' claims
consists of charges for fraudulent calls, improperly assessed payphone
surcharges or other erroneous billings, and the Company contends that it is not
liable for the alleged indebtedness. The Company filed a motion with the Court
for a preliminary injunction, and oral arguments were heard on February 12,
2001. Additionally, Defendants filed a motion with the Court to dismiss the
Amended Complaint, and oral arguments were heard on April 16, 2001. Both the
injunction and the motion to dismiss are currently pending before the Court. On
April 25, 2001, the Court ordered parties to mediate the case on or around June
18, 2001, expressly deferring its ruling on the Company's preliminary injunction
motion and Defendants' motion to dismiss until after such time as the parties
have participated in the mediation conference. Although the Company believes it
possesses meritorious claims in the case and intends to vigorously prosecute the
suit, the matter is in its initial stages. Accordingly, the Company cannot at
this time predict its likelihood of success on the merits.

     In February 2001, Picus Communications, LLC, a debtor in Chapter 11
bankruptcy in the United States Bankruptcy Court for the Eastern District of
Virginia, brought suit against the Company and its wholly owned subsidiary,
Telaleasing Enterprises, Inc., in the United States District Court for the
Eastern District of Virginia, claiming unpaid invoices of over $600,000 for
local telephone services in Virginia, Maryland, and the District of Columbia.
The Company sought relief from the Bankruptcy Court to assert claims against
Picus and answered Picus's complaint in the District Court, denying its material
allegations. On or about April 2, 2001, Picus moved the District Court to
dismiss its case and indicated that it may file its claim as an adversary
proceeding with the Bankruptcy Court. In such an event, the Company intends to
reassert its counterclaim in Bankruptcy Court. The Company believes it has
meritorious defenses and counterclaims against Picus and intends to vigorously
defend itself and pursue recovery from Picus on its counterclaims. The Company
cannot at this time predict its likelihood of success on the merits.

     The Company is involved in other litigation arising in the usual course of
business which it believes will not materially affect its financial position,
results of operations, or liquidity.


                                       23
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)  No exhibits are being filed with this Report.

      (b)  No current reports on Form 8-K were filed during the quarter





                                       24
<PAGE>

SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.

                                     DAVEL COMMUNICATIONS, INC.

Date: May 15, 2001                   /s/ MARC S.  BENDESKY
                                     --------------------

                                         Marc S. Bendesky
                                     Chief Financial Officer





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