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 1-11965) 
                            ICG COMMUNICATIONS, INC.
                      (Commission file Number 1-11052) 
                           ICG HOLDINGS (CANADA) CO.
                      (Commission file Number 33-96540) 
                               ICG HOLDINGS, INC.
           (Exact names of registrants as specified in their charters)

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Delaware                                   84-1342022
Nova Scotia                                Not applicable
Colorado                                   84-1158866
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization) 
----------------------------------------- -------------------------------------
161 Inverness Drive West                   Not applicable
Englewood, Colorado 80112

161 Inverness Drive West                   c/o ICG Communications, Inc.
Englewood, Colorado  80112                 161 Inverness Drive West
                                           P.O. Box 6742
                                           Englewood, Colorado 80155-6742

161 Inverness Drive West                   Not applicable
Englewood, Colorado 80112
(Address of principal executive offices)   (Address of U.S. agent for service)
----------------------------------------- -------------------------------------
Registrants' telephone numbers, including area codes: (888) 424-1144 or 
                                                      (303) 414-5000

Securities registered pursuant to Section 12(b) of the Act:
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                                 Title of class
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                                 Not applicable
                                 Not applicable
                                 Not applicable
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Securities registered pursuant to Section 12(g) of the Act:
-------------------------------------------- ----------------------------------
                                                  Name of each exchange on 
        Title of each class                           which registered
-------------------------------------------- ----------------------------------
Common Stock, $.01 par value                   Nasdaq National Market
(46,770,440 shares outstanding on 
March 29, 1999)
Not applicable                                 Not applicable
Not applicable                                 Not applicable
-------------------------------------------- ----------------------------------

     Indicate by check mark whether the registrants:  (1) have 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
registrants  were required to file such  reports),  and (2) have been subject to
such filing requirements for the past 90 days. X Yes   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 registrants'  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. [ ]

     On March 29, 1999 the aggregate  market value of ICG  Communications,  Inc.
Common Stock held by non-affiliates  (using the closing price of $18.63 on March
29, 1999) was approximately $871,333,297.

     ICG  Canadian   Acquisition,   Inc.,  a  wholly  owned  subsidiary  of  ICG
Communications,  Inc., owns all of the issued and  outstanding  common shares of
ICG Holdings (Canada) Co.

     ICG Holdings (Canada) Co. owns all of the issued and outstanding  shares of
common stock of ICG Holdings, Inc.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The definitive  Proxy Statement for the 1999 Annual Meeting of Stockholders
of ICG  Communications,  Inc.  to be filed  with  the  Securities  and  Exchange
Commission not later than April 30, 1999 has been  incorporated  by reference in
whole or in part for Part III,  Items 10, 11, 12 and 13, of the Annual Report on
Form 10-K for the fiscal year ended  December  31,  1998 of ICG  Communications,
Inc.


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                                TABLE OF CONTENTS


PART I  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
  ITEM 1.  BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
             Overview . . . . . . . . . . . . . . . . . . . . . . . . . .   5
             Recent Developments. . . . . . . . . . . . . . . . . . . . .   6
             Telecom Services . . . . . . . . . . . . . . . . . . . . . .  10
               Strategy . . . . . . . . . . . . . . . . . . . . . . . . .  10
               Networks . . . . . . . . . . . . . . . . . . . . . . . . .  11
               Services . . . . . . . . . . . . . . . . . . . . . . . . .  12
               Industry . . . . . . . . . . . . . . . . . . . . . . . . .  14
             Network Services . . . . . . . . . . . . . . . . . . . . . .  14
             Satellite Services . . . . . . . . . . . . . . . . . . . . .  15
             Customers And Marketing  . . . . . . . . . . . . . . . . . .  16
             Competition. . . . . . . . . . . . . . . . . . . . . . . . .  17
             Regulation . . . . . . . . . . . . . . . . . . . . . . . . .  18
             Employees. . . . . . . . . . . . . . . . . . . . . . . . . .  22
  ITEM 2.  PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . .  22
  ITEM 3.  LEGAL PROCEEDINGS  . . . . . . . . . . . . . . . . . . . . . .  22
  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . .  23
 
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
  ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED              
           STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . .  24
  ITEM 6.  SELECTED FINANCIAL DATA  . . . . . . . . . . . . . . . . . . .  26
  ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . .  30
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . .  56
  ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . .  57
  ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURES . . . . . . . . . . . . .  57

PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  58
  ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANTS. . . . . . . .  58
  ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . .  59
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  59
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . .  59

PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  60
  ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORT ON FORM 8-K.  60
             Financial Statements . . . . . . . . . . . . . . . . . . . .  60
             Report on Form 8-K . . . . . . . . . . . . . . . . . . . . .  66


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             Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . .  66
             Financial Statement Schedule . . . . . . . . . . . . . . . .  66

FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

FINANCIAL STATEMENT SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . S-1




                                       4
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                                     PART I


     Unless the context  otherwise  requires,  the term "Company" or "ICG" means
the combined  business  operations of ICG  Communications,  Inc. ("ICG") and its
subsidiaries,  including ICG Holdings (Canada) Co.  ("Holdings-Canada")  and ICG
Holdings, Inc. ("Holdings"); the terms "fiscal" and "fiscal year" refer to ICG's
fiscal  years  ending  December 31 for 1997 and 1998 and  September 30 for years
prior to 1997.  The  Company  changed  its fiscal  year end to  December 31 from
September 30, effective January 1, 1997. All dollar amounts are in U.S. dollars.

ITEM 1. BUSINESS

Overview


     The  Company  is  one  of  the  nation's  leading  competitive   integrated
communications  providers  ("ICPs"),  based on estimates of the industry's  1998
revenue.  ICPs seek to  provide  an  alternative  to  incumbent  local  exchange
carriers  ("ILECs"),  long distance  carriers and other  communications  service
providers  for a full  range  of  communications  services  in the  increasingly
deregulated  telecommunications industry. Through its competitive local exchange
carrier  ("CLEC")  operations,  the Company  operates fiber networks in regional
clusters covering major metropolitan statistical areas in California,  Colorado,
Ohio, the Southeast and Texas. The Company also provides a wide range of network
systems   integration   services  and  maritime  and   international   satellite
transmission  services.  Additionally,  the Company  began  providing  wholesale
network services over its nationwide data network in February 1999. As a leading
participant  in  the  rapidly  growing   competitive  local   telecommunications
industry,  the Company has experienced  significant  growth,  with total revenue
increasing from  approximately  $154.1 million for fiscal 1996 to  approximately
$397.6 million for fiscal 1998. The Company's  rapid growth is the result of the
initial  installation,  acquisition and subsequent  expansion of its fiber optic
networks and the expansion of its communications service offerings.


     The Federal  Telecommunications Act of 1996 (the "Telecommunications  Act")
and pro-competitive state regulatory  initiatives have substantially changed the
telecommunications  regulatory  environment  in the  United  States.  Under  the
Telecommunications  Act, the Company is permitted  to offer all  interstate  and
intrastate telephone services,  including  competitive local dial tone. In early
1997, the Company began  marketing and selling local dial tone services in major
metropolitan  areas in  California,  Colorado,  Ohio and the  Southeast  and, in
December 1998,  began offering  services in Texas through an acquired  business.
During  fiscal 1997 and 1998,  the Company sold 178,470 and 206,458 local access
lines, respectively,  net of cancellations,  of which 354,482 were in service at
December 31, 1998.  The Company had 29 operating  high  capacity  digital  voice
switches and 16 data communications  switches at December 31, 1998, and plans to
install  additional  switches as demand  warrants.  As a complement to its local
exchange  services  offered to business end users,  the Company  markets bundled
service  offerings  provided over its regional  fiber network which include long
distance, enhanced telecommunications services and data services.  Additionally,
the Company  owns and  operates a nationwide  data  network,  with 236 points of
presence  ("POPs") over which the Company  recently  began  providing  wholesale
Internet access and enhanced  network services to MindSpring  Enterprises,  Inc.
("MindSpring")  and intends to offer similar  services to other Internet service
providers ("ISPs") and telecommunications providers in the future.

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<PAGE>


     In  developing  its  telecommunications   service  offerings,  the  Company
continues to invest significant  resources to expand its network. This expansion
is being  undertaken  through a combination of  constructing  owned  facilities,
entering into long-term  agreements with other  telecommunications  carriers and
through mergers and acquisitions. See "-Recent Developments."

Recent Developments

     Sale of  Operations  of NETCOM  On-Line  Communication  Services,  Inc.  On
January 21, 1998, the Company  acquired NETCOM On-Line  Communication  Services,
Inc., a Delaware corporation and provider of Internet  connectivity and Web site
hosting services and other value-added services located in San Jose,  California
("NETCOM")  in a  transaction  accounted  for  as a  pooling  of  interests  for
approximately  10.2 million shares of common stock of ICG ("ICG Common  Stock"),
valued at  approximately  $284.9 million on the date of the merger.  On February
17, 1999,  the Company sold certain of the operating  assets and  liabilities of
NETCOM to MindSpring,  an ISP located in Atlanta,  Georgia.  Total proceeds from
the sale were $245.0  million,  consisting of $215.0 million in cash and 376,116
shares of  unregistered  common  stock of  MindSpring,  valued at  approximately
$79.76 per share at the time of the transaction.  Assets and liabilities sold to
MindSpring include those directly related to the domestic operations of NETCOM's
Internet dial-up,  dedicated access and Web site hosting services.  On March 16,
1999,  the  Company  sold all of the  capital  stock of  NETCOM's  international
operations  for  total  proceeds  of  approximately   $41.1  million.   MetroNET
Communications  Corp.  ("MetroNET"),  a Canadian entity,  and Providence  Equity
Partners ("Providence"), located in Providence, Rhode Island, together purchased
the 80% interest in NETCOM Canada Inc. owned by NETCOM for  approximately  $28.9
million in cash. Additionally,  Providence purchased all of the capital stock of
NETCOM  Internet  Access  Services  Limited,  NETCOM's  operations in the United
Kingdom,  for approximately $12.2 million in cash. The Company expects to record
a combined gain on the NETCOM transactions of approximately $200 million, net of
income taxes of approximately $6.5 million,  during the three months ended March
31, 1999.

     In conjunction  with the sale to  MindSpring,  the legal name of the NETCOM
subsidiary was changed to ICG PST, Inc.  ("PST").  PST has retained the domestic
Internet backbone assets formerly owned by NETCOM which include 236 POPs serving
approximately 700 cities nationwide. PST intends to utilize the retained network
operating  assets to provide  wholesale  Internet  access and  enhanced  network
services  to  MindSpring  and other ISPs and  telecommunications  providers.  On
February 17, 1999, the Company  entered into an agreement to lease to MindSpring
for a one-year  period the capacity of certain  network  operating  assets for a
minimum of $27.0 million,  although  subject to increase  dependent upon network
usage.  MindSpring  will utilize the capacity to provide  Internet access to the
dial-up services  customers  formerly owned by NETCOM. In addition,  the Company
will receive for a one-year period 50% of the gross revenue earned by MindSpring
from the dedicated access customers formerly owned by NETCOM.

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<PAGE>

     Effective  November 3, 1998, the Company's  board of directors  adopted the
formal  plan to  dispose  of the  operations  of  NETCOM  and  accordingly,  the
Company's  consolidated financial statements reflect the operations of NETCOM as
discontinued for all periods  presented.  For fiscal 1996, 1997 and 1998, NETCOM
reported  revenue  of  $120.5  million,   $160.7  million  and  $164.6  million,
respectively,  and EBITDA  (before  nonrecurring  charges)  of $(31.0)  million,
$(9.4) million and $(14.7) million, respectively.

     Announcement  of New Service  Offerings.  In August 1998, the Company began
offering enhanced  telephony  services via Internet protocol ("IP")  technology.
The Company  currently  offers these  services in 230 major cities in the United
States,  covering  more than 90% of the  commercial  long distance  market.  The
Company carries the IP traffic over its nationwide data network and terminates a
large portion of the traffic via its own POPs, thereby  eliminating  terminating
charges from the use of other carriers' network facilities. Calls that cannot be
terminated  over the  Company's own  facilities  are billed at higher per minute
rates to  compensate  for the  charges  associated  with using  other  carriers'
facilities. The Company currently does not generate any significant revenue from
this service.

     In  December  1998,  the  Company  announced  its plans to offer  three new
network services, to be available beginning in early 1999:

     Modemless remote access service ("RAS") allows the Company to provide modem
access at its own switch  location,  rather than requiring ISPs to deploy modems
physically at each of their POPs. This service will enable the Company to act as
an  aggregator  for ISP traffic  while  limiting the ISP's  capital  deployment.
Through its strategic  relationship with Lucent  Technologies,  Inc. ("Lucent"),
the Company is currently  retrofitting all of its Lucent-5ESS  switches with the
new Lucent product that allows for RAS  functionality.  This service  eliminates
the  need  for  ISPs to  separately  purchase  modems  and  shifts  the  network
management responsibilities to the Company. The Company plans to be the first to
market RAS using  Lucent's  modem  technology  and expects  the service  will be
available to customers in the second quarter of 1999.

     Through  the same  technology  that allows it to provide  RAS,  the Company
plans to offer interLATA (local access and transport area) expanded  originating
service ("EOS"),  enabling  regional or local ISPs to expand their  geographical
footprint  outside  their  current  physical  locations  by  carrying  the ISP's
out-of-region  traffic on the Company's own nationwide data network. The Company
will initially  offer this service within its CLEC regional  clusters during the
first  quarter of 1999,  and plans to expand  EOS  offerings  to other  areas as
demand warrants.

     Through digital  subscriber line ("DSL")  technology,  the Company plans to
provide  high-speed data transmission  services  primarily to business end users
and, on a wholesale  basis,  to ISPs. DSL technology  utilizes the existing ILEC
twisted   copper  pair   connection  to  the   customer,   giving  the  customer
significantly greater bandwidth,  and consequently speed, when connecting to the
Internet.  The Company  expects to offer DSL in over 400 central  offices by the
end of 1999 through alliances with other companies focusing on DSL service.  For
example,  on February 18, 1999, the Company entered into a letter of intent with
NorthPoint  Communications,  Inc.,  a  privately  held  data  CLEC  based in San
Francisco, California ("NorthPoint"). If this agreement is finalized, NorthPoint
will be designated as the Company's preferred DSL provider for a two-year period

                                       7
<PAGE>


and the Company will  purchase up to 75,000 DSL lines from  NorthPoint  over the
two-year term. This alliance will enable the Company to accelerate the expansion
of its  DSL  service  offerings  and  allow  NorthPoint  to gain  access  to the
Company's  collocation  facilities  in markets  where  NorthPoint  currently has
limited  or no  operations.  If the  agreement  is  finalized,  NorthPoint  will
provision  and manage  all of the  Company's  DSL  services  offered  under this
agreement.  The  Company  expects  to begin  offering  DSL  services  under this
agreement in the second quarter of 1999.

     Acquisition  of CSW/ICG  ChoiceCom,  L.P.  In  January  1997,  the  Company
announced a strategic  alliance with Central and South West Corporation  ("CSW")
formed for the purpose of developing and marketing  telecommunications  services
in certain  cities in Texas.  Based in Austin,  Texas,  the venture entity was a
limited partnership named CSW/ICG ChoiceCom, L.P. ("ChoiceCom"). On December 31,
1998, the Company purchased 100% of the partnership  interests in ChoiceCom from
CSW for  approximately  $55.7  million  in cash and the  assumption  of  certain
liabilities of approximately  $7.3 million.  In addition,  the Company converted
approximately $31.6 million of receivables from prior advances made to ChoiceCom
by the Company to its investment in ChoiceCom.  The acquired  company  currently
provides local exchange and long distance  services in Austin,  Corpus  Christi,
Dallas,  Houston and San  Antonio,  Texas.  For fiscal 1997 and 1998,  ChoiceCom
reported  revenue of $0.3  million and $5.8  million,  respectively,  and EBITDA
losses  (before  nonrecurring  charges) of $(5.5)  million and $(13.6)  million,
respectively.

     Acquisition of DataChoice  Network  Services,  L.L.C. On July 27, 1998, the
Company  acquired  DataChoice  Network  Services,  L.L.C.,  a  Colorado  limited
liability company  providing  point-to-point  data transmission  resale services
through its long-term  agreements with multiple regional carriers and nationwide
providers ("DataChoice").  The Company paid total consideration of approximately
$5.9 million, consisting of 145,997 shares of ICG Common Stock and approximately
$1.1 million in cash. The historical results of operations of DataChoice are not
significant to the Company's consolidated results of operations.

     Acquisition of NikoNET, Inc. The Company completed a series of transactions
on July 30,  1998 to acquire  NikoNET,  Inc.,  CompuFAX  Acquisition  Corp.  and
Enhanced Messaging Services,  Inc. (collectively,  "NikoNET").  The Company paid
total  consideration  of  approximately  $13.8 million in cash,  which  included
dividends  payable  by  NikoNET  to its  former  owners  and  amounts to satisfy
NikoNET's  former  line  of  credit,   assumed  approximately  $0.7  million  in
liabilities  and issued  356,318  shares of ICG Common  Stock with a fair market
value of approximately $10.7 million on the date of the acquisition, for all the
capital  stock  of  NikoNET.  Located  in  Atlanta,  Georgia,  NikoNET  provides
broadcast  facsimile  services  and  enhanced  messaging  services to  financial
institutions,  corporate  investor and public  relations  departments  and other
customers.  The Company  believes the acquisition of NikoNET enables the Company
to offer expanded services to its existing customers.  The historical results of
operations of NikoNET are not significant to the Company's  consolidated results
of operations.

     Discontinuance of Operations of Zycom. Due primarily to the loss of a major
customer,  which  generated a  significant  obligation  under a volume  discount
agreement  with its call  transport  provider,  the board of  directors of Zycom
Corporation, a 70%-owned subsidiary of the Company which operated an 800/888/900
number services bureau and switch platform ("Zycom"),  approved a plan on August
25, 1998 to wind down and ultimately discontinue Zycom's operations.  On October

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22,  1998,  Zycom  completed  the  transfer  of all  customer  traffic  to other
providers  and on  January  4,  1999,  the  Company  completed  the  sale of the
remainder of Zycom's  operating  assets to an unrelated third party.  For fiscal
1996, 1997 and 1998, Zycom reported revenue of $14.9 million,  $28.3 million and
$17.0 million,  respectively,  and EBITDA (before nonrecurring  charges) of $0.6
million,  $(2.7)  million  and  $(3.3)  million,   respectively.  The  Company's
consolidated   financial   statements   reflect  the   operations  of  Zycom  as
discontinued for all periods presented.

     Sale  of  Satellite  Services  Operating  Subsidiaries.  On  August  12 and
November  18,  1998,  the Company  completed  the sales of the capital  stock of
MarineSat  Communications,   Inc.  ("MCN")  and  Nova-Net  Communications,  Inc.
("Nova-Net"),  respectively,  two wholly owned subsidiaries within the Company's
Satellite Services operations.  MCN is a Florida-based  provider of cellular and
satellite  communications  for commercial ships,  private vessels and land-based
mobile  units.  Nova-Net  provides  private data networks  utilizing  very small
aperture  terminals   ("VSATs")  and  specializes  in  data  collection  and  in
monitoring  and control of customer  production and  transmission  facilities in
various  industries,  including  oil and gas,  electric and water  utilities and
environmental monitoring industries.  The Company recorded a gain on the sale of
MCN of  approximately  $0.9  million  and a loss  on the  sale  of  Nova-Net  of
approximately  $0.2 million in its consolidated  statement of operations  during
fiscal 1998. The Company believes that the dispositions of MCN and Nova-Net will
further  management's  ability to focus on the development and deployment of its
core Telecom Services.  The combined historical results of operations of MCN and
Nova-Net  are  not  significant  to  the  Company's   consolidated   results  of
operations.  The Company's  remaining  Satellite  Services  operations  consists
principally  of the  operations  of Maritime  Telecommunications  Network,  Inc.
("MTN"). See "-Satellite Services."

     Financings.   On  February  12,  1998,  ICG  Services,   Inc.,  a  Delaware
corporation  and newly  formed  wholly  owned  subsidiary  of the Company  ("ICG
Services"),  completed a private placement of 10% Senior Discount Notes due 2008
(the "10%  Notes")  for gross  proceeds of  approximately  $300.6  million.  Net
proceeds from the  offering,  after  underwriting  and other  offering  costs of
approximately $9.7 million, were approximately $290.9 million. The 10% Notes are
unsecured  senior  obligations of ICG Services that mature on February 15, 2008,
at a maturity  value of $490.0  million.  Interest will accrue at 10% per annum,
beginning  February 15, 2003, and is payable in cash each February 15 and August
15,  commencing  August 15, 2003. The 10% Notes have been  registered  under the
Securities Act of 1933, as amended (the "Securities Act").

     On April 27,  1998,  ICG Services  completed a private  placement of 9 7/8%
Senior  Discount  Notes due 2008 (the "9 7/8%  Notes")  for  gross  proceeds  of
approximately $250.0 million. Net proceeds from the offering, after underwriting
and other  offering  costs of  approximately  $7.9 million,  were  approximately
$242.1  million.  The 9 7/8%  Notes  are  unsecured  senior  obligations  of ICG
Services  that  mature on May 1, 2008,  at a maturity  value of $405.3  million.
Interest will accrue at 9 7/8% per annum,  beginning May 1, 2003, and is payable
in cash each May 1 and November 1, commencing November 1, 2003. The 9 7/8% Notes
have been registered under the Securities Act.

     ICG  Equipment,  Inc. In January 1998,  the Company  formed ICG  Equipment,
Inc., a Colorado  corporation and wholly owned  subsidiary of ICG Services ("ICG
Equipment"),   for  the  principal  purpose  of  purchasing   telecommunications
equipment,  software, network capacity and related services for sale or lease to

                                       9
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other operating  subsidiaries of ICG ("Holdings'  Subsidiaries").  By purchasing
assets  through ICG Equipment,  the Company defers sales tax on asset  purchases
over the term of the  operating  leases  between  ICG  Equipment  and  Holdings'
Subsidiaries, which sales tax would otherwise be paid in full at the time of the
purchase.  The equipment  and services  provided to Holdings'  Subsidiaries  are
utilized to upgrade and expand the Company's  network  infrastructure.  All such
arrangements  are intended to be conducted on the basis of fair market value and
on comparable terms that Holdings'  Subsidiaries  would be able to obtain from a
third  party.  As  of  December  31,  1998,   approximately  $195.0  million  of
telecommunications  equipment,  software,  network capacity and related services
were under lease to Holdings' Subsidiaries by ICG Equipment.

Telecom Services

     The Company  operates  local  exchange  networks in the  following  markets
within its regional clusters:  California (Sacramento, San Diego and portions of
the Los  Angeles  and  San  Francisco  metropolitan  areas);  Colorado  (Denver,
Colorado Springs and Boulder); Ohio (Akron, Cincinnati, Cleveland, Columbus, and
Dayton); the Southeast (Atlanta, Georgia; Birmingham,  Alabama; Charlotte, North
Carolina;  Louisville,  Kentucky; and Nashville,  Tennessee); and Texas (Austin,
Corpus Christi,  Dallas,  Houston and San Antonio). The Company will continue to
expand  its  network  through  construction,  leased  facilities  and  strategic
alliances  and,  potentially,  through  acquisitions.  The  Company's  operating
regional  fiber  networks  have grown from 2,143 fiber route miles at the end of
fiscal 1996 to 4,255 fiber route miles as of December 31, 1998. Telecom Services
revenue  has  increased  from  approximately  $72.8  million  for fiscal 1996 to
approximately  $303.3 million for fiscal 1998.  Since February 1999, the Company
also  operates a  nationwide  data  network with 236 POPs over which the Company
provides wholesale Internet access services to MindSpring and intends to provide
such services and enhanced network services to other ISPs and telecommunications
providers in the future.

Strategy

     The  Company's  objective  is to be a  premier  provider  of  high  quality
communications services to its targeted business, ISP and carrier customers. The
key elements of this strategy are:

     Increase  Revenue  and Margins  through  Bundled  Services to Business  End
Users.  The Company  believes that its  commercial  customers  are  increasingly
demanding  a  broad,  full  service  approach  to  providing  telecommunications
services.  By offering  integrated  technology-based  communications  solutions,
management  believes  the Company will be better able to capture  business  from
telecommunications-intensive  commercial  accounts.  To this end, the Company is
complementing  its  competitive  local service  offerings with long distance and
data service  offerings,  including its recently offered IP telephony  services,
and marketing these combined products through ICG's direct sales force and sales
agents.  Management  believes a targeted  business end user  strategy can better
leverage ICG's network footprint and telecommunications investment.

     Increase Revenue and Margins through New Wholesale Network Products Offered
to ISPs and  Telecommunications  Providers.  The Company  believes  the Internet
business  is one of  the  fastest  growing  segments  of the  telecommunications
service sector,  thereby  providing  enormous growth  opportunities  for network

                                       10
<PAGE>

service providers supporting the growing base of ISPs. The Company plans to take
advantage of these  opportunities  through the  offering of  wholesale  Internet
access and other enhanced network services to ISPs and other  telecommunications
providers,  and expanding its current primary rate interface  ("PRI")  offerings
with RAS, EOS and DSL. See "-Recent Developments." Management believes these new
products will leverage the Company's  relationships  with ISPs and will position
the  Company  to lead  in the  provisioning  of new  services  to this  emerging
customer base.

     Concentrate  Networks in Regional  Clusters.  The Company  believes that by
focusing on regional  clusters it will be able to more  effectively  service its
customers'  needs and efficiently  market,  operate and control its networks and
expanded service offerings.  As a result, the Company has concentrated its fiber
networks in regional  clusters serving major  metropolitan  areas in California,
Colorado, Ohio, the Southeast and Texas.

Networks

     The Company's  networks  generally  comprise fiber optic cables,  switching
facilities, advanced electronics,  transmission equipment and related wiring and
equipment.  The Company typically designs a ring architecture with a view toward
making   the   network    accessible   to   the   largest    concentration    of
telecommunications-intensive businesses in a given market.

     The Company's  networks are generally  configured in redundant  synchronous
optical  network  ("SONET")  rings that  offer the  advantage  of  uninterrupted
service in the event of a fiber cut or equipment  failure,  resulting in limited
outages and increased  network  reliability.  The Company  generally markets its
services at prices below those charged by the ILEC.  Management  believes  these
factors combine to create a more reliable and cost effective alternative to ILEC
networks and services.

     The Company's  networks are constructed to access long distance carriers as
well as  areas of  significant  end user  telecommunications  traffic  in a cost
efficient manner. The construction period of a new network varies depending upon
the scope of the  activities,  such as the number of backbone  route miles to be
installed,  the initial  number of  buildings  targeted  for  connection  to the
network  backbone  and the general  deployment  of the  network  infrastructure.
Construction is planned to allow revenue-generating operations to commence prior
to the completion of the entire network backbone.  When constructing and relying
principally on its own facilities, the Company has experienced a period of 12 to
18 months  from  initial  design of a network  to revenue  generation  from such
network.  Based upon its experience of using ILEC  facilities to provide initial
customer service and the Company's  agreements to use utilities' existing fiber,
the  Company  has  experienced  revenue  generation  within  nine  months  after
commencing  network  design.  After  installing  the initial  network  backbone,
extensions  to  additional  buildings  and  expansions  to  other  regions  of a
metropolitan  area  are  evaluated,  based on  detailed  assessments  of  market
potential.  The Company is currently  expanding all of its existing  networks to
reduce its reliance on the ILECs and evaluating development of new networks both
inside and outside its existing regional clusters.

     Switched services involve the transmission of voice,  video or data to long
distance  carrier-specified or end user-specified  termination sites. The switch
is  required  in order  for the  Company  to  provide  the  full  range of local
telephone  services.  By contrast,  the special access services  provided by the

                                       11
<PAGE>


Company and other CLECs involve a fixed  communications  link or "pipe," usually
between an end user and a specific  long distance  carrier's  POP. With a switch
and  interconnection  to various  carriers'  networks,  it is  possible  for the
Company to direct a long distance  carrier's  traffic to any end user regardless
of whether the end user is physically connected to the Company's owned or leased
network.  The  Company is  marketing  and  selling  competitive  local dial tone
services  in  California,   Colorado,   Ohio,  the  Southeast  and  Texas.   See
"-Regulation - State Regulation."

     The Company's network  monitoring  center in Denver,  Colorado monitors and
manages the Company's regional fiber networks and provides high-level monitoring
of the Company's local exchange switches.  Centralized electronic monitoring and
control of the Company's  networks  allows the Company to avoid  duplication  of
this function in each city, thereby reducing costs.

     The Company owns and operates a nationwide  data network  consisting of 236
POPs and 13 hubs containing  frame relay switches and  high-performance  routers
connecting a backbone of leased Asynchronous  Transfer Mode ("ATM") switches and
leased  high-speed  dedicated  data lines in the United  States.  The design and
architecture  of the  physical  network  permits  the  Company  to offer  highly
flexible,  reliable  high-speed  services  to its  customers.  The data  network
infrastructure  is  monitored  by a  network  operations  center  in  San  Jose,
California.

Services

     The Company's  competitive local exchange services include local dial tone,
long  distance,  enhanced  telephony,  data,  special  access and interstate and
intrastate  switched  access  services.  Competitive  local  dial tone  services
consist of basic local  exchange  lines and trunks for  business,  related  line
features (such as voice mail,  Direct Inward  Dialing (DID),  hunting and custom
calling  features),  local  calling,  and  intraLATA,  also  called  local toll,
calling.  The Company  believes that having a full complement of  communications
services,  including local, long distance and data services, will strengthen its
overall  market  position  and help the  Company to better  penetrate  the local
exchange  marketplace.  The Company has also developed  long distance  services,
including  calling and debit cards,  to complement its local  exchange  services
family of products. The Company offers a bundled service of local, long distance
and data  services,  delivered  over a T-1  connection  in several  markets  and
intends to expand this bundled service offering to its remaining  markets in the
future.

     The Company offers long distance  services to end user customers.  Although
the Company  carries some of its long distance  traffic on its own switches,  it
relies upon obtaining long distance transmission capacity from other carriers to
provide its  services.  Therefore,  the Company  has entered  into  transmission
agreements, which typically provide for transmission on a per minute basis, with
long  distance  carriers to fulfill such needs.  To reduce its cost of services,
the  Company  leases  point-to-point  circuits on a monthly or longer term fixed
cost basis where it anticipates high traffic volume.

     The Company also offers  enhanced  telephony  services via IP technology in
230 major cities in the United States,  covering more than 90% of the commercial
long distance  market.  The Company  carries the IP traffic over its  nationwide
data  network and  terminates  a large  portion of the traffic via its own POPs,
thereby eliminating  terminating charges from the use of other carriers' network


                                       12
<PAGE>

facilities.  Calls that cannot be terminated  over the Company's own  facilities
are billed at higher per minute rates to compensate  for the charges  associated
with using other carriers' facilities.

     Private line services are generally used to connect the separate  locations
of a single business  outside of the local calling area or LATA.  Special access
services are  generally  used to connect end user  customers to a long  distance
telephone carrier's facilities, to connect long distance carrier's facilities to
the  local  telephone  company's  central  offices,  and  to  connect  different
facilities  of the same long distance  carrier or  facilities of different  long
distance  carriers all within the same LATA.  As part of its initial  "carrier's
carrier"  strategy,  the Company  targeted the  transport  between long distance
company  facilities and the local telephone  company central  offices,  and, for
high  volume  customers,  between  the long  distance  company  and the end user
customer's office. In order to leverage its significant network investment,  the
Company also markets these services directly to end user business customers.

     The Company's  interstate and intrastate  switched access services  include
the  transport  and  switching  of calls  between  the long  distance  carrier's
facilities  and  either the local  telephone  company's  central  offices or end
users.  By performing  the switching  services,  the Company can reduce the long
distance  carriers' local access costs,  which  constitute their major operating
expense. Until recently, the Company experienced negative operating margins from
the provision of wholesale  switched services because it relies on ILEC networks
to terminate and originate  customers' switched traffic.  The Company has raised
prices on its wholesale  switched  services  product in order to improve margins
and has  de-emphasized  its wholesale  switched  services to focus on its higher
margin products.

     The  Company's  Signaling  System  7  ("SS7")  services  provide  signaling
connections between long distance and local exchange carriers,  and between long
distance carriers' networks. SS7, sometimes referred to as "look-ahead routing,"
is used by local exchange companies,  long distance carriers,  wireless carriers
and others to signal between network  elements,  creating faster call set-up and
resulting in more  efficient use of network  resources.  SS7 is now the standard
method for  telecommunications  signaling  worldwide.  The Company has  deployed
signal transfer points ("STPs") throughout its networks to efficiently route SS7
data across the United States. SS7 is also the enabling  technology for advanced
intelligence  network  platforms,  a set of services and signaling  options that
carriers can use to create new services or customer  options.  Carriers purchase
connections  into the Company's SS7 network,  and also purchase  connections  to
other local and long distance carriers on a monthly recurring basis. The Company
has  also   developed  a  nationwide  SS7  service  with  Southern  New  England
Telecommunications  Corporation  ("SNET"),  a subsidiary of SBC  Communications,
Inc. The Company  believes  that,  together  with SNET, it is one of the largest
independent  suppliers of SS7 services.  The Company's STPs are integrated  with
two SNET "gateway" STPs in Connecticut.

     Through NikoNET,  the Company  provides  broadcast  facsimile  services and
enhanced  messaging services to financial  institutions,  corporate investor and
public  relations  departments  and  other  customers.   NikoNET  also  provides
facsimile to e-mail and e-mail to facsimile translation  services.  This product
leverages the Company's network and creates high margin minutes of use.

                                       13
<PAGE>

     As part of its new  strategy to maximize the value of its  nationwide  data
network by  including  high-growth  ISPs in its  customer  base,  the Company is
currently  offering Internet access services and recently announced its plans to
offer other new wholesale network services, including RAS, EOS and DSL, to ISPs,
to be available beginning in early 1999. See "-Recent Developments."

Industry

     The Company operates in the local telephone  services market as an ICP. The
Company is competing in the local,  long distance,  enhanced  telephony and data
communications  markets,  to provide  "full  service" to its  business,  ISP and
carrier  customers.  The  Company  believes it can  maximize  revenue and profit
opportunities  by  leveraging  its  extensive  network  facilities  in providing
multiple communications services to its customers.

     Local   telephone   service   competition   was   made   possible   by  the
Telecommunications  Act and by deregulatory actions at the state level. Prior to
passage of the  Telecommunications  Act,  firms like the Company were  generally
limited to providing  private  line and special  access  services.  These firms,
including  the Company,  installed  fiber optic cable  connecting  long distance
telephone  carriers'  POPs  within  a  metropolitan  area  and,  in some  cases,
connecting end users (primarily  large businesses and government  entities) with
long distance carrier POPs. The greater capacity and economies of scale inherent
in fiber optic cable enabled  competitive  access  providers to offer  customers
less expensive services at higher quality than the ILECs.

     The Telecommunications  Act, subsequent Federal  Communications  Commission
("FCC")  decisions and many state  legislative and regulatory  initiatives  have
substantially  changed  the  telecommunications  regulatory  environment  in the
United States.  Due to these regulatory  changes,  CLECs are now legally able to
offer many communications services, including local dial tone and all interstate
and intrastate  switched  services,  effectively  opening up the local telephone
market to full  competition.  Because  of these  changes  in state  and  federal
regulations,  CLECs have  expanded  their  services from  providing  competitive
access and private line  services to providing  all local  exchange  services to
become true competitors to the ILECs. See "-Regulation."

Network Services

     Through  the   Company's   wholly   owned   subsidiary,   ICG  Fiber  Optic
Technologies,   Inc.  ("FOTI"),  the  Company  supplies  information  technology
services  and  selected  networking   products,   focusing  on  network  design,
installation,  maintenance  and  support  for a variety of end users,  including
Fortune 1000 firms and other large businesses and telecommunications  companies.
Revenue from Network Services was approximately $53.9 million for fiscal 1998.

     The Company provides network infrastructure,  systems and support services,
including  the  design,  engineering  and  installation  of local  and wide area
networks  ("LANs/WANs")  for its  customers.  These  networks  (within  end user
offices, buildings or campuses) may include fiber optic,  twisted-pair,  coaxial
and other  network  technologies.  The Company  specializes  in turnkey  network
installations   including   cabling  and  electronics   that  address   specific
requirements.  The Company also provides  professional network support services.

                                       14
<PAGE>

These services include move, add and change services and ongoing maintenance and
support  services.  Network Services revenue is expected to constitute a smaller
percentage  of  the  Company's   future  revenue  as  Telecom  Services  revenue
increases.

     The Company offers these network  integration and support  services through
offices located within five regions.  The regional  headquarters  are located in
Dallas, Denver, Portland (Oregon), Los Angeles and San Francisco.

Satellite Services

     The Company's  Satellite  Services  operations  consist of satellite voice,
data and video  services  provided to major cruise  lines,  the U.S.  Navy,  the
offshore oil and gas  industry and other ICPs.  The Company also owns a teleport
facility  which provides  international  voice and data  transmission  services.
Revenue from Satellite Services was approximately $40.5 million for fiscal 1998.

     MTN. MTN provides digital wireless communications through satellites to the
maritime cruise  industry,  U.S. Navy vessels and offshore oil and gas platforms
utilizing  an  experimental  radio  frequency  license  and a grant  of  Special
Temporary   Authority   ("STA")   issued  by  the  FCC.  MTN  provides   private
communications networks to various cruise lines allowing for the transmission of
data  communications and allowing  passengers to make calls from their cabins to
anywhere in the world. MTN additionally provides its communications  services to
seismic  vessels,  to  commercial  shipping  vessels  and to the  U.S.  Navy  in
conjunction  with a major  long  distance  provider,  which  serves  as the long
distance carrier, while MTN provides the shipboard communications equipment. The
Company believes that the radio spectrum employed under an experimental  license
and a grant of STA, which uses C-band radio frequencies, enables it to provide a
higher quality maritime service than is available  through the radio frequencies
currently allocated to other maritime service providers.

     In  April  1996,  the FCC  issued  a waiver  allowing  MTN to  apply  for a
permanent  FCC  license  to  utilize  C-band  frequencies   authorized  under  a
previously   issued   experimental   license.   MTN's  application  is  pending.
Additionally,  in January  1997,  the FCC granted the STA,  which enables MTN to
conduct operations,  for up to an initial six-month period,  which period can be
renewed for six-month  terms,  while the FCC's review of the  permanent  license
application is pending. The most recent extension of the STA was received by MTN
on January 29, 1999.  MTN's FCC  experimental  license  allows it to operate its
shipboard earth stations on a fixed and mobile basis throughout  domestic waters
on a non-interference  basis using C-band frequencies.  MTN filed an application
for  renewal of the  experimental  authorization  on January 22,  1999.  MTN may
continue to operate under the terms of its  experimental  authorization  pending
action on the renewal  application.  There can be no assurance  that the Company
will be  granted  permanent  licenses,  that the  experimental  license  and STA
currently  being used will  continue to be renewed for future  terms or that any
license  granted  by the FCC  will not  require  substantial  payments  from the
Company. See "-Regulation."

     Teleport.  The  teleport  in Holmdel,  New Jersey,  acquired as part of the
Company's  acquisition  of  MTN,  is  located  20  miles  south  of  Newark  and
specializes in international digital voice and data communications services with

                                       15
<PAGE>

full fiber  interconnect to the local telephone  company  facilities in New York
City.  Teleport services are also provided to the maritime  industry,  including
support of the  Company's  cruise  ship,  U.S.  Navy and  offshore  oil platform
telephone  and data  services  business.  In addition,  the Company  markets the
resale of services from the four teleports it sold in 1996.

Customers And Marketing

     The Company's  primary  marketing  strategies  for Telecom  Services are to
offer a broad  range  of  local,  long  distance,  enhanced  telephony  and data
services,  to the Company's  business and ISP customers at cost effective rates.
Wholesale customers typically re-market the Company's services to the retailer's
end user,  under the retailer's  brand name. The Company markets its services in
regional clusters,  which it believes is the most effective and efficient way to
penetrate its markets.

     The Company markets its Telecom  Services  products through direct sales to
end users and  wholesale  accounts,  sales agents and direct mail,  to a limited
extent. Telecom Services revenue from major long distance carriers and resellers
constituted  approximately  83%, 76% and 34% of the Company's  Telecom  Services
revenue  in  fiscal  1996,  1997 and  1998,  respectively.  The  balance  of the
Company's  Telecom  Services  revenue  was derived  from end users.  The Company
anticipates  revenue from business and ISP customers will increase in the future
as it continues to expand its bundled service offerings, increases its sales and
marketing teams and focuses more on these segments of the market.  In support of
this  strategy,  the Company has  substantially  increased  its direct sales and
marketing  staff.  Telecommunications  service  agreements  with  its  customers
typically  provide  for  terms of one to five  years,  fixed  prices  and  early
termination penalties.

     The Company has  telecommunications  sales offices in: Irvine, Los Angeles,
Oakland, Sacramento, San Diego, San Francisco and San Jose, California;  Denver,
Colorado  Springs  and  Boulder,   Colorado;   Akron,   Columbus,   Dayton,  and
Independence, Ohio; Birmingham, Alabama; Atlanta, Georgia; Louisville, Kentucky;
Charlotte, North Carolina; and Nashville, Tennessee; and Austin, Corpus Christi,
Dallas, Houston and San Antonio, Texas. The Company's marketing staff is located
in Denver, Colorado.

     The Company markets its network systems  integration  products and services
through a direct sales force located in the Rocky Mountains,  Pacific Northwest,
Texas  and  California  regions.  The  Company  also  has  entered  into  resale
agreements with manufacturers of network integration products and services.

     The Company offers satellite  private line  transmission  services from its
teleport to business customers that can benefit from the Company's international
and domestic transmission capabilities.  The Company also markets voice and data
communications  to the maritime  industry,  including  cruise  ships,  U.S. Navy
vessels, offshore oil and gas platforms and mobile land-based units.

     The Company is currently  utilizing its nationwide  data network to provide
wholesale  Internet access services to MindSpring for a one-year period.  During
the term of this agreement,  the Company plans to evaluate various strategies to
identify and market  similar  services and other  enhanced  network  services to

                                       16
<PAGE>

primarily local and regional ISPs and other telecommunications providers.

Competition

     The Company operates in an increasingly  competitive  environment dominated
by the ILECs,  mainly the Regional Bell  Operating  Companies  ("RBOCs") and GTE
which are among the  Company's  current  competitors.  Also  included  among the
Company's current  competitors are other ILECs, other CLECs, other ICPs, network
systems   integration   service  providers,   microwave  and  satellite  service
providers,  teleport  operators and private  networks  built by large end users.
Potential  competitors (using similar or different  technologies)  include cable
television companies, utilities, ISPs, ILECs outside their current local service
areas, and the local access operations of long distance carriers.  Consolidation
of telecommunications companies, including mergers between certain of the RBOCs,
between long distance companies and cable television  companies and between long
distance  companies and CLECs,  and the formation of strategic  alliances within
the telecommunications industry, as well as the development of new technologies,
could give rise to  increased  competition.  One of the primary  purposes of the
Telecommunications  Act is to  promote  competition,  particularly  in the local
telephone  market.  Since the enactment of the  Telecommunications  Act, several
telecommunications  companies have  indicated  their  intention to  aggressively
expand  their  ability  to  address  many  segments  of  the  telecommunications
industry,  including  segments in which the Company  participates and expects to
participate.  This  may  result  in more  participants  than can  ultimately  be
successful in a given market.

     Telecom   Services.   The  bases  of  competition   in  competitive   local
telecommunications   services  are  generally   price,   service,   reliability,
transmission  speed,  technological  innovation  and  availability.  The Company
believes  that its  expertise  in  developing  and  operating  highly  reliable,
advanced  digital  networks  which offer  substantial  transmission  capacity at
competitive prices enables the Company to compete effectively against the ILECs,
other CLECs and others providing local and enhanced telephony services.

     In every market in which the Company operates telecom service networks, the
ILECs (which are the historical  monopoly providers of local telephone services)
are the primary  competitors.  The ILECs have  long-standing  relationships with
their  customers  and provide  those  customers  with various  transmission  and
switching  services.  The ILECs also have the potential to subsidize  access and
switched  services  with revenue from a variety of businesses  and  historically
have benefited from certain state and federal  regulations that have favored the
ILECs over the Company.  In certain  markets where the Company  operates,  other
CLECs also operate or have  announced  plans to enter the market.  Some of those
CLECs are  affiliated  with major long distance  companies  which have resources
available to sustain an initially  capital-intensive  business through the point
of profitability.  Current  competitors also include network systems integration
services providers,  wireless telecommunications  providers and private networks
built  by  large  end  users.  Additional  competition  may  emerge  from  cable
television  operators and electric  utilities.  Many of the Company's actual and
potential competitors have greater financial,  technical and marketing resources
than the Company.

                                       17
<PAGE>

     In  addition,  the long  distance  and  data  transmission  businesses  are
extremely competitive and prices have declined substantially in recent years and
are expected to continue to decline.

     As a recent entrant into the wholesale network services sector, the Company
faces  competition from existing  providers of the Company's  planned  services,
primarily  UUNet  Technologies,  Inc.,  PSINet,  Inc. and,  ultimately,  Level 3
Communications,  Inc. and Qwest  Communications  International,  Inc. once their
networks have been sufficiently  developed.  Other competitors also include GTE,
AT&T,  Sprint  Corporation and the RBOCs that currently offer similar  wholesale
network service products to ISPs. While strong  competition  currently exists in
this  sector,  the  Company  believes  that the  recent  growth in the  Internet
industry provides expanded  opportunity and demand for new providers such as the
Company,  and that early  participants  in this  growing  sector have  increased
opportunity for establishing and, once experienced,  growing market share. There
can be no  assurance  that  sufficient  demand  will  exist  for  the  Company's
wholesale network services in its selected markets,  that market prices will not
dramatically decline or the Company will be successful in executing its strategy
in time to meet new competitors, or at all.

     Network  Services.  The bases of competition in the network services market
are primarily technological capability and experience,  value-added services and
price. In this market, the Company competes with a variety of local and regional
system integrators.

     Satellite Services. In the delivery of domestic and international satellite
services,  the  Company  competes  with  other  full  service  teleports  in the
northeast  region of the United States.  The bases of competition  are primarily
reliability,  price and transmission  quality.  Most of the Company's  satellite
competitors  focus  on  the  domestic  video  market.  Competition  is  expected
principally from a number of domestic and foreign  telecommunications  carriers,
many of which have substantially  greater financial and other resources than the
Company. In the maritime  telecommunications market, MTN competes primarily with
COMSAT Corporation ("COMSAT") in providing similar telecommunications  services.
COMSAT has FCC  licenses  that are  similar to MTN's and it is the sole point of
control in the United States for direct access to Intelsat satellites.

Regulation

     The Company's services are subject to significant federal,  state and local
regulation.  The Company operates in an industry that is undergoing  substantial
change as a result of the passage of the Telecommunications Act.

     The  Telecommunications  Act opened the local and long distance  markets to
additional competition and changed the division of oversight between federal and
state regulators.  Under previous law, state regulators had authority over those
services that  originated and  terminated  within the state  ("intrastate")  and
federal  regulators had  jurisdiction  over services that originated  within one
state  and  terminated  in  another  state  ("interstate").  State  and  federal
regulators  now  share  responsibility  to  some  extent  for  implementing  and
enforcing   the   pro-competitive   policies   and   the   provisions   for  the
Telecommunications Act.

     The Telecommunications Act generally requires ILECs to negotiate agreements
to provide  interconnection  and  nondiscriminatory  access to their networks on
more favorable terms than were previously  available in the past. However,  such

                                       18
<PAGE>

new  agreements  are  subject to  negotiations  with each ILEC which may involve
considerable  delays and may not necessarily be obtained on terms and conditions
that are desirable to the Company.  In such instances,  the Company may petition
the proper state regulatory agency to arbitrate disputed issues. Ultimately, the
terms of an arbitrated  agreement  are subject to review by the federal  courts.
Additionally,  the Company is in the process of renegotiating  and extending the
terms of certain of the  interconnection  agreements  executed  by the  Company.
There can be no  assurance  that the Company  will be able to  negotiate  and/or
arbitrate acceptable new interconnection agreements.

     On August 8, 1996,  in two separate  decisions,  the FCC adopted  rules and
policies implementing the local competition provisions of the Telecommunications
Act. The FCC, among other things,  adopted  national  guidelines with respect to
the unbundling of ILECs' network elements,  resale of ILEC services, the pricing
of interconnection  services and unbundled elements, and other local competition
issues. Numerous parties appealed both of the FCC's orders to the Eighth Circuit
Court,  and in 1997,  the Eighth  Circuit  Court issued a decision  which upheld
certain of the FCC's rules but reversed many of the FCC's rules on other issues,
including the pricing rules.

     On January 25, 1999, the United States Supreme Court (the "Supreme  Court")
largely  reversed the Eighth  Circuit  Court's  decision and  reestablished  the
validity  of  many  of the  FCC's  interconnection  rules  including  the  FCC's
jurisdiction to adopt pricing guidelines under the  Telecommunications  Act. The
Supreme Court also upheld the FCC's "pick and choose"  rules,  which allow CLECs
to adopt individual rates, terms and conditions from agreements that an ILEC has
with other carriers.  The Supreme Court did not, however,  evaluate the specific
pricing  methodologies  adopted by the FCC, and the appellate court will further
consider those  methodologies.  Additionally,  the Supreme Court vacated the FCC
rules defining what network elements must be unbundled and made available to the
CLECs by the ILECs.  The Supreme Court held that the FCC must provide a stronger
rationale  to support the degree of  unbundling  ordered.  As a result,  the FCC
likely will soon hold a rulemaking  proceeding  to revise its rules on unbundled
network  elements.  Management  views the Supreme Court  decision as a favorable
development for the CLEC industry,  although the ultimate outcome of the further
FCC and court proceedings resulting from the decision cannot be predicted.

     On December 31, 1997,  the United  States  District  Court for the Northern
District  of  Texas  (the   "District   Court"),   in  a  case  brought  by  SBC
Communications, Inc., issued a decision holding that Sections 271 through 275 of
the  Telecommunications  Act are  unconstitutional.  The decision  addressed the
restrictions contained in Sections 271 through 275 of the Telecommunications Act
on the lines of businesses in which the RBOCs may engage, including establishing
the  conditions  that the RBOCs must satisfy  before they may provide  interLATA
long  distance  telecommunications  services  in their local  telephone  service
areas.  On September 4, 1998,  the Fifth Circuit  Court of Appeals  reversed the
District  Court  decision  and  ruled  that  Sections  271  through  275 are not
unconstitutional.  A  separate  decision  by the D.C.  Circuit  Court of Appeals
issued in December 1998 also ruled that Section 271 is not unconstitutional.

     The Company believes that it is entitled to receive reciprocal compensation
from ILECs for the  transport  and  termination  of Internet  traffic  from ILEC
customers as local traffic pursuant to various interconnection  agreements.  The
ILECs have not paid most of the bills they have  received  from the  Company and

                                       19
<PAGE>

have disputed  substantially all of these charges based on the argument that ISP
traffic  is  not  local  traffic  as  defined  by  the  various  interconnection
agreements and under state and federal laws and public policies.  The resolution
of these disputes will be based on rulings by state public  utility  commissions
and/or by the FCC.  See  "-Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations  - Liquidity - Transport  and  Termination
Charges."

     Federal  Regulation.  The Company generally operates as a regulated carrier
with fewer  regulatory  obligations than the ILECs. The Company must comply with
the  requirements of the  Telecommunications  Act, such as offering service on a
non-discriminatory  basis at just  and  reasonable  rates.  The FCC  treats  the
Company as a non-dominant  carrier. The FCC has established  different levels of
regulation for dominant and non-dominant  carriers. Of domestic common carriers,
only the ILECs are  classified as dominant  carriers for the provision of access
services,  and all other  providers  of domestic  common  carrier  services  are
classified  as  non-dominant.   Under  the  FCC's   streamlined   regulation  of
non-dominant  carriers,  the Company must file tariffs with the FCC for domestic
and  international  long distance  services on an ongoing  basis.  The Company's
provision of international  long distance services requires prior  authorization
by the FCC  pursuant to Section  214 of the  Telecommunications  Act,  which the
Company  has  obtained.   The  FCC  recently  eliminated  the  requirement  that
non-dominant  interstate  access carriers must file tariffs.  The Company is not
subject to price cap or rate of return regulation,  nor is it currently required
to obtain FCC authorization for the installation or operation of its fiber optic
network  facilities  used for  services  in the United  States.  The Company may
install  and  operate  non-radio  facilities  for the  transmission  of domestic
interstate communications without prior FCC authorization.  The Company's use of
digital  microwave radio  frequencies and satellite earth stations in connection
with  certain  of its  telecommunications  services  is  subject  to  FCC  radio
frequency  licensing  regulation.  See  "-Federal  Regulation  of Microwave  and
Satellite Radio Frequencies."

     State  Regulation.  In general,  state regulatory  agencies have regulatory
jurisdiction  over the Company when Company  facilities and services are used to
provide local and other intrastate services.  Under the Telecommunications  Act,
state  commissions  continue to set the  requirements for providers of local and
intrastate  services,  including quality of services criteria.  State regulators
also can regulate the rates charged by CLECs for  intrastate  and local services
and can set prices for  interconnection  by CLECs  with the ILEC  networks.  The
Company's  provision of local dial tone and  intrastate  switched and  dedicated
services are classified as intrastate and therefore subject to state regulation.
The Company expects that it will offer more intrastate  services as its business
and product lines expand. To provide intrastate service (particularly local dial
tone  service),  the  Company  generally  must  obtain a  Certificate  of Public
Convenience  and Necessity  ("CPCN") from the state  regulatory  agency prior to
offering service.  In most states,  the Company also is required to file tariffs
setting forth the terms,  conditions and prices for services that are classified
as  intrastate,  and to  update  or amend  its  tariffs  as rates  change or new
products  are added.  The Company may also be subject to various  reporting  and
record-keeping requirements.

     The  Company  currently  holds  CPCNs (or  their  equivalents)  to  provide
competitive  local  services  in  the  following  states:  Alabama,  California,
Colorado,   Delaware,  Florida,  Georgia,  Hawaii,  Indiana,  Kansas,  Kentucky,
Massachusetts,  Missouri,  Montana, Nevada, New Hampshire, New Jersey, New York,
North  Carolina,  North Dakota,  Ohio,  Oklahoma,  Oregon,  Pennsylvania,  Rhode
Island, South Carolina,  Tennessee,  Texas, Vermont, Virginia,  Washington, West

                                       20
<PAGE>

Virginia,  and  Wisconsin.  Additionally,  the  Company  holds  CPCNs  (or their
equivalents)  to provide  intrastate  long  distance  services in the  following
states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware,
Florida,  Georgia,  Hawaii, Idaho, Illinois,  Indiana,  Iowa, Kansas,  Kentucky,
Louisiana, Maine, Massachusetts,  Michigan,  Minnesota,  Mississippi,  Missouri,
Montana,  Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina,
North  Dakota,  Ohio,  Oklahoma,  Oregon,  Pennsylvania,   Rhode  Island,  South
Carolina, South Dakota, Tennessee,  Texas, Utah, Vermont, Virginia,  Washington,
West Virginia, Wisconsin and Wyoming.

     Local Government  Authorizations.  Under the Telecommunications  Act, local
authorities  retain  jurisdiction  under  applicable  state law to  control  the
Company's access to municipally owned or controlled rights of way and to require
the Company to obtain  street  opening and  construction  permits to install and
expand its fiber optic network.  In addition,  many  municipalities  require the
Company to obtain licenses or franchises (which generally have terms of 10 to 20
years) and to pay license or  franchise  fees,  often based on a  percentage  of
gross  revenue,  in order to provide  telecommunications  services,  although in
certain states including  California and Colorado,  current state law prescribes
the  amount of such fees.  Certain  municipalities  in  Colorado,  however,  are
continuing to charge franchise fees pending  enforcement by the Colorado courts.
There is no assurance  that certain cities that do not impose fees will not seek
to impose fees,  nor is there any assurance  that,  following the  expiration of
existing franchises,  fees will remain at their current levels. In many markets,
the ILECs have been excused from paying such franchise fees or pay fees that are
materially  lower than those  required  to be paid by the  Company for access to
public  rights  of  way.  However,  under  the  Telecommunications   Act,  while
municipalities  may  still  regulate  use of their  streets  and  rights of way,
municipalities  may  not  prohibit  or  effectively  prohibit  any  entity  from
providing any  telecommunications  services. In addition, the Telecommunications
Act  requires  that  local  governmental  authorities  treat  telecommunications
carriers in a non-discriminatory and competitively neutral manner. If any of the
Company's existing franchise or license agreements are terminated prior to their
expiration  dates or not renewed,  and the Company is forced to remove its fiber
from the streets or abandon its network in place,  such termination could have a
material adverse effect on the Company.

     Federal  Regulation of Microwave and Satellite Radio  Frequencies.  The FCC
continues to regulate  radio  frequency use by both private and common  carriers
under the  Telecommunications  Act.  Unlike common  carriers,  private  carriers
contract with select  customers to provide  services  tailored to the customer's
specific needs. The FCC does not currently regulate private carriers (other than
their use of radio  frequencies)  and has preempted  the states from  regulating
private carriers. The Company offers certain services as a private carrier.

     The Company is required to obtain authorization from the FCC for its use of
radio frequencies to provide satellite and wireless services.  The Company holds
a number of  point-to-point  microwave  radio  licenses that are used to provide
telecommunications  services in  California.  Additionally,  the Company holds a
number of satellite  earth station  licenses in connection with its operation of
satellite-based  networks.  The Company also  provides  maritime  communications
services  pursuant to an experimental  license and a grant of STA. The Company's
experimental  license  has been  renewed  by the FCC on  several  occasions.  On
January 22,  1999,  the  Company  submitted  an  application  for an  additional
two-year  renewal  of the  experimental  license,  which  was due to  expire  in
February 1999.  Under the FCC's  procedures,  the  experimental  license remains

                                       21
<PAGE>

valid pending FCC action on the renewal  application.  The STA was first granted
on January 30, 1997 and  enables the Company to conduct  operations  pursuant to
the STA of the  Company's  application  for a  permanent  license.  The  Company
applied for six-month  extensions of the STA, most recently on January 29, 1999,
and received verbal grants by the FCC of each of the requested  extensions.  The
Company  also filed 32  applications  for  permanent  full-term  FCC licenses to
operate shipboard earth stations in fixed ports. Those applications are pending.
There can be no assurance that the Company will be granted  permanent  licenses,
that the  experimental  license and STA currently being used will continue to be
renewed for future terms or that any license granted by the FCC will not require
substantial payments from the Company.

Employees

     On December 31, 1998, the Company employed a total of 3,415  individuals on
a full time basis. There are 39 employees in the Company's Oregon and Washington
network systems  integration  services offices who are represented by collective
bargaining  agreements.  The collective  bargaining  agreement with certain IBEW
(International  Brotherhood  of  Electrical  Workers)  employees  in Oregon  and
southern  Washington  expires on December 31, 2000.  Additionally,  several IBEW
employees in other areas of Washington are currently in  negotiations  for a new
collective  bargaining  agreement.  The Company believes that its relations with
its employees are good.

ITEM 2.   PROPERTIES

     The  Company's  physical  properties  include  owned and  leased  space for
offices, storage and equipment rooms and collocation sites. Additional space may
be purchased or leased by the Company as networks are expanded. The Company owns
a 30,000  square-foot  building  located in Englewood,  Colorado  which houses a
portion of the  Company's  Telecom  Services  business.  Currently,  the Company
leases approximately  324,000 square feet of office space for operations located
in the Denver  metropolitan area and approximately  846,000 square feet in other
areas of the United States.

     As of December 31, 1998,  the Company's  corporate  headquarters  building,
land and  improvements  were leased by the Company under an operating lease from
an  unrelated  third  party.  The Company has entered into a letter of intent to
purchase the  approximately  265,000 square foot facility  located in Englewood,
Colorado, as well as the other previously leased assets, and expects to complete
the purchase of those assets in early 1999.

ITEM 3.  LEGAL PROCEEDINGS

     On  April 4,  1997,  certain  shareholders  of  Zycom  filed a  shareholder
derivative suit and class action complaint for unspecified damages,  purportedly
on behalf of all of the minority shareholders of Zycom, in the District Court of
Harris County, Texas (Cause No. 97-17777) against the Company, Zycom and certain
of their  subsidiaries.  This complaint  alleges that the Company and certain of
its subsidiaries breached certain duties owed to the plaintiffs.  The plaintiffs
were denied class  certification  by the trial court and this  decision has been
appealed.  Trial has been  tentatively  set for  August  1999.  The  Company  is
vigorously defending the claims. While it is not possible to predict the outcome

                                       22
<PAGE>

of this  litigation,  management  believes  these  proceedings  will  not have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operations or cash flows.

     A putative  class  action  lawsuit  was filed on July 15,  1997 in Superior
Court of  California,  Orange County,  alleging  unfair  business  practices and
related causes of action  against  NETCOM in connection  with its offers of free
trial periods and cancellation procedures and claiming damages of at least $10.0
million.  Although the case is plead as a class  action,  the class has not been
certified.  The  parties  are  currently  conducting  discovery.  Trial has been
tentatively set for June 1999. The Company believes it has meritorious  defenses
to such claims and intends to vigorously defend the action.

     The Company is a party to certain other  litigation which has arisen in the
ordinary  course  of  business.  In the  opinion  of  management,  the  ultimate
resolution  of these  matters  will not have a  material  adverse  effect on the
Company's financial condition, results of operations or cash flows.

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

     None.


                                       23
<PAGE>


                                     PART II

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

     ICG Common Stock,  $.01 par value per share,  has been quoted on the Nasdaq
National Market  ("Nasdaq") since March 25, 1997 under the symbol "ICGX" and was
previously listed on the American Stock Exchange  ("AMEX"),  from August 5, 1996
to  March  24,  1997  under  the  symbol   "ICG."   Prior  to  August  5,  1996,
Holdings-Canada's  common  shares  had been  listed on the AMEX under the symbol
"ITR" from  January 14, 1993 through  February  28,  1996,  and under the symbol
"ICG" thereafter through August 2, 1996.  Holdings-Canada  Class A Common Shares
(the  "Class A  Shares")  ceased  trading on the AMEX at the close of trading on
August 2, 1996.  The Class A Shares,  which were listed on the  Vancouver  Stock
Exchange  ("VSE")  under the symbol  "IHC.A,"  ceased  trading on the VSE at the
close of trading on March 12, 1997.  During  fiscal 1998,  all of the  remaining
Class A Shares  outstanding  held by third parties were exchanged into shares of
ICG Common Stock.

     The following table sets forth, for the fiscal periods indicated,  the high
and low sales  prices of the ICG Common  Stock as reported  on the AMEX  through
March 24, 1997 and on the Nasdaq from March 25, 1997 through the date  indicated
below.  The VSE reported no trading activity for the Class A Shares from January
1, 1997  through  March 12,  1997,  the date on which the Class A Shares  ceased
trading on the VSE.

                                                    American Stock
                                           Exchange/Nasdaq National Market
                                         --------------------------------------
                                               High                 Low
                                         -----------------    -----------------

Fiscal 1997:
    First Quarter                             $ 18.13              $ 10.38
    Second Quarter                              21.13                 8.63
    Third Quarter                               24.63                17.75
    Fourth Quarter                              28.63                19.75

Fiscal 1998:
    First Quarter                             $ 44.25              $ 24.38
    Second Quarter                              38.88                28.50
    Third Quarter                               36.63                15.50
    Fourth Quarter                              26.56                11.13

Fiscal 1999:
    Through March 29, 1999                    $ 24.13              $ 15.25

     See the cover page of this Annual Report for a recent bid price and related
number of shares  outstanding of ICG Common Stock. On March 29, 1999, there were
281 holders of record.

     The Company has never  declared or paid  dividends  on the ICG Common Stock
and does  not  intend  to pay  cash  dividends  on the ICG  Common  Stock in the

                                       24
<PAGE>

foreseeable  future.  The Company intends to retain future earnings,  if any, to
finance the development and expansion of its business. In addition,  the payment
of any  dividends  on the ICG  Common  Stock is  effectively  prohibited  by the
restrictions  contained in the  Company's  indentures  to the  Company's  senior
indebtedness and in the Second Amended and Restated Articles of Incorporation of
Holdings,  which  prohibits  Holdings  from making any  material  payment to the
Company.  Certain of the Company's debt facilities  contain covenants which also
may restrict the Company's ability to pay cash dividends.

     In April  1998,  ICG  Services  sold  $405.3  million  principal  amount at
maturity ($250.0 million original issue price) of 9 7/8% Notes. Morgan Stanley &
Co.  Incorporated  acted  as  placement  agent  for the  offering  and  received
placement  fees of  approximately  $7.5 million.  In February 1998, ICG Services
sold $490.0 million  principal amount at maturity ($300.6 million original issue
price) of 10% Notes.  Morgan Stanley & Co. Incorporated acted as placement agent
for the offering and received placement fees of approximately $9.0 million.

     In  September  and  October  1997,  ICG  Funding,  LLC, a Delaware  limited
liability  company and wholly owned  subsidiary of the Company ("ICG  Funding"),
completed a private placement of $132.25 million of 6 3/4% Exchangeable  Limited
Liability Company Preferred Securities  Mandatorily Redeemable 2009 (the "6 3/4%
Preferred  Securities").   The  6  3/4%  Preferred  Securities  are  mandatorily
redeemable  November  15,  2009 at the  liquidation  preference  of  $50.00  per
security,  plus accrued and unpaid dividends.  Dividends on the 6 3/4% Preferred
Securities  are  cumulative  at the rate of 6 3/4% per annum and are  payable in
cash through November 15, 2000 and, thereafter,  in cash or shares of ICG Common
Stock  at  the  option  of ICG  Funding.  The 6 3/4%  Preferred  Securities  are
exchangeable,  at the option of the holder, into ICG Common Stock at an exchange
price of $24.025  per share,  subject to  adjustment.  ICG  Funding  may, at its
option,  redeem the 6 3/4% Preferred Securities at any time on or after November
18,  2000.  Prior to that time,  ICG  Funding  may  redeem the 6 3/4%  Preferred
Securities  if the current  market  value of ICG Common Stock equals or exceeds,
for at least  20 days of any  consecutive  30-day  trading  period,  160% of the
exchange  price through  November 15, 1999,  and 150% of the exchange price from
November 16, 1999 through November 15, 2000.  Morgan Stanley & Co.  Incorporated
and Deutsche Morgan Grenfell Inc. acted as placement agents for the offering and
received aggregate placement fees of approximately $4.0 million.

     In March 1997,  Holdings sold $176.0 million  principal  amount at maturity
($99.9 million  original issue price) of 11 5/8% Senior  Discount Notes due 2007
(the "11 5/8%  Notes") and 100,000  shares of 14%  Preferred  Stock  Mandatorily
Redeemable 2008 (the "14% Preferred Stock"),  having a liquidation preference of
$1,000 per share.  These  securities are guaranteed by the Company on a full and
unconditional  basis. Morgan Stanley & Co. Incorporated acted as placement agent
for the offering and received placement fees of approximately $7.5 million.

     In April 1996,  Holdings sold $550.3 million  principal  amount at maturity
($300.0 million  original issue price) of 12 1/2% Senior Discount Notes due 2006
(the "12 1/2% Notes") and 150,000 shares of 14 1/4% Preferred Stock  Mandatorily
Redeemable 2007 (the "14 1/4% Preferred Stock"), having a liquidation preference
of $1,000 per share.  These  securities  are guaranteed by the Company on a full
and unconditional  basis.  Morgan Stanley & Co.  Incorporated acted as placement
agent for the  offering  and  received  placement  fees of  approximately  $16.5
million.

                                       25
<PAGE>

     Each of the foregoing  offerings were exempt from registration  pursuant to
Rule  144A  under  the  Securities  Act.  Sales  were  made  only to  "qualified
institutional  buyers," as defined in Rule 144A under the  Securities  Act,  and
other  institutional  accredited  investors.  The securities sold in each of the
foregoing offerings were subsequently registered under the Securities Act.

     In October 1997,  the Company  issued  687,221  shares of Common Stock (the
"CBG Shares") to certain  shareholders of CBG in connection with the acquisition
of CBG for a purchase price of approximately $16.0 million.  The sale of the CBG
Shares was exempt from  registration  under Section 4(2) of the  Securities  Act
because  the offers and sales were made to a limited  number of  investors  in a
private transaction.  Resale of the CBG Shares was subsequently  registered on a
Form S-3  registration  statement  which was  declared  effective on October 31,
1997.

     In July 1998,  the Company  issued  145,997  shares of ICG Common  Stock in
connection with the acquisition of DataChoice,  valued at  approximately  $32.88
per share on the date of the sale  (the  "DataChoice  Shares").  The sale of the
DataChoice  Shares  was  exempt  from  registration  under  Section  4(2) of the
Securities  Act  because  the offers and sales were made to a limited  number of
investors  in a private  transaction.  The Company is  required to register  the
resale of the DataChoice Shares.

     Also in July 1998, the Company issued 356,318 shares of ICG Common Stock in
connection with the acquisition of NikoNET,  valued at approximately  $30.03 per
share on the date of the sale (the  "NikoNET  Shares").  The sale of the NikoNET
Shares was exempt from  registration  under Section 4 (2) of the  Securities Act
because  the offer and sales  were made to a limited  number of  investors  in a
private transaction.

ITEM 6.  SELECTED FINANCIAL DATA 

     The selected financial data for fiscal years ended September 30, 1994, 1995
and 1996,  the three months ended  December 31, 1996, and the fiscal years ended
December  31,  1997  and 1998 has been  derived  from the  audited  consolidated
financial  statements of the Company.  The information set forth below should be
read in conjunction with the Company's audited consolidated financial statements
and the notes thereto  included  elsewhere in this Annual Report.  The Company's
development and expansion activities, including acquisitions, during the periods
shown below materially  affect the comparability of this data from one period to
another. The Company's  consolidated financial statements reflect the operations
of Zycom and NETCOM as discontinued for all periods presented. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


                                       26
<PAGE>

<TABLE>
<CAPTION>


                                                                                  Three Months
                                                                                     Ended              Fiscal Years Ended
                                         Fiscal Years Ended September 30,         December 31,             December 31,
                                      ---------------------------------------                       ---------------------------
                                         1994          1995          1996             1996            1997            1998
                                      -----------   -----------    ----------    ---------------    ----------    -------------
                                                              (in thousands, except per share amounts)
<S>                                   <C>             <C>           <C>              <C>            <C>            <C>    
Statement of Operations Data:
Revenue (1)                           $   59,112      110,188        154,143          49,477          245,022       397,619
                                          
Operating costs and expenses:
  Operating costs                         38,165       77,944        121,983          42,485          217,927       254,689
  Selling, general and               
    administrative expenses               28,015       61,305         75,646          23,868          148,254       183,683
  Depreciation and amortization            8,198       16,350         30,030           9,691           56,501       101,545
  Provision for impairment of        
    long-lived assets                          -        7,000          9,994               -            9,261             -
  Net loss (gain) on disposal        
    of long-lived assets                       -          241          5,128            (772)             243         4,055
  Restructuring costs                          -            -              -               -                -         2,339
                                      -----------   -----------    ----------    ---------------    ----------    -------------
    Total operating costs and        
      expenses                            74,378      162,840        242,781          75,272          432,186       546,311
                                     
    Operating loss                       (15,266)     (52,652)       (88,638)        (25,795)        (187,164)     (148,692)
                                    
Interest expense                          (8,481)     (24,389)       (85,714)        (24,454)        (117,520)     (170,127)
Other income, net                            925        3,141         15,585           5,898           21,549        23,762
                                      -----------   -----------    ----------    ---------------    ----------    -------------
Loss from continuing operations 
  before income taxes, preferred 
  dividends, share of losses 
  and cumulative effect of change 
  in accounting                          (22,822)     (73,900)      (158,767)        (44,351)        (283,135)     (295,057)
Income tax benefit (expense)                   -            -          5,131               -                -           (90)
                                      -----------   -----------    ----------    ---------------    ----------    -------------
Loss from continuing operations 
  before preferred dividends, 
  share of losses and cumulative 
  effect of change in accounting         (22,822)     (73,900)      (153,636)        (44,351)        (283,135)     (295,147)
Accretion and preferred dividends 
  on preferred securities of 
  subsidiaries, net of minority
  interest in share of losses                435       (1,636)       (25,409)         (4,988)         (38,117)      (55,183)
Share of losses of joint venture          (1,481)        (741)        (1,814)              -                -             -
                                      -----------   -----------    ----------    ---------------    ----------    -------------
Loss from continuing operations 
  before cumulative effect of 
  change in accounting                   (23,868)     (76,277)      (180,859)        (49,339)        (321,252)     (350,330)
Loss from discontinued operations       (100,000)     (14,435)       (44,060)        (11,974)         (39,483)      (67,715)
Cumulative effect of change in 
  accounting (1)                               -            -         (3,453)                               -             -
                                      -----------   -----------    ----------    ---------------    ----------    -------------
   Net loss                           $ (123,868)     (90,712)      (228,372)        (61,313)        (360,735)     (418,045)
                                      ===========   ===========    ==========    ===============    ==========    =============
   Loss per share from continuing 
     operations - basic and 
     diluted                          $    (1.17)       (2.48)         (4.90)          (1.18)           (7.56)        (7.75)
                                      ===========   ===========    ==========    ===============    ==========    =============
   Net loss per share - 
     basic and diluted                $    (6.06)       (2.94)       (6.19)          (1.47)             (8.49)      (9.25)
                                      ===========   ===========    ==========    ===============    ==========    =============
   Weighted average number of 
     shares outstanding - basic 
     and diluted (2)                      20,455       30,808         36,875         41,760            42,508        45,194
                                      ===========   ===========    ==========    ===============    ==========    =============

Other Data:
Net cash used by operating 
  activities of continuing 
  operations                              (7,532)     (41,947)       (39,099)        (6,436)         (117,191)     (105,358)
Net cash used by investing 
  activities of continuing 
  operations                             (51,452)     (65,772)      (134,832)       (82,342)         (429,512)     (349,082)
Net cash (used) provided 
  by financing activities 
  of continuing operations               (49,428)     377,772        355,811         (1,886)          308,136       530,915
EBITDA (3)                                (7,068)     (36,302)       (58,608)       (16,104)         (130,663)      (47,147)
EBITDA (before nonrecurring 
  charges) (3)                            (7,068)     (29,061)       (43,486)       (16,876)         (121,159)      (40,753)
Capital expenditures of 
  continuing operations (4)               54,921       82,623        176,935         70,297           268,796       368,946
Capital expenditures of 
  discontinued operations (4)             11,143       49,714         54,364          8,554            18,055        25,981
                                                                                                                    (Continued)
</TABLE>
                                       27
<PAGE>
<TABLE>
<CAPTION>



                                                         At September 30,                          At December 31,
                                             --------------------------------------    -------------------------------------------
                                                1994         1995          1996          1996           1997             1998
                                            -----------  -----------   ------------   ------------  ------------     -------------
                                                                                (in thousands)
<S>                                       <C>               <C>         <C>           <C>            <C>              <C>    
Balance Sheet Data:
Cash, cash equivalents and short-term
  investments available for sale          $    6,025        269,404       457,388       391,891        230,850          262,831
Net current assets (liabilities) of
  discontinued operations (5)                 15,551        131,571        54,226        54,481         38,331          (23,272)
Working capital                                6,988        381,006       499,810       415,247        263,674          294,934
Property and equipment, net                  118,875        201,038       334,646       402,251        631,454          934,134
Net non-current assets of discontinued
  operations (5)                              12,413         59,936        97,561        97,425         76,577           54,243
Total assets                                 229,955        767,072     1,081,896     1,086,734      1,217,440        1,615,425
Current portion of long-term debt and
  capital lease obligations                   23,118         23,487         8,282        25,500          7,421            5,132
Long-term debt and capital lease
  obligations, less current portion           97,811        405,535       739,827       761,504        957,507        1,662,357
Redeemable preferred securities of
  subsidiaries                                     -         24,336       153,318       159,120        420,171          466,352
Common stock and additional paid-in 
  capital                                    129,483        420,516       504,851       508,182        534,290          578,404
Accumulated deficit                          (61,737)      (152,487)     (380,859)     (430,682)      (791,417)      (1,209,462)
Stockholders' equity (deficit)                67,746        268,001       125,203        78,711       (256,983)        (631,177)
</TABLE>

(1)  During  fiscal  1996,  the  Company  changed its method of  accounting  for
     long-term  telecom services  contracts to recognize revenue as services are
     provided.  Other than the cumulative  effect of adopting this new method of
     accounting,  the  effect  of this  change  in  accounting  for the  periods
     presented was not significant. See "Management's Discussion and Analysis of
     Financial Condition and Results of Operations - Accounting Change."

(2)  Weighted  average  number of shares  outstanding  for fiscal years 1994 and
     1995 represents Holdings-Canada common shares outstanding. Weighted average
     number of shares  outstanding  for  fiscal  1996,  the three  months  ended
     December  31,  1996,  and fiscal 1997 and 1998  represents  Holdings-Canada
     common shares  outstanding for the period October 1, 1995 through August 2,
     1996, and represents ICG Common Stock and Class A Shares (not owned by ICG)
     outstanding  for the periods  subsequent  to August 5, 1996.  During fiscal
     1998, all of the remaining Class A Shares outstanding held by third parties
     were exchanged into shares of ICG Common Stock.

(3)  EBITDA  consists  of  earnings  (loss) from  continuing  operations  before
     interest, income taxes,  depreciation and amortization,  other expense, net
     and  accretion  and   preferred   dividends  on  preferred   securities  of
     subsidiaries,  net of  minority  interest  in share of  losses,  or simply,
     operating  loss  plus   depreciation  and   amortization.   EBITDA  (before
     nonrecurring charges) represents EBITDA before certain nonrecurring charges
     such as the net loss (gain) on disposal of long-lived assets, provision for
     impairment of long-lived assets and restructuring  costs. EBITDA and EBITDA
     (before  nonrecurring  charges)  are  provided  because  they are  measures
     commonly used in the telecommunications industry. EBITDA and EBITDA (before
     nonrecurring  charges)  are  presented to enhance an  understanding  of the
     Company's operating results and are not intended to represent cash flows or
     results of operations  in accordance  with  generally  accepted  accounting
     principles  ("GAAP") for the periods  indicated.  EBITDA and EBITDA (before
     nonrecurring   charges)  are  not  measurements  under  GAAP  and  are  not
     necessarily  comparable with similarly  titled measures of other companies.
     Net cash  flows from  operating,  investing  and  financing  activities  of

                                       28
<PAGE>

     continuing  operations as determined using GAAP are also presented in Other
     Data.

(4)  Capital  expenditures  includes  assets  acquired  under capital leases and
     through  the  issuance  of debt  or  warrants  and  excludes  payments  for
     construction of the Company's corporate headquarters.  Capital expenditures
     of discontinued  operations includes the capital  expenditures of Zycom and
     NETCOM combined for all periods presented.

(5)  Net non-current  assets of  discontinued  operations and net current assets
     (liabilities)  of  discontinued   operations   represents  the  assets  and
     liabilities of Zycom and NETCOM combined for all periods presented.


                                       29
<PAGE>


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

     The following discussion includes certain forward-looking  statements which
are affected by important factors  including,  but not limited to, dependence on
increased traffic on the Company's facilities,  the successful implementation of
the Company's strategy of offering an integrated  telecommunications  package of
local, long distance, enhanced telephony and wholesale and retail data services,
continued  development of the Company's  network  infrastructure  and actions of
competitors and regulatory authorities that could cause actual results to differ
materially from the  forward-looking  statements.  The results for the 12 months
ended  December 31, 1996 and for fiscal 1997 and 1998 have been derived from the
Company's audited  consolidated  financial  statements included elsewhere herein
and the Company's unaudited  consolidated  financial  statements included in the
Company's  Forms 10-Q filed with the  Securities  and Exchange  Commission.  The
Company's  consolidated financial statements reflect the operations of Zycom and
NETCOM as discontinued for all periods presented. The Company changed its fiscal
year end to December 31 from September 30, effective January 1, 1997. All dollar
amounts are in U.S. dollars.

Company Overview

     The  Company is one of the  nation's  leading  competitive  ICPs,  based on
estimates of the industry's 1998 revenue. ICPs seek to provide an alternative to
ILECs, long distance carriers and other  communications  service providers for a
full  range  of   communications   services  in  the  increasingly   deregulated
telecommunications  industry.  The Company's Telecom Services  primarily include
its CLEC  operations,  in which the Company  operates fiber networks in regional
clusters covering major metropolitan statistical areas in California,  Colorado,
Ohio, the Southeast and Texas, offering local, long distance,  data and enhanced
telephony  services to business  end users and ISPs.  Additionally,  in February
1999, the Company began providing wholesale network services over its nationwide
data  network.  The  Company  also  provides  a wide  range of  network  systems
integration  services  and  maritime and  international  satellite  transmission
services.  Network  Services  consists of  information  technology  services and
selected  networking  products,   focusing  on  network  design,   installation,
maintenance and support.  Satellite  Services  consists of satellite voice, data
and video services  provided to major cruise lines,  the U.S. Navy, the offshore
oil and gas industry and ICPs. As a leading  participant in the rapidly  growing
competitive  local  telecommunications  industry,  the Company  has  experienced
significant  growth,  with total revenue  increasing from  approximately  $154.1
million for fiscal 1996 to  approximately  $397.6  million for fiscal 1998.  The
Company's  rapid growth is the result of the initial  installation,  acquisition
and  subsequent  expansion of its fiber optic  networks and the expansion of its
communications service offerings.

     The Telecommunications Act and pro-competitive state regulatory initiatives
have substantially changed the telecommunications  regulatory environment in the
United  States.  Under the  Telecommunications  Act, the Company is permitted to
offer all interstate and intrastate  telephone services,  including  competitive
local dial tone. In early 1997,  the Company  began  marketing and selling local
dial tone services in major metropolitan areas in California, Colorado, Ohio and
the Southeast and, in December 1998, began offering services through an acquired
business.  During  fiscal 1997 and 1998,  the Company  sold  178,470 and 206,458

                                       30
<PAGE>

local access lines, respectively, net of cancellations, of which 354,482 were in
service at December 31, 1998. In addition, the Company's regional fiber networks
have grown from 2,143 fiber route miles at the end of fiscal 1996 to 4,255 fiber
route miles at December 31, 1998.  The Company had 29  operating  high  capacity
digital voice switches and 16 data communications switches at December 31, 1998,
and plans to install additional switches as demand warrants.  As a complement to
its local exchange  services  offered to business end users, the Company markets
bundled service offerings provided over its regional fiber network which include
long  distance,   enhanced   telecommunications   services  and  data  services.
Additionally,  the Company owns and operates a nationwide  data network with 236
POPs over which the Company recently began providing  wholesale  Internet access
and  enhanced  network  services  to  MindSpring  and  intends to offer  similar
services to other ISPs and telecommunications providers in the future.

     The  Company  will  continue to expand its  network  through  construction,
leased  facilities,  strategic  alliances  and  mergers  and  acquisitions.  For
example,  on  December  31,  1998,  the Company  purchased  from CSW 100% of the
partnership interests in ChoiceCom, a strategic alliance with CSW formed for the
purpose of  developing  and  marketing  telecommunications  services  in certain
cities in Texas.  ChoiceCom  is based in Austin,  Texas and  currently  provides
local exchange and long distance  services in Austin,  Corpus  Christi,  Dallas,
Houston,  and San Antonio,  Texas. For fiscal 1997 and 1998,  ChoiceCom reported
revenue of $0.3  million  and $5.8  million,  respectively,  and  EBITDA  losses
(before   nonrecurring   charges)  of  $(5.5)   million  and  $(13.6)   million,
respectively.  Additionally,  ChoiceCom has five operating high capacity digital
voice switches and two data communications  switches as of December 31, 1998 and
has 19,569 access lines in service,  including  15,282  access lines  previously
sold by ICG on behalf of ChoiceCom.

     To better focus its efforts on its core Telecom  Services  operations,  the
Company  progressed  toward the  disposal  of certain  assets  which  management
believes do not  complement  its  overall  business  strategy.  On August 12 and
November 18, 1998,  the Company  completed the sales of the capital stock of MCN
and Nova-Net,  respectively,  two wholly owned subsidiaries within the Company's
Satellite  Services  operations.  The results of operations of MCN and Nova-Net,
which are not  significant  to the  Company's  consolidated  results,  have been
included in the Company's consolidated results of operations through the closing
date of each  sale.  Due  primarily  to the  loss  of a  major  customer,  which
generated a significant  obligation  under a volume discount  agreement with its
call  transport  provider,  the board of directors  of Zycom  approved a plan on
August 25, 1998 to wind down and ultimately  discontinue Zycom's operations.  On
October 22, 1998,  Zycom completed the transfer of all customer traffic to other
providers  and on  January  4,  1999,  the  Company  completed  the  sale of the
remainder of Zycom's operating assets to an unrelated third party. Additionally,
effective  November 3, 1998, the Company's board of directors adopted the formal
plan to dispose of the  operations of NETCOM.  On February 17, 1999, the Company
sold certain of the operating assets and liabilities of NETCOM to MindSpring for
total proceeds of $245.0 million, and on March 16, 1999, the Company sold all of
the capital stock of NETCOM's international  operations in Canada and the United
Kingdom to other  unrelated  third parties for total  proceeds of  approximately
$41.1 million.  Since the Company expects to record a gain on the disposition of
NETCOM,  the  Company  has  deferred  the net  operating  losses of NETCOM  from
November 3, 1998 through December 31, 1998 of approximately  $10.8 million.  The
Company  expects  to  record  a  combined  gain on the  NETCOM  transactions  of
approximately $200 million,  including the recognition of the deferred losses of
NETCOM from  November 3, 1998  through the sale dates and net of income taxes of
                                       31
<PAGE>


approximately $6.5 million,  during the three months ended March 31, 1999. Since
the operations sold were acquired by the Company in a transaction  accounted for
as a pooling of interests, the gain on the NETCOM transaction will be classified
in the Company's  consolidated statement of operations as an extraordinary item.
For fiscal 1996, 1997 and 1998,  Zycom and NETCOM combined  reported  revenue of
$135.4  million,  $189.0 million and $181.6  million,  respectively,  and EBITDA
losses (before  nonrecurring  charges) of $(30.4)  million,  $(12.1) million and
$(18.0) million,  respectively.  The Company's consolidated financial statements
reflect  the  operations  of Zycom and NETCOM as  discontinued  for all  periods
presented.  The Company will from time to time  evaluate all of its assets as to
their core need and,  based on such analysis,  may sell or otherwise  dispose of
assets which do not complement its overall business strategy.

     In conjunction  with the sale to  MindSpring,  the legal name of the NETCOM
subsidiary was changed to ICG PST, Inc.  ("PST").  PST has retained the domestic
Internet backbone assets formerly owned by NETCOM which include 236 POPs serving
approximately 700 cities nationwide. PST intends to utilize the retained network
operating  assets to provide  wholesale  Internet  access and  enhanced  network
services  to  MindSpring  and other ISPs and  telecommunications  providers.  On
February 17, 1999, the Company  entered into an agreement to lease to MindSpring
for a one-year  period the capacity of certain  network  operating  assets for a
minimum of $27.0 million,  although  subject to increase  dependent upon network
usage.  MindSpring  will utilize the capacity to provide  Internet access to the
dial-up services  customers  formerly owned by NETCOM. In addition,  the Company
will receive for a one-year period 50% of the gross revenue earned by MindSpring
from the dedicated access customers formerly owned by NETCOM.

     In August 1998, the Company began offering enhanced  telephony services via
IP technology.  The Company  currently offers these services in 230 major cities
in the United  States,  covering more than 90% of the  commercial  long distance
market.  The Company carries the IP traffic over its nationwide data network and
terminates a large portion of the traffic via its own POPs, thereby  eliminating
terminating  charges from the use of other carriers' network  facilities.  Calls
that cannot be terminated over the Company's own facilities are billed at higher
per minute  rates to  compensate  for the  charges  associated  with using other
carriers'  facilities.  The Company  currently does not generate any significant
revenue from this service.

     In  December  1998,  the  Company  announced  its plans to offer  three new
network  services  (RAS,  EOS and DSL), to be available  beginning in 1999.  RAS
allows the Company to provide  modem access at its own switch  location,  rather
than  requiring  ISPs to deploy modems  physically  at each of their POPs.  This
service will enable the Company to act as an aggregator  for ISP traffic,  while
limiting the ISP's capital deployment.  Through its strategic  relationship with
Lucent,  the Company is currently  retrofitting all of its Lucent-5ESS  switches
with the new Lucent  product  that allows for RAS  functionality.  This  service
eliminates  the need for ISPs to separately  purchase  modems and shifts network
management responsibilities to the Company. The Company plans to be the first to
market RAS using  Lucent's  modem  technology  and expects  the service  will be
available  to  customers  in the  second  quarter  of  1999.  Through  the  same
technology  that  allows it to  provide  RAS,  the  Company  plans to offer EOS,
enabling regional or local ISPs to expand their  geographical  footprint outside
their current physical locations by carrying the ISP's out-of-region  traffic on

                                       32
<PAGE>

the Company's own nationwide data network. The Company will initially offer this
service within its CLEC regional  clusters during the first quarter of 1999, and
plans to expand EOS  offerings  to other areas as demand  warrants.  Through DSL
technology,  the Company plans to provide high-speed data transmission  services
primarily  to  business  end users  and,  on a  wholesale  basis,  to ISPs.  DSL
technology  utilizes the existing  ILEC twisted  copper pair  connection  to the
customer,  giving the customer significantly greater bandwidth, and consequently
speed, when connecting to the Internet. The Company expects to offer DSL in over
400 central  offices by the end of 1999 through  alliances with other  companies
focusing on DSL service.  For example, on February 18, 1999, the Company entered
into a letter of intent with  NorthPoint  which,  if the agreement is finalized,
will designate NorthPoint as the Company's preferred DSL provider for a two-year
period and the Company will purchase up to 75,000 DSL lines from NorthPoint over
the two-year  term.  This  alliance  will enable the Company to  accelerate  the
expansion of its DSL service  offerings  and allow  NorthPoint to gain access to
the Company's  collocation  facilities in markets where NorthPoint currently has
limited  or no  operations.  If the  agreement  is  finalized,  NorthPoint  will
provision  and manage  all of the  Company's  DSL  services  offered  under this
agreement.  The  Company  expects  to begin  offering  DSL  services  under this
agreement in the second  quarter of 1999.  The Company is not presently  able to
determine the impact that the offerings of RAS, EOS and DSL will have on revenue
or EBITDA in 1999, 2000 or future years.  These service  offerings are dependent
upon demand from ISPs and,  while the Company  believes  this market sector will
benefit from these new services,  there is no assurance that the Company will be
able to successfully deploy and market these services efficiently, or at all, or
obtain and retain new customers in a competitive marketplace.

     In conjunction with the increase in its service offerings,  the Company has
and will  continue  to need to spend  significant  amounts on sales,  marketing,
customer  service,  engineering and support personnel prior to the generation of
corresponding  revenue.   EBITDA,  EBITDA  (before  nonrecurring  charges),  and
operating  and net losses have  generally  increased  immediately  preceding and
during  periods of relatively  rapid network  expansion and  development  of new
services.  Since  the  quarter  ended  June  30,  1996,  EBITDA  losses  (before
nonrecurring  charges) have improved for each consecutive  quarter,  through and
including  the quarter  ended  December 31, 1998 for which the Company  reported
positive EBITDA (before  nonrecurring  charges) of $4.1 million.  As the Company
provides a greater volume of higher margin services,  principally local exchange
services, carries more traffic on its own facilities rather than ILEC facilities
and obtains  the right to use  unbundled  ILEC  facilities,  while  experiencing
decelerating   increases   in   personnel   and  other   selling,   general  and
administrative  expenses supporting its operations,  any or all of which may not
occur, the Company  anticipates that EBITDA performance will continue to improve
in the near term.

Results of Operations

     The following  table provides a breakdown of revenue,  operating  costs and
selling,  general and  administrative  expenses  for Telecom  Services,  Network
Services and Satellite Services and certain other financial data for the Company
for the  periods  indicated.  The table also shows  certain  revenue,  expenses,
operating loss and EBITDA as a percentage of the Company's total revenue.


                                       33
<PAGE>
<TABLE>
<CAPTION>
                                     
                                     12 Months Ended              Fiscal Years Ended December 31,
                                        December 31,      ----------------------------------------------
                                           1996 (1)                 1997                     1998
                                   --------------------   ---------------------   ----------------------    
                                        $         %            $           %            $           %
                                   -----------  -------   ------------   ------   ------------   -------    
                                                            (Dollars in thousands)
<S>                                <C>           <C>       <C>            <C>       <C>            <C>
Statement of Operations Data:
Revenue:
  Telecom services                 $  87,379      52        149,358        61        303,317        76
  Network services                    60,380      36         65,678        27         53,851        14
  Satellite services                  21,317      12         29,986        12         40,451        10
                                   -----------  -------   ------------   ------   ------------   -------    
    Total revenue                    169,076     100        245,022       100        397,619       100   
Operating costs:
  Telecom services                    81,110                147,338                  187,260        
  Network services                    46,545                 53,911                   47,321
  Satellite services                  10,241                 16,678                   20,108
                                   -----------  -------   ------------   ------   ------------   -------    
    Total operating costs            137,896      82        217,927        89        254,689        64   
Selling, general and
  administrative:              
  Telecom services                    32,633                 94,037                  137,207
  Network services                    15,841                 13,136                   12,275
  Satellite services                  13,152                 13,234                   13,255
  Corporate services (2)              19,640                 27,811                   20,946 
                                   -----------  -------   ------------   ------   ------------   -------    
    Total selling, general and 
      administrative                  81,266      48        148,254        60        183,683        46            
Depreciation and amortization         34,888      20         56,501        23        101,545        25  
Provision for impairment of 
  long-lived assets                    9,994       6          9,261         4              -         -    
Net loss on disposal of 
  long-lived assets                    3,326       2            243         -          4,055         1    
Restructuring costs                        -       -              -         -          2,339         1 
                                   -----------  -------   ------------   ------   ------------   -------    
  Operating loss                     (98,294)    (58)      (187,124)      (76)      (148,692)      (37)

Other Data:
Net cash used by operating
  activities of continuing
  operations                         (40,829)              (117,191)                (105,358) 
Net cash used by investing 
  activities of continuing
  operations                        (191,932)              (429,512)                (349,082)  
Net cash provided by financing
  activities of continuing
  operations                         362,338                308,136                  530,915
EBITDA (3)                           (63,406)              (130,663)                 (47,147) 
EBITDA (before nonrecurring 
  charges) (3)                       (50,086)    (38)      (121,159)      (53)       (40,753)      (12)  
Capital expenditures of 
  continuing operations              220,350     (30)       268,796       (49)       368,946       (10)      
Capital expenditures of 
  discontinued operations             49,770                 18,055                   25,981  
</TABLE>

(1)  The Company  changed its fiscal year end to December 31 from  September 30,
     effective January 1, 1997. The results for the 12 months ended December 31,
     1996 have been derived from the Company's unaudited  consolidated financial
     statements  included in the Company's  Forms 10-Q filed with the Securities
     and  Exchange  Commission  and  reclassified  to  present  such  periods in
     conformity with the fiscal 1998 presentation.

(2)  Corporate   Services   consists  of  the   operating   activities   of  ICG
     Communications, Inc., ICG Funding, LLC, ICG Canadian Acquisition, Inc., ICG
     Holdings  (Canada) Co., ICG  Holdings,  Inc.,  ICG  Services,  Inc. and ICG
     Equipment, Inc., which primarily hold securities and provide certain legal,
     accounting and finance, personnel and other administrative support services
     to the business units.

                                       34
<PAGE>

(3)  See note 3 under  "Selected  Financial  Data" for the definitions of EBITDA
     and EBITDA (before nonrecurring charges).

Fiscal 1998 Compared to Fiscal 1997

     Revenue.  Total revenue for fiscal 1998 increased  $152.6 million,  or 62%,
from fiscal 1997.  Telecom Services revenue increased 103% to $303.3 million due
to an increase in revenue from local  services  (dial tone),  long  distance and
special access services, offset in part by a decline in average unit pricing and
in wholesale  switched services  revenue.  Local services revenue increased from
$21.3  million  (14% of Telecom  Services  revenue)  for  fiscal  1997 to $157.1
million (52% of Telecom Services  revenue) for fiscal 1998,  primarily due to an
increase in local  access  lines from  141,035  lines in service at December 31,
1997 to 354,482 lines in service at December 31, 1998. In addition, local access
revenue  includes  revenue of  approximately  $4.9 million and $58.3 million for
fiscal 1997 and 1998, respectively,  for reciprocal compensation relating to the
transport  and  termination  of local  traffic to ISPs from  customers  of ILECs
pursuant to various interconnection agreements.  These agreements are subject to
renegotiation over the next several months. While management believes that these
agreements  will be replaced by  agreements  offering  the Company  some form of
compensation for ISP traffic, the renegotiated  agreements may reflect rates for
reciprocal  compensation  which are  lower  than the  rates  under  the  current
contracts. See "Liquidity -Transport and Termination Charges." Revenue from long
distance  services  generated  $22.7  million  for fiscal  1998,  compared to no
reported  revenue for fiscal 1997.  Special access revenue  increased from $55.4
million (37% of Telecom Services  revenue) for fiscal 1997 to $74.5 million (25%
of  Telecom  Services  revenue)  for 1998.  Switched  access  (terminating  long
distance)  revenue  decreased to  approximately  $49.0  million for fiscal 1998,
compared to $72.7 million for fiscal 1997.  The Company has raised prices on its
wholesale  switched  services  product  in  order  to  improve  margins  and has
de-emphasized  its  wholesale  switched  services to focus on its higher  margin
products.  Revenue from data  services  did not  generate a material  portion of
total revenue during either period.

     Network  Services  revenue  decreased  18% to $53.9 million for fiscal 1998
compared to $65.7  million for fiscal  1997.  The  decrease in Network  Services
revenue is partially due to the decline in network integration services projects
from new and  existing  customers  during  fiscal  1998 and  project  delays  by
customers  from 1998 into 1999,  offset  slightly  by  increases  in  integrated
cabling services revenue. In addition, Network Services provides certain cabling
and other  service  installation  on  behalf of  Telecom  Services,  as  Telecom
Services  provisions  new customers  and services.  Due to the growth of Telecom
Services during fiscal 1998,  Network  Services has been and will continue to be
required to spend  increasing  management  attention  and resources on providing
cabling and other service  installation for Telecom  Services.  Amounts received
from Telecom Services for work performed is eliminated in consolidation.

     Satellite  Services  revenue  increased  $10.5  million,  or 35%,  to $40.5
million for fiscal 1998.  This increase is due to the  operations of MTN,  which
comprised  $30.0 million of total  Satellite  Services  revenue for fiscal 1998,
compared to $19.0 million for fiscal 1997, offset by decreases in revenue of MCN
and Nova-Net,  which the Company sold in August and November 1998, respectively.

                                       35
<PAGE>

MTN's C-band  installations,  which  include both  military and cruise  vessels,
increased  from 57 at December 31, 1997 to 76 at December 31, 1998,  an increase
of 33%.

     Operating  costs.  Total  operating  costs for fiscal 1998 increased  $36.8
million,  or 17%, from fiscal 1997.  Telecom Services  operating costs increased
from $147.3 million,  or 99% of Telecom  Services  revenue,  for fiscal 1997, to
$187.3 million,  or 62% of Telecom Services  revenue,  for fiscal 1998.  Telecom
Services  operating  costs  consist of  payments to ILECs for the use of network
facilities to support special and switched access  services,  network  operating
costs,  right of way fees and other costs.  The  increase in operating  costs in
absolute  dollars is attributable to the increase in volume of local and special
access  services  and the  addition of network  operating  costs  which  include
engineering and operations  personnel dedicated to the development and launch of
local  exchange  services.  The decrease in operating  costs as a percentage  of
Telecom  Services  revenue is due primarily to a greater volume of higher margin
services,  principally local exchange services.  The Company expects the Telecom
Services ratio of operating costs to revenue will further improve as the Company
provides a greater margin of higher volume services,  principally local exchange
services,  carries  more  traffic  on its own  facilities  rather  than the ILEC
facilities  and  obtains  the  right  to  use  unbundled   ILEC   facilities  on
satisfactory terms, any or all of which may not occur.

     Network  Services  operating  costs  decreased  12% to  $47.3  million  and
increased as a percentage  of revenue from 82% for fiscal 1997 to 88% for fiscal
1998. The decrease in operating  costs in absolute  dollars is due to a decrease
in general  business  volume from  external  customers  between the  comparative
periods.  Network Services  operating costs increased as a percentage of Network
Services  revenue due to cost overruns and the decline in higher margin  network
integration services projects during fiscal 1998.

     Satellite  Services  operating  costs increased to $20.1 million for fiscal
1998, from $16.7 million for fiscal 1997. Satellite Services operating costs, as
a percentage of Satellite  Services revenue,  decreased from 56% for fiscal 1997
to 50% for fiscal 1998,  due to the increase in revenue of MTN,  which  provides
relatively  higher  margins than other  maritime  services.  Satellite  Services
operating  costs consist  primarily of  transponder  lease costs and the cost of
equipment sold.

     Selling,  general and administrative  expenses.  Total selling, general and
administrative  ("SG&A")  expenses for fiscal 1998 increased  $35.4 million,  or
24%,  compared to fiscal 1997,  and  decreased as a percentage  of total revenue
from 61% for fiscal 1997 to 46% for fiscal 1998.  Telecom  Services SG&A expense
increased from $94.1 million,  or 63% of Telecom  Services  revenue,  for fiscal
1997, to $137.2 million,  or 45% of Telecom Services  revenue,  for fiscal 1998.
The  increase in absolute  dollars is  principally  due to the  continued  rapid
expansion of the Company's  Telecom  Services  networks and related  significant
additions to the Company's  management  information  systems,  customer service,
marketing and sales staffs dedicated to the expansion of the Company's  networks
and implementation of the Company's  expanded services  strategy,  primarily the
development of local and long distance telephone services. As the Company begins
to benefit from the revenue  generated  by newly  developed  services  requiring
substantial  administrative,  selling  and  marketing  expense  prior to initial
service  offerings,  Telecom Services has experienced and expects to continue to
experience declining SG&A expenses as a percentage of Telecom Services revenue.

                                       36
<PAGE>

     Network  Services SG&A expense  decreased $0.9 million to $12.3 million for
fiscal 1998  compared  to fiscal  1997.  This  decrease  is  primarily  due to a
reduction in personnel as a result of the  decentralization  of Network Services
during fiscal 1998. In addition,  certain  long-term  operating  leases on field
offices expired during fiscal 1998.

     Satellite  Services SG&A expense was $13.2 million for both fiscal 1997 and
1998. SG&A expense decreased as a percentage of Satellite  Services revenue from
44% for  fiscal  1997 to 33% for fiscal  1998 due to the growth of MTN  revenue,
without  proportional  increases  in SG&A  expenses,  and the  sales  of MCN and
Nova-Net in August and November, 1998,  respectively,  which companies generated
higher SG&A expenses in relation to revenue than MTN.

     Corporate Services SG&A expense decreased $6.9 million to $20.9 million for
fiscal  1998  compared  to $27.8  million  for fiscal  1997.  This  decrease  is
primarily due to a change in the allocation of payroll costs associated with the
Company's information technology and human resources personnel, which costs were
allocated  to  Corporate  Services  for fiscal 1997 and to Telecom  Services for
fiscal 1998.

     Depreciation and  amortization.  Depreciation  and  amortization  increased
$45.0 million, or 80%, for fiscal 1998 compared to fiscal 1997, primarily due to
increased   investment  in  depreciable  assets  resulting  from  the  continued
expansion of the  Company's  networks and  services.  Additionally,  the Company
experienced increased amortization arising from goodwill recorded in conjunction
with the purchases of NikoNET and  DataChoice  during fiscal 1998 as well as the
full year impact of goodwill  amortization  from the purchase of  Communications
Buying Group,  Inc. in October 1997. The Company expects that  depreciation  and
amortization will continue to increase as the Company continues to invest in the
expansion  and upgrade of its regional  fiber and  nationwide  data networks and
begins  amortization  of the goodwill  arising from the purchase of ChoiceCom on
December 31, 1998.

     Provision for impairment of long-lived assets.  For fiscal 1997,  provision
for  impairment of long-lived  assets  includes the  write-down of the Company's
investment in StarCom  International Optics Corporation,  Inc. ("StarCom") ($5.2
million), MCN ($2.9 million) and Nova-Net ($0.9 million) as well as a write-down
of other operating assets ($0.3 million). Provision for impairment of long-lived
assets was recorded based on management's  estimate of the net realizable  value
of the Company's  assets at December 31, 1997. No such  provision for impairment
was recorded for fiscal 1998.

     Net  loss on  disposal  of  long-lived  assets.  Net  loss on  disposal  of
long-lived  assets  increased  from $0.2 million for fiscal 1997 to $4.1 million
for fiscal  1998.  Net loss on  disposal  of  long-lived  assets for fiscal 1997
primarily relates to losses recorded on the disposal of the Company's investment
in its Melbourne  network.  For fiscal 1998,  net loss on disposal of long-lived
assets relates to the write-off of certain  installation  costs of  disconnected
special  access  customers  ($0.5  million),  the  write-off  of  certain  costs
associated  with an abandoned  operating  support system project ($0.8 million),
general disposal of furniture,  fixtures and office equipment ($3.5 million) and
the loss on the sale of Nova-Net ($0.2 million),  offset by the gain on the sale
of MCN ($0.9 million).

                                       37
<PAGE>

     Restructuring  costs. For fiscal 1998,  restructuring costs of $2.3 million
include  $0.2  million  in costs,  primarily  severance  costs,  related  to the
facility  closure of a subsidiary of NikoNET,  $0.6 million in costs,  primarily
severance  costs,  related  to the  decentralization  of the  Company's  Network
Services  subsidiary and $1.5 million related to the combined  restructuring  of
Telecom  Services  and  Corporate  Services,  designed to support the  Company's
increased  strategic  focus on its ISP customer  base, as well as to improve the
efficiency  of  operations  and general and  administrative  support  functions.
Restructuring costs under this plan include severance and other employee benefit
costs, of which $0.9 million has been paid as of December 31, 1998.

     Interest  expense.  Interest expense  increased $52.6 million,  from $117.5
million for fiscal  1997,  to $170.1  million for fiscal  1998,  which  includes
$158.2 million of non-cash interest. This increase was primarily attributable to
an increase in long-term  debt,  primarily the 10% Notes issued in February 1998
and the 9 7/8% Notes issued in April 1998. In addition,  the Company's  interest
expense increased,  and will continue to increase,  because the principal amount
of its indebtedness  increases until the Company's senior indebtedness begins to
pay interest in cash.

     Interest income. Interest income increased $6.5 million, from $21.9 million
for fiscal 1997 to $28.4 million for fiscal 1998.  The increase is  attributable
to the increase in cash and invested  cash  balances  from the proceeds from the
issuances of the 10% Notes in February 1998 and the 9 7/8% Notes in April 1998.

     Other  expense,  net.  Other  expense,  net increased from $0.4 million net
expense for fiscal 1997 to $4.7  million  net  expense  for fiscal  1998.  Other
expense, net recorded in fiscal 1997 consists primarily of litigation settlement
costs and the loss on disposal of non-operating  assets.  For fiscal 1998, other
expense,  net primarily  includes  $3.2 million in settlement  costs paid to the
former  minority  shareholders  and  warrantholders  of  MTN,  $1.1  million  in
litigation settlement costs and a write-off of notes receivable of $0.4 million.

     Income tax  expense.  Income tax  expense of $0.1  million  for fiscal 1998
relates to current state income taxes of NikoNET.

     Accretion and preferred dividends on preferred  securities of subsidiaries,
net of minority interest in share of losses.  Accretion and preferred  dividends
on preferred  securities of subsidiaries,  net of minority  interest in share of
losses  increased  $17.1  million,  from $38.1  million for fiscal 1997 to $55.2
million for fiscal 1998. The increase is due primarily to the issuances of the 6
3/4% Preferred Securities in September and October 1997. Accretion and preferred
dividends on preferred  securities of subsidiaries,  net of minority interest in
share of losses  recorded  during  fiscal  1998  consists  of the  accretion  of
issuance  costs  ($1.3  million)  and the  accrual of the  preferred  securities
dividends ($53.9 million) associated with the 6 3/4% Preferred  Securities,  the
14% Preferred Stock and the 14 1/4% Preferred Stock.

     Loss from continuing operations.  Loss from continuing operations increased
$29.1 million, or 9%, to $350.3 million due to the increases in operating costs,
SG&A expenses, depreciation and amortization, interest expense and accretion and
preferred  dividends on preferred  securities of  subsidiaries,  net of minority
interest in share of losses, offset by an increase in revenue, as noted above.

                                       38
<PAGE>

     Loss from  discontinued  operations.  For fiscal  1997 and 1998,  loss from
discontinued  operations was $39.5 million and $67.7 million,  respectively,  or
11% and 16%,  respectively,  of the Company's net loss.  Loss from  discontinued
operations  consists  of the  combined  net loss of  Zycom  and  NETCOM  for the
respective  periods and, for fiscal 1998,  includes  $1.8 million for  estimated
losses  on  the  disposal  of  Zycom.  The  remaining   increase  in  loss  from
discontinued  operations between the comparative  periods is due to increases in
SG&A  expenses  and  depreciation  and  amortization   incurred  by  NETCOM  and
approximately  $9.4  million for merger  costs  incurred  by NETCOM  relating to
NETCOM's merger with ICG in January 1998. Loss from discontinued  operations for
fiscal  1998  includes  the net loss of NETCOM  from  January  1,  1998  through
November 2, 1998.  Since the Company expects to record a gain on the disposition
of NETCOM,  the Company has  deferred  the net  operating  losses of NETCOM from
November 3, 1998 through  December 31, 1998,  to be recognized as a component of
the gain on the disposition.

Fiscal 1997 Compared to 12 Months Ended December 31, 1996

     Revenue.  Total revenue for fiscal 1997 increased  $75.9  million,  or 45%,
from the 12 months ended December 31, 1996.  Telecom Services revenue  increased
71% to $149.4  million due to an increase in network usage for both switched and
special  access  services,  offset in part by a decline in average unit pricing.
Local services revenue was $21.3 million (14% of Telecom  Services  revenue) for
fiscal 1997, but did not generate a material portion of total revenue for the 12
months ended  December 31, 1996.  Special  access  revenue  increased from $39.3
million (45% of Telecom  Services  revenue) for the 12 months ended December 31,
1996 to $55.4  million  (37% of  Telecom  Services  revenue)  for  fiscal  1997.
Switched access  (terminating  long distance) revenue increased to approximately
$72.7 million for fiscal 1997, compared to $48.1 million for the 12 months ended
December 31, 1996. Revenue from long distance and data services did not generate
a material portion of total revenue during either period.

     Network  Services  revenue  increased  9% to $65.7  million for fiscal 1997
compared  to $60.4  million  for the 12 months  ended  December  31,  1996.  The
increase in Network  Services  revenue is due to a single  equipment sale during
fiscal 1997 for $3.2  million as well as general  increases  in business  volume
from external customers.

     Satellite Services revenue increased $8.7 million, or 41%, to $30.0 million
for fiscal 1997,  compared to $21.3 million for the 12 months ended December 31,
1996.  This increase is primarily due to the operations of MCN, which  comprised
$6.3 million of total  Satellite  Services  revenue for fiscal 1997  compared to
$1.8 million during the same 12-month period in 1996. The remaining increase can
be  attributed to the general  growth of MTN and its  increased  sales of C-Band
equipment to offshore oil and gas customers.

     Operating  costs.  Total  operating  costs for fiscal 1997 increased  $80.0
million,  or 58%, from the 12 months ended December 31, 1996.  Telecom  Services
operating  costs  increased  from  $81.1  million,  or 93% of  Telecom  Services
revenue,  for the 12 months ended December 31, 1996 to $147.3 million, or 99% of
Telecom  Services  revenue,  for fiscal 1997. The increase in operating costs in
absolute  dollars is  attributable  to the increase in local and special  access
services and the addition of network  operating costs which include  engineering
and  operations  personnel  dedicated  to the  development  and  launch of local

                                       39
<PAGE>

exchange  services.  The increase in operating  costs as a percentage of Telecom
Services  revenue is due primarily to the increase in switched  access  services
revenue,  and the  investment  in the  development  of local  exchange  services
without the benefit of substantial corresponding revenue in the same period.

     Network  Services  operating  costs  increased  16% to  $53.9  million  and
increased as a percentage of Network Services revenue from 77% for the 12 months
ended  December  31,  1996 to 82% for  fiscal  1997.  The  increase  is due to a
substantially lower margin earned on equipment sales (which constituted a larger
portion of 1997 revenue) relative to other services and certain indirect project
costs included in operating  costs during fiscal 1997 which were treated as SG&A
expenses during the comparable 12-month period in 1996.

     Satellite  Services  operating  costs increased to $16.7 million for fiscal
1997,  from $10.2 million for the 12 months ended  December 31, 1996.  Satellite
Services  operating  costs as a percentage  of Satellite  Services  revenue also
increased  from 48% for the 12 months ended  December 31, 1996 to 56% for fiscal
1997.  This  increase is due to an increase in MCN's sales as well the increased
volume of  equipment  sales,  both of which  provide  lower  margins  than other
maritime services.

     Selling,  general and  administrative  expenses.  Total SG&A  expenses  for
fiscal 1997  increased  $67.0 million,  or 82%,  compared to the 12 months ended
December 31, 1996.  This increase was  principally  due to the  continued  rapid
expansion of the Company's  Telecom  Services  networks and related  significant
additions to the Company's  management  information  systems,  customer service,
marketing and sales staffs dedicated to the expansion of the Company's  networks
and implementation of the Company's  expanded services  strategy,  primarily the
development of local and long distance telephone  services.  Total SG&A expenses
as a  percentage  of total  revenue  increased  from 48% for the 12 months ended
December 31, 1996 to 61% for fiscal 1997.  There is typically a period of higher
administrative  and  marketing  expense prior to the  generation of  appreciable
revenue from newly developed networks or services.

     Depreciation and  amortization.  Depreciation  and  amortization  increased
$21.6 million, or 62%, for fiscal 1997, compared to the 12 months ended December
31, 1996, due to increased  investment in depreciable  assets resulting from the
continued expansion of the Company's networks and services.  The Company reports
high levels of depreciation  expense  relative to revenue during the early years
of operation of a new network  because the full cost of a network is depreciated
using the straight-line  method despite the low rate of capacity  utilization in
the early stages of network operation.

     Provision  for  impairment of  long-lived  assets.  For the 12 months ended
December 31, 1996,  provision  for  impairment  of  long-lived  assets  includes
valuation  allowances  for  the  amounts  receivable  for  advances  made to the
formerly  owned  Phoenix  network  joint  venture  included  in  long-term  note
receivable  ($5.8  million),  the  investments in the formerly  owned  Melbourne
network  ($2.7  million)  and  the  formerly  owned  Satellite  Services  Mexico
subsidiary  ($0.1 million) and the note  receivable  from  NovoComm,  Inc. ($1.3
million). Provision for impairment of long-lived assets for fiscal 1997 includes
the write-down of the Company's investment in StarCom ($5.2 million),  MCN ($2.9
million) and Nova-Net ($0.9 million) as well as a write-down of other  operating

                                       40
<PAGE>

assets  ($0.3  million).  Provision  for  impairment  of  long-lived  assets was
recorded  based on  management's  estimate  of the net  realizable  value of the
Company's assets at December 31, 1996 and 1997.

     Net  loss on  disposal  of  long-lived  assets.  Net  loss on  disposal  of
long-lived  assets  decreased from $3.3 million for the 12 months ended December
31, 1996 to $0.2  million for fiscal  1997.  Net loss on disposal of  long-lived
assets for the 12 months ended  December 31, 1996  includes the loss recorded on
the  sale of four of the  Company's  teleports  used in its  Satellite  Services
operations ($1.1 million),  the loss recorded on the disposal of other operating
assets ($2.7 million) and a write-off of an investment ($0.3 million), offset by
a gain on the sale of the  Company's  50% interest in the Phoenix  network joint
venture  ($0.8  million).  For fiscal 1997,  net loss on disposal of  long-lived
assets  primarily  relates to losses  recorded on the disposal of the  Company's
investment in its formerly owned Melbourne network.

     Interest  expense.  Interest  expense  increased $22.6 million,  from $95.0
million for the 12 months ended  December 31, 1996, to $117.5 million for fiscal
1997,  which  includes  $109.3 million of non-cash  interest.  This increase was
primarily  attributable to an increase in long-term debt,  primarily the 11 5/8%
Notes  issued  in March  1997.  In  addition,  the  Company's  interest  expense
increased,  and will continue to increase,  because the principal  amount of its
indebtedness  increases until the Company's  senior  indebtedness  begins to pay
interest in cash.

     Interest income. Interest income increased $0.5 million, from $21.4 million
for the 12 months ended  December 31, 1996 to $21.9 million for fiscal 1997. The
increase is attributable to the increase in cash and invested cash balances from
the proceeds from the issuances of the 11 5/8% Notes and 14% Preferred  Stock in
March 1997 and the 6 3/4% Preferred Securities in September and October 1997.

     Other  expense,  net.  Other  expense,  net decreased from $3.7 million net
expense for the 12 months  ended  December  31, 1996 to $0.4 million net expense
for fiscal 1997.  Other  expense,  net recorded for the 12 months ended December
31,  1996  consists  primarily  of the  write-off  of deferred  financing  costs
associated  with the conversion or repayment of debt and  litigation  settlement
costs. For fiscal 1997, other, net consists  primarily of litigation  settlement
costs and the loss on disposal of non operating assets.

     Accretion and preferred dividends on preferred  securities of subsidiaries,
net of minority interest in share of losses.  Accretion and preferred  dividends
on preferred  securities of subsidiaries,  net of minority  interest in share of
losses  increased  $11.0  million,  from $27.1  million for the 12 months  ended
December  31,  1996 to $38.1  million  for  fiscal  1997.  The  increase  is due
primarily to the  issuances of the 14%  Preferred  Stock in March 1997 and the 6
3/4%  Preferred  Securities  in  September  and October  1997.  Offsetting  this
increase is $12.3 million  recorded during the 12 months ended December 31, 1996
for the  excess of the  redemption  price  over the  carrying  amount of the 12%
redeemable  preferred  stock of Holdings  redeemed in April 1996.  Accretion and
preferred  dividends on preferred  securities of  subsidiaries,  net of minority
interest  in share  of  losses  recorded  during  fiscal  1997  consists  of the
accretion  of issue  costs  ($0.9  million)  and the  accrual  of the  preferred
security  dividends  ($38.9  million)  associated  with  the  6  3/4%  Preferred
Securities, the 14% Preferred Stock and the 14 1/4% Exchangeable Preferred Stock
Mandatorily Redeemable 2007 (the "14 1/4% Preferred Stock"),  offset by minority
interest in losses of subsidiaries of $1.7 million.

                                       41
<PAGE>

     Share of losses of joint  venture.  Effective  October 1, 1996, the Company
sold its 50% interest in the Phoenix  network  joint  venture.  As a result,  no
share of losses in joint venture was recorded during fiscal 1997, as compared to
the $1.6 million loss recorded during the comparable 12-month period in 1996.

     Loss from continuing operations.  Loss from continuing operations increased
$122.2  million,  or 61%, to $321.3  million due to the  increases  in operating
costs,  SG&A  expenses,  depreciation  and  amortization,  interest  expense and
accretion and preferred dividends on preferred  securities of subsidiaries,  net
of minority  interest in share of losses,  offset by an increase in revenue,  as
noted above.

     Loss from  discontinued  operations.  For the 12 months ended  December 31,
1996 and fiscal 1997,  loss from  discontinued  operations was $50.5 million and
$39.5 million,  respectively, or 20% and 11%, respectively, of the Company's net
loss.  Loss from  discontinued  operations  consists of the combined net loss of
Zycom  and  NETCOM  for the  respective  periods.  The  decrease  in  loss  from
discontinued operations between the comparative periods is due to an increase in
revenue and a decrease in operating costs as a percentage of revenue incurred by
NETCOM. 

Quarterly Results

     The following  table  presents  selected  unaudited  operating  results for
three-month  quarterly periods during fiscal 1997 and 1998. The Company believes
that all necessary adjustments have been included in the amounts stated below to
present fairly the quarterly results when read in conjunction with the Company's
consolidated  financial  statements and related notes included elsewhere in this
Annual  Report.  Results  of  operations  for  any  particular  quarter  are not
necessarily indicative of results of operations for a full year or predictive of
future  periods.   ICG's   development  and  expansion   activities,   including
acquisitions, during the periods shown below materially affect the comparability
of this data from one period to another.


                                       42
<PAGE>
<TABLE>
<CAPTION>
                                             Three Months Ended                             Three Months Ended
                                    -----------------------------------------------------------------------------------------------
                                    Mar. 31,    June 30,    Sept. 30,    Dec. 31,    Mar. 31,   June 30,    Sept. 30,    Dec. 31,
                                       1997        1997        1997        1997        1998        1998        1998        1998
                                    ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
                                                                        (Dollars in thousands)
<S>                                 <C>          <C>         <C>         <C>         <C>         <C>        <C>        <C>    
Statement of Operations Data:      
Revenue                             $  55,450     57,937       60,615      71,020      78,867      90,657     106,467    121,628
Operating loss                        (39,747)   (45,515)     (46,045)    (55,857)    (39,082)    (39,649)    (27,717)   (42,244)
Loss from continuing                  
  operations                          (66,039)   (75,919)     (79,372)    (99,922)    (81,564)    (89,435)    (80,082)   (99,249)
Loss from discontinued                 
  operations                           (9,953)   (10,830)      (7,502)    (11,198)    (20,191)    (11,401)    (16,582)   (19,541)
                                    ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss                            $ (75,992)   (86,749)     (86,874)   (111,120)   (101,755)   (100,836)    (96,664)  (118,790)
                                    =========== =========== =========== =========== =========== =========== =========== ===========
Loss per share from continuing     
  operations - basic and           
  diluted                           $   (1.57)     (1.80)      (1.87)       (2.29)      (1.84)     (1.99)       (1.76)     (2.16)
                                    =========== =========== =========== =========== =========== =========== =========== ===========
Weighted average number of         
  shares outstanding - basic    
  and diluted                          42,003     42,122       42,359      43,553      44,311      44,865      45,588     46,010   
                                    =========== =========== =========== =========== =========== =========== =========== ===========

Other Data:                        
Net cash used by operating         
  activities of continuing
  operations                         (13,089)   (20,755)     (30,823)    (52,524)     (6,539)    (30,950)    (13,941)   (53,928) 
Net cash (used) provided by       
  investing activities of 
  continuing operations              (60,197)   (50,554)    (193,445)   (125,316)     36,681     (70,471)   (151,395)  (163,897)  
Net cash provided (used) by        
  financing   activities of   
  continuing operations               172,689     (4,418)     110,288      29,577     294,197     238,628      (7,432)     5,522  
EBITDA (1)                            (29,000)   (32,581)     (32,528)    (36,554)    (25,479)    (16,814)     (2,834)    (2,020)
EBITDA (before nonrecurring        
  charges) (1)                        (29,319)   (32,581)     (31,174)    (28,085)    (24,974)    (16,268)     (3,648)     4,137
Capital expenditures of            
  continuing operations (2)           (58,556)   (64,233)     (64,347)    (81,660)    (65,748)    (87,166)   (107,108)  (108,924)
Capital expenditures of            
  discontinued operations              (5,303)    (5,771)      (3,259)     (3,722)     (6,511)     (8,696)     (5,021)    (5,753)
                                   
Statistical Data (3):              
Full time employees                     2,347      2,623        2,861       3,032       3,050       3,089       3,251      3,415
Telecom services:                  
  Access lines in service (4)           5,371     20,108       50,551     141,035     186,156     237,458     290,983    354,482
  Buildings connected (5):        
    On-net                                545        560          590         626         637         665         684        777
    Hybrid (6)                          1,550      1,704        1,726       2,527       3,294       3,733       4,217      4,620
                                    ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
      Total buildings 
        connected                       2,095      2,264        2,316       3,153       3,931       4,398       4,901      5,397 
  Operational switches:           
    Voice                                  16         17           18          19          20          20          21         29
    Data                                   10         15           15          15          15          15          15         16
                                    ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
      Total operational     
        switches                           26         32           33          34          35          35          36         45   
  Fiber route miles (7) :         
    Operational                         2,483      2,898        3,021       3,043       3,194       3,812       3,995      4,255
    Under construction                      -          -            -           -           -           -           -        625
  Fiber strand miles (8) :        
    Operational                        83,334    101,788      109,510     111,435     118,074     124,642     127,756    134,152
    Under construction                      -          -            -           -           -           -           -     15,284
Satellite services:                
  C-Band installations (9)                 57         57           54          57          59          66          69         76
</TABLE>
                              

(1)  EBITDA  consists  of  earnings  (loss) from  continuing  operations  before
     interest, income taxes,  depreciation and amortization,  other expense, net
     and  accretion  and   preferred   dividends  on  preferred   securities  of
     subsidiaries,  net of  minority  interest  in share of  losses,  or simply,
     operating  loss  plus   depreciation  and   amortization.   EBITDA  (before
     nonrecurring charges) represents EBITDA before certain nonrecurring charges
     such as the net loss (gain) on disposal of long-lived assets, provision for
     impairment of long-lived assets and restructuring  costs. EBITDA and EBITDA
     (before  nonrecurring  charges)  are  provided  because  they are  measures

                                       43
<PAGE>

     commonly used in the telecommunications industry. EBITDA and EBITDA (before
     nonrecurring  charges)  are  presented to enhance an  understanding  of the
     Company's operating results and are not intended to represent cash flows or
     results of operations in  accordance  with GAAP for the periods  indicated.
     EBITDA and EBITDA (before nonrecurring  charges) are not measurements under
     GAAP and are not necessarily  comparable with similarly  titled measures of
     other  companies.  Net cash flows from  operating,  investing and financing
     activities  of  continuing  operations  as  determined  using GAAP are also
     presented in Other Data.

(2)  Capital  expenditures  includes  assets  acquired  under capital leases and
     excludes payments for construction of the Company's corporate headquarters.
     Capital  expenditures  of  discontinued  operations  includes  the  capital
     expenditures of Zycom and NETCOM combined for all periods presented.

(3)  Amounts  presented are for three-month  periods ended, or as of the end of,
     the period presented.

(4)  Access lines in service at December 31, 1998  includes  271,928 lines which
     are  provisioned  through the  Company's  switch and 82,554 lines which are
     provisioned through resale and other agreements with various local exchange
     carriers.  Resale  lines  typically  generate  lower  margins  and are used
     primarily to obtain customers.  Although the Company plans to migrate lines
     from resale to higher margin on-switch lines, there is no assurance that it
     will be successful in executing this strategy.

(5)  Prior to the fourth  quarter of 1997,  buildings  connected  includes  only
     special access buildings connected.  Beginning December 31, 1997, buildings
     connected includes both dial tone and special access buildings connected.

(6)  Hybrid buildings  connected  represent buildings connected to the Company's
     network via another carrier's facilities.

(7)  Fiber  route  miles  refers to the  number of miles of fiber  optic  cable,
     including  leased  fiber.  As of December 31,  1998,  the Company had 4,255
     fiber  route  miles,  of which 47  fiber  route  miles  were  leased  under
     operating  leases.  Fiber route miles under  construction  represents fiber
     under construction which is expected to be operational within six months.

(8)  Fiber strand  miles  refers to the number of fiber route  miles,  including
     leased fiber, along a  telecommunications  path multiplied by the number of
     fiber  strands  along that path.  As of December 31, 1998,  the Company had
     134,152 fiber strand  miles,  of which 1,595 fiber strand miles were leased
     under operating leases.  Fiber strand miles under  construction  represents
     fiber under  construction  which is expected to be  operational  within six
     months.

(9)  C-Band  installations  service cruise ships, U.S. Navy vessels and offshore
     oil platform installations.

     The Company's  consolidated  revenue has increased  every quarter since the
first fiscal quarter of 1992,  primarily due to the installation and acquisition
of new  networks,  the  expansion of existing  networks and  increased  services
provided over existing networks.  EBITDA, EBITDA (before nonrecurring  charges),
and operating and net losses have generally increased  immediately preceding and
during  periods of relatively  rapid network  expansion and  development  of new
services.  Since  the  quarter  ended  June  30,  1996,  EBITDA  losses  (before
nonrecurring  charges) have improved for each consecutive  quarter,  through and
including  the quarter  ended  December 31, 1998 for which the Company  reported

                                       44
<PAGE>

positive EBITDA (before  nonrecurring  charges) of $4.1 million.  As the Company
provides a greater volume of higher margin services,  principally local exchange
services, carries more traffic on its own facilities rather than ILEC facilities
and obtains  the right to use  unbundled  ILEC  facilities,  while  experiencing
decelerating  increases  in personnel  and other SG&A  expenses  supporting  its
operations,  any or all of which may not occur,  the  Company  anticipates  that
EBITDA performance will continue to improve in the near term.

     Individual operating units may experience variability in quarter to quarter
revenue due to (i) the type and mix of services available to customers, (ii) the
timing  and size of  contract  orders,  (iii) the  timing of price  changes  and
associated impact on volume, and (iv) customer usage patterns.

 Net Operating Loss Carryforwards

     As of December 31, 1998,  the Company had federal and foreign net operating
loss carryforwards  ("NOLs") of approximately  $617.8 million and $35.0 million,
respectively,  which expire at various  times in varying  amounts  through 2019.
However,  due to the provisions of Section 382, regulations issued under Section
1502 and certain  other  provisions  of the Internal  Revenue  Code of 1986,  as
amended (the "Code"),  the  utilization of a portion of the NOLs may be limited.
In addition,  the Company is also subject to certain state income tax laws which
may also limit the utilization of NOLs for state income tax purposes.

     Section  382 of the  Code  limits  the use of NOLs,  as well as  other  tax
attributes, following significant changes in ownership of a corporation's stock,
as defined in the Code.  The  limitation  is  expressed  as the amount of NOL or
other tax  attributes  arising  during a period prior to the change in ownership
that may be used by the  Company  in any tax year  subsequent  to the  change in
ownership.  Other factors may act to increase or decrease the annual  limitation
for any year  subsequent  to a change in  ownership.  Future  events  beyond the
control of the  Company  could  reduce or  eliminate  the  Company's  ability to
utilize its NOLs.  Future ownership changes under Section 382 will require a new
Section 382  computation  which could  further  restrict the use of the NOLs. In
addition,  the  Section 382  limitation  could be reduced to zero if the Company
fails to satisfy the  continuity  of  business  enterprise  requirement  for the
two-year period following an ownership change.

 Liquidity and Capital Resources

     The Company's growth has been funded through a combination of equity,  debt
and lease financing.  As of December 31, 1998, the Company had current assets of
$422.8  million,   including  $262.8  million  of  cash,  cash  equivalents  and
short-term  investments available for sale which exceeded current liabilities of
$127.9 million, providing working capital of $294.9 million. In addition, during
the  first  quarter  of 1999,  the  Company  completed  the  sales  of  NETCOM's
operations  for total  proceeds of $286.1  million.  The Company  invests excess
funds in short-term,  interest-bearing  investment-grade  securities  until such
funds  are used to fund  the  capital  investments  and  operating  needs of the
Company's business.  The Company's short term investment  objectives are safety,
liquidity and yield, in that order.



                                       45
<PAGE>




 Net Cash Used By Operating Activities of Continuing Operations

     The Company's  operating  activities of  continuing  operations  used $39.1
million in fiscal 1996, $4.7 million and $6.4 million for the three months ended
December 31, 1995 and 1996, respectively,  and $117.2 million and $105.4 million
for fiscal 1997 and 1998, respectively. Net cash used by operating activities of
continuing  operations is primarily due to net losses from continuing operations
and increases in  receivables,  which are  partially  offset by changes in other
working  capital  items  and  non-cash   expenses,   such  as  depreciation  and
amortization  expense,  deferred  interest  expense,   accretion  and  preferred
dividends on subsidiary preferred securities.

     The Company does not  anticipate  that cash provided by operations  will be
sufficient  to fund  operating  activities,  the future  expansion  of  existing
networks or the  construction  and acquisition of new networks in the near term.
As the Company provides a greater volume of higher margin services,  principally
local exchange services,  carries more traffic on its own facilities rather than
ILEC  facilities and obtains the right to use unbundled ILEC  facilities,  while
experiencing  decelerating  increases  in  personnel  and  other  SG&A  expenses
supporting  its  operations,  any or all of which  may not  occur,  the  Company
anticipates that net cash used by operating activities of continuing  operations
will continue to improve in the near term.

 Net Cash Used By Investing Activities of Continuing Operations

     Investing  activities of continuing  operations used $134.8 million (net of
$21.6  million  received  in  connection  with  the  sale of  certain  satellite
equipment, including four teleports) in fiscal 1996, $25.2 million (net of $21.1
million received in connection with the aforementioned equipment sale) and $82.3
million for the three months ended December 31, 1995 and 1996, respectively, and
$429.5  million and $349.1 million for fiscal 1997 and 1998,  respectively.  Net
cash  used by  investing  activities  of  continuing  operations  includes  cash
expended for the  acquisition of property,  equipment and other assets of $121.9
million for fiscal 1996,  $26.8  million and $50.8  million for the three months
ended  December 31, 1995 and 1996,  respectively,  and $268.8 million and $367.5
million for fiscal 1997 and 1998, respectively.  Additionally,  net cash used by
investing activities of continuing operations includes payments for construction
of the Company's  corporate  headquarters  of $1.5 million for fiscal 1996, $7.9
million for the three months ended December 31, 1996, and $29.4 million and $4.9
million for fiscal 1997 and 1998,  respectively.  The Company used $45.9 million
in  fiscal  1997 to  acquire  CBG and  $67.8  million  in  fiscal  1998  for the
acquisitions of ChoiceCom,  NikoNET and DataChoice combined. During fiscal 1998,
the Company used $9.5  million to purchase  the minority  interest of two of the
Company's  operating  subsidiaries.  Offsetting the  expenditures  for investing
activities  of continuing  operations  for fiscal 1998 are the proceeds from the
sale of the Company's  corporate  headquarters  of $30.3 million and the sale of
short-term  investments of $60.3 million.  The Company will continue to use cash
in 1999  and  subsequent  periods  for the  construction  of new  networks,  the
expansion of existing networks and, potentially,  for acquisitions.  The Company
acquired  assets  under  capital  leases and  through  the  issuance  of debt or
warrants of $55.0 million in fiscal 1996, $0.1 million and $19.5 million for the
three months ended  December 31, 1995 and 1996,  respectively,  and $1.4 million
for fiscal 1998.



                                       46
<PAGE>

 Net Cash Provided (Used) By Financing Activities of Continuing Operations

     Financing  activities of continuing  operations  provided $355.8 million in
fiscal  1996,  used $8.4  million  and $1.9  million in the three  months  ended
December 31, 1995 and 1996, respectively, and provided $308.1 million and $530.9
million in fiscal 1997 and 1998,  respectively.  Net cash  provided by financing
activities of continuing  operations for these periods includes cash received in
connection with the private placement of the 11 5/8% Notes and the 14% Preferred
Stock in March 1997,  the 6 3/4%  Preferred  Securities in September and October
1997  and the 10%  Notes  and the 9 7/8%  Notes  in  February  and  April  1998,
respectively.   Historically,  the  funds  to  finance  the  Company's  business
acquisitions,  capital expenditures,  working capital requirements and operating
losses  have been  obtained  through  public and  private  offerings  of ICG and
Holdings-Canada  common  shares,  convertible  subordinated  notes,  convertible
preferred  shares of  Holdings-Canada,  capital  lease  financings  and  various
working capital sources, including credit facilities, in addition to the private
placement of the securities previously mentioned and other securities offerings.

     On February 12, 1998,  ICG  Services  completed a private  placement of 10%
Notes,  with a maturity value of approximately  $490.0 million for net proceeds,
after  underwriting and other offering costs, of  approximately  $290.9 million.
Interest  will accrue at 10% per annum,  beginning  February  15,  2003,  and is
payable in cash each February 15 and August 15,  commencing August 15, 2003. The
10% Notes will be redeemable at the option of ICG Services, in whole or in part,
on or after February 15, 2003.

     On April 27,  1998,  ICG Services  completed a private  placement of 9 7/8%
Notes, with a maturity value of approximately  $405.3 million, for net proceeds,
after  underwriting and other offering costs, of  approximately  $242.1 million.
Interest will accrue at 9 7/8% per annum,  beginning May 1, 2003, and is payable
in cash each May 1 and November 1, commencing November 1, 2003. The 9 7/8% Notes
will be  redeemable  at the option of ICG  Services,  in whole or in part, on or
after May 1, 2003.

     As of December  31, 1998,  the Company had an  aggregate  of  approximately
$68.4  million of capital lease  obligations  of  continuing  operations  and an
aggregate accreted value of approximately $1.6 billion was outstanding under the
13 1/2% Senior Discount Notes due 2005 (the "13 1/2% Notes"), the 12 1/2% Notes,
the 11 5/8% Notes, the 10% Notes and the 9 7/8% Notes. The 13 1/2% Notes require
payments of interest to be made in cash commencing  March 15, 2001 and mature on
September 15, 2005. The 12 1/2% Notes require payments of interest to be made in
cash  commencing  November 1, 2001 and mature on May 1, 2006.  The 11 5/8% Notes
require  payments of interest to be made in cash  commencing  September 15, 2002
and mature on March 15, 2007. The 10% Notes require payments of interest in cash
commencing  August  15,  2003 and mature  February  15,  2008.  The 9 7/8% Notes
require payments of interest in cash commencing  November 1, 2003 and mature May
1, 2008. The 6 3/4%  Preferred  Securities  require  payments of dividends to be
made in cash through November 15, 2000. In addition, the 14% Preferred Stock and
the 14 1/4%  Preferred  Stock  require  payments of dividends to be made in cash
commencing  June 15, 2002 and August 1, 2001,  respectively.  As of December 31,
1998,  the  Company had $1.1  million of other  indebtedness  outstanding.  With
respect to  indebtedness  outstanding on December 31, 1998, the Company has cash
interest  payment  obligations of approximately  $113.3 million in 2001,  $158.0

                                       47
<PAGE>

million in 2002 and $212.6 million in 2003. With respect to preferred securities
currently   outstanding,   the  Company  has  cash   dividend   obligations   of
approximately $6.7 million remaining in 1999 and $8.9 million in 2000, for which
the Company has restricted cash balances  available for such dividend  payments,
$21.5  million  in 2001,  $57.0  million  in 2002  and  $70.9  million  in 2003.
Accordingly,  the  Company  may  have  to  refinance  a  substantial  amount  of
indebtedness  and obtain  substantial  additional funds prior to March 2001. The
Company's  ability to do so will depend on, among other  things,  its  financial
condition  at  the  time,   restrictions  in  the   instruments   governing  its
indebtedness, and other factors, including market conditions, beyond the control
of the  Company.  There can be no  assurance  that the  Company  will be able to
refinance  such  indebtedness,  including  such capital  leases,  or obtain such
additional  funds,  and if the Company is unable to effect such  refinancings or
obtain  additional  funds, the Company's  ability to make principal and interest
payments  on its  indebtedness  or make  payments of cash  dividends  on, or the
mandatory redemption of, its preferred securities, would be adversely affected.

 Capital Expenditures

     The Company's  capital  expenditures  of continuing  operations  (including
assets acquired under capital leases and excluding  payments for construction of
the Company's corporate headquarters) were $176.9 million for fiscal 1996, $26.9
million and $70.3 million for the three months ended December 31, 1995 and 1996,
respectively,  and $268.8  million and $368.9  million for fiscal 1997 and 1998,
respectively.  The Company  anticipates that the expansion of existing networks,
construction of new networks and further  development of the Company's  products
and services will require capital  expenditures of approximately  $380.0 million
during 1999.  To  facilitate  the  expansion of its services and  networks,  the
Company has entered into  equipment  purchase  agreements  with various  vendors
under which the  Company  has  committed  to  purchase a  substantial  amount of
equipment and other assets,  including a full range of switching systems,  fiber
optic cable, network electronics, software and services. If the Company fails to
meet the minimum  purchase level in any given year,  the vendor may  discontinue
certain discounts,  allowances and incentives otherwise provided to the Company.
Actual capital  expenditures will depend on numerous factors,  including certain
factors beyond the Company's control. These factors include the nature of future
expansion  and  acquisition  opportunities,  economic  conditions,  competition,
regulatory   developments  and  the  availability  of  equity,  debt  and  lease
financing.

 Other Cash Commitments and Capital Requirements

     The  Company's  operations  have  required  and will  continue  to  require
significant capital  expenditures for development,  construction,  expansion and
acquisition of  telecommunications  assets.  Significant  amounts of capital are
required to be invested  before  revenue is generated,  which results in initial
negative cash flows. In addition to the Company's planned capital  expenditures,
it has other cash  commitments  as described in the  footnotes to the  Company's
audited consolidated financial statements for the fiscal year ended December 31,
1998 included elsewhere herein.

     In  view  of the  continuing  development  of the  Company's  products  and
services,  the expansion of existing networks and the construction,  leasing and
licensing of new networks,  the Company will require  additional amounts of cash
in the future from outside sources.  Management believes that the Company's cash
on hand and amounts expected to be available through asset sales,  including the

                                       48
<PAGE>

proceeds from the sales of the operations of NETCOM, cash flows from operations,
including  collection of  receivables  from transport and  termination  charges,
vendor  financing  arrangements  and credit  facilities will provide  sufficient
funds necessary for the Company to expand its business as currently  planned and
to fund its  operations  through  2000.  Additional  sources of cash may include
public and private equity and debt financings,  sales of  non-strategic  assets,
capital leases and other  financing  arrangements.  In the past, the Company has
been able to secure  sufficient  amounts of financing to meet its capital needs.
There can be no assurance  that  additional  financing  will be available to the
Company or, if  available,  that it can be obtained on terms  acceptable  to the
Company.

     The failure to obtain  sufficient  amounts of financing could result in the
delay or abandonment of some or all of the Company's  development  and expansion
plans, which could have a material adverse effect on the Company's business.  In
addition,  the  inability  to fund  operating  deficits  with  the  proceeds  of
financings  and sales of  non-strategic  assets until the Company  establishes a
sufficient revenue-generating customer base could have a material adverse effect
on the Company's liquidity.

Transport and Termination Charges

     The Company has recorded  revenue of  approximately  $4.9 million and $58.3
million  for fiscal 1997 and 1998,  respectively,  for  reciprocal  compensation
relating  to the  transport  and  termination  of  local  traffic  to ISPs  from
customers of ILECs  pursuant to various  interconnection  agreements.  The ILECs
have not paid most of the bills they have  received  from the  Company  and have
disputed  substantially all of these charges based on the belief that such calls
are not local traffic as defined by the various  agreements  and under state and
federal laws and public policies.  As a result, the Company expects  receivables
from  transport and  termination  charges will continue to increase  until these
disputes have been resolved.

     The  resolution of these  disputes will be based on rulings by state public
utility  commissions and/or by the FCC. To date, there have been favorable final
rulings from 29 states that ISP traffic is subject to the payment of  reciprocal
compensation  under  interconnection  agreements.  On February 25, 1999, the FCC
issued a decision that ISP-bound traffic is largely jurisdictionally  interstate
traffic.  The  decision  relies on the  long-standing  federal  policy  that ISP
traffic, although jurisdictionally  interstate, is treated as though it is local
traffic for pricing  purposes.  The decision also  emphasizes that because there
are no federal rules governing  intercarrier  compensation for ISP traffic,  the
determination  as to whether such traffic is subject to reciprocal  compensation
under  the terms of  interconnection  agreements  properly  is made by the state
commissions and that carriers are bound by their interconnection  agreements and
state commission decisions regarding the payment of reciprocal  compensation for
ISP  traffic.  The FCC has  initiated  a  rulemaking  proceeding  regarding  the
adoption of  prospective  federal rules for  intercarrier  compensation  for ISP
traffic.  In its notice of  rulemaking,  the FCC expresses its  preference  that
compensation  rates for this traffic continue to be set by negotiations  between
carriers, with disputes resolved by arbitrations conducted by state commissions,
pursuant to the Telecommunications Act.

     On March 4, 1999, the Alabama Public Service Commission (the "Alabama PSC")
issued a decision that found that  reciprocal  compensation is owed for Internet
traffic under four CLEC  interconnection  agreements with BellSouth  Corporation

                                       49
<PAGE>

("BellSouth"), which agreements were at issue in the proceeding. With respect to
the  Company's  interconnection  agreement,  which also was at issue,  the state
commission  interpreted  certain  language in the Company's  agreement to exempt
ISP-bound traffic from reciprocal  compensation  under certain  conditions.  The
Company  believes  that the  Alabama  PSC failed to  consider  the intent of the
parties in negotiating  and executing the Company's  interconnection  agreement,
the specific language of the Company's  interconnection agreement and the impact
of Alabama PSC and FCC policies, and thereby  misinterpreted the agreement.  The
Company  intends to file a request with the Alabama PSC by April 1, 1999 seeking
determination  that the  ruling  with  respect  to the  Company's  agreement  be
reconsidered, and that the Company should be treated the same as the other CLECs
that  participated  in the  proceeding and for which the Alabama PSC ordered the
payment  of  reciprocal  compensation.  While  the  Company  intends  to  pursue
vigorously  a petition  for  reconsideration  with the Alabama  PSC,  and if the
Company deems it necessary,  judicial  review,  the Company  cannot  predict the
final outcome of this issue.

     The Company has also recorded  revenue of  approximately  $19.1 million for
fiscal 1998,  related to other transport and  termination  charges to the ILECs,
pursuant to the Company's interconnection  agreements with these ILECs. Included
in the  Company's  trade  receivables  at  December  31,  1997 and 1998 are $4.3
million  and  $72.8  million,  respectively,  for  all  receivables  related  to
transport and termination  charges. The receivables balance at December 31, 1998
is net of an allowance of $5.6 million for disputed amounts.

     Although  the  Company's   interconnection  agreement  with  BellSouth  has
expired,  the Company has received written  notification from BellSouth that the
Company  may  continue  billing  BellSouth  under the pricing  terms  within the
expired  interconnection  agreement,  until such  agreement is  renegotiated  or
arbitrated  by  the  relevant  state   commissions.   The  Company's   remaining
interconnection  agreements  expire in 1999 and 2000. While the Company believes
that all revenue  recorded  through  December 31, 1998 is  collectible  and that
future revenue from transport and termination charges billed under the Company's
current interconnection  agreements will be realized,  there can be no assurance
that future  regulatory  and judicial  rulings will be favorable to the Company,
that the Alabama PSC will reconsider its ruling, or that different pricing plans
for transport and termination  charges between carriers will not be adopted when
the Company's interconnection  agreements are renegotiated or as a result of the
FCC's rulemaking proceeding on future compensation methods. In fact, the Company
believes  that  different  pricing  plans will be  considered  and  adopted  and
although the Company expects that revenue from transport and termination charges
likely will  decrease as a percentage  of total  revenue from local  services in
periods  subject  to future  interconnection  agreements,  the  Company's  local
termination  services  still will be  required by the ILECs and must be provided
under the Telecommunications Act, and likely will result in increasing volume in
minutes due to the growth of the  Internet  and related  services  markets.  The
Company expects to negotiate  reasonable  compensation  and collection terms for
local   termination   services,   although  there  is  no  assurance  that  such
compensation  will remain  consistent  with current  levels.  Additionally,  the
Company  expects  to  supplement  its  current  operations  with  revenue,   and
ultimately  EBITDA,  from  new  services  offerings  such as RAS,  EOS and  DSL,
however,  the Company may or may not be successful in its efforts to deploy such
services profitably.

                                       50
<PAGE>


Year 2000 Compliance

Importance

     Many  computer  systems,   software   applications  and  other  electronics
currently  in use  worldwide  are  programmed  to accept  only two digits in the
portion of the date field which  designates  the year.  The "Year 2000  problem"
arises because these systems and products cannot properly  distinguish between a
year that begins with "20" and the familiar  "19." If these systems and products
are not modified or replaced,  many will fail,  create erroneous  results and/or
may cause interfacing systems to fail.

     Year 2000  compliance  issues are of  particular  importance to the Company
since its operations rely heavily upon computer systems,  software  applications
and other electronics  containing  date-sensitive  embedded technology.  Some of
these  technologies were internally  developed and others are standard purchased
systems which may or may not have been  customized for the Company's  particular
application.  The Company also relies heavily upon various vendors and suppliers
that are themselves very reliant on computer systems,  software applications and
other electronics containing  date-sensitive embedded technology.  These vendors
and suppliers include: (i) ILECs and other local and long distance carriers with
which the Company has  interconnection or resale agreements;  (ii) manufacturers
of the hardware and related  operating systems that the Company uses directly in
its operations;  (iii) providers that create custom software  applications  that
the  Company  uses  directly in its  operations;  and (iv)  providers  that sell
standard  or custom  equipment  or  software  which allow the Company to provide
administrative support to its operations.

Strategy

     The  Company's  approach to addressing  the  potential  impact of Year 2000
compliance issues is focused upon ensuring,  to the extent reasonably  possible,
the  continued,  normal  operation  of  its  business  and  supporting  systems.
Accordingly, the Company has developed a four-phase plan which it is applying to
each functional category of the Company's computer systems and components.  Each
of the Company's computer systems,  software  applications and other electronics
containing  date-sensitive  embedded  technology  is included  within one of the
following four functional categories:

     o    Networks  and  Products,  which  consists  of all  components  whether
          hardware,  software  or  embedded  technology  used  directly  in  the
          Company's operations, including components used by the Company's voice
          and data switches and collocations and telecommunications products;

     o    IT  Systems,  which  consists  of all  components  used to support the
          Company's operations, including provisioning and billing systems;

     o    Building  and  Facilities,  which  consists  of  all  components  with
          embedded  technology used at the Company's  headquarters  building and
          other leased  facilities,  including  security systems,  elevators and
          internal use telephone systems;

                                       51
<PAGE>

     o    Office  Equipment,   which  consists  of  all  office  equipment  with
          date-sensitive embedded technology.

     For each of the  categories  described  above,  the Company  will apply the
following four-phase approach to identifying and addressing the potential impact
of Year 2000 compliance issues:

     o    Phase I - Assessment
          During this phase,  the  Company's  technology  staff will  perform an
          inventory of all  components  currently  in use by the Company.  Based
          upon this inventory,  the Company's business executives and technology
          staff will jointly  classify each  component as a "high,"  "medium" or
          "low" priority item,  determined  primarily by the relative importance
          that the  particular  component has to the Company's  normal  business
          operations, the number of people internally and externally which would
          be affected by any failure of such  component and the  interdependence
          of such component with other  components  used by the Company that may
          be of higher or lower priority.

          Based upon such classifications, the Company's business executives and
          information  technology  staff will jointly set desired levels of Year
          2000  readiness for each  component  inventoried,  using the following
          criteria, as defined by the Company:

          -    Capable,  meaning that such computer  system or component will be
               capable of managing and expressing calendar years in four digits;

          -    Compliant,  meaning  that  the  Company  will be able to use such
               component  for the purpose  for which the Company  intended it by
               adapting to its ability to manage and express  calendar  years in
               only two digits;

          -    Certified,  meaning that the Company has received testing results
               to  demonstrate,   or  the  vendor  or  supplier  is  subject  to
               contractual terms which requires, that such component requires no
               Year 2000  modifications  to manage and express calendar years in
               four digits; or

          -    Non-critical,  meaning  that the  Company  expects  to be able to
               continue to use such component  unmodified or has determined that
               the estimated  costs of  modification  exceed the estimated costs
               associated with its failure.

     o    Phase II - Remediation
          During this phase,  the Company will develop and execute a remediation
          plan for each  component  based  upon the  priorities  set in Phase I.
          Remediation may include component upgrade, reprogramming, replacement,
          receipt  of vendor  and  supplier  certification  or other  actions as
          deemed necessary or appropriate.

     o    Phase III - Testing
          During this phase,  the Company will  perform  testing  sufficient  to
          confirm  that the  component  meets  the  desired  state of Year  2000
          readiness.  This phase will  consist of: (i) testing the  component in
          isolation,  or unit testing;  (ii) testing the component  jointly with

                                       52
<PAGE>

          other components,  or system testing; and (iii) testing interdependent
          systems, or environment testing.

     o    Phase IV - Implementation
          During  the  last  phase,  the  Company  will  implement  each  act of
          remediation  developed  and  tested  for  each  component,  as well as
          implement adequate controls to ensure that future upgrades and changes
          to the Company's computer systems,  for operational reasons other than
          Year 2000  compliance,  do not alter the Company's  Year 2000 state of
          readiness.

Current State of Readiness

     The  Company  has  commenced  certain  of the  phases  within its Year 2000
compliance  strategy for each of its functional system  categories,  as shown by
the  table  set forth  below.  The  Company  does not  intend to wait  until the
completion of a phase for all functional  category  components  together  before
commencing  the  next  phase.  Accordingly,  the  information  set  forth  below
represents  only a general  description of the phase status for each  functional
category.
<TABLE>
<CAPTION>

------------------------------- ----------------------------------------------------------------------------------------------
                                                                            Phase
------------------------------- ----------------------------------------------------------------------------------------------
                                          I                      II                     III                      IV
System and Level of Priority         Assessment             Remediation               Testing              Implementation
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Networks and Products
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
<S>                             <C>                    <C>                     <C>                     <C>  
     High                       Complete               In progress             In progress             To begin Q2 1999
                                                       To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               In progress             To begin Q2 1999        To begin Q2 1999
                                                       To complete Q2 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Low                        Complete               Complete                 Complete               Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
IT Systems
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     High                       Complete               In progress             In progress             In progress
                                                       To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               In progress             In progress             In progress
                                                       To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- -----------------------------------------------
     Low                        Complete               In progress                To be determined based on the results of
                                                       To complete Q2 1999                        Phase II
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Building and Facilities
------------------------------- ---------------------- ----------------------- -----------------------------------------------
     High                       In progress            In progress                To be determined based on the results of
                                To complete Q2 1999    To complete Q2 1999                        Phase II
------------------------------- ---------------------- -----------------------------------------------------------------------
     Medium                     In progress                       To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        To begin  Q2 1999                 To be determined based on the results of Phase I
                                To complete Q3 1999
------------------------------- ----------------------------------------------------------------------------------------------
Office Equipment
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     High                       Complete               In progress             To begin  Q2 1999       To begin Q2 1999
                                                       To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               In progress             To begin Q2 1999        To begin Q2 1999
                                                       To complete Q2 1999     To complete Q3 1999     To complete Q4 1999
------------------------------- ---------------------- ----------------------- -----------------------------------------------
     Low                        Complete               In progress                To be determined based on the results of
                                                       To complete Q2 1999                        Phase II
------------------------------- ---------------------- ----------------------- -----------------------------------------------
</TABLE>

     Separately,  the  Company is in the  process  of  reviewing  the  Company's
material  contracts with contractors and  vendors/suppliers  and considering the
necessity of renegotiating  certain existing  contracts,  to the extent that the
contracts  fail to address the  allocation  of potential  Year 2000  liabilities

                                       53
<PAGE>

between parties. Prior to entering into any new material contracts,  the Company
will seek to address the allocation of potential  Year 2000  liabilities as part
of the initial negotiation.

Costs

     The Company expenses all incremental  costs to the Company  associated with
Year 2000 compliance  issues as incurred.  Through December 31, 1998, such costs
incurred were  approximately  $0.5 million,  consisting  of  approximately  $0.4
million of replacement  hardware and software and approximately  $0.1 million of
consulting fees and other miscellaneous costs of Year 2000 compliance  reference
and planning  materials.  The Company has also incurred  certain internal costs,
including  salaries and benefits for employees  dedicating  various  portions of
their time to Year 2000 compliance  issues,  of which costs the Company believes
has not exceeded $0.5 million  through  December 31, 1998.  The Company  expects
that total  future  incremental  costs of Year 2000  compliance  efforts will be
approximately $3.8 million,  consisting of $2.3 million in consulting fees, $1.5
million in  replacement  hardware and software  and other  miscellaneous  costs.
These  anticipated  costs have been included in the Company's fiscal 1999 budget
and  represent   approximately  4%  of  the  Company's   budgeted  expenses  for
information  technology  through fiscal 1999. Such cost estimates are based upon
presently available information and may change as the Company continues with its
Year 2000 compliance plan. The Company intends to use cash on hand for Year 2000
compliance costs, as necessary.

Risk, Contingency Planning and Reasonably Likely Worst Case Scenario

     While the Company is heavily  reliant upon its computer  systems,  software
applications and other electronics containing date-sensitive embedded technology
as part of its  business  operations,  such  components  upon which the  Company
primarily  relies were developed with current  state-of-the-art  technology and,
accordingly,  the Company has reasonably  assumed that its  four-phase  approach
will demonstrate that many of its high-priority  systems do not present material
Year 2000 compliance  issues.  For computer systems,  software  applications and
other electronics  containing  date-sensitive  embedded technology that have met
the  Company's  desired level of Year 2000  readiness,  the Company will use its
existing  contingency plans to mitigate or eliminate  problems it may experience
if an  unanticipated  system failure were to occur. For components that have not
met the  Company's  desired  level of  readiness,  the  Company  will  develop a
specific  contingency  plan to determine  the actions the Company  would take if
such component failed.

     At the present  time,  the  Company is unable to develop a most  reasonably
likely worst case scenario for failure to achieve adequate Year 2000 compliance.
The Company  will be better able to develop  such a scenario  once the status of
Year  2000  compliance  of the  Company's  material  vendors  and  suppliers  is
complete.  The Company will monitor its vendors and suppliers,  particularly the
other  telecommunications  companies upon which the Company relies, to determine
whether they are performing and  implementing  an adequate Year 2000  compliance
plan in a timely manner.

     The  Company  acknowledges  the  possibility  that the  Company  may become
subject  to  potential  claims by  customers  if the  Company's  operations  are
interrupted  for an  extended  period of time.  However,  it is not  possible to
predict either the  probability of such  potential  litigation,  the amount that

                                       54
<PAGE>

could  be in  controversy  or upon  which  party a court  would  place  ultimate
responsibility for any such interruption.

     The Company  views Year 2000  compliance  as a process  that is  inherently
dynamic and will change in response to changing circumstances. While the Company
believes  that through  execution and  satisfactory  completion of its Year 2000
compliance strategy its computer systems,  software applications and electronics
will be Year  2000  compliant,  there  can be no  assurance  until the Year 2000
occurs that all systems and all interfacing technology when running jointly will
function  adequately.   Additionally,   there  can  be  no  assurance  that  the
assumptions  made by the Company within its Year 2000  compliance  strategy will
prove to be correct, that the strategy will succeed or that the remedial actions
being  implemented  will be able to be completed by the time  necessary to avoid
system or  component  failures.  In  addition,  disruptions  with respect to the
computer systems of vendors or customers,  which systems are outside the control
of the Company,  could impair the Company's ability to obtain necessary products
or services to sell to its  customers.  Disruptions  of the  Company's  computer
systems, or the computer systems of the Company's vendors or customers,  as well
as the cost of avoiding such disruption, could have a material adverse effect on
the Company's financial condition and results of operations.

Accounting Change

     During  fiscal  1996,  the  Company  changed its method of  accounting  for
long-term  telecom  services  contracts.  Under  the  new  method,  the  Company
recognizes  revenue as services  are provided  and  continues  to charge  direct
selling  expenses  to  operations  as  incurred.   The  Company  had  previously
recognized  revenue  in an  amount  equal to the  noncancelable  portion  of the
contract,  which is a minimum of one year on a three-year or longer contract, at
the inception of the contract and upon activation of service to the customer, to
the extent of direct  installation  and selling  expense  incurred in  obtaining
customers  during the  period in which  such  revenue  was  recognized.  Revenue
recognized in excess of normal monthly  billings  during the year was limited to
an amount  which did not exceed  such  installation  and  selling  expense.  The
remaining  revenue  from the  contract  had  been  recognized  ratably  over the
remaining  noncancelable  portion of the contract.  The Company believes the new
method is  preferable  because it  provides  a better  matching  of revenue  and
related  operating  expenses and is more consistent  with  accounting  practices
within the telecommunications industry.

     As required by generally accepted  accounting  principles,  the Company has
reflected  the  effects of the change in  accounting  as if such change had been
adopted as of October 1, 1995.  The Company's  results for fiscal 1996 include a
charge of $3.5 million ($0.13 per share)  relating to the  cumulative  effect of
this change in  accounting  as of October 1, 1995.  The effect of this change in
accounting was not significant  for fiscal 1996. If the new revenue  recognition
method had been  applied  retroactively,  Telecom  Services  revenue  would have
decreased   by  $0.5  million  and  $0.7  million  for  fiscal  1994  and  1995,
respectively.  See  the  Company's  Consolidated  Financial  Statements  and the
related notes thereto contained elsewhere in this Annual Report.

                                       55
<PAGE>


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's financial position and cash flows are subject to a variety of
risks in the normal course of business,  which include  market risks  associated
with  movements in interest rates and,  subsequent to February 17, 1999,  equity
prices. The Company routinely assesses these risks and has established  policies
and business practices to protect against the adverse effects of these and other
potential exposures. The Company does not, in the normal course of business, use
derivative financial instruments for trading or speculative purposes.

Interest Rate Risk

     The Company's  exposure to market risk  associated with changes in interest
rates relates  primarily to the Company's  investments in marketable  securities
and its senior indebtedness.

     The Company invests  primarily in high grade short-term  investments  which
consist of money market instruments,  commercial paper, certificates of deposit,
government  obligations and corporate  bonds,  all of which are considered to be
available  for sale  and  generally  have  maturities  of one year or less.  The
Company's short-term investment  objectives are safety,  liquidity and yield, in
that order.  As of December  31,  1998,  the  Company had  approximately  $262.8
million in cash and cash  equivalents and short-term  investments  available for
sale, at a weighted  average fixed interest rate of 5.12%.  A  hypothetical  10%
fluctuation  in market rates of interest  would cause a change in the fair value
of the Company's  investment  in  marketable  securities at December 31, 1998 of
approximately $0.7 million,  and accordingly,  would not cause a material impact
on the Company's financial position, results of operations or cash flows.

     At December 31, 1998, the Company's outstanding  indebtedness includes $1.6
billion under the 13 1/2 % Notes, 12 1/2% Notes, 11 5/8% Notes,  10% Notes and 9
7/8% Notes and $466.4 million under the 14 1/4% Preferred  Stock,  14% Preferred
Stock and 6 3/4% Preferred  Securities.  These instruments  contain fixed annual
interest and dividend rates, respectively, and accordingly, any change in market
interest rates would have no impact on the Company's financial position, results
of operations or cash flows.  Future  increases in interest rates could increase
the cost of any new  borrowings  by the  Company.  The  Company  does not  hedge
against future changes in market rates of interest.

Equity Price Risk

     On February  17,  1999,  the  Company  completed  the sale of the  domestic
operations of NETCOM to  MindSpring,  in exchange for a combination  of cash and
376,116  shares  of   unregistered   common  stock  of  MindSpring,   valued  at
approximately  $79.76 per share at the time of the transaction.  Currently,  the
Company  bears  some risk of market  price  fluctuations  in its  investment  in
MindSpring.  The common  stock of  MindSpring  is traded on the Nasdaq  National
Market and has,  at March 29,  1999,  a fair  market  value of $92.50 per share.
Although changes in the fair market value of MindSpring  common stock may affect
the fair market value of the Company's  investment and cause unrealized gains or
losses, such gains or losses will not be realized until the securities are sold.
In order to mitigate the risk  associated with a decrease in the market value of

                                       56
<PAGE>

the Company's  investment in MindSpring,  the Company has entered into a hedging
contract.   During  the  term  of  the  hedging  contract,  a  hypothetical  10%
fluctuation in the fair value of the common stock of MindSpring  would not cause
a material impact on the Company's financial position,  results of operations or
cash flows.  The Company  intends to liquidate its investment in MindSpring upon
the  effectiveness  of the  registration  of common stock of MindSpring with the
Securities  and  Exchange  Commission,  which is  expected  to occur in the near
future.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

     The consolidated  financial statements of the Company appear on page F-1 of
this Annual Report.  The financial  statement schedule required under Regulation
S-X is filed pursuant to Item 14 of this Annual Report,  and appears on page S-1
of this Annual Report.

     Selected  quarterly  financial  data  required  under this Item is included
under Item 7 - Management's  Discussion and Analysis of Financial  Condition and
Results of Operations.

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

     None.

                                       57
<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANTS 

     The  information  required  under Item 10 with  respect  to the  Company is
incorporated  by reference  from the  definitive  Proxy  Statement  for the 1999
Annual Meeting of Stockholders of ICG Communications,  Inc. to be filed with the
Securities and Exchange  Commission not later than April 30, 1999. The Directors
and  executive  officers of each of  Holdings-Canada  and Holdings are set forth
below.

Holdings-Canada

     The Directors of Holdings-Canada are:

         Harry R. Herbst
         H. Don Teague

     The executive officers of Holdings-Canada are:

         J. Shelby Bryan - President and Chief Executive Officer
         Harry R. Herbst - Executive Vice President and Chief Financial Officer
         H. Don Teague - Executive Vice President, General Counsel and Secretary

Holdings

     The Directors of Holdings are:

         J. Shelby Bryan (Chairman)
         Douglas I. Falk
         Harry R. Herbst
         H. Don Teague

     The executive officers of Holdings are:

         J. Shelby Bryan - President and Chief Executive Officer
         Douglas I. Falk - Executive Vice President - Telecom
         Harry R. Herbst - Executive Vice President and Chief Financial Officer
         H. Don Teague - Executive Vice President, General Counsel and Secretary

J. Shelby Bryan,  53, was appointed  President  and Chief  Executive  Officer of
Holdings-Canada  and Holdings in May 1995.  He has 19 years of experience in the
telecommunications  industry,  primarily in the cellular business. He co-founded
Millicom  International  Cellular S.A., a publicly owned  corporation  providing
cellular  service  internationally,  served as its President and Chief Executive
Officer from 1985 to 1994 and has served as a Director through the present.

Douglas I. Falk, 49, has been Executive Vice  President-Telecom  and Director of

                                       58
<PAGE>

Holdings since September 1998 and was President of ICG Satellite Services,  Inc.
from  August  1996 to May 1998.  Prior to joining  the  Company,  Mr.  Falk held
several positions in the cruise line industry,  including President of Norwegian
Cruise Line,  Senior Vice  President - Marketing and Sales with Holland  America
Lines/Westours  and Executive Vice President of Royal Viking Line.  Prior to his
work in the cruise line  industry,  Mr. Falk held  executive  positions with MTI
Vacations,  Brown and Williamson  Tobacco,  Pepsico  International,  Glendenning
Associates and The Procter and Gamble Company.

Harry R. Herbst,  47, was appointed  Executive Vice  President,  Chief Financial
Officer and Director of Holdings-Canada and Holdings in August 1998 and has been
a member of the Board of Directors of Holdings-Canada and Holdings since October
1995. Prior to joining the Company, Mr. Herbst was Vice President of Finance and
Strategic  Planning for Gulf Canada  Resources  Ltd.  from November 1995 to June
1998 and Vice President and Treasurer of Gulf Canada Resources Ltd. from January
to November  1995.  Previously,  Mr.  Herbst was Vice  President of Taxation for
Torch Energy  Advisors Inc. from 1991 to 1994,  and tax manager for Apache Corp.
from 1987 to 1990. Mr. Herbst is a certified  public  accountant,  formerly with
Coopers & Lybrand.

H. Don Teague,  56,  joined the Company as  Executive  Vice  President,  General
Counsel,  Secretary  and Director of  Holdings-Canada  and Holdings in May 1997.
Prior to this position, Mr. Teague was Senior Vice President, Administration and
Legal with Falcon Seaboard  Holdings,  L.P. and its predecessors from April 1994
through April 1997. From 1974 to April 1994, Mr. Teague was a partner in the law
firm of Vinson & Elkins L.L.P.

ITEM 11.   EXECUTIVE COMPENSATION

     The  information  required under Item 11 is  incorporated by reference from
the definitive  Proxy  Statement for the 1999 Annual Meeting of  Stockholders of
ICG Communications, Inc. to be filed with the Securities and Exchange Commission
not later than April 30, 1999.  Neither  Holdings-Canada  nor Holdings  pays any
form of compensation to any of their respective Directors or executive officers.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required under Item 12 is  incorporated by reference from
the definitive  Proxy  Statement for the 1999 Annual Meeting of  Stockholders of
ICG Communications, Inc. to be filed with the Securities and Exchange Commission
not later than April 30, 1999.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.


                                       59
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORT ON  FORM 8-K

(A) (1)  Financial Statements. The following financial statements are included 
         in Item 8 of Part II:
                                                                         Page

         Independent Auditors' Report - Report of KPMG LLP . . . . . . .  F-2
         Independent Auditors' Report - Report of Ernst & Young LLP, as 
           of December 31, 1996 and 1997 and for each of the Two Years
           in the Period Ended December 31, 1997 . . . . . . . . . . . .  F-4
         Independent Auditors' Report - Report of Ernst & Young LLP, as 
           of December 31, 1996 and for the Three Months Then Ended. . .  F-5
         Consolidated Balance Sheets, December 31, 1997 and 1998 . . . .  F-6
         Consolidated Statements of Operations, Fiscal Year Ended 
           September 30, 1996, the Three Months Ended December 31, 1995 
           (unaudited) and 1996, and Fiscal Years Ended December 31, 
           1997 and 1998 . . . . . . . . . . . . . . . . . . . . . . . .  F-8
         Consolidated Statements of Stockholders' Equity (Deficit),
           Fiscal Year Ended September 30, 1996, the Three Months Ended 
           December 31, 1996, and Fiscal Years Ended December 31, 1997  
           and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
         Consolidated Statements of Cash Flows, Fiscal Year Ended 
           September 30, 1996, the Three Months Ended December 31, 1995 
           (unaudited) and 1996, and Fiscal Years Ended December 31, 
           1997 and 1998  . . . . . . . . . . . . . . . . . . . . . . . . F-11
         Notes to Consolidated Financial Statements, December 31,
           1997 and 1998  . . . . . . . . . . . . . . . . . . . . . . . . F-14

    (2)  Financial Statement Schedule. The following Financial Statement 
         Schedule is submitted herewith:

         Independent Auditors' Report . . . . . . . . . . . . . . . . . . S-1
         Schedule II: Valuation and Qualifying Accounts . . . . . . . . . S-2

    (3)  List of Exhibits.

         (2)   Plan of Acquisition, Reorganization, Arrangement, Liquidation 
               or Succession.

               2.1: Plan of Arrangement under Section 192 of the Canada Business
                    Corporations Act.  [Incorporated by reference to Exhibit 2.1
                    to Registration Statement on Form S-4 of ICG Communications,
                    Inc. (Commission File No. 333-4226)].

                                       60
<PAGE>

         (3)   Corporate Organization.

               3.1: Certificate of  Incorporation  of ICG  Communications,  Inc.
                    dated April 11, 1996.  [Incorporated by reference to Exhibit
                    3.1  to   Registration   Statement   on  Form   S-4  of  ICG
                    Communications, Inc., File No. 333-4226].
               3.2: By-laws  of  ICG  Communications,   Inc.   [Incorporated  by
                    reference to Exhibit 3.2 to  Registration  Statement on Form
                    S-4 of ICG Communications, Inc., File No. 333-4226].
               3.3: Agreement  and  Plan  of  Reorganization  by and  among  ICG
                    Communications,  Inc., ICG Canadian  Acquisition,  Inc., ICG
                    Holdings (Canada), Inc. and ICG Holdings (Canada) Co., dated
                    November 4, 1998.
               3.4: Order of Amalgamation  between ICG Holdings  (Canada),  Inc.
                    and ICG Holdings (Canada) Co., dated December 22, 1998.
               3.5: Memorandum  and  Articles  of  Association  of ICG  Holdings
                    (Canada)  Co.  filed  with  the  Registrar  of  Joint  Stock
                    Companies, Halifax, Nova Scotia.

         (4)   Instruments Defining the Rights of Security Holders, Including 
               Indentures.

               4.1: Note Purchase  Agreement,  dated as of July 14, 1995,  among
                    the  Registrant,   IntelCom  Group  (U.S.A.),  Inc.,  Morgan
                    Stanley  Group Inc.,  Princes Gate  Investors,  L.P.,  Acorn
                    Partnership   I,  L.P.,   PGI   Investments   Limited,   PGI
                    Investments  Limited, PGI Sweden AB, and Gregor von Opel and
                    Morgan  Stanley  Group,  Inc.,  as Agent for the  Purchasers
                    [Incorporated  by  reference  to Exhibit  4.1 to Form 8-K of
                    IntelCom Group Inc., dated July 18, 1995].
               4.2: Warrant  Agreement,  dated as of July 14,  1995,  among  the
                    Registrant,  the Committed  Purchasers,  and IntelCom  Group
                    (U.S.A.),  Inc., as Warrant Agent [Incorporated by reference
                    to Exhibit  4.2 to Form 8-K of IntelCom  Group  Inc.,  dated
                    July 18, 1995].
               4.3: First Amended and Restated  Articles of Incorporation of ICG
                    Holdings,  Inc. [Incorporated by reference to Exhibit 3.1 to
                    Registration   Statement  on  Form  S-4  of  IntelCom  Group
                    (U.S.A.), Inc., File No. 333-04569].
               4.4: Indenture,  dated  August  8,  1995,  among  IntelCom  Group
                    (U.S.A.)   Inc.,   IntelCom  Group  Inc.  and  Norwest  Bank
                    Colorado, National Association [Incorporated by reference to
                    Exhibit  4.6  to  Registration  Statement  on  Form  S-4  of
                    IntelCom Group (U.S.A.) Inc., File Number 33-96540].
               4.5: Indenture,  dated  April  30,  1996,  among  IntelCom  Group
                    (U.S.A.)   Inc.,   IntelCom  Group  Inc.  and  Norwest  Bank


                                       61
<PAGE>

                    Colorado, National Association [Incorporated by reference to
                    Exhibit  4.14  to  Registration  Statement  on  Form  S-4 of
                    IntelCom Group (U.S.A.) Inc., File No. 333-04569].
               4.6: Indenture,  dated March 11, 1997, among ICG Holdings,  Inc.,
                    ICG Communications, Inc. and Norwest Bank Colorado, National
                    Association  [Incorporated  by  reference to Exhibit 4.15 to
                    Registration  Statement  on Form S-4 of ICG  Communications,
                    Inc., File No. 333-24359].
               4.7: Written Action of the Manager of ICG Funding,  LLC, dated as
                    of September  24,  1997,  with respect to the terms of the 6
                    3/4%   Exchangeable   Limited  Liability  Company  Preferred
                    Securities  [Incorporated  by  reference  to Exhibit  4.8 to
                    Registration Statement on Form S-3 of ICG Funding, LLC, File
                    No. 333-40495].
               4.8: Amended and Restated Limited  Liability Company Agreement of
                    ICG  Funding,   LLC,   dated  as  of   September   23,  1997
                    [Incorporated  by reference  to Exhibit 4.4 to  Registration
                    Statement  on  Form  S-3  of  ICG  Funding,  LLC,  File  No.
                    333-40495].  
               4.9: Indenture,  between ICG  Services,  Inc.  and  Norwest  Bank
                    Colorado,  National  Association,  dated as of February  12,
                    1998  [Incorporated  by  reference  to  Exhibit  4.4  to ICG
                    Services,  Inc. Registration  Statement on Form S-4 File No.
                    333-51037].
               4.10:Indenture,  between ICG  Services,  Inc.  and  Norwest  Bank
                    Colorado,  National Association,  dated as of April 27, 1998
                    [Incorporated  by reference to Exhibit 4.4 to ICG  Services,
                    Inc. Registration  Statement on Form S-4 File No. 333-60653,
                    as amended].
               4.11:Second  Amended and Restated  Articles of  Incorporation  of
                    ICG Holdings, Inc., dated March 10, 1997.

         (9)   Voting Trust Agreement.
               None.

         (10)  Material Contracts.

               10.1:Arrangement  and  Support  Agreement  dated  June  27,  1996
                    between ICG  Communications,  Inc. and  IntelCom  Group Inc.
                    [Incorporated  by reference  to Exhibit 2.1 to  Registration
                    Statement   on  Form   S-4  of  ICG   Communications,   Inc.
                    (Commission File No. 333-4226)].
               10.2:Incentive  Stock Option Plan #2  [Incorporated  by reference
                    to Exhibit 4.1 to the Registration  Statement on Form S-8 of
                    IntelCom Group Inc., File No.  33-86346,  filed November 14,
                    1994].
               10.3:Form of Stock Option  Agreement for  Incentive  Stock Option
                    Plan #2  [Incorporated  by  reference  to Exhibit 4.2 to the
                    Registration  Statement on Form S-8 of IntelCom  Group Inc.,
                    File No. 33-86346, filed November 14, 1994].
               10.4:Incentive  Stock Option Plan #3  [Incorporated  by reference
                    to Exhibit 4.3 to the Registration  Statement on Form S-8 of
                    IntelCom Group Inc., File No.  33-86346,  filed November 14,
                    1994].

                                       62
<PAGE>

               10.5:Form of Stock Option  Agreement for  Incentive  Stock Option
                    Plan #3  [Incorporated  by  reference  to Exhibit 4.4 to the
                    Registration  Statement on Form S-8 of IntelCom  Group Inc.,
                    File No. 33-86346,  filed  November 14, 1994].  
               10.6:1994 Employee Stock Option Plan  [Incorporated  by reference
                    to Exhibit 4.5 to the Registration  Statement on Form S-8 of
                    IntelCom Group Inc., File No.  33-86346,  filed November 14,
                    1994].
               10.7:Form of  Stock  Option  Agreement  for 1994  Employee  Stock
                    Option Plan [Incorporated by reference to Exhibit 4.6 to the
                    Registration  Statement on Form S-8 of IntelCom  Group Inc.,
                    File No. 33-86346, filed November 14, 1994].
               10.8:Employment  Agreement,  dated  as of May 30,  1995,  between
                    IntelCom  Group Inc.  and J. Shelby Bryan  [Incorporated  by
                    reference  to  Exhibit  10.5 to Form 8-K of  IntelCom  Group
                    Inc., as filed on August 2, 1995].
               10.9:Stock Option  Agreement,  dated as of May 30, 1995,  between
                    IntelCom  Group Inc.  and J. Shelby Bryan  [Incorporated  by
                    reference  to  Exhibit  10.6 to Form 8-K of  IntelCom  Group
                    Inc., as filed on August 2, 1995].
               10.10:  Indemnification  Agreement,  dated  as of May  30,  1995,
                    between   IntelCom   Group   Inc.   and  J.   Shelby   Bryan
                    [Incorporated  by  reference  to Exhibit 10.7 to Form 8-K of
                    IntelCom Group Inc., as filed on August 2, 1995].
               10.11:  Placement  Agreement,  dated as of August 3, 1995,  among
                    IntelCom Group Inc., IntelCom Group (U.S.A.),  Inc., certain
                    subsidiaries  of IntelCom  Group  (U.S.A.),  Inc. and Morgan
                    Stanley & Co.  Incorporated  [Incorporated  by  reference to
                    Exhibit 10.1 to Form 8-K of IntelCom Group Inc., as filed on
                    August 9, 1995].
               10.12: Employment Agreement between IntelCom Group Inc. and James
                    D.  Grenfell,  dated  November  1,  1995.  [Incorporated  by
                    reference to Exhibit  10.38 to IntelCom  Group Inc.'s Annual
                    Report on Form  10-K/A for the fiscal  year ended  September
                    30, 1995].
               10.13: Purchase and Sale Agreement, dated as of October 19, 1995,
                    by and among ICG Wireless  Services,  Inc.,  IntelCom  Group
                    (U.S.A.),   Inc.,   UpSouth   Corporation   and  Vyvx,  Inc.
                    [Incorporated  by  reference  to Exhibit  10.40 to  IntelCom
                    Group Inc.'s  Annual Report on Form 10-K for the fiscal year
                    ended September 30, 1995].
               10.14: ICG  Communications,  Inc.,  401(k) Wrap  Around  Deferred
                    Compensation  Plan.  [Incorporated  by  reference to Exhibit
                    10.42 to ICG  Communications,  Inc.'s  Annual Report on Form
                    10-K/A for the fiscal year ended September 30, 1996.]
               10.15: ICG  Communications,  Inc.  1996 Employee  Stock  Purchase
                    Plan.   [Incorporated   by  reference  to  the  Registration
                    Statement on Form S-8 of ICG Communications,  Inc., File No.
                    33-14127, filed on October 14, 1996].

               10.16: Consulting  Services  Agreement,  by and between  IntelCom

                                       63
<PAGE>

                    Group  Inc.  and  International  Communications  Consulting,
                    Inc.,  effective January 1, 1996  [Incorporated by reference
                    to Exhibit 10.44 to ICG  Communications,  Inc.'s  Transition
                    Report on Form 10-K/A for the three  months  ended  December
                    31, 1996].
               10.17:  Confidential  General Release and Covenant Not to Sue, by
                    and  between  ICG  Communications,  Inc.  and John D. Field,
                    dated November 5, 1996 [Incorporated by reference to Exhibit
                    10.45 to ICG  Communications,  Inc.'s  Transition  Report on
                    Form 10-K/A for the three months ended December 31, 1996].
               10.18:  Amendment,  dated  as of  March  26,  1997,  between  ICG
                    Communications,  Inc.  and J. Shelby  Bryan,  to  Employment
                    Agreement,  dated as of May 30, 1995, between IntelCom Group
                    Inc.  and J. Shelby  Bryan  [Incorporated  by  reference  to
                    Exhibit 10 to ICG Communications, Inc.'s Quarterly Report on
                    Form 10-Q for the quarterly period ended March 31, 1997].
               10.19: 1996 Stock  Option  Plan  [Incorporated  by  reference  to
                    Exhibit 4.6 to the Registration Statement on Form S-8 of ICG
                    Communications, Inc., File No. 333-25957, filed on April 28,
                    1997].
               10.20: Amendment No. 1 to the ICG Communications, Inc. 1996 Stock
                    Option Plan.
               10.21: Employment Agreement,  dated as of April 22, 1997, between
                    ICG  Communications,  Inc. and Don Teague  [Incorporated  by
                    reference  to  Exhibit  10.2 to ICG  Communications,  Inc.'s
                    Quarterly Report on Form 10-Q for the quarterly period ended
                    June 30, 1997].
               10.22: Amendment No. 2 to the ICG Communications, Inc. 1996 Stock
                    Option Plan  [Incorporated  by  reference to Exhibit 10.1 to
                    ICG Communications, Inc.'s Quarterly Report on Form 10-Q for
                    the quarterly period ended September 30, 1997].
               10.23a: Purchase Agreement between ICG Holdings,  Inc. and TriNet
                    Corporate Realty Trust, Inc., dated December 9, 1997.
               10.23a: First Amendment to Purchase Agreement, by and between ICG
                    Holdings,  Inc.  and TriNet  Essential  Facilities  X, Inc.,
                    dated January 15, 1998.
               10.23c: Assignment of Purchase  Agreement,  by and between TriNet
                    Corporate Realty Trust, Inc., dated January 15, 1998.
               10.23c:   Commercial   Lease  -  Net  between  TriNet   Essential
                    Facilities X, Inc. and ICG Holdings, Inc., dated January 15,
                    1998.
               10.23e: Continuing Lease Guaranty, by ICG Communications, Inc. to
                    TriNet Essential Facilities X, Inc., dated January 20, 1998.
               10.23f: Continuing Lease Guaranty, by ICG Holdings (Canada), Inc.
                    to TriNet  Essential  Facilities X, Inc.,  dated January 20,
                    1998.
               10.24: Agreement  and Plan of Merger,  dated October 12, 1997, by
                    and among ICG  Communications,  Inc., ICG Acquisition,  Inc.
                    and   NETCOM   On-Line    Communication    Services,    Inc.
                    [Incorporated by reference to Exhibit 2.1 to Form 8-K, dated
                    January 21, 1998].
               10.25: Amendment to Agreement and Plan of Merger,  dated December

                                       64
<PAGE>

                    15,  1997,  by  and  among  ICG  Communications,  Inc.,  ICG
                    Acquisition, Inc. and NETCOM On-Line Communication Services,
                    Inc.  [Incorporated by reference to Exhibit 2.2 to Form 8-K,
                    dated January 21, 1998].
               10.26:  Employment  Agreement,  dated July 1, 1998,  between  ICG
                    Communications,  Inc. and Harry R. Herbst  [Incorporated  by
                    reference  to  Exhibit  10.1 to ICG  Communications,  Inc.'s
                    Quarterly Report on Form 10-Q for the quarterly period ended
                    June 30, 1998].
               10.27: Employment  Agreement,  dated September 23, 1998,  between
                    ICG  Communications,  Inc. and Douglas I. Falk [Incorporated
                    by reference to Exhibit 10.1 to ICG  Communications,  Inc.'s
                    Quarterly Report on Form 10-Q for the quarterly period ended
                    September 30, 1998].
               10.28:  Asset  Purchase   Agreement  by  and  between  MindSpring
                    Enterprises, Inc. and NETCOM On-Line Communication Services,
                    Inc., dated as of January 5, 1999 [Incorporated by reference
                    to Exhibit 10.1 to ICG Communications, Inc.'s Current Report
                    on  Form   8-K,   dated   March   4,   1999].   
               10.29: ICG Communications, Inc. 1998 Stock Option Plan.
               10.30: Form of Stock Option Agreement for 1998 Stock Option Plan.
               10.31: Amendment No. 1 to the ICG Communications, Inc. 1998 Stock
                    Option Plan, dated December 15, 1998.
               10.32: Form of  Agreement  regarding  Gross-Up  Payments,  by and
                    between  ICG  Communications,  Inc.  and  each of J.  Shelby
                    Bryan,  Harry R. Herbst,  Douglas I. Falk and H. Don Teague,
                    dated December 16, 1998.

         (11)  Statement re Computation of per Share Earnings.
               Not Applicable

         (12)  Statement re Computation of Ratios.
               Not Applicable

         (13)  Annual Report to Security Holders.
               Not Applicable

         (21)  Subsidiaries of the Registrant.
               
               21.1: Subsidiaries of the Registrant. 

         (22)  Published Report re Matters Submitted to Vote of Security Holders
               Not Applicable

         (23)  Consents.

               23.1: Consent of KPMG LLP.
               23.2: Consent of Ernst & Young LLP.

                                       65
<PAGE>

         (24)  Power of Attorney.
               Not Applicable

         (27)  Financial Data Schedule.

               27.1:Financial Data Schedule of ICG Communications,  Inc. for the
                    Fiscal Year Ended December 31, 1998.

(B) Report on Form 8-K. The  following  report on Form 8-K was filed by the
    Registrants during the fiscal quarter ended December 31, 1998:

    ICG Communications, Inc.      (i)  Current Report on Form 8-K dated  
    ICG Holdings (Canada), Inc.        November 4, 1998, regarding the  
    ICG Holdings, Inc.:                announcement of the Company's earnings
                                       information and results of operations for
                                       the quarterended September 30, 1998. 

(C) Exhibits. The exhibits required by this Item are listed under Item 14(A)(3).

(D) Financial Statement Schedule. The financial statement schedule required
    by this Item is listed under Item 14(A)(2).


                                       66
<PAGE>



                              FINANCIAL STATEMENTS

                                                                         Page
Independent Auditors' Report - Report of KPMG LLP  . . . . . . . . . . .  F-2

Independent Auditors' Report - Report of Ernst & Young LLP, as of 
  December 31, 1996 and 1997 and for each of the Two Years in the 
  Period Ended December 31, 1997 . . . . . . . . . . . . . . . . . . . .  F-4

Independent Auditors' Report - Report of Ernst & Young LLP, as of 
  December 31, 1996 and for the Three Months Then Ended. . . . . . . . .  F-5

Consolidated Balance Sheets, December 31, 1997 and 1998  . . . . . . . .  F-6

Consolidated Statements of Operations, Fiscal Year Ended September 30, 
  1996, the Three  Months Ended December 31, 1995 (unaudited) and 1996, 
  and Fiscal Years Ended December 31, 1997 and 1998. . . . . . . . . . .  F-8

Consolidated Statements of Stockholders' Equity (Deficit), Fiscal Year 
  Ended September 30, 1996, the Three Months Ended December 31, 1996, 
  and Fiscal Years Ended December 31, 1997 and 1998  . . . . . . . . . .  F-10

Consolidated Statements of Cash Flows, Fiscal Year Ended September 30, 
  1996, the Three  Months Ended December 31, 1995 (unaudited) and 1996, 
  and Fiscal Years Ended December 31, 1997 and 1998  . . . . . . . . . .  F-11

Notes to Consolidated Financial Statements, December 31, 1997 and 1998 .  F-14


                                       F-1
<PAGE>


                Independent Auditors' Report - Report of KPMG LLP




The Board of Directors and Stockholders
ICG Communications, Inc.:

We  have  audited  the   accompanying   consolidated   balance   sheets  of  ICG
Communications,  Inc. and  subsidiaries  (the "Company") as of December 31, 1997
and 1998 and the related  consolidated  statements of operations,  stockholders'
equity  (deficit),  and cash flows for the fiscal year ended September 30, 1996,
the  three-month  period ended  December  31,  1996,  and the fiscal years ended
December 31, 1997 and 1998.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated  financial  statements based on our audits. We did
not audit the consolidated  financial statements of NETCOM On-Line Communication
Services,  Inc.  ("NETCOM"),  a  discontinued  wholly  owned  subsidiary  of the
Company, as of December 31, 1997 or for the fiscal year ended December 31, 1996,
the  three-month  period  ended  December  31,  1996,  or the fiscal  year ended
December 31, 1997,  whose total assets  constitute  11.7 percent at December 31,
1997, and whose loss from operations  constitutes  100.5 percent in fiscal 1996,
96.0 percent in the three months  ended  December 31, 1996,  and 83.8 percent in
fiscal  1997  of the  consolidated  loss  from  discontinued  operations.  Those
consolidated  financial  statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the amounts
included for NETCOM, is based solely on the reports of the other auditors.

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 and the  reports  of the other  auditors  provide a
reasonable basis for our opinion.

In our opinion,  based on our audits and the reports of the other auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the  financial  position of ICG  Communications,  Inc.  and
subsidiaries  as of  December  31,  1997  and  1998,  and the  results  of their
operations  and their cash flows for the fiscal year ended  September  30, 1996,
the  three-month  period ended  December  31,  1996,  and the fiscal years ended
December 31, 1997 and 1998, in conformity  with  generally  accepted  accounting
principles.

                                       F-2
<PAGE>


As explained in note 2 to the consolidated  financial statements,  during fiscal
year ended  September 30, 1996, the Company changed its method of accounting for
long-term telecom services contracts.



                                             KPMG LLP

Denver, Colorado
February 15, 1999


                                       F-3
<PAGE>

           Independent Auditors' Report - Report of Ernst & Young LLP



The Board of Directors and Stockholders
NETCOM On-Line Communication Services, Inc.

We have audited the consolidated  balance sheet of NETCOM On-Line  Communication
Services,  Inc. as of December 31, 1997, and the related consolidated statements
of operations,  stockholders' equity and cash flows for each of the two years in
the period ended  December 31, 1997 (not  presented  separately  herein).  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements 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 consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of NETCOM
On-Line Communication  Services,  Inc. at December 31, 1997 and the consolidated
results  of its  operations  and its cash flows for each of the two years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.



                                             Ernst & Young LLP

San Jose, California
February 13, 1998


                                       F-4
<PAGE>

           Independent Auditors' Report - Report of Ernst & Young LLP



The Board of Directors and Stockholders
NETCOM On-Line Communication Services, Inc.

     We  have  audited  the   consolidated   balance  sheet  of  NETCOM  On-Line
Communication   Services,  Inc.  as  of  December  31,  1996,  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the three months then ended (not presented  separately herein).  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

     We conducted  our audit 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 audit provides a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
NETCOM  On-Line  Communication  Services,  Inc.  at  December  31,  1996 and the
consolidated  results of its  operations and its cash flows for the three months
then ended, in conformity with generally accepted accounting principles.



                                           Ernst & Young LLP

San Jose, California
April 16, 1998

                                       F-5
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 1997 and 1998

------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                              ------------------------------------------------
Assets                                                                                 1997                     1998
------                                                                        ------------------------  ----------------------
                                                                                              (in thousands)
<S>                                                                           <C>                            <C>    
Current assets:
  Cash and cash equivalents                                                   $      118,569                   210,831
  Short-term investments available for sale (note 6)                                 112,281                    52,000
  Receivables:
    Trade, net of allowance of $5,254 and $15,473 at
      December 31, 1997 and 1998, respectively (note 14)                              57,163                   132,920
    Revenue earned, but unbilled                                                       8,599                    11,063
    Due from affiliate (note 13)                                                       9,384                         -
    Other (note 13)                                                                    1,696                     1,156
                                                                              ------------------------  ----------------------
                                                                                      76,842                   145,139
                                                                              ------------------------  ----------------------

  Inventory                                                                            3,901                     2,821
  Prepaid expenses and deposits                                                       10,495                    12,036
  Net current assets of discontinued operations (note 3)                              38,331                         -
                                                                              ------------------------  ----------------------

      Total current assets                                                           360,419                   422,827
                                                                              ------------------------  ----------------------

Property and equipment (notes 7, 9 and 10)                                           737,424                 1,112,067
  Less accumulated depreciation                                                     (105,970)                 (177,933)
                                                                              ------------------------  ----------------------
    Net property and equipment                                                       631,454                   934,134
                                                                              ------------------------  ----------------------

Long-term notes receivable from affiliate and others, net (note 13)                   10,375                         -
Restricted cash (note 11)                                                             24,649                    16,912
Other assets, net of accumulated amortization:
  Goodwill (note 4)                                                                   75,673                   130,503
  Deferred financing costs (note 10)                                                  23,196                    35,958
  Transmission and other licenses                                                      6,031                     5,659
  Deposits and other (note 8)                                                          9,066                    25,189
                                                                              ------------------------  ----------------------
                                                                                     113,966                   197,309
                                                                              ------------------------  ----------------------

Net non-current assets of discontinued operations (note 3)                            76,577                    54,243
                                                                              ------------------------  ----------------------

      Total assets (note 15)                                                  $    1,217,440                 1,625,425
                                                                              ========================  ======================
                                                                                                             (Continued)
</TABLE>

                                       F-6
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets, Continued

------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                              ----------------------------------------------
Liabilities and Stockholders' Deficit                                                  1997                    1998
-------------------------------------                                         ------------------------ ---------------------
                                                                                             (in thousands)
<S>                                                                          <C>                             <C>   
Current liabilities:
  Accounts payable                                                           $         27,458                   33,781
  Accrued liabilities                                                                  56,817                   55,816
  Deferred revenue                                                                      5,049                    9,892
  Current portion of capital lease obligations (notes 9 and 14)                         5,637                    5,086
  Current portion of long-term debt (note 10)                                           1,784                       46
  Net current liabilities of discontinued operations
    (note 3)                                                                                -                   23,272
                                                                              ------------------------ ---------------------
      Total current liabilities                                                        96,745                  127,893
                                                                              ------------------------ ---------------------

Capital lease obligations, less current portion (notes 9 and 14)                       66,939                   63,359
Long-term debt, net of discount, less current portion (note 10)                       890,568                1,598,998
                                                                              ------------------------ ---------------------

      Total liabilities                                                             1,054,252                1,790,250
                                                                              ------------------------ ---------------------

Redeemable  preferred  stock of subsidiary  ($301.2  million and 
  $346.2  million liquidation value at December 31, 1997 and 1998, 
  respectively) (note 11)                                                             292,442                  338,310

Company-obligated  mandatorily  redeemable  preferred  securities  
  of subsidiary limited liability company which holds solely 
  Company preferred stock ($133.4 million liquidation value at 
  December 31, 1997 and 1998) (note 11)                                               127,729                  128,042

Stockholders' deficit (note 12):
  Common stock, $.01 par value, 100,000,000 shares authorized; 
    43,974,659 and 46,360,185 shares issued and outstanding at 
    December 31, 1997 and 1998, respectively (notes 1 and 12)                             749                      584
  Additional paid-in capital                                                          533,541                  577,820
  Accumulated deficit                                                                (791,417)              (1,209,462)
  Accumulated other comprehensive income (loss)                                           144                     (119)
                                                                              ------------------------ ---------------------
      Total stockholders' deficit                                                    (256,983)                (631,177)
                                                                              ------------------------ ---------------------

Commitments and contingencies (notes 10, 11, 13 and 14)                                                 

      Total liabilities and stockholders' deficit                               $   1,217,440                1,625,425
                                                                              ======================== =====================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       F-7
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations
Fiscal Year Ended September 30, 1996,
the Three Months Ended December 31, 1995 (unaudited) and 1996,
and Fiscal Years Ended December 31, 1997 and 1998

------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                    Fiscal year
                                                       ended              Three months ended               Fiscal years ended
                                                   September 30,             December 31,                     December 31,
                                                                  -------------------------------- ------------------------------
                                                       1996            1995            1996             1997             1998
                                                  --------------  --------------- ---------------- ---------------- -------------
                                                                     (unaudited)
                                                                       (in thousands, except per share data)

<S>                                              <C>               <C>             <C>             <C>               <C>    
Revenue (notes 2, 14 and 15)                     $  154,143         34,544          49,477          245,022           397,619

Operating costs and expenses:
  Operating costs                                   121,983         26,572          42,485          217,927           254,689
  Selling, general and administrative expenses       75,646         18,248          23,868          148,254           183,683
  Depreciation and amortization (notes 7 and
    15)                                              30,030          4,833           9,691           56,501           101,545
  Provision for impairment of long-lived
    assets (note 16)                                  9,994              -               -            9,261                 -
  Net loss (gain) on disposal of long-lived
    assets note 5)                                    5,128          1,030            (772)             243             4,055
  Restructuring costs (note 17)                           -              -               -                -             2,339
                                                  --------------  --------------- ---------------- ---------------- -------------
    Total operating costs and expenses              242,781         50,683          75,272          432,186           546,311
                                                  --------------  --------------- ---------------- ---------------- -------------

    Operating loss                                  (88,638)       (16,139)        (25,795)        (187,164)         (148,692)

Other income (expense):
  Interest expense (notes 10 and 15)                (85,714)       (15,215)        (24,454)        (117,520)         (170,127)
  Interest income                                    19,212          3,750           5,962           21,907            28,414
  Other (expense) income, net                        (3,627)             7             (64)            (358)           (4,652)
                                                  --------------  --------------- ---------------- ---------------- -------------
                                                    (70,129)       (11,458)        (18,556)         (95,971)         (146,365)
                                                  --------------  --------------- ---------------- ---------------- -------------
Loss from continuing operations before income
  taxes, preferred dividends, share of losses 
  and cumulative effect of change in accounting    (158,767)       (27,597)        (44,351)        (283,135)         (295,057)
Income tax benefit (expense) (note 18)                5,131              -               -                -               (90)
                                                  --------------  --------------- ---------------- ---------------- -------------
Loss from continuing operations before preferred
  dividends, share of losses and cumulative
  effect of change in accounting                   (153,636)       (27,597)        (44,351)        (283,135)         (295,147)
Accretion and preferred dividends on preferred
  securities of subsidiaries, net of minority
  interest in share of losses (note 11)             (25,409)        (3,294)         (4,988)         (38,117)          (55,183)
Share of losses of joint venture                     (1,814)          (228)              -                -                 -
                                                  --------------  --------------- ---------------- ---------------- -------------
Loss from continuing operations before
  cumulative effect of change in accounting      $ (180,859)       (31,119)        (49,339)        (321,252)         (350,330)
                                                  --------------  --------------- ---------------- ---------------- -------------
                                                                                                                     (Continued)
</TABLE>


                                       F-8
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations, Continued

------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                    
                                                    Fiscal year            Three months ended               Fiscal years ended
                                                      ended                   December 31,                     December 31,
                                                   September 30,   -------------------------------- --------------------------------
                                                       1996             1995            1996             1997             1998
                                                  ---------------- --------------- ---------------- ---------------- ---------------
                                                                      (unaudited)
                                                                        (in thousands, except per share data)
<S>                                               <C>                <C>             <C>             <C>              <C>     
Discontinued operations (notes 1 and 3):
  Loss from discontinued operations               $    (44,060)       (5,516)        (11,974)         (39,483)         (65,938)
  Loss on disposal of discontinued operations                -             -               -                -           (1,777)
                                                  ---------------- --------------- ---------------- ---------------- ---------------
                                                       (44,060)       (5,516)        (11,974)         (39,483)         (67,715)
                                                  ---------------- --------------- ---------------- ---------------- ---------------
Loss before cumulative effect of change in
  accounting                                          (224,919)      (36,635)        (61,313)        (360,735)        (418,045)
                                                  ---------------- --------------- ---------------- ---------------- ---------------
Cumulative effect of change in accounting
  (note 2)                                              (3,453)       (3,453)              -                -                -
                                                  ---------------- --------------- ---------------- ---------------- ---------------

Net loss                                          $   (228,372)      (40,088)        (61,313)        (360,735)        (418,045)
                                                  ================ =============== ================ ================ ===============

Other comprehensive income (loss):
  Foreign currency translation adjustment                  699           (28)            544             (527)            (263)
  Unrealized gain (loss) on short-term
    investments available for sale (note 6)                540             -             540             (540)               -
                                                  ---------------- --------------- ---------------- ---------------- ---------------
      Other comprehensive income (loss)                  1,239           (28)          1,084           (1,067)            (263)
                                                 ---------------- --------------- ---------------- ---------------- ---------------

         Comprehensive loss                       $   (227,133)      (40,116)        (60,229)        (361,802)        (418,308)
                                                  ================ =============== ================ ================ ===============

Loss per share - basic and diluted:
  Continuing operations  before cumulative
    effect of change in accounting                $     (4.90)         (0.96)           (1.18)         (7.56)           (7.75)
  Discontinued operations                               (1.20)         (0.17)           (0.29)         (0.93)           (1.50)
  Cumulative effect of change in accounting             (0.09)         (0.11)              -              -                -
                                                  ---------------- --------------- ---------------- ---------------- ---------------

         Net loss per share - basic and diluted   $     (6.19)         (1.24)           (1.47)         (8.49)           (9.25)
                                                  ================ =============== ================ ================ ===============


Weighted average number of shares
  outstanding - basic and diluted                      36,875         32,343           41,760          42,508          45,194
                                                  ================ =============== ================ ================ ===============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-9
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)
Fiscal Year Ended September 30, 1996, the Three Months Ended December 31, 1996, 
and Fiscal Years Ended December 31, 1997 and 1998

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                       Accumulated         Total
                                                  Common stock            Additional                       other       stockholders'
                                           ----------------------------    paid-in     Accumulated    comprehensive       equity
                                             Shares         Amount         capital       deficit      (loss) income      (deficit)
                                         -------------- --------------  ------------  -------------  ---------------  --------------
                                                                               (in thousands)

<S>                                         <C>        <C>               <C>          <C>                 <C>          <C>    
Balances at October 1, 1995                 34,565     $  190,849        229,667        (152,487)           (28)        268,001
 Shares issued for cash in connection 
   with the exercise of options and 
   warrants (note 12)                        1,983          1,747          2,498               -              -           4,245
 Shares issued as repayment of debt 
   and related accrued interest                130            687              -               -              -             687
 Shares issued in connection with 
   business combinations (note 4)               64            749              -               -              -             749
 Conversion of ICG Holdings (Canada),
   Inc. preferred shares                       496          3,780              -               -              -           3,780
 Shares issued as contribution to 
   401(k) plan (note 19)                        87            856            300               -              -           1,156
 Shares issued upon conversion of 
   subordinated notes                        4,413         76,336              -               -              -          76,336
 Repurchase of warrants                          -              -         (2,671)              -              -          (2,671)
 Compensation expense related to 
   issuance of common stock options              -              -             53               -              -              53
 Exchange of ICG Holdings (Canada), 
   Inc. common shares for ICG common  
   stock                                         -       (248,682)       248,682               -              -               -
 Unrealized gains on short-term  
   investmentsavailable for sale                 -              -              -               -            540             540
 Cumulative foreign currency  
   translation adjustment                        -              -              -               -            699             699
 Net loss                                        -              -              -        (228,372)             -        (228,372)
                                         -------------- --------------  ------------  -------------  ---------------  --------------
Balances at September 30, 1996              41,738         26,322        478,529        (380,859)         1,211         125,203
 Shares issued for cash in connection 
 with the exercise of options          
 and warrants (note 12)                        132           1,800            284              -              -           2,084
 Shares issued in connection with 
   business combination (note 4)                18               -            350              -              -             350
 Shares issued as contribution to 
   401(k) plan (note 19)                        19               -            480              -              -             480
 Shares issued upon conversion of 
   subordinated notes                           23             417              -              -              -             417
 Exchange of ICG Holdings (Canada), 
   Inc. common shares for ICG common    
   stock                                         -         (20,350)        20,350              -              -               -
 Net loss                                        -               -              -        (61,313)             -         (61,313)
 Net loss of NETCOM for the three 
   months ended December 31, 1996 (note 2)       -              -              -          11,490              -          11,490
                                         ------------- -------------- -------------- -------------  ---------------  --------------
Balances at December 31, 1996               41,930           8,189        499,993       (430,682)         1,211          78,711
 Shares issued for cash in connection 
   with the exercise of options    
   and warrants (note 12)                      938               5          4,111              -              -           4,116
 Shares issued in connection with 
   business combination (note 4)               687               7         15,953              -              -          15,960
 Shares issued for cash in connection 
   with employee stock purchase 
   plan (note 12)                              240               2          3,020              -              -           3,022
 Shares issued as contribution to 
   401(k) plan (note 19)                       179               2          3,008              -              -           3,010
 Exchange of ICG Holdings (Canada), 
   Inc. common shares for ICG common 
   stock                                         -          (7,456)         7,456              -              -               -
 Reversal of unrealized gains on 
   short-term investments available for 
   sale                                          -               -              -              -           (540)           (540)
 Cumulative foreign currency translation 
   adjustment                                    -               -              -              -           (527)           (527)
 Net loss                                        -               -              -       (360,735)             -        (360,735)
                                         -------------  -------------  ------------- -------------- ---------------  --------------
Balances at December 31, 1997               43,974             749        533,541       (791,417)           144        (256,983)
 Shares issued for cash by subsidiary, 
   net of selling costs                        127               1          3,384              -              -           3,385
 Shares issued for cash in connection 
   with the exercise of options 
   and warrants (note 12)                    1,519              15         19,268              -              -          19,283
 Shares issued in connection with 
   business combinations (note 4)              502               5         15,527              -              -          15,532
 Shares issued for cash in connection 
   with the employee stock  
   purchase plan (note 12)                     111               1          2,249              -              -           2,250
 Shares issued as contribution to 
   401(k) plan (note 19)                       127               2          3,662              -              -           3,664
 Exchange of ICG Holdings (Canada), 
   Inc. common shares for ICG common  
   stock                                         -            (189)           189              -              -               -
 Cumulative foreign currency 
   translation adjustment                        -               -              -              -           (263)           (263)
 Net loss                                        -               -              -       (418,045)             -        (418,045)
                                         -------------  -------------  ------------- -------------- ---------------  --------------
Balances at December 31, 1998               46,360       $     584        577,820     (1,209,462)          (119)       (631,177)
                                         =============  =============  ============= ============== ===============  ==============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-10
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Fiscal Year Ended September 30, 1996,
the Three Months Ended December 31, 1995 (unaudited) and 1996,
and Fiscal Years Ended December 31, 1997 and 1998

------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                             Fiscal year        Three months ended           Fiscal years ended
                                                                 ended              December 31,                 December 31,
                                                             September 30, ---------------------------- ----------------------------
                                                                 1996          1995           1996          1997          1998
                                                           --------------- -------------  ------------- ------------- --------------
                                                                             (unaudited)
                                                                                          (in thousands)
<S>                                                       <C>                 <C>            <C>         <C>            <C>      
Cash flows from operating activities:
  Net loss                                                $    (228,372)      (40,088)      (61,313)     (360,735)      (418,045)
  Loss from discontinued operations                              44,060         5,516        11,974        39,483         67,715
  Adjustments to reconcile net loss to net cash used by
    operating activities of continuing operations:
      Cumulative effect of change in accounting                   3,453         3,453             -             -              -
      Share of losses of joint venture                            1,814           228             -             -              -
      Accretion and preferred dividends on preferred
        securities of subsidiaries, net of minority
        interest in share of losses                              24,383         2,268         4,988        37,002         55,183
      Depreciation and amortization                              30,030         4,833         9,691        56,501        101,545
      Provision for uncollectible accounts                        1,531           977           914         3,985         12,031
      Compensation expense related to issuance of common
        stock options                                                53            14             -             -              -
      Interest expense deferred and included in long-term
        debt, net of amounts capitalized on assets
        under construction                                       63,951        12,004        22,087       102,947        152,601
      Interest expense deferred and included in capital
        lease obligations                                         4,416             -         1,716         6,345          5,637
      Amortization of deferred financing costs included
        in interest expense                                       2,573           527           612         2,514          4,478
      Write-off of non-operating assets                           2,650             -             -           200            250
      Contribution to 401(k) plan through issuance of
        common shares                                             1,156           405           480         3,010          3,664
      Deferred income tax benefit                                (5,329)            -             -             -              -
      Provision for impairment of long-lived assets               9,994             -             -         9,261              -
      Net loss (gain) on disposal of long-lived assets            5,128         1,030          (772)          243          4,055
      Change in operating assets and liabilities,
        excluding the effects of business
        combinations, dispositions and non-cash
        transactions:
          Receivables                                           (14,150)       (3,865)       (8,632)      (28,891)       (96,659)
          Inventory                                              (1,200)         (272)          361        (2,822)         1,198
          Prepaid expenses and deposits                          (2,938)         (459)         (901)       (5,405)        (1,492)
          Accounts payable and accrued liabilities               16,244         7,944         9,784        19,541         (2,452)
          Deferred revenue                                        1,454           779         2,575          (370)         4,933
                                                           --------------- -------------  ------------- ------------- --------------
            Net cash used by operating activities of
              continuing operations                         $   (39,099)       (4,706)       (6,436)     (117,191)      (105,358)
                                                           --------------- -------------  ------------- ------------- --------------
                                                                                                                       (Continued)
</TABLE>

                                       F-11
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                              Fiscal year       Three months ended          Fiscal years ended
                                                                 ended             December 31,                December 31,
                                                             September 30,  ---------------------------  --------------------------
                                                                 1996          1995           1996          1997          1998
                                                            --------------- ------------   ------------  ------------  ------------
                                                                             (unaudited)
                                                                                        (in thousands)
<S>                                                           <C>            <C>             <C>           <C>           <C>    
Cash flows from investing activities:
  Decrease (increase) in notes receivable from affiliate
    and others                                                $        4      (1,263)            133         (9,552)       (4,880)
  Advances to affiliates                                            (109)        (15)              -              -             -
  Investment in and advances to joint venture                     (4,308)          -               -              -             -
  Payments for business acquisitions, net of cash acquired        (8,441)          -               -        (45,861)      (67,841)
  Acquisition of property, equipment and other assets           (121,905)    (26,798)        (50,818)      (268,796)     (367,519)
  Payments for construction of corporate headquarters             (1,501)          -          (7,945)       (29,432)       (4,944)
  Proceeds from disposition of property, equipment and
    other assets                                                  21,593      21,146           2,057         15,125           386
  Proceeds from sale of subsidiary, net of selling costs
    and cash included in sale                                          -           -               -              -         6,874
  Proceeds from sale of corporate headquarters, net of
    selling and other costs                                            -           -               -              -        30,283
  (Purchase) sale of short-term investments available for  
    sale                                                          (6,832)     (4,979)        (25,769)       (65,580)       60,281
  (Increase) decrease in restricted cash                         (13,333)    (13,333)              -        (25,416)        7,737
  Purchase of minority interest in subsidiaries                        -           -               -              -        (9,459)
                                                            --------------- ------------   ------------  ------------  ------------
    Net cash used by investing activities of continuing
      operations                                                (134,832)    (25,242)        (82,342)      (429,512)     (349,082)
                                                            --------------- ------------   ------------  ------------  ------------
Cash flows from financing activities: 
  Proceeds from issuance of common stock:
    Sale by subsidiary                                                 -           -               -              -         3,385
    Business combination                                               -           -               -         15,960             -
    Exercise of options and warrants                               1,894         101           2,084          4,116        19,283
    Employee stock purchase plan                                       -           -               -          1,319         2,250
  Proceeds from issuance of redeemable preferred
    securities of subsidiaries, net of issuance costs            144,000           -               -        223,628             -
  Payments of preferred dividends                                      -           -               -         (1,240)       (8,927)
  Redemption of preferred shares                                  (5,570)     (5,570)              -              -             -
  Repurchase of redeemable preferred stock of subsidiary
    and payment of accrued dividend                              (32,629)          -               -              -             -
  Repurchase of redeemable warrants                               (2,671)          -               -              -             -
  Proceeds from issuance of short-term debt                       17,500      17,500               -              -             -
  Principal payments on short-term debt                          (21,192)     (3,692)              -              -             -
  Proceeds from issuance of long-term debt                       300,034           -               -         99,908       550,574
  Deferred long-term debt issuance costs                         (11,915)          -               -         (3,554)      (17,591)
  Principal payments on capital lease obligations                (16,720)     (2,991)         (3,691)       (30,403)      (11,195)
  Principal payments on long-term debt                           (16,920)    (13,761)           (279)        (1,598)       (6,864)
                                                            --------------- ------------   ------------  ------------  ------------
    Net cash provided (used) by financing activities of
      continuing operations                                      355,811      (8,413)         (1,886)       308,136       530,915
                                                            --------------- ------------   ------------  ------------  ------------
    Net (decrease) increase in cash and cash equivalents
      of  continuing operations                                  181,880     (38,361)        (90,664)      (238,567)       76,475
    Net cash (used) provided by discontinued operations             (728)       (359)           (602)        (2,154)       15,787
Cash and cash equivalents, beginning of period                   269,404     269,404         450,556        359,290       118,569
                                                            --------------- ------------   ------------  ------------  ------------
Cash and cash equivalents, end of period                    $    450,556     230,684         359,290        118,569       210,831
                                                            =============== ============   ============  ============  ============
                                                                                                                        (Continued)
</TABLE>

                                       F-12
<PAGE>


ICG COMMUNICATIONS, INC.
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                               
                                                          Fiscal year            Three months ended        Fiscal years ended
                                                             ended                  December 31,                 December 31,
                                                          September 30,     --------------------------  --------------------------
                                                              1996              1995           1996          1997           1998
                                                        -----------------   ------------  ------------  ------------   -----------
                                                                               (unaudited)
                                                                                     (in thousands)
<S>                                                      <C>                     <C>         <C>            <C>          <C>  
Supplemental disclosure of cash flows information 
  of continuing operations:
    Cash paid for interest                               $     14,774            2,684           39         5,714         7,411
                                                         =================   ============  ============  ============   ==========
    Cash paid for income taxes                           $          -                -            -             -            90
                                                         =================   ============  ============  ============   ==========

Supplemental schedule of non-cash investing and 
  financing activities of continuing operations:
    Common stock issued in connection with business
      combinations, repayment of debt or conversion of
      liabilities to equity                              $     77,772                -          350             -        15,532
                                                         =================   ============  ============  ============   ==========
    Assets acquired under capital leases                 $     55,030               84       19,479             -         1,427
                                                         =================   ============  ============  ============   ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       F-13
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 1997 and 1998
--------------------------------------------------------------------==--------

(1)  Organization and Nature of Business

     ICG Communications,  Inc., a Delaware corporation ("ICG"), was incorporated
     on April 11, 1996, for the purpose of becoming the new publicly-traded U.S.
     parent  company  of  ICG  Holdings  (Canada),   Inc.,  a  Canadian  federal
     corporation ("Holdings-Canada"), ICG Holdings, Inc., a Colorado corporation
     ("Holdings"), and its subsidiaries. On September 17, 1997, ICG formed a new
     special  purpose entity,  ICG Funding,  LLC, a Delaware  limited  liability
     company and wholly owned subsidiary of ICG ("ICG Funding").

     On  January  21,  1998,   ICG  completed  a  merger  with  NETCOM   On-Line
     Communication  Services,  Inc.  ("NETCOM").  At the  effective  time of the
     merger,  each outstanding share of NETCOM common stock, $.01 par value, was
     automatically  converted  into shares of ICG common  stock,  $.01 par value
     ("ICG Common  Stock"),  at an exchange ratio of 0.8628 shares of ICG Common
     Stock per NETCOM  common  share.  The  Company  issued  approximately  10.2
     million shares of ICG Common Stock in connection with the merger, valued at
     approximately  $284.9  million  on the  date of the  merger.  The  business
     combination was accounted for as a pooling of interests. Effective November
     3, 1998, the Company's board of directors  adopted a formal plan to dispose
     of the  operations of NETCOM (see note 3) and,  accordingly,  the Company's
     consolidated  financial statements reflect the operations and net assets of
     NETCOM as discontinued for all periods presented. The Company completed the
     sales of the  operations  of NETCOM on February 17 and March 16,  1999.  In
     conjunction  with the sales,  the legal name of the NETCOM  subsidiary  was
     changed to ICG PST, Inc. ("PST").

     On January 23, 1998, ICG formed ICG Services,  Inc., a Delaware corporation
     and wholly owned  subsidiary of ICG ("ICG  Services").  ICG Services is the
     parent company of PST (formerly NETCOM) and ICG Equipment, Inc., a Colorado
     corporation   formed   on   January   23,   1998  to   purchase   or  lease
     telecommunications  equipment,   software,  network  capacity  and  related
     services, and in turn, lease such assets to Holdings' subsidiaries. ICG and
     its  subsidiaries,   including  ICG  Services  and  its  subsidiaries,  are
     collectively referred to as the "Company."

     Pursuant to a Plan of Arrangement (the  "Arrangement"),  which was approved
     by Holdings-Canada  shareholders on July 30, 1996, and by the Ontario Court
     of Justice on August 2, 1996, each shareholder of Holdings-Canada exchanged
     their  common  shares on a  one-for-one  basis for either (i) shares of ICG
     Common Stock, or (ii) Class A common shares of Holdings-Canada  (the "Class
     A Shares"), which were exchangeable,

                                       F-14
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements
------------------------------------------------------------------------------

(1)  Organization and Nature of Business (continued)

     prior to January 1, 1999, at any time on a one-for-one basis into shares of
     ICG Common Stock. On August 2, 1996,  28,795,132,  or approximately 98%, of
     the total issued and  outstanding  common  shares of  Holdings-Canada  were
     exchanged  for an equal  number  of  shares  of  Common  Stock  of ICG.  In
     accordance with generally accepted accounting  principles,  the Arrangement
     was accounted for in a manner  similar to a pooling of interests  since ICG
     and  Holdings-Canada  had  common  shareholders,  and the  number of shares
     outstanding and the weighted average number of shares outstanding reflected
     the equivalent shares outstanding for the combined  companies.  On November
     25,  1998,  the  shareholders  of  Holdings-Canada  approved  the  Plan  of
     Reorganization  (the  "Reorganization")  among  ICG,  Holdings-Canada,  ICG
     Canadian Acquisition,  Inc., a newly formed Delaware corporation and wholly
     owned subsidiary of ICG ("ICG Acquisition"), and ICG Holdings (Canada) Co.,
     a newly  formed Nova Scotia  unlimited  liability  company and wholly owned
     subsidiary of ICG Acquisition.  Pursuant to the Reorganization, on December
     1, 1998, ICG Acquisition  acquired 100% of the issued and outstanding Class
     A Shares of Holdings-Canada,  including those Holdings-Canada common shares
     owned by ICG, in exchange solely for voting common stock of ICG Acquisition
     which was contributed to ICG Acquisition as part of the Reorganization.  On
     January 1, 1999, Holdings-Canada merged with and into ICG Holdings (Canada)
     Co. The merger and  Reorganization was accounted for in a manner similar to
     a pooling of  interests  since the  transactions  involved  entities  under
     common control.

     The Company's principal business activity is  telecommunications  services,
     including  Telecom  Services,  Network  Services  and  Satellite  Services.
     Telecom  Services  consists  primarily of the Company's  competitive  local
     exchange  carrier  operations which provide services to business end users,
     Internet  service  providers   ("ISPs")  and  long  distance  carriers  and
     resellers.  Network Services supplies  information  technology services and
     selected  networking  products,  focusing on network design,  installation,
     maintenance and support for a variety of end users,  including Fortune 1000
     firms  and  other  large  businesses  and   telecommunications   companies.
     Satellite  Services  consists of satellite  voice,  data and video services
     provided to major cruise ship lines,  the U.S.  Navy,  the offshore oil and
     gas industry and integrated communications providers.


                                       F-15
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
-------------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies

     (a)  Basis of Presentation

          The accompanying  consolidated  financial  statements give retroactive
          effect to the merger of ICG and NETCOM on January 21, 1998,  which was
          accounted for as a pooling of  interests,  and include the accounts of
          NETCOM  and its  subsidiaries  as of the  end of and  for the  periods
          presented.   Effective  November  3,  1998,  the  Company's  board  of
          directors adopted a formal plan to dispose of the operations of NETCOM
          (see note 3) and, accordingly, the accompanying consolidated financial
          statements  reflect the operations of NETCOM as  discontinued  for all
          periods  presented.  Financial  information prior to the completion of
          the  Arrangement on August 2, 1996  represents the combined  financial
          position   and   results   of   operations   of   NETCOM  as  well  as
          Holdings-Canada  and Holdings,  which are considered to be predecessor
          entities to ICG.

          All  significant  intercompany  accounts  and  transactions  have been
          eliminated in consolidation.

     (b)  Fiscal Year Ends of ICG and NETCOM

          The Company  changed its fiscal year end to December 31 from September
          30,  effective  January 1, 1997.  References to fiscal 1996,  1997 and
          1998 relate to the years ended  September  30, 1996 and  December  31,
          1997 and 1998, respectively.

          Unaudited consolidated statements of operations and cash flows for the
          three  months  ended  December  31,  1995  have been  included  in the
          accompanying   consolidated   financial   statements  for  comparative
          purposes.

          Prior to the merger,  NETCOM's consolidated  financial statements were
          prepared   using  a  year  end  of  December  31.   Accordingly,   the
          consolidated  statements  of  operations  for fiscal 1996  reflect the
          combination  of  NETCOM's  results  of  operations  for the year ended
          December 31, 1996 with ICG's results of operations  for the year ended
          September 30, 1996.  Consequently,  NETCOM's results of operations for
          the three months ended December 31, 1996 have been combined with ICG's
          results  of  operations  for  the  same  period  in  the  accompanying
          consolidated   statement  of  operations,   although  they  have  been
          presented as discontinued (see note 3). The

                                       F-16
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

          net loss of NETCOM for the three  months  ended  December 31, 1996 has
          been eliminated in the consolidated  statement of stockholders' equity
          (deficit).

     (c)  Cash Equivalents and Short-term Investments Available for Sale

          The Company  considers  all highly  liquid  investments  with original
          maturities of three months or less to be cash equivalents. The Company
          invests  primarily in high grade short-term  investments which consist
          of  money  market  instruments,   commercial  paper,  certificates  of
          deposit,  government obligations and corporate bonds, all of which are
          considered to be available for sale and generally  have  maturities of
          one year or less. The Company's short-term  investment  objectives are
          safety,  liquidity and yield,  in that order.  The Company carries all
          cash equivalents at cost, which  approximates  fair value.  Short-term
          investments  available for sale are carried at amortized  cost,  which
          approximates fair market value, with unrealized gains and losses,  net
          of tax,  reported  as a separate  component  of  stockholders'  equity
          (deficit).  Realized  gains and losses and declines in value judged to
          be other than temporary are included in the statement of operations.

     (d)  Inventory

          Inventory,  consisting of satellite systems equipment and equipment to
          be utilized in the installation of  communications  systems,  services
          and  networks  for  customers,  is  recorded  at the  lower of cost or
          market, using the first-in, first-out method of accounting for cost.

     (e)  Investments

          Investments representing an interest of 20% or more, but less than 50%
          are accounted for using the equity method of  accounting,  under which
          the Company's  share of earnings or losses are reflected in operations
          and  dividends  are credited  against the  investment  when  received.
          Losses  recognized  in  excess  of  the  Company's  investment  due to
          additional investment or financing  requirements,  or guarantees,  are
          recorded  as a liability  in the  consolidated  financial  statements.
          Investments of less than a 20% equity interest are accounted for using
          the cost method,  unless the Company exercises  significant  influence
          and/or control over the operations of the

                                       F-17
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

          investee  company,  in which  case the  equity  method is used.  As of
          December  31, 1998,  the Company held no equity  interests in investee
          companies of 50% or less.

     (f)  Property and Equipment

          Property and equipment are stated at cost.  Costs of construction  are
          capitalized,   including   interest  costs  related  to  construction.
          Equipment held under capital leases is stated at the lower of the fair
          value of the  asset or the net  present  value  of the  minimum  lease
          payments  at the  inception  of the lease.  For  equipment  held under
          capital  leases,  depreciation  is  provided  using the  straight-line
          method over the  estimated  useful lives of the assets  owned,  or the
          related lease term, whichever is shorter.

          Estimated  useful lives of major  categories of property and equipment
          are as follows: 

          Furniture, fixtures and office equipment     3 to 7 years
          Machinery and equipment                      3 to 8 years  
          Fiber optic equipment                        8 years
          Switch equipment                             10 years 
          Fiber optic network                          20 years  
          Buildings and improvements                   31.5 years

     (g)  Capitalized Labor Costs

          Also  included in property and  equipment  are  capitalized  labor and
          other costs associated with network development,  service installation
          and internal-use software development.

          The  Company  capitalizes  costs of direct  labor  and other  employee
          benefits  associated with the development,  installation and expansion
          of the  Company's  networks.  Depreciation  begins in the  period  the
          network  is  substantially  complete  and  available  for  use  and is
          recorded on a  straight-line  basis over the estimated  useful life of
          the equipment or network, ranging from 8 to 20 years.


                                       F-18
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

          The  Company  capitalizes  costs of direct  labor  and other  employee
          benefits  associated  with  installing and  provisioning  local access
          lines  for new  customers  and  providing  new  services  to  existing
          customers,   since   these   costs  are   directly   associated   with
          multi-period, contractual,  revenue-producing activities. Direct labor
          costs are capitalized  only when directly  related to the provisioning
          of  customer  services  with  multi-period  contracts.  Capitalization
          begins upon the acceptance of the customer  order and continues  until
          the   installation   is  complete  and  the  service  is  operational.
          Capitalized   service   installation   costs  are   depreciated  on  a
          straight-line basis over 2 years, the average customer contract term.

          The  Company  capitalizes  costs of direct  labor  and other  employee
          benefits  associated  with the  development of  internal-use  computer
          software in accordance  with Statement of Position  98-1,  "Accounting
          for the Costs of Computer Software  Developed or Obtained for Internal
          Use."  Internal-use  software costs are depreciated over the estimated
          useful life of the software,  typically 2 to 5 years, beginning in the
          period when the software is substantially complete and ready for use.

     (h)  Other Assets

          Amounts related to the acquisition of transmission  and other licenses
          are  recorded  at  cost  and   amortized   over  20  years  using  the
          straight-line  method.  Goodwill  results from the  application of the
          purchase  method  of  accounting  for  business  combinations  and  is
          amortized over a maximum of 20 years using the straight-line method.

          Rights of way, minutes of use, and non-compete agreements are recorded
          at cost, and amortized using the  straight-line  method over the terms
          of the agreements, ranging from 2 to 12 years.

          Amortization of deferred  financing costs is provided over the life of
          the  related  financing  agreement,  the  maximum  term of which is 10
          years.

     (i)  Foreign Currency Translation Adjustments

          The functional  currency for all foreign  operations of NETCOM,  which
          were sold subsequent to December 31, 1998, is the local  currency.  As
          such, all assets and liabilities denominated in foreign currencies are
          translated at the exchange rate on

                                       F-19
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

          the balance sheet date.  Revenue and costs and expenses are translated
          at weighted  average rates of exchange  prevailing  during the period.
          Translation  adjustments  are included in other  comprehensive  income
          (loss),   which  is  a  separate  component  of  stockholders'  equity
          (deficit).   Gains  and  losses   resulting   from  foreign   currency
          transactions  are  included  in  discontinued  operations  and are not
          significant for the periods presented.

     (j)  Use of Estimates

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

     (k)  Revenue Recognition

          The Company recognizes Telecom Services and Satellite Services revenue
          as services  are  provided  and  charges  direct  selling  expenses to
          operations as incurred.  Revenue from Network  Services  contracts for
          the design and  installation of  communications  systems and networks,
          which are generally  short-term in duration,  is recognized  using the
          percentage of completion method of accounting.  Maintenance revenue is
          recognized as services are provided.  Uncollectible  trade receivables
          are accounted for using the allowance method.

          Revenue  which has been  earned  under the  percentage  of  completion
          method,  but has not been  billed  to the  customer,  is  included  in
          revenue earned, but unbilled in the consolidated financial statements.
          Deferred  revenue  includes  monthly advance billings to customers for
          certain  services  provided  by the  Company's  Telecom  Services  and
          Satellite Services, as well as Network Services revenue which has been
          billed to the customer in compliance with contract terms,  but not yet
          earned under the percentage of completion method.

                                       F-20
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

          NETCOM  recognizes  revenue and  operating  costs on the same basis as
          Telecom  Services and  Satellite  Services,  although such amounts are
          included  in  loss  from  discontinued   operations  for  all  periods
          presented.

          Prior to January 1, 1996,  the  Company  recognized  Telecom  Services
          revenue  in an  amount  equal  to the  non-cancelable  portion  of the
          contract,  which is a minimum  of one year on a  three-year  or longer
          contract,  at the  inception of the contract  and upon  activation  of
          service  to the  customer  to the  extent of direct  installation  and
          selling expenses incurred in obtaining  customers during the period in
          which such revenue was  recognized.  Revenue  recognized  in excess of
          normal monthly billings during the year was limited to an amount which
          did not exceed such  installation and selling  expense.  The remaining
          revenue from the contract was  recognized  ratably over the  remaining
          non-cancelable  portion of the contract.  The Company believes the new
          method is preferable  because it provides a better matching of revenue
          and related operating  expenses and is more consistent with accounting
          practices  within the  telecommunications  industry.  As  required  by
          generally accepted  accounting  principles,  the Company has reflected
          the  effects of the change in  accounting  as if such  change had been
          adopted  as of October 1, 1995,  and has  included  in the  results of
          operations  for fiscal  1996 a charge of  approximately  $3.5  million
          relating to the cumulative effect of this change in accounting.  Other
          than the cumulative  effect of adopting this new method of accounting,
          the effect of this change in accounting for the periods  presented was
          not significant.

     (l)  Income Taxes

          The  Company  accounts  for  income  taxes  under  the  provisions  of
          Statement of Financial  Accounting  Standards No. 109,  Accounting for
          Income Taxes ("SFAS  109").  Under the asset and  liability  method of
          SFAS 109,  deferred tax assets and  liabilities are recognized for the
          future  tax  consequences  attributable  to  differences  between  the
          financial   statement   carrying   amounts  of  existing   assets  and
          liabilities  and their  respective tax bases.  Deferred tax assets and
          liabilities  are measured using enacted tax rates expected to apply to
          taxable income in the years in which those  temporary  differences are
          expected to be  recovered  or settled.  Under SFAS 109,  the effect on
          deferred  tax  assets  and  liabilities  of a change  in tax  rates is
          recognized in income in the period that includes the enactment date.

                                       F-21
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

     (m)  Net Loss Per Share

          Net  loss per  share is  calculated  by  dividing  the net loss by the
          weighted average number of shares outstanding. Weighted average number
          of shares  outstanding  for the three months  ended  December 31, 1995
          represents  outstanding  Holdings-Canada  common shares and ICG Common
          Stock  resulting from the exchange of NETCOM common  shares.  Weighted
          average number of shares outstanding for fiscal 1996, the three months
          ended  December  31,  1996,  and  fiscal  1997  and  1998   represents
          Holdings-Canada  common shares outstanding for the period from October
          1, 1995  through  August 2, 1996,  and  combined  ICG Common Stock and
          Holdings-Canada  Class A common  shares  outstanding  for the  periods
          presented subsequent to August 5, 1996.

          Net  loss  per  share  is  determined  in  accordance  with  Financial
          Accounting  Standards  Board  Statement  No. 128,  Earnings  Per Share
          ("SFAS  128"),   which  revises  the  calculation   and   presentation
          provisions of Accounting  Principles  Board Opinion No. 15 and related
          interpretations.  Under SFAS 128,  basic loss per share is computed on
          the basis of weighted average common shares outstanding.  Diluted loss
          per  share  considers   potential  common  stock  instruments  in  the
          calculation of weighted average common shares  outstanding.  Potential
          common  stock  instruments,   which  include  options,   warrants  and
          convertible  subordinated  notes  and  preferred  securities,  are not
          included  in the net loss per  share  calculation  as their  effect is
          anti-dilutive.

     (n)  Stock-Based Compensation

          The Company  accounts for its  stock-based  employee and  non-employee
          director  compensation  plans using the  intrinsic  value based method
          prescribed by Accounting  Principles Board Opinion No. 25,  Accounting
          for Stock Issued to Employees, and related Interpretations ("APB 25").
          The Company has  provided  pro forma  disclosures  of net loss and net
          loss per share as if the fair value  based  method of  accounting  for
          these plans,  as  prescribed  by  Statement  of  Financial  Accounting
          Standards No. 123,  Accounting  for  Stock-Based  Compensation  ("SFAS
          123"), had been applied.  Pro forma disclosures include the effects of
          employee and non-employee director stock options granted during fiscal
          1996,  the three months ended  December 31, 1996,  and fiscal 1997 and
          1998.

                                       F-22
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

     (o)  Impairment of Long-Lived Assets

          The  Company  provides  for  the  impairment  of  long-lived   assets,
          including  goodwill,  pursuant to Statement  of  Financial  Accounting
          Standards No. 121,  Accounting for the Impairment of Long-Lived Assets
          and for  Long-Lived  Assets  to Be  Disposed  Of ("SFAS  121"),  which
          requires that long-lived assets and certain  identifiable  intangibles
          held and used by an entity be reviewed for impairment  whenever events
          or changes in  circumstances  indicate  that the carrying  value of an
          asset may not be  recoverable.  An impairment  loss is recognized when
          estimated  undiscounted  future cash flows expected to be generated by
          the  asset  are  less  than its  carrying  value.  Measurement  of the
          impairment  loss is based on the  estimated  fair  value of the asset,
          which is generally  determined using valuation  techniques such as the
          discounted present value of expected future cash flows.

     (p)  Reclassifications

          Certain prior period  amounts have been  reclassified  to conform with
          the current period's presentation.

(3)  Discontinued Operations

     Loss from discontinued operations consists of the following:
<TABLE>
<CAPTION>
                                            
                                                                      Three months ended            Fiscal years ended
                                            Fiscal year ended            December 31,                   December 31,
                                              September 30,     -------------------------------  ----------------------------
                                                  1996               1995            1996           1997           1998
                                           -------------------  ---------------  --------------  ------------  --------------
                                                                 (unaudited)
                                                                            (in thousands)

<S>                                        <C>                        <C>            <C>           <C>            <C>    
          Zycom (a)                        $         205                 (70)           (484)       (6,391)        (4,848)
          NETCOM (b)                             (44,265)             (5,446)        (11,490)      (33,092)       (61,090)
                                           -------------------  ----------------  -------------  ------------  --------------
            Loss from discontinued
              operations                   $     (44,060)             (5,516)        (11,974)      (39,483)       (65,938)
                                           ===================  ================  =============  ============  ==============
</TABLE>


                                       F-23
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(3)  Discontinued Operations (continued)

     (a)  Zycom

          The Company owns a 70% interest in Zycom Corporation  ("Zycom") which,
          through its wholly owned  subsidiary,  Zycom  Network  Services,  Inc.
          ("ZNSI"),  operated an 800/888/900 number services bureau and a switch
          platform in the United States and supplied  information  providers and
          commercial  accounts with audiotext and customer support services.  In
          June  1998,  Zycom  was  notified  by  its  largest  customer  of  the
          customer's  intent to  transfer  its call  traffic to another  service
          bureau.  In order to minimize  the  obligation  that this loss in call
          traffic would generate under Zycom's volume  discount  agreements with
          AT&T Corp. ("AT&T"), its call transport provider, ZNSI entered into an
          agreement  on July 1, 1998 with an  unaffiliated  entity,  ICN Limited
          ("ICN"),  whereby ZNSI  assigned the traffic of its largest  audiotext
          customer and its other 900-number  customers to ICN, effective October
          1, 1998.  As part of this  agreement,  ICN assumed  all  minimum  call
          traffic volume obligations to AT&T.

          The call  traffic  assigned  to ICN  represents  approximately  86% of
          Zycom's revenue for the year ended December 31, 1997. The loss of this
          significant  portion of Zycom's  business,  despite  management's best
          efforts to secure other sources of revenue,  raised  substantial doubt
          as to  Zycom's  ability to operate  in a manner  which  would  benefit
          Zycom's  or the  Company's  shareholders.  Accordingly,  on August 25,
          1998,  Zycom's  board of  directors  approved  a plan to wind down and
          ultimately discontinue Zycom's operations.  On October 22, 1998, Zycom
          completed the transfer of all customer  traffic to other providers and
          Zycom anticipates that the disposition of its remaining assets and the
          discharge of its remaining liabilities will be completed in 1999.

          The Company's consolidated financial statements reflect the operations
          of Zycom as discontinued for all periods presented. Zycom incurred net
          losses from  operations of  approximately  $1.2 million for the period
          from  August 25, 1998 to December  31,  1998.  Included in net current
          assets  (liabilities)  and  net  non-current  assets  of  discontinued
          operations  in the  Company's  consolidated  balance  sheets  are  the
          following accounts of Zycom:


                                       F-24
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(3)  Discontinued Operations (continued)
<TABLE>
<CAPTION>

                                                                  December 31,
                                                   -------------------------------------------
                                                          1997                   1998
                                                   -------------------    --------------------
                                                                 (in thousands)

<S>                                                <C>                             <C>
     Cash and cash equivalents                     $           265                     47
     Receivables                                             1,879                     90
     Prepaid expenses and deposits                              48                     11
     Accounts payable and accrued liabilities               (2,559)                (1,092)
                                                   -------------------    --------------------

         Net current liabilities of Zycom          $          (367)                  (944)
                                                   ===================    ====================

     Property and equipment, net                   $         1,050                    220
     Other assets, net                                       1,890                      -
                                                   -------------------    --------------------

         Net non-current assets of Zycom           $         2,940                    220
                                                  ===================    ====================
</TABLE>

          On January 4, 1999, the Company completed the sale of the remainder of
          Zycom's  operating  assets  to an  unrelated  third  party  for  total
          proceeds of $0.2 million. As Zycom's assets were recorded at estimated
          fair market value at December  31, 1998,  no gain or loss was recorded
          on the sale.

     (b)  NETCOM

          Effective  November 3, 1998, the Company's board of directors  adopted
          the  formal  plan  to  dispose  of  the   operations  of  NETCOM  and,
          accordingly,  the Company's  consolidated financial statements reflect
          the operations of NETCOM as  discontinued  for all periods  presented.
          Since  the  Company  expects  to record a gain on the  disposition  of
          NETCOM,  the Company has deferred the net  operating  losses of NETCOM
          from November 3, 1998 through December 31, 1998, to be recognized as a
          component  of the gain on the  disposition.  Included  in net  current
          assets  (liabilities)  and  net  non-current  assets  of  discontinued
          operations  in the  Company's  consolidated  balance  sheets  are  the
          following accounts of NETCOM:


                                      F-25
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(3)  Discontinued Operations (continued)
<TABLE>
<CAPTION>

                                                                               December 31,
                                                                -------------------------------------------
                                                                       1997                   1998
                                                                -------------------    --------------------
                                                                              (in thousands)

<S>                                                             <C>                            <C>  
     Cash and cash equivalents                                  $        63,368                      -
     Receivables                                                          2,397                  3,936
     Inventory                                                              341                    423
     Prepaid expenses and deposits                                        3,554                  2,436
     Deferred losses of NETCOM                                                -                 10,847
     Accounts payable and accrued liabilities                           (28,471)               (37,009)
     Current portion of capital lease obligations                        (2,491)                (2,961)
                                                                -------------------    --------------------

         Net current assets (liabilities) of NETCOM             $        38,698                (22,328)
                                                                ===================    ====================

     Property and equipment, net                                $        72,945                 50,394
     Other assets, net                                                    4,242                  5,703
     Capital lease obligations, less current portion                     (3,550)                (2,074)
                                                                -------------------    --------------------

         Net non-current assets of NETCOM                       $        73,637                 54,023
                                                                ===================    ====================
</TABLE>

          On February 17, 1999, the Company sold certain of the operating assets
          and liabilities of NETCOM to MindSpring Enterprises, Inc., an Internet
          service provider ("ISP") located in Atlanta,  Georgia  ("MindSpring").
          Total proceeds from the sale were $245.0 million, consisting of $215.0
          million in cash and 376,116  shares of  unregistered  common  stock of
          MindSpring,  valued at  approximately  $79.76 per share at the time of
          the  transaction.  Assets and liabilities  sold to MindSpring  include
          those directly related to the domestic operations of NETCOM's Internet
          dial-up,  dedicated access and Web site hosting services. On March 16,
          1999,   the  Company  sold  all  of  the  capital  stock  of  NETCOM's
          international  operations  for total proceeds of  approximately  $41.1
          million.  MetroNET  Communications  Corp.  ("MetroNET"),   a  Canadian
          entity,  and Providence  Equity  Partners  ("Providence"),  located in
          Providence,  Rhode  Island,  together  purchased  the 80%  interest in
          NETCOM Canada Inc. owned by NETCOM for approximately  $28.9 million in
          cash.  Additionally,  Providence purchased all of the capital stock of
          NETCOM Internet Access Services  Limited,  NETCOM's  operations in the
          United Kingdom,  for approximately  $12.2 million in cash. The Company
          expects to record a combined gain on the NETCOM

                                       F-26
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(3)  Discontinued Operations (continued)

          transactions  of  approximately  $200 million,  net of income taxes of
          approximately  $6.5  million,  during the three months ended March 31,
          1999.  Since the  operations  sold were  acquired  by the Company in a
          transaction  accounted for as a pooling of interests,  the gain on the
          NETCOM  transactions will be classified in the Company's  consolidated
          statement of operations as an extraordinary item.

          In conjunction  with the sale to MindSpring,  the Company entered into
          an agreement to lease to MindSpring for a one-year period the capacity
          of  certain  network  operating  assets  formerly  owned by NETCOM and
          retained  by the  Company  for a minimum  of $27.0  million,  although
          subject to increase  dependent  upon network  usage.  MindSpring  will
          utilize  the  capacity  to  provide  Internet  access  to the  dial-up
          services customers formerly owned by NETCOM. In addition,  the Company
          will receive for a one-year  period 50% of the gross revenue earned by
          MindSpring  from the  dedicated  access  customers  formerly  owned by
          NETCOM.  The Company intends to utilize the retained network operating
          assets to  provide  similar  wholesale  capacity  and  other  enhanced
          network  services to MindSpring and other ISPs and  telecommunications
          providers, beginning in 1999.

(4)  Purchase Acquisitions and Investments

     The acquisitions described below have been accounted for using the purchase
     method of  accounting  and,  accordingly,  the net  assets  and  results of
     operations  of the  acquired  businesses  are  included  in  the  Company's
     consolidated financial statements from the respective dates of acquisition.
     Revenue, net loss and net loss per share on a pro forma basis, assuming the
     acquisitions were completed at the beginning of the periods presented,  are
     not significantly  different from the Company's  historical results for the
     periods presented herein.

     (a)  Fiscal 1998

          On July 27, 1998, the Company acquired  DataChoice  Network  Services,
          L.L.C.   ("DataChoice")  for  total  consideration  of  $5.9  million,
          consisting  of 145,997  shares of ICG Common  Stock and  approximately
          $1.1 million in cash.  The excess of the purchase  price over the fair
          value of the net identifiable assets acquired of $5.7 million has been
          recorded as goodwill and is being amortized on a straight-line basis

                                       F-27
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(4)  Purchase Acquisitions and Investments (continued)

          over five years.  DataChoice,  a Colorado limited  liability  company,
          provides  point-to-point data transmission resale services through its
          long-term  agreements with multiple  regional  carriers and nationwide
          providers.

          The  Company  completed a series of  transactions  on July 30, 1998 to
          acquire  NikoNET,   Inc.,  CompuFAX  Acquisition  Corp.  and  Enhanced
          Messaging Services, Inc. (collectively,  "NikoNET").  The Company paid
          approximately  $13.8 million in cash, which included dividends payable
          by  NikoNET  to its former  owners  and  amounts to satisfy  NikoNET's
          former  line  of  credit,   assumed   approximately  $0.7  million  in
          liabilities  and issued 356,318 shares of ICG Common Stock with a fair
          market  value  of  approximately  $10.7  million  on the  date  of the
          acquisition,  for all the capital stock of NikoNET.  The excess of the
          purchase  price  over the fair  value of the net  identifiable  assets
          acquired of $22.6  million has been  recorded as goodwill and is being
          amortized  on a  straight-line  basis  over  five  years.  Located  in
          Atlanta,  Georgia,  NikoNET provides broadcast  facsimile services and
          enhanced  messaging  services  to  financial  institutions,  corporate
          investor and public  relations  departments and other  customers.  The
          Company  believes the  acquisition  of NikoNET  enables the Company to
          offer expanded services to its Telecom Services customers.

          On August 27, 1998, the Company  purchased,  for $9.0 million in cash,
          the remaining 20% equity  interest in ICG Ohio LINX,  Inc.  ("ICG Ohio
          LINX")   which  it  did  not   already   own.   ICG  Ohio  LINX  is  a
          facilities-based  competitive  local exchange carrier which operates a
          fiber optic telecommunications  network in Cleveland and Dayton, Ohio.
          The  Company's  additional  investment  in ICG  Ohio  LINX,  including
          incremental  costs of obtaining  that  investment of $0.1 million,  is
          included in goodwill in the accompanying consolidated balance sheet at
          December 31, 1998.

          In January  1997,  the Company  announced a  strategic  alliance  with
          Central and South West  Corporation  ("CSW") formed for the purpose of
          developing and marketing telecommunications services in certain cities
          in Texas.  Based in Austin,  Texas,  the venture  entity was a limited
          partnership named CSW/ICG ChoiceCom,  L.P  ("ChoiceCom").  On December
          31, 1998, the Company  purchased 100% of the partnership  interests in
          ChoiceCom  from CSW for  approximately  $55.7  million in cash and the
          assumption of certain liabilities of approximately $7.3 million. In

                                       F-28
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(4)  Purchase Acquisitions and Investments (continued)

          addition,  the  Company  converted   approximately  $31.6  million  of
          receivables  from prior  advances  made to ChoiceCom by the Company to
          its investment in ChoiceCom. The excess of the purchase price over the
          fair value of the net  identifiable  assets  acquired of $28.9 million
          has  been   recorded  as  goodwill   and  is  being   amortized  on  a
          straight-line  basis over 10 years.  The  acquired  company  currently
          provides local exchange and long distance  services in Austin,  Corpus
          Christi, Dallas, Houston and San Antonio, Texas.

     (b)  Fiscal 1997

          On October 17, 1997, the Company  purchased  approximately  91% of the
          outstanding  capital  stock  of  Communications   Buying  Group,  Inc.
          ("CBG"),  an Ohio based  local  exchange  and  Centrex  reseller.  The
          Company paid total consideration of approximately $46.5 million,  plus
          the  assumption  of certain  liabilities.  Separately,  on October 17,
          1997,  the  Company  sold  687,221  shares  of ICG  Common  Stock  for
          approximately  $16.0 million to certain  shareholders of CBG. On March
          24, 1998, the Company purchased the remaining  approximate 9% interest
          in CBG for  approximately  $2.9  million  in cash.  The  excess of the
          purchase  price  over the fair  value of the net  identifiable  assets
          acquired  in the  combined  transactions  of  $48.9  million  has been
          recorded as goodwill and is being amortized on a  straight-line  basis
          over six years.

     (c)  Fiscal 1996

          In January  1996,  the Company  purchased  the  remaining 49% minority
          interest of Fiber Optic  Technologies,  Inc.  ("FOTI"),  making FOTI a
          wholly   owned   subsidiary.   Consideration   for  the  purchase  was
          approximately  $2.0  million  in cash  and  66,236  common  shares  of
          Holdings-Canada  valued  at  approximately  $0.8  million,  for  total
          consideration of  approximately  $2.8 million.  The Company's  Network
          Services are provided by FOTI.

          In February 1996, the Company  entered into an agreement with Linkatel
          California,   L.P.  ("Linkatel")  and  its  other  partners,  Linkatel
          Communications,  Inc.  and The Copley  Press,  Inc.,  under  which the
          Company acquired a 60% interest in Linkatel for an aggregate  purchase
          price of $10.0 million in cash and became the general partner

                                       F-29
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(4)  Purchase Acquisitions and Investments (continued)

          of Linkatel. In April 1996, the partnership was renamed ICG Telecom of
          San Diego, L.P.

          In March 1996, the Company acquired a 90% equity interest in MarineSat
          Communications  Network,  Inc.  ("MCN"),  (formally  Maritime Cellular
          Tele-network,   Inc.),  a  Florida-based   provider  of  cellular  and
          satellite   communications  for  commercial  ships,  private  vessels,
          offshore oil platforms and land-based  mobile units, for approximately
          $0.7 million in cash and  approximately  $0.1 million of assumed debt,
          for total  consideration of approximately $0.8 million. In April 1997,
          the Company  received  the  remaining  10%  interest in MCN as partial
          consideration for the sale of its investment in Mexico.

          In August  1996,  the  Company  acquired  certain  Signaling  System 7
          ("SS7") assets of Pace Network Services,  Inc. ("Pace"), a division of
          Pace  Alternative  Communications,  Inc. SS7 is used by local exchange
          companies,  long-distance  carriers,  wireless  carriers and others to
          signal between network elements, creating faster call set-up resulting
          in a more  efficient use of network  resources.  The Company paid cash
          consideration  of  $1.6  million  as of  September  30,  1996  and  an
          additional  $1.0  million  in  January  1997,  based on the  operating
          results of the underlying business since the date of acquisition.

(5)  Dispositions

     (a)  Fiscal 1998

          On July  17,  1998,  the  Company  entered  into  separate  definitive
          agreements   to  sell  the   capital   stock   of  MCN  and   Nova-Net
          Communications,  Inc.  ("Nova-Net"),  two  wholly  owned  subsidiaries
          within the Company's  Satellite Services  operations.  The sale of MCN
          was  completed  on August 12,  1998 and,  accordingly,  the  Company's
          consolidated financial statements include the results of operations of
          MCN through that date. The Company  recorded a gain on the sale of MCN
          of approximately $0.9 million during fiscal 1998. The sale of Nova-Net
          was  completed on November 18, 1998 and,  accordingly,  the  Company's
          consolidated financial statements include the results of operations of
          Nova-Net through that date. The Company recorded a loss on the sale of
          Nova-Net of approximately $0.2 million during the three months

                                       F-30
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(5)  Dispositions (continued)

          ended  December 31, 1998. The combined  revenue,  net loss or net loss
          per share of MCN and Nova-Net do not represent a  significant  portion
          of the Company's historical consolidated revenue, net loss or net loss
          per share.

     (b)  Fiscal 1996

          In October 1996, the Company sold its interest in its Phoenix  network
          joint venture to its venture partner, GST Telecommunications, Inc. The
          Company received approximately $2.1 million in cash, representing $1.3
          million of  consideration  for its 50%  interest  and $0.8 million for
          equipment and amounts advanced to the joint venture. In addition,  the
          Company  received  equipment with a net book value of $2.4 million and
          assumed  liabilities  of $0.3  million.  A gain  on sale of the  joint
          venture of approximately $0.8 million was recorded in the consolidated
          financial statements during the three months ended December 31, 1996.

          In December 1995, the Company received  approximately $21.1 million as
          partial  payment  for the sale of four of its  teleports  and  certain
          related  assets,  and entered  into a  management  agreement  with the
          purchaser  whereby  the  purchaser  assumed  control  of the  teleport
          operations.   Upon  approval  of  the   transaction   by  the  Federal
          Communications  Commission ("FCC"),  the Company completed the sale in
          March 1996 and  received  an  additional  $0.4  million due to certain
          closing adjustments,  for total proceeds of $21.5 million. The Company
          recognized a loss of approximately  $1.1 million on the sale.  Revenue
          associated with these  operations was  approximately  $2.5 million for
          fiscal 1996. The Company has reported results of operations from these
          assets through December 31, 1995.


                                       F-31
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(6)  Short-term Investments Available for Sale

     Short-term investments available for sale are comprised of the following:

                                                    December 31,
                                       -------------------------------------
                                             1997                1998
                                       -----------------    ----------------
                                                   (in thousands)

          Certificates of deposit      $           -              31,000
          Commercial paper                     4,000              16,000
          U.S. Treasury securities           108,281               5,000
                                       =================    ================
                                       $     112,281              52,000
                                       =================    ================

     At December 31, 1997 and 1998,  the  estimated  fair value of the Company's
     certificates  of deposit,  commercial  paper and U.S.  Treasury  securities
     approximated  cost. All certificates of deposit,  commercial paper and U.S.
     Treasury securities mature within one year.

(7)  Property and Equipment

     Property and  equipment,  including  assets held under capital  leases,  is
     comprised of the following:


                                       F-32
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(7)  Property and Equipment (continued)

                                                   December 31,
                                    -----------------------------------------
                                          1997                   1998
                                    ------------------     ------------------
                                                  (in thousands)

      Land                          $           709                  709
      Buildings and improvements              2,238                2,296
      Furniture, fixtures and 
        office equipment                     42,295              123,108
      Internal-use software costs             3,681               13,655
      Machinery and equipment                12,600               20,998
      Fiber optic equipment                 181,000              259,015
      Satellite equipment                    29,760               32,418
      Switch equipment                       85,546              156,313
      Fiber optic network                   179,705              225,453
      Site improvements                      13,898               20,029
      Service installation costs                  -               20,679
      Construction in progress              185,992              237,394
                                    ------------------     ------------------
                                            737,424            1,112,067
      Less accumulated depreciation        (105,970)            (177,933)
                                    ==================     ==================
                                       $    631,454              934,134
                                    ==================     ==================

     Property and equipment includes  approximately  $237.4 million of equipment
     which has not been placed in service at December 31, 1998, and accordingly,
     is not  being  depreciated.  The  majority  of this  amount is  related  to
     uninstalled transport and switch equipment and new network construction.

     For fiscal 1996, the three months ended December 31, 1996,  fiscal 1997 and
     1998, the Company  capitalized  interest costs on assets under construction
     of  $4.9   million,   $2.0  million,   $3.2  million  and  $10.4   million,
     respectively.  Such  costs  are  included  in  property  and  equipment  as
     incurred.  The Company recognized interest expense of $85.7 million,  $24.5
     million,  $117.5  million  and $170.1  million for fiscal  1996,  the three
     months ended December 31, 1996, fiscal 1997 and 1998, repectively.


                                       F-33
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(7)  Property and Equipment (continued)

     Also  included in property and  equipment at December 31, 1997 and 1998 are
     unamortized costs associated with the development of internal-use  computer
     software  of $2.3  million  and $11.5  million,  respectively.  The Company
     capitalized $0.7 million,  $0.1 million,  $2.4 million and $10.0 million of
     such costs during  fiscal 1996,  the three months ended  December 31, 1996,
     fiscal 1997 and 1998, respectively.

     Certain of the assets  described  above have been  pledged as security  for
     long-term  debt and are held under capital leases at December 31, 1998. The
     following is a summary of property and equipment held under capital leases:

                                                     December 31,
                                        ---------------------------------------
                                              1997                 1998
                                        -----------------    ------------------
                                                    (in thousands)

     Machinery and equipment              $      3,926              7,072
     Fiber optic equipment                       6,314                798
     Switch equipment                           21,380             12,957
     Fiber optic network                        58,806             77,523
     Construction in progress                   17,895                  -
                                        -----------------    ------------------
                                               108,321             98,350
     Less accumulated depreciation              (8,409)            (7,875)
                                        =================    ==================
                                        $       99,912             90,475
                                        =================    ==================

     Amortization of capital leases is included in depreciation and amortization
     in the Company's  consolidated  statements  of  operations  for all periods
     presented.

                                       F-34
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(8)  Other Assets

     Other assets are comprised of the following:

                                                     December 31,
                                      ----------------------------------------
                                            1997                    1998
                                      -----------------     ------------------
                                                  (in thousands)

     Deposits                         $         2,429             17,035
     Pace customer base                         2,805              2,805
     Collocation costs                          2,998              5,472
     Non-compete agreements                     1,386              1,050
     Right of entry costs                       1,984              2,684
     Other                                        588              2,486
                                      -----------------     ------------------
                                               12,190             31,532
     Less accumulated amortization             (3,124)            (6,343)
                                      =================     ==================
                                      $        9,066              25,189
                                      =================     ==================

(9)  Capital Lease Obligations

     The Company has payment  obligations under various capital lease agreements
     for  equipment.  Required  payments due each year on or before  December 31
     under  the  Company's   capital  lease   obligations  are  as  follows  (in
     thousands):

     1999                                                  $       14,406
     2000                                                          15,000
     2001                                                          17,098
     2002                                                          11,085
     2003                                                          11,008
     Thereafter                                                    82,607
                                                         ---------------------
        Total minimum lease payments                              151,204
        Less amounts representing interest                        (82,759)
                                                         ---------------------
        Present value of net minimum lease payments                68,445
        Less current portion                                       (5,086)
                                                         =====================
                                                           $       63,359
                                                         =====================

                                       F-35
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(10) Long-term Debt

     Long-term debt is summarized as follows:
<TABLE>
<CAPTION>

                                                                                                 December 31,
                                                                                      -----------------------------------
                                                                                            1997               1998
                                                                                      ----------------   ----------------
                                                                                                (in thousands)

<S>                                                                                   <C>                    <C>    
      9 7/8% Senior discount notes of ICG Services, net of discount (a)               $           -            266,918
      10% Senior discount notes of ICG Services, net of discount (b)                              -            327,699
      11 5/8% Senior discount notes of Holdings, net of discount (c)                        109,436            122,528
      12 1/2% Senior discount notes of Holdings, net of discount (d)                        367,494            414,864
      13 1/2% Senior discount notes of Holdings, net of discount (e)                        407,409            465,886
      Note payable with interest at the 90-day commercial paper rate plus 4
        3/4%, paid in full on August 19, 1998                                                 4,932                  -
      Note payable with interest at 11%, paid in full on June 12, 1998                        1,860                  -
      Mortgage payable with interest at 8 1/2%, due monthly through 2009,
        secured by building                                                                   1,131              1,084
      Other                                                                                      90                 65
                                                                                      ----------------   ----------------
                                                                                            892,352          1,599,044
      Less current portion                                                                   (1,784)               (46)
                                                                                      ----------------   ----------------
                                                                                         $  890,568          1,598,998
                                                                                      ================   ================
</TABLE>

     (a)  9 7/8% Notes

          On April 27,  1998,  ICG Services  completed a private  placement of 9
          7/8%  Senior  Discount  Notes due 2008 (the "9 7/8%  Notes") for gross
          proceeds  of  approximately  $250.0  million.  Net  proceeds  from the
          offering, after underwriting and other offering costs of approximately
          $7.9 million, were approximately $242.1 million.

          The 9 7/8% Notes are unsecured senior obligations of ICG Services that
          mature on May 1, 2008, at a maturity value of $405.3 million. Interest
          will accrue at 9 7/8% per annum, beginning May 1, 2003, and is payable
          each May 1 and November 1, commencing  November 1, 2003. The indenture
          for  the  9  7/8%  Notes  contains  certain  covenants  which  provide
          limitations on indebtedness,  dividends, asset sales and certain other
          transactions.

                                       F-36
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(10) Long-term Debt (continued)

          The 9 7/8% Notes were  originally  recorded  at  approximately  $250.0
          million.  The discount on the 9 7/8% Notes is being  accreted  through
          May 1, 2003, the date on which the 9 7/8% Notes may first be redeemed.
          The  accretion  of the  discount  and  the  amortization  of the  debt
          issuance  costs are included in interest  expense in the  accompanying
          consolidated statements of operations.

     (b)  10% Notes

          On February 12, 1998,  ICG Services  completed a private  placement of
          10%  Senior  Discount  Notes  due 2008  (the  "10%  Notes")  for gross
          proceeds  of  approximately  $300.6  million.  Net  proceeds  from the
          offering, after underwriting and other offering costs of approximately
          $9.7 million, were approximately $290.9 million.

          The 10% Notes are unsecured  senior  obligations  of ICG Services that
          mature on February 15, 2008,  at a maturity  value of $490.0  million.
          Interest  will accrue at 10% per annum,  beginning  February 15, 2003,
          and is payable each February 15 and August 15,  commencing  August 15,
          2003. The indenture for the 10% Notes contains certain covenants which
          provide  limitations  on  indebtedness,  dividends,  asset  sales  and
          certain other transactions.

          The  10%  Notes  were  originally  recorded  at  approximately  $300.6
          million.  The  discount  on the 10%  Notes is being  accreted  through
          February  15,  2003,  the date on which  the 10%  Notes  may  first be
          redeemed.  The accretion of the discount and the  amortization  of the
          debt  issuance   costs  are  included  in  interest   expense  in  the
          accompanying consolidated statements of operations.

     (c)  11 5/8% Notes

          On March 11, 1997,  Holdings  completed a private placement (the "1997
          Private  Offering") of 11 5/8% Senior Discount Notes due 2007 (the "11
          5/8%  Notes")  and  14%  Exchangeable   Preferred  Stock   Mandatorily
          Redeemable  2008 (the "14%  Preferred  Stock")  for gross  proceeds of
          $99.9 million and $100.0 million,  respectively. Net proceeds from the
          1997 Private Offering, after costs of approximately $7.5 million, were
          approximately $192.4 million.


                                       F-37
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(10) Long-term Debt (continued)

          The 11  5/8%  Notes  are  unsecured  senior  obligations  of  Holdings
          (guaranteed by ICG) that mature on March 15, 2007, at a maturity value
          of  $176.0  million.  Interest  will  accrue  at 11  5/8%  per  annum,
          beginning  March 15, 2002,  and is payable each March 15 and September
          15, commencing September 15, 2002. The indenture for the 11 5/8% Notes
          contains   certain   covenants   which  provide  for   limitations  on
          indebtedness,  dividends,  asset sales and certain other  transactions
          and effectively prohibit the payment of cash dividends.

          The 11 5/8% Notes were  originally  recorded  at  approximately  $99.9
          million.  The discount on the 11 5/8% Notes is being accreted  through
          March  15,  2002,  the date on which  the 11 5/8%  Notes  may first be
          redeemed.  The accretion of the discount and the  amortization  of the
          debt  issuance   costs  are  included  in  interest   expense  in  the
          accompanying consolidated statements of operations.

     (d)  12 1/2% Notes

          On April 30, 1996,  Holdings  completed a private placement (the "1996
          Private  Offering") of 12 1/2% Senior Discount Notes due 2006 (the "12
          1/2% Notes") and of 14 1/4%  Exchangeable  Preferred Stock Mandatorily
          Redeemable 2007 (the "14 1/4% Preferred  Stock") for gross proceeds of
          $300.0 million and $150.0 million, respectively. Net proceeds from the
          1996 Private  Offering,  after issuance costs of  approximately  $17.0
          million, were approximately $433.0 million.

          The 12  1/2%  Notes  are  unsecured  senior  obligations  of  Holdings
          (guaranteed  by ICG and  Holdings-Canada)  that mature on May 1, 2006,
          with a maturity  value of $550.3  million.  Interest will accrue at 12
          1/2% per annum,  beginning May 1, 2001,  and is payable each May 1 and
          November 1, commencing November 1, 2001. The indenture for the 12 1/2%
          Notes  contains  certain  covenants  which provide for  limitations on
          indebtedness,  dividends,  asset sales and certain other  transactions
          and effectively prohibit the payment of cash dividends.

          The 12 1/2% Notes were  originally  recorded at  approximately  $300.0
          million.  The discount on the 12 1/2% Notes is being accreted  through
          May 1,  2001,  the  date on  which  the 12 1/2%  Notes  may  first  be
          redeemed.  The accretion of the discount and the  amortization  of the
          debt  issuance   costs  are  included  in  interest   expense  in  the
          accompanying consolidated statements of operations.

                                       F-38
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(10) Long-term Debt (continued)

          Approximately  $35.3  million of the  proceeds  from the 1996  Private
          Offering  were used to redeem the 12%  redeemable  preferred  stock of
          Holdings  (the  "Redeemable  Preferred  Stock")  issued in August 1995
          ($30.0 million), pay accrued preferred dividends ($2.6 million) and to
          repurchase  916,666  warrants of the Company ($2.7 million)  issued in
          connection with the Redeemable Preferred Stock. The Company recognized
          a charge to accretion and preferred dividends on preferred  securities
          of  subsidiaries,  net of  minority  interest  in share of  losses  of
          approximately  $12.3 million for the excess of the redemption price of
          the Redeemable  Preferred  Stock over the carrying amount at April 30,
          1996,  and  recognized a charge to interest  expense of  approximately
          $11.5  million for the payments  made to  noteholders  with respect to
          consents to amendments to the indenture governing the 13 1/2% Notes to
          permit the 1996 Private Offering.

     (e)  13 1/2% Notes

          On August 8, 1995,  Holdings  completed a private placement (the "1995
          Private Offering") through the issuance of 58,430 units (the "Units"),
          each Unit consisting of ten $1,000,  13 1/2% Senior Discount Notes due
          2005 (the "13 1/2% Notes") and  warrants to purchase 33 common  shares
          of Holdings-Canada  (the "Unit Warrants").  Net proceeds from the 1995
          Private Offering, after issuance costs of approximately $14.0 million,
          were approximately $286.0 million.

          The 13  1/2%  Notes  are  unsecured  senior  obligations  of  Holdings
          (guaranteed by ICG and  Holdings-Canada)  that mature on September 15,
          2005, with a maturity value of $584.3 million. Interest will accrue at
          the rate of 13 1/2% per annum,  beginning  September 15, 2000,  and is
          payable in cash each March 15 and September 15,  commencing  March 15,
          2001. The indenture for the 13 1/2% Notes contains  certain  covenants
          which provide for limitations on indebtedness,  dividends, asset sales
          and certain other transactions and effectively prohibit the payment of
          cash dividends.

          The 13 1/2% Notes were  originally  recorded at  approximately  $294.0
          million,  which  represents  the $300.0  million in proceeds  less the
          approximate $6.0 million value assigned to the Unit Warrants, which is
          included in additional  paid-in  capital.  The discount on the 13 1/2%
          Notes is being accreted over five years until  September 15, 2000, the
          date on which the 13 1/2% Notes may first be redeemed. The value

                                       F-39
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(10) Long-term Debt (continued)

          assigned to the Unit Warrants,  representing additional debt discount,
          is also being accreted over the five-year period. The accretion of the
          total  discount and the  amortization  of the debt issuance  costs are
          included  in  interest  expense  in  the   accompanying   consolidated
          statements of operations.  Holdings may redeem the 13 1/2% Notes on or
          after  September  15,  2000,  in whole or in part,  at the  redemption
          prices set forth in the agreement,  plus unpaid  interest,  if any, at
          the date of redemption.

          The Unit Warrants  entitled the holder to purchase one common share of
          Holdings-Canada,  which was exchangeable  into one share of ICG Common
          Stock,  through  August 8, 2005 at the  exercise  price of $12.51  per
          share. In connection with the Reorganization of  Holdings-Canada,  all
          Unit  Warrants  outstanding  are  exchangeable  only for shares of ICG
          Common Stock on a one-for-one basis and are no longer exchangeable for
          shares of Holdings-Canada.

     (f)  Subsequent to December 31, 1998

          As  of  December  31,  1998,  the  Company's  corporate   headquarters
          building,   land  and  improvements   (collectively,   the  "Corporate
          Headquarters")  were leased by the Company  under an  operating  lease
          from an unrelated  third party.  Subsequent to December 31, 1998,  the
          Company  entered  into a letter of intent to  purchase  the  Corporate
          Headquarters for approximately $43.7 million,  which amount represents
          historical cost and  approximates  fair value.  The Company intends to
          finance  the  purchase  through  the  conversion  of a  $10.0  million
          security deposit  previously paid on the existing  operating lease and
          through a mortgage on the Corporate  Headquarters' assets. Payments on
          the  mortgage  will be due  monthly  through  January 1,  2013,  at an
          initial interest rate of approximately 14% per annum.


                                       F-40
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(10) Long-term Debt (continued)

     Scheduled  principal  maturities of long-term  debt as of December 31, 1998
     are as follows (in thousands):

     Fiscal year:
         1999                                  $              111    
         2000                                                  50
         2001                                                  50
         2002                                                  50
         2003                                                  50
        Thereafter                                      2,206,688
                                               -----------------------
                                                        2,206,999
        Less unaccreted discount                         (607,955)
        Less current portion                                  (46)
                                               =======================
                                                  $     1,598,998
                                               =======================

(11) Redeemable Preferred Securities of Subsidiaries

     Redeemable preferred stock of subsidiary is summarized as follows:

                                                     December 31,
                                        ---------------------------------------
                                             1997                  1998
                                        ----------------     ------------------
                                                    (in thousands)
     14% Exchangeable preferred 
       stock of Holdings, mandatorily
       redeemable in 2008 (a)           $      108,022              124,867
     14 1/4% Exchangeable preferred
       stock of Holdings, mandatorily
       redeemable in 2007 (b)                  184,420              213,443
                                        ================     ==================
                                        $      292,442              338,310
                                        ================     ==================

     (a)  14% Preferred Stock

          In connection  with the 1997 Private  Offering,  Holdings sold 100,000
          shares of exchangeable preferred stock that bear a cumulative dividend
          at the rate of 14% per annum.  The  dividend is payable  quarterly  in
          arrears  each March 15, June 15,  September  15, and  December 15, and
          commenced  June 15,  1997.  Through  March 15,  2002,  the dividend is
          payable at the option of Holdings in cash or additional  shares of 14%
          Preferred Stock. Holdings may exchange the 14% Preferred Stock

                                       F-41
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(11) Redeemable Preferred Securities of Subsidiaries (continued)

          into 14% Senior Subordinated Exchange Debentures at any time after the
          exchange  is  permitted  by certain  indenture  restrictions.  The 14%
          Preferred Stock is subject to mandatory redemption on March 15, 2008.

     (b)  14 1/4% Preferred Stock

          In connection  with the 1996 Private  Offering,  Holdings sold 150,000
          shares of exchangeable preferred stock that bear a cumulative dividend
          at the rate of 14 1/4% per annum. The dividend is payable quarterly in
          arrears each February 1, May 1, August 1 and November 1, and commenced
          August 1, 1996.  Through May 1, 2001, the dividend is payable,  at the
          option of Holdings,  in cash or additional shares of 14 1/4% Preferred
          Stock.  Holdings may exchange the 14 1/4% Preferred Stock into 14 1/4%
          Senior Subordinated Exchange Debentures at any time after the exchange
          is permitted by certain indenture restrictions.  The 14 1/4% Preferred
          Stock is subject to mandatory redemption on May 1, 2007.

     (c)  6 3/4% Preferred Securities

          On  September  24, 1997 and October 3, 1997,  ICG Funding  completed a
          private  placement of 6 3/4%  Exchangeable  Limited  Liability Company
          Preferred  Securities   Mandatorily   Redeemable  2009  (the  "6  3/4%
          Preferred  Securities")  for gross  proceeds of $132.25  million.  Net
          proceeds  from  the  private   placement,   after  offering  costs  of
          approximately  $4.7  million,   were  approximately   $127.6  million.
          Restricted cash at December 31, 1998 of $16.9 million  consists of the
          proceeds  from the  private  placement  which are  designated  for the
          payment of cash dividends on the 6 3/4% Preferred  Securities  through
          November 15, 2000.

          The 6 3/4%  Preferred  Securities  consist of  2,645,000  exchangeable
          preferred securities of ICG Funding that bear a cumulative dividend at
          the  rate of 6 3/4% per  annum.  The  dividend  is paid  quarterly  in
          arrears  each  February  15, May 15,  August 15 and  November  15, and
          commenced  November 15, 1997.  The dividend is payable in cash through
          November  15,  2000 and,  thereafter,  in cash or shares of ICG Common
          Stock, at the option of ICG Funding.  The 6 3/4% Preferred  Securities
          are  exchangeable,  at the option of the holder,  at any time prior to
          November 15, 2009 into shares of ICG Common Stock at an exchange  rate
          of

                                       F-42
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(11) Redeemable Preferred Securities of Subsidiaries (continued)

          2.0812 shares of ICG Common Stock per preferred  security,  or $24.025
          per share,  subject to  adjustment.  ICG  Funding  may, at its option,
          redeem  the 6 3/4%  Preferred  Securities  at  any  time  on or  after
          November  18, 2000.  Prior to that time,  ICG Funding may redeem the 6
          3/4%  Preferred  Securities if the current  market value of ICG Common
          Stock  equals or exceeds,  for at least 20 days of any 30-day  trading
          period,  160% of the exchange  price prior to November  15, 1999,  and
          150% of the exchange price from November 16, 1999 through November 15,
          2000.  The 6  3/4%  Preferred  Securities  are  subject  to  mandatory
          redemption on November 15, 2009.

          On  February  13,  1998,  ICG made a capital  contribution  of 126,750
          shares of ICG Common Stock to ICG Funding. Immediately thereafter, ICG
          Funding sold the  contributed  shares to unrelated  third  parties for
          proceeds of  approximately  $3.4  million.  ICG Funding  recorded  the
          contribution of the ICG Common Stock as additional  paid-in capital at
          the then fair  market  value  and,  consequently,  no gain or loss was
          recorded by ICG Funding on the subsequent sale of those shares.

          Also, on February 13, 1998,  ICG Funding used the  remaining  proceeds
          from the private placement of the 6 3/4% Preferred  Securities,  which
          were not restricted for the payment of cash dividends,  along with the
          proceeds from the sale of the contributed ICG Common Stock to purchase
          approximately  $112.4 million of ICG  Communications,  Inc.  Preferred
          Stock ("ICG  Preferred  Stock") which pays dividends each February 15,
          May  15,  August  15  and  November  15 in  additional  shares  of ICG
          Preferred Stock through November 15, 2000.  Subsequent to November 15,
          2000,  dividends  on the ICG  Preferred  Stock are  payable in cash or
          shares of ICG Common  Stock,  at the option of ICG. The ICG  Preferred
          Stock is exchangeable, at the option of ICG Funding, at any time prior
          to November  15,  2009 into shares of ICG Common  Stock at an exchange
          rate based on the exchange rate of the 6 3/4% Preferred Securities and
          is subject to  mandatory  redemption  on November  15,  2009.  The ICG
          Preferred Stock has been eliminated in  consolidation of the Company's
          consolidated financial statements.

                                       F-43
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------


(11) Redeemable Preferred Securities of Subsidiaries (continued)

          The accreted value of the 6 3/4%  Preferred  Securities is included in
          Company-obligated   mandatorily  redeemable  preferred  securities  of
          subsidiary  limited  liability  company  which  holds  solely  Company
          preferred  stock in the  accompanying  consolidated  balance  sheet at
          December 31, 1998.

     Included in accretion  and preferred  dividends on preferred  securities of
     subsidiaries,  net of minority interest in share of losses is approximately
     $27.0  million,  $5.8  million,  $39.8 million and $55.2 million for fiscal
     1996,  the three months ended  December 31, 1996, and fiscal 1997 and 1998,
     respectively, associated with the accretion of issuance costs, discount and
     preferred  security dividend accruals for the 6 3/4% Preferred  Securities,
     the 14% Preferred  Stock,  the 14 1/4%  Preferred  Stock and the Redeemable
     Preferred  Stock (issued in connection  with the 1995 Private  Offering and
     redeemed in April 1996).  These costs are partially  offset by the minority
     interest share in losses of  subsidiaries  of  approximately  $1.6 million,
     $0.8  million and $1.7  million for fiscal  1996,  the three  months  ended
     December 31, 1996,  and fiscal  1997,  respectively.  There was no reported
     minority interest share in losses of subsidiaries for fiscal 1998.

(12) Stockholders' Equity (Deficit)

     (a)  Stock Options and Employee Stock Purchase Plan

          In fiscal years 1991,  1992 and 1993, the Company's Board of Directors
          approved  incentive  stock  option plans and  replenishments  to those
          plans  which  provide  for  the  granting  of  options  to  directors,
          officers,  employees  and  consultants  of  the  Company  to  purchase
          285,000, 724,400 and 1,692,700 shares, respectively,  of the Company's
          Common Stock,  with exercise  prices  between 80% and 100% of the fair
          value of the shares at the date of grant. A total of 1,849,600 options
          have been granted under these plans with exercise  prices ranging from
          approximately $2.92 to $14.03.  Compensation expense has been recorded
          for options  granted at an exercise  price below the fair market value
          of the  Company's  Common Stock at the date of grant,  pursuant to the
          provisions  of APB 25.  The  options  granted  under  these  plans are
          subject to  various  vesting  requirements  and expire in five and ten
          years from the date of grant.

                                       F-44
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(12)     Stockholders' Equity (Deficit) (continued)

          The NETCOM  1993 Stock  Option  Plan was assumed by ICG at the time of
          the merger,  and  approved by ICG's Board of Directors as an incentive
          and non-qualified stock option plan which provides for the granting of
          options to certain  directors,  officers  and  employees  to  purchase
          2,720,901  shares of ICG Common Stock.  A total of 2,224,273  options,
          net of 2,155,856  cancellations,  have been granted under this plan at
          exercise prices ranging from $0.65 to $92.14,  none of which were less
          than 100% of the fair market value of the shares underlying options on
          the date of  grant,  and  accordingly,  no  compensation  expense  was
          recorded for these  options  under APB 25. The options  granted  under
          this plan are subject to various vesting requirements, generally three
          and five years, and expire within ten years from the date of grant.

          From fiscal 1994 through fiscal 1998, the Company's Board of Directors
          approved   incentive   and   non-qualified   stock  option  plans  and
          replenishments  to those  plans  which  provide  for the  granting  of
          options to certain  directors,  officers  and  employees  to  purchase
          2,536,000 shares of the Company's Common Stock under the 1994 plan, an
          aggregate of 2,700,000  shares of the Company's Common Stock under the
          1995 and 1996 plans and 3,400,000 shares of ICG Common Stock under the
          1998  plan.   A  total  of   6,922,696   options,   net  of  4,587,300
          cancellations,  have  been  granted  under  these  plans  at  original
          exercise prices ranging from $7.94 to $35.75,  none of which were less
          than 100% of the fair market value of the shares underlying options on
          the date of  grant,  and  accordingly,  no  compensation  expense  was
          recorded for these  options  under APB 25. The options  granted  under
          these plans are subject to various vesting  requirements and expire in
          five and ten years from the date of grant.

          In order to continue  to provide  non-cash  incentives  and retain key
          employees,  all employee  stock options  outstanding on April 16, 1997
          with  exercise  prices at or in excess of $15.875 were canceled by the
          Stock  Option  Committee  of the  Company's  Board  of  Directors  and
          regranted with an exercise price of $10.375,  the closing price of ICG
          Common  Stock  on the  Nasdaq  National  Market  on  April  16,  1997.
          Approximately  598,000 options,  with original exercise prices ranging
          from $15.875 to $26.25, were canceled and regranted on April 16, 1997.
          For the same business purpose,  all employee stock options outstanding
          on September 18, 1998 with  exercise  prices at or in excess of $22.00
          were canceled by the Stock Option  Committee of the Company's Board of
          Directors and regranted with an exercise price of $16.875, the closing
          price of ICG Common Stock on the Nasdaq National

                                       F-45
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(12) Stockholders' Equity (Deficit) (continued)

          Market on  September  18, 1998.  A total of  2,413,260  options,  with
          original  exercise  prices ranging from $22.00 to $35.75 were canceled
          and  regranted  on  September  18,  1998.  There  was no effect on the
          Company's  consolidated  financial  statements  as  a  result  of  the
          cancellation and regranting of options.

          In October 1996,  the Company  established  an Employee Stock Purchase
          Plan  whereby  employees  can  elect to  designate  1% to 30% of their
          annual salary to be used to purchase shares of ICG Common Stock, up to
          a limit of $25,000 in ICG Common Stock each year, at a 15% discount to
          fair market value. Stock purchases occur four times a year on February
          1, May 1, August 1 and  November 1, with the price per share  equaling
          the lower of 85% of the market  price at the  beginning  or end of the
          offering  period.  The  Company  is  authorized  to  issue a total  of
          1,000,000  shares of ICG  Common  Stock to  participants  in the plan.
          During  fiscal  1997 and 1998,  the Company  sold  109,213 and 111,390
          shares of ICG Common  Stock,  respectively,  to  employees  under this
          plan.

          During fiscal 1994,  NETCOM's Board of Directors  approved and adopted
          an Employee  Stock  Purchase  Plan which was  dissolved  upon NETCOM's
          merger with ICG. Shares  purchased under this plan were converted into
          an estimated 119,000 shares of ICG Common Stock.

          The  Company  recorded  compensation  expense in  connection  with its
          stock-based employee and non-employee  director  compensation plans of
          $0.1  million for fiscal 1996  pursuant to the  intrinsic  value based
          method of APB 25. Had  compensation  expense for the  Company's  plans
          been  determined  based on the fair market value of the options at the
          grant  dates  for  awards  under  those  plans   consistent  with  the
          provisions  of SFAS 123, the Company's pro forma net loss and loss per
          share  would  have been as  presented  below.  Pro  forma  disclosures
          include  the  effects of  employee  and  non-employee  director  stock
          options  granted  during fiscal 1996,  the three months ended December
          31, 1996, and fiscal 1997 and 1998.

                                       F-46
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(12) Stockholders' Equity (Deficit) (continued)
<TABLE>
<CAPTION>

                                                                                             Fiscal years ended
                               Fiscal year ended           Three months ended                   December 31,
                                 September 30,                 December 31,          ------------------------------------
                                    1996                         1996                     1997                1998
                            ----------------------    ---------------------------    ---------------     ----------------
                                                      (in thousands, except per share amounts)
<S>                             <C>                              <C>                     <C>                 <C>      
Net loss:
   As reported                  $   (228,372)                    (61,313)                (360,735)           (418,045)
   Pro forma                        (242,974)                    (64,985)                (369,677)           (439,362)

Net loss per share-
  basic and diluted:
    As reported                 $     (6.19)                       (1.47)                  (8.49)               (9.25)
    Pro forma                         (6.59)                       (1.56)                  (8.70)               (9.72)
</TABLE>

          The fair value of each  option  grant to  employees  and  non-employee
          directors other than NETCOM employees and  non-employee  directors was
          estimated on the date of grant using the Black-Scholes  option-pricing
          model with the following  weighted  average  assumptions:  an expected
          option  life  of  three  years  for  directors,   officers  and  other
          executives,  and two  years  for  other  employees,  for all  periods;
          expected  volatility  of 50% for fiscal  1996,  the three months ended
          December  31,  1996 and  fiscal  1997,  and 70% for fiscal  1998;  and
          risk-free  interest  rates ranging from 5.03% to 7.42% for fiscal 1996
          and the three  months  ended  December  31,  1996,  5.61% to 6.74% for
          fiscal  1997 and 4.09% to 5.77% for fiscal  1998.  Risk-free  interest
          rates, as were currently available on the grant date, were assigned to
          each granted  option based on the  zero-coupon  rate of U.S.  Treasury
          bills to be held for the same period as the assumed option life. Since
          the  Company  does not  anticipate  issuing any  dividends  on the ICG
          Common Stock,  the dividend yield for all options  granted was assumed
          to be zero. The weighted average fair market value of combined ICG and
          NETCOM  options  granted  during  fiscal 1996,  the three months ended
          December 31, 1996, and fiscal 1997 and 1998 was approximately  $11.10,
          $9.48, $10.31 and $13.23 per option, respectively.

                                       F-47
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(12) Stockholders' Equity (Deficit) (continued)

          As options  outstanding  at December 31, 1998 will continue to vest in
          subsequent  periods,  additional  options  are  expected to be awarded
          under existing and new plans; accordingly, the above pro forma results
          are not necessarily  indicative of the impact on net loss and net loss
          per share in future periods.

          The following table summarizes the status of the Company's stock-based
          compensation plans:
<TABLE>
<CAPTION>

                                                  
                                                   Shares underlying       Weighted average            Options
                                                        options             exercise price           exercisable
                                                 ----------------------  ----------------------  ---------------------
                                                    (in thousands)                                  (in thousands)

<S>                                                       <C>                 <C>                       <C>  
     Outstanding at October 1, 1995                        4,828              $   14.92                 1,230
          Granted                                          2,054                  18.30
          Exercised                                         (415)                  7.35
          Canceled                                          (631)                 24.73
                                                 ----------------------
     Outstanding at September 30, 1996                     5,836                  15.49                 2,771
          Granted                                            335                  18.59
          Exercised                                          (31)                  8.95
          Canceled                                           (56)                 12.65
                                                 ----------------------
     Outstanding at December 31, 1996                      6,084                  15.68                 3,476
          Granted                                          3,377                  14.94
          Exercised                                         (709)                  8.13
          Canceled                                        (2,604)                 25.32
                                                 ----------------------
     Outstanding at December 31, 1997                      6,148                  11.97                 3,532
          Granted                                          5,968                  23.34
          Exercised                                       (1,395)                 12.08
          Canceled                                        (3,941)                 25.62
                                                 ----------------------
     Outstanding at December 31, 1998                      6,780                  13.95                 3,299
                                                 ======================
</TABLE>


                                       F-48
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(12) Stockholders' Equity (Deficit) (continued)

     The following table  summarizes  information  about options  outstanding at
     December 31, 1998:
<TABLE>
<CAPTION>

                                            Options outstanding                               Options exercisable
                          ---------------------------------------------------------  --------------------------------------
                                                  Weighted
                                                  average            Weighted                                 Weighted
          Range of                               remaining            average                                 average
          exercise             Number           contractual          exercise              Number             exercise
           prices            outstanding            life               price            exercisable            price
     -------------------  ------------------  -----------------  ------------------  -------------------  -----------------
                           (in thousands)        (in years)                            (in thousands)

<S>   <C>         <C>            <C>                 <C>            <C>                     <C>             <C>      
      $2.60   -   7.94           1,558               6.40           $     7.91              1,558           $    7.91
       8.50   -  14.58           1,714               7.15                11.07              1,099               11.31
      14.93   -  16.75             381               8.37                15.67                296               15.67
      16.88   -  46.65           3,127               9.37                18.32                346               21.02
                          ------------------                                         -------------------
                                 6,780                                                      3,299
                          ==================                                         ===================
</TABLE>

     (b)  Warrants

          Between  fiscal 1993 and fiscal 1995,  the Company  issued a series of
          warrants   at   varying   prices   to   purchase   common   shares  of
          Holdings-Canada  which,  after August 5, 1996, were  exchangeable on a
          one-for-one  basis  for  Class  A  Shares  of ICG  Common  Stock.  The
          following table summarizes warrant activity for fiscal 1996, the three
          months ended December 31, 1996, and fiscal 1997 and 1998:

                                       F-49
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(12) Stockholders' Equity (Deficit) (continued)
<TABLE>
<CAPTION>
                                                                   Outstanding              Exercise
                                                                     warrants              price range
                                                                -------------------  ------------------------
                                                                  (in thousands)
<S>                                                                    <C>               <C>          <C>  
                Outstanding, October 1, 1995                             5,502           $ 7.38   -   21.51
                Exercised                                              (1,854)             7.94   -    8.73
                Repurchased                                              (917)             2.52   -    3.21
                                                               --------------------

                Outstanding, September 30, 1996                         2,731              7.38   -   21.51
                Exercised                                                (100)                  18.00
                Canceled                                                   (8)             7.38   -   11.80
                                                               --------------------

                Outstanding, December 31, 1996                          2,623              7.38   -   21.51
                Exercised                                                (599)             7.38   -   14.50
                Canceled                                                  (50)                  14.50
                                                               --------------------

                Outstanding, December 31, 1997                          1,974             12.51   -   21.51
                Exercised                                                (113)            12.51   -   21.51
                Canceled                                                   (9)            20.01   -   21.51
                                                               ====================

                Outstanding, December 31, 1998                          1,852                  12.51
                                                               ====================
</TABLE>

     All warrants  outstanding  at December 31, 1998 have an expiration  date of
     August  6,  2005   and,   in   connection   with  the   Reorganization   of
     Holdings-Canada,  are exchangeable only for shares of ICG Common Stock on a
     one-for-one basis.

     (c)  Preferred Stock

          The Company is authorized to issue 1,000,000 shares of preferred stock
          and 50,000 shares of ICG Preferred  Stock.  At December 31, 1998,  the
          Company  had no  shares of  preferred  stock  outstanding.  All of the
          issued and  outstanding  shares of ICG Preferred Stock at December 31,
          1998 are held by ICG Funding.


                                       F-50
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(13) Related Party Transactions

     At December 31, 1997,  the Company had $10.0  million  outstanding  under a
     promissory note from  ChoiceCom,  which was payable on demand at LIBOR plus
     2% per annum (7.97% at December 31, 1997).  During fiscal 1998, the Company
     advanced another $5.0 million to ChoiceCom under a separate promissory note
     with similar terms.  Additionally,  the Company  agreed to perform  certain
     administrative  services for ChoiceCom and make certain payments to vendors
     on behalf of  ChoiceCom,  for which such  services and payments  were to be
     conducted on an arm's length basis and reimbursed by ChoiceCom. At December
     31, 1997, amounts  outstanding under this arrangement and included in notes
     receivable from affiliate were approximately $9.4 million.  All amounts due
     from  ChoiceCom  were  included  in the  purchase  price  of the  Company's
     acquisition of ChoiceCom on December 31, 1998.

     During  fiscal  1996,  Holdings-Canada  and  International   Communications
     Consulting,  Inc. ("ICC") entered into a consulting  agreement  whereby ICC
     will provide various  consulting  services to the Company through  December
     1999 for  approximately  $4.2  million  to be paid  during  the term of the
     agreement.  During fiscal 1996,  the three months ended  December 31, 1996,
     fiscal 1997 and 1998,  the Company paid  approximately  $1.3 million,  $0.3
     million,  $1.1  million  and $1.0  million,  respectively,  related to this
     consulting agreement.  William W. Becker, a stockholder and former director
     of the Company, is President and Chief Executive Officer of ICC.

(14) Commitments and Contingencies

     (a)  Network Construction

          In March 1996,  the Company and  Southern  California  Edison  Company
          ("SCE") entered into a 25-year  agreement under which the Company will
          license 1,258 miles of fiber optic cable in Southern  California,  and
          can  install up to 500  additional  miles of fiber optic  cable.  This
          network,  which  will be  maintained  and  operated  primarily  by the
          Company,  stretches from Los Angeles to southern Orange County.  Under
          the terms of this agreement, SCE will be entitled to receive an annual
          fee for ten years,  certain  fixed  quarterly  payments,  a  quarterly
          payment equal to a percentage of certain network revenue,  and certain
          other  installation  and fiber  connection  fees. The aggregate  fixed
          payments  remaining under the agreement totaled  approximately  $135.3
          million at December 31, 1998.  The agreement has been accounted for as
          a capital lease in the accompanying consolidated balance sheets.

                                       F-51
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(14) Commitments and Contingencies (continued)

          In June 1997, the Company  entered into an  indefeasible  right of use
          ("IRU") agreement with Qwest Communications  Corporation ("Qwest") for
          approximately  1,800  miles  of fiber  optic  network  and  additional
          broadband  capacity in California,  Colorado,  Ohio and the Southeast.
          Network  construction  is ongoing and is expected to be  completed  in
          1999. The Company is responsible  for payment on the  construction  as
          segments of the network are completed  and has incurred  approximately
          $19.2  million  as  of  December  31,  1998,   with  remaining   costs
          anticipated  to be  approximately  $15.8  million.  Additionally,  the
          Company has  committed to purchase  $6.0  million in network  capacity
          from Qwest prior to the end of 1999.

     (b)  Network Capacity Commitments

          In November 1998, the Company entered into two service agreements with
          WorldCom Network Services,  Inc. ("WorldCom").  Both of the agreements
          have three-year  terms and were effective in September 1998. Under the
          Telecom Services  Agreement,  WorldCom provides,  at designated rates,
          switched telecommunications services and other related services to the
          Company,   including  termination  services,   toll-free  origination,
          switched access,  dedicated access and travel card services. Under the
          Carrier Digital Services Agreement,  WorldCom provides the Company, at
          designated  rates,  with the  installation  and operation of dedicated
          digital  telecommunications  interexchange services,  local access and
          other related services,  which the Company believes  expedites service
          availability  to its  customers.  Both  agreements  require  that  the
          Company provide WorldCom with certain minimum monthly  revenue,  which
          if not met,  would require  payment by the Company for the  difference
          between  the  minimum  commitment  and  the  actual  monthly  revenue.
          Additionally,  both agreements limit the Company's  ability to utilize
          vendors  other than WorldCom for certain  telecommunications  services
          specified in the  agreements.  The  Company's  policy is to accrue and
          include  in  operating  costs the effect of any  shortfall  in minimum
          revenue  commitments under these agreements in the period in which the
          shortfall occurred.  The Company has successfully achieved all minimum
          revenue   commitments  to  WorldCom  under  these  agreements  through
          December 31, 1998.


                                       F-52
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(14) Commitments and Contingencies (continued)

     (c)  Other Commitments

          The Company has entered into  various  equipment  purchase  agreements
          with certain of its vendors.  Under these  agreements,  if the Company
          does not meet a minimum  purchase  level in any given year, the vendor
          may discontinue certain discounts, allowances and incentives otherwise
          provided to the Company. In addition, the agreements may be terminated
          by either the Company or the vendor upon prior written notice.

          Additionally,  the Company has entered  into  certain  commitments  to
          purchase   capital   assets  with  an  aggregate   purchase  price  of
          approximately $80.6 million at December 31, 1998.

     (d)  Operating Leases

          The Company  leases  office space and equipment  under  non-cancelable
          operating leases.  Lease expense was approximately $4.9 million,  $1.2
          million,  $11.8 million and $27.0  million for fiscal 1996,  the three
          months ended December 31, 1996 and fiscal 1997 and 1998, respectively.
          Minimum  lease  payments due each year on or before  December 31 under
          the Company's operating leases are as follows (in thousands):

                   1999                     $          30,327      
                   2000                                28,734
                   2001                                25,509
                   2002                                19,890
                   2003                                16,384
                   Thereafter                          64,802
                                            =========================
                                              $       185,646
                                            =========================

     (e)  Transport and Termination Charges

          The Company has  recorded  revenue of  approximately  $4.9 million and
          $58.3 million for fiscal 1997 and 1998,  respectively,  for reciprocal
          compensation  relating  to the  transport  and  termination  of  local
          traffic to ISPs from customers of incumbent  local  exchange  carriers
          ("ILECs") pursuant to various interconnection agreements. The

                                       F-53
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(14) Commitments and Contingencies (continued)

          ILECs  have not paid most of the bills  they  have  received  from the
          Company and have disputed  substantially all of these charges based on
          the  belief  that such  calls are not local  traffic as defined by the
          various  agreements  and  under  state  and  federal  laws and  public
          policies.

          The  resolution  of these  disputes  will be based on rulings by state
          public  utility  commissions  and/or  by  the  Federal  Communications
          Commission  ("FCC").  To date, there have been favorable final rulings
          from  29  states  that  ISP  traffic  is  subject  to the  payment  of
          reciprocal compensation under interconnection  agreements. On February
          25, 1999, the FCC issued a decision that ISP-bound  traffic is largely
          jurisdictionally  interstate  traffic.  The  decision  relies  on  the
          long-standing    federal    policy   that   ISP   traffic,    although
          jurisdictionally  interstate, is treated as though it is local traffic
          for pricing purposes.  The decision also emphasizes that because there
          are no  federal  rules  governing  intercarrier  compensation  for ISP
          traffic,  the  determination  as to whether such traffic is subject to
          reciprocal compensation under the terms of interconnection  agreements
          properly is made by the state  commissions and that carriers are bound
          by their  interconnection  agreements and state  commission  decisions
          regarding the payment of reciprocal  compensation for ISP traffic. The
          FCC has  initiated a rulemaking  proceeding  regarding the adoption of
          prospective  federal  rules  for  intercarrier  compensation  for  ISP
          traffic. In its notice of rulemaking, the FCC expresses its preference
          that  compensation  rates  for  this  traffic  continue  to be  set by
          negotiations between carriers,  with disputes resolved by arbitrations
          conducted by state commissions pursuant to the  Telecommunications Act
          of 1996 (the "Telecommunications Act").

          On March 4, 1999, the Alabama Public Service  Commission (the "Alabama
          PSC") issued a decision  that found that  reciprocal  compensation  is
          owed for Internet traffic under four CLEC  interconnection  agreements
          with BellSouth  Corporation  ("BellSouth"),  which  agreements were at
          issue in the proceeding. With respect to the Company's interconnection
          agreement,  which was also at issue, the state commission  interpreted
          certain  language  in the  Company's  agreement  to  exempt  ISP-bound
          traffic from reciprocal  compensation  under certain  conditions.  The
          Company believes that the Alabama PSC failed to consider the intent of
          the parties in negotiating and executing the Company's interconnection
          agreement,  the  specific  language of the  Company's  interconnection
          agreement and the impact of Alabama

                                       F-54
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(14) Commitments and Contingencies (continued)

          PSC and FCC policies,  and thereby  misinterpreted the agreement.  The
          Company  intends to file a request  with the  Alabama  PSC by April 1,
          1999  seeking  determination  that  the  ruling  with  respect  to the
          Company's  agreement be  reconsidered,  and that the Company should be
          treated  the  same  as  the  other  CLECs  that  participated  in  the
          proceeding  and for which the  Alabama  PSC  ordered  the  payment  of
          reciprocal   compensation.   While  the  Company   intends  to  pursue
          vigorously a petition for reconsideration with the Alabama PSC, and if
          the Company deems it necessary,  judicial  review,  the Company cannot
          predict the final outcome of this issue.

          The Company has also recorded revenue of  approximately  $19.1 million
          for fiscal 1998, related to other transport and termination charges to
          the ILECs, pursuant to the Company's  interconnection  agreements with
          these ILECs.  Included in the Company's trade  receivables at December
          31, 1997 and 1998 are $4.3  million and $72.8  million,  respectively,
          for all receivables related to transport and termination  charges. The
          receivables  balance at December  31, 1998 is net of an  allowance  of
          $5.6 million for disputed amounts.

          Although the Company's  interconnection  agreement  with BellSouth has
          expired,  the Company has received written notification from BellSouth
          that the  Company may  continue  billing  BellSouth  under the pricing
          terms  within  the  expired  interconnection   agreement,  until  such
          agreement  is   renegotiated  or  arbitrated  by  the  relevant  state
          commissions. The Company's remaining interconnection agreements expire
          in 1999 and 2000. While the Company believes that all revenue recorded
          through  December 31, 1998 is collectible and that future revenue from
          transport and termination  charges billed under the Company's  current
          interconnection agreements will be realized, there can be no assurance
          that future  regulatory and judicial  rulings will be favorable to the
          Company,  that the Alabama  PSC will  reconsider  its ruling,  or that
          different pricing plans for transport and termination  charges between
          carriers  will  not be  adopted  when  the  Company's  interconnection
          agreements  are  renegotiated  or as a result of the FCC's  rulemaking
          proceeding  on  future  compensation  methods.  In fact,  the  Company
          believes that different  pricing plans will be considered and adopted,
          and although the Company  expects  that  revenue  from  transport  and
          termination  charges  likely will  decrease as a  percentage  of total
          revenue   from   local   services   in   periods   subject  to  future
          interconnection agreements, the Company's local

                                       F-55
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(14) Commitments and Contingencies (continued)

          termination  services  still will be required by the ILECs and must be
          provided under the  Telecommunications  Act, and likely will result in
          increasing  volume in minutes  due to the growth of the  Internet  and
          related services markets.  The Company expects to negotiate reasonable
          compensation  and  collection  terms for local  termination  services,
          although  there is no  assurance  that such  compensation  will remain
          consistent with current levels.

     (f)  Litigation

          On April 4, 1997,  certain  shareholders  of Zycom filed a shareholder
          derivative suit and class action  complaint for  unspecified  damages,
          purportedly on behalf of all of the minority shareholders of Zycom, in
          the  District  Court of Harris  County,  Texas  (Cause  No.  97-17777)
          against the  Company,  Zycom and certain of their  subsidiaries.  This
          complaint  alleges  that the Company  and certain of its  subsidiaries
          breached  certain duties owed to the  plaintiffs.  The plaintiffs were
          denied class  certification  by the trial court and this  decision has
          been  appealed.  Trial has been  tentatively  set for August 1999. The
          Company is vigorously  defending the claims.  While it is not possible
          to predict the outcome of this litigation,  management  believes these
          proceedings  will not have a material  adverse effect on the Company's
          financial condition, results of operations or cash flows.

          The Company is a party to certain other litigation which has arisen in
          the ordinary  course of business.  In the opinion of  management,  the
          ultimate  resolution of these matters will not have a material adverse
          effect on the Company's financial condition,  results of operations or
          cash flows.

(15) Business Units

          The Company conducts  transactions with external customers through the
          operations  of its Telecom  Services,  Network  Services and Satellite
          Services business units. Shared  administrative  services are provided
          to the  business  units  by  Corporate  Services.  Corporate  Services
          consists of the operating activities of ICG Communications,  Inc., ICG
          Funding,  LLC, ICG Canadian  Acquisition,  Inc., ICG Holdings (Canada)
          Co., ICG Holdings,  Inc. and ICG Services,  Inc., which primarily hold
          securities and provide certain

                                       F-56
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(15) Business Units (continued)

          legal,  accounting  and finance,  personnel  and other  administrative
          support services to the business units.

          Direct and certain  indirect costs  incurred by Corporate  Services on
          behalf of the business  units are allocated  among the business  units
          based on the nature of the underlying costs.  Transactions between the
          business units for services performed in the normal course of business
          are recorded at amounts which are intended to approximate fair value.

          Set forth below are revenue,  EBITDA  (before  nonrecurring  charges),
          which  represents  the  measure  of  operating   performance  used  by
          management   to   evaluate   operating   results,   depreciation   and
          amortization,  interest expense, total assets and capital expenditures
          of continuing  operations for each of the Company's business units and
          for Corporate Services.  As described in note 3, the operating results
          of  the  Company  reflect  the  operations  of  Zycom  and  NETCOM  as
          discontinued for all periods presented.


                                       F-57
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(15) Business Units (continued)
<TABLE>
<CAPTION>

                                                   
                                                    Fiscal               Three months ended              Fiscal years ended 
                                                  year ended                December 31,                    December 31,
                                                 September 30,     -----------------------------   --------------------------------
                                                    1996               1995            1996            1997             1998
                                             --------------------  --------------  --------------  --------------  ----------------
                                                                   (unaudited)
                                                                                 (in thousands)
<S>                                           <C>                 <C>             <C>             <C>              <C>    
Revenue:
   Telecom Services                           $      72,815        12,743          27,307          149,358         305,612
   Network Services                                  61,080        15,826          16,460           69,881          62,535
   Satellite Services                                21,297         6,168           6,188           29,986          40,451
   Elimination of intersegment
     revenue                                         (1,049)         (193)           (478)          (4,203)        (10,979)
                                             ================  ==============  ==============  ==============  ================
       Total revenue                          $     154,143        34,544          49,477          245,022         397,619
                                             ================  ==============  ==============  ==============  ================

EBITDA (before nonrecurring 
  charges) (a):
    Telecom Services                         $      (19,902)       (4,462)        (10,924)         (92,053)        (19,995)
    Network Services                                 (2,417)         (423)            295             (544)         (3,245)
    Satellite Services                               (2,999)       (1,371)           (448)              74           7,088
    Corporate Services                              (17,953)       (3,996)         (5,682)         (27,811)        (20,909)
    Eliminations                                       (215)          (24)           (117)            (825)         (3,692)
                                             ================  ==============  ==============  ==============  ================
      Total EBITDA (before
        nonrecurring charges)                $      (43,486)      (10,276)        (16,876)        (121,159)        (40,753)
                                             ================  ==============  ==============  ==============  ================

Depreciation and amortization (b):
  Telecom Services                           $       21,295         2,871           7,442           45,798          86,775
  Network Services                                    1,086           145             441            2,110           2,305
  Satellite Services                                  4,809         1,272           1,133            4,462           7,314
  Corporate Services                                  2,447           444             750            3,744           4,286
  Eliminations                                          393           101             (75)             387             865
                                             ================  ==============  ==============  ==============  ================
    Total depreciation and
      amortization                            $      30,030         4,833           9,691           56,501         101,545
                                             ================  ==============  ==============  ==============  ================
                                                                                                               (Continued)

</TABLE>

                                       F-58
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(15) Business Units (continued)
<TABLE>
<CAPTION>

                                                    
                                                     Fiscal            Three months ended             Fiscal years ended 
                                                   year ended              December 31,                    December 31,
                                                 September 30,   ------------------------------ --------------------------------
                                                     1996             1995            1996            1997             1998
                                              -----------------  --------------  --------------  --------------  ---------------
                                                                    (unaudited)
                                                                                   (in thousands)
<S>                                           <C>                   <C>              <C>           <C>              <C>  
Interest expense (b):
  Telecom Services                            $        6,814           2,432            1,744          11,996            2,693
  Network Services                                       240            148                -               6               23
  Satellite Services                                     175             52               13               -               88
  Corporate Services                                  78,485         12,583           22,697         105,518          167,323
                                              ----------------  --------------  --------------  --------------  ---------------
    Total interest expense                    $       85,714         15,215           24,454         117,520          170,127
                                              ================  ==============  ==============  ==============  ===============

Total assets:
  Telecom Services (c)                        $      349,786        218,579          400,003         663,864        1,135,937
  Network Services                                    25,994         23,214           33,308          31,911           34,378
  Satellite Services (c)                              46,087         56,498           46,212          46,797           46,760
  Corporate Services (c)                             761,720        307,188          709,412         353,898          376,796
  Eliminations                                      (253,478)       (28,312)        (254,107)          6,062          (22,689)
  Net current assets of discontinued   
    operations (d)                                    54,226        131,902           54,481          38,331                -
  Net non-current assets of
    discontinued operations                           97,561         59,850           97,425          76,577           54,243
                                              ----------------  --------------  --------------  --------------  ---------------
      Total assets                              $  1,081,896        768,919        1,086,734       1,217,440        1,625,425
                                              ================  ==============  ==============  ==============  ===============

Capital expenditures of continuing 
  operations (e):
    Telecom Services                           $     159,997         24,036           67,192         252,008          357,991
    Network Services                                   2,983            279              764           1,577            1,804
    Satellite Services                                11,442          1,484            2,020           5,901           11,107
    Corporate Services                                 2,728          1,108              438          10,384              960
    Eliminations                                        (215)           (25)            (117)         (1,074)          (2,916)
                                              ----------------  --------------  --------------  --------------  ---------------
      Total capital expenditures of
        continuing operations                   $    176,935        26,882           70,297         268,796          368,946
                                               ================  ==============  ==============  ==============  ===============
</TABLE>


                                       F-59
<PAGE>




ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(15) Business Units (continued)

     (a)  EBITDA  (before  nonrecurring  charges)  consists  of  net  loss  from
          continuing operations before interest,  income taxes, depreciation and
          amortization,  provision for impairment of long-lived assets, net loss
          (gain) on disposal of long-lived  assets,  restructuring  costs, other
          expense,  net and  accretion  and  preferred  dividends  on  preferred
          securities of  subsidiaries,  or simply,  revenue less operating costs
          and  selling,  general and  administrative  expenses.  EBITDA  (before
          nonrecurring  charges)  is  presented  as  the  Company's  measure  of
          operating  performance  because it is a measure  commonly  used in the
          telecommunications  industry.  EBITDA (before nonrecurring charges) is
          presented  to  enhance an  understanding  of the  Company's  operating
          results  and is not  intended  to  represent  cash flows or results of
          operations in accordance with generally accepted accounting principles
          ("GAAP")  for  the  periods  indicated.  EBITDA  (before  nonrecurring
          charges)  is not a  measurement  under  GAAP  and  is not  necessarily
          comparable with similarly titled measures of other companies.

     (b)  Although not included in EBITDA (before nonrecurring  charges),  which
          represents the measure of operating  performance used by management to
          evaluate  operating results,  the Company has supplementally  provided
          depreciation  and  amortization  and interest  expense for each of the
          Company's  business  units and Corporate  Services.  Interest  expense
          excludes amounts charged for interest on outstanding cash advances and
          expense allocations among the business units and Corporate Services.

     (c)  Total assets of Telecom  Services,  Satellite  Services and  Corporate
          Services  excludes  investments  in  consolidated  subsidiaries  which
          eliminate in consolidation.

     (d)  At December  31,  1998,  the Company  had net current  liabilities  of
          discontinued operations of $23.3 million, and accordingly, such amount
          was not included within net current assets of discontinued  operations
          on that date.

     (e)  Capital  expenditures include assets acquired under capital leases and
          excludes   payments  for  construction  of  the  Company's   corporate
          headquarters.


                                       F-60
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(16) Provision for Impairment of Long-Lived Assets

     For fiscal 1997, provision for impairment of long-lived assets includes the
     impairment  of the  Company's  Corporate  Services  investments  in StarCom
     International   Optics   Corporation,   Inc.   ("StarCom")   and  Zycom  of
     approximately  $5.2  million  and  $2.7  million,   respectively,  and  the
     Company's   Satellite   Services   investments   in  MCN  and  Nova-Net  of
     approximately  $2.9  million and $0.9  million,  respectively.  The Company
     recorded its impairment in the investment in StarCom upon notification by a
     senior  secured  creditor of StarCom  that it intended to  foreclose on its
     collateral in StarCom, which subsequently caused the bankruptcy of StarCom.
     Based on  circumstances of continuing net operating losses and management's
     assessment  of the  estimated  fair value of related  long-lived  assets at
     December 31, 1997, the Company recorded an impairment of its investments in
     Zycom, MCN and Nova-Net.

     For fiscal 1996, provision for impairment of long-lived assets includes the
     Company's  Telecom  Services  investments  in  the  Phoenix  and  Melbourne
     networks of approximately $5.8 million and $2.7 million,  respectively, and
     the Company's  Satellite Services investment in its subsidiary in Mexico of
     approximately  $0.2 million.  The  provision  for  impairment of long-lived
     assets was based on  circumstances  of continuing net operating  losses and
     management's  assessment of the estimated fair value of related  long-lived
     assets at  September  30,  1996.  Additionally,  the  Company  provided  an
     allowance for a note receivable from NovoComm,  Inc. of approximately  $1.3
     million  based on  management's  assessment  at  September  30, 1996 of the
     collectibility of amounts due.

(17) Restructuring Costs

     During  fiscal  1998,  the  Company  completed  a  decentralization  of the
     Company's   Network   Services   business   unit.   The  Company   recorded
     approximately $0.6 million in restructuring costs,  consisting primarily of
     severance costs, resulting from the decentralization.

     Also during fiscal 1998, the Company recorded approximately $1.5 million of
     restructuring  costs  associated  with a  combined  restructuring  plan for
     Telecom Services and Corporate Services,  which was designed to support the
     Company's increased strategic focus on its ISP customer base, as well as to
     improve the efficiency of operations and general and administrative support
     functions.  Restructuring costs under this plan include severance and other
     employee  benefit costs. At December 31, 1998,  approximately  $0.6 million
     remains in accrued liabilities related to the Telecom Services

                                       F-61
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(17) Restructuring Costs (continued)

     and Corporate  Services  restructuring  plan,  which is expected to be paid
     during the first quarter of 1999.

     Following the Company's  acquisition  of NikoNET in July 1998,  the Company
     closed a regional  facility  of a newly  acquired  subsidiary  of  NikoNET.
     Restructuring   costs,   consisting   primarily  of  severance   costs,  of
     approximately  $0.2  million  were  recorded  as a result  of the  facility
     closure during fiscal 1998.  Approximately  $0.2 million remains in accrued
     liabilities at December 31, 1998 related to the facility closure.

(18) Income Taxes

     The  components  of income tax  benefit  for fiscal 1996 are as follows (in
     thousands):

           Current income tax expense                 $      (198)
           Deferred income tax benefit                      5,329
                                                    ----------------
                  Total                                $    5,131
                                                    ================

     Current income tax expense of $0.2 million and $0.1 million for fiscal 1996
     and 1998, respectively,  represents state income tax relating to operations
     of a subsidiary  company in a state requiring a separate entity tax return.
     Accordingly, this entity's taxable income cannot be offset by the Company's
     consolidated  net operating  loss  carryforwards.  During fiscal 1996,  the
     deferred tax liability  was adjusted for the effects of certain  changes in
     estimated  lives of property  and  equipment  as  discussed in note 2. As a
     result,  the Company  recognized an income tax benefit of $5.3 million.  No
     income tax  expense or  benefit  was  recorded  in the three  months  ended
     December 31, 1996 or fiscal 1997.

     Income tax benefit  differs from the amounts  computed by applying the U.S.
     federal income tax rate to loss before income taxes  primarily  because the
     Company  has not  recognized  the income tax  benefit of certain of its net
     operating  loss  carryforwards  and other  deferred  tax  assets due to the
     uncertainty of realization.

     The tax  effect of  temporary  differences  that  give rise to  significant
     portions  of the  deferred  tax  assets and  deferred  tax  liabilities  at
     December 31, 1997 and 1998 are as follows:

                                       F-62
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(18) Income Taxes (continued)
<TABLE>
<CAPTION>

                                                                                December 31,
                                                                  ------------------------------------------
                                                                         1997                  1998
                                                                  -------------------   --------------------
                                                                               (in thousands)
<S>                                                                <C>                      <C>   
     Deferred income tax liabilities:
       Property and equipment, due to excess
         purchase price of tangible assets and
         differences in depreciation for book and
         tax purposes                                              $       6,254              10,173
                                                                  -------------------   --------------------

     Deferred income tax assets:
       Net operating loss carryforwards                                 (141,185)           (247,126)
       Accrued interest on high yield debt obligations
         deductible when paid                                            (72,330)           (108,895)
       Accrued expenses not currently deductible for
         tax purposes, including deferred revenue                         (7,968)             (9,275)
       Less valuation allowance                                          215,229             355,123
                                                                  -------------------   --------------------
         Deferred income tax assets                                       (6,254)            (10,173)
                                                                  -------------------   --------------------
         Net deferred income tax liability                         $           -                   -
                                                                  ===================   ====================
</TABLE>

     As of December 31, 1998,  the Company has federal and foreign net operating
     loss  carryforwards  ("NOLs")  of  approximately  $617.8  million and $35.0
     million,  respectively,  which  expire in  varying  amounts  through  2019.
     However,  due to the  provisions  of Section 382,  Section 1502 and certain
     other provisions of the Internal Revenue Code (the "Code"), the utilization
     of these NOLs will be limited. The Company is also subject to certain state
     income tax laws, which will also limit the utilization of NOLs. As a result
     of ICG's merger with NETCOM,  which created a change in ownership of NETCOM
     of greater than 50%, the NOLs generated by NETCOM prior to January 21, 1998
     that  can  be  used  to  reduce  future   taxable  income  are  limited  to
     approximately  $15.0 million per year,  before  realization of unrecognized
     built-in gains.

     A valuation allowance has been provided for the deferred tax asset relating
     to the Company's  NOLs,  as  management is not presently  able to determine
     when the Company will generate future taxable income.


                                       F-63
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(19) Employee Benefit Plans

     The Company has established  salary  reduction  savings plans under Section
     401(k)  of  the  Code  which  the  Company  administers  for  participating
     employees.  All  full-time  employees  are  covered  under the plans  after
     meeting minimum service and age  requirements.  Under the plan available to
     NETCOM  employees  from January 1, 1997  through July 1, 1998,  the Company
     made a matching contribution of 100% of each NETCOM employee's contribution
     up to a maximum of 3% of the employee's  eligible earnings.  Prior to 1997,
     NETCOM's matching contribution was limited to 50% of each NETCOM employee's
     contribution  up to a maximum of 6% of the  employee's  eligible  earnings.
     Under the plan available to all ICG employees,  including  NETCOM employees
     subsequent to July 1, 1998,  the Company makes a matching  contribution  of
     ICG Common Stock up to a maximum of 6% of the employee's eligible earnings.
     Aggregate matching contributions under the Company's employee benefit plans
     were  approximately  $1.6  million,  $0.6  million,  $3.6  million and $4.0
     million  during fiscal 1996,  the three months ended December 31, 1996, and
     fiscal  1997 and 1998,  respectively.  The  portion of this  expense  which
     relates   directly  to  employees  of  NETCOM  is  included  in  loss  from
     discontinued operations for all periods presented.

(20) Summarized Financial Information of ICG Holdings, Inc.

     As discussed  in note 10, the 11 5/8% Notes issued by Holdings  during 1997
     are  guaranteed  by ICG.  The 12 1/2% Notes and the 13 1/2% Notes issued by
     Holdings during fiscal 1996 and 1995, respectively,  are also guaranteed by
     ICG and Holdings-Canada.

     The  separate  complete  financial  statements  of  Holdings  have not been
     included herein because such disclosure is not considered to be material to
     the holders of the 11 5/8% Notes,  the 12 1/2% Notes and the 13 1/2% Notes.
     However,   summarized  combined  financial  information  for  Holdings  and
     subsidiaries and affiliates is as follows:


                                       F-64
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(20) Summarized Financial Information of ICG Holdings, Inc. (continued)

                Summarized Consolidated Balance Sheet Information
<TABLE>
<CAPTION>

                                                             December 31,
                                                 --------------------------------------
                                                       1997                1998
                                                 -----------------   ------------------
                                                            (in thousands)

<S>                                                 <C>                   <C>    
     Current assets                                 $   213,625             277,098
     Property and equipment, net                        631,117             636,747
     Other non-current assets, net                      120,878             170,151
     Net non-current assets of 
       discontinued operations                            2,940                 220
     Current liabilities                                 95,792              81,299
     Net current liabilities of discontinued 
       operations                                           367                 944
     Long-term debt, less current portion               890,503           1,004,316
     Capital lease obligations, less current 
       portion                                           66,939              63,359
     Due to parent                                       30,970             191,889
     Due to ICG Services                                      -             137,762
     Redeemable preferred stock                         292,442             338,311
     Stockholders' deficit                             (408,453)           (733,664)
</TABLE>

    Summarized Consolidated and Combined Statement of Operations Information
<TABLE>
<CAPTION>
                                                                 Three months ended             Fiscal years ended     
                                    Fiscal year ended               December 31,                    December 31,
                                      September 30,      --------------------------------  -------------------------------
                                          1996                 1995           1996              1997            1998
                                  ----------------------  ---------------  --------------   --------------- ---------------
                                                          (unaudited)
                                                                       (in thousands)

<S>                                   <C>                    <C>             <C>                <C>            <C>    
Total revenue                         $ 154,143               34,544          49,477             245,022        400,309
Total operating costs
  and expenses                          239,343               50,322          75,199             430,816        546,850
Operating loss                          (85,200)             (15,778)        (25,722)           (185,794)      (146,541)
Loss from continuing
  operations before
  cumulative effect
  of change in accounting              (169,439)             (34,211)        (49,266)           (321,802)      (320,363)
Net loss                               (172,687)             (34,281)        (49,750)           (328,193)      (325,211)
</TABLE>


                                       F-65
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(21) Condensed Financial Information of ICG Holdings (Canada) Co.

     Condensed financial information for Holdings-Canada only is as follows:

                       Condensed Balance Sheet Information

                                                      December 31,
                                     -----------------------------------------
                                             1997                     1998
                                     ----------------------   ----------------
                                                     (in thousands)

     Current assets                  $          162                      162
     Advances to subsidiaries                30,970                  191,889
     Non-current assets, net                  2,604                    2,414
     Current liabilities                        107                       73
     Long-term debt, less 
       current portion                           65                       65
     Due to parent                           21,146                  182,101
     Share of losses of subsidiary          408,453                  733,664
     Shareholders' deficit                 (396,035)                (721,438)

                  Condensed Statement of Operations Information
<TABLE>
<CAPTION>

                                  Fiscal year ended       Three months ended December      Fiscal years ended December 31,
                                    September 30,                     31,
                                                         -------------------------------  ----------------------------------
                                          1996                1995            1996             1997              1998
                                --------------------  ---------------  --------------  ---------------  -----------------
                                                        (unaudited)
                                                                   (in thousands)
<S>                               <C>                      <C>              <C>            <C>                 <C>
 Total revenue                    $          -                   -                -               -                   -
 Total operating costs
   and expenses                          3,438                 361               73             195                 192
 Operating loss                         (3,438)               (361)             (73)           (195)               (192)
 Losses from subsidiaries             (172,687)            (34,281)         (49,750)       (328,193)           (325,211)
 Net loss attributable to
   common shareholders                (184,107)            (34,642)         (49,823)       (328,388)           (325,403)
</TABLE>

                                      F-66
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(22) Condensed  Financial  Information  of  ICG  Communications,   Inc.  (Parent
     company)

     At December 31, 1998, the primary assets of ICG are its  investments in ICG
     Services,  ICG Funding, ICG Acquisition and NikoNET,  including advances to
     those  subsidiaries.  Certain corporate  expenses of the parent company are
     included in ICG's  statement  of  operations  and were  approximately  $1.2
     million  and $2.2  million  for  fiscal  1997 and  1998,  respectively.  At
     December 31, 1998, ICG had no operations  other than those of ICG Services,
     ICG Funding, ICG Acquisition and their subsidiaries.


                                       F-67
<PAGE>


                          FINANCIAL STATEMENT SCHEDULE





ICG Communications, Inc.                                             Page

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . .  S-1

Schedule II:  Valuation and Qualifying  Accounts . . . . . . . . . .  S-2

<PAGE>

                          Independent Auditors' Report



The Board of Directors and Stockholders
ICG Communications, Inc.:

Under the date of February 15,  1999,  we reported on the  consolidated  balance
sheets of ICG Communications,  Inc. and subsidiaries as of December 31, 1997 and
1998 and the related consolidated statements of operations, stockholders' equity
(deficit)  and cash flows for the fiscal years ended  September  30,  1996,  the
three months ended  December 31, 1996,  and the fiscal years ended  December 31,
1997 and 1998 as contained in the  Company's  Annual Report on Form 10-K for the
fiscal  year ended  December  31,  1998.  In  connection  with our audits of the
aforementioned  consolidated  financial  statements,  we have also  audited  the
related financial statement Schedule II: Valuation and Qualifying Accounts. This
financial statement schedule is the responsibility of the Company's  management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. We did not audit the consolidated  financial statements and
related financial statement schedule of NETCOM On-Line  Communication  Services,
Inc.  ("NETCOM"),  a discontinued  wholly owned subsidiary of the Company, as of
December  31,  1997  or for  the  fiscal  year  ended  December  31,  1996,  the
three-month  period ended  December 31, 1996, or the fiscal year ended  December
31, 1997,  whose total assets  constitute 11.7 percent in fiscal 1997, and whose
loss from operations  constitutes  100.5 percent in fiscal 1996, 96.0 percent in
the three months ended December 31, 1996, and 83.8 percent in fiscal 1997 of the
consolidated loss from discontinued  operations.  Those  consolidated  financial
statements  were audited by other  auditors whose reports have been furnished to
us,  and our  opinion,  insofar as it relates  to the  amounts  included  in the
financial  statement  schedule for NETCOM, is based solely on the reports of the
other auditors.

In our opinion,  based on our audits and the reports of the other auditors,  the
related financial statement  schedule,  when considered in relation to the basic
consolidated  financial  statements taken as a whole,  presents  fairly,  in all
material respects, the information set forth therein.

As  explained in note 2 to the  consolidated  financial  statements,  during the
fiscal  year  ended  September  30,  1996,  the  Company  changed  its method of
accounting for long-term telecom services contracts.



                                          KPMG LLP

Denver, Colorado
February 15, 1999


                                       S-1


<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES                                               Schedule II

Valuation and Qualifying Accounts
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                         Additions
                                                                -----------------------------
                                                  Balance at     Charged to    Charged to                      Balance at
                                                   beginning     costs and         other                         end of
Description                                        of period      expenses       accounts      Deductions        period
------------------------------------------------  ------------  -------------  --------------  -------------  -------------
                                                                              (in thousands)
Allowance for uncollectible trade receivables:

<S>                                                <C>             <C>                  <C>        <C>            <C>  
    Fiscal year ended September 30, 1996           $   2,142        1,531               -          (1,293)         2,380
                                                  ------------  -------------  --------------  -------------  -------------

    Three months ended December 31, 1996           $   2,380          914               -            (883)         2,411
                                                  ------------  -------------  --------------  -------------  -------------

    Fiscal year ended December 31, 1997            $   2,411        3,985               -          (1,142)         5,254
                                                  ------------  -------------  --------------  -------------  -------------

    Fiscal year ended December 31, 1998            $   5,254       12,031               -          (1,812)        15,473
                                                  ------------  -------------  --------------  -------------  -------------

Allowance for uncollectible note receivable:

    Fiscal year ended September 30, 1996           $     175        7,100               -               -          7,275
                                                  ------------  -------------  --------------  -------------  -------------

    Three months ended December 31, 1996           $   7,275            -               -               -          7,275
                                                  ------------  -------------  --------------  -------------  -------------

    Fiscal year ended December 31, 1997            $   7,275            -               -           (3,975)        3,300
                                                  ------------  -------------  --------------  -------------  -------------

    Fiscal year ended December 31, 1998            $   3,300            -               -           (2,000)        1,300
                                                  ------------  -------------  --------------  -------------  -------------

Allowance for impairment of long-lived assets:

    Fiscal year ended September 30, 1996           $   2,000            -               -                -         2,000
                                                  ------------  -------------  --------------  -------------  -------------

    Three months ended December 31, 1996           $   2,000            -               -                -         2,000
                                                  ------------  -------------  --------------  -------------  -------------

    Fiscal year ended December 31, 1997            $   2,000        5,170               -           (2,000)        5,170
                                                  ------------  -------------  --------------  -------------  -------------

    Fiscal year ended December 31, 1998            $   5,170            -               -                -         5,170
                                                  ------------  -------------  --------------  -------------  -------------

</TABLE>
                 See accompanying independent auditors' report.

                                                        S-2

<PAGE>


                                INDEX TO EXHIBITS
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

<PAGE>

                                    EXHIBITS



3.3: Agreement and Plan of Reorganization by and among ICG Communications, Inc.,
     ICG  Canadian  Acquisition,  Inc.,  ICG  Holdings  (Canada),  Inc.  and ICG
     Holdings (Canada) Co., dated November 4, 1998.

3.4:Order of Amalgamation  between ICG Holdings (Canada),  Inc. and ICG Holdings
     (Canada) Co., dated December 22, 1998.

3.5: Memorandum and Articles of  Association of ICG Holdings  (Canada) Co. filed
     with the Registrar of Joint Stock Companies, Halifax, Nova Scotia.

4.11:Second  Amended and Restated  Articles of  Incorporation  of ICG  Holdings,
     Inc., dated March 10, 1997.

10.29: ICG Communications, Inc. 1998 Stock Option Plan.

10.30: Form of Stock Option Agreement for 1998 Stock Option Plan.

10.31: Amendment No. 1 to the ICG  Communications,  Inc. 1998 Stock Option Plan,
     dated December 15, 1998.

10.32: Form  of  Agreement  regarding  Gross-Up  Payments,  by and  between  ICG
     Communications,  Inc. and each of J. Shelby Bryan, Harry R. Herbst, Douglas
     I. Falk and H. Don Teague, dated December 16, 1998.

21.1: Subsidiaries of the Registrant.

23.1: Consent of KPMG LLP.

23.2: Consent of Ernst & Young LLP.

27.1:Financial  Data  Schedule of ICG  Communications,  Inc. for the Fiscal Year
     Ended December 31, 1998.



<PAGE>


                                  EXHIBIT 21.1

                         Subsidiaries of the Registrant
<TABLE>
<CAPTION>

                                                                       State of Incorporation         Doing Business
Name of Subsidiary                                                                                          As
---------------------------------------------------------------------- ------------------------ ----------------------------
<S>                                                                    <C>                                  <C>
Bay Area Teleport, Inc.                                                Delaware                             --
Communications Buying Group, Inc.                                      Ohio                                 --
DataChoice Network Services, L.L.C.                                    Nevada                               --
Fiber Optic Technologies of the Northwest, Inc.
  (formerly known as Fiber Optic Technologies of
   Oregon, Inc.)                                                       Oregon                               --
ICG Access Services - Southeast, Inc.
  (formerly known as PrivaCom, Inc.)                                   Delaware                             --
ICG Canadian Acquisition, Inc.                                         Delaware                             --
ICG ChoiceCom, L.P.                                                    Delaware                             --
  (formerly known as CSW/ICG ChoiceCom, L.P.)
ICG ChoiceCom Management, LLC
  (formerly known as Southwest TeleChoice Management, LLC
   and CSW/ICG ChoiceCom Management, LLC)                              Delaware                             --
ICG Enhanced Services, Inc.                                            Colorado                             --
ICG Equipment, Inc.                                                    Colorado                             --
ICG Fiber Optic Technologies, Inc.
  (formerly known as Fiber Optic Technologies, Inc.)                   Colorado                             --
ICG Funding, LLC                                                       Delaware                             --
ICG Holdings, Inc.
  (formerly known as IntelCom Group (U.S.A.), Inc.)                    Colorado                             --
ICG Holdings (Canada) Co.                                              Nova Scotia                          --
ICG Ohio LINX, Inc.
  (formerly known as Ohio Local Interconnection Network
   Exchange Co.)                                                       Ohio                                 --
ICG PST, Inc.
  (formerly known as NETCOM On-Line Communication Services,
   Inc.)                                                               Delaware                             --
ICG Satellite Services, Inc.
  (formerly known as Commden Ltd. and as ICG Wireless
   Services, Inc.)                                                     Colorado                             --
ICG Services, Inc.                                                     Delaware                             --
ICG Telecom Canada, Inc.                                               Federal Canadian                     --
ICG Telecom Group, Inc.
  (formerly known as ICG Access Services, Inc.)                        Colorado                             --
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                       State of Incorporation         Doing Business
Name of Subsidiary                                                                                          As
---------------------------------------------------------------------- ------------------------ ----------------------------
<S>                                                                    <C>                           <C>
ICG Telecom Group of Virginia, Inc.                                    Virginia                             --
ICG Telecom of San Diego, L.P.                                         California                           --
  (formerly known as Linkatel of California, L.P.)
Maritime Telecommunications Network, Inc.                              Colorado                             --
NikoNET, LLC                                                           Georgia                              --
PTI Harbor Bay, Inc.                                                   Washington                           --
TransAmerican Cable, Inc.                                              Kentucky                      MidAmerican Cable
UpSouth Corporation                                                    Georgia                              --
Zycom Corporation                                                      Alberta, Canada                      --
  (formerly known as Camber Sports, Inc.)
Zycom Corporation                                                      Texas                                --
Zycom Network Services, Inc.                                           Texas                                --
  (formerly known as Travel Phone, Inc.)
</TABLE>


<PAGE>



                               Consent of KPMG LLP





The Board of Directors
ICG Communications, Inc.:

We consent to  incorporation  by reference in the  registration  statements Nos.
33-96660, 333-08729,  333-18839,  333-38823,  333-40495 and 333-40495-01 on Form
S-3 of IntelCom Group Inc. and Nos. 33-14127,  333-25957,  333-39737,  333-45213
and  333-56835  on Form S-8 of ICG  Communications,  Inc. of our  reports  dated
February  15,  1999,  relating  to  the  consolidated   balance  sheets  of  ICG
Communications,  Inc. and subsidiaries as of December 31, 1997 and 1998, and the
related consolidated  statements of operations,  stockholders' equity (deficit),
and cash flows for the fiscal years ended  September 30, 1996,  the  three-month
period ended December 31, 1996, and the fiscal years ended December 31, 1997 and
1998, and the related financial statement schedule,  which reports appear in the
December 31, 1998 Annual Report on Form 10-K of ICG Communications, Inc.

As  explained in note 2 to the  consolidated  financial  statements,  during the
fiscal  year  ended  September  30,  1996,  the  Company  changed  its method of
accounting for long-term telecom services contracts.




                                              KPMG LLP


Denver, Colorado
March 29, 1999


<PAGE>

               Consent of Ernst & Young LLP, Independent Auditors



We consent to the  incorporation  by  reference in the  Registration  Statements
(Forms S-3 of  IntelCom  Group Nos.  33-96660  and  333-08729;  Forms S-3 of ICG
Communications,  Inc. Nos. 333-18839, 333-38823, 333-40495 and 333-40495-01; and
Forms S-8 of ICG Communications,  Inc. Nos. 33-14127, 333-25957,  333-39737, and
333-45213)  of our  reports  (a) dated  February  13,  1998 with  respect to the
consolidated balance sheet of NETCOM On-Line Communication  Services, Inc. as of
December 31, 1997 and the related statements of operations, stockholders' equity
and cash flows for each of the two years in the period  ended  December 31, 1997
(not presented  separately herein), and (b) dated April 16, 1998 with respect to
the consolidated balance sheet of NETCOM On-Line Communication Services, Inc. as
of December 31, 1996 and the related  statements  of  operations,  stockholders'
equity and cash flows for the three months then ended (not presented  separately
herein), included in this Annual Report (Form 10-K) of ICG Communications, Inc.,
ICG Holdings (Canada) Co. and ICG Holdings, Inc.



                                          Ernst & Young LLP


San Jose, California
March 26, 1999

<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.
                                                     

                                   ICG Communications, Inc.

                                   By:   /s/J. Shelby Bryan
                                         --------------------------------------
                                         J. Shelby Bryan
                                         President and Chief Executive Officer

                                   Date: March 30, 1999

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:
<TABLE>
<CAPTION>

                 Signature                             Title                              Date

<S>                             <C>                                                   <C> 
/s/William J. Laggett           Chairman of the Board of Directors                    March 30, 1999
-------------------------------
William J. Laggett
                                President and Chief Executive Officer (Principal
/s/J. Shelby Bryan              Executive Officer)                                    March 30, 1999
-------------------------------
J. Shelby Bryan
                                Executive Vice President and Chief
                                Financial Officer (Principal Financial
/s/Harry R. Herbst              Officer)                                              March 30, 1999
-------------------------------
Harry R. Herbst
                                Vice President and Corporate Controller
/s/Richard Bambach              (Principal Accounting Officer)                        March 30, 1999
-------------------------------
Richard Bambach

/s/John U. Moorhead             Director                                              March 30, 1999
-------------------------------
John U. Moorhead

/s/Leontis Teryazos             Director                                              March 30, 1999
-------------------------------
Leontis Teryazos

/s/Walter Threadgill            Director                                              March 30, 1999
-------------------------------
Walter Threadgill
</TABLE>



<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.

                                 ICG Holdings (Canada) Co.


                                 By:   /s/J. Shelby Bryan
                                       ----------------------------------------
                                       J. Shelby Bryan
                                       President and Chief Executive Officer

                                Date:  March 30, 1999

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:
<TABLE>
<CAPTION>

        Signature                           Title                                     Date
<S>                             <C>                                                   <C> 
                                President and Chief Executive Officer (Principal
/s/J. Shelby Bryan              Executive Officer)                                    March 30, 1999
-------------------------------
J. Shelby Bryan
                                Executive Vice President, Chief Financial Officer
/s/Harry R. Herbst              and Director (Principal Financial Officer)            March 30, 1999
-------------------------------
Harry R. Herbst
                                Executive Vice President, General Counsel,
/s/H. Don Teague                Secretary and Director                                March 30, 1999
-------------------------------
H. Don Teague
                                Vice President and Corporate Controller
/s/Richard Bambach              (Principal Accounting Officer)                        March 30, 1999
-------------------------------
Richard Bambach
</TABLE>


<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.

                                  ICG Holdings, Inc.

                                  By:   /s/J. Shelby Bryan
                                        -------------------------------------
                                        J. Shelby Bryan
                                        President, Chief Executive Officer and
                                        Director

                                  Date: March 30, 1999

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:
<TABLE>
<CAPTION>

          Signature                            Title                                    Date
<S>                            <C>                                                   <C> 
                               Chairman of the Board of Directors, President and
                               Chief Executive Officer (Principal Executive
/s/J. Shelby Bryan             Officer)                                              March 30, 1999
------------------------------
J. Shelby Bryan
                              Executive Vice President, Chief Financial Officer
/s/Harry R. Herbst            and Director (Principal Financial Officer)             March 30, 1999
------------------------------
Harry R. Herbst
                               Executive Vice President, General Counsel,
/s/H. Don Teague               Secretary and Director                                March 30, 1999
------------------------------
H. Don Teague
                               Vice President and Corporate Controller
/s/Richard Bambach             (Principal Accounting Officer)                        March 30, 1999
------------------------------
Richard Bambach
                               
/s/Douglas I. Falk             Executive Vice President - Telecom and Director       March 30, 1999
------------------------------
Douglas I. Falk

</TABLE>