<PAGE>
 
                                 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 June 30, 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 July 23, 1998:
79,101,267 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>
                                                                                                    JUNE 30,         DECEMBER 31,
                                                                                                      1998             1997       
                                                                                                      ----             ----       
                                                                                                   (UNAUDITED)                   
<S>                                                                                                <C>               <C>         
                                                 ASSETS                                                                    
Current assets:                                                                                                                  
    Cash and cash equivalents                                                                      $   90,131         $  173,331 
                                                                                                   ----------         ---------- 
    Marketable securities                                                                             122,938            306,828 
                                                                                                   ----------         ---------- 
    Accounts receivable:                                                                                                         
       Trade-net of allowance for doubtful accounts ($17,141 in 1998 and $11,684 in 1997)             213,961             85,081 
       Related parties                                                                                  6,196              6,351 
       Miscellaneous-net of allowance for doubtful accounts ($2,059 in 1998 and $297 in 1997)          12,004              6,639 
                                                                                                   ----------         ---------- 
             Accounts receivable-net                                                                  232,161             98,071 
                                                                                                   ----------         ---------- 
    Prepaid expenses                                                                                   20,163             13,988 
                                                                                                   ----------         ---------- 
    Other current assets                                                                               11,351              7,943 
                                                                                                   ----------         ---------- 
          Total current assets                                                                        476,744            600,161 
                                                                                                   ----------         ---------- 
Fixed assets-at cost:                                                                                                            
    Communications network                                                                          2,197,046          1,722,093 
    Other                                                                                             213,130            150,990 
                                                                                                   ----------         ---------- 
                                                                                                    2,410,176          1,873,083 
     Less accumulated depreciation and amortization                                                  (478,113)          (379,987)
                                                                                                   ----------         ---------- 
              Fixed assets-net                                                                      1,932,063          1,493,096 
                                                                                                   ----------         ---------- 
Investments in and advances to unconsolidated affiliates                                               13,090              8,822 
                                                                                                   ----------         ---------- 
Goodwill and other intangible assets - net of accumulated amortization                                984,138            237,806 
                                                                                                   ----------         ---------- 
Licenses-net of accumulated amortization                                                               39,141             39,503 
                                                                                                   ----------         ---------- 
Other assets                                                                                           87,694             76,913 
                                                                                                   ----------         ---------- 
          Total assets                                                                             $3,532,870         $2,456,301 
                                                                                                   ==========         ========== 
                              LIABILITIES AND STOCKHOLDERS' EQUITY                                                               
Current liabilities:                                                                                                             
     Accounts payable and accrued liabilities ($3,791 in 1998 and $4,019 in 1997 with related                      
       parties)                                                                                    $  476,844         $  282,231 
     Current portion of capital lease obligations ($25,056 in 1998 and $28,172 in 1997                                           
       with related parties)                                                                           32,674             33,724 
     Short-term bank debt                                                                              53,175             52,575 
     Other current liabilities                                                                          9,943              6,742 
                                                                                                   ----------         ---------- 
          Total current liabilities                                                                   572,636            375,272 
Capital lease obligations ($6,302 in 1998 and $13,388 in 1997 with related                                           
 parties)                                                                                              13,152             19,095  
Long-term bank debt                                                                                    88,805                  -  
Senior Notes                                                                                          300,000            300,000
Senior Discount Notes                                                                                 775,868            734,984   
Unamortized notes costs                                                                               (21,708)           (23,059)  
Other liabilities                                                                                      27,480             18,393   
                                                                                                   ----------         ----------   
          Total liabilities                                                                         1,756,233          1,424,685   
                                                                                                   ----------         ----------   
Stockholders' equity:                                                                                                              
      Common Stock, Class A $.01 par value: 450,000,000 shares authorized, 78,989,472 shares                                       
        issued and outstanding at June 30, 1998; and  61,273,746 shares issued                                                     
        and outstanding at December 31, 1997                                                              790                613   
      Common Stock, Class B $.01  par value: 300,000,000 shares authorized,                                                        
      121,464,778 shares issued and outstanding at June 30, 1998 and December 31, 1997                  1,215              1,215   
      Additional paid-in capital                                                                    2,516,358          1,654,328   
      Unrealized gain on marketable securities                                                             58                164   
      Cumulative translation adjustment                                                                   980                  -
      Accumulated deficit                                                                            (621,739)          (503,679)   
                                                                                                   ----------         ----------    
                                                                                                    1,897,662          1,152,641    
Less cost of Class B Common Stock held in treasury, 7,975,738                                                                       
 shares at June 30, 1998 and December 31, 1997                                                       (121,025)          (121,025)   
                                                                                                   ----------         ----------    
          Total stockholders' equity                                                                1,776,637          1,031,616    
                                                                                                   ----------         ----------    
Total liabilities and stockholders' equity                                                         $3,532,870         $2,456,301    
                                                                                                   ==========         ==========
</TABLE>

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

                                       2
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED                         SIX MONTHS ENDED
                                                                        June 30,                                June 30,
                                                                1998              1997                 1998                1997
                                                            -------------     --------------      --------------      --------------
<S>                                                         <C>               <C>                 <C>                 <C>
Revenues:
     Telecommunications services ($2,620 and
       $2,556 for the three months ended June 30,
       1998 and 1997, and $5,142 and $4,498 for
       the six months ended June 30, 1998 and
       1997, respectively, with related parties)            $    295,303      $    115,664        $    455,380        $    212,508
 
Expenses:
     Operating                                                   170,250            67,627             261,014             124,964
     Selling, general and administrative                          86,160            39,363             133,300              72,734
     Merger related                                                  945                 -              10,275                   -
     Depreciation and amortization                                66,289            37,255             115,391              67,011
                                                            ------------      ------------        ------------        ------------
          Total expenses                                         323,644           144,245             519,980             264,709
                                                            ------------      ------------        ------------        ------------
Operating loss                                                   (28,341)          (28,581)            (64,600)            (52,201)
                                                            ------------      ------------        ------------        ------------
 
Interest:
     Interest and other income                                     5,124             6,751              11,065              18,041
     Interest expense ($476 and $1,700 for the
       three months ended June 30, 1998 and
       1997, and $1,226 and $3,174 for the six           
       months ended June 30, 1998 and 1997,
       respectively, with related parties)                       (32,365)          (28,743)            (63,889)            (58,251)
                                                            ------------      ------------        ------------        ------------
 
          Total interest                                         (27,241)          (21,992)            (52,824)            (40,210)
                                                            ------------      ------------        ------------        ------------
 
Loss before equity in losses of unconsolidated
 affiliates and income tax provision                             (55,582)          (50,573)           (117,424)            (92,411)
Equity in losses of unconsolidated affiliates                          -             ( 243)                  -              (2,833)
                                                            ------------      ------------        ------------        ------------
Loss before income tax provision                                 (55,582)          (50,816)           (117,424)            (95,244)
Income tax provision                                                (284)             (516)               (636)             (1,116)
                                                            ------------      ------------        ------------        ------------
 
Net loss                                                    $    (55,866)     $    (51,332)       $   (118,060)       $    (96,360)
                                                            ============      ============        ============        ============
 
Loss per share                                              $       (.29)     $       (.31)       $       (.64)       $       (.59)
                                                            ============      ============        ============        ============
 
Weighted average number of shares outstanding                191,901,624       164,860,699         183,438,640         163,271,950
                                                            ============      ============        ============        ============
</TABLE>
                                                                                

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

                                       3
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                    FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                    UNREALIZED
                                   Class A   CLASS B   ADDITIONAL   CUMULATIVE    GAIN(LOSS) ON                           TOTAL
                                   Common    COMMON    PAID-IN      TRANSLATION     MARKETABLE   ACCUMULATED  TREASURY STOCKHOLDERS'
                                   Stock     STOCK     CAPITAL      ADJUSTMENT      SECURITIES     DEFICIT      STOCK    EQUITY
                                   -----     -----     -------      ----------      ----------     -------      -----    ------
<S>                                <C>      <C>     <C>             <C>           <C>            <C>         <C>         <C> 
Balance at January 1, 1998         $613     $1,215  $1,654,328       $       -    $    164       $ (503,679) $(121,025)  $1,031,616

Unrealized loss on marketable
securities                            -          -           -               -        (106)               -          -         (106)

 
 
Cumulative Translation
Adjustment                            -          -           -             980           -                -          -          980
 
Issuance of 16,271,141 shares
of Class A Common Stock to
acquire ACC Corp.                   163          -     821,519               -           -                -          -      821,682
 
 
Issuance of  1,444,585 shares 
of Class A Common Stock upon
exercise of options and
employee stock grants                14          -      40,511               -           -                -          -       40,525
 
 
 
 
Net loss                              -          -           -               -           -         (118,060)         -     (118,060)

                                   -----    ------  ----------          ------       ------       ---------  ---------   ----------
Balance at June 30, 1998           $790     $1,215  $2,516,358            $980       $  58        $(621,739) $(121,025)  $1,776,637
                                   =====    ======  ==========          ======       ======       =========  =========   ==========
</TABLE>

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

                                       4
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED
                                                                                       JUNE 30,
                                                                             1998                     1997
                                                                     ------------------       -----------------
<S>                                                                  <C>                      <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                 $(118,060)              $ (96,360)
 Adjustments to reconcile net loss to net cash                            
  provided by (used for) operating activities, net of effects of         
  acquisitions:                                                          
    Depreciation and amortization                                           115,391                  67,011
    Amortization of notes costs                                               1,351                   1,351
    Equity in losses of unconsolidated affiliates                                 -                   2,833
    Amortization of deferred credits                                        (12,556)                 (3,607)
    Provision for losses on accounts receivable                               5,199                   3,018
    Accretion of discount on Senior Discount Notes                           40,884                  36,688
    Accretion of TCI note                                                         -                   1,022
    Unrealized foreign exchange loss                                            721                       -
 (Increase) in operating assets and increase 
    (decrease) in operating liabilities:      
    Accounts receivable                                                     (26,229)                (25,633)
    Other assets                                                               (438)                (12,659)
    Accounts payable and accrued liabilities                                 93,974                  (4,137)
    Deferred credits                                                         18,823                   8,877
                                                                     --------------           -------------
                                                                          
        Net cash provided by (used for) operating activities                119,060                 (21,596)
                                                                     --------------           -------------
                                                                          
CASH FLOWS FROM INVESTING ACTIVITIES:                                     
  Capital expenditures                                                     (381,827)               (211,146)
  Investments in and advances to unconsolidated affiliates                   (4,256)                 (5,116)
  Proceeds from sales and maturities of marketable securities, net of     
     purchases                                                              184,046                  79,196
  Cash paid for acquisitions, net of cash acquired                           (9,448)                 (6,258)
                                                                     --------------           -------------
                                                                          
       Net cash used for investing activities                              (211,485)               (143,324)
                                                                     --------------           -------------
                                                                          
CASH FLOWS FROM FINANCING ACTIVITIES:                                     
  Principal payments on capital leases                                      (23,197)                (10,273)
  Proceeds from the exercise of employee stock options                       33,870                   5,403
  Repayments of long-term debt                                               (3,348)                      -
  Proceeds from issuance of long-term debt                                    1,900                       -
                                                                     --------------           -------------
                                                                          
      Net cash provided by (used for) financing activities                    9,225                  (4,870)
                                                                     --------------           -------------
                                                                          
NET DECREASE IN CASH AND CASH EQUIVALENTS                                   (83,200)               (169,790)
                                                                          
CASH AND CASH EQUIVALENTS, JANUARY 1                                        173,331                 277,540
                                                                     --------------           -------------
                                                                          
CASH AND CASH EQUIVALENTS, JUNE 30                                        $  90,131               $ 107,750
                                                                     ==============           =============
</TABLE> 

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

                                       5
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                        SIX MONTHS ENDED
                                                                                            JUNE 30,
                                                                              1998                           1997
                                                                      -------------------             -------------------
<S>                                                                   <C>                             <C>
SUPPLEMENTAL SCHEDULE OF CASH PAID FOR INTEREST AND NON-CASH
INVESTING AND FINANCING ACTIVITIES:
 
Cash paid during the period for interest                                       $   20,399                      $   19,318
                                                                               ==========                      ========== 
Compensation paid in stock                                                     $   12,404                      $        -
                                                                               ==========                      ========== 
Fixed assets acquired under capital leases                                     $   11,430                      $    6,725 
                                                                               ==========                      ========== 
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
                                                                               ==========                      ==========    
                                                                      
In April 1998, TCG purchased all of the assets and liabilities of                       
   ACC for TCG's Class A Common Stock:                               
                                                                     
Fair value of 16,271,141 Class A Common Stock                                  $ 821,682                       $        -
                                                                     
Fair value of net assets acquired                                                (73,044)                               -
                                                                               ----------                      ----------  
Goodwill recorded from non-cash transactions                                   $ 748,638                       $        -  
                                                                               ==========                      ==========  
</TABLE> 
                                                                     
   The accompanying notes are an integral part of these financial statements.
                                                                     

                                       6
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                  (UNAUDITED)

1.   HISTORY AND ACQUISITION BY AT&T

     Teleport Communications Group Inc. ("TCG" or the "Company") was the first
and largest competitive local exchange carrier ("CLEC") in the United States.
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.  In November 1997, Continental sold its remaining
ownership interest.

     As of June 30, 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 40.27%, 32.20% and 21.11%, respectively, of the combined voting
power of the Company's combined Class A and Class B Common Stock (the "Common
Stock").  As of June 30, 1998, TCG's Common Stock was owned 25.87%, 20.31%,
13.31% and 40.51% by TCI, Cox, Comcast and public shareholders, respectively.

     The accompanying financial statements have been prepared on the accrual
basis of accounting. In the opinion of management, the accompanying consolidated
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the Company's financial
position as of June 30, 1998, and the Company's results of operations and cash
flows for the six months then ended. The results of operations for the six
months ended June 30, 1998 are not necessarily indicative of the results
expected for the full year.
     
     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 shares 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 expenses of
approximately $11.3 million.  As a result of the consummation of the 1997
Equity Offering, Continental ceased to hold any shares of TCG Common Stock.
 
     On July 23, 1998, TCG consummated an Agreement and Plan of Merger 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 AT&T Merger Sub merged with and into TCG, with TCG surviving as a
wholly-owned subsidiary of AT&T (the "AT&T Merger").  TCG's Class A Common Stock
has been de-listed from the NASDAQ stock exchange.
 
     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") was converted into 0.943 of a share of AT&T Common
Stock.  For further information about the AT&T Merger see AT&T Corp.'s
Registration Statement on Form S-4 (File No. 333-49419).

                                       7
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                    FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                  (UNAUDITED)

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").

     Foreign Currency Translation

     Assets and liabilities of foreign subsidiaries of the Company, namely ACC
Canada, ACC UK and ACC Germany, operating in Canada, the United Kingdom and
Germany, respectively, are translated into US dollars using the exchange rates
in effect at the balance sheet date.  Results of operations are translated using
the exchange rate at the date of the transaction.  The effects of exchange rate
fluctuations on translating foreign currency assets and liabilities into US
dollars are included as part of the cumulative translation adjustment component
of stockholders' equity, while gains and losses resulting from foreign currency
transactions are included in net loss.

     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 six months ended June 30, 1998 and 1997, which
consists of unrealized gain or loss on marketable securities and for the six
months ended June 30, 1998 foreign currency translation adjustments, were not
material, therefore no further disclosure is required.
 
3.   ACQUISITIONS

     ACC Corp.

     On April 22, 1998, TCG consummated an Agreement and Plan of Merger 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"),
pursuant to which MergerCo merged with and into ACC (the "ACC Merger"), with ACC
becoming a wholly-owned subsidiary of TCG.  In the ACC Merger, the ACC
stockholders received 0.90909 of a share of TCG Class A Common Stock for each
ACC share.  The total aggregate value of TCG Stock received by the ACC
stockholders was approximately $1.1 billion.
 
     It is management'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.

     On July 6, 1998, TCG completed the purchase of substantially all of the
assets used in connection with fiber optic communications of Kansas City Fiber
Network, L.P. ("KCFN"), a Competitive Local Exchange Carrier ("CLEC"), located
in the Kansas City Missouri/Overland Park, Kansas metropolitan area, a majority
of the equity of which was owned by TCI.  The purchase price was approximately
$55 million in cash and TCG assumed certain obligations of the seller.

                                       8
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                    FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                  (UNAUDITED)
                                        
     It is management'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.

 Pro Forma Financial Information

     Unaudited pro forma financial information for the six months ended June 30,
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):

<TABLE>
<CAPTION>
                                                                                         1998                 1997
                                                                                         ----                 ----
     <S>                                                                             <C>                <C>
     Revenue....................................................................     $    568,330       $    394,867
     Net loss...................................................................         (120,371)           (98,305)
     Loss per share.............................................................     $      (0.63)      $      (0.54)
     Weighted average number of shares outstanding..............................      191,529,263        182,785,991
</TABLE>

     Pro forma adjustments for the six months ended June 30, 1998, include the
amortization of the intangible assets relating to the aforementioned
acquisitions.  Pro forma adjustments for the six months ended June 30, 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 of ACC and KCFN, 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.

4.  DERIVATIVE FINANCIAL INSTRUMENTS

     The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates.  The
Company does not hold or issue financial instruments for speculative purposes.
The derivative instruments used are currency forward contracts and interest rate
swap agreements.  These derivatives are non-leveraged and involve little
complexity.

     The Company enters into contracts to buy and sell foreign currencies in the
future in order to protect the U.S. dollar value of certain currency positions
and future foreign currency transactions.  The fair value method is used to
account for these instruments.  Under the fair value method, changes in fair
value are recognized in the consolidated balance sheet as a component of other
accrued expenses, and in the consolidated income statement as foreign currency
gain or loss.  For reporting purposes, the contractual assets or liabilities of
the foreign currency agreements are offset because the agreements provide for a
right of offset.  Any premiums or discounts related to foreign currency
contracts are amortized over the life of the contracts.  The Company enters into
cross-currency rate swaps to hedge intercompany debt from certain subsidiaries.
Under these agreements, the Company typically pays a fixed rate of interest on a
foreign dollar note, and receives a variable rate of interest on a U.S. dollar
receivable.  The fair value method is used to account for these instruments.
Under the fair value method, the amounts receivable and payable are carried at
their fair value on the consolidated balance sheet as a component of other
receivables.  Changes in the fair value are recognized in the consolidated
income statement as foreign currency gain or loss.  Interest due under the fixed
contracts and interest receivable under the variable contracts are recognized in
the consolidated income statement as a component of net interest expense.

5.  SUBSEQUENT EVENT

     On August 4, 1998, TCG offered to purchase any and all of its outstanding
9.875% Senior Notes due July 1, 2006 and 11.125% Senior Discount Notes due July
1, 2007 ("The Notes").  The tender offer will expire on August 10, 1998, unless
extended.  The price to be paid for the Notes will result from a yield to the
earliest call of July 1, 2001, equal to a fixed spread of 12.5 basis points over
the yield of the 5.625% U.S. Treasury Note due May 15, 2001, at the time a
holder agrees to tender its Notes.

                                       9
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

RESULTS OF OPERATIONS
---------------------

     TCG consolidated ACC's financial results as of April 1, 1998.  These
results are included for the three months ended June 30, 1998.

 Revenue

     Total revenues increased to $295.3 million and $455.4 million for the three
months and six months ended June 30, 1998 from $115.7 million and $212.5 million
for the comparable period in 1997, representing increases of $179.6 million and
$242.9 million, or 155% and 114%, respectively.  Total revenue contributed by
ACC for both the three months and six months ended June 30, 1998 is $111.6
million.  Excluding ACC, total revenue would have increased to $183.7 million
and $343.8 million for the three months and six months ended June 30, 1998,
representing increases of $68.0 million and $131.3 million, or 59% and 62%,
respectively. The increases in revenue occurred in every revenue category, most
significantly switched services.  These increases in revenues were 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 $1.2
billion for the month of June 30, 1998, from $444.8 million for the comparable
period in 1997, an increase of $755.2 million, or 170%. 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 304% and 206% for the three months and
six months ended June 30, 1998 from switched services revenue for the comparable
period in 1997.  Excluding ACC, switched services revenue would have increased
83% and 85% for the three months and six months ended June 30, 1998,
respectively. 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 38% and 40% for
the three months and six months ended June 30, 1998, respectively, from
dedicated services revenue for the comparable periods in 1997.

Operating Expenses

     Operating expenses increased to $170.3 million and $261.0 million for the
three months and six months ended June 30, 1998, from $67.6 million and $125.0
million for the three months and six months ended June 30, 1997, increases of
$102.7 million and $136.0 million, or 152% and 109%, respectively.  Operating
expenses were approximately 58% and 57% of revenue for the three months and six
months ended June 30, 1998, and 58% and 59% of revenue for the three months and
six months ended June 30, 1997.  ACC's operating expenses were $73.5 million for
both the three months and six months ended June 30, 1998.  Excluding ACC,
operating expenses would have increased to $96.8 million and $187.5 million for
the three months and six months ended June 30, 1998, increases of $29.2
million and $62.5 million, or 43% and 50%, respectively.  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 were reductions in expenses due to renegotiation of interconnection
agreements with incumbent local exchange carriers.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased to $86.2 million and
$133.3 million for the three months and six months ended June 30, 1998, from
$39.4 million and $72.7 million for the three months and six months ended June
30, 1997, increases of $46.8 million and $60.6 million, or 119% and 83%,
respectively.  Selling, general and administrative expenses were approximately
29% of revenue for both the three months and six months ended June 30, 1998 and
34% of revenue for both the three months and six months ended June 30, 1997.
ACC's selling, general and administrative expenses were $31.1 million for both
the three months and six months ended June 

                                       10
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

30, 1998. Excluding ACC, selling, general and administrative expenses increased
to $55.1 million and $102.2 million for the three months and six months ended
June 30, 1998, increases of $15.7 million and $29.5 million, or 40% and 41%,
respectively. 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 $0.9
million and $10.3 million for the three months and six months ended June 30,
1998, respectively, which include professional fees and other expenses related
to the 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
to $38.9 million and $61.1 million for the three months and six months ended
June 30, 1998, from EBITDA of $8.7 million and $14.8 million for the three
months and six months ended June 30, 1997, or increases of $30.2 million and
$46.3 million, respectively. ACC's EBITDA was $6.9 million for both the three
months and six months ended June 30, 1998. Excluding ACC, EBITDA before merger
related expenses increased to $32.0 million and $54.2 million for the three
months and six months ended June 30, 1998, or increases of $23.3 million and
$39.4 million, respectively. 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 $38.0 million and $50.8 million for the three months
and six months ended June 30, 1998, from $8.7 million and $14.8 million for the
three months and six months ended June 30, 1997, increases of $29.3 million and
$36.0 million, respectively. ACC's EBITDA was $6.9 million for both the three
months and six months ended June 30, 1998. Excluding ACC, EBITDA increased to
$31.1 million and $43.9 million for the three months and six months ended June
30, 1998, an increase of $22.4 million and $29.1 million, respectively.
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 $66.3 million and $115.4
million for the three months and six months ended June 30, 1998, from $37.3
million and $67.0 million for the three months and six months ended June 30,
1997, increases of $29.0 million and $48.4 million, or 78% and 72%,
respectively.  ACC's depreciation and amortization expense was $11.6 million for
both the three months and six months ended June 30, 1998.  Excluding ACC,
depreciation and amortization expense increased to $54.7 million and $103.8
million for the three months and six months ended June 30,1998, increases of
$17.4 million and $36.8 million, or 47% and 55%, respectively. The increases are
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 and 1998 acquisitions.

Interest Income

     Interest income decreased to $5.1 million and $11.1 million for the three
months and six months ended June 30, 1998, from $6.8 million and $18.0 million
for the three months and six months ended June 30, 1997, or decreases of $1.7
million and $6.9 million, respectively. ACC's interest income was $0.1 million
for both the three months and six months ended June 30, 1998. Excluding ACC,
interest income decreased to $5.0 million and $11.0 million for the three months
and six months ended June 30, 1998, or decreases of $1.8 million and $7.0
million, 

                                       11
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

respectively. The decreases are attributable to decreases in the average
outstanding balances of cash and cash equivalents and marketable securities.

Interest Expense

     Interest expense increased to $32.4 million and $63.9 million for the three
months and six months ended June 30, 1998, from $28.7 million and $58.3 million
for the three months and six months ended June 30, 1997, or increases of $3.7
million and $5.6 million, respectively.  ACC's interest expense was $1.5 million
for both the three months and six months ended June 30, 1998.  Excluding ACC,
interest expense increased to $30.9 million and $62.4 million for the three
months and six months ended June 30, 1998, an increase of $2.2 million and $4.1
million, or 8% and 7%, respectively. The increase primarily resulted from the
interest expense on the bank debt which TCG assumed in the acquisitions of ETC
and ACC.

Equity in Losses of Unconsolidated Affiliates

     TCG no longer recorded equity in losses of unconsolidated affiliates due to
the consolidation of ETC and BizTel.  Equity in losses of unconsolidated
affiliates for the three months and six months ended June 30, 1997 was $0.2
million and $2.8 million, respectively.

Net Loss

     The Company's results for the three months and six months ended June 30,
1998 reflected net losses of $55.9 million and $118.1 million, compared to net
losses of $51.3 million and $96.4 million for the three months and six months
ended June 30, 1997, or increases of $4.6 million and $21.7 million,
respectively. These increases in net loss are attributable to the factors
discussed above.  ACC's net loss was $6.2 million for both the three months and
six months ended June 30, 1998.  Excluding ACC, the Company's net loss decreased
to $49.7 million for the three months ended June 30, 1998 and increased to
$111.9 million for the six months ended June 30, 1998, representing a decrease
in net loss of $1.6 million for the three months ended June 30, 1998 and an
increase in net loss of $15.5 million for the six months ended June 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

     TCG had total assets of approximately $3.5 billion and $2.5 billion as of
June 30, 1998 and December 31, 1997, respectively.  At June 30, 1998 the Company
had current assets of approximately $476.7 million and current liabilities of
$572.6 million, providing negative working capital of approximately $95.9
million.  ACC contributed $88.2 million of current assets and $98.3 million of
current liabilities. As a wholly-owned subsidiary of AT&T, the Company's
liquidity and capital resource requirements will be provided by AT&T.  Network
and equipment, net of depreciation, as of June 30, 1998, aggregated
approximately $1.9 billion.

     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), maintained a $400 million Revolving Credit
Agreement.  On July 30, 1998, TCGNY's loan facility was terminated.

     On May 28, 1998 TCG announced its election to commence the accrual and
payment of cash interest on TCG's 11.125% Senior Discount Notes due July 1,
2007.  The accrual of interest payments began July 1, 1998 and cash interest
will be paid semi-annually beginning January 1, 1999.  In addition, on July 1,
1998 the principal amount of the Notes will be reduced to the accreted value of
$723 per $1,000 face amount of the securities.  This election is in accordance
with the terms of the Notes and will not effect the original yield of the Notes.
As of July 1, 1998, investors will begin earning cash interest at the original
yield rather than continue accreting principal.

     On August 4, 1998, TCG offered to purchase any and all of its outstanding
9.875% Senior Notes due July 1, 2006 and 11.125% Senior Discount Notes due July
1, 2007 ("The Notes").  The tender offer will expire on August 10, 1998, unless
extended.  The price to be paid for the Notes will result from a yield to the
earliest call of July 1, 2001, equal to a fixed spread of 12.5 basis points over
the yield of the 5.625% U.S. Treasury Note due May 15, 2001, at the time a
holder agrees to tender its Notes.

                                       12
<PAGE>
 
              TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
                ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)


     Net cash provided by (used for) financing activities for the six months
ended June 30, 1998 and June  30, 1997, was $9.2 million and $(4.9) million,
respectively, comprised primarily of principal payments on capital leases and
proceeds from the exercise of employee stock options for both periods.  Net cash
provided by (used for) operating activities was $119.1 million and $(21.6)
million for the six months ended June 30, 1998 and 1997, respectively.  Net cash
used for investing activities was $211.5 million and $143.3 million for the six
months ended June 30, 1998 and 1997, respectively.  As of June 30, 1998, cash
and cash equivalents were $90.1 million and marketable securities were $122.9
million.

     TCG made capital expenditures (excluding acquisitions) of $393.3 million
and $217.6 million for the six months ended June 30, 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 six months ended June 30, 1998 and 1997, by $117.4 million and $95.2
million, respectively.

THE YEAR 2000

     The Year 2000 problem arose from the fact that due to early limitations on
memory and disk storage, many computer programs indicated 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 has finished this investigation in 1997. The investigation
covered 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 expects to complete the remediation of
all effected systems in 1998.  In 1999 it is anticipated that integration
testing will be complete. 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.  As a consequence of the AT&T Merger, many functions
now performed by TCG systems may be migrated to systems provided by AT&T, and
the analysis and investigation described above do not include such AT&T systems.

ITEM 3:   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the normal course of business, the Company uses various financial
instruments, including derivative financial instruments, for purposes other than
trading.  These instruments include letters of credit, guarantees of debt,
interest rate swap agreements and foreign currency exchange contracts relating
to U.S. dollar payables of foreign subsidiaries.  The Company does not use
derivative financial instruments for speculative purposes.  Foreign currency
exchange contracts are used to mitigate foreign currency exposure and are
intended to protect the U.S. dollar value of certain currency positions and
future foreign currency transactions.  By their nature, all such instruments
involve risk, including the risk of nonperformance by counterparties.  The
Company controls its exposure to counterparty credit risk through monitoring
procedures and by entering into multiple contracts.  Based upon the Company's
knowledge of the financial position of the counterparties to its existing
derivative instruments, the Company believes that it does not have any
significant exposure to any individual counterparty or any major concentration
of credit risk related to any such financial instruments.

                                       13
<PAGE>
 
                                    PART II
                             -   OTHER INFORMATION

ITEM 1:   LEGAL PROCEEDINGS

          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 August 11, 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 June 30,
1998.

ITEM 3:   DEFAULTS UPON SENIOR SECURITIES

          There were no reportable events during the quarter ended June 30,
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, Gary S. Howard, having been designated a nominee by TCI, was
elected by unanimous vote of each of the holders of the Company's Class B Common
Stock on April 1, 1998, as a Director of the Company to fill the vacancy created
by resignation of Brendan R. Clouston.

                                       14
<PAGE>
 
     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, no
further vote or meeting of TCG stockholders was necessary to approve and
consummate the AT&T Merger.  In connection with the AT&T Merger, all of the
members of the TCG Board of Directors were removed and replaced with AT&T
designees on July 23, 1998.

ITEM 5:   OTHER INFORMATION

          There were no reportable events during the quarter ended June 30,
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
    *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
     27.00   Financial Data Schedule

                                       15
<PAGE>
 
*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 June
30, 1998:

     An Item 5 report on form 8-K, dated  April 22, 1998, was filed to announce
the completion of the merger with ACC Corp.

     An Item 5 report on form 8-K, dated May 28, 1998, was filed to commence the
accrual of cash interest on its 11 1/8% Senior Discount Notes.

     An Item 5 report on form 8-K, dated July 7, 1998, was filed to announce the
completion of the merger with Kansas City Fiber Network, L.P.

     An Item 5 report on form 8-K, dated July 23, 1998, was filed reporting the
Company's financial results for the fiscal quarter ended June 30, 1998.

     An Item 5 report on form 8-K, dated August 4, 1998, was filed  reporting
the Company's tender offer to purchase any and all of its outstanding 9.875%
Senior Notes due July 1, 2006 and 11.125% Senior Discount Notes due July 1,
2007.

                                       16
<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:  ________, 1998
                                         By: /s/ John A. Scarpati
                                            --------------------------------

                                   Name:     John A. Scarpati
                                   Title:    Senior Vice President and
                                             Chief Financial Officer



Dated:  ________, 1998                   By: /s/ Maria Terranova-Evans
                                            --------------------------------
 
                                   Name:     Maria Terranova-Evans
                                   Title:    Vice President and Controller
                                             (Principal Accounting Officer)