UNITED STATES
                                SECURITIES AND EXCHANGE COMMISSION

                                       Washington, D.C. 20549



                                              FORM 10-Q

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

For the quarterly period ended March 31, 1998

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


For the transition period from
                               -------------------------------------------------
Commission file number                 0-20913
                      ----------------------------------------------------------
                           Teleport Communications Group Inc.
--------------------------------------------------------------------------------
                  (Exact name of Registrant as specified in its Charter)

      Delaware                                              13-3173139
--------------------------------------------------------------------------------
(State of other jurisdiction of                         (I.R.S. Employer
or organization)                                        Identification No.)

         437 Ridge Road, Executive Building 3, Dayton, New Jersey  08810
--------------------------------------------------------------------------------
                (Address of principal executive offices)

                                  (732) 392-2000
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

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

Yes            X             No
    -----------------           ----------------

Number of outstanding  shares of  Registrant's  Common Stock as of May 12, 1998:
62,031,104  shares  of Class A Common  Stock and  113,489,040  shares of Class B
Common Stock.



<PAGE>

                                 PART I - FINANCIAL INFORMATION
                                  ITEM 1. FINANCIAL STATEMENTS
                       TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEETS
                              (In thousands, except share amounts)
<TABLE>
<CAPTION>

                                                                                         March 31,          December 31,
                                                                                            1998                1997
                                                                                            ----                ----
                                                                                           (Unaudited)
                                           ASSETS
       Current assets:
<S>                                                                                    <C>                   <C> 
           Cash and cash equivalents                                                       $   96,925          $  173,331
                                                                                           ----------          ----------

           Marketable securities                                                              244,750             306,828
                                                                                           ----------          ----------

           Accounts receivable:
              Trade-net  of  allowance  for  doubtful  accounts  ($12,515 in 1998             
                and $11,684 in 1997)                                                          104,104              85,081
              Related parties                                                                   5,698               6,351
              Miscellaneous-net of allowance for doubtful accounts ($545 in 1998 
                and $297 in 1997)                                                               6,733               6,639
                                                                                           ----------          ----------
                    Accounts receivable-net                                                   116,535              98,071
                                                                                           ----------          ----------
           Prepaid expenses                                                                    16,271              13,988
                                                                                           ----------          ----------
           Other current assets                                                                 7,008               7,943
                                                                                           ----------          ----------
               Total current assets                                                           481,489             600,161
                                                                                           ----------          ----------
       Fixed assets-at cost:
           Communications network                                                           1,923,836           1,722,093
           Other                                                                              167,743             150,990
                                                                                           ----------          ----------
                                                                                            2,091,579           1,873,083
            Less accumulated depreciation and amortization                                   (424,899)           (379,987)
                                                                                           ----------          ----------
                     Fixed assets-net                                                       1,666,680           1,493,096
                                                                                           ----------          ----------
       Investments in and advances to unconsolidated affiliates                                10,394               8,822
                                                                                           ----------          ----------
       Goodwill and other intangible assets - net of accumulated amortization                 235,459             237,806
                                                                                           ----------          ----------
       Licenses-net of accumulated amortization                                                39,386              39,503
                                                                                           ----------          ----------
       Other assets                                                                            77,070              76,913
                                                                                           ----------          ----------
               Total assets                                                                $2,510,478          $2,456,301
                                                                                           ==========          ==========
                                                                                           

                                  LIABILITIES AND STOCKHOLDERS' EQUITY

       Current liabilities:
            Accounts payable and accrued liabilities ($3,250 in 1998 and $4,019
              in 1997 with related parties)                                                $  361,387          $  282,231
                                                                                                  
            Current portion of capital lease obligations ($24,740 in 1998 and
              $28,172 in 1997 with related parties)                                            30,005              33,724
              
            Short-term bank debt                                                               52,575              52,575
            Other current liabilities                                                           8,428               6,742
                                                                                           ----------          ----------
               Total current liabilities                                                      452,395             375,272
       Capital lease obligations ($10,514 in 1998 and $13,388 in 1997 with 
          related  parties)                                                                    15,560              19,095
      
       Senior Notes                                                                           300,000             300,000
       Senior Discount Notes                                                                  755,426             734,984
       Unamortized notes costs                                                                (22,384)            (23,059)
       Other liabilities                                                                       25,842              18,393
                                                                                           ----------          ----------
               Total liabilities                                                            1,526,839           1,424,685
                                                                                           ----------          ----------
       Stockholders' equity:
             Common Stock, Class A $.01 par value: 450,000,000 shares authorized,
               61,605,587 shares issued and outstanding at March 31, 1998; and
               61,273,746 shares issued and outstanding at December 31, 1997                    616                  613
       
               
             Common Stock, Class B $.01  par value: 300,000,000 shares authorized,
              121,464,778 shares issued and outstanding at March 31, 1998 and                                  
              December 31, 1997                                                                 1,215              1,215
             Additional paid-in capital                                                     1,668,547          1,654,328
             Unrealized gain on marketable securities                                             159                164
             Accumulated deficit                                                             (565,873)          (503,679)
                                                                                           ----------         ----------
                                                                                            1,104,664          1,152,641
       Less cost of Class B Common Stock held in treasury,  7,975,738  shares at
       March 31, 1998 and December 31, 1997                                                  (121,025)          (121,025)
                                                                                           ----------         ----------
               Total stockholders' equity                                                     983,639          1,031,616
                                                                                           ----------         ----------
       Total liabilities and stockholders' equity                                          $2,510,478          2,456,301
                                                                                           ==========         ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>

                  TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (Unaudited)
                          (In thousands, except share amounts)
<TABLE>
<CAPTION>


                                                                    Three Months Ended
                                                                        March 31,
                                                                 1998                  1997
                                                           ------------------    -----------------


<S>                                                         <C>                 <C>    
Revenues:
     Telecommunications services ($2,522 and
      $1,942 for the three months ended March 31, 1998
      and 1997, respectively, with related parties)          $      160,077     $       96,844

Expenses:
     Operating                                                       90,764             57,337
     Selling, general and administrative                             47,140             33,371
     Merger related                                                   9,330                  -
     Depreciation and amortization                                   49,102             29,756
                                                              -------------     --------------
         Total expenses                                             196,336            120,464
                                                              -------------     -------------- 
Operating loss                                                      (36,259)           (23,620)
                                                              -------------     --------------                       

Interest:
     Interest income                                                  5,941             11,290
     Interest expense ($750 and $1,474 for the
       three months ended March 31, 1998 and
       1997, respectively, with related parties)                    (31,524)           (29,508)
                                                              -------------     --------------    
                                                                                       

         Total interest                                             (25,583)           (18,218)
                                                              -------------     --------------
Loss before equity in losses of unconsolidated
   affiliates and income tax provision                              (61,842)           (41,838)
Equity in losses of unconsolidated affiliates                             -             (2,590)
                                                              -------------     --------------              
Loss before income tax provision                                    (61,842)           (44,428)
Income tax provision                                                   (352)              (600)
                                                              -------------     --------------
                                                                                          

Net loss                                                      $     (62,194)     $     (45,028)
                                                              =============      =============

Loss per share                                                $        (.36)     $        (.28)
                                                              =============      =============           

Weighted average number of shares outstanding                   174,881,624        161,665,547
                                                              =============      =============
</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>



                TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (Unaudited)
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                                               
                                                                                            Unrealized
                                             Class A         Class B          Additional   Gain(Loss) on   
                                             Common          Common            Paid-In       Marketable               
                                             Stock           Stock             Capital       Securities          
                                           -----------    ------------    ---------------  ---------------    

<S>                                       <C>              <C>             <C>               <C>                           
Balance at January 1, 1998                 $      613      $    1,215      $   1,654,328     $       164       
                                                  
Unrealized loss on marketable securities
                                                    -               -                  -              (5)       
Issuance of  331,841 shares of Class A
Common Stock upon exercise of options
and employee stock grants                           3               -             14,219               -                

Net loss                                            -               -                  -               -     
                                           ----------     -----------     --------------     -----------    
                                                                          

Balance at March 31, 1998                  $      616      $    1,215      $   1,668,547     $        159      
                                           ===========    ============    ==============     ============   

 
<CAPTION>

                                                                                  Total
                                             Accumulated        Treasury       Stockholders'
                                               Deficit           Stock            Equity
                                            -------------    -------------   ---------------

<S>                                         <C>             <C>              <C>           
Balance at January 1, 1998                  $ (503,679)     $  (121,025)     $  1,031,616

Unrealized loss on marketable securities             -                -                (5)

Issuance of  331,841 shares of Class A
Common Stock upon exercise of options
and employee stock grants                            -                -            14,222
     
Net loss                                       (62,194)               -           (62,194)
                                            ----------      -----------      ------------

Balance at March 31, 1998                   $ (565,873)     $  (121,025)     $    983,639
                                            ==========      ===========      ============




The accompanying notes are an integral part of these financial statements.

</TABLE>

<PAGE>





               TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                   Three Months Ended
                                                                                        March 31,
                                                                                1998                1997
                                                                          ---------------     ---------------
Cash flows from operating activities:
<S>                                                                           <C>                <C>      
   Net loss                                                                   $ (62,194)         $ (45,028)
                                                                          
   Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities, net of effects of 
      acquisitions: 
         Depreciation and amortization                                           49,102             29,756
         Amortization of notes costs                                                675                676
         Equity in losses of unconsolidated affiliates                                -              2,590
         Amortization of deferred credits                                        (4,873)              (906)
         Provision for losses on accounts receivable                              2,722                969
         Accretion of discount on Senior Discount Notes                          20,442             18,344
         Accretion of TCI note                                                        -                506
   (Increase) in operating assets and increase (decrease) in operating
      liabilities:
          Accounts receivable                                                   (21,181)           (14,947)
          Other assets                                                           (1,798)           (11,058)
          Accounts payable and accrued liabilities                               93,635            (55,710)
          Deferred credits                                                       10,564              7,923
                                                                              ---------           --------

         Net cash provided by (used for) operating activities                    87,094            (66,885)
                                                                              ---------           --------
                                                                                

Cash flows from investing activities:
    Capital expenditures                                                       (214,395)           (70,720)
    Investments in and advances to unconsolidated affiliates                     (1,572)            (7,466)
    Proceeds from sales and maturities of marketable securities, net
    of purchases                                                                 62,074             29,924
    Cash paid for acquisitions, net of cash acquired                               (116)            (2,331)
                                                                              ---------           --------    
    
          Net cash used for investing activities                               (154,009)           (50,593)
                                                                              ---------           --------
  
Cash flows from financing activities:
    Principal payments on capital leases                                        (11,355)            (4,894)
    Proceeds from the exercise of employee stock options                          1,864                422
                                                                              ---------           --------

               Net cash used for financing activities                            (9,491)            (4,472)
                                                                              ---------           --------

Net decrease in cash and cash equivalents                                       (76,406)          (121,950)

Cash and cash equivalents, January 1                                            173,331            277,540
                                                                              ---------           --------
                                                              
Cash and cash equivalents, March 31                                           $  96,925           $155,590
                                                                              =========           ========
                                                                          
</TABLE>

The accompanying notes are an integral part of these financial statements.



<PAGE>




               TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
                                   (Unaudited)
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>


                                                                                     Three Months Ended
                                                                                         March 31,
                                                                               1998                   1997
                                                                          ---------------       ---------------
Supplemental Schedule of Cash Paid for Interest and Non-Cash Investing
and Financing Activities:

<S>                                                                       <C>                      <C>          
Cash paid during the period for interest                                  $      17,138            $      17,017
                                                                          =============            =============

Compensation paid in stock                                                $      12,355            $           -
                                                                          =============            ============= 
Fixed assets acquired under capital leases                                $       4,101            $          84
                                                                          =============            =============
                                                                                                   
In February 1997, TCG purchased all of the assets and liabilities of                                          
   CERFnet Services, Inc. for TCG's Class A Common Stock:

Fair value of 2,100,000 Class A Common Stock                              $           -            $      47,407     

Fair value of net assets acquired                                                     -                   (2,980)
                                                                          -------------            ------------- 
Goodwill recorded from non-cash transactions                              $           -            $      44,427
                                                                          =============            =============
In March 1997, TCG purchased all of the assets and liabilities of         
   Eastern TeleLogic Corporation for TCG's Class A Common Stock:                  
                                                                                  

Fair value of 2,757,083 Class A Common Stock                              $          -             $      46,078 

Fair value of net liabilities acquired                                    $          -                   121,232  
                                                                          -------------            -------------  
Goodwill recorded from non-cash transactions                              $          -             $     167,310    
                                                                          =============            =============             
</TABLE>
                                                  
                                                                             














The accompanying notes are an integral part of these financial statements.
<PAGE>


               TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)

1.       Organization and Operations

         Teleport Communications Group Inc. ("TCG" or the "Company"),  the first
and largest  competitive  local exchange  carrier ("CLEC") in the United States,
offers comprehensive  telecommunications  services in major metropolitan markets
nationwide.  TCG competes with incumbent  local exchange  carriers  ("ILECs") by
providing high quality, integrated  telecommunications  services, primarily over
fiber optic digital  networks,  to meet the voice,  data and video  transmission
needs of its  customers.  TCG's  customers  are  principally  telecommunications
intensive  businesses,  healthcare and  educational  institutions,  governmental
agencies,  long distance  carriers and resellers,  Internet  service  providers,
disaster  recovery  service  providers,  wireless  communications  companies and
financial  services  companies.  TCG  offers  these  customers   technologically
advanced  telecommunications  services,  as well as superior  customer  service,
flexible pricing and vendor and route diversity.

          TCG, incorporated in March 1983, and TCG Partners, formed in December
1992, were each owned by Cox Communications, Inc. ("Cox"), Tele-Communications,
Inc. ("TCI"), Comcast Corporation ("Comcast"), and Continental Cablevision, Inc.
("Continental") until June 26, 1996.

         In connection with the public offerings of Class A Common Stock, Senior
Notes and Senior  Discount Notes on July 2, 1996, TCG and Cox, TCI,  Comcast and
Continental  entered into a reorganization  agreement dated as of April 18, 1996
(the "TCG Reorganization Agreement"), pursuant to which TCG Partners and certain
of the Company's unconsolidated  affiliates became wholly-owned  subsidiaries of
TCG and TCG  acquired  the  minority  interests  of the owners of the  remaining
unconsolidated affiliates.

         As of March 31, 1998,  TCI, Cox and Comcast (the "Cable  Stockholders")
owned 42.98%, 34.44% and 22.58%,  respectively,  of the Company's Class B Common
Stock,  representing 40.85%,  32.67% and 21.41%,  respectively,  of the combined
voting  power of the  Company's  combined  Class A and Class B Common Stock (the
"Common  Stock").  As of March 31, 1998,  TCG's  Common Stock was owned  28.44%,
22.32%,  14.63%  and  34.61%  by TCI,  Cox,  Comcast  and  public  shareholders,
respectively.

          The accompanying financial statements have been prepared on the
accrual basis of accounting.  The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of the results expected for
the full year.

         1997 Equity Offering

         TCG filed a  registration  statement  for a public  offering (the "1997
Equity  Offering") of  17,250,000  shares of Class A Common Stock on October 10,
1997, and the 1997 Equity  Offering was consummated on November 13, 1997. Of the
17,250,000  shares,  7,304,408 were offered by the Company and 9,945,592  shares
were offered by  Continental.  The Company did not receive any proceeds from the
sale of shares by Continental.  The net proceeds to the Company from its sale of
shares pursuant to the 1997 Equity Offering were  approximately  $317.4 million,
after   deducting  the   underwriting   discount  and   estimated   expenses  of
approximately $11.3 million.

         The AT&T Merger

         On January 8, 1998,  TCG entered into an  Agreement  and Plan of Merger
(the "AT&T Agreement") with AT&T Corp., a New York corporation ("AT&T"),  and TA
Merger  Corp.,  a Delaware  corporation  and a  wholly-owned  subsidiary of AT&T
("AT&T Merger Sub"),  pursuant to which,  subject to satisfaction of the closing
conditions  specified  therein,  AT&T  Merger Sub would merge with and into TCG,
with TCG surviving as a  wholly-owned  subsidiary  of AT&T (the "AT&T  Merger").
Statements made herein regarding the AT&T Merger Agreement are not complete, and
reference  is made to the  copy of the  AT&T  Merger  Agreement  filed  with the
Commission  as an exhibit to the TCG's  Report on Form 8-K on January 26,  1998.
The following disclosure is qualified in its entirety by such reference.
<PAGE>


               TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)

         In the AT&T Merger,  each share of TCG Class A Common Stock  (including
shares issued to former ACC  stockholders  in the ACC Merger (as defined in Note
3), and each  share of Class B Common  Stock of TCG,  par value  $0.01 per share
(the "TCG Class B Common Stock," and together with the TCG Class A Common Stock,
the "TCG Common  Stock") will be converted  into 0.943 of a share of AT&T Common
Stock.  TCG  and  AT&T  expect  that  the  exchange  will  be  tax-free  to  TCG
stockholders,  except  to the  extent  cash is  received  in lieu of  fractional
shares. The AT&T Agreement contains customary  representations and warranties of
the  parties,  which  will not  survive  effectiveness  of the AT&T  Merger.  In
addition,  the AT&T Agreement  contains  certain  restrictions on the conduct of
TCG's business  prior to the  consummation  of the AT&T Merger.  Pursuant to the
AT&T  Agreement,  TCG has agreed,  for the period prior to the AT&T  Merger,  to
operate its  business  in the  ordinary  course,  refrain  from  taking  various
corporate  actions  without the  consent of AT&T,  and not solicit or enter into
negotiations or agreements relating to a competing business combination.

         Pursuant to a Voting  Agreement among the Cable  Stockholders and AT&T,
each Cable Stockholder  executed and delivered to TCG a written consent in favor
of and approving the AT&T Agreement and the AT&T Merger. As a result, unless the
AT&T  Agreement  is amended or a provision  of it waived and such  amendment  or
waiver has a material adverse effect upon TCG  stockholders,  no further vote or
meeting of TCG  Stockholders  is  necessary  to approve or  consummate  the AT&T
Merger.

         Pursuant to the Voting Agreement, each Cable Stockholder,  on behalf of
itself  and   certain  of  its   affiliates,   also   agreed  that  (i)  certain
rights-of-way,  colocation  and similar  agreements  with TCG and its affiliates
would be amended as of January 8, 1998 to provide that each such agreement would
remain in effect for the  longer of five  years  from such date and the  current
term of  such  agreement;  and  (ii)  certain  existing  facilities  agreements,
facilities  lease  agreements  or  other  arrangements  (including  arrangements
relating to future agreements)  relating to the lease or other grant of right to
use  fiber  optic  facilities  between  such  Cable  Stockholder  or  any of its
affiliates and TCG or any of its subsidiaries would be automatically  amended as
of January 8, 1998 to conform with a form of Master Facilities  Agreement agreed
to by AT&T, the Cable  Stockholders  and TCG at the time of the execution of the
AT&T Agreement.

         Consummation   of  the  AT&T  Merger  is  subject  to  certain  closing
conditions,  including  TCG  and  AT&T  obtaining  certain  required  regulatory
approvals and other  related  consents.  Accordingly,  there can be no assurance
that the AT&T  Merger  will be  successfully  consummated  or,  if  successfully
completed, when it might be completed.

         In March 1998,  TCG and AT&T  commenced a trial of a combined local and
long distance business line product sold under the AT&T brand name.

         For  further  information  about  the  AT&T  Merger  see  AT&T  Corp.'s
Registration Statement on Form S-4 (File No. 333-49419).

2.       Significant Accounting Policies

         Consolidation

         The  1998  and  1997  consolidated  financial  statements  include  the
accounts of TCG and all wholly-owned subsidiaries.

         All  material   intercompany   transactions   and  balances  have  been
eliminated  in  consolidation.   Certain  information  and  footnote  disclosure
normally included in financial  statements prepared in accordance with generally
accepted accounting  principles have been condensed or omitted.  These financial
statements and notes should be read in conjunction with the financial statements
of Teleport Communications Group Inc. and Subsidiaries included as part of TCG's
Form 10-K for the year ended  December  31,  1997,  and the pro forma  financial
information  included as part of TCG's Registration  Statement on Form S-4 (File
No. 333-45833) (the "ACC S-4").
<PAGE>


               TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)

         Recently Issued Accounting Pronouncements

         Comprehensive  Income--In June 1997, the Financial Accounting Standards
Board  ("FASB")  issued SFAS No. 130,  "Reporting  Comprehensive  Income."  This
statement is effective for  financial  statements  issued for periods  beginning
after  December 15, 1997.  Management  has evaluated the effect on its financial
reporting  from the  adoption of this  statement  and has found the  majority of
required  disclosures  not to be  applicable.  The amounts for the three  months
ended March 31, 1997 and 1996, which consist solely of unrealized gain or loss
on marketable securities, were not material, therefore no further disclosure
is required.

         Segments of an Enterprise  and Related  Information--In  June 1997, the
FASB issued SFAS No.  131,  "Disclosure  about  Segments  of an  Enterprise  and
Related  Information."  This  statement is effective for fiscal years  beginning
after December 15, 1997. SFAS No. 131 requires the reporting of profit and loss,
specific revenue and expense items, and assets for reportable segments.  It also
requires the  reconciliation of total segment revenues,  total segment profit or
loss, total segment assets,  and other amounts  disclosed for segments,  in each
case to the corresponding  amounts in the general purpose financial  statements.
The Company has not yet determined what  additional  disclosures may be required
in connection with adopting SFAS No. 131.

3.       Acquisitions

         ACC Corp.

         On November 26, 1997,  TCG entered into an Agreement and Plan of Merger
(the "ACC  Agreement")  by and among  TCG,  TCG  Merger  Co.,  Inc.,  a Delaware
corporation and a wholly-owned subsidiary of TCG ("MergerCo"),  and ACC Corp., a
Delaware corporation ("ACC"), providing for the merger of MergerCo with and into
ACC (the "ACC Merger"),  with ACC becoming a wholly-owned subsidiary of TCG. ACC
is  a  switch-based  provider  of  telecommunications  services  to  businesses,
residential customers, and educational institutions in the United States, United
Kingdom and Canada.  ACC has recently commenced  operations in Germany.  The ACC
Merger was consummated on April 22, 1998.  Pursuant to the ACC Agreement,
the ACC stockholders received 0.90909 of a share of TCG Class A Common Stock for
each ACC share.  The total aggregate amount received by the ACC stockholders was
approximately $1.1 billion.

         It is TCG's  intention to more fully  evaluate the acquired  assets and
liabilities,  and as a result, the allocation of the acquisition costs among the
tangible and intangible assets acquired with ACC Corp. may change.

         Kansas City Fiber Network, L.P.

         TCG has agreed to  purchase  substantially  all of the  assets  used in
connection with a fiber optic communications of Kansas City Fiber Network,  L.P.
("KCFN"),  a CLEC, a majority of the equity  which is owned by TCI.  Pending the
closing of such  transaction,  TCG is providing  certain  services in connection
with the  operations  of such  communications  system,  which is  located in the
Kansas City Missouri/Overland Park, Kansas metropolitan area. The purchase price
is approximately  $55 million in cash and TCG will be required to assume certain
obligations of the seller.  An asset and a related  liability have been recorded
on TCG's balance  sheet.  Consummation  of the purchase of the assets of KCFN is
subject to the  receipt  of  required  regulatory  approvals  and other  related
consents. Accordingly, there can be no assurance that the purchase of the assets
of KCFN will be successfully consummated or, if successfully completed,  when it
might be completed.

         It is TCG's  intention to more fully  evaluate the acquired  assets and
liabilities,  and as a result, the allocation of the acquisition costs among the
tangible and intangible assets acquired with KCFN may change.




<PAGE>



               TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)


   Pro Forma Financial Information

         Unaudited pro forma  financial  information  for the three months ended
March  31,  1998 and 1997 as if the  acquisitions  of  Eastern  TeleLogic  Corp.
("ETC"),  CERFnet  Services Inc.  ("CERFnet")  and BizTel,  Inc.  ("BizTel") had
occurred on January 1, 1997, and the  acquisitions  of ACC and KCFN had occurred
at the beginning of each of the respective  periods is as follows (in thousands,
except share amounts):


                                                        1998           1997
                                                        ----           ----
  Revenue........................................     $   273,031   $   187,566
                                                                               
  Net loss.......................................     $   (64,668)  $   (46,234)
                                                                               
  Loss per share.................................     $     (0.33)  $     (0.25)
                                                                               
  Weighted average number of shares outstanding..     193,873,985   185,493,588


         Pro  forma  adjustments  for the three  months  ended  March 31,  1998,
include the amortization of the intangible assets relating to the aforementioned
acquisitions.  Pro forma  adjustments  for the three months ended March 31, 1997
include the  reversal of TCG's equity in the losses of ETC and BizTel as well as
amortization   of  the  intangible   assets   relating  to  the   aforementioned
acquisitions.  It is TCG's intention to more fully evaluate the acquired assets
and liabilities, and as a result, the allocation of the acquisition costs among
the tangible and intangible assets acquired with ACC and KCFN may change.The pro
forma  financial  information  presented  above  is not necessarily  indicative
of the operating  results which would have been achieved had the transactions
occurred at the beginning of the periods  presented or of the results to be
achieved in the future.






<PAGE>

               TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations

Revenue

         Total  revenues  increased to $160.1 million for the three months ended
March  31,  1998  from  $96.8  million  for  the  comparable   period  in  1997,
representing  an  increase of $63.3  million,  or 65%.  The  increase in revenue
occurred in every revenue category, most significantly switched services.  These
increases  in  revenues  are  also a result  of  increased  market  penetration,
primarily in TCG's existing markets, as well as expansion into new markets.

         Annualized monthly recurring revenue increased to approximately $632.4
million for the month of March 31, 1998, from $412.7 million for the comparable
period in 1997, an increase of $219.7 million, or 53%. Monthly recurring revenue
represents monthly service charges billable to telecommunications services 
customers for the month indicated, but excludes non-recurring revenues for 
certain one-time services, such as installation fees or equipment charges.

         Switched services revenue increased  86% for the three  months ended
March 31, 1998 from switched services revenue for the comparable period in 1997.
Increased  monthly  dedicated  services  revenue,  as well as  sales  growth  in
switched services products to new customers, also contributed to overall revenue
growth.  Dedicated  services  revenue  increased  44% for the three months ended
March 31, 1998 from  dedicated  services  revenue for the  comparable  period in
1997.

Operating Expenses

         Operating  expenses  increased  to $90.8  million for the three  months
ended March 31,  1998,  from $57.3  million for the three months ended March 31,
1997,  an  increase  of  $33.5  million,   or  58%.   Operating   expenses  were
approximately  57% of revenue for the three months ended March 31, 1998, and 59%
of  revenue  for the three  months  ended  March 31,  1997.  The  year-over-year
increase is directly related to the costs associated with the expansion of TCG's
networks.  These expenses  include costs  specifically  associated  with network
operations,  including  compensation  costs  for  technical  personnel,  access,
rights-of-way,  node, rent and maintenance  expenses.  Offsetting  these expense
increases are  reductions in expenses due to  renegotiation  of  interconnection
agreements with incumbent local exchange carriers ("ILECs").

Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased to $47.1 million
for the three  months  ended March 31,  1998,  from $33.4  million for the three
months  ended March 31, 1997,  an increase of $13.7  million,  or 41%.  Selling,
general and  administrative  expenses were  approximately 29% of revenue for the
three  months ended March 31, 1998 and 34% of revenue for the three months ended
March 31, 1997.  During the month ended March 31, 1998,  TCG recorded a one-time
benefit related to certain compensation reimbursements arising from a previously
acquired company,  thereby reducing overall first quarter 1998 selling,  general
and administrative  expenses. The year-over-year increase is attributable to the
costs  required to maintain  an  infrastructure  which  supports  the  continued
expansion of the Company's networks and the introduction of new services.  These
costs include compensation,  occupancy, insurance,  professional fees, and sales
and marketing expenses.

Merger Related Expenses

         The Company has recorded non-recurring merger costs of approximately 
$9.3 million which includes professional fees and other expenses related to the
pending AT&T Merger.

EBITDA Before Merger Related Expenses

         EBITDA (earnings before interest,  income tax provision,  depreciation,
amortization and equity in losses of  unconsolidated  affiliates)  before merger
related  expenses  is defined as EBITDA  excluding  the  one-time  merger  costs
related to by the AT&T Merger.  EBITDA before merger related expenses  increased

<PAGE>

to $22.2 million for the three months ended March 31, 1998,  from EBITDA of $6.1
million  for the three  months  ended  March 31,  1997,  or an increase of $16.1
million.  Increases in EBITDA in both existing and expansion cities are prompted
by the  leveraging  of TCG's  network,  the growth of switch  revenues,  and the
controlling of operating and selling, general and administrative expenses.

EBITDA

         EBITDA  increased to $12.8 million for the three months ended March 31,
1998,  from $6.1 million for the three months ended March 31, 1997,  an increase
of $6.7  million,  or 110%.  Increases in EBITDA in both  existing and expansion
cities are prompted by the  leveraging  of TCG's  network,  the growth of switch
revenues,   and  the   controlling   of  operating  and  selling,   general  and
administrative expenses.

Depreciation and Amortization Expense

         Depreciation  and amortization  expense  increased to $49.1 million for
the three months ended March 31, 1998,  from $29.8  million for the three months
ended March 31, 1997,  an increase of $19.3  million,  or 65%.  This increase is
primarily attributable to increased depreciation related to the expansion of the
Company's  local  telecommunications  networks  throughout the United States and
increased  amortization of goodwill,  FCC licenses and other intangibles related
to various 1997 acquisitions.

Interest Income

         Interest  income  decreased  to $5.9 million for the three months ended
March 31, 1998, from $11.3 million for the three months ended March 31, 1997, or
a decrease of $5.4 million.  The decrease is  attributable  to a decrease in the
average  outstanding  balance  of  cash  and  cash  equivalents  and  marketable
securities.

Interest Expense

         Interest expense  increased to $31.5 million for the three months ended
March 31, 1998, from $29.5 million for the three months ended March 31, 1997, or
an increase of $2.0 million.  The increase  primarily resulted from the interest
expense on the bank debt which TCG assumed in the acquisition of ETC.

Equity in Losses of Unconsolidated Affiliates

         TCG no longer records equity in losses of unconsolidated affiliates due
to the  consolidation  of ETC and  BizTel.  Equity in  losses of  unconsolidated
affiliates for the three months ended March 31, 1997 was $2.6 million.

Net Loss

         The  Company's  results  for the three  months  ended  March 31,  1998,
reflected a net loss of $62.2  million,  compared to a net loss of $45.0 million
for the three months ended March 31, 1997, or an increase of $17.2 million. This
increase in net loss is attributable to the factors discussed above.

Liquidity and Capital Resources

         TCG had total assets of approximately $2.5 billion as of March 31, 1998
and  December  31,  1997.  At March 31,  1998 the  Company's  current  assets of
approximately  $481.5 million  exceeded  current  liabilities of $452.4 million,
providing working capital of approximately $29.1 million. Network and equipment,
net of  depreciation,  as of  March  31,  1998,  aggregated  approximately  $1.7
billion.

         Net cash used for financing activities for the three months ended March
31, 1998 and March 31, 1997,  was $9.5 million and $4.5  million,  respectively,
comprised  primarily of principal payments on capital leases partially offset by
proceeds from the exercise of employee stock options for both periods.  Net cash
provided  by (used for)  operating  activities  was $87.1  million  and  ($66.9)

<PAGE>

million for the three  months ended March 31, 1998 and 1997,  respectively.  Net
cash used for investing  activities was $154.0 million and $50.6 million for the
three months ended March 31, 1998 and 1997, respectively.  As of March 31, 1998,
cash and cash  equivalents  were $96.9 million and  marketable  securities  were
$244.8 million.

         TCG  made  capital  expenditures  (excluding  acquisitions)  of  $218.5
million and $70.7  million for the three  months  ended March 31, 1998 and 1997,
respectively.  The Company  anticipates  that  capital  expenditures  (excluding
acquisitions)  will be in  excess  of $1.1  billion  in the  aggregate  in 1998,
primarily for the expansion,  development and construction of its networks,  the
acquisition  and  deployment of switches and the expansion of operating  support
systems.

         Earnings before fixed charges were  insufficient to cover fixed charges
for the three months ended March 31, 1998 and 1997,  by $61.8  million and $44.4
million, respectively.

         The Company has incurred  significant  net operating  losses  resulting
from the  development  and  operation  of new  networks  which TCG expects  will
continue as it expands its networks. Persistent demands from TCG's customers for
capital  intensive  local  services  drives the  development,  construction  and
expansion of its networks.  While cash provided by operations  may be sufficient
to fund modest incremental growth it may not be sufficient to fund the extensive
expansion and development of networks as currently planned.

1997 Equity Offering

         On November 13, 1997, TCG  consummated a public  offering of 17,250,000
shares  of TCG  Class A  Common  Stock  (the  "1997  Equity  Offering").  Of the
17,250,000 shares,  7,304,408 shares were offered by TCG (realizing net proceeds
of approximately  $317.4 million after deducting the  underwriting  discount and
expenses of  approximately  $11.3 million to the Company) and  9,945,592  shares
were offered by Continental Holding Company, a Massachusetts business trust, the
shares of which are owned by  Continental,  which is  wholly-owned  by U S WEST,
Inc.  Continental  acquired its interest in TCG in May 1993.  As a result of the
consummation of the 1997 Equity  Offering,  Continental does not hold any shares
of TCG Common Stock.

         TCG has  invested  the  proceeds  from  the  1997  Equity  Offering  in
marketable securities such as Treasury bills, floating rate notes and commercial
paper.

Available Credit

         Effective as of March 1, 1997, TCG completed its acquisition of ETC for
2,757,083  shares of its Class A Common  Stock.  The  Company  also  assumed $53
million in ETC debt. In addition, as part of the acquisition,  TCG assumed ETC's
credit facility. This facility, which ETC entered into in October 1995, is a $60
million  credit  facility  (the "ETC  Facility")  with  certain  banks.  The ETC
Facility  provides  for  interest  based upon  either  the base rate,  or London
Interbank  Offered  Rate  ("LIBOR"),  adjusted  as defined  in the ETC  Facility
(8.203% at March 31, 1998), which is payable quarterly. Borrowings under the ETC
Facility are  collateralized  by substantially all of the assets and outstanding
common stock of ETC. In addition,  the ETC Facility contains certain restrictive
covenants  which,  among other  things,  require ETC to  maintain  certain  debt
service  coverage  ratios  and  limit  the  payment  of  dividends  and  capital
expenditures. In addition, ETC is required to pay .375% per year on the
available portion of the ETC Facility.  The total  outstanding  balance at 
March 31, 1998, was $52.6  million and is due on September  30,  1998.  ETC has
been renamed TCG Delaware Valley, Inc.

         To  finance  TCG's  capital  expenditures,  acquisitions,  investments,
working capital and for other general  corporate  purposes,  TCG's  wholly-owned
subsidiary,  TCG New York, Inc.  ("TCGNY"),  maintains a $400 million  Revolving
Credit Agreement.  The Revolving Credit Agreement is secured by (i) the stock of
the following TCGNY wholly-owned subsidiaries:  TC New York Holdings I, Inc., TC
New York  Holdings II,  Inc.,  TC Systems,  Inc.,  TCG  Payphones,  Inc. and the

<PAGE>

partnership interests in Teleport Communications,  (ii) a negative pledge on the
assets  and a pledge of the stock of each  existing  and  future  subsidiary  of
TCGNY, (iii) a negative pledge on the contracts that relate to TCGNY operations,
(iv) upstream  guarantees from any existing and future subsidiaries of TCGNY and
(v) a lien on all present  and future  intercompany  indebtedness  owed to TCGNY
from TCG and all its subsidiaries.  As of March 31, 1998, there was no 
outstanding balance and $318.0 million was available to the TCGNY.

         The  Revolving   Credit  Agreement   contains  various   covenants  and
conditions,  including restrictions on additional  indebtedness,  maintenance of
certain financial ratios and limitations on capital expenditures.  None of these
covenants  negatively  impact TCG's liquidity or capital resources at this time.
In addition, TCGNY is required to pay .375% per year on the available portion of
the Revolving Credit Agreement.

Future Commitments

         TCG  has  agreed  to  purchase  substantially  all the  assets  used in
connection  with the fiber  optic  communication  system of  Kansas  City  Fiber
Network,  L.P.,  a CLEC,  a  majority  of the  equity  of which is owned by TCI.
Pending the closing of such  transaction,  TCG is providing  certain services in
connection with the operations of such communication systems. The purchase price
is approximately  $55 million in cash and TCG will be required to assume certain
obligations of the seller.

         TCG intends to use the remaining proceeds from the 1997 Equity Offering
to expand and develop  existing and new networks and for general  corporate  and
working  capital  purposes.  A  significant  portion  of such  proceeds  will be
contributed or advanced to the Company's  subsidiaries which own and operate the
networks in the local markets.  Expected capital expenditures for the expansion,
development  and  acquisition  of networks and other  telecommunications  assets
include (i) the purchase and  installation of switches,  electronics,  fiber and
other  additional  technologies  in  existing  networks  and in  networks  to be
constructed  in new markets and (ii) the  acquisition  and expansion of networks
and  other  telecommunications  assets  currently  owned and  operated  by other
companies.  Expected  expenditures  for general  corporate  and working  capital
purposes  include (i)  expenditures  with  respect to the  Company's  management
information systems and corporate service support infrastructure, (ii) operating
and administrative expenses with respect to new networks and (iii) debt service.

         The Company, to meet its capital requirements in 1998, intends to raise
additional  capital,  subject  to  certain  restrictions  imposed  by  the  AT&T
Agreement.  The AT&T  Agreement  provides  that the Company  must offer AT&T the
right to provide  financing  which the Company  proposes to engage in with third
party lenders or other financing  sources such as public or private debt markets
on the same terms and  conditions  as the Company  could have obtained from such
sources.

         The Company from time to time evaluates acquisitions and investments in
light of the Company's long range plans. Such  acquisitions and investments,  if
realized,  could use a material portion of the Company's financial resources and
may accelerate the need for raising additional capital in the future.

         Regulatory Matters

         TCG is subject to federal and state regulation.  In most states, TCG is
subject  to  certification  and  tariff  filing  requirements  with  respect  to
intrastate  services.  TCG is permitted to file  tariffs for  interstate  access
services  with the Federal  Communications  Commission  ("FCC"),  although  such
tariff requirements are generally less onerous than those imposed on ILECs which
offer similar services.  On June 19, 1997, the FCC adopted an Order that permits
competitive local exchange carriers  ("CLECs") like TCG to voluntarily  withdraw
their FCC tariffs for most interstate  services.  TCG has not decided whether to
withdraw its FCC tariffs.  On the same day, the FCC initiated a further  inquiry
to determine  whether to require that competitive  local exchange  carriers like
TCG withdraw their tariffs.  While TCG cannot predict what decision the FCC will
reach in this further  inquiry,  were the FCC to require the withdrawal of TCG's
tariffs and  replacement  of those tariffs with  contractual  arrangements,  TCG
could incur substantial legal and administrative expense.

         Under the  Telecommunications  Act of 1996 (the "1996 Act"),  all local
exchange  carriers,  including TCG, must interconnect with other carriers,  make
their services available for resale by other carriers provide non-discriminatory
access to  rights-of-way,  offer  reciprocal  compensation  for  termination  of
traffic and provide dialing parity and telephone number portability. TCG, ILECs,
<PAGE>

other CLECs and long distance carriers, will also be required to contribute some
portion of their  gross  revenues  (subject  to  adjustments)  to the support of
universal  service  programs  under the FCC's rules  implementing  the universal
service  provisions  of the 1996 Act,  which were  adopted on May 7, 1997.  This
order is the subject of appeals pending before the U.S. Court of Appeals for the
Fifth  Circuit.  For the first quarter of 1998,  the federal  universal  service
surcharge  was 0.72 percent of all revenues and 3.19 percent of  interstate  and
international  revenues  for all  carriers  with  interstate  revenues.  Several
parties have sought judicial review of the FCC's universal service rules.

         In  addition,  the 1996 Act allows  states to adopt  universal  service
rules,  so long as they are not  inconsistent  with the federal  program.  State
universal service proceedings are at various stages of implementation, but it is
likely  that both  federal and state  contribution  requirements  will  increase
substantially  in 1999. TCG may also be eligible to receive funds from universal
service programs as TCG provides services to schools and libraries.

         On August 8, 1996, the FCC released both a First Report and Order and a
Second Report and Order and a Memorandum  Opinion and Order  (collectively,  the
"Interconnection Orders"). The Interconnection Orders established a framework of
minimum  national  standards  and  procedures  to enable  State  Public  Utility
Commissions  and the FCC to begin  implementing  many of the  local  competition
provisions  of the 1996 Act. On September  27, 1996,  the FCC issued an Order on
Reconsideration   of  the  First   Report  and  Order,   in  which  it  added  a
non-usage-sensitive  charge to the rate for  unbundled  switching  and clarified
that, as a practical  matter,  an interexchange  carrier ("IXC") could not lease
unbundled switching for the provision of exchange access service only until July
1, 1997. The new rules were scheduled to become effective on September 30, 1996.
On October 15, 1996,  however,  the U.S. Court of Appeals for the Eighth Circuit
issued a stay of certain  provisions  of the rules  pending  its  resolution  of
numerous petitions for review filed by ILECs and others. Specifically, the Court
stayed the FCC's pricing rules and its "pick and choose" rule,  which would have
allowed CLECs to receive the benefit of the most favorable  provisions contained
in an ILEC's  agreements  with other  carriers.  On July 18, 1997,  the Court of
Appeals held that the pricing  rules and the "pick and choose" rule exceeded the
FCC's authority and were  inconsistent with the terms of the 1996 Act. The Court
of Appeals  also  invalidated  the FCC's  rule  requiring  that  interconnection
agreements  negotiated  prior to enactment of the 1996 Act be submitted to state
commissions for approval, and it held that the FCC had no authority to review or
enforce  agreements  approved by state  regulators.  On rehearing,  the Court of
Appeals  further  held that the FCC has no  authority  to  prohibit  ILECs  from
disconnecting  unbundled  network  elements from each other when competitors ask
ILECs to refrain from doing so. The Supreme Court has rejected  applications  to
vacate a stay of the  FCC's  rules  pending  appeal,  but it has  agreed to hear
arguments on the merits of the case in the fall of 1998.

         Various ILECs have urged the FCC to require Internet Service Providers'
("ISPs")  to pay the same  rates  that IXCs pay for  access  to public  switched
telephone  exchanges.  Although this position was rejected by the FCC in its May
7, 1997 access  charge  Order,  certain  ILECs have also taken the position that
they will not pay the reciprocal  compensation  normally associated with a local
call to CLECs with respect to telephone  services from the ILEC's customer to an
ISP served by a CLEC on the grounds  that such calls are  exchange  access calls
rather than local calls.  TCG believes these  positions are contrary to the 1996
Act and  every  state  commission  which  has so far  considered  the  issue has
declared that ILECs should pay CLECs  reciprocal  compensation  for the Internet
traffic. However, no prediction can be made whether the ILECs ultimately will be
successful in asserting their positions. If state commissions, the FCC or courts
were to reach final decisions which found in favor of the ILECs,  such decisions
could result in a material adverse effect on TCG, both as an ISP itself and as a
provider of TCG local exchange services to other ISPs.

Forward-Looking Statements

         Certain of the matters discussed in this report may be  forward-looking
within the meaning of Section 21E of the  Securities  Exchange Act of 1934.  For
example,  the  integration  of ACC and the  proposed  AT&T Merger are subject to
inherent  uncertainties  outside of TCG's control, and there can be no assurance
that ACC will perform in accordance  with past results or  expectations  or that
the AT&T Merger will be consummated.  Factors that could adversely  effect TCG's
integration and operation of ACC include certain considerations  discussed under
the caption  "Risk  Factors" in the ACC S-4,  and factors  that could  adversely
effect TCG's operations generally include certain considerations discussed under
<PAGE>

the caption  "Risk  Factors" in TCG's Form 10K for the year ended  December  31,
1997.  Such factors  could cause future  results to vary  materially  from TCG's
historical  results  of  operations  filed in TCG's  Form 10K for the year ended
December 31, 1997.

Effects of Recently Issued Accounting Standards

         Comprehensive  Income--In June 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial  Accounting  Standards ("SFAS") No.
130 "Reporting  Comprehensive Income." This statement is effective for financial
statements issued for periods beginning after December 15, 1997.  Management has
evaluated  the  effect on its  financial  reporting  from the  adoption  of this
statement and has found the majority of the  disclosures  to be not  applicable.
The  amounts  for the  three  months  ended  March  31,  1997 and 1996  were not
material, therefore no further disclosure is required.

         Segments of an Enterprise  and Related  Information--In  June 1997, the
FASB also issued SFAS No. 131  "Disclosure  about  Segments of an Enterprise and
Related  Information."  This  statement is effective for fiscal years  beginning
after December 15, 1997. SFAS No. 131 requires the reporting of profit and loss,
specific revenue and expense items, and assets for reportable segments.  It also
requires the  reconciliation of total segment revenues,  total segment profit or
loss,  total segment  assets,  and other  amounts  disclosed for segments to the
corresponding amounts in the general purpose financial  statements.  The Company
has not yet determined what additional disclosures may be required in connection
with adopting SFAS No. 131.

Effects of Inflation

         Inflation has not had a significant effect on the Company's operations.
However,  there can be no  assurance  that  inflation  will not have a  material
effect on the Company's operations in the future.

The Year 2000

         The  Year  2000  problem  arises  from  the  fact  that  due,  to early
limitations on memory and disk storage, many computer programs indicate the year
by only two digits,  rather than four.  This limitation can cause programs (both
system and application)  that perform  arithmetic  operations,  comparisons,  or
sorting of data fields to yield incorrect  results when working outside the year
range of 1900-1999. TCG began its investigation into Year 2000 compliance in the
fourth  quarter of 1996 and expects to complete  its analysis  during 1998.  The
analysis covers all network equipment used to provide services to TCG customers,
network  operations  support  systems  used to  support  the  operations  of its
networks,  and all administrative  support systems.  TCG is working closely with
its vendors to effectuate  their Year 2000  correction  plans on a timely basis.
There can be no assurance that such procedures will be successfully  implemented
within  the  required  time  frames or that  additional  procedures  will not be
necessary.  A failure of TCG's or of its significant  vendors'  computer systems
could have a material  adverse effect on TCG's  business and financial  position
and results of operations. The cost to TCG of the procedures to correct the Year
2000 problem is currently estimated at $5.0 million.

Item 3:  Quantitative and Qualitative Disclosures about Market Risk

         None.



<PAGE>



                                     Part II
                               - Other Information



Item 1:  Legal Proceedings

         In April 1997, a complaint was filed seeking  damages in an unspecified
amount against the Company in the Circuit Court of Cook County,  Illinois by two
former  customers of the Company and an alleged  class  purporting to consist of
investors in one of the customers,  alleging  fraud and breach of contract.  The
initial  complaint was dismissed in September 1997 and an amended  complaint was
refiled by the  plaintiffs  in  October  1997.  The  Company  believes  that the
allegations  are without merit and that it possesses  meritorious  counterclaims
for damages arising from breach of contract.  The Company additionally  believes
that any costs arising from this lawsuit will not have a material adverse effect
on its financial condition, results of operations or cash flows.

         On December 16, 1997, prior to public  announcement of the AT&T Merger,
an  action  was  filed by a TCG  public  stockholder  in the  Delaware  Court of
Chancery  against  TCG,  TCG's  directors  and  the  Cable   Stockholders.   The
plaintiff's  complaint  alleges that, based on public reports,  TCG's directors,
management and controlling stockholders were negotiating the sale of TCG to AT&T
on a  preferential  basis.  This sale on a  preferential  basis,  the  complaint
alleges,  would offer little or no premium over the current  market price of TCG
Class A Common  Stock and is  therefore  unfair and  inadequate  to TCG's public
stockholders.  The  plaintiff  seeks to  enjoin  the  merger of TCG and AT&T or,
alternatively,  to rescind the  transaction  and/or recover damages in the event
that the  transaction  is  consummated.  The complaint  seeks to have the action
certified  for class  action  status and to appoint the  plaintiff  as the class
representative.

         On January 12, 1998, an action was filed by two TCG public stockholders
in the  Delaware  Court of  Chancery  against  TCG,  certain TCG  directors  and
officers,  the Cable  Stockholders  and AT&T.  The  complaint  alleges  that the
exchange  ratio  in  the  AT&T  Merger  represents  an  inadequate  premium  for
stockholders of TCG Class A Common Stock. The complaint further alleges that the
actions of the TCG directors, officers and Cable Stockholders in connection with
the AT&T  Merger  constitute  a breach of various  fiduciary  duties owed to the
holders of TCG Class A Common Stock. The plaintiffs seek to enjoin the merger of
TCG and AT&T or,  alternatively,  to  rescind  the  transaction  and/or  recover
damages in the event that the transaction is consummated. The complaint seeks to
have the action  certified for class action status and to appoint the plaintiffs
as the class representatives.

         On January 28, 1998, an action was filed by a TCG public stockholder in
the Delaware Court of Chancery  against TCG, certain TCG directors and officers,
and the Cable Stockholders. The complaint alleges that the exchange ratio in the
AT&T Merger  represents an inadequate  premium for  stockholders  of TCG Class A
Common  Stock.  The  complaint further  alleges  that  the  actions  of the TCG
directors,  officers and Cable Stockholders  in connection with the AT&T Merger
constitute a breach of various duties owed to the  stockholders  of TCG Class A
Common  Stock.  The  plaintiffs seek to enjoin  the  merger of TCG and AT&T or,
alternatively, to rescind the transaction and/or recover damages and fees in the
event that the  transaction  is consummated.  The  complaint  seeks to have the
action  certified  for class action  status and to appoint the  plaintiff as the
class representative.

         Plaintiffs'  counsel  in the above  three  putative  stockholder  class
action  proceedings have agreed (i) to defer the obligation of the defendants to
answer the  actions  and (ii) to  consolidate  the  actions by filing an amended
consolidated  complaint.  As of May 14, 1998, the amended consolidated complaint
had not been filed.  The Company believes that these  proceedings,  individually
and in the aggregate,  are without merit and that any associated  costs will not
have a  material  adverse  effect  on  TCG's  financial  condition,  results  of
operations or cash flows.

Item 2:  Changes in Securities and Use of Proceeds

         There were no  reportable  events  during the  quarter  ended March 31,
1998.

<PAGE>


Item 3:  Defaults Upon Senior Securities

         There were no  reportable  events  during the  quarter  ended March 31,
1998.

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

         Pursuant to the  provision  of the Amended and  Restated  Stockholders'
Agreement,  dated  as of  June  26,  1996,  among  the  Company  and  the  Cable
Stockholders,  by unanimous vote of each of the holders of the Company's Class B
Common Stock on April 1, 1998,  Gary S. Howard having been  designated a nominee
by Comcast, was elected as a Director of the Company to fill the vacancy created
by resignation of Brendan R. Clouston.

         Pursuant to a Voting  Agreement among the Cable  Stockholders and AT&T,
each Cable  Stockholder  executed and delivered to TCG a written consent,  dated
January 8,  1998,  in favor of and  approving  the AT&T  Agreement  and the AT&T
Merger.  As a result,  unless the AT&T Agreement is amended or a provision of it
is waived and such  amendment or waiver has a material  adverse  effect upon TCG
stockholders, of it is waived, no further vote or meeting of TCG stockholders is
necessary to approve or consummate the AT&T Merger.

Item 5:  Other Information

         There were no  reportable  events  during the  quarter  ended March 31,
1998.

Item 6:  Exhibits and Reports on Form 8-K

         A. Exhibits:

Exhibit No.

       *2.1    Reorganization Agreement, dated as of April 18, 1996
   *****2.2    Agreement and Plan of Merger, dated as of November 26, 1997, by
               and among Teleport Communications Group Inc., TCG Merger Co.,
               Inc. and ACC Corp.
  ******2.3    Agreement and Plan of Merger Among AT&T Corp., TA Merger Corp.
               and Teleport Communications Group Inc., dated as of January 8, 
               1998
       *3.1    Amended and Restated  Certificate of  Incorporation  of TCG, as
               revised
       *3.2    Amended and  Restated  By-laws of TCG, as revised
       *4.1    Amended and Restated Stockholders' Agreement dated June 26, 1996.
       *4.2    Indenture between TCG and United States Trust Company of 
               New York, as Trustee, relating the 11 1/8% Senior Discount Notes
               due 2007 of TCG
       *4.3    Indenture  between TCG and United  States Trust Company of New
               York, as Trustee,  relating to 9 7/8% Senior Notes due 2006 of 
               TCG
       *4.4    Form of Stock  Certificate for Teleport  Communications  Group,
               Inc.  Class A Common Stock
       *4.5    Form of Global  Security for 11 1/8% Senior Discount Notes due
               2007 of TCG 
       *4.6    Form of Global Security for 9 7/8% Senior Notes due 2006 of TCG
 ******9.00    Voting Agreement
      *10.1    New York  Franchise  Agreement,  dated May 2,  1994,  as amended
      *10.2    Participation  Agreement,  dated May 15, 1984
      *10.3    Agreement of Lease, dated May 15, 1984, as amended
      *10.4    Keepwell Agreement, dated June 7, 1984, as amended
      *10.5    Agreement  of Lease  with  Teleport Associates, dated 
               November 10, 1987
      *10.6    Agreement of Sublease between Merrill Lynch/WFC/L, Inc. and TC 
               Systems, Inc. dated January 30, 1990
   ****10.7    Amended and Restated Loan Agreement, dated July 28, 1997
      *10.8    Teleport Communications Group Inc. 1993 Unit Appreciation Plan
      *10.9    Teleport Communications Group Inc. 1993 Stock Option Plan, as 
               amended
     *10.10    Form of Teleport Communications Group Inc. Employee Stock
               Purchase Plan
     *10.11    Deferred Compensation Plan of Teleport Communications Group Inc.
     *10.12    Make-up Plan of Teleport Communications Group Inc. for the 
               Retirement Savings Plan
     *10.13    Teleport Communications Group Inc. 1996 Equity Incentive Plan
     *10.14    Robert Annunziata Employment Agreement, dated December 18, 1992,
               as amended

<PAGE>

     *10.15    John A. Scarpati Employment Agreement, dated July 12, 1994, as 
               amended
     *10.16    Robert C. Atkinson Employment Agreement, dated July 12, 1994, as
               amended
     *10.17    Stuart A. Mencher Employment Agreement, dated July 12, 1994, as
               amended
     *10.18    Alf T. Hansen Employment Agreement, dated July 12, 1994, as 
               amended
     *10.19    Agreement among Teleport Communications Group Inc. and Comcast
               Corporation, dated April 18, 1996
     *10.20    First Amendment to the Teleport Communications Group Inc. 1993 
               Stock Option Plan
     *10.21    Second Amendment to the Teleport Communications Group Inc. 1993 
               Stock Option Plan
     *10.22    First Amendment to the Teleport Communications Group Inc. 1996 
               Equity Incentive Plan
    **10.23    Teleport Communications Group Inc. 1997 Employee Stock Purchase
               Plan
    ***10.24   Teleport Communications Group Inc. Restricted Stock and Bonus
               Plan
       11.00   Computation of Loss Per Common Share
       27.00   Financial Data Schedule

*Incorporated by reference to the corresponding exhibit of TCG's Registration
Statements on Form S-1 (File Nos. 333-3850 and 333-3984).
**Incorporated by reference to the corresponding exhibit of TCG's Registration 
Statement on Form S-8 (File No. 333-30571).
***Incorporated by reference to the corresponding exhibit of TCG's Registration
Statement on Form S-8 (File No. 333-30569).
****Incorporated by reference to the corresponding exhibit of TCG's Registration
Statement on Form S-3 (File No. 333-37597).
*****Incorporated by reference from TCG's Periodic Report on Form 8-K, dated
November 26, 1997.
******Incorporated  by reference from TCG's  Periodic  Report on Form 8-K, dated
January 8, 1998.

         B.  Reports on Form 8-K:

         The  following  reports on Form 8-K were filed during the quarter ended
March 31, 1998.

         An Item 5 report on Form  8-K,  dated  January  8,  1998,  was filed to
announce  that the Company had entered into an Agreement and Plan of Merger with
AT&T Corp.

         An Item 7 report on Form 8-K/A,  dated  February 9, 1998,  was filed to
amend the previously filed Item 2 report on Form 8-K, dated November 26, 1997 to
include ACC Corp.  audited  financial  statements  and the  unaudited  pro forma
financial statements reflecting the acquisition of ACC Corp.

         An Item 5 report on Form 8-K,  dated  February 24,  1998,  was filed to
report the Company's financial results for the fiscal quarter ended December 31,
1997.

         An Item 5 report on Form 8-K, dated April 28, 1998, was filed to report
the Company's financial results for the fiscal quarter ended March 31, 1998.




<PAGE>











                                   SIGNATURES


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


                                        TELEPORT COMMUNICATIONS GROUP INC.

Dated:   May 14, 1998
                                            By: /s/ John A. Scarpati
                                                ------------------------
                                                
                                          Name: John A. Scarpati
                                         Title: Senior Vice President
                                                and Chief Financial Officer





Dated:   May 14, 1998                       By: /s/ Maria Terranova-Evans
                                                --------------------------

                                          Name: Maria Terranova-Evans
                                         Title: Vice President and Controller
                                                (Principal Accounting Officer)