UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

For the quarterly period ended September 30, 1997
                               ------------------

                         Commission file number 0-23139

                            RSL COMMUNICATIONS, LTD.
                            ------------------------
           (Exact name of the registrant as specified in its charter)

         Bermuda                                                 N/A
         -------                                                 ---
(State or other jurisdiction                      (I.R.S. Employer
of incorporation or organization)                 identification No.)

                                 Clarendon House

                                  Church Street

                             Hamilton HM CX Bermuda
                             ----------------------
                    (Address of principal executive offices)

                                 (441) 295-2832
                                 --------------
                         (Registrant's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                    Yes |X| No|_|

As at October 31, 1997, the registrant had 10,872,567 of the Class A common
stock, par value $0.00457 per share, and 30,760,727 of the Class B common stock,
par value $0.00457 per share, outstanding.
<PAGE>

                            RSL COMMUNICATIONS, LTD.

                                Table of Contents

                                                                            Page
                                                                            ----

PART I - FINANCIAL INFORMATION

      Item 1. Financial Statements                                            1

      Item 2.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations .........................  7

PART II - OTHER INFORMATION

      Item 1.  Legal Proceedings............................................ 16

      Item 2.  Change in Securities and Use of Proceeds..................... 16

      Item 4.  Submission of Matters to a Vote of Security Holders.......... 17

      Item 5.  Other Information............................................ 18

      Item 6.  Exhibits and Reports on Form 8-K............................. 18

Signatures.................................................................. 19

Exhibit Index............................................................... 20
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

Item 1. Financial Statements.

                            RSL COMMUNICATIONS, LTD.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                             As of          As of
                                                         September 30,   December 31,
                                                             1997           1996
                                                           ---------      ---------
                                                          (unaudited)
<S>                                                        <C>            <C>      
Assets                                              

Cash and Cash Equivalents                                  $  52,706      $ 104,068
Accounts Receivable, Net                                      58,262         26,479
Marketable Securities - Available for Sale                    24,093         67,828
Prepaid Expenses and Other Current Assets                     14,356          3,969
Marketable Securities - Held to Maturity                      86,034        104,370
Property and Equipment                                        67,616         35,851
Less: Accumulated Depreciation                               (10,122)        (3,513)
Goodwill and Other Intangibles, Net                          141,335         87,605
Deposits and Other Assets                                      1,681          1,312
                                                           ---------      ---------
                                                          
     Total Assets                                          $ 435,961      $ 427,969
                                                           =========      =========
Liabilities and Shareholders' (Deficit) Equity
                                                          
Accounts Payable and Other Liabilities                     $ 122,912      $  70,441
Short-term Debt                                                5,438          6,974
Long-term Debt                                                20,277         18,425
Senior Notes, 12 1/4% Due 2006, Net                          296,400        296,000
Other Liabilities - Noncurrent                                 5,209         15,286
Shareholders' (Deficit) Equity                               (14,275)        20,843
                                                           ---------      ---------
                                                          
     Total Liabilities and Shareholders' (Deficit) Equity  $ 435,961      $ 427,969
                                                           =========      =========
</TABLE>
                                                    
            See notes to condensed consolidated financial statements.


                                       1
<PAGE>

                            RSL COMMUNICATIONS, LTD.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except for loss per share)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended                   Nine Months Ended
                                               September 30,     September 30,     September 30,      September 30,
                                                   1997              1996               1997               1996
                                                 --------          --------          ---------          --------
<S>                                              <C>               <C>               <C>                <C>     
REVENUES ...................................     $ 83,243          $ 30,458          $ 192,604          $ 70,222
COST OF SERVICES ...........................       74,406            25,928            171,203            61,585
                                                 --------          --------          ---------          --------
GROSS PROFIT ...............................        8,837             4,530             21,401             8,637
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES       23,871            10,882             62,085            24,538
DEPRECIATION AND AMORTIZATION ..............        5,407             1,452             14,367             3,628
                                                 --------          --------          ---------          --------
LOSS FROM OPERATIONS .......................      (20,441)           (7,804)           (55,051)          (19,529)
INTEREST INCOME ............................        2,822                77              9,947               157
INTEREST EXPENSE ...........................       (9,657)             (703)           (28,910)           (1,337)
OTHER (LOSS) INCOME-NET ....................          (35)               --              6,572                --
MINORITY INTEREST ..........................           16                --               (212)               --
INCOME TAXES ...............................          (47)               --               (405)               --
                                                  --------          --------          ---------          --------
NET LOSS ...................................     $(27,342)         $ (8,430)         $ (68,059)         $(20,709)
                                                 ========          ========          =========          ========
                                                                                                        
                                                                                                        
LOSS PER SHARE OF COMMON STOCK .............     $  (0.85)         $  (0.32)         $   (2.16)         $  (0.78)
</TABLE>

           See notes to condensed consolidated financial statements.


                                       2
<PAGE>

                            RSL COMMUNICATIONS, LTD.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                ($ in thousands)

                                                 Nine Months Ended September 30,
                                                 -------------------------------

                                                         1997           1996
                                                       ---------      --------

Net loss .........................................     $ (68,059)     $(20,709)
Depreciation and amortization ....................        14,367         3,628
Working capital change and other .................        (6,751)        3,270
                                                       ---------      --------
     Net cash used in operations .................       (60,443)      (13,811)
                                                       ---------      --------

Acquisitions of subsidiaries .....................       (26,828)      (19,470)
Purchase of property and equipment ...............       (14,267)       (9,634)
Proceeds from sales of marketable securities .....        43,735           --
Proceeds from sales of restricted securities .....        22,665           --
     Net cash provided by (used in) investing          ---------      --------
     activities ..................................        25,305       (29,104)
                                                       ---------      --------

Proceeds from issuance of notes payable ..........            --        44,000
Payment of notes payable .........................       (13,542)         (938)
Other ............................................        (1,434)         (780)
     Net cash (used in) provided by financing          ---------      --------
     activities ..................................       (14,976)       42,282
                                                       ---------      --------

Decrease in cash and cash equivalents ............       (50,114)         (633)
Effects of foreign currency on cash and cash
equivalents ......................................        (1,248)         (488)
Cash and cash equivalents at beginning of period
                                                         104,068         5,163
                                                       ---------      --------

Cash and cash equivalents at end of period .......     $  52,706      $  4,042
                                                       =========      ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest ...........................     $  23,185      $  1,209
                                                       =========      ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Assets acquired under capital lease obligations ..     $  12,568      $  5,877
                                                       =========      ========
Issuance of Class A Common Stock .................     $  32,582      $    --
                                                       =========      ========

           See notes to condensed consolidated financial statements.


                                       3
<PAGE>

                            RSL COMMUNICATIONS, LTD.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of which these notes are part
have been prepared by RSL Communications, Ltd. ("RSL") and RSL Communications
PLC, a wholly owned subsidiary of RSL ("RSL PLC" and, together with RSL and
their direct and indirect subsidiaries, the "Company"), pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations; however, in the opinion of
management of the Company, the Condensed Consolidated Financial Statements
include all adjustments, consisting only of normal recurring accruals, necessary
to present fairly the financial information for such periods. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements of RSL and the notes thereto included in the
Company's prospectus (the "Prospectus"), dated September 30, 1997, filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the
"Securities Act").

2. PRIVATE PLACEMENT OF NOTES AND EXCHANGE OFFER

In October 1996, RSL and RSL PLC completed the private offering (the "Debt
Offering") of 300,000 units, each unit consisting of one 12 1/4% Senior Note due
2006 of RSL PLC guaranteed by RSL and, after giving effect to the
Recapitalization described in Note 3, one warrant to purchase 3.975 shares of
Class A Common Stock of RSL at $0.00457 per share (the "Warrants"). The units
were sold for an aggregate purchase price of $300.0 million. In May 1997, in
accordance with the indenture governing such notes (the "Indenture"), RSL and
RSL PLC consummated an exchange offer pursuant to which the notes issued in the
Debt Offering were exchanged for substantially identical notes registered under
the Securities Act. The notes issued in the Debt Offering and the exchange offer
are referred to collectively as the "Notes."

3. THE RECAPITALIZATION

RSL recently revised its capital structure (the "Recapitalization"), in part to
(i) effect a 2.19-for-one stock split for each outstanding share of each class
of its common shares and each outstanding share of its Preferred shares, (ii)
increase the number of authorized shares of its Class A common shares and Class
B common shares to an aggregate of 200,000,000 shares and (iii) increase the
number of authorized shares of its Preferred Shares to 30,000,000.

4. EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and does not believe it
to be significant.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement is effective for financial statements issued for periods ending
after December 15, 1997. Management has evaluated the effect on its financial
reporting from the adoption of this statement and has found the majority


                                       4
<PAGE>

of required disclosures to be not applicable and the remainder to be not
significant. In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
reporting of profit and loss, specific revenue and expense items, and assets for
reportable segments. It also requires the reconciliation of total segment
revenues, total segment profit or loss, total segment assets, and other amounts
disclosed for segments to the corresponding amounts in the general purpose
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management believes that the adoption of this statement will
not have a material effect on the Company's consolidated results of operations
or financial position.

5. OTHER INCOME-NET

The accompanying Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1997 include the effect of a reversal of
approximately $7.0 million from the Company's "Other Liabilities-Noncurrent" in
the accompanying Condensed Consolidated Balance Sheets to "Other (Loss)
Income-Net", as a result of the Company's renegotiation and amendment of certain
transmission capacity contracts.

6. ACQUISITION OF MAJORITY INTEREST IN DELTA THREE

In July 1997, the Company acquired a majority interest in Delta Three, Inc.
("Delta Three"). The Company accounted for its purchase of Delta Three under the
purchase method of accounting. Delta Three utilizes the Internet, traditionally
a device for data communications, as a transmission medium for voice
communications. The service offered by Delta Three allows customers to place
long distance and international phone calls using standard telephones, without
requiring any additional equipment. Delta Three also provides wholesale call
termination services to other telecommunications service providers.

The Company and Delta Three also entered into a services agreement pursuant to
which, among other things, Delta Three provides the Company with discounted
carrier telephony services and the Company provides Delta Three with termination
services at preferred rates and the co-location of Delta Three's Internet
gateway servers with the Company's facilities.

7. NET LOSS PER SHARE

Net loss per share is computed on the basis of the weighted average number of
common shares outstanding during the period. The average number of shares
outstanding for the nine month period ended September 30, 1997 has been
presented retroactively to give effect to the Recapitalization and also reflects
the conversion by certain shareholders of Class B common shares into Class A
common shares in September 1997.

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

                                                                       (in thousands)
<S>                                                  <C>             <C>            <C>             <C>  
Average number of common shares outstanding          32,230         26,688          31,541         26,658
</TABLE>

Fully diluted income (loss) per share amounts are not presented because the
inclusion of these amounts in the computation would be anti-dilutive. Fully
diluted income (loss) per share amounts for the current period do not differ
materially from primary earnings per share amounts.


                                       5
<PAGE>

8. SUMMARIZED FINANCIAL INFORMATION

The following presents summarized financial information of RSL PLC as of
September 30, 1997 and December 31, 1996. RSL PLC is a 100% wholly owned
subsidiary of the Company incorporated in July 1996. RSL PLC had no independent
operations other than serving solely as a foreign holding company for the
Company's U.S. and European operations. The Notes issued by RSL PLC are fully
and unconditionally guaranteed by RSL. RSL has not presented separate financial
statements and other disclosures concerning RSL PLC because management has
determined that such information is not material to shareholders or holders of
the Notes. RSL's financial statements are, except for RSL's capitalization,
Australian operations, corporate overhead expenses and available credit
facilities, identical to the financial statements of RSL PLC.

                           As of September 30, 1997     As of December 31, 1996
                              ($ in thousands)             ($ in thousands)
                           ------------------------     -----------------------

Current assets ........          $ 141,644                    $ 201,738
                                                              
Non-current assets ....            274,379                      225,121
                                                              
Current liabilities ...            117,003                       76,229
                                                              
Non-current liabilities            381,843                      374,693

                                                      From Date of Incorporation
                              Nine Months ended          (July 26, 1996) to
                              September 30, 1997           December 31, 1996
                               ($ in thousands)            ($ in thousands)
                              ------------------      --------------------------

Net revenue ...........          $ 178,711                    $  63,090
                                                              
Gross profit ..........             20,299                        8,890
                                                              
Net loss ..............            (58,243)                     (21,627)

9. SUBSEQUENT EVENT - EQUITY OFFERING

On September 30, 1997, the Company commenced an initial public offering of
7,200,000 shares of its Class A Shares, par value $0.00457 per share,
internationally (the "International Offerings") and in the United States (the
"US Offering," and together with International Offering, the "Equity Offering").
The Company's registration statement on Form S-1 (File No. 333-34281), filed
with the Securities and Exchange Commission (the "Commission") with respect to
the Equity Offering was declared effective by the Commission on September 30,
1997. All of the Class A Sharess were offered and sold by the Company. Effective
upon the consummation of the Equity Offering, all of the outstanding preferred
stock were automatically converted into shares of the Company's Class B common
stock


                                       6
<PAGE>

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

Overview

The Company is a rapidly growing multinational telecommunications company which
provides a broad array of international and domestic telephone services,
including long distance calling to over 200 countries, calling card, private
line and value-added services. The Company focuses on providing international
long distance voice service to small and medium-sized businesses in strategic
markets. The Company currently has revenue generating operations in the United
States, the United Kingdom, France, Germany, Sweden, Finland, the Netherlands,
Belgium, Denmark, Italy, Venezuela and Australia. The Company has recently
commenced start-up activities in Austria and Japan. In 1996, over 60% of all
international long distance telecommunications minutes originated in the markets
which are currently contributing to the Company's revenues. The Company is
expanding its operations and network into additional strategic markets which
account for a significant portion of the remaining international traffic. The
Company also provides Internet telephony services to an additional 10 countries
through its majority-owned subsidiary, Delta Three.

Revenues

The Company provides both domestic and international long distance services and
derives its revenues principally from the provision of international long
distance voice telecommunication services. Revenues are derived from the number
of minutes of use (or fractions thereof) billed by the Company ("revenue
minutes") and are recorded upon completion of calls. In addition, the Company
derives revenues from prepaid calling cards. These revenues are recognized at
the time of usage or upon expiration of the card. The Company maintains local
market pricing structures for its services and generally prices its services at
a discount to the prices charged by the local government-owned post, telegraph
and telephone monopolies ("PTTs") and major carriers. The Company has
experienced, and expects to continue to experience, declining revenue per minute
in all of its markets as a result of increasing competition in
telecommunications, which the Company expects will be offset by increased minute
volumes and decreased operating costs per minute.

U.S. Operations

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

                                                               (in thousands, except percentage of consolidated revenues)
<S>                                                   <C>                 <C>                 <C>                  <C>     
Revenues ...................................          $ 57,602            $ 22,798            $ 127,491            $ 58,209
Percentage of consolidated revenues ........              69.2%               74.9%                66.2%               82.9%
Cost of services ...........................            53,738              19,511              117,666              51,553
                                                      --------            --------            ---------            --------

Gross profit ...............................             3,864               3,287                9,825               6,656
Selling, general and administrative expenses             8,929               6,100               20,478              13,992
Depreciation and amortization ..............             1,428                 737                4,009               1,986
                                                      --------            --------            ---------            --------
Loss from operations .......................          $ (6,493)           $ (3,550)           $ (14,662)           $ (9,322)
                                                      ========            ========            =========            ========
</TABLE>


                                       7
<PAGE>

Prior to 1997, the Company's revenues had been primarily derived from its
operation within the United States. The Company's U.S. revenues result primarily
from the sale of long distance voice services on a wholesale basis to other
carriers, on a retail basis to commercial customers and on a bulk discount basis
to distributors of prepaid calling cards. The Company has experienced, and
expects to continue to experience, significant month to month changes in
revenues generated by its carrier customers. The Company believes such carrier
customers will react to temporary price fluctuations and spot market
availability that will impact the Company's carrier revenues. The Company has
shifted its marketing focus in the United States to small and medium-sized
businesses and has restructured its pricing of wholesale services to other
carriers. The Company has derived increased revenues from its commercial
customers, as it continues to reduce its reliance on wholesale carrier revenues.

European Operations

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

                                                               (in thousands, except percentage of consolidated revenues)
<S>                                                   <C>                 <C>                 <C>                  <C>     
Revenues ...................................          $ 18,934            $ 7,660            $ 51,220            $ 12,013
Percentage of consolidated revenues ........              22.7%              25.1%               26.6%               17.1%
Cost of services ...........................            14,494              6,417              40,746              10,032
                                                      --------            -------            --------            --------

Gross profit ...............................             4,440              1,243              10,474               1,981
Selling, general and administrative expenses            12,272              4,010              32,879               8,401
Depreciation and amortization ..............             1,893                509               4,298                 889
                                                      --------            -------            --------            --------
Loss from operations .......................          $ (9,725)           $(3,276)           $(26,703)           $ (7,309)
                                                      ========            =======            ========            ========
</TABLE>

The Company commenced its European operations with the start-up of operations in
the United Kingdom, Finland and Sweden in the second quarter of 1996. In
addition, the Company acquired existing operations in France and Germany during
the second quarter of 1996 and acquired existing operations in the Netherlands
in the fourth quarter of 1996. During the nine months ended September 30, 1997,
the Company commenced operations in Denmark, Italy and Australia. Each of the
countries in which the Company operates has experienced different levels of
deregulation, resulting in various levels of competition and differing ranges of
services which the Company is permitted to offer. The Company also believes that
as it pursues its strategic growth strategy it will continue to encounter
various degrees of start-up time.

Substantially all revenues from the Company's European operations are derived
from commercial sales to end-users, which often generate a higher gross profit
than wholesale sales to carriers. Sales are targeted at small to medium-sized
corporate customers, as well as to niche consumer markets (including selected
ethnic communities). To reduce its credit risk to such niche consumer markets,
the Company primarily offers prepaid products to its targeted consumers.


                                       8
<PAGE>

Effect of Deregulation on Revenues

The Company operates or will soon operate in various countries in Europe, each
of which is in a different state of deregulation. In certain of these countries,
current regulatory restrictions limit the Company's ability to offer a broader
array of products and services and limit the availability of those services to
customers. Accordingly, the Company anticipates that the continuation of
deregulation will have a favorable impact on revenues because (i) customers will
be able to access the Company's services more easily and (ii) the Company will
have the ability to provide a broader array of products and services. It is
anticipated that most European countries will deregulate various aspects of
their telecommunications industry beginning in 1998. However, there can be no
assurance regarding the timing or extent of deregulation in any particular
country.

The other countries in which the Company operates or will soon operate also have
experienced different levels of deregulation. As a result, the level of
competition in each country varies. The Company believes that as it pursues its
strategic growth strategy, the commencement of new operations will entail
varying degrees of time and cost.

Cost of Services

The Company's cost of services is comprised of costs associated with gaining
local access and the transport and termination of calls over "RSL-NET," its
integrated digital telecommunications network. The majority of the Company's
cost of services are variable, including local access charges and transmission
capacity leased on a per-minute of use basis. The Company expects that an
increasing amount of its total operating costs will be fixed in the future, as
the volume of the Company's calls carried over cable systems on which it holds
indefeasible rights of use ("IRUs"), minimum investment units ("MIUs") and using
point-to-point fixed cost leases increases. The depreciation expense with
respect to the Company's MIUs and IRUs is not accounted for in cost of services.
In addition, the Company intends to lower its variable cost of termination as a
percentage of revenues by carrying traffic pursuant to more of its existing
operating agreements and by negotiating additional operating agreements on
strategic routes. The Company has directly linked certain of its local operators
in Europe and the United States utilizing lines leased on a fixed cost point
over MIUs and IRUs. To the extent traffic can be transported between two local
operators over MIUs or IRUs, there is only marginal cost to the Company with
respect to the international portion of a call other than the fixed lease
payment or the capital expenditure incurred in connection with the purchase of
the MIUs or IRUs. The Company's cost of transport and termination will decrease
to the extent that it is able to bypass the settlement rates associated with the
transport of international traffic. The Company does not intend to purchase or
construct its own intranational transmission facilities in any of its markets.
Accordingly, variable costs will continue to be a majority of the Company's cost
of services for the foreseeable future.

The Company's cost of services is primarily affected by the volume of traffic
relative to its owned facilities and facilities leased on a point-to-point fixed
cost basis and capacity leased on a per minute basis with volume commitments and
discounts. To the extent that volume exceeds capacity on leased facilities that
have been arranged for in advance, the Company is forced to acquire capacity
from alternative carriers on a spot rate per-minute ("overflow") basis at a
higher cost. Acquiring capacity on an overflow basis has a negative impact on
margins, but enables the Company to maintain uninterrupted service to its
customers.

Effect of Deregulation on Costs of Services

The Company's current cost structure varies from country to country as a result
of the different level of regulatory policies in place in each country. In
general, the Company's cost structure is lower in countries that


                                       9
<PAGE>

have been fully deregulated than in those which are partially deregulated. In
countries that are not fully deregulated, the Company's access to the local
exchange network is subject to more expensive means (i.e., leased lines or
dial-in access). This results in higher costs to the Company for carrying
international traffic originating within a country and terminating in another
country. In addition, local regulations in many countries restrict the Company
from purchasing capacity on international cable and fiber systems. The Company
must instead either enter into long-term lease agreements for international
capacity at a high fixed cost or purchase per-minute of use termination rates
from the dominant carrier. Deregulation in countries in which the Company
operates is expected to permit the Company to (i) interconnect its switches with
the local exchange network and (ii) purchase its own international facilities.
The Company believes that as a result of deregulation, its cost structure will
improve. Deregulation is also expected to permit the Company to terminate
international inbound traffic in a country which the Company believes will
result in an improved cost structure for the Company as a whole. However, the
foregoing is a forward looking statement and there can be no assurance that
deregulation will proceed as expected or lower the Company's cost of services.

Selling, General and Administrative Expenses

The Company's selling, general and administrative expenses consist of costs
incurred to support the continued expansion of RSL-NET, the introduction of new
services and the provision of ongoing customer service. These costs are
principally comprised of costs associated with employee compensation, occupancy,
insurance, professional fees, sales and marketing (including sales commissions)
and bad debt expenses. In addition, as the Company commences operations in
different countries, it incurs significant start-up costs, particularly for
hiring, training and retention of personnel, leasing of office space and
advertising. In addition, the Company's selling, general and administrative
expense includes the settlement of various claims and disputes relating to
pre-acquisition periods.

The Company has grown and intends to continue to grow by establishing operations
in countries that are in the process of being deregulated and that originate and
terminate large volumes of international traffic or offer other strategic
benefits. Each of the Company's operations is in a different stage of
development. The early stages of development of a new operation involve
substantial start-up costs in advance of revenues. Upon the commencement of such
operations, the Company generally incurs additional fixed costs to facilitate
growth. The Company expects that during periods of significant expansion,
selling, general and administrative expenses will increase materially.
Accordingly, the Company's consolidated results of operations will vary
depending on the timing and speed of the Company's expansion strategy and,
during a period of rapid expansion, will not necessarily reflect the performance
of the more established local operations of the Company in each country (the
"Local Operators").

Foreign Exchange

The Company has significant revenues, costs, assets and liabilities that are,
for the most part, denominated in local currencies. Therefore, results of
operations, as stated in local currencies, and the Company's business practices
and plans with respect to a particular country, are not significantly affected
by exchange rate fluctuations. However, such results of operations as reported
in U.S. dollars may be significantly affected by fluctuations in the value of
the local currencies in which the Company transacts business in relation to the
U.S. dollar. Results of operations of the Company's subsidiaries are translated
into U.S. dollars on the basis of average exchange rates throughout the period.
Assets and liabilities are translated into U.S. dollars on the basis of rates of
exchange as of the balance sheet dates.

The Company incurs settlement costs when it exchanges traffic via operating
agreements with foreign correspondents. These costs currently represent a small
portion of total costs; however, as the Company's


                                       10
<PAGE>

international operations increase, it expects that these costs will become a
more significant portion of its cost of services. Such costs are settled by
utilizing a net settlement process with the Company's foreign correspondents
comprised of special drawing rights ("SDRs"). SDRs are the established method of
settlement among international telecommunications carriers. The SDRs are valued
based upon a basket of foreign currencies and the Company believes that this
mitigates, to some extent, its foreign currency exposure. As the Company
establishes operations in countries the currencies of which are not represented
in SDRs, the Company will consider the implementation of hedging policies, as
appropriate. The Company has monitored and will continue to monitor its currency
exposure.

Results Of Operations For The Three Months Ended September 30, 1997 Compared To
The Three Months Ended September 30, 1996

      Revenues. Revenues increased to $83.2 million for the three months ended
September 30, 1997 compared to $30.5 million for the three months ended
September 30, 1996, an increase of 173.3%. This increase is due primarily to an
increase in the Company's U.S. revenues from $22.8 million for the three months
ended September 30, 1996 to $57.6 million for the same period this year and the
Company's European revenues, which increased from $7.7 million for the three
months ended September 30, 1996 to $18.9 million for the same period this year.
The Company generated revenues in the United States, in eleven European
countries, Venezuela and Australia during the third quarter of 1997. The
increase in U.S. and European revenues was primarily due to both increased
traffic volume from existing customers and significant increases in the
Company's U.S. commercial customer base. Revenue from the Company's European
operations increased as a result of the generation of revenues by its start-up
operations in the United Kingdom, Sweden and Finland and the operations it
acquired in Germany and the Netherlands. Revenues from the Company's Australian
operations totaled $6.6 million for the three months ended September 30, 1997.
Revenues from Australia commenced following the acquisition of an Australian
customer base in May 1997.

      Cost of Services. Cost of services increased to $74.4 million for the
three months ended September 30, 1997 from $25.9 million for the three months
ended September 30, 1996, an increase of 187.0%. This increase is primarily due
to increased traffic and, to a certain extent, increased rates paid to the
Company's carrier vendors. As a percentage of revenues, cost of services
increased to 89.4% for the three months ended September 30, 1997 from 85.1% for
the three months ended September 30, 1996. The increase in cost of services as a
percentage of revenues is primarily attributable to the Company's U.S.
operations' costs of services which represent 72.2% of the Company's total cost
of services. The Company is currently seeking to purchase additional capacity on
routes on which it has experienced, or anticipates experiencing, overflow
traffic, in order to reduce costs.

      Gross Margins. The Company's consolidated gross margins decreased to 10.6%
for the three months ended September 30, 1997 from 14.9% for the three months
ended September 30, 1996 primarily due to significant volume increases and
corresponding overflow traffic experienced in the Company's U.S. operations as
well as certain price reductions offered to customers on heavily trafficked
routes. Gross margins in the United States decreased to 6.7% for the third
quarter of 1997 from 14.4% for the third quarter of 1996, while gross margins in
the Company's European operations increased to 23.4% for the third quarter of
1997 from 16.2% for the third quarter of 1996.

      Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expense for the three months ended September 30, 1997
increased by $13.0 million, or 119.4%, to $23.9 million from $10.9 million for
the three months ended September 30, 1996. This increase is primarily
attributable to start-ups in and expansion of the Company's European operations
and the hiring of new personnel in Europe and Australia. As a percent of U.S.
revenues, the Company's U.S. SG&A expense decreased to 15.5% for the three


                                       11
<PAGE>

months ended September 30, 1997 from 26.8% in the comparable period last year.
Due to a greater proportion of start-up and expansion costs in Europe, the
Company's European operations generated $12.3 million or 51.4% of the Company's
consolidated SG&A, although such operations accounted for only 22.7% of the
Company's total revenues. SG&A expense as a percentage of revenues will continue
to increase as a result of start-up costs and infrastructure expansion
attributable to new local operations.

      Depreciation and Amortization Expense. Depreciation and amortization
expense increased 272.4% to $5.4 million for the three months ended September
30, 1997 from $1.5 million for the three months ended September 30, 1996. This
increase is primarily attributable to the increased amortization of goodwill
recorded as a result of the Company's acquisitions. Depreciation and
amortization expense is expected to increase in the future as the Company
acquires additional businesses and assets.

      Interest Income. Interest income increased to $2.8 million for the three
months ended September 30, 1997 from $77,000 for the three months ended
September 30, 1996, primarily as a result of interest earned on the remaining
net proceeds of the Notes.

      Interest Expense. Interest expense increased to $9.7 million for the three
months ended September 30, 1997 from $703,000 for the three months ended
September 30, 1996, primarily as a result of interest related to the Notes.

      Net Loss. Net loss increased to $27.3 million for the three months ended
September 30, 1997, as compared to net loss of $8.4 million for the three months
ended September 30, 1996 due to the factors described above.

Results Of Operations For The Nine Months Ended September 30, 1997 Compared To
The Nine Months Ended September 30, 1996

      Revenues. Revenues increased to $192.6 million for the nine months ended
September 30, 1997 compared to $70.2 million for the nine months ended September
30, 1996, an increase of 174.3%. This increase is due primarily to an increase
in the Company's U.S. revenues from $58.2 million for the nine months ended
September 30, 1996 to $127.5 million for the same period this year and the
Company's European revenues, which increased from $12.0 million for the nine
months ended September 30, 1996 to $51.2 million for the same period this year.
The Company generated revenues in the United States, in eleven European
countries, and in Australia and Venezuela during the third quarter of 1997. The
Company had revenue producing operations in only the United States and five
European countries in the first nine months of 1996. The increase in U.S.
revenues was primarily due to both increased traffic volume from existing
customers and increases in the Company's U.S. commercial customer base. Revenues
from the Company's European operations increased as a result of the generation
of revenues by its start-up operations in the United Kingdom, Sweden and Finland
and the operations it acquired in Germany and the Netherlands.

      Cost of Services. Cost of services increased to $171.2 million for the
nine months ended September 30, 1997 from $61.6 million for the nine months
ended September 30, 1996, an increase of 178.0%. This increase is primarily due
to increased traffic and increased rates paid to the Company's carrier vendors.
As a percentage of revenues, cost of services increased to 88.9% for the nine
months ended September 30, 1997 from 87.7% for the nine months ended September
30, 1996. The increase in cost of services as a percentage of revenues is
primarily attributable to the Company's US operations' cost of services which
represent 68.7% of the Company's total cost of services. The Company's European
operations having generated greater gross margins (20.4% for the nine months
ended September 30, 1997) than the Company's U.S. operations (7.7% for the nine
months ended September 30, 1997). The Company is currently seeking to purchase
additional capacity on routes on which it has experienced, or anticipates
experiencing, increasing overflow traffic as a result of the 


                                       12
<PAGE>

Company's significant increase in traffic. In addition, the Company's prices to
customers utilizing these routes are often adjusted to take into account an
increased expectation of overflow traffic.

      Gross Margins. The Company's consolidated gross margins decreased to 11.1%
for the nine months ended September 30, 1997 from 12.3% for the nine months
ended September 30, 1996. Gross margins in the United States decreased to 7.7%
from 11.4% for the nine months ended September 30, 1997 as compared to the same
period in 1996, while gross margins in the Company's European operations
increased to 20.4% for the nine months ended September 30, 1997 from 16.5% for
the nine months ended September 30, 1996.

      Selling, General and Administrative Expense. SG&A expense for the nine
months ended September 30, 1997 increased by $37.5 million, or 153.0%, to $62.1
million from $24.6 million for the nine months ended September 30, 1996. This
increase is primarily attributable to the reasons previously provided for
revenues and cost of services above. As a percent of U.S. revenues, the
Company's U.S. SG&A expense decreased to 16.1% for nine months ended September
30, 1997 from 24.0% in the comparable period last year. Due to a greater
proportion of start-ups in and expansion costs in Europe, the Company's European
operations generated $32.9 million or 53.0% of the Company's consolidated SG&A,
although such operations accounted for only 26.6% of the Company's total
revenues. SG&A expense as a percentage of revenues will continue to increase as
a result of start-up costs and infrastructure expansion attributable to new
local operations.

      Depreciation and Amortization Expense. Depreciation and amortization
expense increased 296.0% to $14.4 million for the nine months ended September
30, 1997 from $3.6 million for the nine months ended September 30, 1996, an
increase of $10.8 million. This increase is primarily attributable to the
increased amortization of goodwill recorded as a result of the Company's
acquisitions. Depreciation and amortization expense is expected to increase in
the future as the Company acquires additional businesses and assets.

      Interest Income. Interest income increased to $9.9 million for the nine
months ended September 30, 1997 from $157,000 for the nine months ended
September 30, 1996, primarily as a result of interest earned on the remaining
net proceeds of the Notes.

      Interest Expense. Interest expense increased to $28.9 million for the nine
months ended September 30, 1997 from $1.3 million for the nine months ended
September 30, 1996, an increase of approximately $27.6 million, as a result of
interest related to the Notes.

      Net Loss. Net loss increased to $68.1 million for the nine months ended
September 30, 1997, as compared to a net loss of $20.7 million for the nine
months ended September 30, 1996 due to the factors described above. 


                                       13
<PAGE>

Liquidity and Capital Resources

On September  30, 1997,  the Company  commenced  an initial  public  offering of
7,200,000  shares of its Class A common stock (the "Class A Shares"),  par value
$0.00457  per share,  internationally  and in the  United  States  (the  "Equity
Offering"). All of the Class A Shares, were offered and sold by the Company.

The aggregate net proceeds received by the Company from the Equity Offering
(including the exercise of underwriters over-allotment options to purchase an
additional 1,080,000 Class A Shares) after deducting underwriting discounts and
commissions and expenses were approximately $168,522,800. From the effective
date of the registration statement to date, the Company had not used any of the
net proceeds of the Equity Offering.

The Company has incurred significant operating and net losses, due in large part
to the start-up and development of the Company's local operations and the
development of the Company's European network infrastructure. The Company
expects that such losses will continue as the Company implements its growth
strategy in Europe, Australia and Latin America in 1998. Historically, the
Company has funded its operating losses and capital expenditures through capital
contributions, borrowings and a portion of the net proceeds of the Debt
Offering.

Cash used in operating activities for the nine months ended September 30, 1997
totaled $60.4 million compared with $13.8 million for the same period in 1996.
Capital expenditures for the nine months ended September 30, 1997 were $26.8
million compared with $15.5 million for the comparable period in 1996. Funds
expended for acquisitions were $26.8 million during the nine months ended
September 30, 1997 compared with $19.5 million for the nine months ended
September 30, 1996.

In connection with the issuance of the Notes, the Company was required to
purchase marketable securities, which are held by the trustee under the
Indenture, in order to secure the payment of the first six scheduled interest
payments on the Notes. The market value of such restricted marketable securities
was approximately $86 million at September 30, 1997. On May 15, 1997, the
Company made its first required semi-annual interest payment in the amount of
approximately $22.7 million. The Company will make its second semi-annual
interest payment on November 15, 1997. The funds required for the interest
payment were released from the restricted securities portfolio.

One of the Company's primary equipment vendors has provided to the Company $50.0
million in vendor financing to fund the purchase of additional switching and
related telecommunications capital equipment. At September 30, 1997,
approximately $30 million was available under this facility. Borrowings from
this equipment vendor accrue interest at a rate of LIBOR plus either 5.25% or
4.5% depending on the equipment purchased.

The Company is currently contractually committed to the purchase of three
international gateway and two domestic switches. This commitment amounts to
approximately $8.0 million, all of which is being currently financed under the
Company's vendor financing facility.

The Company's 1997-1998 planned network facilities expansion is comprised
primarily of both international gateway and domestic switches and is projected
to require approximately a total of $15 million of the currently available $30
million under the Company's vendor financing facility.

The Company anticipates that it will enter 7-10 new markets over the next two
years. The costs to be incurred in the first year in order to capitalize such
operations are projected to range from $500,000 to $2.0 million per market,
exclusive of costs related to the acquisition of switching and network equipment
which is


                                       14
<PAGE>

expected to be vendor financed, and the cost of funding any losses incurred.

The Company's indebtedness as a result of the Debt Offering was approximately
$300.0 million at September 30, 1997. Additional indebtedness at September 30,
1997 of approximately $25.7 million represents long-term and short-term debt.

The Company has a $7.5 million revolving credit facility with a bank (the
"Revolving Credit Facility"). The Company was not utilizing this facility at
September 30, 1997 and the full amount of such facility was available. The
Revolving Credit Facility is payable on demand or is otherwise due and payable
by the Company on June 30, 1998.

Management believes that the remaining net proceeds of the Equity Offering, the
Debt Offering, and, together with available borrowings under the Revolving
Credit Facility, vendor financing short-term lines of credit and overdraft
facilities from local banks, are expected to fund the Company's planned
expansion of its existing operations and fund operating losses for 15 to 20
months; however, this is a forward looking statement and there can be no
assurance in this regard. Management believes that no significant restrictions
on future earnings or liquidity exists and that the Company's existing level of
indebtedness will not have any adverse impact on its operating flexibility. The
Company continually monitors its level of indebtedness. However, the Company is
continuously reviewing and considering acquisition opportunities and additional
financing opportunities. The Company intends to pursue acquisitions which it
believes will expand or enhance its current operations. Accordingly, such
acquisitions and investments, if consummated, may require a material portion of
the Company's financial resources and may accelerate the need for raising
additional capital in the future.

Seasonality

The Company's European operations experience seasonality during July and August,
December and January, and, to a lesser extent, March, as these months are
traditional holiday months in most European countries and many European
businesses, which are the Company's principal European customers, are closed
during portions of these months.


                                       15
<PAGE>

                                     PART II
                                OTHER INFORMATION

Item 1. Legal Proceedings.

AT&T recently filed with the Federal Communications Commission (the "FCC") an
opposition to the Company's requests for modification of the International
Settlement Policy to implement the Company's accounting rates for international
long distance service between the United States and each of Denmark, the
Dominican Republic, Finland, Norway and the United Kingdom. AT&T has alleged,
inter alia, that the requests violate the principles underlying the
International Settlement Policy and the FCC's non-discrimination policy. The
Company does not believe that the FCC's resolution of this matter reasonably can
be expected to have a material adverse effect on its business or results of
operations.

The Company is, from time to time, a party to litigation that arises in the
normal course of its business operations. The Company is not presently a party
to any litigation that the Company believes could reasonably be expected to have
a material adverse effect on its business or results of operations.

Item 2. Change in Securities and Use of Proceeds

The Company recently revised its capital structure (the "Recapitalization"), in
part to (i) effect a 2.19-for-one stock split for each outstanding share of each
class of common shares and each outstanding share of Preferred Stock, (ii)
increase the number of authorized shares of its Class A Common Stock and Class B
Common Stock to an aggregate of 200,000,000 shares and (iii) increase the number
of authorized shares of its Preferred Stock to 30,000,000.

On September 30, 1997, the Company commenced an initial public offering of
7,200,000 shares of its Class A Shares, par value $0.00457 per share,
internationally (the "International Offerings") and in the United States (the
"US Offering," and together with International Offering, the "Equity Offering").
The Company's registration statement on Form S-1 (File No. 333-34281), filed
with the Securities and Exchange Commission (the "Commission") with respect to
the Equity Offering was declared effective by the Commission on September 30,
1997. All of the Class A Sharess were offered and sold by the Company. Effective
upon the consummation of the Equity Offering, all of the outstanding preferred
stock were automatically converted into shares of the Company's Class B common
stock

The managing underwriter for the US Offering was Goldman Sachs & Co. and the
co-lead underwriters were Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated and SBC Warburg Dillon Read Inc. The managing
underwriter for the International Offering was Goldman Sachs International and
the co-lead underwriters were Merrill Lynch International, Morgan Stanley & Co.
International Limited and Swiss Bank Corporation, acting through its Division,
SBC Warburg Dillon Read.

As part of the Equity Offering, the Company granted to the underwriters
over-allotment options (the "Underwriters Options") to purchase up to an
additional 1,080,000 Class A Shares. The underwriters exercised the Underwriters
Options and purchased all of such additional shares from the Company. The Equity
Offering was completed on October 6, 1997 and the Class A Shares are trading on
the NASDAQ National Market under the symbol "RSLCF."

The aggregate offering price of the 7,200,000 of Class A Shares sold in the
Equity Offering to the public


                                       16
<PAGE>

was $158,400,000 (exclusive of the Underwriters' Option), with proceeds to the
Company, (after deduction of the underwriting discount), of $147,672,000 (before
deducting offering expenses payable by the Company). The aggregate offering
price of the 1,080,000 of Class A Shares sold pursuant to the exercise of the
Underwriters' Option was $23,760,000, with proceeds to the Company (after
deduction of the underwriting discount), of $22,150,800 (before deducting
offering expenses). The total initial offering price, underwriting discount and
proceeds to the Company were $182,160,000, $12,337,200 and $169,822,800,
respectively.

On September 30, 1997,the effective date of the registration statement and the
ending date of the reporting period, the aggregate amount of expenses incurred
by the Company in connection with the issuance and distribution of the shares of
Class A Common Stock offered and sold in the Equity Offerings and pursuant to
the exercise of the Underwriters' Option including underwriting discounts and
commissions (approximately $12,337,200) and expenses paid for accounting, legal,
printing and other expenses was $13,637,200. None of such payments were direct
or indirect payments to directors, officers, general partners of the Company or
their associates, to persons owning 10% or more of any class of equity
securities of the issuer or to any affiliates of the issuer.

The aggregate net proceeds received by the Company from the Equity Offering and
as a result of the exercise of the Underwriters Option, after deducting
underwriting discounts and commissions and expenses were approximately
$168,522,800.

From the effective date of the registration statement to date, the Company had
not used any of the net proceeds of the Equity Offering.

Item 4. Submission of Matters to a Vote of Security Holders

On September 2, 1997, the Company held a special general meeting (the "Meeting")
of the shareholders of the Company, pursuant to which all of the shareholders,
except one who abstained, voted in favor of (i) an increase in the maximum
number of directors of the Company to 11, (ii) the appointment of Fred H.
Langhammer as a member of the Board of Directors (all of the other members of
the Board of Directors continued after the meeting), (iii) the Recapitalization,
(iv) an amendment to the Company's Bye-laws with respect to the designation of
certain committees of the Board of Directors, powers of the Company's Executive
Committee, and the quorum for the meeting of the Board of Directors, and (v) an
amendment to the Company's 1995 Amended and Restated Stock Option Plan to
increase the maximum number of shares reserved for purchase pursuant to the
exercise of options granted under the Plan from 1,000,000 to 1,300,000 Class A
Shares. At the Meeting, there were present by proxy a majority of the
shareholders having the right to attend and vote at the meeting holding together
not less than 95% in nominal value of the shares giving such right.

In addition, pursuant to a unanimous written consent of shareholders, dated
September 10, 1997, the Company's shareholders approved the adoption of the
Company's 1997 Directors Compensation Plan, 1997 Stock Incentive Plan and 1997
Performance Incentive Plan.


                                       17
<PAGE>

Item 5. Other Information

      Forward-Looking Statements

Certain matters discussed in this Report under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources" contain certain forward-looking statements
which involve risks and uncertainties (including changing market conditions,
competitive and regulatory matters (such as timing and extent of deregulation of
telecommunications market, the size and financial resources of competitors,
etc.), general economic conditions in the markets in which the Company operates,
etc.) and, accordingly, there can be no assurance with regard to such
statements.

Item 6.  Exhibits and Reports on Form 8-K

      Exhibits:

            27.1  Financial Data Schedule

      Reports on Form 8-K:

            None.


                                       18
<PAGE>

                                   SIGNATURES

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

                              RSL COMMUNICATIONS, LTD.


Date:  November 14, 1997      By /s/  Mark Hirschhorn
                                 --------------------------
                                 Name:  Mark Hirschhorn
                                 Title: Vice President Finance-Global Controller
                                        (Authorized Officer and
                                        Chief Accounting Officer)


                                       19
<PAGE>

                                  Exhibit Index

27.1  Financial Data Schedule


                                       20