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 September 30, 1998

                                       OR

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

                        (Commission File Number 1-11965)
                            ICG COMMUNICATIONS, INC.
                        (Commission File Number 1-11052)
                           ICG HOLDINGS (CANADA), INC.
                        (Commission File Number 33-96540)
                               ICG HOLDINGS, INC.
           (Exact names of Registrants as Specified in their Charters)


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

1710-1177 West Hastings Street             c/o ICG Communications, Inc.
Vancouver, BC V6E 2L3                      161 Inverness Drive West
Canada                                     P.O. Box 6742
                                           Englewood, Colorado 80155-6742

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

     Indicate by check mark whether the  registrants  (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrants  were required to file such  reports),  and (2) have been subject to
such filing requirements for the past 90 days. Yes X  No
                                                       
     The number of  registrants'  outstanding  common  shares as of November 12,
1998 were 46,010,518, 31,831,558 and 1,918, respectively. ICG Holdings (Canada),
Inc. owns all of the issued and outstanding shares of ICG Holdings, Inc.

<PAGE>
                                       2






                                TABLE OF CONTENTS




PART I    ..............................................................    3
     ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ..............    3
              Consolidated Balance Sheets as of December 31, 1997 and 
                September 30, 1998 (unaudited)..........................    3
              Consolidated Statements of Operations (unaudited) for the 
                Three Months and Nine Months Ended September 30, 1997 
                and 1998................................................    5
              Consolidated Statement of Stockholders' Deficit (unaudited) 
                for the Nine Months Ended September 30, 1998 ............   7
              Consolidated Statements of Cash Flows (unaudited) for the 
                Nine Months Ended September 30, 1997 and 1998 ...........   8
              Notes to Consolidated Financial Statements, December 31,
                1997 and September 30, 1998 (unaudited) .................  10
     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS .................................  20
  
PART II   ...............................................................  35
     ITEM 1.  LEGAL PROCEEDINGS .........................................  35
     ITEM 2.  CHANGES IN SECURITIES .....................................  35
     ITEM 3.  DEFAULTS UPON SENIOR SECURITIES ...........................  35
     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS .....  35
     ITEM 5.  OTHER INFORMATION .........................................  35
     ITEM 6.  EXHIBITS AND REPORT ON FORM 8-K ...........................  35
              Exhibits ..................................................  35
              Report on Form 8-K ........................................  35



<PAGE>
                                       3


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
              December 31, 1997 and September 30, 1998 (unaudited)

<TABLE>
<CAPTION>

                                                                          December 31,         September 30,
                                                                              1997                 1998
                                                                        ------------------    ----------------
                                                                                     (in thousands)
<S>                                                                      <C>                      <C>    
   Assets                                                                         

    Current assets:
       Cash and cash equivalents                                         $    182,202               429,418
       Short-term investments                                                 112,281                41,000
       Receivables:
          Trade, net of allowance of $7,004 and $14,377 at
            December 31, 1997 and September 30, 1998,
            respectively (note 7)                                              61,439               102,351
          Revenue earned, but unbilled                                          8,599                15,140
          Due from affiliate                                                    9,384                 5,862
          Other                                                                 1,696                 1,664
                                                                        ------------------    ----------------
                                                                               81,118               125,017

       Inventory                                                                3,901                 3,259
       Prepaid expenses and deposits                                           10,543                10,222
                                                                        ------------------    ----------------

          Total current assets                                                390,045               608,916
                                                                        ------------------    ----------------

    Property and equipment                                                    736,700               963,649
       Less accumulated depreciation                                         (105,584)             (158,993)
                                                                        ------------------    ----------------
          Net property and equipment                                          631,116               804,656
                                                                        ------------------    ----------------

    Long-term notes receivable from affiliate and others, net                  10,375                15,002
    Restricted cash                                                            24,649                18,889
    Other assets, net of accumulated amortization:
       Goodwill                                                                77,562               109,960
       Deferred financing costs                                                23,196                37,374
       Deferred advertising costs                                                   -                 1,326
       Transmission and other licenses                                          6,031                 5,779
       Deposits and other                                                       9,404                24,001
                                                                        ------------------    ----------------
                                                                              116,193               178,440
    Net assets of discontinued operations (note 5)                             76,092                78,254
                                                                        ------------------    ----------------

          Total assets                                                   $  1,248,470             1,704,157
                                                                        ==================    ================
                                                                                                  (Continued)
</TABLE>

                                                          
<PAGE>
                                       4


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

               Consolidated Balance Sheets (unaudited), Continued

<TABLE>
<CAPTION>

                                                                            December 31,          September 30,
                                                                                1997                   1998
                                                                         -------------------    -------------------
                                                                                       (in thousands)
<S>                                                                      <C>                       <C>
Liabilities and Stockholders' Deficit                                                 

Current liabilities:
   Accounts payable                                                      $      38,457                 59,122
   Accrued liabilities                                                          71,678                 77,897
   Deferred revenue                                                             10,219                 14,992
   Current portion of capital lease obligations (note 7)                         5,637                  4,474
   Current portion of long-term debt (note 2)                                    1,784                     47
                                                                         -------------------    -------------------
      Total current liabilities                                                127,775                156,532
                                                                         -------------------    -------------------

Capital lease obligations, less current portion (note 7)                        66,939                 60,429
Long-term debt, net of discount, less current portion (note 2)                 890,568              1,553,097
                                                                         -------------------    -------------------

   Total liabilities                                                         1,085,282              1,770,058
                                                                         -------------------    -------------------

Redeemable  preferred  stock of subsidiary  ($301.2  million and 
  $334.4  million liquidation value at December 31, 1997 and
  September 30, 1998, respectively) (note 2)                                   292,442                326,248

Company-obligated mandatorily redeemable preferred securities of 
  subsidiary limited liability company which holds solely Company
  preferred  stock ($133.4 million liquidation value at December 31,
  1997 and September 30, 1998)                                                 127,729                127,944

Stockholders' deficit:
   Common stock (note 3)                                                           749                    596
   Additional paid-in capital                                                  533,541                570,033
   Accumulated deficit                                                        (791,417)            (1,090,672)
   Accumulated other comprehensive income (loss)                                   144                    (50)
                                                                         -------------------    -------------------
      Total stockholders' deficit                                             (256,983)              (520,093)
                                                                         -------------------    -------------------

Commitments and contingencies (notes 4, 5, 6 and 7)

      Total liabilities and stockholders' deficit                        $    1,248,470             1,704,157
                                                                         ===================    ===================
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>
                                       5



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                Consolidated Statements of Operations (unaudited)
         Three Months and Nine Months Ended September 30, 1997 and 1998

<TABLE>
<CAPTION>

                                                         Three months ended                 Nine months ended
                                                            September 30,                      September 30,
                                                   -------------------------------    -------------------------------
                                                        1997             1998              1997             1998
                                                   -------------    --------------    -------------    --------------
                                                                   (in thousands, except per share data)
<S>                                                <C>                   <C>              <C>             <C>    
Revenue:
   Telecom services                                $   36,543            82,567           101,637         205,269
   Network services                                    16,432            14,550            50,059          40,740
   Satellite services                                   7,640             9,350            22,306          29,982
                                                   -------------    --------------    -------------    --------------
      Total revenue                                    60,615           106,467           174,002         275,991

Operating costs and expenses:
   Operating costs                                     52,602            64,680           156,893         187,964
   Selling, general and administrative expenses        39,187            45,435           110,183         132,917
   Depreciation and amortization                       13,517            24,883            37,198          61,321
   Net loss (gain) on disposal of long-lived
     assets (note 4)                                    1,354              (814)            1,035            (316)
   Restructuring costs                                      -                 -                 -             553
                                                   -------------    --------------    -------------    --------------
      Total operating costs and expenses              106,660           134,184           305,309         382,439

      Operating loss                                  (46,045)          (27,717)         (131,307)       (106,448)

Other income (expense):
   Interest expense                                   (28,834)          (45,982)          (82,290)       (121,974)
   Interest income                                      5,382             8,196            17,284          22,188
   Other expense, net                                     237              (592)              (36)         (4,073)
                                                   -------------    --------------    -------------    --------------
                                                      (23,215)          (38,378)          (65,042)       (103,859)
                                                   -------------    --------------    -------------    --------------

Loss from continuing operations before 
  preferred dividends                                 (69,260)          (66,095)         (196,349)       (210,307)
Accretion and preferred dividends on 
  preferred securities of subsidiaries,
  net of minority interest in share of losses         (10,112)          (13,987)          (24,981)        (40,774)
                                                   -------------    --------------    -------------    --------------
  
      Loss from continuing operations                 (79,372)          (80,082)         (221,330)       (251,081)
                                                   -------------    --------------    -------------    --------------

Discontinued operations (note 5):
   Loss from discontinued operations                   (7,502)          (15,381)          (28,285)        (46,973)
   Loss on disposal of discontinued operations, 
     including provision of $0.2 million for 
     operating losses during phase out period               -            (1,201)                -          (1,201)
                                                   -------------    --------------    -------------    --------------
                                                       (7,502)          (16,582)          (28,285)        (48,174)
                                                   -------------    --------------    -------------    --------------

      Net loss                                     $  (86,874)          (96,664)         (249,615)       (299,255)
                                                   =============    ==============    =============    ==============

Other comprehensive loss:
   Foreign currency translation adjustment               (266)             (118)             (500)           (194)
   Unrealized loss on short-term investments 
     available for sale                                  (235)                -              (540)              -
                                                   -------------    --------------    -------------    --------------
      Other comprehensive loss                           (501)             (118)           (1,040)           (194)
                                                   -------------    --------------    -------------    --------------
         Comprehensive loss                        $  (87,375)          (96,782)         (250,655)       (299,449)
                                                   =============    ==============    =============    ==============
                                                                                                          (Continued)
</TABLE>
<PAGE>
                                       6


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

          Consolidated Statements of Operations (unaudited), Continued

<TABLE>
<CAPTION>

                                                          Three months ended                 Nine months ended
                                                             September 30,                      September 30,
                                                       -------------------------------    -------------------------------
                                                           1997             1998              1997             1998
                                                       -------------    --------------    -------------    --------------
                                                                    (in thousands, except per share data)
<S>                                                    <C>                    <C>             <C>                 <C>   
Net loss per share - basic and diluted (note 3):
   Net loss per share from continuing operations
     - basic and diluted                               $    (1.87)            (1.76)          (5.25)              (5.59)
   Net loss per share from discontinued operations
     - basic and diluted                                    (0.18)            (0.36)          (0.67)              (1.07)
                                                       -------------    --------------    -------------    --------------
   Net loss per share - basic and diluted              $    (2.05)            (2.12)          (5.92)              (6.66)
                                                       =============    ==============    =============    ==============

Weighted average number of shares outstanding 
  - basic and diluted                                       42,359            45,588          42,159              44,922
                                                        =============    ==============    =============    ==============
</TABLE>

          See accompanying notes to consolidated financial statements.



<PAGE>
                                       7


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholders' Deficit (unaudited)
                      Nine Months Ended September 30, 1998

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

<S>                                          <C>        <C>          <C>           <C>                   <C>             <C>      
Balances at January 1, 1998                  43,974     $  749       533,541         (791,417)            144            (256,983)
   Shares issued for cash by subsidiary, 
     net of selling costs                       127          1         3,384                -               -               3,385
   Shares issued in connection with 
     business combinations (note 6)             502          5        15,527                -               -              15,532
   Shares issued for cash in connection 
     with the exercise of options and 
     warrants                                 1,018         10        12,683                -               -              12,693
   Shares issued for cash in connection 
     with the employee stock purchase plan      107          1         2,135                -               -               2,136
   Shares issued as contribution to 401(k)
     plan                                        85          1         2,592                -               -               2,593
   Exchange of ICG Holdings (Canada), Inc.
     common shares for ICG common stock           -       (171)          171                -               -                   -
   Cumulative foreign currency translation
     adjustment                                   -          -             -                -            (194)               (194)
   Net loss                                       -          -             -         (299,255)              -            (299,255)
                                          =========== =========== ============= ===============  ==================  ==============
Balances at September 30, 1998               45,813     $  596       570,033       (1,090,672)            (50)           (520,093)
                                          =========== =========== ============= ===============  ==================  ==============
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>
                                       8


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                  Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>

                                                                                                    Nine months ended September 30,
                                                                                                  ----------------------------------
                                                                                                       1997               1998
                                                                                                  ---------------    ---------------
                                                                                                           (in thousands)
<S>                                                                                               <C>                   <C> 
Cash flows from operating activities:
   Net loss                                                                                       $    (249,615)        (299,255)
   Non-cash operating activities of discontinued operations                                              25,915           33,551
   Adjustments to reconcile net loss to net cash used by operating activities of continuing        
     operations:
     Accretion and preferred dividends on preferred securities of subsidiaries, net of
       minority interest in share of losses                                                              24,981           40,774
     Depreciation and amortization                                                                       37,198           61,321
     Interest expense deferred and included in long-term debt, net of amounts capitalized on
       assets under construction                                                                         75,000          109,850
     Amortization of deferred advertising costs included in selling, general and                             
       administrative expenses                                                                                -              469
     Amortization of deferred financing costs included in interest expense                                1,988            3,307
     Write-off of non-operating assets                                                                        -              250
     Contribution to 401(k) plan through issuance of common shares                                        2,171            2,593
     Net loss (gain) on disposal of long-lived assets                                                     1,035             (316)
     Change in  operating  assets and  liabilities,  excluding  the  effects of
       business combinations, dispositions and non-cash transactions:
         Receivables                                                                                     (3,386)         (44,168)
         Inventory                                                                                       (2,367)           1,408
         Prepaid expenses and deposits                                                                   (7,140)             306
         Deferred advertising                                                                                 -           (1,795)
         Accounts payable and accrued liabilities                                                        23,038           23,309
         Deferred revenue                                                                                 2,330            4,773
                                                                                                  ---------------    ---------------
           Net cash used by operating activities of continuing operations                               (68,852)         (63,623)
                                                                                                  ---------------    ---------------
Cash flows from investing activities:
  Increase in long-term notes receivable from affiliates and others                                      (6,329)          (4,877)
  Proceeds from sale of subsidiary, net of cash included in sale                                              -              824
  Payments for business acquisitions, net of cash acquired                                                    -          (14,307)
  Acquisition of property, equipment and other assets, net                                             (187,136)        (260,022)
  Payments for construction of new headquarters                                                         (16,675)          (4,944)
  Proceeds from disposition of property, equipment and other assets                                       3,009              172
  Proceeds from sale of new headquarters, net of selling and other costs                                      -           30,283
  (Purchase) sale of short-term investments available for sale                                          (88,233)          71,281
  (Increase) decrease in restricted cash                                                                 (8,833)           5,760
  Purchase of minority interest in subsidiaries                                                               -           (9,355)
                                                                                                  ---------------    ---------------
       Net cash used by investing activities of continuing operations                                  (304,197)        (185,185)
                                                                                                  ---------------    ---------------
Cash flows from financing activities: 
  Proceeds from issuance of common stock:
    Sale by subsidiary                                                                                        -            3,385
    Exercise of options and warrants                                                                      2,829           12,693
    Employee stock purchase plan                                                                          2,145            2,136
  Proceeds from issuance of subsidiary preferred stock, net of issuance costs                           207,550                -
  Proceeds from issuance of long-term debt                                                              101,486          550,574
  Deferred long-term debt issuance costs                                                                 (3,554)         (17,496)
  Principal payments on capital lease obligations                                                       (23,318)          (7,673)
  Principal payments on long-term debt                                                                   (1,179)          (6,850)
  Payments of preferred dividends                                                                             -           (6,695)
                                                                                                  ---------------    ---------------
    Net cash provided by financing activities of continuing operations                                  285,959          530,074
                                                                                                  ---------------    ---------------
    Net (decrease) increase in cash and cash equivalents of continuing operations                       (87,090)         281,266
    Net cash used by discontinued operations                                                            (12,162)         (34,050)
Cash and cash equivalents, beginning of period                                                          433,342          182,202
                                                                                                  ---------------    ---------------
Cash and cash equivalents, end of period                                                                334,090          429,418
                                                                                                  ===============    ===============
                                                                                                                        (Continued)
</TABLE>
<PAGE>
                                       9





                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

          Consolidated Statements of Cash Flows (unaudited), Continued
<TABLE>
<CAPTION>


                                                                                        Nine months ended September 30,
                                                                                     ---------------------------------------
                                                                                            1997                  1998
                                                                                     ------------------    ------------------
                                                                                                 (in thousands)
<S>                                                                                    <C>                            <C>  
Supplemental disclosure of cash flows information of continuing operations:
  Cash paid for interest                                                               $        5,302                 8,817
                                                                                     ===================    =================

Supplemental   schedule  of  non-cash  investing  and  financing  activities  of
  continuing operations:
    Common stock issued in connection with business combinations                       $            -                15,532
                                                                                     ===================    =================
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>
                                       10



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
              December 31, 1997 and September 30, 1998 (unaudited)


(1)  Organization and Basis of Presentation

     (a)  Organization and Nature of Business

          ICG  Communications,   Inc.,  a  Delaware   corporation  ("ICG"),  was
          incorporated  on April 11,  1996,  for the purpose of becoming the new
          publicly-traded U.S. parent company of ICG Holdings (Canada),  Inc., a
          Canadian federal corporation ("Holdings-Canada"),  ICG Holdings, Inc.,
          a Colorado corporation ("Holdings"), and its subsidiaries.

          On January  21,  1998,  the  Company  completed  a merger  with NETCOM
          On-Line Communication Services, Inc. ("NETCOM"). At the effective time
          of the merger, each outstanding share of NETCOM common stock, $.01 par
          value,  became  automatically  convertible  into  shares of ICG common
          stock,  $.01 par value ("ICG Common  Stock"),  at an exchange ratio of
          0.8628  shares  of ICG  Common  Stock per  NETCOM  common  share.  The
          business  combination  was  accounted  for as a pooling of  interests.
          Effective November 3, 1998, the Company's board of directors adopted a
          formal plan to dispose of the  operations  of NETCOM (see note 5) and,
          accordingly,  the Company's  consolidated financial statements reflect
          the  operations  and net  assets  of NETCOM  as  discontinued  for all
          periods presented.

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

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

     (b)  Reference to Annual and Transition Reports

          The accompanying  consolidated  financial  statements give retroactive
          effect to the merger of ICG and NETCOM on January 21, 1998,  which was
          accounted for as a pooling of  interests,  and include the accounts of
          NETCOM  and its  subsidiaries  as of the  end of and  for the  periods
          presented.  Additionally,  the  operating  results of NETCOM have been
          presented as discontinued for all periods presented.

          The Company's financial  statements should be read in conjunction with
          ICG's  Annual  Report on Form 10-K for the fiscal year ended  December
          31, 1997,  NETCOM's Annual Report on Form 10-KSB/A for the fiscal year
          ended December 31, 1996 and the consolidated  financial  statements of
          ICG and NETCOM  combined  for fiscal  1997 as filed on Form 8-K of ICG
          Communications,  Inc., ICG Funding,  LLC, ICG Holdings (Canada),  Inc.
          and ICG Holdings,  Inc.,  dated June 12, 1998, as certain  information
          and  note  disclosures   normally  included  in  financial  statements
          prepared in accordance with generally accepted  accounting  principles
          have been condensed or omitted  pursuant to the rules and  regulations
          of the United States Securities and Exchange  Commission.  The interim
          financial statements reflect all adjustments

<PAGE>
                                       11



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(1)  Organization and Basis of Presentation (continued)

          which  are,  in  the  opinion  of  management,  necessary  for a  fair
          presentation  of financial  position,  results of operations  and cash
          flows as of and for the interim periods  presented.  Such  adjustments
          are of a  normal  recurring  nature.  Operating  results  for the nine
          months ended September 30, 1998 are not necessarily  indicative of the
          results that may be expected  for the fiscal year ending  December 31,
          1998.

     (c)  Reclassifications

          Certain 1997 amounts have been  reclassified  to conform with the 1998
          presentation.

(2)  Long-term Debt and Redeemable Preferred Securities of Subsidiaries

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

                                                                               December 31,          September 30,
                                                                                   1997                   1998
                                                                           ---------------------    -----------------
                                                                                        (in thousands)

<S>                                                                         <C>                         <C>    
     9 7/8% Senior discount notes of ICG Services, net of discount          $             -               260,531
     10% Senior discount notes of ICG Services, net of discount                           -               319,802
     11 5/8% Senior discount notes of Holdings, net of discount                     109,436               119,084
     12 1/2% Senior discount notes of Holdings, net of discount                     367,494               402,413
     13 1/2% Senior discount notes of Holdings, net of discount                     407,409               450,152
     Note payable with interest at the 90-day commercial paper
       rate plus 4 3/4%, paid in full on August 19, 1998                              4,932                     -
     Note payable with interest at 11%, paid in full on June 12, 1998                 1,860                     -
     Mortgage payable with interest at 8 1/2%, due monthly through 
       2009, secured by building                                                      1,131                 1,096
     Other                                                                               90                    66
                                                                           ---------------------    -----------------
                                                                                    892,352             1,553,144
       Less current portion                                                          (1,784)                  (47)
                                                                           ---------------------    -----------------
                                                                           $          890,568           1,553,097
                                                                           =====================    =================
</TABLE>

     Redeemable preferred stock of subsidiary is summarized as follows:
<TABLE>
<CAPTION>

                                                                               December 31,              September 30, 
                                                                                   1997                      1998
                                                                           ----------------------     -------------------
                                                                                          (in thousands)
<S>                                                                         <C>                            <C>    
     14% Exchangeable preferred stock of Holdings, mandatorily
       redeemable 2008                                                      $    108,022                   120,440
     14 1/4% Exchangeable preferred stock of Holdings,
       mandatorily redeemable 2007                                               184,420                   205,808
                                                                           ----------------------     -------------------
                                                                            $    292,442                   326,248
                                                                           ======================     ===================
</TABLE>

<PAGE>
                                       12

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)  Stockholders' Deficit

     (a)  Common Stock

          Common stock  outstanding at September 30, 1998  represents the issued
          and  outstanding  common  stock of ICG and  Class A common  shares  of
          Holdings-Canada (not owned by ICG) which are exchangeable at any time,
          on a one-for-one basis, for ICG Common Stock. The following table sets
          forth the number of shares outstanding for ICG and  Holdings-Canada on
          a separate company basis as of September 30, 1998:
<TABLE>
<CAPTION>

                                                                                       Shares               Shares
                                                                                       owned            owned by third
                                                                                       by ICG              parties
                                                                                  -----------------    -----------------
<S>                                                                                   <C>                 <C>             
          ICG  Common Stock, $.01 par value,  100,000,000 shares authorized;
            45,810,896 shares issued and outstanding at September 30, 1998                     -          45,810,896
          Holdings-Canada Class A common shares, no par value, 100,000,000
            shares  authorized;  31,831,558 shares issued and outstanding 
            at September 30, 1998:
              Class A common shares, exchangeable on a one-for-one basis for 
                ICG Common Stock at any time                                                   -               2,258
              Class A common shares owned by ICG                                      31,829,300                   -
                                                                                                       -----------------
          Total shares outstanding                                                                        45,813,154
                                                                                                       =================
</TABLE>

          For various business purposes,  Holdings-Canada  has adopted a plan of
          reorganization,   dated   November  4,  1998,   whereby  the  minority
          shareholders  of  Holdings-Canada  will  receive  ICG Common  Stock in
          exchange  for their Class A common  shares.  Also under the plan,  any
          warrants   outstanding   to   purchase   Class  A  common   shares  of
          Holdings-Canada  will be exchanged for warrants to purchase ICG Common
          Stock on equivalent terms and conditions.  The reorganization  will be
          concluded and effective January 1, 1999 and will have no effect on the
          Company's reported net loss per share.

     (b)  Net Loss Per Share

          Basic and diluted net loss per share is calculated by dividing the net
          loss by the weighted  average number of shares  outstanding.  Weighted
          average number of shares  outstanding  represents  combined ICG Common
          Stock and Holdings-Canada Class A common shares outstanding. Potential
          common  stock,   which  include  options,   warrants  and  convertible
          subordinated  notes and preferred  stock, are not included in the loss
          per share  calculation as their effect is  anti-dilutive.  The Company
          has presented net loss per share from  discontinued  operations in the
          consolidated statement of operations for all periods presented.

(4)  Sale of Satellite Services Operating Subsidiaries

     On July 17, 1998, the Company entered into separate  definitive  agreements
     to sell the capital  stock of MarineSat  Communications,  Inc.  ("MCN") and
     Nova-Net  Communications,  Inc.  ("Nova-Net"),  two subsidiaries within the
     Company's Satellite Services  operations.  The sale of MCN was completed on
     August 12, 1998 and,  accordingly,  the  Company's  consolidated  financial
     statements  include the results of operations of MCN through that date. The
     Company recorded a gain on the sale of MCN of approximately $0.8 million in
     its  statement of  operations  during the three months ended  September 30,
     1998.  Regulatory  approvals have been received and the sale of Nova-Net is
     expected to close on November 18, 1998. The combined  revenue,  net loss or
     net loss per  share of MCN and  Nova-Net  do not  represent  a  significant
     portion of the Company's historical  consolidated  revenue, net loss or net
     loss per share.
<PAGE>
                                       13


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)  Discontinued Operations

     Loss from discontinued operations consists of the following:
<TABLE>
<CAPTION>

                                                             Three months ended                Nine months ended
                                                                September 30,                    September 30,
                                                         ----------------------------    ------------------------------
                                                             1997            1998           1997              1998
                                                         -------------    -----------    ------------     -------------
                                                                                (in thousands)

<S>                                                       <C>               <C>             <C>               <C>    
     Zycom (a)                                            $    (675)         (1,449)         (3,068)           (4,647)
     NETCOM (b)                                              (6,827)        (13,932)        (25,217)          (42,326)
                                                         -------------    -----------    ------------     -------------
       Loss from discontinued operations                  $  (7,502)        (15,381)        (28,285)          (46,973)
                                                         =============    ===========    ============     =============
</TABLE>

     (a)  Zycom

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

          The call  traffic  assigned  to ICN  represents  approximately  86% of
          Zycom's revenue for the year ended December 31, 1997. The loss of this
          significant  portion of Zycom's  business,  despite  management's best
          efforts to secure other sources of revenue,  raised  substantial doubt
          as to  Zycom's  ability to operate  in a manner  which  would  benefit
          Zycom's  or the  Company's  shareholders.  Accordingly,  on August 25,
          1998,  Zycom's  board of  directors  approved  a plan to wind down and
          ultimately discontinue Zycom's operations.  On October 22, 1998, Zycom
          completed the transfer of all customer  traffic to other providers and
          Zycom anticipates it will need  approximately 30 to 60 days to dispose
          of its remaining assets and discharge its remaining liabilities.

          The Company's consolidated financial statements reflect the operations
          of Zycom as discontinued for all periods presented. Zycom incurred net
          losses from  operations of  approximately  $1.0 million for the period
          from  August 25, 1998 to the end of the period  presented.  During the
          three  months  ended   September   30,  1998,   the  Company   accrued
          approximately $1.2 million for estimated losses on disposal of Zycom's
          operations,  including approximately $0.2 million for operating losses
          of Zycom  during  the  phase out  period.  Included  in net  assets of
          discontinued operations in the Company's consolidated balance sheet at
          September  30,  1998 is  approximately  $0.5  million of  Zycom's  net
          property and  equipment.  Other  remaining  assets and  liabilities of
          Zycom  included  in  the  Company's   consolidated  balance  sheet  at
          September  30,  1998 are cash of  approximately  $0.2  million,  other
          current assets of approximately  $1.5 million and accounts payable and
          accrued liabilities of approximately $3.4 million.

<PAGE>
                                       14

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)  Discontinued Operations (continued)

     (b)  NETCOM

          Effective November 3, 1998, the Company's board of directors adopted a
          formal plan to dispose of the  operations of NETCOM and,  accordingly,
          the Company's consolidated financial statements reflect the operations
          of NETCOM as  discontinued  for all periods  presented.  The Company's
          plan of disposal  consists of the sale to one or more third parties in
          one or more  transactions  of all of the  operating  assets  of NETCOM
          which  will not be used in  future  Telecom  Services  operations.  At
          September  30,  1998,  net assets of NETCOM  included in net assets of
          discontinued  operations in the Company's  consolidated  balance sheet
          are  approximately  $3.0 million of inventory and prepaid expenses and
          approximately  $80.3  million of net property and  equipment and other
          non-current  assets,  offset by approximately  $5.5 million of capital
          lease obligations.  The Company has commenced an active plan to locate
          one or more buyers and intends to complete  the sales within one year.
          The  Company  expects  to  record a gain on the sale of  NETCOM in the
          period  of  disposition,  although  the  amount  of  such  gain is not
          presently determinable.

          Other  remaining  assets and  liabilities  of NETCOM  included  in the
          Company's  consolidated  balance  sheet at September  30, 1998 are net
          accounts receivable of approximately $2.5 million and accounts payable
          and accrued liabilities of approximately $7.5 million.

(6)  Business Combinations

     On July 27, 1998, the Company acquired  DataChoice  Network Services L.L.C.
     ("DataChoice")  for total  consideration  of $5.9  million,  consisting  of
     145,997 shares of ICG Common Stock and approximately  $1.1 million in cash.
     The Company  accounted  for the  business  combination  as a purchase  and,
     accordingly,  the net assets and the results of  operations  of  DataChoice
     have been included in the Company's consolidated financial statements since
     the acquisition  date. The excess of the purchase price over the fair value
     of the net  identifiable  assets acquired of $5.7 million has been recorded
     as  goodwill  and is being  amortized  on a  straight-line  basis over five
     years.  Revenue, net loss and loss per share on a pro forma basis, assuming
     the acquisition of DataChoice was completed at the beginning of the periods
     presented,  are not significantly  different from the Company's  historical
     results.   DataChoice,  a  Colorado  limited  liability  company,  provides
     point-to-point  data  transmission  resale  services  through its long-term
     agreements with multiple regional carriers and nationwide providers.

     Additionally,  the Company  completed a series of  transactions on July 30,
     1998 to acquire  NikoNET,  Inc.,  CompuFAX  Acquisition  Corp. and Enhanced
     Messaging  Services,  Inc.  (collectively,  "NikoNET").  The  Company  paid
     approximately  $13.8 million in cash, which included  dividends  payable by
     NikoNET to its former owners and amounts to satisfy  NikoNET's  former line
     of credit,  assumed approximately $0.7 million in liabilities and exchanged
     356,318   shares  of  ICG  Common   Stock  with  a  fair  market  value  of
     approximately  $10.7  million,  for all the capital  stock of NikoNET.  The
     Company  accounted  for  the  business   combination  as  a  purchase  and,
     accordingly,  the net assets and the results of  operations of NikoNET have
     been included in the Company's  consolidated financial statements since the
     acquisition  date.  The excess of the purchase price over the fair value of
     the net identifiable  assets acquired of $22.6 million has been recorded as
     goodwill and is being amortized on a  straight-line  basis over five years.
     Revenue,  net loss and loss per share on a pro forma  basis,  assuming  the
     acquisition  of NikoNET  was  completed  at the  beginning  of the  periods
     presented,  are not significantly  different from the Company's  historical
     results. Located in Atlanta,  Georgia, NikoNET provides broadcast facsimile
     services and  value-added  messaging  services to  financial  institutions,
     corporate  investor and public  relations  departments and other customers.
     The  Company  believes  that the  acquisition  of NikoNET  will  enable the
     Company to expand the service offerings  currently available to its Telecom
     Services customers.

<PAGE>
                                       15


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)  Business Combinations (continued)

     On August 27, 1998,  the Company  purchased,  for $9.0 million in cash, the
     remaining  20% equity  interest  in ICG Ohio LINX,  Inc.  ("ICG Ohio LINX")
     which  it  did  not  already  own.  ICG  Ohio  LINX  is a  facilities-based
     competitive   local   exchange   carrier  which   operates  a  fiber  optic
     telecommunications  network in Cleveland  and Dayton,  Ohio.  The Company's
     additional  investment  in ICG Ohio LINX is  included  in  goodwill  in the
     accompanying consolidated balance sheet at September 30, 1998.

     In January 1997,  the Company  announced a strategic  alliance with Central
     and  SouthWest  Corporation  ("CSW")  which  is  developing  and  marketing
     telecommunications services in certain cities in Texas. The venture entity,
     a limited partnership named CSW/ICG ChoiceCom, L.P ("ChoiceCom"),  is based
     in Austin, Texas.  Currently,  CSW holds 100% of the interest in ChoiceCom,
     and CSW and the Company  each have two  representatives  on the  Management
     Committee  of the general  partner of  ChoiceCom.  On October 7, 1998,  the
     Company  entered into a definitive  agreement  with CSW to purchase 100% of
     the partnership interests in ChoiceCom. Cash consideration for the purchase
     is estimated to be approximately $50.0 to $55.0 million. The transaction is
     subject to  regulatory  approvals  and is expected to close in late 1998 or
     early  1999.  The  acquisition  of  ChoiceCom  will be  accounted  for as a
     purchase.

(7)  Commitments and Contingencies

     (a)  Network Construction

          In March 1996,  the Company and  Southern  California  Edison  Company
          ("SCE") entered into a 25-year  agreement under which the Company will
          license 1,258 miles of fiber optic cable in Southern  California,  and
          can  install up to 500  additional  miles of fiber optic  cable.  This
          network,  which  will be  maintained  and  operated  primarily  by the
          Company,  stretches from Los Angeles to southern Orange County.  Under
          the terms of this agreement,  SCE is entitled to receive an annual fee
          for ten years,  certain fixed quarterly payments,  a quarterly payment
          equal to a percentage of certain  network  revenue,  and certain other
          installation  and fiber  connection fees. The aggregate fixed payments
          remaining under the agreement totaled  approximately $135.9 million at
          September 30, 1998.  The agreement has been accounted for as a capital
          lease in the accompanying consolidated balance sheets.

          In May 1997, the Company  entered into a long-term  agreement with the
          Southern  Company   ("Southern")  that  will  permit  the  Company  to
          construct a 100-mile  fiber optic network in the Atlanta  metropolitan
          area.  The Company paid $5.5 million upon  execution of the  agreement
          and was responsible for reimbursement to Southern for costs of network
          design,   construction,    installation,   maintenance   and   repair.
          Additionally, the Company is also required to pay Southern a quarterly
          fee based on specified  percentages of the Company's  revenue  derived
          from services provided over this network.  Network construction on the
          initial  43-mile  build was  completed in September of 1998 at a total
          cost of $9.0 million, including the cost for the initial build.

          In June 1997, the Company  entered into an  indefeasible  right of use
          ("IRU") agreement with Qwest Communications  Corporation ("Qwest") for
          approximately  1,800  miles  of fiber  optic  network  and  additional
          broadband  capacity in California,  Colorado,  Ohio and the Southeast.
          Network  construction  is ongoing and is expected to be  completed  by
          December  1998.  The  Company  is  responsible   for  payment  on  the
          construction as segments of the network are completed and has incurred
          approximately  $17.7 million as of September 30, 1998,  with remaining
          costs anticipated to be approximately $17.3 million. Additionally, the
          Company has  committed to purchase  $6.0  million in network  capacity
          from Qwest prior to the end of 1999.

<PAGE>
                                       16


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(7)  Commitments and Contingencies (continued)

     (b)  Other Commitments

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

          Additionally,  the Company has entered  into  certain  commitments  to
          purchase   capital   assets  with  an  aggregate   purchase  price  of
          approximately $82.0 million at September 30, 1998.

     (c)  Transport and Termination Charges

          The Company has recorded revenue of approximately $4.9 million,  $17.8
          million and $32.9  million  for fiscal  1997 and the three  months and
          nine months ended  September 30, 1998,  respectively,  for  reciprocal
          compensation  relating  to the  transport  and  termination  of  local
          traffic to Internet  service  providers  ("ISPs")  from  customers  of
          incumbent  local  exchange  carriers  ("ILECs")  pursuant  to  various
          interconnection  agreements. The ILECs have not paid most of the bills
          they have received  from the Company and have  disputed  substantially
          all of these charges based on the belief that such calls are not local
          traffic as  defined  by the  various  agreements  and under  state and
          federal laws and public  policies.  The  resolution of these  disputes
          will be based on rulings by state public utility commissions and/or by
          the Federal  Communications  Commission  ("FCC").  To date, there have
          been  favorable  final rulings from 23 states,  favorable  preliminary
          decisions from one additional state and no unfavorable  rulings by any
          state public utility  commission that would indicate that calls placed
          by end users to ISPs would not qualify as local traffic subject to the
          payment of reciprocal compensation. In addition to the one preliminary
          ruling,  cases are pending  before three other  states.  Additionally,
          three federal  district court  decisions have upheld  favorable  state
          public utility commission rulings. On October 30, 1998, the FCC issued
          a  decision  that  found  that  certain  high-speed  dedicated  access
          connections,  or digital  subscriber line services,  between end users
          and ISPs are interstate communications. This decision did not consider
          or address the issue of whether  competitive  local exchange  carriers
          are entitled to receive reciprocal  compensation for the transport and
          termination to ISPs of circuit-switched  dial-up traffic originated by
          the ILECs.  Therefore,  the recent  FCC  decision  does not change the
          obligations of the ILECs under existing interconnection  agreements or
          affect  state  regulatory   decisions   requiring  the  ILECs  to  pay
          reciprocal  compensation for ISP traffic using dial-up  services.  The
          FCC has not yet issued a decision  specifically  addressing reciprocal
          compensation issues, although the FCC has stated publicly that it will
          issue  such a  decision  in the  near  future.  The  Company  has also
          recorded  revenue of  approximately  $4.1 million and $9.6 million for
          the  three   months  and  nine  months  ended   September   30,  1998,
          respectively,  related to other transport and  termination  charges to
          the ILECs, pursuant to the Company's  interconnection  agreements with
          these  carriers.  Included  in  the  Company's  trade  receivables  at
          December  31, 1997 and  September  30, 1998 is $4.4  million and $44.1
          million,  respectively,  for all receivables  related to transport and
          termination  charges.  While the  Company  believes  that all  revenue
          recorded  through  September 30, 1998 is  collectible  and that future
          revenue  from  transport  and  termination  charges  billed  under the
          Company's current interconnection  agreements will be realized,  there
          can be no assurance that future  regulatory  rulings will be favorable
          to the Company,  or that  different  pricing  plans for  transport and
          termination  charges between  carriers will not be considered when the
          Company's  interconnection  agreements are renegotiated,  beginning in
          1999.
<PAGE>
                                       17


                   ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(7)  Commitments and Contingencies (continued)

     (d)  Litigation

          On April 4, 1997,  certain  shareholders  of Zycom filed a shareholder
          derivative suit and class action  complaint for  unspecified  damages,
          purportedly on behalf of all of the minority shareholders of Zycom, in
          the  District  Court of Harris  County,  Texas  (Cause  No.  97-17777)
          against the  Company,  Zycom and certain of their  subsidiaries.  This
          complaint  alleges  that the Company  and certain of its  subsidiaries
          breached  certain duties owed to the  plaintiffs.  The plaintiffs were
          denied  class  certification,  have  appealed  this  decision and have
          amended their petition to include  approximately 150 named plaintiffs.
          The  Company  is  vigorously  defending  the  claims.  While it is not
          possible  to  predict  the  outcome  of  this  litigation,  management
          believes these  proceedings will not have a material adverse effect on
          the  Company's  financial  condition,  results of  operations  or cash
          flows.

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

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

     The 11 5/8% Senior  Discount Notes due 2007 (the "11 5/8% Notes") issued by
     Holdings  during 1997 are  guaranteed  by ICG. The 12 1/2% Senior  Discount
     Notes due 2006 (the "12 1/2% Notes") and the 13 1/2% Senior  Discount Notes
     due 2005 (the "13 1/2%  Notes")  issued by  Holdings  during 1996 and 1995,
     respectively, are guaranteed by ICG and Holdings-Canada.

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

                       Condensed Balance Sheet Information
<TABLE>
<CAPTION>


                                                      December 31, 1997         September 30, 1998
                                                  ------------------------    ---------------------
                                                                    (in thousands)
 <S>                                              <C>                                <C>    
     Current assets                               $        215,817                    254,385
     Property and equipment, net                           632,167                    682,915
     Other non-current assets, net                         122,768                    165,505
     Current liabilities                                    98,351                     87,076
     Long-term debt, less current portion                  890,503                    973,538
     Capital lease obligations, less current
       portion                                              66,939                     60,429
     Due to parent                                          30,970                    150,571
     Due to ICG Services                                         -                    113,800
     Preferred stock                                       292,442                    326,248
     Stockholder's deficit                                (408,453)                  (608,857)
</TABLE>

<PAGE>
                                       18


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

     Summarized Consolidated and Combined Statement of Operations Information
<TABLE>
<CAPTION>

                                               Three months ended September 30,       Nine months ended September 30,
                                             ------------------------------------   ----------------------------------
                                                    1997                1998             1997               1998
                                             -----------------    ---------------   --------------    ----------------
                                                                            (in thousands)

<S>                                           <C>                      <C>            <C>                 <C>    
     Total revenue                            $     67,736             112,676         195,552             294,852
     Total operating costs and expenses            114,270             142,265           1,035             403,424
     Operating loss                                (46,532)            (29,589)       (133,808)           (108,572)
     Net loss                                      (79,884)            (40,166)       (224,003)           (200,404)
</TABLE>

(9)  Condensed Financial Information of ICG Holdings (Canada), Inc.

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

                       Condensed Balance Sheet Information
<TABLE>
<CAPTION>

                                                        December 31, 1997          September 30, 1998
                                                     ------------------------    ---------------------
                                                                         (in thousands)
<S>                                                   <C>                            <C>
     Current assets                                   $        162                        162
     Advances to subsidiaries                               30,790                    150,571
     Non-current assets, net                                 3,800                      2,477
     Current liabilities                                       107                        107
     Long-term debt, less current portion                       65                         65
     Due to parent                                          22,162                    140,749
     Share of losses of subsidiary                         408,453                    608,857
     Shareholders' deficit                                (396,035)                  (596,568)
</TABLE>

                  Condensed Statement of Operations Information
<TABLE>
<CAPTION>

                                             Three months ended September 30,         Nine months ended September 30,
                                           ------------------------------------  ----------------------------------------
                                                 1997               1998                1997                  1998
                                           ---------------  -------------------  -----------------    -------------------
                                                                           (in thousands)
<S>                                        <C>                   <C>                  <C>                    <C> 
     Total revenue                         $          -                -                     -                     -
     Total operating costs and expenses              47               48                   147                    129
     Operating loss                                 (47)             (48)                 (147)                  (129)
     Losses of subsidiaries                     (79,884)         (40,166)             (224,003)              (200,404)
     Net loss attributable to common
       shareholders                             (79,931)         (40,214)             (224,150)              (200,533)

</TABLE>


<PAGE>
                                       19


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

     The primary assets of ICG are its investments in ICG Services, ICG Funding,
     LLC ("ICG Funding"),  Holdings-Canada  and NikoNET,  including  advances to
     those  subsidiaries.  Certain corporate  expenses of the parent company are
     included in ICG's statement of operations and were  approximately  zero and
     $0.1 million for the three months and nine months ended September 30, 1997,
     respectively,  and $1.0  million and $2.0  million for the three months and
     nine months ended September 30, 1998,  respectively.  ICG has no operations
     other than those of ICG Services, ICG Funding and Holdings-Canada and their
     subsidiaries.

<PAGE>
                                       20


ITEM 2.MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS
       OF OPERATIONS

     The following discussion includes certain forward-looking  statements which
are affected by important factors  including,  but not limited to, dependence on
increased traffic on the Company's facilities,  the successful implementation of
the Company's strategy of offering an integrated  telecommunications  package of
local, long distance,  data and value added services,  continued  development of
the Company's network  infrastructure  and actions of competitors and regulatory
authorities  that  could  cause  actual  results to differ  materially  from the
forward-looking  statements.  The results of operations for the three months and
nine months  ended  September  30, 1998  represent  the  consolidated  operating
results of the  Company.  See the  unaudited  condensed  consolidated  financial
statements of the Company for the nine months ended  September 30, 1998 included
elsewhere  herein.  The Company has  reclassified  its  historical  consolidated
financial   statements  to  present  the  operations  of  Zycom  and  NETCOM  as
discontinued. The terms "fiscal" and "fiscal year" refer to the Company's fiscal
year ending December 31. All dollar amounts are in U.S. dollars.

Company Overview

     ICG  Communications  Inc.,  ("ICG" or the "Company") is one of the nation's
leading competitive  integrated  communications  providers ("ICPs") based on the
industry's  1997 revenue.  ICPs seek to provide an  alternative to the incumbent
local   exchange   carriers   ("ILECs"),   long  distance   carriers  and  other
communication  service providers for a full range of communications  services in
the   increasingly   deregulated   telecommunications   industry.   Through  its
competitive  local exchange  carrier ("CLEC")  operations,  the Company operates
networks in four regional clusters covering major metropolitan statistical areas
in California,  Colorado,  Ohio and the  Southeast.  The Company also provides a
wide range of network systems integration  services,  maritime and international
satellite  transmission  services.   Network  Services  consist  of  information
technology  services  and  selected  networking  products,  focusing  on network
design,  installation,  maintenance and support.  Satellite  Services consist of
satellite  voice,  data and video services  provided to major cruise lines,  the
U.S.  Navy,  the offshore oil and gas  industry  and  integrated  communications
providers.  As a leading  participant in the rapidly growing  competitive  local
telecommunications  industry,  the Company has experienced  significant  growth,
with total  revenue  increasing  from  $110.2  million for fiscal 1995 to $347.0
million for the 12-month  period ended  September 30, 1998. The Company's  rapid
growth is the result of the initial  installation,  acquisition  and  subsequent
expansion of its fiber optic  networks and the  expansion of its  communications
service offerings.

     The Federal  Telecommunications Act of 1996 (the "Telecommunications  Act")
and pro-competitive state regulatory  initiatives have substantially changed the
telecommunications  regulatory  environment in the United  States.  Due to these
regulatory  changes,  the Company is now permitted to offer all  interstate  and
intrastate  telephone  services,  including  competitive  local dial  tone.  The
Company is marketing and selling local dial tone services in major  metropolitan
areas in the following regions:  California, which began service in late January
1997,  followed  by Ohio in  February  1997,  Colorado  in  March  1997  and the
Southeast in May 1997.  During  fiscal 1997 and the nine months ended  September
30, 1998, the Company sold 178,470 and 144,274 local access lines, respectively,
of which  290,983  were in service at  September  30,  1998.  In  addition,  the
Company's operating networks have grown from 627 fiber route miles at the end of
fiscal 1995 to 3,995 fiber route miles as of September 30, 1998. The Company has
21 operating  high capacity  digital voice  switches and 15 data  communications
switches,  and plans to install  additional  switches as demand  warrants.  As a
complement  to its local  exchange  services,  the Company  has begun  marketing
bundled   service    offerings    which   include   long   distance,    enhanced
telecommunications  services  and  data  services  and  plans to  intensify  the
offerings of such services in the near term.

     The  Company  will  continue to expand its  network  through  construction,
leased  facilities,  strategic  alliances  and  mergers  and  acquisitions.  For
example,  on October 7, 1998,  the Company  entered into a definitive  agreement
with  Central  and  SouthWest  Corporation  ("CSW")  to  purchase  100%  of  the
partnership  interests in CSW/ICG  ChoiceCom,  L.P.  ("ChoiceCom").  The Company
formed a strategic  alliance  with CSW to develop and market  telecommunications
services in certain cities in Texas. The venture entity,  ChoiceCom, is based in
Austin,  Texas and offers a variety of  telecommunications  services,  including
local exchange services,  in San Antontio,  Dallas,  Austin,  Houston and Corpus
Christi, Texas. For the nine months ended September 30, 1998, ChoiceCom reported
$1.9 million in revenue and 5,341 access lines in service sold by ChoiceCom  and
4,476  access  lines  in  service  sold  by  ICG  at  the  end  of  the  period.
<PAGE>
                                       21

Additionally,  ChoiceCom has 3 operating high capacity digital voice switches as
of September 30, 1998. The Company  expects to complete the  transaction in late
1998 or early 1999.

     To better focus its efforts on its core Telecom  Services  operations,  the
Company  progressed  toward the  disposal  of certain  assets  which  management
believes do not complement its overall business strategy.  On July 17, 1998, the
Company  entered  into a  definitive  agreement  to sell  the  capital  stock of
Nova-Net  Communications,  Inc. ("Nova-Net") and on August 12, 1998, the Company
completed  the  sale  of  MarineSat  Communications,  Inc.  ("MCN"),  two of the
operating  subsidiaries within the Company's Satellite Services operations.  The
results of operations  of MCN have been  included in the Company's  consolidated
results of operations through the closing date of the sale. Due primarily to the
loss of a major  customer,  which  generated a  significant  obligation  under a
volume  discount  agreement  with  its call  transport  provider,  the  board of
directors of Zycom Corporation  ("Zycom"), a 70%-owned subsidiary of the Company
which  operated  an  800/888/900  number  services  bureau and switch  platform,
approved  a plan on  August  25,  1998 to wind down and  ultimately  discontinue
Zycom's operations.  Effective October 22, 1998, Zycom completed the transfer of
all  customer   traffic  to  other   providers  and  anticipates  it  will  need
approximately 30 to 60 days to dispose of its remaining assets and discharge its
remaining liabilities.  Additionally,  effective November 3, 1998, the Company's
board of directors  adopted a formal plan to dispose of the operations of NETCOM
On-Line  Communication  Services,  Inc.  ("NETCOM"),   a  provider  of  Internet
connectivity  and Web site  hosting  services  and  other  value-added  services
located in San Jose,  California.  NETCOM is a wholly  owned  subsidiary  of the
Company acquired on January 21, 1998 in a transaction accounted for as a pooling
of interests. The Company's plan of disposal consists of the sale to one of more
third  parties in one or more  transactions  of all of the  operating  assets of
NETCOM which will not be used in future Telecom Services operations. The Company
has  commenced  an active  plan to locate  one or more  buyers  and  intends  to
complete the sales within one year. The Company  expects to record a gain on the
sale of NETCOM in the period of disposition, although the amount of such gain is
not presently determinable.  For fiscal 1997 and the nine months ended September
30,  1998,  Zycom and NETCOM  combined  reported  revenue of $189.0  million and
$138.9 million, respectively, and EBITDA losses (before nonrecurring charges) of
$(12.1) million and $(12.4) million,  respectively. The Company has reclassified
its historical  consolidated  financial  statements to present the operations of
Zycom and NETCOM as discontinued.

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

<PAGE>
                                       22


Results of Operations

     The following table provides a breakdown of revenue and operating costs for
Telecom  Services,  Network Services and Satellite  Services,  and certain other
financial data for the Company for the periods  indicated.  The table also shows
certain revenue, operating costs and expenses, operating loss, EBITDA and EBITDA
(before nonrecurring charges) as a percentage of the Company's total revenue.
<TABLE>
<CAPTION>

                                               Three months ended September 30,                Nine months ended September 30,
                                       ------------------------------------------------- ------------------------------------------
                                                1997                     1998                    1997                  1998
                                       -----------------------  ------------------------ --------------------- --------------------
                                           $            %             $           %           $          %         $           %
                                       -----------  ----------  -------------- --------- ------------- ------- ----------- --------
                                                                                 (unaudited)
                                                                                (in thousands)
 <S>                                    <C>            <C>        <C>             <C>     <C>           <C>      <C>            <C>
 Statement of Operations Data:                                         
 Revenue:
    Telecom services                      36,543        60          82,567         77      101,637       58       205,269        74
    Network services                      16,432        27          14,550         14       50,059       29        40,740        15
    Satellite services                     7,640        13           9,350          9       22,306       13        29,982        11
                                       ----------- -----------  -------------- --------- ------------- ------- -------------  -----
       Total revenue                      60,615       100         106,467        100      174,002      100       275,991       100
 Operating costs:
    Telecom services                      35,215                    48,145                 104,135                137,113
    Network services                      13,151                    12,177                  40,569                 35,632
    Satellite services                     4,236                     4,358                  12,189                 15,219
                                       ----------- -----------  -------------- --------- ------------- ------- -------------  -----
       Total operating costs              52,602        87          64,680         61      156,893       90       187,964        68
 Selling, general and administrative      39,187        65          45,435         43      110,183       63       132,917        48
 Depreciation and amortization            13,517        22          24,883         23       37,198       21        61,321        22
 Net loss (gain) on disposal of long-                                                                   
   lived assets                            1,354         2            (814)        (1)       1,035        1          (316)        -
 Restructuring costs                           -         -               -          -            -        -           553         -
                                       ----------- -----------  -------------- --------- ------------- ------- -------------  -----
    Operating loss                       (46,045)      (76)        (27,717)      (26)     (131,307)     (75)     (106,448)      (38)
                                                       

Other Data:
Net cash used by operating activities                                                    
  of  continuing operations              (33,088)                  (12,447)                (68,852)               (63,623)
Net cash used by investing activities                                                    
  of continuing operations              (193,446)                 (151,395)               (304,197)              (185,185)
Net cash provided (used) by financing
  activities of continuing operations    112,270                    (6,055)                285,959                530,074
EBITDA (1)                               (32,528)      (54)         (2,834)       (3)      (94,109)     (54)      (45,127)      (16)
EBITDA (before nonrecurring charges)     (31,174)      (51)         (3,648)       (2)      (93,074)     (53)      (44,890)      (16)
  (1)
Capital expenditures of continuing                                                        
  operations (2)                          64,347                   107,108                 187,136                260,022
Capital expenditures of discontinued
  operations (2)                           3,259                     5,021                  14,333                 20,228
</TABLE>


<PAGE>
                                       23

<TABLE>
<CAPTION>


                                            September 30,      December 31,       March 31,          June 30,        September 30,
                                                1997              1997              1998              1998              1998
                                           ---------------    --------------    -------------     -------------     --------------
                                                                               (unaudited)
<S>                                              <C>                <C>               <C>             <C>                <C>  
Statistical Data (3):
Full time employees                              2,861              3,032             3,050           3,089              3,251
Telecom services:
  Access lines in service (4)                   50,551            141,035           186,156         237,458            290,983
  Buildings connected: (5)  
    On-net                                         590                596               637             665                684
    Hybrid (6)                                   1,726              1,725             3,294           3,733              4,217
                                           ---------------    --------------    -------------     -------------     --------------
      Total buildings connected                  2,316              2,321             3,931           4,398              4,901
  Customer circuits in service (VGEs)(7)     1,006,916          1,111,697         1,171,801       1,250,479          1,331,510
  Operational switches:
    Voice                                           18                 19                20              20                 21
    Data                                            15                 15                15              15                 15
                                           ---------------    --------------    -------------     -------------     --------------
      Total operational switches                    33                 34                35              35                 36
  Switched minutes of use (millions)               788                660               639             516                513
  Fiber route miles (8):
    Operational                                  3,021              3,043             3,194           3,812              3,995
    Under construction                               -                  -                 -               -                406
  Fiber strand miles (9):
    Operational                                109,510            111,435           118,074         124,642            127,756
    Under construction                               -                  -                 -               -             13,930
  Wireless miles (10)                              511                511               511             511                415
Satellite services:
  VSATs                                            934                957               921             928                966
  C-Band installations (11)                         54                 57                59              66                 69
Internet services (12) :
  Direct access and Web site hosting
    services subscribers                        10,630             12,275            14,976          18,638             23,308
  Average monthly revenue per
    subscriber                               $   24.24              25.01             25.12           25.87              26.52
</TABLE>


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

(2)  Capital  expenditures  include  assets  acquired  under capital  leases and
     excludes payments for construction of the Company's new headquarters, which
     the  Company  sold in  January  1998  and  leased  back  under a  long-term
     operating lease. Capital  expenditures of discontinued  operations includes
     capital expenditures of Zycom and NETCOM.

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

(4)  Access lines in service at September 30, 1998 includes  199,152 lines which
     are  provisioned  through the  Company's  switch and 91,831 lines which are
     provisioned through resale and other agreements with various local exchange
     carriers.  Resale  lines  typically  generate  lower  margins  and are used
     primarily to obtain customers.  Although the Company plans to migrate lines
     from resale to higher margin on-switch lines, there is no assurance that it
     will be successful in executing this strategy.
<PAGE>
                                       24


(5)  Prior to the first  quarter of 1998,  the  Company  reported  only  special
     access buildings  connected.  Beginning March 31, 1998, buildings connected
     includes  both  dial  tone and  special  access  buildings  connected.  The
     combined  special access and dial tone buildings  connected at December 31,
     1997 was 3,153.

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

(7)  Customer  circuits  in service  are  measured  in voice  grade  equivalents
     ("VGEs").

(8)  Fiber  route  miles  refers to the  number of miles of fiber  optic  cable,
     including  leased fiber.  As of September  30, 1998,  the Company had 3,995
     fiber  route  miles,  of which 53  fiber  route  miles  were  leased  under
     operating  leases.  Fiber route miles under  construction  represents fiber
     under construction and fiber which is expected to be operational within six
     months.

(9)  Fiber strand  miles  refers to the number of fiber route  miles,  including
     leased fiber, along a  telecommunications  path multiplied by the number of
     fiber strands  along that path.  As of September 30, 1998,  the Company had
     127,756 fiber strand  miles,  of which 2,028 fiber strand miles were leased
     under operating leases.  Fiber strand miles under  construction  represents
     fiber under  construction  and fiber  which is  expected to be  operational
     within six months.

(10) Wireless miles represents the total distance of the digital microwave paths
     between Company transmitters which are used in the Company's networks.

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

(12) The  Company's  Internet  Services  are provided by NETCOM.  The  Company's
     consolidated  financial  statements  reflect  the  operations  of NETCOM as
     discontinued for all periods presented.

Three Months Ended  September 30, 1998 Compared to Three Months Ended  September
30, 1997

     Revenue.  Revenue for the three months ended  September 30, 1998  increased
$45.9 million,  or 76%, from the three months ended September 30, 1997.  Telecom
Services  revenue  increased 126% to $82.6 million due to an increase in revenue
from local  services  (dial tone),  long distance and special  access  services,
offset in part by a decline in average unit  pricing and in  wholesale  switched
services  revenue.  Local  services  revenue  increased from $3.1 million (9% of
Telecom Services revenue) for the three months ended September 30, 1997 to $44.1
million (53% of Telecom  Services  revenue) for the three months ended September
30, 1998.  Revenue from long distance  services  generated  $6.7 million for the
three months ended September 30, 1998,  compared to no reported  revenue for the
three months ended  September 30, 1997.  Special access  revenue  increased from
$14.4  million  (39% of Telecom  Services  revenue)  for the three  months ended
September  30, 1997 to $20.2 million (24% of Telecom  Services  revenue) for the
three months  ended  September  30,  1998.  Switched  access  (terminating  long
distance) revenue decreased to approximately  $11.6 million for the three months
ended  September 30, 1998,  compared to $19.1 million for the three months ended
September 30, 1997. The Company  anticipates  that switched  access revenue will
continue to decline as it de-emphasizes  its wholesale  switched  services.  The
Company has recently raised prices on its wholesale switched services product in
order to improve  margins and free up switch port capacity for its higher margin
dial tone  product.  Revenue  from data  services  did not  generate  a material
portion of total revenue during either period.

     Network  Services  revenue  decreased  11% to $14.6  million  for the three
months  ended  September  30, 1998 as  compared  to $16.4  million for the three
months ended  September 30, 1997.  The decrease in Network  Services  revenue is
primarily due to the decline in network  integration  services projects from new
and existing  customers  between the  comparative  periods,  offset  slightly by
increases in integrated cabling services revenue.  In addition,  two significant
customers delayed construction on major facilities during the three months ended
September 30, 1998.
<PAGE>
                                       25


     Satellite Services revenue increased $1.7 million,  or 22%, to $9.4 million
for the three months ended September 30, 1998. This increase is primarily due to
the  operations of Maritime  Telecommunications  Network,  Inc.  ("MTN"),  which
comprised $6.9 million of total Satellite  Services revenue for the three months
ended  September  30,  1998,  an increase of $2.3  million  compared to the same
period in 1997.  The  increase  in revenue  of MTN was  offset by a decrease  in
revenue  of MCN of $0.8  million  since the  results of  operations  of MCN were
included in the Company's  consolidated  financial  statements  only through the
closing date of the sale of MCN on August 12, 1998.

     Operating costs. Total operating costs for the three months ended September
30, 1998 increased $12.1 million,  or 23%, from the three months ended September
30, 1997. Telecom Services operating costs increased from $35.2 million,  or 96%
of Telecom Services  revenue,  for the three months ended September 30, 1997, to
$48.1 million,  or 58% of Telecom Services  revenue,  for the three months ended
September  30, 1998.  Telecom  Services  operating  costs consist of payments to
ILECs for the use of network  facilities to support  special and switched access
services,  network  operating  costs,  right of way fees and  other  costs.  The
increase in operating costs in absolute  dollars is attributable to the increase
in volume of local and  special  access  services  and the  addition  of network
operating costs which include engineering and operations  personnel dedicated to
the development and launch of local exchange services. The decrease in operating
costs as a percentage of total  revenue is due primarily to a greater  volume of
higher margin services, principally local exchange services. The Company expects
the Telecom Services ratio of operating costs to revenue will further improve as
the Company  provides a greater  volume of higher margin  services,  principally
local exchange services,  carries more traffic on its own facilities rather than
the ILEC  facilities and obtains the right to use unbundled  ILEC  facilities on
satisfactory terms, any or all of which may not occur.

     Network  Services  operating  costs  decreased  7%  to  $12.2  million  and
increased as a  percentage  of Network  Services  revenue from 80% for the three
months ended  September 30, 1997 to 84% for the three months ended September 30,
1998. The decrease in operating costs in absolute dollars is due to the decrease
in general  business volume between the comparative  periods.  Network  Services
operating  costs  increased  as a  percentage  of revenue  due to the decline in
higher margin  network  integration  services  projects  during the three months
ended September 30, 1998.  Network Services  operating costs include the cost of
equipment sold, direct hourly labor and other indirect project costs.

     Satellite  Services operating costs increased to $4.4 million for the three
months ended  September  30, 1998,  from $4.2 million for the three months ended
September  30, 1997.  Satellite  Services  operating  costs as a  percentage  of
Satellite  Services  revenue  decreased  from  55% for the  three  months  ended
September  30, 1997 to 47% for the three  months ended  September  30, 1998 as a
result of the  increase  in  revenue  of MTN which  provides  relatively  higher
margins than other maritime services. Satellite Services operating costs consist
primarily of transponder lease costs and the cost of equipment sold.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  ("SG&A")  expenses for the three months ended September 30, 1998
increased $6.2 million, or 16%, compared to the three months ended September 30,
1997.  This increase was principally due to the continued rapid expansion of the
Company's  Telecom Services  networks and related  significant  additions to the
Company's management information systems, customer service,  marketing and sales
staffs dedicated to the expansion of the Company's  networks and  implementation
of the Company's expanded services strategy,  primarily the development of local
and long  distance  telephone  services.  SG&A expenses as a percentage of total
revenue  decreased from 65% for the three months ended September 30, 1997 to 43%
for the three months ended  September 30, 1998, as the Company begins to benefit
from the revenue  generated by newly developed  services  requiring  substantial
administrative,   selling  and  marketing   expense  prior  to  initial  service
offerings. The Company expects SG&A expenses as a percentage of total revenue to
continue to decline over the near term.

     Depreciation and  amortization.  Depreciation  and  amortization  increased
$11.4 million,  or 84%, for the three months ended September 30, 1998,  compared
to the three  months  ended  September  30,  1997,  primarily  due to  increased
investment in depreciable  assets resulting from the continued  expansion of the
Company's networks and services and increased amortization arising from goodwill
recorded in conjunction with two purchase business combinations completed during
the three months ended  September 30, 1998.  The Company  reports high levels of
depreciation  expense relative to revenue during the early years of operation of
a new  network  because  the full cost of a  network  is  depreciated  using the
straight-line  method despite the low rate of capacity  utilization in the early
stages of network  operation.  
<PAGE>
                                       26


     Net loss  (gain) on  disposal  of  long-lived  assets.  Net loss  (gain) on
disposal of long-lived assets fluctuated from a net loss of $1.4 million for the
three  months  ended  September  30, 1997 to a net gain of $0.8  million for the
three months ended September 30, 1998. Net loss on disposal of long-lived assets
for the three months ended September 30, 1997 represents  losses recorded on the
disposal of the Company's  investment in its  Melbourne  network.  For the three
months ended  September  30,  1998,  net gain on disposal of  long-lived  assets
relates primarily to the sale of MCN.

     Interest  expense.  Interest  expense  increased $17.2 million,  from $28.8
million for the three months ended  September 30, 1997, to $46.0 million for the
three months ended September 30, 1998,  which includes $43.7 million of non-cash
interest.  The  increase is primarily  attributable  to an increase in long-term
debt,  primarily the 10% Senior Discount Notes due 2008 (the "10% Notes") issued
in  February  1998 and the 9 7/8%  Senior  Discount  Notes due 2008 (the "9 7/8%
Notes")  issued in April 1998.  In  addition,  the  Company's  interest  expense
increased,  and will continue to increase,  because the principal  amount of its
indebtedness  increases until the Company's  senior  indebtedness  begins to pay
interest in cash.

     Interest income.  Interest income increased $2.8 million, from $5.4 million
for the three months  ended  September  30, 1997,  to $8.2 million for the three
months ended September 30, 1998. The increase is attributable to the increase in
cash and invested  cash  balances from the proceeds from the issuance of the 10%
Notes in February 1998 and the 9 7/8% Notes in April 1998.

     Other expense,  net. Other  expense,  net fluctuated  from $0.2 million net
income for the three months ended September 30, 1997 to $0.5 million net expense
for the three months ended  September 30, 1998.  Other expense,  net recorded in
the three  months  ended  September  30, 1997  consists of  miscellaneous  other
income.  For the three  months ended  September  30, 1998,  other  expense,  net
primarily includes  litigation  settlement costs of $0.3 million and a write-off
of notes receivable of $0.2 million.

     Accretion and preferred dividends on preferred  securities of subsidiaries,
net of minority interest in share of losses.  Accretion and preferred  dividends
on preferred  securities of subsidiaries,  net of minority  interest in share of
losses  increased  $3.9  million,  from $10.1 million for the three months ended
September  30, 1997 to $14.0  million for the three months ended  September  30,
1998.  The increase is due  primarily  to the  issuance of the 6 3/4%  Preferred
Securities in September and October 1997.  Accretion and preferred  dividends on
preferred  securities  of  subsidiaries,  net of  minority  interest in share of
losses recorded during the three months ended September 30, 1998 consists of the
accretion  of issuance  costs ($0.3  million)  and the accrual of the  preferred
securities  dividends  ($13.7 million)  associated with the 6 3/4%  Exchangeable
Limited Liability Company Preferred Securities  Mandatorily Redeemable 2009 (the
"6 3/4% Preferred Securities"), the 14% Exchangeable Preferred Stock Mandatorily
Redeemable  2008  (the  "14%  Preferred  Stock")  and the 14  1/4%  Exchangeable
Preferred Stock Mandatorily Redeemable 2007 (the "14 1/4% Preferred Stock").

     Loss from continuing operations.  Loss from continuing operations increased
$0.7 million,  or 1%,  primarily due to the increases in operating  costs,  SG&A
expenses,  depreciation  and  amortization,  interest  expense and accretion and
preferred  dividends on preferred  securities of  subsidiaries,  net of minority
interest in share of losses, offset by an increase in revenue, as noted above.

     Loss from discontinued operations. For the three months ended September 30,
1997 and 1998,  loss from  discontinued  operations  was $7.5  million and $16.6
million,  respectively,  or 9% and 17%, respectively, of the Company's net loss.
Loss from discontinued  operations  consists of the net loss of Zycom and NETCOM
for the respective  periods and, for the three months ended  September 30, 1998,
includes $1.2 million for estimated  losses on the disposal of Zycom,  including
$0.2 million for  operating  losses  during the phase out period.  The remaining
increase in loss from discontinued operations between the comparative periods is
due to increases in SG&A expenses and depreciation and amortization  incurred by
NETCOM.

Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997

     Revenue.  Revenue for the nine months ended  September  30, 1998  increased
$102.0 million,  or 59%, from the nine months ended September 30, 1997.  Telecom
Services revenue  increased 102% to $205.3 million due to an increase in revenue
from local  services  (dial tone),  long distance and special  access  services,
offset in part by a decline in average unit  pricing and in  wholesale  switched
services  revenue.  Local  services  revenue  increased from $4.3 million (4% of
<PAGE>
                                       27


Telecom Services  revenue) for the nine months ended September 30, 1997 to $96.6
million (47% of Telecom  Services  revenue) for the nine months ended  September
30, 1998.  Revenue from long distance  services  generated $17.5 million for the
nine months ended  September 30, 1998,  compared to no reported  revenue for the
nine months ended  September 30, 1997.  Special  access  revenue  increased from
$39.9  million  (39% of Telecom  Services  revenue)  for the nine  months  ended
September  30, 1997 to $53.9 million (26% of Telecom  Services  revenue) for the
nine  months  ended  September  30,  1998.  Switched  access  (terminating  long
distance) revenue  decreased to approximately  $37.2 million for the nine months
ended  September  30, 1998,  compared to $57.4 million for the nine months ended
September  30,  1997.  Revenue  from data  services  did not generate a material
portion of total revenue during either period.

     Network Services revenue decreased 19% to $40.7 million for the nine months
ended  September  30, 1998,  compared to $50.1 million for the nine months ended
September 30, 1997. The decrease in Network Services revenue is primarily due to
the  decline in network  integration  services  projects  from new and  existing
customers  during the nine months ended  September 30, 1998,  offset slightly by
increases in integrated cabling services revenue.  In addition,  two significant
customers delayed construction on major facilities during the three months ended
September 30, 1998.

     Satellite Services revenue increased $7.7 million, or 34%, to $30.0 million
for the nine months ended  September 30, 1998. This increase is primarily due to
the operations of MTN, which comprised $20.4 million of total Satellite Services
revenue  for the nine  months  ended  September  30,  1998,  an increase of $6.0
million  compared  to the same period in 1997.  The  remaining  increase  can be
attributed  to the  general  growth of MCN and  Nova-Net  during the nine months
ended September 30, 1998.

     Operating costs.  Total operating costs for the nine months ended September
30, 1998 increased  $31.1 million,  or 20%, from the nine months ended September
30, 1997.  Telecom  Services  operating costs increased from $104.1 million,  or
102% of Telecom Services revenue,  for the nine months ended September 30, 1997,
to $137.1 million, or 67% of Telecom Services revenue, for the nine months ended
September  30,  1998.  The increase in  operating  costs in absolute  dollars is
attributable  to the increase in volume of local and special access services and
the  addition  of  engineering  and  operations   personnel   dedicated  to  the
development of local  exchange  services.  The decrease in operating  costs as a
percentage  of total  revenue  is due  primarily  to a greater  volume of higher
margin services, principally local exchange services.

     Network  Services  operating  costs  decreased  12% to  $35.6  million  and
increased  as a  percentage  of  revenue  from  81% for the  nine  months  ended
September  30, 1997 to 87% for the nine months ended  September  30,  1998.  The
decrease in operating costs in absolute  dollars is due to a decrease in general
business  volume between the comparative  periods.  Network  Services  operating
costs  increased as a percentage of revenue due to cost overruns and the decline
in higher margin network  integration  services  projects during the nine months
ended September 30, 1998.

     Satellite  Services operating costs increased to $15.2 million for the nine
months ended  September  30, 1998,  from $12.2 million for the nine months ended
September  30, 1997.  Satellite  Services  operating  costs as a  percentage  of
Satellite  Services  revenue  decreased  from  55% for  the  nine  months  ended
September  30,  1997  to 51% for the  nine  months  ended  September  30,  1998,
primarily  as a  result  of  the  increase  in  revenue  of MTN  which  provides
relatively higher margins than other maritime services.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  ("SG&A")  expenses for the nine months ended  September 30, 1998
increased $22.7 million, or 21%, compared to the nine months ended September 30,
1997.  This increase was principally due to the continued rapid expansion of the
Company's  Telecom Services  networks and related  significant  additions to the
Company's management information systems, customer service,  marketing and sales
staffs dedicated to the expansion of the Company's  networks and  implementation
of the Company's expanded services strategy,  primarily the development of local
and long  distance  telephone  services.  SG&A expenses as a percentage of total
revenue  decreased from 63% for the nine months ended  September 30, 1997 to 48%
for the nine months ended  September 30, 1998, as the Company  begins to benefit
from the revenue  generated by newly developed  services  requiring  substantial
administrative,   selling  and  marketing   expense  prior  to  initial  service
offerings.

     Depreciation and  amortization.  Depreciation  and  amortization  increased
$24.1 million, or 65%, for the nine months ended September 30, 1998, compared to
the nine months ended September 30, 1997,  primarily due to increased investment
<PAGE>
                                       28

in depreciable  assets  resulting from the continued  expansion of the Company's
networks and services. Additionally,  during the nine months ended September 30,
1998,  the  Company  recorded  a  cumulative   adjustment  to  depreciation  and
amortization   expense  of  approximately   $3.7  million,   for  the  aggregate
depreciation and  amortization  expense on capital and other assets of MTN which
was not  recorded  during the period in which MTN was held for sale.  On July 1,
1998, the Company  terminated an existing agreement to sell the capital stock of
MTN.

     Net loss  (gain) on  disposal  of  long-lived  assets.  Net loss  (gain) on
disposal of long-lived assets fluctuated from a net loss of $1.0 million for the
nine months ended  September 30, 1997 to a net gain of $0.3 million for the nine
months ended  September 30, 1998. Net loss on disposal of long-lived  assets for
the nine months ended September 30, 1997 primarily relates to losses recorded on
the disposal of the Company's  investment in its Melbourne network. For the nine
months ended  September  30,  1998,  net gain on disposal of  long-lived  assets
relates to the gain on the sale of MCN of $0.8 million,  offset by the write-off
of certain  installation costs of disconnected  special access customers of $0.5
million.

     Restructuring  costs.  For  the  nine  months  ended  September  30,  1998,
restructuring  costs include $0.6 million in costs,  primarily  severance costs,
related to the decentralization of the Company's Network Services subsidiary.

     Interest  expense.  Interest  expense  increased $39.7 million,  from $82.3
million for the nine months ended  September 30, 1997, to $122.0 million for the
nine months ended September 30, 1998,  which includes $113.2 million of non-cash
interest.  This increase was primarily  attributable to an increase in long-term
debt,  primarily  the 10% Notes  issued in  February  1998 and the 9 7/8%  Notes
issued in April 1998. In addition, the Company's interest expense increased, and
will  continue to increase,  because the  principal  amount of its  indebtedness
increases  until the  Company's  senior  indebtedness  begins to pay interest in
cash.

     Interest income. Interest income increased $4.9 million, from $17.3 million
for the nine months  ended  September  30, 1997,  to $22.2  million for the nine
months ended September 30, 1998. The increase is attributable to the increase in
cash and invested  cash  balances from the proceeds from the issuance of the 10%
Notes in February 1998 and the 9 7/8% Notes in April 1998.

     Other  expense,  net.  Other  expense,  net increased from $0.1 million net
expense for the nine months ended September 30, 1997 to $4.0 million net expense
in the nine months ended September 30, 1998. Other expense,  net recorded in the
nine months ended September 30, 1997 consists primarily of litigation settlement
costs.  For the nine  months  ended  September  30,  1998,  other  expense,  net
primarily  includes $2.7 million in settlement costs paid to the former minority
shareholders of MTN, $1.0 million in litigation settlement costs and a write-off
of notes receivable of $0.3 million.

     Accretion and preferred dividends on preferred  securities of subsidiaries,
net of minority interest in share of losses.  Accretion and preferred  dividends
on preferred  securities of subsidiaries,  net of minority  interest in share of
losses  increased  $15.8  million,  from $25.0 million for the nine months ended
September  30, 1997 to $40.8  million for the nine months  ended  September  30,
1998.  The increase is due  primarily  to the  issuance of the 6 3/4%  Preferred
Securities in September and October 1997.  Accretion and preferred  dividends on
preferred  securities  of  subsidiaries,  net of  minority  interest in share of
losses  recorded during the nine months ended September 30, 1998 consists of the
accretion  of issuance  costs ($1.0  million)  and the accrual of the  preferred
securities  dividends  ($39.8  million)  associated  with  the 6 3/4%  Preferred
Securities, the 14% Preferred Stock and the 14 1/4% Preferred Stock.

     Loss from continuing operations.  Loss from continuing operations increased
$29.8 million,  or 13%, due to the increases in operating costs,  SG&A expenses,
depreciation  and  amortization,  interest  expense and  accretion and preferred
dividends on preferred  securities of subsidiaries,  net of minority interest in
share of losses, offset by an increase in revenue, as noted above.

     Loss from discontinued operations.  For the nine months ended September 30,
1997 and 1998,  loss from  discontinued  operations  was $28.3 million and $48.2
million,  respectively, or 11% and 16%, respectively, of the Company's net loss.
Loss from discontinued  operations  consists of the net loss of Zycom and NETCOM
for the  respective  periods and, for the nine months ended  September 30, 1998,
includes $1.2 million for estimated  losses on the disposal of Zycom,  including
$0.2 million for  operating  losses  during the phase out period.  The remaining
increase in loss from discontinued operations between the comparative periods is


<PAGE>
                                       29

due to increases in SG&A expenses and depreciation and amortization  incurred by
NETCOM and  approximately  $9.4  million  for merger  costs  incurred  by NETCOM
relating to NETCOM's merger with ICG in January 1998.

Liquidity and Capital Resources

     The Company's growth has been funded through a combination of equity,  debt
and lease financing. As of September 30, 1998, the Company had current assets of
$608.9  million,   including  $470.4  million  of  cash,  cash  equivalents  and
short-term  investments,  which exceeded current  liabilities of $156.5 million,
providing working capital of $452.4 million. The Company invests excess funds in
short-term,  interest-bearing  investment-grade  securities until such funds are
used to fund the  capital  investments  and  operating  needs  of the  Company's
business.  The Company's short-term investment objectives are safety,  liquidity
and yield, in that order.

Net Cash Used By Operating Activities of Continuing Operations

     The Company's  operating  activities of  continuing  operations  used $68.9
million and $63.6 million for the nine months ended September 30, 1997 and 1998,
respectively.  Net cash used by operating activities of continuing operations is
primarily  due to net losses from  continuing  operations,  which are  partially
offset by non-cash  expenses,  such as depreciation  and  amortization  expense,
deferred  interest  expense,   preferred   dividends  on  subsidiary   preferred
securities and changes in working capital items.

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

Net Cash Used By Investing Activities of Continuing Operations

     Investing  activities  of  continuing  operations  used $304.2  million and
$185.2  million  for  the  nine  months  ended  September  30,  1997  and  1998,
respectively.  Net cash used by investing  activities of  continuing  operations
includes  cash  expended for the  acquisition  of property,  equipment and other
assets, of $187.1 million and $260.0 million for the nine months ended September
30,  1997 and  1998,  respectively.  Additionally,  net cash  used by  investing
activities of continuing  operations  includes  payments for construction of the
Company's  headquarters  of $16.7  million and $4.9  million for the nine months
ended  September 30, 1997 and 1998,  respectively.  During the nine months ended
September  30,  1998,  the Company  used $9.4  million to purchase  the minority
interest  of  two  of  the  Company's  operating  subsidiaries.  Offsetting  the
expenditures  for investing  activities of  continuing  operations  for the nine
months ended  September 30, 1998 are the proceeds from the sale of the Company's
new  headquarters  of $30.3  million and the sale of short-term  investments  of
$71.3  million.  The Company  will  continue to use cash in 1998 and  subsequent
periods for the construction of new networks, the expansion of existing networks
and, potentially, for acquisitions.

Net Cash Provided By Financing Activities of Continuing Operations

     Financing  activities of continuing  operations provided $286.0 million and
$530.1  million  in  the  nine  months  ended   September  30,  1997  and  1998,
respectively. Net cash provided by financing activities of continuing operations
for  these  periods  includes  cash  received  in  connection  with the  private
placement  of the 11 5/8% Senior  Discount  Notes due 2007 (the "11 5/8% Notes")
and the 14% Preferred  Stock in March 1997, the 6 3/4%  Preferred  Securities in
September  and  October  1997 and the 10% Notes and the 9 7/8% Notes in February
and April 1998, respectively.  Historically,  the funds to finance the Company's
business  acquisitions,  capital expenditures,  working capital requirements and
operating losses have been obtained through public and private  offerings of ICG
and ICG Holdings (Canada), Inc.  ("Holdings-Canada")  common shares, convertible
subordinated notes,  convertible  preferred shares of  Holdings-Canada,  capital
lease  financings  and  various  working  capital   sources,   including  credit
facilities,  in addition to the private  placement of the securities  previously
mentioned and other securities offerings.
<PAGE>
                                       30


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

     On April 27,  1998,  ICG Services  completed a private  placement of 9 7/8%
Notes, with a maturity value of approximately  $405.3 million, for net proceeds,
after  underwriting and other offering costs, of  approximately  $242.2 million.
Interest will accrue at 9 7/8% per annum,  beginning May 1, 2003, and is payable
in cash each May 1 and November 1, commencing November 1, 2003. The 9 7/8% Notes
will be  redeemable  at the option of ICG  Services,  in whole or in part, on or
after May 1, 2003.

     As of  September  30, 1998,  the Company had an aggregate of  approximately
$64.9 million of capitalized lease  obligations and an aggregate  accreted value
of  approximately  $1.6 billion was outstanding  under the 13 1/2% Notes, the 12
1/2% Notes,  the 11 5/8% Notes,  the 10% Notes and the 9 7/8% Notes. The 13 1/2%
Notes  require  payments of interest to be made in cash  commencing on March 15,
2001 and mature on September  15, 2005.  The 12 1/2% Notes  require  payments of
interest to be made in cash  commencing on November 1, 2001 and mature on May 1,
2006.  The 11  5/8%  Notes  require  payments  of  interest  to be  made in cash
commencing  on September  15, 2002 and mature on March 15,  2007.  The 10% Notes
require  payments  of  interest  in cash  commencing  August 15, 2003 and mature
February  15,  2008.  The 9 7/8% Notes  require  payments  of  interest  in cash
commencing  November  1,  2003 and  mature  May 1,  2008.  The 6 3/4%  Preferred
Securities require payments of dividends to be made in cash through November 15,
2000. In addition,  the 14% Preferred  Stock and 14 1/4% Preferred Stock require
payments of dividends to be made in cash  commencing June 15, 2002 and August 1,
2001,  respectively.  As of September 30, 1998,  the Company had $1.2 million of
other indebtedness outstanding.  The Company's cash on hand and amounts expected
to be available  through  asset  sales,  cash flows from  operations  and vendor
financing  arrangements will provide  sufficient funds necessary for the Company
to expand its business as currently  planned and to fund its operating  deficits
through 1999.  With respect to  indebtedness  outstanding on September 30, 1998,
the  Company has cash  interest  payment  obligations  of  approximately  $113.3
million in 2001, $158.0 million in 2002 and $212.6 million in 2003. With respect
to preferred  securities  currently  outstanding,  the Company has cash dividend
obligations of approximately  $2.2 million remaining in 1998 and $8.9 million in
each of 1999 and 2000,  for which the Company has  restricted  cash balances for
such dividend  payments,  $21.5 million in 2001, $57.0 million in 2002 and $70.9
million in 2003.  Accordingly,  the Company may have to refinance a  substantial
amount of indebtedness  and obtain  substantial  additional funds prior to March
2001.  The Company's  ability to do so will depend on, among other  things,  its
financial condition at the time,  restrictions in the instruments  governing its
indebtedness, and other factors, including market conditions, beyond the control
of the  Company.  There can be no  assurance  that the  Company  will be able to
refinance such indebtedness,  including such capitalized  leases, or obtain such
additional  funds,  and if the Company is unable to effect such  refinancings or
obtain  additional  funds, the Company's  ability to make principal and interest
payments  on its  indebtedness  or make  payments of cash  dividends  on, or the
mandatory redemption of, its preferred stock, would be adversely affected.

Capital Expenditures

     The Company's  capital  expenditures  of continuing  operations  (including
assets acquired under capital leases and excluding  payments for construction of
the Company's new  headquarters)  were $64.3 million and $107.1  million for the
three months ended September 30, 1997 and 1998, respectively, and $187.1 million
and $260.0  million  for the nine  months  ended  September  30,  1997 and 1998,
respectively.  The Company  anticipates that the expansion of existing networks,
construction of new networks and further  development of the Company's  products
and  services  for both  continuing  and  discontinued  operations  will require
capital  expenditures of approximately $120.0 million during the last quarter of
1998. To facilitate the expansion of its services and networks,  the Company has
entered into equipment purchase  agreements with various vendors under which the
Company has  committed to purchase a  substantial  amount of equipment and other
assets,  including a full range of switching systems, fiber optic cable, network
electronics,  software and  services.  If the Company  fails to meet the minimum
purchase level in any given year, the vendor may discontinue  certain discounts,
allowances  and  incentives  otherwise  provided to the Company.  Actual capital
expenditures will depend on numerous  factors,  including certain factors beyond
the Company's control.  These factors include the nature of future expansion and
acquisition   opportunities,   economic  conditions,   competition,   regulatory
developments and the availability of equity, debt and lease financing.
<PAGE>
                                       31


Other Cash Commitments and Capital Requirements

     The  Company's  operations  have  required  and will  continue  to  require
significant capital  expenditures for development,  construction,  expansion and
acquisition of  telecommunications  assets.  Significant  amounts of capital are
required to be invested  before  revenue is generated,  which results in initial
negative cash flows. In addition to the Company's planned capital  expenditures,
it  has  other  cash  commitments  as  described  in  the  Company's   unaudited
Consolidated  Financial  Statements for the nine months ended September 30, 1998
included elsewhere herein.

     In  view  of the  continuing  development  of the  Company's  products  and
services,  the expansion of existing networks and the construction,  leasing and
licensing of new networks,  the Company will require  additional amounts of cash
in the future from outside sources.  Management believes that the Company's cash
on hand and amounts  expected to be available  through  asset sales,  cash flows
from operations and vendor financing  arrangements will provide sufficient funds
necessary  for the Company to expand its  business as  currently  planned and to
fund its operating deficits through 1999. Additional sources of cash may include
public and private equity and debt financings,  sales of  non-strategic  assets,
capitalized  leases and other financing  arrangements.  In the past, the Company
has been able to secure  sufficient  amounts of  financing  to meet its  capital
expenditure needs.  There can be no assurance that additional  financing will be
available  to the  Company  or, if  available,  that it can be obtained on terms
acceptable to the Company.

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

Year 2000 Compliance

Importance

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

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

Strategy

     The  Company's  approach to addressing  the  potential  impact of Year 2000
compliance issues is focused upon ensuring,  to the extent reasonably  possible,
the  continued,  normal  operation  of  its  business  and  supporting  systems.
Accordingly, the Company has developed a four-phase plan which it is applying to
each functional category of the Company's computer systems and components.  Each
of the Company's computer systems,  software  applications and other electronics
containing  date-sensitive  embedded  technology  is included  within one of the
following four functional categories:
<PAGE>
                                       32


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

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

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

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

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

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

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

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

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

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

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

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

     o    Phase III - Testing  
          During this phase,  the Company will  perform  testing  sufficient  to
          confirm  that the  component  meets  the  desired  state of Year  2000
          readiness.  This phase will  consist of: (i) testing the  component in
          isolation,  or unit testing;  (ii) testing the component  jointly with
          other components,  or system testing; and (iii) testing interdependent
          systems, or environment testing.
<PAGE>
                                       33


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

Current State of Readiness

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

                                                                            Phase
                                ----------------------------------------------------------------------------------------------
<S>                             <C>                    <C>                     <C>                     <C>    
                                          I                      II                     III                      IV
System and Level of Priority         Assessment             Remediation               Testing              Implementation
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Voice and Data Network
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     High                       In progress            In progress             To begin Q1 1999        To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     In progress            To begin Q4 1998        To begin Q1 1999        To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q3 1999     To complete Q4 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        To begin Q4 1998                  To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ----------------------------------------------------------------------------------------------
IT Systems
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     High                       In progress            In progress             In progress             In progress
                                To complete Q1 1999    To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     In progress            In progress             To begin Q1 1999        To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        In progress                       To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ----------------------------------------------------------------------------------------------
Building and Facilities
------------------------------- ---------------------- ----------------------- -----------------------------------------------
     High                       In progress            To begin Q4 1998           To be determined based on the results of
                                To complete Q1 1999    To complete Q2 1999                        Phase II
------------------------------- ---------------------- ----------------------- -----------------------------------------------
     Medium                     In progress            To begin Q4 1998           To be determined based on the results of
                                To complete Q1 1999    To complete Q2 1999                        Phase II
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        To begin  Q1 1999                 To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ----------------------------------------------------------------------------------------------
Office Equipment
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     High                       In progress            In progress             To begin  Q1 1999       To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q2 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     In progress            In progress             To begin Q1 1999        To begin Q1 1999
                                To complete Q1 1999    To complete Q2 1999     To complete Q3 1999     To complete Q4 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        In progress                       To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
</TABLE>

     Separately,  the  Company is in the  process  of  reviewing  the  Company's
material  contracts with contractors and  vendors/suppliers  and considering the
necessity of renegotiating  certain existing  contracts,  to the extent that the
contracts  fail to address the  allocation  of potential  Year 2000  liabilities
between parties. Prior to entering into any new material contracts,  the Company
will seek to address the allocation of potential  Year 2000  liabilities as part
of the initial negotiation.

<PAGE>
                                       34

Costs

     The Company expenses all incremental  costs to the Company  associated with
Year 2000 compliance issues as incurred.  Through September 30, 1998, such costs
incurred  have  been  less  than  $0.1  million  and  have  primarily   included
miscellaneous  costs of  reference  and  other  Year  2000  compliance  planning
materials.  The Company has also  incurred  certain  internal  costs,  including
salaries and benefits for employees dedicating various portions of their time to
Year 2000  compliance  issues,  of which  costs  the  Company  believes  has not
exceeded $0.5 million through September 30, 1998. The Company expects that total
future  incremental costs of Year 2000 compliance  efforts will be approximately
$3.8 million,  consisting of $2.3 million in  consulting  fees,  $1.5 million in
replacement   hardware  and  software  and  other  miscellaneous   costs.  These
anticipated  costs have been  included in the  Company's  fiscal 1999 budget and
represent  approximately 4% of the Company's  budgeted  expenses for information
technology  through  fiscal 1999.  Such cost  estimates are based upon presently
available information and may change as the Company continues with its Year 2000
compliance  plan.  The  Company  intends  to use  cash on  hand  for  Year  2000
compliance costs, as necessary.

Risk, Contingency Planning and Reasonably Likely Worst Case Scenario

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

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

     The  Company  acknowledges  the  possibility  that the  Company  may become
subject  to  potential  claims by  customers  if the  Company's  operations  are
interrupted  for an  extended  period of time.  However,  it is not  possible to
predict either the  probability of such  potential  litigation,  the amount that
could  be in  controversy  or upon  which  party a court  would  place  ultimate
responsibility for any such interruption.

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


<PAGE>
                                       35


                                     PART II


ITEM 1.   LEGAL PROCEEDINGS

          See  Note 7 (d)  to the  Company's  unaudited  condensed  consolidated
          financial  statements  for the nine months  ended  September  30, 1998
          contained elsewhere in this Quarterly Report.

ITEM 2.   CHANGES IN SECURITIES

          None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          None.

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

          None.

ITEM 5.   OTHER INFORMATION

          None.

ITEM 6.   EXHIBITS AND REPORT ON FORM 8-K

          (A)  Exhibits.

               (10) Material Contracts.

                    10.1:Employment Agreement, dated September 23, 1998, between
                         ICG Communications, Inc. and Douglas I. Falk.

               (27) Financial Data Schedules.

                    27.1:Restated Financial Data Schedule of ICG Communications,
                         Inc. for the Nine Months Ended September 30, 1997.

                    27.2:Financial  Data  Schedule of ICG  Communications,  Inc.
                         for the Nine Months Ended September 30, 1998.

          (B)  Report on Form 8-K. The following report on Form 8-K was filed by
               the registrants during the three months ended September 30, 1998:

               (i)  Current  Report on Form 8-K dated August 6, 1998,  regarding
                    the announcement of the Company's  earnings  information and
                    results of operations for the quarter ended June 30, 1998.
<PAGE>
                                       36


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


<PAGE>


                                INDEX TO EXHIBITS




10.1:Employment Agreement, dated September 23, 1998, between ICG Communications,
     Inc. and Douglas I. Falk.

27.1:Restated Financial Data Schedule of ICG  Communications,  Inc. for the Nine
     Months Ended September 30, 1997.

27.2:Financial  Data  Schedule of ICG  Communications,  Inc. for the Nine Months
     Ended September 30, 1998.

<PAGE>





                                  EXHIBIT 10.1

             Employment Agreement, dated September 23, 1998, between
                 ICG Communications, Inc. and Douglas I. Falk.



<PAGE>





                                  EXHIBIT 27.1

      Restated Financial Data Schedule of ICG Communications, Inc. for the
                      Nine Months Ended September 30, 1997.


<PAGE>


                                  EXHIBIT 27.2

           Financial Data Schedule of ICG Communications, Inc. for the
                     Nine Months Ended September 30, 1998.



<PAGE>



                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 13, 1998.



                                      ICG COMMUNICATIONS, INC.





Date:  November 13, 1998              By: /s/ Harry R. Herbst
                                          -------------------------------------
                                          Harry R. Herbst, Executive Vice 
                                          President and Chief Financial Officer
                                          (Principal Financial Officer)






Date:  November 13, 1998              By: /s/ Richard Bambach
                                          -------------------------------------
                                          Richard Bambach, Vice President and 
                                          Corporate Controller 
                                          (Principal Accounting Officer)


<PAGE>


                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 13, 1998.



                                      ICG HOLDINGS (CANADA), INC.


Date:  November 13, 1998              By: /s/ Harry R. Herbst
                                          -------------------------------------
                                          Harry R. Herbst, Executive Vice 
                                          President and Chief Financial Officer
                                          (Principal Financial Officer)






Date:  November 13, 1998              By: /s/ Richard Bambach
                                          -------------------------------------
                                          Richard Bambach, Vice President and 
                                          Corporate Controller 
                                          (Principal Accounting Officer)




<PAGE>


                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 13, 1998.



                                      ICG HOLDINGS, INC.





Date:  November 13, 1998              By: /s/ Harry R. Herbst
                                          -------------------------------------
                                          Harry R. Herbst, Executive Vice 
                                          President and Chief Financial Officer
                                          (Principal Financial Officer)






Date:  November 13, 1998              By: /s/ Richard Bambach
                                          -------------------------------------
                                          Richard Bambach, Vice President and 
                                          Corporate Controller 
                                          (Principal Accounting Officer)