FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

     For the quarterly period ended March 31, 1998

                                       or

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

            From the transition period from ___________ to __________

                        Commission file number 333-41723

                                BTI Telecom Corp.
             (Exact name of registrant as specified in its charter)


          North Carolina                                        56-2047220
  (State or other jurisdiction                                (I.R.S.Employer
 of incorporation or organization)                           Identification No.)

4300 Six Forks Road, Suite 500,  Raleigh, North Carolina            27609
           (Address of principal executive offices)              (Zip Code)

                                  (800)849-9100

              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act:  None
        Securities registered pursuant to Section 12(g) of the Act:  None

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

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the last practicable date.

No Par Value Common Stock  100,000,000  shares as of May 13, 1998


<PAGE>




                                BTI Telecom Corp.

                                    Form 10-Q
                                      Index

                                                                          Page
                                                                         Number
                                                                         ------
Part I.           FINANCIAL INFORMATION

     Item 1.      Financial Statements

                  Consolidated Statements of Operations for the three
                  months ended March 31, 1998 and March 31, 1997              3

                  Consolidated Balance Sheets as of March 31, 1998 and
                  December 31, 1997                                           4

                  Consolidated Statements of Cash Flows for the three
                  months ended March 31, 1998 and March 31, 1997              5

                  Notes to Consolidated Financial Statements                  6

     Item 2.      Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                         8

Part II.          OTHER INFORMATION

     Item 6.      Exhibits and Reports on Form 8-K                           13

     Signature                                                               14

     Index to Exhibits                                                       15


<PAGE>


                                BTI Telecom Corp.
                      Consolidated Statements of Operations
                                   (Unaudited)


                                                          Three Months
                                                         Ended March 31,
                                                 ------------------------------
(In thousands, except per                            1998             1997
     share data)                                 -------------    -------------

Revenue                                          $  55,085        $  46,772    

Cost of services                                    41,108           32,378    
                                                 -------------    -------------

        Gross profit                                13,977           14,394    

Selling, general and
     administrative expenses                        15,580           11,994    
Depreciation and amortization                        2,254            1,590    
                                                 -------------    -------------

Income (loss) from operations                       (3,857)             810

Other income (expense):
        Interest expense                            (6,396)            (505)
        Interest income                              1,882               --
                                                 -------------    -------------
Income (loss) before income taxes                   (8,371)             305    

Income taxes                                            --               --
                                                 -------------    -------------

Net income (loss)                                $  (8,371)       $     305
                                                 =============    =============


Basic and diluted earnings (loss) per share      $   (0.08)       $      --
                                                 =============    =============

Weighted average shares outstanding                100,000          200,000
                                                 =============    =============


See accompanying notes.


<PAGE>


                                BTI Telecom Corp.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                            March 31, 1998     December 31,
(Dollars in thousands, except share data)                     (Unaudited)          1997
                                                             -------------    -------------
<S>                                                          <C>              <C>
Assets
Current assets:
      Cash and cash equivalents                              $  58,880        $  67,009
      Restricted cash                                           25,824           25,016
      Accounts receivable, less allowance
          of $5,000 and $4,825, respectively                    28,552           22,710
      Other current assets                                       1,952            2,296
                                                             -------------    -------------
          Total current assets                                 115,208          117,031

Equipment, furniture and fixtures
      Equipment, furniture and fixtures                         58,179           53,744
      Construction in progress                                  15,544           10,154
      Less: accumulated depreciation                           (21,006)         (19,321)
                                                             -------------    -------------
          Total equipment, furniture and fixtures               52,717           44,577
                                                             -------------    -------------

       Other assets, net                                        11,585           11,916
       Restricted cash, non-current                             37,815           50,026
                                                             -------------    -------------
Total assets                                                 $ 217,325        $ 223,550
                                                             =============    =============

Liabilities and shareholder's deficit
Current liabilities:
      Accounts payable and accrued expenses                  $  38,580        $  30,466
      Accrued interest                                           1,180            7,232
      Other liabilities                                          2,721            2,491
                                                             -------------    -------------

          Total current liabilities                             42,481           40,189

Long-term debt                                                 250,000          250,000
Other long-term liabilities                                      2,780            2,935
                                                             -------------    -------------
          Total liabilities                                    295,261          293,124

Shareholder's deficit:
      Common stock, no par value, authorized                        37              37
          500,000,000 shares, issued and outstanding
          100,000,000 shares in 1998 and 200,000,000 shares
          in 1997
      Additional paid-in capital                                   750              738
      Accumulated deficit                                      (78,723)         (70,349)
                                                             -------------    -------------

          Total shareholder's deficit                          (77,936)         (69,574)
                                                             -------------    -------------

Total liabilities & shareholder's deficit                    $ 217,325        $ 223,550
                                                             =============    =============
</TABLE>


See accompanying notes.

<PAGE>

                                BTI Telecom Corp.
                      Consolidated Statements of Cash Flow
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               Three Months
                                                                               Ended March 31,
                                                                        ----------------------------
(Dollars in thousands)                                                      1998             1997
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
OPERATING ACTIVITIES:
Net income (loss)                                                       $ (8,371)       $    305
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
    Depreciation and amortization                                          2,254           1,590
    Deferred interest expense on shareholder note                              0              44
    Non-cash compensation related to stock options                            12              --
Changes in operating assets and liabilities:                                      
    Accounts receivable, net                                              (5,842)         (2,257)
    Other current assets                                                     (53)           (114)    
    Accounts payable and accrued expenses                                  7,949           1,905    
    Accrued interest                                                      (5,657)             16
    Other liabilities                                                        493               7    
                                                                        ------------    ------------
Net cash (used in) provided by operating activities                       (9,215)          1,496

INVESTING ACTIVITIES:
Change in restricted cash                                                 11,403              --
Purchases of equipment, furniture and fixtures, net                       (9,826)         (1,695)    
Line access fees                                                            (102)           (255)    
                                                                        ------------    ------------
Net cash provided by (used in) investing activities                        1,475          (1,950)    

FINANCING ACTIVITIES:
Net proceeds of long-term debt                                                 --          1,394
Decrease in other long-term liabilities                                     (254)           (167)   
Increase in deferred financing costs and other assets                       (135)             --
Dividends paid                                                                --            (370)    
                                                                        ------------    ------------
Net cash (used in) provided by financing activities                         (389)            857
                                                                        ------------    ------------

(Decrease) increase in cash and cash equivalents                          (8,129)            403

Cash and cash equivalents at beginning of period                          67,009             963
                                                                        ------------    ------------
Cash and cash equivalents at end of period                              $ 58,880        $  1,366
                                                                        ============    ============


Supplemental disclosure of cash flow information:
Cash paid for interest                                                  $ 12,733        $    489

Supplemental schedule of non-cash investing and financing activities:
Transfer of paging equipment from inventory to equipment                $    --         $     74
                                                                        ============    ============
</TABLE>


See accompanying notes.

<PAGE>

                               BTI Telecom Corp.
                   Notes to Consolidated Financial Statements

Note 1:  The Company and Significant Accounting Policies

Basis of Presentation

     The "Company"  refers to BTI Telecom  Corp.  ("BTITC") and its wholly owned
subsidiary,  Business Telecom,  Inc. ("BTI"). The consolidated interim financial
statements  of BTITC  included  herein are  unaudited  and have been prepared in
accordance with generally accepted  accounting  principles  ("GAAP") for interim
financial reporting and Securities and Exchange Commission ("SEC")  regulations.
Certain  information  and footnote  disclosures  normally  included in financial
statements  prepared  in  accordance  with GAAP have been  condensed  or omitted
pursuant  to such  rules and  regulations.  In the  opinion of  management,  the
financial  statements reflect all adjustments (of a normal and recurring nature)
which are  necessary  to  present  fairly  the  financial  position,  results of
operations and cash flows for the interim  periods.  These financial  statements
should be read in conjunction  with the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.

     Preparation  of the financial  statements in conformity  with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Equipment, Furniture and Fixtures

     During the fourth quarter of 1997, the Company  commenced  construction  on
certain capital projects,  including its longhaul fiber optic network.  Interest
costs associated with the  construction of capital assets are  capitalized.  The
total amount  capitalized  for the three month period  ending March 31, 1998 was
$0.3 million.  Interest costs were not  capitalized in prior periods because the
amounts were not material to the  Company's  results of  operations or financial
position.

Note 2: Long-Term Debt

     In 1997, the Company  amended and restated its existing  credit facility to
provide a $60.0 million revolving credit facility to be used for working capital
and other purposes.  The loan document contains various financial covenants with
which the Company must comply on a quarterly  basis.  As of March 31, 1998,  the
Company was not in  compliance  with certain  covenants, however, the lender has
granted  waivers of such  noncompliance  through  March 31, 1998.  There were no
amounts outstanding under this credit facility as of March 31, 1998.

Note 3:  New Accounting Pronouncement

     As of  January  1,  1998,  the  Company  implemented  Financial  Accounting
Standards   Board   ("FASB")   Statement  No.  130  ("SFAS   130"),   "Reporting
Comprehensive  Income."  SFAS 130  establishes  new rules for the  reporting and
display of  comprehensive  income and its components;  however,  the adoption of
this  statement  had no  impact on the  Company's  net  income or  shareholder's
equity.  SFAS 130  requires

<PAGE>

                               BTI Telecom Corp.
                   Notes to Consolidated Financial Statements

unrealized  gains or losses on  available-for-sale  securities,  which  prior to
adoption were reported  separately in  shareholder's  equity,  to be included in
comprehensive  income.  There are no material differences between net income and
comprehensive income as defined by SFAS 130 for the periods presented.

     The FASB has issued SFAS 131,  "Disclosures about Segments of an Enterprise
and  Related  Information,"  effective  for  financial  statements  for  periods
beginning after December 15, 1997. This statement requires that public companies
report  certain  information  about  operating  segments  in  complete  sets  of
financial  statements  of the company and in condensed  financial  statements of
interim periods issued to  shareholders.  It also requires that public companies
report certain  information  about their  products and services,  the geographic
areas in which they operate,  and their major customers.  In the initial year of
application,  comparative  information for earlier years is to be restated.

Note 4:  Commitments and Contingencies

     During 1997 the Company signed a contract for the irrevocable  right to use
certain  optical  fibers  in a  communication  system.  Commitments  under  this
contract  will total  approximately  $50 million over the next 18 month  period,
$12.5 million of which was fulfilled through March 31, 1998.  Payments under the
agreement have been  capitalized and included in the  "Construction in Progress"
caption  in  the  consolidated  balance  sheets.  In  addition,   certain  other
commitments  have been made for the purchase of equipment in connection with the
Company's capital program.

Note 5:  Subsequent Events

     Stock Split - In April  1998,  the Board of  Directors  approved a 10-for-1
split of the  outstanding  common  stock of the  Company  in the form of a stock
dividend  with no  change  in the par  value  of  common  stock  authorized  and
outstanding,  and  increased  the number of common  shares  authorized  from 100
million  to  500  million.  Historical  share  and  per  share  data  have  been
retroactively adjusted to reflect these changes where appropriate.

     Stock Option  Repurchase- In 1994 the Company  entered into agreements with
certain former employees to repurchase stock options that had been granted under
the Company's 1994 Stock Plan. The measurement date for compensation relating to
the stock options did not occur until  September 1997, at which time an estimate
for this liability was recorded. In addition,  the Company assumed certain stock
repurchase  obligations  in connection  with its  acquisition of the fiber optic
assets of  FiberSouth,  Inc.  ("FiberSouth")  in 1997. In May 1998,  the Company
satisfied  these  obligations  to a  former  employee  in  accordance  with  the
repurchase agreements. As a result of this transaction,  the Company will record
a $1.5  million  adjustment  to equity  in the  second  quarter  of 1998 for the
difference  between the estimated  liability and the actual  settlement  amount.
This adjustment  represents a reallocation of the original  FiberSouth  purchase
price.



<PAGE>





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

               For the Three Months Ended March 31, 1998 and 1997

     The matters  discussed  throughout  this Form 10-Q,  except for  historical
financial  results  contained  herein,  may be  forward-looking  in  nature,  or
"forward-looking  statements."  Actual  results may differ  materially  from the
forecasts or projections presented. Forward-looking statements are identified by
such words as  "expects,"  "anticipates,"  "believes,"  "intends,"  "plans"  and
variations of such words and similar expressions.  The Company believes that its
primary risk factors include but are not limited to: high leverage;  the ability
to service debt;  significant  capital  requirements;  ability to manage growth;
business development and expansion risks;  competition;  and changes in laws and
regulatory policies.  Any forward-looking  statements in the March 31, 1998 Form
10-Q  should  be  evaluated  in light  of  these  important  risk  factors.  For
additional disclosure regarding risk factors refer to the Company's Registration
Statement on Form S-4 as filed with the Securities and Exchange Commission (File
No. 333-41723).

Business of the Company

     The Company  ("BTITC" or the "Company"),  which began operations in 1984 as
Business  Telecom,   Inc.,  provides  integrated   telecommunications   services
primarily to  small-to-medium  sized  business  customers,  concentrated  in the
southeastern  United States.  During 1997,  Business  Telecom,  Inc. ("BTI") was
reorganized into a new corporate structure comprised of BTI Telecom Corp. as the
parent  company and Business  Telecom,  Inc. as a wholly owned  subsidiary.  The
Company  provides a broad array of services,  including  local,  long  distance,
Internet  access,  frame  relay,  high-speed  data  transmission,  data  network
management and paging.

Results of Operations

Revenue

     Revenue was $55.1  million for the first quarter of 1998,  representing  an
$8.3 million or 17.8%  increase  over the first  quarter of 1997.  The growth in
revenue was  primarily  driven by an increase in  wholesale  revenue.  Wholesale
revenue  increased  $7.2  million  over  the same  quarter  in the  prior  year,
comprising  44.3% and 36.8% of total  revenue for the first  quarter of 1998 and
1997,  respectively.  Also  contributing  to this increase was the effect of the
Company's   acquisition   of  the  fiber  optic  assets  of   FiberSouth,   Inc.
("FiberSouth")  in  September  1997.  Revenue for the first three months of 1998
includes $1.7 million from business  acquired in this purchase.  These increases
in revenue were partially offset by a decline in integrated services revenue due
primarily

<PAGE>

to retail long distance rate decreases and increasing competitive pressures.  As
the Company anticipated, integrated services revenue continues to be impacted by
the implementation of its new sales compensation structure. However, the Company
experienced  improvement  in new  integrated  services  sales  during  the first
quarter of 1998 as compared to the same period of 1997. Although there can be no
assurances, management believes that this trend will continue.

Cost of Services

     Cost of services  was $41.1  million  and $32.4  million in the first three
months of 1998 and 1997,  respectively.  As a  percentage  of revenue,  costs of
services increased from 69.2% in the first quarter of 1997 to 74.6% in the first
quarter of 1998. The increase in this percentage resulted primarily from a shift
in the Company's  revenue mix to a higher  proportion of wholesale  traffic.  In
addition,  a larger  percentage  of the  Company's  wholesale  revenue  was from
international  traffic,  which yields a lower margin  percentage  than  domestic
wholesale  traffic.  The effect of spreading  fixed network costs over a smaller
integrated  services  revenue base also  contributed  to the increase in cost of
services as a percentage of revenue in the first quarter of 1998.  Additionally,
the  introduction  of  Competitive  Local  Exchange  Carrier  ("CLEC")  services
contributed to lower gross margins  because these  services are initially  being
offered on a resale  basis.  The  Company  expects  that the  margins  for local
services will improve as it begins to offer these  services  using its own local
switching facilities.

     Costs of services has also been adversely  impacted by regulatory  matters,
including  increased costs related to the public payphone  compensation order. A
Federal Communications Commission ("FCC") ruling established,  effective October
1997, a "per call  compensation  plan" that provides  payphone service providers
with  compensation for calls completed using their  payphones.  During the first
quarter of 1998, the Company began assessing a surcharge to these payphone users
in order to recover the amount of compensation  and related costs ordered by the
FCC.

     Construction of the longhaul fiber optic network and the continuing  effect
of access charge reform is expected to reduce the Company's network costs in the
future.  Management  anticipates  that its longhaul  fiber optic network will be
substantially  operational by mid-1999.  In addition,  the Company  continues to
evaluate  strategies to reduce its cost of services and improve the  reliability
and efficiency of the network.

Selling, General and Administrative Expenses

     Selling, general and administrative ("SG&A") expenses were $15.6 million or
28.3% of revenue in the first  quarter of 1998 as compared  to $12.0  million or
25.6%  of  revenue  in the  same  period  in  1997.  The  increase  in SG&A as a
percentage  of  revenue  is  largely  attributable  to the  introduction  of the
Company's  integrated  CLEC services in the fourth  quarter of 1997. The Company
has made significant  investments in human resources and increased marketing and
advertising  efforts relating to these new CLEC services.  These investments are
intended to provide the Company  with the

<PAGE>

ability to continue to expand into new markets,  maximize customer retention and
provide for growth in 1998 and beyond.  In  addition,  the Company is  investing
resources to facilitate the deployment of its fiber optic network.

     Depreciation and amortization  increased $0.7 million or 41.7% in the first
quarter of 1998 as  compared  to the first  quarter of 1997.  This  increase  is
primarily due to capital  expenditures which are related to the expansion of its
existing  operations  centers and  support  infrastructure  to handle  increased
traffic volume and expanded service offerings.

Other Income (Expense)

     Interest  expense was $6.4 million in the first quarter of 1998 as compared
to $0.5 million in the same period in the prior year. This increase is primarily
attributable  to the Company's  issuance in September  1997 of $250.0 million 10
1/2%  Senior  Notes due in 2007.  The  additional  borrowings  were  obtained to
finance capital expenditures and operational  expansion primarily related to the
longhaul fiber optic network and the Company's  migration to a  facilities-based
CLEC.

     Interest income  increased to $1.9 million in 1998 due to the investment of
a portion of the proceeds of the September 1997 Senior Note offering.

Income Taxes

     The Company  generated a net loss for the year ended  December 31, 1997 and
during the quarter ended March 31, 1998. Based upon management's plans to expand
the business through the  construction  and expansion of its networks,  customer
base  and  product  offerings,  this  trend  is  expected  to  continue  for the
foreseeable  future.  Given these  circumstances and the level of taxable income
expected to be generated from reversing temporary  differences,  the Company has
established a valuation  allowance for the deferred tax assets  associated  with
these net  operating  losses.  The Company will reduce the  valuation  allowance
when, based on the weight of available evidence, it is more likely than not that
some portion or all of the deferred tax assets will be realized.

     Prior to the Company's  reorganization during 1997, BTI elected to be taxed
for  federal  and  state  income  tax  purposes  as an S  corporation  under the
provisions of the Internal Revenue Code, accordingly, income, losses and credits
were passed through directly to the shareholders  rather than being taxed at the
corporate  level.  Throughout  the period of time that BTI was an S Corporation,
shareholders  were provided the funds necessary to meet tax obligations  arising
from income  earned by BTI in the form of a dividend.  The Company will continue
to reimburse shareholders for any tax obligations arising from the income earned
by BTI  while  it was an S  Corporation.  The  Company  believes  that  any such
reimbursements  will not 

<PAGE>

have a  material  effect on the  Company's  financial  condition  or  results of
operations.


EBITDA

     Earnings before  interest,  taxes,  depreciation and amortization and other
non-cash  charges  (EBITDA) is a common  measurement  of a company's  ability to
generate  cash  flow from  operations.  EBITDA  is not a  measure  of  financial
performance  under generally  accepted  accounting  principles and should not be
considered an  alternative  to net income as a measure of performance or to cash
flows as a measure of liquidity. The Company experienced negative EBITDA of $1.6
million and $2.1 million for the  three-month  periods ending March 31, 1998 and
December 31,  1997,  respectively,  and  positive  EBITDA of $2.4 million in the
first three months of 1997. It is anticipated  that this trend will continue for
the near future as the Company  expands its CLEC service  offerings.  The EBITDA
losses the Company has  experienced  for the last two  consecutive  quarters are
primarily  attributable to the increases in cost of services  resulting from the
change in revenue  composition and the additional SG&A expenses  associated with
the Company's migration to a facilities-based CLEC.

Liquidity and Capital Resources

     The Company has funded its operations  and growth  primarily from operating
cash flows, capital leases and borrowings. During the first three months of 1998
the Company used $9.2 million for operating activities as compared to generating
$1.5 million of cash from operations during the same period in 1997. The primary
driver of this  change is the net loss of $8.4  million  experienced  during the
first three months of 1998,  of which $6.4 million is  attributable  to interest
expense  related to the  issuance of the $250.0  million 10 1/2% Senior Notes in
September 1997.

     Cash provided by investing activities during the first three months of 1998
amounted to $1.5 million.  This results primarily from the Company's utilization
of its restricted cash to fund the March 1998 interest  obligation on the Senior
Notes.  The  restricted  cash  balance as of the end of the first  quarter  1998
includes  proceeds from the Senior Note offering  placed in escrow to secure the
next five scheduled  interest  payments.  In the first three months of 1997, the
Company used $2.0 million for investing activities.  The primary use of cash for
both periods was for capital expenditures.  The increase in capital expenditures
from $1.7  million  in the first  quarter  of 1997 to $9.8  million in the first
quarter of 1998 was primarily due to  construction  of the longhaul  fiber optic
network  and  purchases  of  equipment  for  the  development  of the  Company's
facilities-based  local service business.  In addition,  cash used for investing
activities  includes the  capitalization  of line access fees,  which  represent
installation  charges paid primarily to the incumbent  local  exchange  carriers
("ILECs") for securing additional leased fiber optic facilities.


<PAGE>

     Cash used for  financing  was $0.4  million for the first  quarter of 1998,
primarily due to payments made on the note payable to  shareholder  and payments
on capital  leases.  During  the first  quarter  of 1997,  financing  activities
provided  the Company  with $0.9  million of cash,  primarily as a result of net
borrowings on working  capital and long-term  credit  facilities.  The dividends
paid  during the first  quarter of 1997 were in  accordance  with the terms of a
shareholders agreement that terminated in September 1997 in conjunction with the
Company's reorganization.

     In September  1997,  the Company issued $250.0 million 10 1/2% Senior Notes
due 2007.  The  Indenture  governing  the Senior  Notes  requires the Company to
comply with certain financial covenants, including restrictions on the Company's
ability to pay  dividends.  As of March 31, 1998,  the Company was in compliance
with all such covenants.

     As of March 31,  1998,  the Company had a $60.0  million  Revolving  Credit
Facility ("Credit  Facility")  available to be used for working capital or other
purposes based upon the Company's  EBITDA.  Borrowings under the Credit Facility
bear interest at the 30, 60, or 90 day London  Interbank  Offered Rate ("LIBOR")
or prime rate,  plus an applicable  spread which varies based upon the Company's
financial  position.  At March 31, 1998, no amounts were  outstanding  under the
Credit  Facility.  The Credit  Facility  requires the Company's  compliance with
various  financial  and  administrative   covenants,   including  among  others,
covenants  limiting  the  ability of BTITC to incur  debt,  create  liens,  make
distributions  or  stock  repurchases,  make  capital  expenditures,  engage  in
transactions   with   affiliates,   sell   assets  and  engage  in  mergers  and
acquisitions.  In addition,  the Credit Facility contains affirmative covenants,
including, among others, covenants requiring maintenance of corporate existence,
licenses and  insurance,  payments of taxes and the  delivery of  financial  and
other information.  As of March 31, 1998, the Company was not in compliance with
certain of these  covenants.  The lender  has  waived  the  covenant  violations
through March 31, 1998.  Based upon current  estimates,  management  anticipates
that the Company may not be in  compliance  with all covenants at June 30, 1998.
The Company is  currently  in the process of  negotiating  an  amendment  to the
Credit  Facility with the lender to ensure that it has access to funds under the
facility to the extent  necessary  to meet the  Company's  needs.  Although  the
Company  anticipates  that an amendment to the existing  Credit Facility will be
successfully  negotiated,   there  can  be  no  assurance  that  there  will  be
availability  for  borrowing.  Consequently,  the  Company's  liquidity  will be
dependent  upon the  results  of future  operations,  the  ability to modify its
existing  business  plan, as well as available  sources of financing,  including
potential  future private or public debt or equity  financings.  There can be no
assurance that the Company will be able to meet its loan covenants,  achieve its
operating plan or, if required, obtain additional financing on acceptable terms,
and the  failure to do so may have a material  adverse  impact on the  Company's
business and operations.


<PAGE>


Capital Spending

     Through March 1998, capital expenditures were approximately $9.8 million as
compared to $1.7  million in the prior  year.  Capital  expenditures  during the
first quarter of 1998 included $5.4 million  related to the longhaul fiber optic
network and $2.8 million in switching  and related  equipment  primarily for the
Company's CLEC operations.  The Company expects to require  significant  capital
for its future capital expenditure and working capital requirements. The Company
plans to spend a total of  approximately  $200 million (with respect to which it
has commitments for $50 million) on its capital program through the year 2002. A
substantial portion of these planned capital expenditures will be related to the
longhaul fiber optic network and purchases of switches and related  equipment to
facilitate the offering of local  services.  The actual amount and timing of the
Company's capital requirements may differ materially from the foregoing estimate
as a result of regulatory,  technological or competitive developments (including
market developments and new opportunities) in the Company's  industry.  Although
there can be no assurance,  management  believes  that cash on hand,  borrowings
expected to be available under the Credit Facility and cash flow from operations
will be sufficient to expand the Company's business as currently planned for the
next 12 months.  The Company also may require  additional  capital in the future
(or sooner than currently  anticipated) for new business  activities  related to
its  current  and  planned  businesses,  or in the  event  it  decides  to  make
additional  acquisitions  or enter into joint ventures and strategic  alliances.
Sources of additional  capital may include cash flow from  operations and public
and private debt and equity  offerings,  which would be subject to provisions in
the Indenture  requiring  the Company to maintain  certain  financial  ratios in
order to incur additional indebtedness.

Year 2000 Issues

     The Company has  developed a plan  designed to ensure that its key computer
systems will be Year 2000  compliant  in advance of December 31, 1999.  The plan
includes review and revision,  where necessary,  of computer  applications  that
directly  connect  elements of the  Company's  business  with  customers,  major
suppliers and third party network service providers. Any failure by such vendors
or third party network service providers to resolve Year 2000 issues on a timely
basis, or in a manner that is compatible with the Company's systems,  could have
a material adverse effect on the Company.

     Implementation of the plan began in 1997 and will continue through 1999. It
involves capital  expenditures for new software and hardware and modification of
existing software.  In most cases these  modifications will not only provide for
Year 2000 compliance,  but will also otherwise enhance the Company's operations.
In many cases,  these  changes  will  merely be an  acceleration  of  previously
planned improvements.


<PAGE>

     Based upon its  initial  evaluation,  the  Company  does not expect it will
encounter Year 2000 systems  problems or compliance  costs that could materially
impact operations or financial results. There can be no assurance, however, that
there  will  not  be a  delay  in,  or  increased  costs  associated  with,  the
implementation of changes as the program  progresses.  Failure to implement such
changes could have an adverse effect on future results of operations.

New Accounting Standards

     As of  January  1,  1998,  the  Company  implemented  Financial  Accounting
Standards   Board   ("FASB")   Statement  No. 130   ("SFAS   130"),   "Reporting
Comprehensive  Income."  SFAS 130  establishes  new rules for the  reporting and
display of  comprehensive  income and its components;  however,  the adoption of
this  statement  had no  impact on the  Company's  net  income or  shareholder's
equity.  SFAS 130  requires  unrealized  gains or losses  on  available-for-sale
securities,  which prior to adoption were reported  separately in  shareholder's
equity,  to  be  included  in  comprehensive   income.  There  are  no  material
differences  between net income and comprehensive  income as defined by SFAS 130
for the periods presented.

     The FASB has issued  Statement  No. 131 ("SFAS  131"),  "Disclosures  about
Segments of an  Enterprise  and Related  Information,"  effective  for financial
statements  for periods  beginning  after  December  15,  1997.  This  statement
requires  that public  companies  report  certain  information  about  operating
segments  in  complete  sets  of  financial  statements  of the  company  and in
condensed  financial  statements of interim periods issued to  shareholders.  It
also requires  that public  companies  report  certain  information  about their
products and services,  the  geographic  areas in which they operate,  and their
major customers. In the initial year of application, comparative information for
earlier years is to be restated.


<PAGE>


Part II - Other Information

Item 6 - Exhibits and Reports on Form 8-K

(a)      See Exhibit Index


(b)      Reports on Form 8-K filed during the quarter:  None





<PAGE>


                                   SIGNATURES



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



                                        BTI Telecom Corp.
                         ----------------------------------------------
                                          (Registrant)






Dated: May 15, 1998              /s/Brian Branson
                              By: --------------------------------
                                  Brian Branson
                                  Chief Financial Officer
                                  (Principal Financial and Accounting Officer)



<PAGE>


                                INDEX TO EXHIBITS




Exhibit
Number                       Description
------                       -----------

27                       Financial Data Schedule