<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K



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



                  For the fiscal year ended December 31, 1998

                                       OR

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

                        Commission File Number 333-4128

                      BOSTON COMMUNICATIONS GROUP, INC.
                       -----------------------------------
             (Exact Name of Registrant as Specified in its Charter)


          MASSACHUSETTS                                    04-3026859
----------------------------------                     ------------------
   (State or Other Jurisdiction                         (I.R.S. Employer
 of Incorporation or Organization)                     Identification No.)
 
100 Sylvan Road, Suite 100, Woburn, Massachusetts               01801
-----------------------------------------------------      --------------
(Address of Principal Executive Office)                      (Zip Code)
 
Registrant's telephone number, including area code:        (617) 692-7000
                                                           --------------
 
          Securities registered pursuant to Section 12(b) of the Act:
                                      None

          Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                     --------------------------------------


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

     YES  X                              NO  
         ---                                ---     
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     The approximate aggregate value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing sales price of such
stock quoted on the Nasdaq National Market on March 1, 1999, was $193,316,499.
The number of shares outstanding of the Registrant's common stock, $.01 par
value per share, as of March 1, 1999 was 16,452,468.

                      DOCUMENTS INCORPORATED BY REFERENCE

The following document is incorporated by reference in the following part of
this Form 10-K: information required by Part III (Items 10, 11, 12 and 13) of
this Annual Report on Form 10-K is incorporated from the Proxy statement
relating to the 1998 Annual Meeting of Stockholders of the Company.

                                      -1-
<PAGE>
 
Item 1.  BUSINESS

                                   BACKGROUND
                                        
GENERAL

Boston Communications Group, Inc. (BCGI) is the leading provider of prepaid
services to wireless carriers in North and South America. Taken together with
the Company's innovative roaming services and teleservices, this suite of
offerings has made BCGI a leading provider of enhanced services to the wireless
telecommunications industry. The Company's Prepaid Wireless Services Division
provides U.S and Canadian carriers with prepaid wireless services through its
C/2/C (R) network, which enables carrier's subscribers to use their wireless
phone as if they were a post-pay subscriber, thereby expanding carriers' service
offerings to new and existing subscribers without the added billing costs and
collection risk. The Systems Division markets a voice processing platform with
enhanced features for providing prepaid wireless, voice messaging and fax mail
services to international wireless and wireline carriers. The Systems Division
also manufactures prepaid systems that are used to support the Company's C/2/C
network. The Company's Teleservices Division provides customer support
teleservices to wireless carriers which allows them to outsource all or a
portion of their customer service activities, and are designed to help wireless
carriers retain subscribers, reduce costs and manage growth. The Company's
ROAMERplus (TM) Division provides carriers with the ability to cost-effectively
generate revenues from subscribers who are not covered under traditional roaming
agreements by arranging payment for roaming calls and paying carriers for the
airtime used. The required disclosure information for the reportable operating
segments is included in Note 5 of the Company's Consolidated Financial
Statements.

Wireless telephone service has been one of the fastest growing areas of the
telecommunications industry over the last thirteen years. Currently, prepaid
wireless is one of the fastest growing markets within the wireless industry.
The Cellular Telecommunications Industry Association ("CTIA") estimates that
the number of wireless subscribers in the United States increased from
approximately 340,000 in December 1985 to approximately 61 million in June 1998.
This represents an increase in market penetration from under 1% to over 22% of
the United States population.  The CTIA also estimates that aggregate annual
service revenues from wireless subscribers grew from approximately $482.4
million in 1987 to approximately $29.6 billion in 1998. A number of factors have
contributed to this growth, including the build-out of the wireless network
infrastructure, the decreasing cost of wireless telephones, the increasing
mobility of the United States population, technological improvements in the size
and battery life of wireless telephones and greater acceptance of wireless
telephone use. Significant growth in the wireless telephone market is expected
to continue in the future, particularly given the emergence of digital wireless
as the most recent form of wireless service.  Industry sources forecast that the
number of wireless subscribers will grow to 80 million by the end of the year
2000, representing a market penetration of approximately 30% of the United
States population, and estimate that the aggregate annual services revenue from
wireless subscribers alone will be over $35 billion.

The Company was organized as a Massachusetts corporation in 1988 and introduced
its ROAMERplus roaming service in 1991. The Company introduced teleservices in
1993 and its prepaid wireless service in 1996.  The Company's systems were
introduced in 1996 with the acquisition of Voice Systems Technology Inc, now the
Systems Division.  The Company's principal office is located at 100 Sylvan Road,
Suite 100, Woburn, Massachusetts 01801 and its telephone number is (617) 692-
7000.

                            Description of Business

Prepaid Wireless Services Division

The Company introduced its C2C network-based prepaid wireless service offering
in early 1996 and was offering the service in over 150 U.S. Metropolitan Service
Areas (MSA's) which cover more than 70% of the U.S. population and all major
markets in Canada as of December 31, 1998.  The Company has become the leading
prepaid wireless service provider for wireless carriers in the United States and
Canada and significantly expanded its subscriber base from 290,000 at December
31, 1997 to 890,000 at December 31, 1998. The average monthly minutes of use per
subscriber were approximately 49 minutes during the fourth quarter of 1998.

                                      -2-
<PAGE>
 
The C/2/C network permits a wireless carrier to automatically switch a prepaid
subscriber's call to the C/2/C network where information regarding the status of
that subscriber's prepaid account is maintained. A subscriber establishes an
account with the wireless carrier by prepaying a specific dollar amount to be
credited toward future service. Subsequently, each call that is initiated or
received by the subscriber is routed to the C/2/C network and rated in real time
based on the telephone number called, carrier usage charges, taxes and
applicable surcharges. When the remaining balance is reduced to a minimal
amount, the subscriber is able to replenish the account by purchasing additional
prepaid service from the carrier by credit card through C/2/C's automated
replenishment feature or by paying cash at any of the carrier's affiliated
retail outlets. The C/2/C network can complete a call and debit the account
automatically without requiring the subscriber to enter a debit card number or
other information. As a result, a prepaid subscriber receives service
substantially similar to a subscriber using traditional billing arrangements,
including the ability to make outgoing and receive incoming calls, as well as
roam into other markets. Prepaid roaming can be done automatically within C/2/C,
via the Company's C/2/C service agreements, and through the Company's ROAMERplus
service.

The C/2/C network consists of a central computer database linked by a high
speed, wide area frame relay network to geographically distributed proprietary
call processing subsystems, called voice nodes. Each voice node site is capable
of serving more than one carrier and consists of a computer controlled
telecommunications switch and an interactive voice response unit that provides
high quality personalized voice prompts. These voice nodes are linked to the
carriers' mobile switching centers via dedicated telephone facilities. The
distributed node architecture is designed to be modular and scaleable, while
remaining efficient and cost-effective. The centralized database enables prepaid
users to make calls while roaming in other service areas where the C/2/C network
is in place.

During 1998, BCGI expanded the features of its prepaid wireless services to
offer additional functionality to its carriers and their prepaid subscribers.
International dialing capabilities were added to the system to permit prepaid
subscribers to make calls from within the United States and Canada to countries
around the world. The Passport feature was also introduced into the C/2/C
product line. This feature allows subscribers to use prepaid wireless services
from any prepaid or traditional postpaid mobile phone and select prepaid service
on a per-call basis. Other features were added including outbound roaming,
automated replenishment options and credit card address verification. The
Company works closely with the carriers on an ongoing basis to develop
additional features and functionality to expand the capabilities and value of
prepaid wireless services. During 1998, the Company upgraded its nodes and
migrated the prepaid system to an Oracle database platform. These improvements
and others dramatically enhanced the overall system reliability.

The Company signed an agreement in 1998 with AG Communication Systems (AGCS) to
jointly develop a Wireless Intelligent Network (WIN) based solution for prepaid
wireless service, including prepaid roaming. This new WIN system will take
advantage of the call processing efficiency and enhanced feature capabilities of
WIN, while building on BCGI's existing strengths in all areas of prepaid service
delivery.  The WIN system will allow BCGI to enhance the current features
enjoyed by its carrier customers in the areas of rating, reporting, distribution
support, customer care and replenishment.  This will enable BCGI to provide a
state-of-the-art, full-featured platform to new customers while allowing a
smooth migration for current customers, including roaming capability between WIN
and non-WIN systems.  The WIN service logic that BCGI and AGCS are developing is
intended to operate on many Service Control Point (SCP) platforms, providing
carriers the flexibility to run WIN service logic on their own SCP platform if
they choose.

Carriers compensate BCGI for network usage by contracting at a per minute rate
for prepaid subscriber usage based on connection time between the carrier's
mobile switching center and the C/2/C network voice node.  The terms of the
Company's existing contracts to provide prepaid wireless services through the
C2C network are generally two or three years.

The Company currently provides C/2/C to several U.S. carriers, including
AirTouch Communications, Southwestern Bell Mobile Systems, Bell Atlantic Mobile,
Bell South Cellular Corp., LA Cellular, AT&T Wireless (AWS), Frontier Cellular,
Bay Area Cellular, Western Wireless' PCS Division, Aliant Cellular, Dobson
Cellular Systems,

                                      -3-
<PAGE>
 
Inc., and Southern New England Telephone Corp., in addition to more than 15
wireless resellers. The Company also provides prepaid wireless services in
Canada to Rogers Cantel. As of February 28, 1999 the Company was supporting over
one million prepaid subscribers on behalf of carriers who have deployed a BCGI
prepaid system in the United States and Canada.


Teleservices Division

The Company began providing teleservices in 1993 in response to the industry's
need for 24-hour, 365 day customer service. The Company's teleservices program
allows a wireless carrier's subscriber to obtain information on rate plans,
phone operations and service center locations, as well as instructions on
roaming features and promotions.  Subscribers also may make billing inquiries,
initiate address and rate plan changes, and obtain other customer assistance.
The Company's teleservice representatives also assist carriers in billing and
collections.  Most carriers using BCGI's teleservices use these services for
off-hours and overflow subscriber support. However, the Company's services range
from narrowly defined, short-term projects to the provision of all of the
carrier's customer service activities.  The Company currently provides
teleservices to thirty-three wireless customers.  Certain wireless carriers that
have contracted for the Company's prepaid wireless services have also engaged
the Company to provide teleservices for their prepaid subscribers.

The Company provides its teleservices from four telecommunications call centers
located in the United States and Canada.  The largest call center is located at
the Company headquarters in Woburn, Massachusetts and has been in operation
since 1996.  In March 1998, the Company, in collaboration with the University of
Massachusetts  Lowell, opened its second service center in Lowell,
Massachusetts.  This service center is located on the campus of the university
and provides students the opportunity to learn about call center operations
while earning money and scholarships to pay for their education.  More than 50%
of the current teleservices representatives at this service center are student
employees of the university.  The third telecommunications call center was
opened in Deland, Florida in August 1998 and employed over 300 personnel as of
December 31, 1998.  In December 1998, the Company began to provide services in a
fourth call center in New Brunswick, Canada.  The ICT Group, Inc. handles the
management and operational functions of this call center, in accordance with
company specifications. BCGI is responsible for call routing, initial training
and ongoing quality assurance and mentoring to ensure compliance with the
Company's standards.

Each of the Company's facilities is designed to provide highly efficient, rapid
customer response through the deployment of state-of-the-art switching
technologies with client/server architecture and open, automatic call delivery
platforms. Each customer service representative utilizes database interfaces
customized for each carrier, to facilitate subscriber inquiry response,
technical problem resolution, program/feature clarification, on-line follow-up
and performance reporting.  These customized interfaces can be programmed to
give the Company complete access to a particular carrier's subscriber databases.
Administration of call center floor personnel is facilitated by the use of
forecasting, scheduling and monitoring systems that allow floor supervisors to
observe numerous aspects of the call center's performance in a graphical format,
including information on call duration, compliance with contract standards and
operator performance.

BCGI has identified additional specific teleservices needs in the wireless
industry and has developed services to meet those needs. These services allow
the carriers to better manage the demands of hiring, training, managing and
retaining a large number of customer service representatives for specialized
service projects that often place significant increased demands on the capacity
of customer service centers. For example, BCGI provides teleservices support to
carriers who are currently supporting prepaid subscribers on the C/2/C network.
BCGI's wireless-trained representatives are available to effectively answer
subscriber questions that are not handled by C2C's automated customer service
application.  BCGI also provides special support services to carriers including
dealer support, phone number and NPA-NXX area code changes and third party
verification services.

The Company offers extensive in-house classroom and on-the-job training programs
for its teleservices personnel, including instruction on a full breadth of
customer service skills, call handling techniques and service quality.  In
addition, carrier-specific training allows the teleservices staff to disseminate
information on a particular carrier's services, as well as to update and edit
information in the carrier's databases.  BCGI intends to continue to market and
invest in its teleservices technology in order to provide additional service
offerings.

                                      -4-
<PAGE>
 
Roaming Services Division

BCGI's ROAMERplus roaming service enables wireless carriers to cost-effectively
generate revenues from subscribers roaming in a carrier's service area who are
not covered under traditional roaming agreements.  These unregistered roamers
attempting to place calls in the serving carrier's territory are automatically
switched to BCGI, which arranges payment for the calls, completes the calls and
pays the serving carrier based on the length of the call. When an unregistered
roamer places a call in the carrier's service area, the carrier's mobile
switching center forwards the call, at the Company's expense, to the Company's
proprietary digital call processing system. The roamer may complete the call by
charging the call to a telephone calling card, a commercial credit card, a
prepaid account or as a collect call.  A majority of all incoming traffic is
initially handled by an automated call processing system, which prompts the
caller for billing and calling information. The Company's specially trained
service representatives handle all remaining calls, as well as calls requiring
additional operator assistance.  The Company's roaming service is being used by
approximately 95 wireless carriers that collectively hold licenses for over
1,100 markets in the United States, Canada and Mexico.  BCGI services 8 of the
10 largest wireless carriers, by number of subscribers, in the United States.

In order to implement the Company's ROAMERplus service, a carrier need only make
a minor software change in its switches. BCGI pays for transport of the calls to
its facilities and for completion of the calls. Under its agreements with
carriers, which typically have a term of one year, BCGI pays the serving carrier
for the airtime that the roamer uses and charges the roamer for the call. The
charge for the call appears directly on a telephone or credit card bill, with
BCGI (typically, under the trade name "Wireless Roaming") as the vendor.
ROAMERplus eliminates collection and fraud risk for the carrier because BCGI
takes responsibility for collection from the customer. The Company manages this
collection and fraud risk by utilizing its own proprietary and external fraud
control systems as well as validating the caller's credit before completing the
call.  Over the past few years there has been a decrease in the suspension of
inter-carrier roaming agreements due to improved fraud controls implemented by
the carriers.


Systems Division

The Systems Division delivers prepaid wireless solutions to carriers which, when
coupled with the Prepaid Wireless Services Division's carrier customers, makes
BCGI the leading provider of prepaid wireless services to carriers in North and
South America.  The Systems Division sells systems that enable prepaid wireless
calling on a turnkey basis primarily to international customers.  The Division
also markets and sells systems for voice messaging, fax mail and other enhanced
service applications to Original Equipment Manufacturers (OEM's) and wireless
and wireline carriers throughout North America.

Prepaid systems have been sold to several customers whose efforts are focused on
international prepaid wireless, including Cable & Wireless, Bell South Wireless
International and Cellstar, Ltd.  These customers have operations throughout the
world and have enabled the Company to make significant prepaid system sales in
Mexico, Brazil, Venezuela and several other South American countries. The
Company expects to continue to market and sell its systems through these and
other companies to expand prepaid wireless services beyond North and South
America.  To support its systems and on-going sales efforts in Mexico, in 1997
the Company established a Mexican subsidiary, BCG de Mexico, S.R.L, that employs
technicians and other support staff throughout Mexico.


Engineering, Research and Development

BCGI believes that its future success will depend in large part on its ability
to enhance existing services and develop new services in response to changing
market, customer or technological requirements of the wireless telephone
industry.  An important factor in the future success of the Company's prepaid
wireless service will be the

                                      -5-
<PAGE>

Company's ability to provide, at competitive prices, more functionality and
features than those typically available in other competitive offerings. The
Company has developed proprietary software to enable its call processing
platform to handle custom signaling interfaces to various types of wireless
switches, specialized call rating requirements of prepaid wireless services, and
interfaces to wireless administration and management information systems. The
Company is developing a number of enhanced services that it intends to make
available to prepaid and traditional subscribers through the C/2/C network. In
addition, BCGI's agreement with AGCS to jointly develop the WIN system is
expected to improve call processing efficiency and provide BCGI the ability to
enhance the features available to carriers. These enhanced services are intended
to be designed to enable carriers to generate additional sources of revenue from
subscribers, to provide carriers with more extensive internal reporting
capabilities and help to reduce carriers' telecommunications costs.

The Company spent approximately $3.2 million, $5.4 million and $5.5 million on
engineering, research and development in 1996, 1997, and 1998, respectively.
During 1998, the responsibilities of a number of prepaid wireless service
personnel were shifted from development and engineering of the prepaid
architecture to the duties of maintaining and upgrading the C2C network to
provide high quality performance.  This trend is expected to continue in 1999.
The Company expects to continue to devote significant resources to its
engineering, research and development activities in future years.


Sales, Marketing and Distribution

The Company's sales strategy is to establish and maintain long-term
relationships with its customers. The Company utilizes a consultative sales
process to understand and define customer needs and determine how those needs
can be addressed by the Company's services. BCGI seeks to build upon its
existing customer relationships by integrating and cross-selling its different
service offerings. The Company's sales cycle varies for different services and
can be up to 12 months for the Company's Teleservices, Prepaid Wireless Services
and Systems Divisions.

The Company's sales force consists of sales representatives who generally have
significant experience in the wireless industry, either as former employees of
wireless carriers or in selling products and services to wireless carriers. The
Company typically assigns each sales representative to a single group of
wireless telephone carriers in order to support the development and maintenance
of long-term strategic customer relationships. The sales representatives are
supported by product specific account and service managers who also typically
have experience in the wireless industry and manage the accounts on a daily
basis after the completion of the initial sale.  Most sales representatives are
strategically located in the carriers major geographic regions, however, the
Company's marketing and product management activities are supported from its
Woburn, Massachusetts facility and from its Tulsa, Oklahoma Systems Division
location.

The Company's direct sales strategy is complemented by a marketing program that
includes participation in industry trade shows, advertising and public
relations. Because the Company's customers are a group of large-scale wireless
carriers, the Company seeks to gain wide exposure through carefully selected
events and activities specific to the wireless telephone industry.

Product and account management groups have been established for the Prepaid
Wireless Services, Teleservices and Systems Divisions. Each group focuses on
supporting carriers' operational issues, understanding the prepaid market and
providing carriers with valuable information regarding prepaid marketing and
subscriber trends, distribution techniques and marketing success factors.  The
Company works closely with the carriers and the industry to disseminate and
integrate this information into their prepaid programs to help generate and
retain prepaid subscribers.  In addition, the product and account management
groups focus on identification of new features and functionality that drive
incremental prepaid business.

Distribution of prepaid wireless is an integral piece of the service because it
provides consumers with numerous channels to purchase or replenish prepaid
service.  The Company continues to improve distribution options for prepaid
cards on behalf of wireless carriers by seeking arrangements with national
distributors, retailers, resellers and alternative channels to increase market
penetration and exposure.  The Company intends to focus more efforts on its
marketing program in 1999 to expand awareness of its prepaid product offering,
specifically to provide more assistance to its carrier customers in
strategically marketing and promoting prepaid services through their sales and
distribution channels.

                                      -6-
<PAGE>
 
Customers

The Company provides its services to wireless carriers and resellers of varying
size, expertise and capabilities.  The Company currently provides one or more of
its services to approximately 95 wireless carriers in the United States, Canada
and Mexico, including 8 of the 10 largest wireless carriers in the United
States.   Historically, a significant portion of the Company's revenues in any
particular period has been attributed to a limited number of customers. Net
revenues attributable to the Company's ten largest customers accounted for
approximately 82%, 75% and 79% of the Company's total revenues in 1996, 1997,
and 1998, respectively.  Ameritech Cellular Services, Bell Atlantic Mobile,
Southwestern Bell Mobile Systems, Bell South Cellular and Airtouch
Communications accounted for approximately 12%, 12%, 11%, 5% and 9%,
respectively, of total revenues in 1997 and for 15%, 11%, 10%, 13% and 13%,
respectively, of total revenues in 1998.

For the year ended December 31, 1998, the Company's Systems Division generated
$13.6 million in prepaid and voice system revenues.  Of this revenue, a
significant portion represented sales to support prepaid wireless service in
several South American countries on behalf of Bell South International Wireless,
Inc.


Competition

The market for services to wireless carriers is highly competitive and subject
to rapid change. A number of companies currently offer one or more of the
services offered by the Company. In addition, many wireless carriers are
providing or can provide, in-house, the services that the Company offers. Trends
in the wireless telephone industry, including greater consolidation and
technological or other developments that make it simpler or more cost-effective
for wireless carriers to provide certain services themselves, could affect
demand for the Company's services and could make it more difficult for the
Company to offer a cost-effective alternative to a wireless carrier's in-house
capabilities. In addition, the Company anticipates continued growth in the
wireless carrier services industry, and consequently, the entrance of new
competitors in the future.  BCGI's principal competitor in the unregistered
roaming market is National Telemanagement Corporation and in the prepaid network
market, Brite Voice Systems, Inc., National Telemanagement Corporation, and GTE
Telecommunications Services, Inc.  In the teleservices market, BCGI competes
with a variety of companies that have inbound and outbound service centers.  The
Systems Division's principal competitors in the turnkey prepaid and voice
processing systems markets include Comverse Technology, Inc., Brite Voice
Systems, Inc. and Centigram Communications Corp.

The Company believes that the principal competitive factors in the wireless
carrier services industry include the ability to identify and respond to
customer needs, quality and breadth of service offerings, price and technical
expertise. The Company's ability to compete also depends in part on a number of
competitive factors outside its control, including the ability to hire and
retain employees, the development by others of products and services that are
competitive with the Company's products and services, the price at which others
offer comparable products and services and the extent of its competitors'
responsiveness to customer needs.  There can be no assurance that the Company
will be able to continue to compete successfully with its existing competitors
or with new competitors.


Government Regulation

The Federal Communications Commission ("FCC"), under the terms of the
Communications Act of 1934, as amended, including the Telecommunications Act of
1996, regulates interstate communications and use of radio spectrum, including
entry, exit, rates and terms of operation. BCGI presently neither operates any
facilities utilizing radio spectrum nor has any facilities-based services
involving interstate communications. Consequently, it is not required to and
does not hold any licenses or other authorizations issued by the FCC. However,
the wireless carriers that constitute the Company's customers are regulated at
both the federal and state levels. Such regulation may decrease the growth of
the wireless telephone industry, affect the development of the PCS market, limit
the number 

                                      -7-
<PAGE>
 
of potential customers for the Company's services or impede the Company's
ability to offer competitive services to the wireless market or otherwise have a
material adverse effect on the Company's business and results of operations. At
the same time, the Telecommunications Act of 1996, a deregulatory measure, may
cause changes in the industry, including entrance of new competitors and
industry consolidation, which could in turn affect the Company's cost of doing
business or otherwise have a material effect on the Company's business,
financial condition and results of operations.


Employees

As of December 31, 1998, the Company had a total of 1,135 full-time and part-
time employees. Of these employees, 830 serve in teleservices and roaming call
center and related functions, 174 serve in technical support and technology and
software development, 51 serve in sales, marketing, product and account
management and 80 serve in administration and management.  In addition, 146
students of the University of Massachusetts - Lowell serve as representatives
for the Teleservices Division.  None of the Company's employees are represented
by a labor union. The Company believes that its employee relations are good.


Backlog

As of December 31, 1998, there was no backlog of firm orders of the Systems
Division.  The Company includes in backlog only those orders for which it has
received completed purchase orders and for which delivery has been specified
within 12 months.  Most orders are subject to cancellation by the customer.
Because of the possibility of customer changes in delivery schedules,
cancellation of orders and potential delays in product shipments, the Company's
backlog as of any particular date may not be representative of actual sales for
any succeeding period.


Item 2.  PROPERTIES

The Company leases space at five of its six principal locations: Burlington,
Woburn and Lowell, Massachusetts, Deland, Florida and Mexico City, Mexico. In
March 1999 the Company purchased the property at its Tulsa, Oklahoma location
which was previously under lease. The Woburn location serves as one of the call
centers for teleservices and also has separate facilities that house the
Company's network operations center as well as the Company's executive
headquarters, engineering, sales, human resources and finance personnel. The
Burlington site is currently utilized for service center operations for
ROAMERplus and houses training facilities and certain engineering personnel. Its
operations are expected to be fully consolidated into the Woburn facility during
1999 upon the expiration of the lease in October 1999. The Tulsa facility is
used for the manufacturing and assembly of systems and houses other Systems
Division support functions such as engineering, product management, sales
support and finance. The Mexico City office serves as the headquarters of the
technical service operation in Mexico. The Company has 33 other leased
facilities throughout the United States that are used to house the Company's
voice nodes and certain equipment for the C/2/C network.

The following is a listing of the Company's significant leased facilities:

Location                   Square Footage          Expiration Date
--------                   --------------          --------------- 
Woburn, Ma                 58,415                  February 2001-October 2003
Burlington, Ma             19,975                  October 1999
Lowell, Ma                  9,000                  February 2002

Item 3.  LEGAL PROCEEDINGS

On November 20, 1997, AWS sent a letter to the Company stating that it believes
that it is entitled to indemnification from the Company in respect to a certain
claim presently pending in a case brought by Ronald A.

                                      -8-
<PAGE>
 
Katz Technology Licensing, L.P. and MCI Telecommunications Corporation against
AT&T Corp. in the United States District Court for the Eastern District of
Pennsylvania. The letter asserts that Count 13 of the complaint, which relates
in part to prepaid wireless service, gives rise to an obligation on the part of
the Company to indemnify AWS with respect to that count. The amount in question
is undetermined. The suit against AT&T Corp. was filed on July 8, 1997. The
contract between the Company and AWS pursuant to which the Company presently
provides prepaid services to AWS, and upon which AWS's claim for indemnification
is based, was not executed until October 15, 1997. The Company believes that the
claim is without merit. To date, no legal action has been brought against the
Company.

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

No matters were submitted to a vote of security holders of the Company, through
solicitation of proxies or otherwise, during the last quarter of the year ended
December 31, 1998.


EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company and their ages and positions are as
follows:

Name                       Age      Position
----                       ---      --------
Paul J. Tobin              55       Chairman of the Board

Brian E. Boyle             50       Vice Chairman

E.Y. Snowden               44       President & Chief Executive Officer, 
                                    Director

Frederick E. von Mering    45       Vice President, Finance and Administration,
                                    Director

Mr. Tobin has served as Chairman of the Board of Directors of the Company since
February 1996.  He also served as the Company's President and Chief Executive
Officer from March, 1997 to February, 1998 and from 1990 until February 1996.
Prior to joining the Company, Mr. Tobin served as President of Cellular One
Boston/Worcester from July 1984 to January 1990 and as a Regional Marketing
Manager for Satellite Business Systems, a joint venture of IBM, Comsat Corp. and
Aetna Life & Casualty from April 1980 to June 1984. Mr. Tobin received his
undergraduate degree in economics from Stonehill College and his M.B.A. in
marketing and finance from Northeastern University.  Mr. Tobin also serves as a
member of the Board of Trustees at Stonehill College.

Mr. Boyle has served as Vice Chairman of the Company since February 1996 and as
Chairman, New Wireless Services of the Company from January 1994 to February
1996. From July 1990 to September 1993, Mr. Boyle served as Chief Executive
Officer of Credit Technologies, Inc., a supplier of customer application
software for the wireless telephone industry. Prior to 1990, Mr. Boyle founded
and operated a number of ventures servicing the telecommunications industry,
including APPEX Corp. (now EDS Personal Communications Division of EDS
Corporation, a global telecommunications service company) and Leasecomm
Corporation (now MicroFinancial Corporation (MFC)), a micro-ticket leasing
company. Mr. Boyle earned his B.A. in mathematics from Amherst College and his
B.S., M.S. and Ph.D. in electrical engineering and operations research from
M.I.T.  Mr. Boyle is also a Director of Saville Systems PLC, a provider of
customized billing solutions to telecommunications providers, and MFC, as well
as of several private companies.

Mr. Snowden has served as the Company's President and Chief Executive Officer
since February, 1998.  Prior to joining the Company, Mr. Snowden served as
President and Chief Operating Officer of American Personal Communications, L.P.
d/b/a Sprint Spectrum where he oversaw the launch of the Nation's first PCS
network.  From 1991 to 1994, Mr. Snowden was Area Vice President, Personal
Communication & Intelligent Network Services at Pacific Bell, Inc.  From 1988 to
1990, Mr. Snowden was a Principal at Mehta Burkett & Company, Inc. a merchant
banking firm.  From 1986 to 1988, Mr. Snowden was an executive at Universal
Optical Company, Inc. where he held the positions of Chief Executive Officer and
President & Chief Operating Officer.  Prior to 1986, Mr. Snowden was employed by
various organizations including The Beta Group, Boston Consulting Group, Inc.
and Price Waterhouse LLP.  Mr. Snowden earned his B.S. in Mathematical Sciences
from Stanford University and his M.B.A. from Harvard Graduate School of Business
Administration.

                                      -9-
<PAGE>
 
Mr. von Mering has served as the Company's Vice President, Finance and
Administration since 1989. Prior to joining the Company, Mr. von Mering served
as Regional Vice President and General Manager for the paging division of
Metromedia, Inc., a communications company, from 1980 to 1986. From 1975 to
1979, Mr. von Mering was employed at Coopers & Lybrand LLP. Mr. von Mering
earned his B.A. degree in accounting from Boston College and his M.B.A. from
Babson College.

Each officer serves at the discretion of the Board of Directors. There are no
family relationships among any of the Directors and executive officers of the
Company.

                                    PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information for Common Stock

   Boston Communications Group, Inc.'s Common Stock is traded on the Nasdaq
National Market, under the symbol BCGI.  The following table reflects the range
of high and low selling prices of the Company's common stock for the periods
indicated.

                                1997                         1998
                     ---------------------------  --------------------------
                         High           Low           High          Low
                     -------------  ------------  ------------  ------------
First Quarter          $  7 1/8       $ 3 7/8       $11 11/16     $ 6 1/8
Second Quarter           15 1/16        4 1/8        11 1/4         6 1/2
Third Quarter            17 1/4        12 1/4         9 1/8         3 7/8
Fourth Quarter           19             8 1/2        13             6 3/4


Holders

At February 23, 1999, there were approximately 5,000 holders of Common Stock.


Dividends

The Company has never paid a cash dividend on its Common Stock.  The Company
currently intends to retain all of its earnings to finance future growth and,
accordingly, does not anticipate paying any cash dividends in the forseeable
future.

                                      -10-
<PAGE>
 
Item 6.  SELECTED FINANCIAL DATA

The following tables should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this report.

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                --------------------------------------------------------------------------
                                                    1994           1995          1996 (1)         1997           1998
                                                -------------  -------------  --------------  -------------  -------------
Consolidated Statements of Operations Data:                       (in thousands, except per share data)
<S>                                             <C>            <C>            <C>             <C>            <C>
Total revenues                                  $     18,334    $    34,220    $     50,651    $    68,099   $     86,482
Operating income (loss)                                  405          2,129             610         (2,389)        (3,149)
Income (loss) from continuing operations(2)              288          3,008             599         (1,116)        (1,800)
Income (loss) from discontinued operations             1,507           (165)             --             --             --
Net income (loss)                                      1,795          2,843             599         (1,116)        (1,800)
Net income (loss) available to common
 shareholders                                            779          1,893             148         (1,116)        (1,800)
 
Basic net income (loss) per common share(3):            0.24           0.57            0.02          (0.08)         (0.11)
Diluted net income (loss) per common share(3):          0.22           0.22            0.01          (0.08)         (0.11)
Consolidated Balance Sheet Data:
Cash and short-term investments                          204            253          21,421         33,704         25,609
Working capital                                        1,098          2,082          26,433         38,210         37,397
Property and equipment, net                            2,699          4,884          12,906         38,087         38,055
Total assets                                           8,867         13,614          51,959         93,385         91,760
Redeemable preferred stock                            14,947         15,896              --             --             --
Shareholders' equity (deficit)                  $    (10,591)   $    (8,698)   $     42,893    $    80,104   $     78,658
Dividends per common share                                --             --              --             --             --
</TABLE>

(1) In February 1996, the Company acquired VST for Common Stock and cash with an
    aggregate value of approximately $2.5 million.
(2) In 1995, the Company reversed the deferred tax asset valuation allowance,
    resulting in a tax benefit of $1.8 million. In addition, in 1994 and 1995,
    the Company realized benefits from net operating loss carryforwards of
    $382,000 and $840,000, respectively.
(3) See Note 8 of Notes to Consolidated Financial Statements.

                                      -11-
<PAGE>
 
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

Consolidated Results of Operations
----------------------------------

The Company's total revenues increased 27% from $68.1 million in 1997 to $86.5
million in 1998.  The growth was primarily attributable to a 147% increase in
the Company's principal business, prepaid wireless, and to a 53% increase in
teleservices revenues, primarily arising from increased customer service for
carriers' C2C customers.  A 13% decline in roaming service revenues slightly
offset the growth in prepaid wireless and teleservices.  In 1997, total revenues
increased 34% compared to 1996 primarily due to increases in prepaid wireless
and systems revenues.

The Company incurred operating losses for the years ended December 31, 1998 and
1997 totaling $3.1 million and $2.4 million, respectively, compared to operating
income of $610,000 in 1996.   Excluding the effects of the loss on impairment of
long-lived assets, the operating losses for the years ended December 31, 1998
and 1997 would have been $2.5 million and $1.8 million, respectively.  The
increase in operating losses reflects the increased depreciation,
telecommunication and personnel costs associated with the deployment and
operation of the C/2/C network. The specifics of each division's revenues and 
net operating income (loss) are discussed in greater detail below.

The Company's reportable operating segments consist of Prepaid Wireless
Services, Teleservices, Roaming Services and Systems Divisions.  The accounting
policies of the operating segments are the same as those described in the
summary of significant accounting policies in Note 2 of the Company's
Consolidated Financial Statements, except that the financial results for the
Company's operating segments have been prepared using a management approach.
This approach is consistent with the basis and manner in which the Company's
management internally analyzes financial information for the purposes of
assisting in making internal operating decisions.  The Company evaluates
performance based on stand-alone divisions operating income (loss) before
interest and taxes and allocates corporate level operating expenses to the
operating divisions.  Segment disclosure information is included in Note 5 of
the Company's Consolidated Financial Statements.

The Company's chief operating decision-maker is its President.  The Company's
Divisions, or operating segments, are managed separately because each represents
a strategic business unit that offers different products and serves unique
markets within the wireless industry.  However, the divisions do complement each
other in order to provide the Company with a strong suite of products and
services to meet the needs of wireless carriers.  The Company's customers
include eight of the ten largest domestic wireless carriers, six of whom use two
or more of the Company's products.

                                      -12-
<PAGE>
 
Divisional Data
---------------
(in thousands except for percentages)

<TABLE>
<CAPTION>
                                            Prepaid
                                            Wireless                                Roaming 
                                            Services        Teleservices           Services      Systems            Total
------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>               <C>               <C>             <C>
1998
---- 
Revenues                                       $18,624            $26,001           $28,235         $13,622            $86,482
                                               =======            =======           =======         =======            =======
Gross margin                                     8,659              5,918             6,364           5,174             26,115
                                               =======            =======           =======         =======            =======
Gross margin percentage                             46%                23%               23%             38%                30%
                                               =======            =======           =======         =======            =======
Operating income (loss)                         (7,236)               393             2,962             732             (3,149)
                                               =======            =======           =======         =======            =======
Percentage of revenues                             (39%)                2%               10%              5%                (4%)
                                               =======            =======           =======         =======            =======
 
1997
---- 
Revenues                                         7,539             17,009            32,461          11,090             68,099
                                               =======            =======           =======         =======            =======
Gross margin                                     1,260              4,815             6,754           4,889             17,718
                                               =======            =======           =======         =======            =======
Gross margin percentage                             17%                28%               21%             44%                26%
                                               =======            =======           =======         =======            =======
Operating income (loss)                         (7,976)               562             4,547             478             (2,389)
                                               =======            =======           =======         =======            =======
Percentage of revenues                            (106%)                3%               14%              4%                (4%)
                                               =======            =======           =======         =======            =======
 
1996
---- 
Revenues                                           312             13,413            32,234           4,692             50,651
                                               =======            =======           =======         =======            =======
Gross margin                                      (537)             3,331             6,559           2,116             11,469
                                               =======            =======           =======         =======            =======
Gross margin percentage                           (172%)               25%               20%             45%                23%
                                               =======            =======           =======         =======            =======
Operating income (loss)                         (5,792)               674             4,757             971                610
                                               =======            =======           =======         =======            =======
Percentage of revenues                           (1856%)                5%               15%             21%                 1%
                                               =======            =======           =======         =======            =======
</TABLE>
                                                                                
Prepaid Wireless Services Division
----------------------------------

Prepaid Wireless Services Division revenues increased from $312,000 in 1996 to
$7.5 million in 1997 and increased 148% to $18.6 million in 1998.  Both
increases were the result of new carrier contracts secured in 1997 and 1998, as
well as existing carrier customers adding new markets to the C2C network during
both periods.  At the end of 1998 there were approximately 890,000 paid
subscribers on the C/2/C network, as compared to 290,000 subscribers at the 
end of 1997, an increase of over 200%.

Gross margins for the Prepaid Wireless Services Division improved from a
negative margin in 1996 to 17% of revenues in 1997 and 46% of prepaid wireless
services revenues in 1998.  The improvement in both years resulted from the
significant increase in prepaid wireless services revenues in each of 1997 and
1998.  This increase in gross margins was partially offset by increased
personnel and related costs incurred to support the growth of the C/2/C network.

Operating losses for the Prepaid Wireless Services Division increased 38% from
$5.8 million in 1996 to $8.0 million in 1997, and decreased 10% to $7.2 million
in 1998. These operating losses have been due to costs associated with the C/2/C
network, including costs for personnel and for telecommunications equipment and
software. While the Company expects to continue to incur significant capital and
personnel costs to support the expansion and development of the C/2/C network,
the Company also anticipates that increases in prepaid wireless services
revenues will improve the gross margins and operating results of the Prepaid
Wireless Services Division in 1999.

                                        
Teleservices Division
---------------------

Teleservices Division revenues increased 27% from $13.4 million in 1996 to $17.0
million in 1997 and increased 53% to $26.0 million in 1998.  The increases in
teleservices revenues were primarily due to new and additional services provided
to existing customers and the addition of new carrier customers in 1997 and
1998.  A significant component of these increases was the increase in
teleservices revenues from billing inquiry services provided to the Prepaid
Division's carriers.  Teleservices revenues from those services were negligible
in 1996, increased 11% to $1.9 million in 1997 and increased 31% to $8.2 million
in 1998.

                                      -13-
<PAGE>
 
Gross margins for the Teleservices Division increased from 25% of teleservices
revenues in 1996 to 28% of teleservices revenues in 1997, but declined to 23% of
teleservices revenues in 1998.  The increase from 1996 to 1997 resulted
primarily from labor efficiencies and other economies of scale as higher
teleservices revenues absorbed more fixed operating costs.  The decrease in
gross margins in 1998 was primarily due to incremental costs in connection with
opening three additional call centers in 1998, including training and travel
costs.  Although the Company anticipates teleservices revenues to increase in
1999, it expects the gross margin from that division to decline compared to the
levels achieved in 1998.  A significant reason for the gross margin decline is
increased costs resulting from the Company's plan to support new business in the
Teleservices Division by leasing call center facilities, equipment and personnel
from third parties that will be classified entirely in cost of services.  In
1998 and prior years, a portion of these costs were classified in depreciation
or general and administrative expenses.

Operating income for the Teleservices Division decreased slightly from $674,000
in 1996 to $562,000 in 1997 and $393,000 in 1998.  Operating income for the
Teleservices Division represented 5% of teleservices revenues in 1996, 3% in
1997 and 2% in 1998.  The decreases in each of 1997 and 1998 were primarily due
to the Company's significant investment in call center technology during 1997
designed to enhance service offerings as well as improve operational efficiency.


Roaming Services Division
-------------------------

Roaming services revenues remained relatively flat at $32.2 million in 1996 and
$32.5 million in 1997 and decreased 13% to $28.2 million in 1998.  Roaming
services revenues remained relatively constant from 1996 to 1997, even though
there were fewer suspensions of inter-carrier automatic roaming agreements by
the carriers in 1997 as compared to 1996, because the Company expanded the
billing options that it offered to carriers and maintained its market presence.
The decrease in roaming services revenues in 1998 was primarily attributable to
greater suspensions of inter-carrier automatic roaming agreements and some
cannibalization of unregistered roaming use by prepaid wireless growth.  In
addition, a consumer' decision to use the Company's premium priced roaming
service has been adversely affected by an increase in one-rate registered
roaming plans offered by some national carriers.  The Company anticipates that
these trends will continue and, therefore, roaming services revenues will
continue to decrease over time.

Gross margins for the Roaming Services Division improved from 20% of revenues in
1996 to 21% in 1997 and 23% in 1998.  The improvement in both years resulted
primarily from enhancement and expansion of automated features of the service
that reduced labor costs.

Operating income for the Roaming Services Division was relatively flat at $4.8
million in 1996 and $4.5 million in 1997 and decreased 33% to $3.0 million in
1998.  The decrease in 1998 was primarily a result of lower absorption of fixed
costs as roaming services revenues declined.  The decrease was offset to some
extent by reduced labor costs.  The Company anticipates that operating income
for the Roaming Services Division will continue to decline slightly due to the
anticipated decrease in roaming services revenues.


Systems Division
----------------

Systems revenues increased 136% from $4.7 million in 1996 to $11.1 million in
1997 and increased 23% to $13.6 million in 1998.  The increase in 1997 systems
revenues was attributable to the sale of prepaid systems to an existing customer
in Mexico and to new customers in South America.  The increase in 1998 was due
to further system sales to new and existing customers in South America.

Gross margins for the Systems Division decreased slightly from 45% of systems
revenues in 1996 to 44% in 1997 and further decreased to 38% in 1998.  The
reduction in the gross margin from 1996 to 1997 was primarily due to a change in
the mix of the types of systems sold to more sales of prepaid systems in
proportion to total sales.  Prepaid systems have a lower margin than voice
systems.  The decrease in 1998 was primarily a result of increased competition
in the market for such systems that resulted in reduced prices for the systems,
as well as higher costs

                                      -14-
<PAGE>
 
associated with installing systems abroad. The trend of selling more prepaid
systems in proportion to total systems sales also continued and, therefore, was
an additional factor in the decrease in gross margin.

Operating income for the Systems Division decreased 51% from $971,000 in 1996 to
$478,000 in 1997 and increased 53% to $732,000 in 1998.  Operating income for
the Systems Division represented 21% of systems revenues in 1996, 4% of systems
revenues in 1997 and 5% of systems revenues in 1998.  The decrease in operating
income in 1997 resulted primarily from costs incurred to expand into Mexico and
South America, including costs for sales, development and administrative
personnel, international travel expenses, additional development and test
equipment and increased amortization costs related to goodwill acquired in
connection with the purchase of a subsidiary.  Operating income remained
consistent as a percentage of systems revenues from 1997 to 1998,
notwithstanding the decrease in gross margin, because sales and marketing
expenses of the Systems Division were reduced with the consolidation of one of
the division's satellite sales offices into its Tulsa headquarters.

The Company currently prices and sells all of its systems to international
customers in U.S. dollars.  In addition, many Systems Division customers are
multinational corporations that are publicly traded in the U.S.  All payments
are received in U.S. dollars which helps to protect the Company from the need to
hedge against foreign currency risk.


Operating Data
--------------
($ in thousands)
<TABLE>
<CAPTION>
                                             1998                       1997                       1996
                                      Total     % of Revenue     Total     % of Revenue     Total     % of Revenue
-----------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>           <C>          <C>           <C>          <C>
Total revenues                         $86,482          100%      $68,099          100%      $50,651          100%
Engineering, research and
 development                             5,523            6%        5,433            8%        3,221            6%
 
Sales and marketing                      5,590            6%        5,089            7%        2,949            6%
General and administrative               6,208            7%        3,470            5%        2,580            5%
Depreciation and amortization           11,245           13%        5,546            8%        2,109            4%
Impairment of long-lived assets            698            1%          569            1%            -            -
</TABLE>

Engineering, research and development expenses
----------------------------------------------

Engineering, research and development expenses primarily include the salaries
and benefits for software development and engineering personnel associated with
the development, implementation and maintenance of existing and new services.
Engineering, research and development expenses decreased as a percentage of
total revenues from 8% to 6% for the years ended December 31, 1997 and 1998,
respectively. This decrease primarily resulted from engineers devoting less time
to developing and building out the C/2/C network infrastructure than they had in
the prior year and, to a lesser extent, to the changes associated with
organizing the Company into its four operating divisions. As a result of the
divisional structure, certain senior management personnel changed their
functional responsibilities from engineering to general management and oversight
of the divisions. The Company intends to continue to increase its engineering,
research and development expenditures to support future development and
enhancements of its prepaid and other wireless services and systems .

Engineering, research and development expenses increased as a percentage of
total revenues from 6% to 8% in the years ended December 31, 1996 and 1997,
respectively. This increase was principally due to costs, including recruiting
fees and other personnel costs, associated with the Company's hiring of new
personnel to support ongoing development and enhancements, implementation and
deployment of the C/2/C network, and to a lesser extent, additional personnel
and related costs to support the expansion of teleservices and system sales.

                                      -15-
<PAGE>
 
Sales and marketing expenses
----------------------------

Sales and marketing expenses include direct sales and product management
salaries, commissions, travel and entertainment expenses, in addition to the
cost of trade shows, advertising and other promotional expenses.  As a
percentage of total revenues, sales and marketing expenses decreased from 7% in
1997 to 6% in 1998.  This decrease resulted primarily from revenues absorbing
fixed sales and marketing costs that did not increase as rapidly as revenue
growth.  In addition, the decrease resulted from the consolidation of the
Systems Division satellite sales offices to the Tulsa headquarters in 1997 and,
to a lesser extent, to the changes associated with organizing the Company into
its four operating divisions.  As a result of the divisional structure, certain
senior management personnel changed their functional responsibilities from sales
and marketing to general management and oversight of the divisions.

Sales and marketing expenses increased as a percentage of total revenues from 6%
to 7% in 1996 and 1997, respectively.  The increase in sales and marketing
expenses was principally due to additional expenditures to support the
concentrated efforts of the Systems Division to expand internationally and the
overall growth in system sales.  Additional personnel, recruiting, commissions
and other costs were also incurred in 1997 to support sales and marketing
efforts in the Prepaid Wireless Services and Teleservices Divisions. The Company
expects to increase expenditures for sales, marketing and product management in
the future to assist carriers with more prepaid marketing and distribution
efforts as well as expanding systems sales into new geographical markets.   Such
expenditures are expected to vary as a percentage of total revenues.


General and administrative expenses
-----------------------------------

General and administrative expenses include salaries and benefits of employees
and other expenses that provide administrative support to the Company.  General
and administrative expenses increased as a percentage of total revenues from 5%
in 1997 to 7% in 1998. The increase resulted principally from the addition of
staff to support the Company's growth and changes associated with organizing of
the Company into its four operating divisions.  As a result of the divisional
structure, certain senior management personnel changed their functional
responsibilities from marketing and engineering to general management and
oversight of the divisions.

Total general and administrative expenses were consistent as a percentage of
total revenues for 1996 and 1997, respectively, but increased in absolute
dollars from $2.6 million in 1996 to $3.5 million in 1997.  The increase in in
the dollar amount of general and administrative expenses in 1997 was primarily
attributable to additional employees and related recruiting expenses to support
the Company's growth, along with a full year of costs associated with being a
publicly traded company.

                                        
Depreciation and amortization expense
-------------------------------------

Depreciation and amortization expense includes depreciation of
telecommunications systems, furniture and equipment and leasehold improvements.
The Company provides for depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to seven years.
Goodwill related to acquisitions is amortized over eight years. Depreciation and
amortization expense increased more than 100% in 1998 compared to 1997 and  163%
from 1996 to 1997. The increase in 1998 was due primarily to the depreciation of
additional technical equipment and software to support the rapid expansion and
enhancement of the Company's prepaid wireless network. These same factors
contributed to greater depreciation and amortization in 1997 compared to 1996.
In addition, the increase in 1997 was attributable to the amortization of
goodwill from the Company's acquisitions and depreciation of technical equipment
and software purchased for the teleservices business.  Depreciation and
amortization expense are expected to increase in 1999 due to increased capital
expenditures for telecommunications systems, primarily related to new features
and functionality and the continued expansion of the C/2/C network.

                                      -16-
<PAGE>
 
Impairment of long-lived assets
-------------------------------

The Company recognized a pre-tax charge of $698,000 and $569,000 in the years
ended December 31, 1998 and 1997, respectively, for a write-down of assets that
are no longer being used to support the Company's operations.


Interest income
---------------

Interest income increased from $589,000 in the year ended December 31, 1996 to
$1.1 million in 1997 and $1.3 million in 1998. Interest income was earned from
investments of the proceeds of the Company's public offerings and was offset
slightly by interest expense from the Company's capital leases.


Provision (benefit) for income taxes
------------------------------------

The income tax benefit of $188,000 for the year ended December 31, 1997 yielded
a 14% income tax benefit.  The income tax expense of $600,000 for the year ended
December 31, 1996 yielded a 50% income tax rate, as compared to the statutory
rate of 40%.  The lack of an income tax benefit in 1998, the lower benefit in
1997 and the higher rate in 1996 resulted primarily from the non-deductibility
of goodwill from the Company's acquisitions. In addition, the Company did not
provide any additional benefit for net operating losses generated in 1998.  The
Company's effective income tax rate may be greater than 40% in future years due
to the continued impact of non-deductible goodwill.

The Company has recorded a net deferred tax asset for net operating loss
carryforwards and other temporary differences based on management's assessment
that it is more likely than not that future results of operations will be
sufficient to realize this asset.


Selected Quarterly Operating Results
------------------------------------

The following table sets forth certain unaudited quarterly results of operations
of the Company for the eight quarters in the two year period ended December 31,
1998, including such amounts expressed as a percentage of revenues. This
quarterly information is unaudited, has been prepared on the same basis as the
audited Consolidated Financial Statements and, in the opinion of the Company's
management, reflects all necessary adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the periods presented. The quarterly operating results are not necessarily
indicative of future results of operations when read in conjunction with the
audited Consolidated Financial Statements and Notes thereto included elsewhere
in this Annual Report on Form 10-K.

                                      -17-
<PAGE>
 
<TABLE>
<CAPTION>
                                                                            Three months ended
--------------------------------------------------------------------------------------------------------------------------------
                                       March 31,   June 30,   Sept. 30,   Dec. 31,   March 31,   June 30,   Sept. 30,   Dec. 31,
(In thousands)                            1997       1997        1997       1997        1998       1998      1998(1)      1998
--------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
Revenues:
      Prepaid wireless services          $   790    $ 1,513     $ 2,571    $ 2,665     $ 2,934    $ 4,043     $ 5,010    $ 6,637
      Teleservices                         3,789      4,375       4,369      4,476       4,589      6,226       7,514      7,672
      Roaming services                     7,012      8,048       9,241      8,160       7,796      7,059       7,097      6,283
      System sales                         4,028      2,417       1,852      2,793       5,064      3,932       1,547      3,079
--------------------------------------------------------------------------------------------------------------------------------
           Total revenues                 15,619     16,353      18,033     18,094      20,383     21,260      21,168     23,671
Expenses:
      Cost of service revenues             9,419     10,882      11,954     11,925      12,041     12,899      13,684     13,295
      Cost of system revenues              2,640      1,095         814      1,652       2,673      2,180       1,363      2,232
      Engineering, research and            1,029      1,168       1,593      1,643       1,403      1,176       1,426      1,518
       development
      Sales and marketing                  1,063      1,230       1,358      1,438       1,333      1,308       1,387      1,562
      General and administration             649        824         833      1,164       1,414      1,469       1,572      1,753
      Depreciation and amortization          890      1,203       1,534      1,919       2,452      2,695       2,908      3,190
      Impairment of long-lived assets         --         --          --        569          --        698          --         --
--------------------------------------------------------------------------------------------------------------------------------
            Total expenses                15,690     16,402      18,086     20,310      21,316     22,425      22,340     23,550
--------------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                      (71)       (49)        (53)    (2,216)       (933)    (1,165)     (1,172)       121
Interest income                              262        135         254        434         386        326         331        306
--------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes            191         86         201     (1,782)       (547)      (839)       (841)       427
Provision (benefit) for income taxes          98         43         100       (429)       (208)        --         208         --
--------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                             93         43         101     (1,353)       (339)      (839)     (1,049)       427
================================================================================================================================
Basic and diluted earnings per share     $  0.01    $  0.00     $  0.01    $ (0.08)    $ (0.02)   $ (0.05)    $ (0.06)   $  0.03
================================================================================================================================
</TABLE>
(1) In January 1999, the Company restated its results of operations for the
    quarter ended September 30, 1998 for a system sale that should not have been
    included in the 1998 results. Total revenues and net loss, as previously
    reported, for the quarter ended September 30, 1998 were $22.8 million and
    $141,000, respectively.


                                      -18-
<PAGE>
 
<TABLE>
<CAPTION>
 
                                                                   As a Percentage of Total Revenues
                                       -----------------------------------------------------------------------------------------
                                       March 31,   June 30,   Sept. 30,   Dec. 31,   March 31,   June 30,   Sept. 30,   Dec. 31,
(In thousands)                            1997       1997        1997       1997        1998       1998        1998       1998
--------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
Revenues:
      Prepaid wireless services                5%         9%         14%        15%         14%        19%         24%        28%
      Teleservices                            24         27          24         25          23         29          36         32
      Roaming services                        45         49          52         45          38         33          33         27
      System sales                            26         15          10         15          25         19           7         13
--------------------------------------------------------------------------------------------------------------------------------
           Total revenues                    100        100         100        100         100        100         100        100
Expenses:
      Cost of service revenues                60         67          66         66          59         61          64         56
      Cost of system revenues                 17          7           5          9          13         10           6          9
      Engineering, research and                7          7           9          9           7          6           7          6
       development
      Sales and marketing                      7          7           7          8           7          6           7          7
      General and administration               4          5           5          6           7          7           7          7
      Depreciation and amortization            6          7           8         11          12         13          14         14
      Impairment of long-lived assets         --         --          --          3          --          3          --         --
--------------------------------------------------------------------------------------------------------------------------------
           Total expenses                    101        100         100        112         105        106         105         99
Operating income (loss)                       (1)         0           0        (12)         (5)        (6)         (5)         1
Interest income                                2          1           1          2           2          2           1          1
--------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes              1          1           1        (10)         (3)        (4)         (4)         2
Provision (benefit) for income taxes           0          0           0         (2)         (1)        --           1          0
--------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                              1%         1%          1%        (8)%        (2)%       (4)%        (5)%        2%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company has experienced fluctuations in its quarterly operating results and
anticipates that such fluctuations will continue and could intensify. The
Company's quarterly operating results may vary significantly depending on a
number of factors, including the timing of the introduction or acceptance of new
services offered by the Company or its competitors, changes in the mix of
services provided by the Company, changes in regulations affecting the wireless
industry, changes in the Company's operating expenses, personnel changes, and
general economic conditions. In particular, the Company's roaming services
revenues are affected by the frequency and volume of use of the Company's
services, which may be influenced by seasonal trends, as well as changes in
demand during particular periods due to a higher or lower incidence of temporary
suspension of inter-carrier roaming agreements in certain markets. Teleservices
revenues may be influenced by the requirements of one of more of the Company's
significant teleservices customers, including engagement of the Company to
implement or assist in implementing special projects of limited duration.  The
timing of orders and the number of large prepaid systems shipped during a
particular quarter may fluctuate based upon the needs of prepaid systems
customers and can have a significant impact on the level of Systems Division
revenues.

Because a significant portion of the Company's operating expenses are committed
in advance, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, unexpected revenue
shortfalls could cause significant variations in operating results from quarter
to quarter and could have a material adverse effect on the Company's results of
operations. As a result, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as an indication of likely future performance.

During 1998, the Company made significant investments in personnel and
infrastructure to support the ongoing development, expansion and upgrading of
the C/2/C network.  These strategic investments have impacted earnings and the
Company expects that these strategic investments will continue to impact
earnings in the short- term.

                                      -19-
<PAGE>
 
Liquidity and Capital Resources
-------------------------------

Cash, cash equivalents and short-term investments decreased from $33.7 million
in 1997 to $25.6 million in 1998.  The decrease was due primarily to additional
capital expenditures to support expanded features and growth of the Company's
C/2/C network.  Net cash provided by operations of $3.2 million in 1998 was
primarily generated from $11.2 million in depreciation and amortization expense,
which resulted from the significant investment in telecommunications systems and
equipment in  1998.  Depreciation and amortization was offset mostly by
increased accounts receivable and inventory balances due to the increased sales
volume in 1998.

The Company's investing activities utilized $7.5 million of net cash in 1998.
The Company expended $10.5 million in 1998, including almost $7 million for
telecommunications systems equipment and software for expansion of the Company's
C/2/C network.  These expenditures were offset by $3.0 million in net sales of
short-term investments.  The Company anticipates that over the next 12 months it
will continue to make significant capital investments for additional equipment
and enhanced feature capabilities to strengthen prepaid wireless services.

The Company's financing activities utilized $773,000 in 1998, mainly due to
payments of capital lease obligations, offset by proceeds from exercise of stock
options.  In addition, the Company repurchased 55,000 shares for $301,000 in
accordance with a plan approved by the Board of Directors.   These shares are
being held by the Company as treasury shares.

The Company believes that its short-term investments and the funds anticipated
to be generated from operations would be sufficient to finance the Company's
operations for at least the next 18 months.


Year 2000
---------

The Company is currently implementing enterprise-wide project and test plans to
ensure that all products, services and support systems can fully process
date/time data before, during, and after midnight, December 31, 1999, recognize
the year 2000 as a Leap Year and maintain existing interoperability and
interfaces with other devices already in use without any modifications or
changes in operations. The Company is assessing its readiness by:

      1)  Conducting comprehensive inventories of all hardware, software,
          telecommunications providers, and material third party relationships.
          This stage is nearly complete and the process will continue to be
          updated during 1999.

      2)  Seeking compliance certification from each vendor through direct
          communication. The Company is conducting unit, regression,
          interoperability, and call flow tests wherever possible. Dedicated
          resources, including senior level management and paid consultants,
          manage this comprehensive effort.

      3)  Implementing test plans that are supported by doctorate level 
          technical consultants and dedicated QA equipment and personnel that
          are examining multiple static and rollover date scenarios. Testing is
          projected to be completed by June 30, 1999.

The assessment process follows a method to focus on vendors/products that are
most significant to the Company's operations with the intent to maximize the
lead time should any issues arise.  For any systems that may need replacement,
the Company will take the necessary steps to obtain, test and install qualified
systems to ensure timely Year 2000 compliance.

In June 1998, the Company completed the re-write, redesign and implementation of
its C/2/C prepaid system. The Company's development team devoted nearly one year
to produce the necessary changes and included Year 2000 readiness as part of
this process. Additionally, desktop hardware and software, call distribution
systems and customer service handling software are 90% Year 2000 ready today. To
ensure Year 2000 readiness, the Company intends to upgrade these systems through
vendor provided Year 2000 patches or purchases of new systems in the normal
course of business during 1999. Core business teams for all divisions expect to
examine all internal and external support systems including facilities, finance
and human resource components. The Company has completed a comprehensive on-site
physical inventory and upgrade of all of its C/2/C nodes, of which Year 2000
readiness was a component. The remedial action required as a result of this
inventory is minimal and expected to be implemented by September 30, 1999. In
addition, BCGI has identified 40 UNIX servers that require upgrades to be ready
for Year 2000. All necessary software has been obtained and the project is
expected to be completed by June 30, 1999.

                                      -20-
<PAGE>
 
The Company licenses some of the software used to support the Company's services
from only one source and these sources are small corporations.  The Company is
testing the software of such sources and expects to receive updates from these
sources to achieve Year 2000 readiness.  In the event that any of these sources
are not ready by June 30, 1999, the Company will establish contingency plans to
ensure there will be no adverse impact on operations.  The Company has licensed
the source code from one such vendor to aid the Company in Year 2000 readiness
testing efforts for the ROAMERplus service.

In March 1999 the Company's Systems Division completed testing of its prepaid
platform in use in several international markets and found that it was Year 2000
ready with no failures.

The Company is fully dependent on the services of multiple telecommunications
providers. If these providers fail to deliver these services, the Company would
be vulnerable to serious service failures and be exposed to liability to
customers and third parties, including the potential for significant lost
revenue.  The Company is communicating with all providers in order to assess
this risk.  Additionally, the Company will evaluate contingency options in the
event of a failure by such providers. The Company has not currently developed
any contingency plans for the services of these providers.  In the event that
tests reveal failures that cannot be remedied within the Company's timetable for
readiness, contingency plans will be established.

The Company has spent significant amounts in research and development of its
C/2/C prepaid service system to ensure it is Year 2000 ready. In addition,
through December 31, 1998 the Company has incurred and expensed approximately
$230,000 in payroll, benefit and consulting costs for dedicated resources
related to Year 2000 issues. The Company currently estimates additional costs of
approximately $660,000 will be incurred in 1999 to resolve Year 2000 issues. The
Company anticipates that the amounts and resources utilized to achieve Year 2000
readiness will not delay or reduce the resources available to complete other
projects.

The costs to complete Year 2000 analysis and remediation are based on
management's best estimates, which have been determined through numerous
assumptions about future events including the availability of resources and
other factors.  However, there can be no assurances that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that could generate significant negative consequences include
undetected errors or defects of third party hardware and software utilized in
the Company's operations, noncompliance of other providers (phone service,
electricity, other utilities, etc.) and other uncertainties.  Although
management does not expect Year 2000 issues to have a material impact on its
business or results of operations, there can be no assurance that there will not
be interruptions or other limitations of system functionality.


Certain Factors That May Affect Future Results
----------------------------------------------

This Annual Report contains forward-looking statements that involve risks and
uncertainties, including without limitation, statements regarding improvement of
Prepaid Division gross margin and operating results, Teleservices revenue and
gross margin, trend of decreased suspensions of inter-carrier automatic roaming
agreements, prepaid cannibalization of unregistered roaming and carrier
marketing of one-rate registered roaming plans to reduce roaming service
revenues, Roaming Division profitability declining due to decreasing revenue,
increased expenditures for engineering, research and development,  increased
expenditures for sales, marketing and product management, greater costs of
depreciation and amortization and an effective income tax rate greater than 40%.
The Company's actual results may differ significantly from the results discussed
in the forward-looking statements. A number of important factors exist that
could affect the Company's future operating results, including, without
limitation, technological changes in the Company's industry, the ability of the
Company to continue to successfully support its C/2/C network, the ability of
the Company's carrier customers to successfully continue to market and sell
C/2/C prepaid wireless services, the Company's ability to retain existing
customers and attract new customers, increased competition and general economic
factors.

                                      -21-
<PAGE>
 
Historically, a significant portion of the Company's revenues in any particular
period have been attributable to a limited number of customers. This
concentration of customers can cause the Company's revenues and earnings to
fluctuate from quarter to quarter, based on the volume of call traffic generated
through these customers, the services being performed for the teleservices
programs and the level of system sales. A significant decrease in business from
any of the Company's major customers, including a decrease in business due to
factors outside of the Company's control, would have a material adverse effect
on the Company's business, financial condition and results of operations.

A number of the Company's Prepaid, Teleservices and Systems Division contracts
have been extended beyond their expiration dates or will expire in 1999 and
beyond.  There can be no assurances that the Company will be successful in
renewing any of these contracts.  If these contracts are not renewed the
Company's business, financial condition and results of operations could be
materially adversely affected.

The Company has experienced fluctuations in its quarterly operating results and
anticipates that such fluctuations will continue and could intensify.  The
Company experienced an operating loss in 1997 and the first three quarters of
1998, primarily due to expenses associated with the development and expansion of
its C2C network.  The Company's quarterly operating results may vary
significantly depending on a number of factors including, the timing of the
introduction or acceptance of new services offered by the Company or its
competitors, changes in the mix of services provided by the Company, variations
in the level of system sales, changes in regulations affecting the wireless
industry, changes in the Company's operating expenses, the ability to identify,
hire and retain qualified personnel and general economic conditions.  Due to all
of the foregoing factors, it is possible that in some future quarter the
Company's results of operations will be below prior results or the expectations
of public market analysts and investors.  In such event, the price of the
Company's Common Stock would likely be materially and adversely affected.

The Company historically has provided its services almost exclusively to
wireless carriers.  Although the wireless telecommunications market has
experienced significant growth in recent years, there can be no assurance that
such growth will continue at similar rates, or at all, or that wireless carriers
will continue to use the Company's services.  The Company expects that demand
for its roaming services will continue to decline as fewer inter-carrier roaming
agreements are suspended, prepaid cannibalization of unregistered roaming use
increases and carriers more frequently offer one-rate roaming plans.  In
addition, prepaid wireless and PCS services are relatively new services in new
markets, and if these markets do not grow as expected or if the carriers in
these markets do not use the Company's services, the Company's business,
financial condition and results of operations would be materially and adversely
affected.

The Company's future success depends, in large part, on the continued use of its
existing services and systems, the acceptance of new services in the wireless
industry and the Company's ability to develop new services and systems or adapt
existing services or systems to keep pace with changes in the wireless telephone
industry. Further, a rapid shift away from the use of wireless in favor of other
services, could affect demand for the Company's service offerings and could
require the Company to develop modified or alternative service offerings to
address the particular needs of the providers of such new services. There can be
no assurance that the Company will be successful in developing or marketing its
existing or future service offerings or systems in a timely manner, or at all.

The Company is currently devoting significant resources toward the support and
enhancement of its prepaid wireless services and systems to maintain system
reliability and expand the C/2/C network. Several of the Company's carrier
customer contracts contain penalty clauses that provide for reductions in
revenue for certain network outages.  There can be no assurance that the Company
will successfully support and enhance the C/2/C network effectively to avoid
system outages and any associated loss in revenue, that the market for the
Company's prepaid service will continue to develop, or that the Company's C/2/C
network will successfully support current and future growth.  Furthermore, the
Company has expended significant amounts of capital to support the C/2/C
agreements it has secured with its carrier customers. Because C/2/C revenues are
principally generated by prepaid subscriber minutes of use, the Company's C/2/C
revenues can be impacted by the carrier's ability to successfully market and
sell prepaid services.  In addition, teleservices revenues associated with
billing inquiry support for C/2/C carrier customers are becoming a more
significant portion of teleservices revenues and therefore these revenues are
dependent upon the size and growth of the C/2/C subscriber base.

                                      -22-
<PAGE>
 
The Company has expanded its operations rapidly, creating significant demands on
the Company's administrative, operational, development and financial personnel
and other resources. In addition, the growth of the Company's Teleservices
Division is dependent on recruiting, training and retaining employees to perform
customer services responsibilities.  Teleservices has also recently outsourced a
small portion of its call center operations to a third party vendor who is
responsible for certain operational functions, including hiring, training and
retaining employees.  There can be no assurance that the vendor will continue to
be able to meet the Company's existing and future needs effectively.  Additional
expansion by the Company may further strain the Company's management, financial
and other resources.  There can be no assurance that the Company's systems,
procedures, controls and existing space will be adequate to support expansion of
the Company's operations. If the Company's management is unable to manage growth
effectively, the quality of the Company's services, its ability to retain key
personnel and its business, financial condition and results of operations could
be materially and adversely affected.

The Company currently prices and sells all of its systems to international
customers in U.S. dollars.  In addition, many Systems Division customers are
multinational corporations that are publicly traded in the U.S. All payments are
received in U.S. dollars which helps to protect the Company from the need to
hedge against foreign currency risk.  While these provisions serve to protect
the Company from accounts receivable losses, there can be no assurances that
systems sales to foreign countries will not result in losses due to devaluation
of foreign currencies or other international business conditions outside of the
Company's control.

The market for services to wireless carriers is highly competitive and subject
to rapid change. A number of companies currently offer one or more of the
services offered by the Company. In addition, many wireless carriers are
providing or can provide, in-house, the services that the Company offers. In
addition, the Company anticipates continued growth and competition in the
wireless carrier services industry and consequently, the entrance of new
competitors in the future. An increase in competition could result in price
reductions and loss of market share and could have a material adverse effect on
the Company's business, financial condition or results of operations.

The Company's success and ability to compete is dependent in part upon its
proprietary technology. If unauthorized copying or misuse of the Company's
technology were to occur to any substantial degree, the Company's business,
financial condition and results of operations could be materially adversely
affected. In addition, some of the software used to support the Company's
services is licensed by the Company from single vendors, which are small
corporations. There can be no assurance that these suppliers will continue to
license this software to the Company or, if any supplier terminates its
agreement with the Company, that the Company will be able to develop or
otherwise procure software from another supplier on a timely basis and at
commercially acceptable prices.

The Company's operations are dependent on its ability to maintain its computer,
switching and other telecommunications equipment and systems in effective
working order and to protect its systems against damage from fire, natural
disaster, power loss, telecommunications failure or similar events. Any damage,
failure or delay that causes interruptions in the Company's operations could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The Company is actively addressing the concerns of its operations with respect
to Year 2000 issues.  Company management, with the assistance of consultants, is
implementing an enterprise-wide project to identify systems, equipment, vendors
and customers that may be affected by the Year 2000 issues and to develop a
comprehensive plan to be in compliance with the Year 2000 issues prior December
31, 1999.  The Company expects to make the necessary changes to be Year 2000
compliant, but there can be no assurances that the Company will adequately
identify all Year 2000 issues and the associated costs and expenses in a timely
manner.  Also, there can be no assurance that such costs and expenses will not
have a material adverse effect on the Company's business, financial condition
and results of operations.


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company currently prices and sells all of its systems to international
customers in U.S. dollars.  In addition, many Systems Division customers are
multinational corporations that are publicly traded in the U.S. All payments

                                      -23-
<PAGE>
 
are received in U.S. dollars which helps to protect the Company from the need to
hedge against foreign currency risk. While these provisions serve to protect the
Company from accounts receivable losses, there can be no assurances that systems
sales to foreign countries will not result in losses due to devaluation of
foreign currencies or other international business conditions outside of the
Company's control.

The Company does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments which would require
disclosure under this item.


Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following Consolidated Financial Statements and supplementary data are
included as part of this Annual Report on Form 10-K:

Report of Independent Auditors............................................... 40
Consolidated Balance Sheets at December 31, 1998 and 1997.................... 25
Consolidated Statements of Operations for the years ended December 31, 1998,
1997 and 1996................................................................ 26
Consolidated Statements of Redeemable Preferred Stock & Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996......................... 27
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996................................................................ 28
Notes to Consolidated Financial Statements................................... 29

                                      -24-
<PAGE>
 
                          Consolidated Balance Sheets
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                   ---------------------
                                                                                       1998      1997
========================================================================================================
<S>                                                                                  <C>        <C>
ASSETS
Current assets:
        Cash and cash equivalents                                                    $ 18,523   $ 23,601
        Short-term investments                                                          7,086     10,103
        Accounts receivable, net of allowance for billing adjustments and              18,432     12,445
           doubtful accounts of $1,508  in 1998 and $1,304 in 1997
        Inventory                                                                       3,525      1,550
        Deferred income taxes                                                           1,564      1,564
        Prepaid expenses                                                                  823        630
--------------------------------------------------------------------------------------------------------
           Total current assets                                                        49,953     49,893
Property and equipment:
        Telecommunications systems & software                                          47,801     36,346
        Furniture and fixtures                                                          2,264      1,984
        Leasehold improvements                                                          2,127      1,725
        Systems in development                                                          4,305      5,955
--------------------------------------------------------------------------------------------------------
                                                                                       56,497     46,010
Less allowance for depreciation and amortization                                       18,442      7,923
--------------------------------------------------------------------------------------------------------
                                                                                       38,055     38,087
Goodwill, net                                                                           3,460      4,067
Other assets                                                                              292      1,338
--------------------------------------------------------------------------------------------------------
           Total assets                                                              $ 91,760   $ 93,385
========================================================================================================
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
        Accounts payable                                                             $    884   $  2,786
        Accrued expenses                                                               10,124      7,304
        Income taxes payable                                                              496        466
        Current maturities of capital lease obligations                                 1,052      1,127
--------------------------------------------------------------------------------------------------------
            Total current liabilities                                                  12,556     11,683
Capital lease obligations, net of current maturities                                      546      1,598
Commitments and contingencies 
Shareholders' equity:
        Preferred Stock,  $.01 par value, 2,000,000 shares authorized,
          none issued and outstanding                                                      --         --
        Common Stock, voting, par value $.01 per share, 35,000,000 shares                 164        163
          authorized, 16,436,028 shares in 1998 and 16,273,947 shares in 
            1997 issued
        Additional paid-in capital                                                     91,683     91,029
        Treasury Stock (101,420 shares in 1998 and 46,420 shares in 1997 at cost)        (673)      (372)
        Accumulated deficit                                                           (12,516)   (10,716)
--------------------------------------------------------------------------------------------------------
        Total shareholders' equity                                                     78,658     80,104
--------------------------------------------------------------------------------------------------------
        Total liabilities and shareholders' equity                                   $ 91,760   $ 93,385
========================================================================================================
</TABLE>

See accompanying notes.

                                      -25-
<PAGE>
 
                     Consolidated Statements of Operations
              (In thousands, except share and per share amounts)

                                        
<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                                -----------------------------
                                                                    1998      1997      1996
==============================================================================================
<S>                                                               <C>       <C>       <C>
REVENUES:
     Prepaid wireless services                                    $18,624   $ 7,539   $   312
     Teleservices                                                  26,001    17,009    13,413
     Roaming services                                              28,235    32,461    32,234
     System sales                                                  13,622    11,090     4,692
---------------------------------------------------------------------------------------------
                                                                   86,482    68,099    50,651
EXPENSES:
     Cost of services revenues                                     51,919    44,180    36,606
     Cost of system revenues                                        8,448     6,201     2,576
     Engineering,  research and development                         5,523     5,433     3,221
     Sales and marketing                                            5,590     5,089     2,949
     General and administrative                                     6,208     3,470     2,580
     Depreciation and amortization                                 11,245     5,546     2,109
     Impairment of long-lived assets                                  698       569        --
---------------------------------------------------------------------------------------------
                                                                   89,631    70,488    50,041
--------------------------------------------------------------------------------------------- 
Operating income (loss)                                            (3,149)   (2,389)      610
Interest income                                                     1,349     1,085       589
---------------------------------------------------------------------------------------------
Income (loss) before income taxes                                  (1,800)   (1,304)    1,199
Provision (benefit) for income taxes                                    -      (188)      600
---------------------------------------------------------------------------------------------
Net income (loss)                                                  (1,800)   (1,116)      599
Accretion of dividends on redeemable preferred stock                   --        --      (451)
--------------------------------------------------------------------------------------------- 
Net income (loss) available to common shareholders                $(1,800)  $(1,116)  $   148
============================================================================================= 
Basic net income (loss) available to common shareholders:
     Net income (loss)                                             $(0.11)   $(0.08)    $0.02
=============================================================================================
     Shares used in computing basic net income (loss) per share    16,274    14,007     8,352
============================================================================================= 
Diluted net income (loss) available to common shareholders:
     Net income (loss)                                             $(0.11)   $(0.08)    $0.01
=============================================================================================
     Shares used in computing diluted net income (loss) per        16,274    14,007    10,884
      share
=============================================================================================
</TABLE>
                                                                                
See accompanying notes.

                                      -26-
<PAGE>
 
 Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity
                      (In thousands, except share amounts)
                                        
<TABLE>
<CAPTION>
 
 
                                                                                 Shareholders' Equity
                                             ---------------------------------------------------------------------------------------
                                                                                                                       Accretion of
                            Redeemable                             Convertible                                          Dividends
                          Preferred Stock     Treasury Stock     Preferred Stock      Common Stock       Additional     Redeemable
                         -----------------------------------------------------------------------------    Paid In       Preferred
                         Shares    Dollars   Shares   Dollars   Shares   Dollars     Shares    Dollars    Capital         Stock 
------------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>       <C>        <C>      <C>       <C>      <C>       <C>         <C>      <C>          <C>            
Balance at
 January 1, 1996         11,871   $ 15,896        --       --      850       $ 1    3,335,985     $ 33     $ 1,016        $(4,025)  
  Conversion of 
   Convertible Preferred 
   Stock                     --         --        --       --     (850)       (1)   5,004,608       50         (49)            --   
  Accretion of dividends
   on Redeemable          
   Preferred Stock           --        451        --       --       --        --           --       --          --           (451)  
  Redemption of          
   Redeemable Preferred
   Stock and Accreted
   Dividends            (11,871)   (16,347)       --       --       --        --           --       --          --          4,476 
  Issuance of Common
   Stock                     --         --        --       --       --        --    4,183,928       42      51,745             -- 
  Exercise of Common
   Stock Options             --         --        --       --       --        --      201,228        2          26             -- 
  Treasury Stock
   Purchase                  --         --    46,420     (372)      --        --           --       --          --             -- 
  Net income                 --         --        --       --       --        --           --       --          --             -- 
------------------------------------------------------------------------------------------------------------------------------------

Balance at 
 December 31, 1996           --         --    46,420     (372)      --        --   12,725,749      127      52,738             -- 
  Issuance of Common 
   Stock                     --         --        --       --       --        --    3,000,000       30      35,769             -- 
  Exercise of Common
   Stock Options             --         --        --       --       --        --      538,630        6       2,482             --
  Issuance of Common
   Stock Under Employee
   Stock Purchase Plan       --         --        --       --       --        --        9,568       --          40             --
  Net loss                   --         --        --       --       --        --           --       --          --             -- 
------------------------------------------------------------------------------------------------------------------------------------

Balance at 
 December 31, 1997           --         --    46,420     (372)      --        --   16,273,947      163      91,029             -- 
  Exercise of Common 
   Stock Options             --         --        --       --       --        --      143,488        1         572             --
  Issuance of Common
   Stock Under Employee
   Stock Purchase Plan       --         --        --       --       --        --       18,593       --          82             --
  Treasury Stock Purchase    --         --    55,000     (301)      --        --           --       --          --             -- 
  Net loss                   --         --        --       --       --        --           --       --          --             -- 
------------------------------------------------------------------------------------------------------------------------------------

Balance at 
 December 31, 1998           --   $     --   101,420    $(673)      --       $--   16,436,028     $164     $91,683        $    -- 
===================================================================================================================================
<CAPTION>
                                 Shareholders' Equity
                         -------------------------------------- 
                                                Total
                                             Shareholders'
                            Accumulated         Equity 
                              Deficit          (Deficit)
                         -------------------------------------- 
<S>                      <C>                 <C>        
Balance at
 January 1, 1996            $  (5,723)         $   (8,698)
  Conversion of 
   Convertible Preferred 
   Stock                           --                  -- 
  Accretion of dividends
   on Redeemable          
   Preferred Stock                 --                (451)
  Redemption of          
   Redeemable Preferred
   Stock and Accreted
   Dividends                   (4,476)                 --
  Issuance of Common
   Stock                           --              51,787
  Exercise of Common
   Stock Options                   --                  28
  Treasury Stock
   Purchase                        --                (372)
  Net income                      599                 599
--------------------------------------------------------------
Balance at 
 December 31, 1996             (9,600)             42,893
  Issuance of Common 
   Stock                           --              35,799
  Exercise of Common
   Stock Options                   --               2,488
  Issuance of Common
   Stock Under Employee
   Stock Purchase Plan             --                  40
  Net loss                     (1,116)             (1,116)
--------------------------------------------------------------
Balance at 
 December 31, 1997            (10,716)             80,104
  Exercise of Common 
   Stock Options                   --                 573 
  Issuance of Common
   Stock Under Employee
   Stock Purchase Plan             --                  82
  Treasury Stock Purchase          --                (301)
  Net loss                     (1,800)             (1,800)
--------------------------------------------------------------
Balance at 
 December 31, 1998         $  (12,516)         $   78,658 
==============================================================
</TABLE>

See accompanying notes

                                      -27-
<PAGE>
 
                     Consolidated Statements of Cash Flows
                                 (In thousands)
                                        
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                            --------------------------------
                                                                 1998      1997      1996
--------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>        <C>

OPERATING ACTIVITIES
 Net income (loss)                                            $ (1,800)  $ (1,116)  $    599
 Adjustments to reconcile net income (loss) to net cash
 provided by (used in) operating activities:
   Depreciation and amortization                                11,245      5,546      2,109
   Deferred income taxes                                            --       (230)       466
   Impairment of long-lived assets                                 698        569         --
   Changes in operating assets and liabilities, excluding
   effects of business acquisitions:
        Accounts receivable                                     (5,987)    (1,385)    (3,208)
        Inventory                                               (1,975)      (361)    (1,128)
        Prepaid expenses and other assets                           65       (151)      (547)
        Accounts payable and accrued expenses                      918      1,514        524
        Income taxes payable                                        30        (24)      (297)
--------------------------------------------------------------------------------------------
  Net cash provided by (used in) operations                      3,194      4,362     (1,482)
 
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired                     --     (1,398)      (846)
Purchase of short-term investments                             (14,095)   (12,976)   (26,937)
Sale of short-term investments                                  17,112     23,371      6,439
Purchase of property and equipment                             (10,516)   (28,552)    (8,093)
--------------------------------------------------------------------------------------------
Net cash used in investing activities                           (7,499)   (19,555)   (29,437)
 
FINANCING ACTIVITIES
Proceeds from exercise of stock options                            573      2,488         28
Proceeds from issuance of stock                                     82     35,839     49,787
Repurchase of redeemable preferred stock                            --         --    (16,347)
Purchase of treasury stock                                        (301)        --       (372)
Repayment of  capital lease obligations                         (1,127)      (456)    (1,507)
--------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities               (773)    37,871     31,589
============================================================================================
Increase (decrease) in cash and cash equivalents                (5,078)    22,678        670
============================================================================================
Cash and cash equivalents at beginning of year                  23,601        923        253
============================================================================================
Cash and cash equivalents at end of year                      $ 18,523   $ 23,601   $    923
============================================================================================
</TABLE>

See accompanying notes.

                                      -28-
<PAGE>
 
                   Notes to Consolidated Financial Statements
                                        


1. BASIS OF PRESENTATION

The Company

Boston Communications Group, Inc. (the Company) develops, markets and provides
specialized prepaid wireless services, teleservices, and roaming services to the
wireless telephone industry. The Company also manufactures prepaid and voice
system equipment.

2. SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The Company earns revenues by providing teleservices customer care support,
processing prepaid wireless calls and processing wireless calls for unregistered
wireless subscribers who have roamed outside of their service area. Revenue is
recognized when the service is provided and is recorded net of estimated billing
adjustments. The Company recognizes revenue from the sale of systems at the time
the systems are shipped.

Principles of Consolidation

The financial statements include 100% of the accounts and operations of the
Company and all of its majority-owned subsidiaries. All intercompany accounts
and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.

Investments

The Company accounts for its marketable securities under the Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Instruments in
Debt and Equity Securities." The Company has classified all of its securities as
available-for-sale, and are thus reported at fair market value.

Investments with maturities between three and twelve months are considered
short-term investments. The Company's short-term investments are invested in
corporate notes.

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the 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.

Concentrations of Credit Risk

The Company's prepaid wireless services allows carriers, throughout the United
States and Canada, to access the Company's prepaid C/2/C platform, enabling the
carriers to offer prepaid wireless calling to their subscribers.  Accounts are
not activated until payment is received by the carrier. Teleservices are
provided to wireless carriers located throughout the United States and Canada.
The Company's roaming customers are individuals who place wireless calls from
service areas, which are not covered by traditional roaming agreements. These
calls are forwarded by wireless carriers to the Company for processing.  Each
transaction is small in size and the Company minimizes credit risk by validating
appropriate billing information. The Company sells its voice systems in North
America and its prepaid systems in North and South America.

                                      -29-
<PAGE>
 
The Company has roaming, teleservice and prepaid wireless service agreements
with, and sells its systems to numerous carriers.   During the years ended
December 31, 1998, 1997 and 1996, the Company's top 10 customers accounted for
79%, 75% and 82% of the Company's total revenues, respectively. The following
table summarizes sales in excess of 10% of total revenues only, as a percentage
of total revenues, to major customers:
<TABLE> 
<CAPTION> 
                                                        December 31,
                                          -------------------------------------
                                              1998           1997        1996
-------------------------------------------------------------------------------
<S>                                       <C>            <C>          <C> 
Ameritech Cellular (T,R)                       15%            12%          15%
BellSouth Cellular Corp. (P,T,R,S)             13             --           11
AirTouch (P,T,R)                               13             --           --
Bell Atlantic Mobile (P,T,R)                   11             12           12
Southwestern Bell Mobile Systems (P,T,R)       --             11           --
-------------------------------------------------------------------------------
</TABLE> 
Revenue from these customers was generated from the following divisions:
     P - Prepaid wireless services
     T - Teleservices
     R - Roaming services
     S - Systems

Inventory, which consists of computer hardware and electronic components, is
recorded at the lower of cost (first-in, first-out method) or market. Inventory
is categorized as follows (in thousands):
<TABLE> 
<CAPTION> 
                                                      December 31,
                                               ---------------------------
                                                    1998            1997
==========================================================================
<S>                                            <C>                <C> 
Raw materials                                      $2,690           $1,114
Work in process                                       835              127
Finished goods                                         --              309
--------------------------------------------------------------------------
                                                   $3,525           $1,550
==========================================================================
</TABLE> 

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets, which range from 3 to 7
years. Systems in development represent the cost of purchased hardware and
software to be used in switching equipment not yet placed into service and will
be depreciated between 3 and 5 years.

In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.  During
1998 and 1997, the Company recorded impairment losses of $698,000 and $569,000,
respectively, for the writedown of equipment which could no longer be used in
its business to its fair market value.  These assets were sold during 1998 at
their impaired carrying value of $265,000.

Goodwill

Goodwill represents the excess of cost of acquired businesses over the fair
market value of all net assets acquired. Goodwill is being amortized on a
straight-line basis over an eight-year period. Accumulated amortization totaled
approximately $1.4 million and $786,000 as of December 31, 1998 and 1997,
respectively.

                                      -30-
<PAGE>
 
Engineering, Research and Development

Costs associated with engineering, research and development are expensed as
incurred.

Reclassifications

Certain items on the financial statements have been reclassified from the prior
year to be comparable with the current year presentation.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) in accounting for its stock-
based compensation plans, rather than the alternative fair value accounting
method provided for under Financial Accounting Standards Board Statement (SFAS)
No. 123, "Accounting for Stock-Based Compensation," as this alternative requires
the use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, since the exercise price of options
granted under these plans equals the market price of the underlying stock on the
date of grant, no compensation expense is required.

Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition, measurement, and reporting of
derivatives and hedging activities and  is effective for the Company's year
ended December 31, 2000.  The Company anticipates that the adoption of this new
accounting standard will not have a material impact on the Company's
consolidated financial statements.


3. ACQUISITIONS

In February 1996, the Company acquired the net assets of Voice Systems
Technology Inc. (VST), now the Systems Division, a company which develops and
markets prepaid and voice processing systems, for approximately $2.5 million
($500,000 cash and 265,373 shares of common stock). VST had revenues and net
income for the 11 months ended February 29, 1996 of $2.1 million and $9,000,
respectively. The allocation of the purchase price was based on the fair market
value of assets and liabilities acquired and the excess over those amounts is
accounted for as goodwill. On January 31, 1996, the Company acquired 17.5% of
the stock in Wireless America Corp. (WAC) for $35,000. WAC marketed and sold
prepaid equipment in Latin America. On October 23, 1996, the Company acquired an
additional 62.5% of the stock of WAC for $916,500. In August 1997, the Company
paid $1.4 million to purchase the final 20% interest in WAC and recorded this
amount as goodwill, which is being amortized over eight years.  WAC was
subsequently merged into VST.  The acquisitions have been accounted for under
the purchase method of accounting and the results of operations have been
included in the Company's results of operations from the date of acquisition.

The following unaudited pro forma information has been prepared assuming that
these acquisitions had taken place at the beginning of 1996.  The unaudited pro
forma information includes adjustments for interest expense that would have been
incurred to finance the purchase, amortization of goodwill resulting from the
purchase, elimination of the effect of transactions between the Company and
acquired companies and income taxes.  The unaudited pro forma financial
information is not necessarily indicative of the results of operations as if the
transactions had been effected on December 31, 1996 (unaudited and in thousands,
except per share data):

<TABLE> 
<S>                                                  <C> 
Net revenues                                         $51,873
============================================================
Net income available to common stockholders          $     1
Net income per basic and diluted common share        $  0.00
============================================================
</TABLE> 

                                      -31-
<PAGE>
 
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE> 
<CAPTION> 
                                                       December 31,
                                                --------------------------
     (In thousands)                                  1998           1997
--------------------------------------------------------------------------
<S>                                             <C>              <C> 
Billing adjustments                                $ 1,177          $1,216
Cellular airtime                                     1,178           1,544
Payroll                                              2,052           1,183
Telecommunication costs                              1,596             779
Deferred revenue                                       700             426
Other                                                3,421           2,156
--------------------------------------------------------------------------
                                                   $10,124          $7,304
==========================================================================
</TABLE> 

5. SEGMENT REPORTING

The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" in  1998.  SFAS No. 131 established standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders.  It also established standards for related
disclosures about products and services, and geographic areas.  Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance.  The Company's chief operating decision-
maker is the Chief Executive Officer.  The operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different products and serves different niches in the wireless
industry.

The Company's reportable operating segments consist of the Prepaid Wireless
Services, Teleservices, Roaming Services and Systems Divisions. The Company's
Prepaid Wireless Services Division offers prepaid wireless service that allows
carriers to access the Company's prepaid C/2/C platform, enabling the carriers
to offer prepaid wireless calling to their subscribers. The Company's
Teleservices Division provides customer support teleservices to wireless
carrier's customers, which allows carriers to outsource all or a portion of
their customer service activities. The Company's Roaming Services Division
provides carriers with ROAMERplus call processing services which provides
carriers the ability to generate revenues from subscribers who are not covered
under traditional roaming agreements by arranging payment for roaming calls. The
Company's Systems Division manufactures and markets voice processing platforms
to wireless and wireline carriers throughout North and South America with
enhanced features including prepaid wireless, voice messaging and fax mail
services. The Systems Division also sells prepaid systems to international
carriers and manufactures the voice nodes used to support the Company's C/2/C
network. The other segment assets include cash equivalents and short-term
investments and other assets not allocated to the reportable operating segments.

The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
financial results for the Company's operating segments have been prepared using
a management approach. This is consistent with the basis and manner in which the
Company's management internally analyzes financial information for the purposes
of assisting in making internal operating decisions. The Company evaluates
performance based on stand-alone operating segment income (loss) before interest
and taxes and allocates corporate level operating expenses to the operating
segments. All revenues are generated from external customers and there are no
intersegment revenues. Revenues are attributed to geographic areas based on the
location of the customers to whom the services were provided or the location
where the systems were shipped. Capital expenditures include equipment purchased
directly from vendors or acquired through a capital lease. The summary of
operating segment information is as follows at December 31, (in thousands):

                                      -32-
<PAGE>
 
<TABLE>
<CAPTION>
                                      Prepaid
                                      Wireless                    Roaming
                                      Services    Teleservices    Services      Systems         Other          Total
=======================================================================================================================
<S>                                 <C>           <C>           <C>           <C>           <C>            <C>
1998
Net revenues                          $  18,624      $  26,001     $  28,235     $  13,622      $      --     $  86,482
Depreciation and amortization             6,782          2,473           808         1,182             --        11,245
Operating income (loss)                  (7,236)           393         2,962           732             --        (3,149)
Assets, net                              31,501         10,493         5,518        12,855         31,393        91,760
Capital expenditures                      6,603          1,311           199         1,184          1,219        10,516
=======================================================================================================================
1997
-----------------------------------------------------------------------------------------------------------------------
Net revenues                              7,539         17,009        32,461        11,090             --        68,099
Depreciation and amortization             2,359          1,745           600           842             --         5,546
Operating income (loss)                  (7,976)           562         4,547           478             --        (2,389)
Assets, net                              29,314          8,126         7,110         9,701         39,134        93,385
Capital expenditures                     24,742          4,154           798         1,006          1,034        31,734
=======================================================================================================================
1996
-----------------------------------------------------------------------------------------------------------------------
Net revenues                                312         13,413        32,234         4,692             --        50,651
Depreciation and amortization               789            701           263           356             --         2,109
Operating income (loss)                  (5,792)           674         4,757           971             --           610
Assets, net                               5,630          5,435         6,966         7,934         25,994        51,959
Capital expenditures                      5,165          1,305           611           945          1,567         9,593
=======================================================================================================================
</TABLE>

Information concerning principal geographic areas is as follows (in thousands):
<TABLE> 
<CAPTION> 
                                          Year ended December 31,
                           ---------------------------------------------------
Net Revenues                      1998             1997             1996
==============================================================================
<S>                           <C>              <C>              <C> 
North America
------------------------------------------------------------------------------
United States                   $78,044          $59,760          $47,786
Other                             3,565            5,296            2,865
------------------------------------------------------------------------------ 
  Total North America            81,609           65,056           50,651
==============================================================================
South America
------------------------------------------------------------------------------
  Total South America              4,873            3,043                -
==============================================================================
  Total                          $86,482          $68,099          $50,651
==============================================================================
</TABLE> 

6. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                     December 31,
                                                         ----------------------------------
                                                                 1998             1997
-------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>
Deferred tax assets:
    Net operating loss carryforwards                           $ 1,724          $   884
  Allowance for doubtful accounts and billing                      521
  adjustments                                                                       747
  Minimum tax credit carryforwards                                 111              128
  Accrued expenses and other                                     1,222              665
  Asset impairment                                                 478              200
-------------------------------------------------------------------------------------------
Total deferred tax assets                                        4,056            2,624
Deferred tax liabilities:
    Tax over book depreciation and amortization expense         (2,492)          (1,060)
-------------------------------------------------------------------------------------------
Total deferred tax liabilities                                  (2,492)          (1,060)
-------------------------------------------------------------------------------------------
Net deferred tax assets                                        $ 1,564          $ 1,564
-------------------------------------------------------------------------------------------
</TABLE>

                                      -33-
<PAGE>
 
The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                 ----------------------------------------
                                                        1998        1997         1996
=========================================================================================
<S>                                                <C>          <C>           <C>
Current:
  Federal                                               $--        $  --          $ 51
  State                                                  --            42           83
-----------------------------------------------------------------------------------------
                                                         --            42          134
Deferred:
  Federal                                                --         (209)          423
  State                                                  --          (21)           43
-----------------------------------------------------------------------------------------
                                                         --         (230)          466
-----------------------------------------------------------------------------------------
Income tax provision (benefit)                          $--        $(188)         $600
=========================================================================================
</TABLE>

The Company utilized $2.0 million in 1996 of federal net operating loss
carryforwards to offset taxable income.  The valuation allowance decreased
$162,000 during 1996 due primarily to the utilization of net operating loss
carryforwards.  At December 31, 1998, the Company has approximately $4.7 million
of net operating loss carryforwards for federal income tax return purposes
available for use in future years that expire beginning in 2006.

A reconciliation of the statutory rate to the effective rate is as follows:

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                   ----------------------------------------------
                                                          1998            1997           1996
-------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>             <C>
Federal provision (benefit) at statutory rate              (34%)           (34%)            34%
State income provision (benefit), net of federal            (6)             (6)              6
Permanent differences                                       16              26              12
Net operating losses not recognized                         24               -               -
Benefit of net operating loss                                -               -              (2)
-------------------------------------------------------------------------------------------------
                                                             0 %           (14)%            50%
-------------------------------------------------------------------------------------------------
</TABLE>

Income taxes paid were $352,000 in 1996, $83,000 in 1997 and $61,000 in 1998.


7. CAPITAL STOCK

Common Stock

On April 26, 1996, the Company authorized 35,000,000 shares of a new class of
common stock and effected a recapitalization of the Company (the "1996
Recapitalization"). All outstanding shares of the Company's class A, B, C and D
common stock were exchanged for an aggregate of Stock. In addition, the terms
and conditions of the Company's three classes of convertible preferred stock
were modified, without changing the total number of shares of Common Stock into
which the preferred stock can be converted. The convertible preferred shares
were converted to 5,004,608 shares of Common Stock upon the closing of the
initial public offering.

Public Offerings

In 1996, the Company sold in its initial public offering (IPO) 3,918,555 shares
of its common stock yielding net proceeds to the Company of $49.8 million. The
proceeds were used to redeem preferred stock and to repay an existing line of
credit and capital leases.  Upon the closing of the IPO, the Company redeemed
all 11,871 outstanding shares of redeemable preferred stock at a redemption
price of $1,000 per share.  In addition, the Company paid approximately $4.5
million in accreted dividends on the redeemable preferred stock.

                                      -34-
<PAGE>
 
In 1997, the Company sold in a public offering 3,000,000 shares of its common
stock yielding net proceeds to the Company of $35.8 million. The proceeds are
being used for capital and other expenditures in connection with the expansion
of the C/2/C network.

Preferred Stock

The Board of Directors are authorized, subject to certain limitations prescribed
by law, without further shareholder approval, to issue from time to time up to
an aggregate of 2,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change of control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.

Stock Option Plans

The Company's 1996 and 1998 Stock Option Plans (the Plans) were adopted by the
Board of Directors and approved by the stockholders of the Company in 1996 and
1998, respectively. The Plans provide for the grant of stock options to
employees, officers and directors, consultants and advisors to, the Company and
its subsidiaries. Under the Plans, the Company may grant options that are
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") ("incentive stock
options"), or options not intended to qualify as incentive stock options ("non-
statutory options").  Incentive stock options may only be granted to employees
of the Company. A total of 1,264,792 and 600,000 shares of Common Stock may be
issued upon the exercise of options granted under the 1996 and 1998 Stock Option
Plans, respectively. The maximum number of shares with respect to which options
may be granted to any employee under the 1996 and 1998 Stock Option Plans shall
not exceed 200,000 and 60,000 shares of Common Stock, respectively, during any
calendar year. All options granted have 10 year terms and generally vest and
become exercisable over five years.

In 1996, the Company granted non-qualified options to purchase 653,278 and
93,551 shares of common stock at exercise prices of $5.75 and $10.00,
respectively.  In 1998, the Company granted 400,000 non-qualified options to
purchase shares of common stock at an exercise price of $7.06.  The exercise
prices of all non-qualified options were equal to the fair market value as
determined by the Company on the date of grant.

Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement.  The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1997
and 1998: risk-free interest rates of 6.4% and 5.4% respectively, no dividend
yield, the volatility factor of the expected market price of the Company's
common stock was 0.5 and a weighted-average expected life of the option of 4 to
5 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.  Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except for per share information):

                                      -35-
<PAGE>
 
<TABLE>
<CAPTION>
                                                           December 31,
                                     ------------------------------------------------------
                                            1998              1997               1996
===========================================================================================
<S>                                    <C>              <C>               <C>
Pro forma net loss                        $(4,034)          $(3,474)            $(1,086)
===========================================================================================
Pro forma basic net loss per share        $ (0.25)          $ (0.25)            $ (0.13)
===========================================================================================
Pro forma diluted net loss per share      $ (0.25)          $ (0.25)            $ (0.10)
===========================================================================================
</TABLE>

Stock option information is as follows:

<TABLE>
<CAPTION>
                                              1998                       1997                       1996
=================================================================================================================
                                                  Weighted                   Weighted                   Weighted
                                                   Average                    Average                    Average
                                                  Exercise                   Exercise                   Exercise
                                     Options        Price       Options        Price       Options        Price
=================================================================================================================
<S>                                 <C>         <C>            <C>         <C>            <C>         <C>
Outstanding -- beginning of year    1,417,654       $6.74      1,666,359      $ 8.86        355,758      $ 0.14
Granted                               966,500        7.33      1,124,342        5.87      1,548,329        9.76
Exercised                            (143,888)       4.00       (538,630)       4.62       (201,228)       0.14
Canceled                             (304,290)       9.00       (834,417)      11.18        (36,500)      13.61
Outstanding--end of year            1,935,976       $6.90      1,417,654      $ 6.74      1,666,359      $ 8.86
=================================================================================================================
</TABLE>

The following table summarizes the stock options outstanding and exercisable as
of December 31, 1998:

<TABLE>
<CAPTION>
   Options            Options            Exercise
 Exercisable         Outstanding           Price
=========================================================
<S>               <C>                 <C>
        --               5,555          $      0.14
   190,476             621,410           4.75  4.88
   316,928             752,278           5.00  7.06
   121,033             556,733          $7.25- 14.00 
---------------------------------------------------------
   628,437           1,935,976
=========================================================
</TABLE>
                                                                                
There are 439,649 options available for grant at December 31, 1998. There were
417,915 options exercisable at December 31, 1997 at a weighted-average exercise
price of $6.44.  The weighted-average fair value of options granted during 1997
and 1998 was $3.44 and $3.24, respectively. The weighted-average contractual
life of options outstanding at December 31, 1997 and 1998 was 9.2 and 8.6 years,
respectively.

Employee Stock Purchase Plan

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the shareholders of the
Company in April 1996. The Purchase Plan authorizes the issuance of up to a
total of 225,000 shares of Common Stock to participating employees.

All full-time employees of the Company who have been employed by the Company for
a minimum of twelve months, including directors of the Company who are
employees, are eligible to participate in the Purchase Plan. On the first day of
a designated payroll deduction period (the "Offering Period"), the Company will
grant to each eligible employee who has elected to participate in the Purchase
Plan an option to purchase  shares of Common Stock as follows: the employee may
authorize an amount (up to a maximum of 10% of such employee's regular pay) to
be deducted by the Company from such pay during the Offering Period. On the last
day of the Offering Period, the employee is deemed to have exercised the option,
at the option exercise price, to the extent of accumulated payroll deductions.
Under the terms of the Purchase Plan, the option price is an amount equal to 90%
of the fair market value per share of the Common Stock on either the first day
or the last day of the Offering Period, whichever is lower. In no event may an
employee purchase in any one Offering Period a number of shares which has an
aggregate market value (determined on the last day of the Offering Period) in
excess of $25,000. The Compensation Committee may, in its discretion, choose an
Offering Period of 12 months or less for each of the Offerings and choose a
different Offering Period for each Offering.

                                      -36-
<PAGE>
 
8.  NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted net income
(loss) per share:
 
<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                 ---------------------------------------------
(In thousands)                                        1998             1997            1996
==================================================================================================
<S>                                                <C>             <C>             <C>  
Numerator for basic and fully diluted earnings
 per share:
Net income (loss) available to common shareholder  $ (1,800)        $ (1,116)       $   148
==================================================================================================
Denominator:
Denominator for basic earnings per share
weighted average shares                              16,274           14,007          8,352
--------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Employee stock options                                   --               --            238
Conversion of preferred stock                            --               --          2,294
--------------------------------------------------------------------------------------------------
Dilutive potential common shares                         --               --          2,532
--------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share
adjusted weighted average shares and assumed
Conversion                                           16,274           14,007         10,884
==================================================================================================
Basic net income (loss) available to common
shareholder per common share                       $  (0.11)       $   (0.08)       $  0.02
==================================================================================================
Diluted net income (loss) available to common
shareholder per common share                       $  (0.11)           (0.08)          0.01
==================================================================================================
</TABLE>

Options to purchase 1,935,976 shares of common stock were outstanding as of
December 31, 1998 and were not included in the computation of diluted earnings
per share because of the Company's net losses for those years.


9.  COMMITMENTS

Leases

The Company entered into a capital lease for $1.5 million in 1996 which was
fully repaid in 1996 and entered into a capital lease for $3.2 million in 1997.
The accumulated amortization of the assets under capital lease was $271,000 and
$886,000 at December 31, 1997 and 1998, respectively.  The Company also has non-
cancelable operating lease commitments for office space, call center facilities,
equipment and personnel.  Rent and call center facility and equipment expense
approximated  $881,000 in 1996, $1.2 million in 1997, and $2.2 million in 1998.

                                      -37-
<PAGE>
 
Future minimum payments under non-cancelable capital leases and operating leases
are as follows (in thousands):
<TABLE> 
<CAPTION> 
                                                Capital      Operating
Year ending December 31,                        Leases        leases
========================================================================
<S>                                           <C>           <C> 
1999                                             $1,145        $ 5,165
2000                                                562          3,446
2001                                                 --          2,814
2002                                                 --          2,641
2003                                                 --          1,543
------------------------------------------------------------------------
Total minimum lease payments                      1,707        $15,609
                                                            ============
Amounts representing interest                       109
-------------------------------------------------------
Present value of net minimum payments             1,598
Current portion                                   1,052
-------------------------------------------------------
                                                 $  546
=======================================================
</TABLE> 
The operating leases include $2.4 million per year payable through May 2003 for
a call center facility and equipment.  The Company has the option to buyout the
lease for the call center facility and equipment beginning in May 1999 for $5.9
million.

Significant Contracts

In 1998, the Company entered into an agreement with a vendor to jointly develop
two products for the Company.  The Company will pay this vendor $1.7 million for
the development effort and the exclusive license of the first product.  In
addition, the Company is required to pay $9 million for the second product
during the next three years.

10. RELATED-PARTY TRANSACTIONS

Pursuant to a management agreement, the Company paid annual fees of $252,000 in
1996 to a management company affiliated with certain shareholders of the
Company. This amount represents the payroll and certain benefit costs of six
senior management personnel responsible for the operations of the Company.

The management agreement was terminated in March 1996 and the employees of the
management company became employees of the Company. The management fees
previously incurred by the Company under the management agreement closely
approximate the actual payroll and related benefits currently being directly
incurred by the Company, and the Company believes that these amounts are
reasonable and comparable to those that would have been incurred with an
unrelated third party. Additionally, the Company leased office space from
another company affiliated with certain shareholders of the Company under a
leasing arrangement which was terminated in August 1996. The Company recorded
rent expense of $40,000 in 1996 in connection with this lease. Another company,
affiliated with certain shareholders of the Company, received $462,000 in 1996
in connection with the repurchase of redeemable preferred stock of the
affiliated company's investment and its accreted dividends.

                                      -38-
<PAGE>
 
               Report of Ernst & Young LLP, Independent Auditors



Board of Directors and Shareholders
Boston Communications Group, Inc.

We have audited the accompanying consolidated balance sheets of Boston
Communications Group, Inc. and subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, redeemable preferred stock
and shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1998.  Our audits also included the financial
statements schedule listed in the Index at Item 14(a).  These financial
statements and schedule are the responsibility of the Company's management.  
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Boston
Communications Group, Inc. and subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.  Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


                                             /s/ Ernst & Young LLP


Boston, Massachusetts
January 29, 1999

                                      -39-
<PAGE>
 
Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE


  None.

                                        


                                    PART III
                                        

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY


  The sections entitled "Election of Directors" and Reports Under Section 16(a)
of the Exchange Act appearing in the Company's proxy statement for the annual
meeting of stockholders to be held on May 20, 1999, set forth certain
information with respect to the directors of the Company and reports filed by
certain persons under Section 16(a) of the Exchange Act and are incorporated
herein by reference.  Certain information with respect to persons who are or may
be deemed to be executive officers of the Company is set forth under the caption
"Executive Officers of the Company" in Part I of this report.


Item 11.  EXECUTIVE COMPENSATION

  The sections entitled "Executive Compensation", "Employment Agreements with
Named Executive Officers" and "Report of the Compensation Committee" appearing
in the Company's proxy statement for the annual meeting of stockholders to be
held on May 20, 1999, set forth certain information with respect to the
compensation of management of the Company and are incorporated herein by
reference.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The section entitled "Security Ownership of Certain Beneficial Owners and
Management" appearing in the Company's proxy statement for the annual meeting of
stockholders to be held on May 20, 1999, sets forth certain information with
respect to the ownership of the Company's Common Stock and is incorporated
herein by reference.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The sections entitled "Executive Compensation", "Employment Agreements with
Named Executive Officers," and "Certain Transactions" appearing in the Company's
proxy statement for the annual meeting of stockholders to be held on May 20,
1999, set forth certain information with respect to certain business
relationships and transactions between the Company and its directors and
officers and are incorporated herein by reference.

                                      -40-
<PAGE>
 
                                    PART IV


Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K

(a)(1)  Financial Statements
 
The following consolidated financial statements of Boston Communications Group,
Inc. are included as Item 8:

Consolidated Balance Sheets at December 31, 1998 and
1997..................................................................  25
Consolidated Statements of Operations  - Years ended December 31, 
1998, 1997 and 1996...................................................  26
Consolidated Statements of Redeemable Preferred Stock & Shareholders' 
Equity - Years ended December 31, 1998, 1997 and 1996.................  27
Consolidated Statements of Cash Flows -- Years ended December 31, 
1998, 1997 and 1996...................................................  28
Notes to Consolidated Financial Statements............................  29

 (2)  Financial Statement Schedules

  Index to Consolidated Financial Statement Schedules

For the years ended December 31, 1998, 1997 and 1996:
  Schedule II - Valuation and Qualifying Accounts

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

  (3) The Exhibits listed in the Exhibit Index immediately preceding the
Exhibits are filed as part of this Annual Report on Form 10-K.

(b)  Reports on Form 8-K

None

                                      -41-
<PAGE>
 
                                   SIGNATURES


    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 29th day of
March 1999.


                                          BOSTON COMMUNICATIONS GROUP, INC. 


                                          By: /s/  E.Y. Snowden
                                              ----------------------------
                                                   E. Y. Snowden
                                                   President and Chief
                                                   Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

  Signature                         Title           Date
  ---------                         -----           ----

/s/   E.Y. Snowden             President, Chief    March 29, 1999
--------------------------     Executive Officer
      E. Y. Snowden            and Director


/s/   Fritz E. von Mering      Vice President,     March 29, 1999
--------------------------     Executive Officer
      Fritz E. von Mering      and Director


/s/   Paul J. Tobin            Chairman of the     March 29, 1999
----------------------         Board of Directors
      Paul J. Tobin

                                      -42-
<PAGE>
 
  Signature                         Title           Date
  ---------                         -----           ----

/s/   Brian E. Boyle           Vice Chairman of    March 29, 1999
--------------------------     Board of Directors
      Brian E. Boyle                        


/s/   Jerrold D. Adams         Director            March 29, 1999
--------------------------                           
      Jerrold D. Adams
                      

/s/   Craig L. Burr            Director            March 29, 1999
--------------------------                        
      Craig L. Burr                         


/s/   Paul R. Gudonis          Director            March 29, 1999
--------------------------                           
      Paul R. Gudonis                       


/s/   Gerald Segal             Director            March 29, 1999
--------------------------                          
      Gerald Segal                          


/s/   Mark J. Kington          Director            March 29, 1999
--------------------------                          
      Mark J. Kington

                                      -43-
<PAGE>
 
                                 EXHIBIT INDEX
 
Exhibit     
   No.         Description
--------       ----------- 
 
3.1            Restated Articles of Organization of the Company, as amended/1/
 
3.3            Amended and Restated By-Laws of the Company./1/
 
10.2          +1996 Stock Option Plan./1/
 
10.3          +1996 Employee Stock Purchase Plan./1/
 
10.3.1        +Amendment Number 1, dated August 30, 1996, to 1996 Employee 
               Stock Purchase Plan/2/
 
10.5           Billing and Related Services Agreement dated April 19, 1995 
               between the Company and OAN Services, Inc. ("OAN")./1/
 
10.10          License Agreement dated April 23, 1996 between the Company and 
               MicroDimensions, Inc. /1/

10.11          Gateway Service Agreement dated June 5, 1995 between the 
               Company and SNET Diversified Group, Inc./1/
 
10.12**        Frontier Service Agreement dated June 6, 1996 between the 
               Company and Frontier Communications of the West, Inc./2/

10.15          Commercial Lease dated January 24, 1996 between the Company and
               Cummings Properties Management, Inc./1/

10.15.1        Commercial Lease dated February 26, 1996 between the Company and
               Cummings Property Management, Inc. (Amendment No. 1)./2/

10.15.2        Amendment No. 2, dated August 8, 1996, to the commercial lease
               between the Company and Cummings Property Management, Inc./2/

10.15.3        Amendment No. 3, dated February 5, 1997, to the commercial lease
               between the Company and Cummings Property Management, Inc./2/
 
10.16          Lease dated November 30, 1994, as amended, between the Company
               and Teachers Realty Corporation./1/

10.17          Commercial/Industrial Lease dated September 27, 1995 between
               the Voice Systems Technology Inc. ("VST") and Schleuter 
               Properties./1/

10.26          End-User Purchase and License Agreement between the Company and
               Teloquent Communications Corporation./1/

10.27          Software License and Services Agreement dated October 30, 1996 
               between the Company and Oracle Corporation./2/
 
10.28          Software License and Services Agreement dated September 24, 1996
               between the Company and Oracle Corporation./2/
<PAGE>
 
10.30          Registration Rights Agreement dated February 29, 1996 between 
               the Company and Michael J. Buchel, Zuyus Investment Company,
               Peter T. Zuyus, Jr., Joseph Giegerich, Terrence G Hare III, J.
               Michael Looney and John M. Freese, Sr./3/
 
10.31          Amendment, dated December 16, 1996, to the Registration Rights 
               Agreement, dated February 29, 1996./3/
 
10.32          Amendment, dated December 16, 1996, to the Registration Rights 
               Agreement, dated February 29, 1996./3/
 
10.33          Commercial Lease dated April 1, 1997 between the Company and 
               Cummings Properties Management, Inc./4/
 
10.34          Master Equipment Lease Agreement between Boston Communications 
               Group, Inc. and Fleet Capital Corp. dated August 20, 1997./5/
 
10.36          Long Distance Service Agreement between Boston Communications 
               Group, Inc. and AT&T Corp. dated July 10, 1997./5/
 
10.38          Billing and Related Services Agreement between the Company and 
               AT&T Corp. dated October 14, 1997./6/
 
10.39          Agreement dated March 21, 1997 between the Company and Aspect 
               Telecommunications Corporation./7/
 
10.40**        Amendment No. 1, dated January 7, 1998 to the service agreement
               between the Company and Frontier Communications of the West, 
               Inc./7/
 
10.41          Agreement dated February 9, 1998 between the Company and the 
               University of Massachusetts at Lowell./7/
 
10.42          Employment Letter Agreement dated February 10, 1998 between 
               the Company and E.Y. Snowden./7/
 
10.43**        Agreement dated May 15, 1998 between the Company and ICT Group,
               Inc./8/
 
10.44**        Agreement dated May 4, 1998 between the Company and Smartalk 
               Teleservices, Inc./8/

10.45         +1998 Stock Incentive Plan

10.46*         Agreement dated October 6, 1998 between the Company and ICT 
               Group, Inc.

10.47*         Agreement between the Company and AG Communication Systems 
               dated Nov. 16, 1998.

10.48*         Agreement dated December 17, 1998 between MD Telecom, Inc. and 
               the Company.

10.49          Amendment No. 4, dated December 4, 1998, to the commercial lease
               between the Company and Cummings Property Management, Inc.

21             Subsidiaries of the Registrant.

23             Consent of Ernst & Young LLP, Independent Auditors.

27             Financial Data Schedules.

<PAGE>
--------------------
 
/1/ Incorporated by reference to the Company's Registration Statement on Form 
    S-1 filed June 17, 1996 (File No. 333-4128) 
/2/ Incorporated by reference to the Company's Form 10-K for the year ended
    December 31, 1996.
/3/ Incorporated by reference to the Company's Form 10-Q for the quarter ended
    March 31, 1997.
/4/ Incorporated by reference to the Company's Form 10-Q for the quarter ended
    June 30, 1997.
/5/ Incorporated by reference to the Company's Form 10-Q for the quarter ended
    September 30, 1997.
/6/ Incorporated by reference to the Company's Form 10-K for the year ended
    December 31, 1997.
/7/ Incorporated by reference to the Company's Form 10-Q for the quarter ended
    March 31, 1998.
/8/ Incorporated by reference to the Company's Form 10-Q for the quarter ended
    June 30, 1998.
/+/ Management contract or compensatory plan or arrangement filed as an exhibit
    pursuant to Item 14(c) of this Report.
/*/ Confidential treatment requested as to certain portions, which portions have
    been deleted and filed separately with the Securities and Exchange 
    Commission.
/**/Confidential treatment granted as to certain portions, which portions have
    been deleted and filed separately with the Securities and Exchange 
    Commission.