FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)  
             OF THE SECURITIES EXCHANGE ACT OF 1934

X  Quarterly Report Pursuant to Section 13 or 15(d) of the 
   Securities Exchange Act of 1934

                  For the quarterly period ended March 31, 1998

                                       or

   Transition Report Pursuant to Section 13 or 15(d) of the 
   Securities Exchange Act of 1934

                      (Commission File Number 1-11965) 
                            ICG COMMUNICATIONS, INC.
                      (Commission File Number 333-40495)
                                ICG FUNDING, LLC
                      (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
Delaware                                   84-1434980
Canada                                     Not applicable
Colorado                                   84-1158866
(State or other jurisdiction               (I.R.S. Employer Identification No.)
of incorporation or organization)
----------------------------------------- -------------------------------------
161 Inverness Drive West                   Not applicable
Englewood, Colorado 80112

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
                                           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.   X Yes   No

     The number of registrants' outstanding common securities as of May 11, 1998
were 44,841,233, 1, 31,831,558 and 1,918, respectively. ICG Communications, Inc.
owns all of the issued and outstanding  common  securities of ICG Funding,  LLC.
ICG Holdings (Canada), Inc. owns all of the issued and outstanding common shares
of ICG Holdings, Inc.



<PAGE>
                                       2






                                TABLE OF CONTENTS




PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3
     ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS  . . . . . . . . . . . .     3
              Consolidated  Balance  Sheets as of  December  31,  
                 1997 and March 31, 1998  (unaudited). . . . . . . . . .     3  
              Consolidated  Statements  of Operations (unaudited) 
                 for the Three Months Ended March 31, 1997  and 1998 . .     5
              Consolidated Statement of Stockholders' Deficit (unaudited)
                 for the Three Months Ended March 31, 1998 . . . . . . .     6
              Consolidated Statements of Cash Flows (unaudited) for the
                 Three Months Ended March 31, 1997 and 1998 .  . . . . .     7
              Notes to Consolidated Financial Statements (unaudited) . .     9

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
              CONDITION AND RESULTS OF OPERATIONS  . . . . . . . . . . .    20


PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   30
     ITEM 1.  LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . .   30
     ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . .   30
     ITEM 3.  DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . .   30
     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS   . .   30
     ITEM 5.  OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . .   30
     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . .   30
              Exhibits  . . . . . . . . . . . . . . . . . . . . . . . . .   30
              Reports on Form 8-K   . . . . . . . . . . . . . . . . . . .   31



<PAGE>
                                       3



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                December 31, 1997 and March 31, 1998 (unaudited)
<TABLE>
<CAPTION>


                                                                        December 31,          March 31,
                                                                            1997                 1998
                                                                         ----------------    -----------------
                                                                                     (in thousands)
         <S>                                                           <C>                     <C>    
         Assets                                                                      
            Current assets:
         Cash and cash equivalents                                      $    182,202             494,215
         Short-term investments available for sale                           112,281              29,000
         Receivables:
            Trade, net of allowance of $7,004 and $9,484 at
               December 31, 1997 and March 31, 1998, respectively
               (note 6)                                                       61,439              67,935
            Revenue earned, but unbilled                                       8,599              11,066
            Due from affiliate                                                 9,384               5,597
            Other                                                              1,696               1,623
                                                                       ----------------    -----------------
                                                                              81,118              86,221

         Inventory                                                             4,242               4,501
         Prepaid expenses and deposits                                        14,097              11,887
                                                                       ----------------    -----------------

            Total current assets                                             393,940             625,824
                                                                       ----------------    -----------------

      Property and equipment                                                 861,411             904,524
         Less accumulated depreciation                                      (156,299)           (175,407)
                                                                       ----------------    -----------------
            Net property and equipment                                       705,112             729,117
                                                                       ----------------    -----------------

      Long-term notes receivable from affiliate and others, net               10,375              15,318
      Restricted cash                                                         24,649              22,756
      Other assets, net of accumulated amortization:
         Goodwill                                                             77,562              74,869
         Deferred financing costs                                             23,196              32,045
         Deferred subscriber acquisition costs                                 3,115               3,551
         Transmission and other licenses                                       6,031               6,017
         Other                                                                10,531              22,951
                                                                       ----------------    -----------------
                                                                             120,435             139,433
                                                                       ================    =================

                                                                        $  1,254,511           1,532,448
                                                                       ================    =================
                                                                                              (Continued)
</TABLE>

<PAGE>
                                       4



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>


                                                                          December 31,             March 31,
                                                                              1997                    1998
                                                                        ------------------     -------------------
                                                                                      (in thousands)
<S>                                                                     <C>                        <C>   
Liabilities and Stockholders' Deficit                                                
Current liabilities:
   Accounts payable                                                     $      38,457                 63,829
   Accrued liabilities                                                         71,678                 72,239
   Deferred revenue                                                            10,219                 12,583
   Current portion of capital lease obligations                                 8,128                  7,752
   Current portion of long-term debt (note 3)                                   1,784                  7,534
                                                                        ------------------     -------------------
      Total current liabilities                                               130,266                163,937
                                                                        ------------------     -------------------

Capital lease obligations, less current portion                                70,489                 69,641
Long-term debt, net of discount, less current portion (note 3)                890,568              1,216,860
                                                                        ------------------     -------------------

   Total liabilities                                                        1,091,323              1,450,438
                                                                        ------------------     -------------------

Redeemable  preferred  stock of subsidiary ($301.2 million and 
   $311.9 million liquidation value at December 31, 1997 and
   March 31, 1998, respectively) (note 3)                                     292,442                303,326
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 March 31, 1998) (note 3)                             127,729                127,748

Stockholders' deficit:
   Common stock (note 4)                                                          749                    755
   Additional paid-in capital                                                 533,541                543,104
   Accumulated deficit                                                       (791,417)              (893,172)
   Accumulated other comprehensive income                                         144                    249
                                                                        ------------------     -------------------
      Total stockholders' deficit                                            (256,983)              (349,064)
                                                                        ------------------     -------------------

Commitments and contingencies (note 6)
                                                                         $  1,254,511              1,532,448
                                                                        ==================     ===================
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>
                                       5



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                Consolidated Statements of Operations (unaudited)
                   Three Months Ended March 31, 1997 and 1998
<TABLE>
<CAPTION>


                                                                            Three months ended March 31,
                                                                       ---------------------------------------
                                                                             1997                 1998
                                                                       -----------------    ------------------
                                                                        (in thousands, except per share data)
<S>                                                                    <C>                       <C>                     
Revenue:
   Telecom services                                                    $      38,280               64,742
   Internet services                                                          39,005               40,534
   Network services                                                           17,987               11,431
   Satellite services (note 5)                                                 6,783                8,949
                                                                       -----------------    ------------------
      Total revenue                                                          102,055              125,656

Operating costs and expenses:
   Operating costs                                                            82,952               93,519
   Selling, general and administrative expenses                               50,576               57,848
   Depreciation and amortization                                              19,766               22,556
   Net (gain) loss on disposal of long-lived assets                             (641)                 505
   Provision for impairment of long-lived assets                                   -                1,860
   Merger costs                                                                    -                9,367
                                                                       -----------------    ------------------
      Total operating costs and expenses                                     152,653              185,655

      Operating loss                                                         (50,598)             (59,999)

Other income (expense):
   Interest expense                                                          (25,182)             (34,884)
   Interest income                                                             6,098                6,649
   Other, net                                                                   (550)                (316)
                                                                       -----------------    ------------------
                                                                             (19,634)             (28,551)
                                                                       -----------------    ------------------

Loss before income taxes and minority interest                               (70,232)             (88,550)
Income tax expense                                                                (7)                 (13)
                                                                       -----------------    ------------------
Loss before minority interest                                                (70,239)             (88,563)
Minority interest in share of losses, net of accretion and 
  preferred dividends on preferred securities of subsidiaries                 (5,753)             (13,192)
                                                                       =================    ==================
     Net loss                                                          $                         (101,755)
                                                                             (75,992)
                                                                       =================    ==================

Other comprehensive income (loss):
   Foreign currency translation adjustment                                      (378)                 105
   Unrealized loss on investment securities                                     (221)                   -
                                                                       -----------------    ------------------
     Other comprehensive (loss) income                                          (599)                 105

       Comprehensive loss                                              $     (75,393)            (101,650)
                                                                       =================    ==================

Net loss per share - basic and diluted (note 4)                        $       (1.81)               (2.30)
                                                                       =================    ==================
Weighted average number of shares outstanding - basic and
   diluted (note 4)                                                           42,003               44,311
                                                                       =================    ==================
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>
                                       6


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholders' Deficit (unaudited)
                        Three Months Ended March 31, 1998
<TABLE>
<CAPTION>


                                                                                              Accumulated
                                                             Additional                          other           Total
                                          Common stock         paid-in       Accumulated     comprehensive   stockholders'
                                         Shares    Amount      capital         deficit          income          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 ICG
     Funding,LLC, net of selling costs     127            1       3,384               -              -              3,385
   Shares issued for cash in connection 
     with the exercise of options and 
     warrants                              523            5       4,831               -              -              4,836
   Shares issued for cash in connection 
     with employee stock purchase plan      21            -         884               -              -                884
   Shares issued as contribution to 
     401(k)plan                             19            -         464               -              -                464
   Cumulative foreign currency 
     translation adjustment                  -            -           -               -            105                105
   Net loss                                  -            -           -        (101,755)             -           (101,755)
                                      =========== ========== ============= ================ ================ ==============
Balances at March 31, 1998              44,664      $   755     543,104        (893,172)           249           (349,064)
                                      =========== ========== ============= ================ ================ ==============
</TABLE>

          See accompanying notes to consolidated financial statements.



<PAGE>
                                       7


                                                        
                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                   Three Months Ended March 31, 1997 and 1998

<TABLE>
<CAPTION>

                                                                                       Three months ended March 31,
                                                                                    -----------------------------------
                                                                                         1997                1998
                                                                                    ---------------     ---------------
                                                                                                (in thousands)
<S>                                                                                 <C>                      <C>             
Cash flows from operating activities:
      Net loss                                                                      $     (75,992)           (101,755)
      Adjustments to reconcile net loss to net cash used by operating activities:
         Minority interest in share of losses, net of accretion and non-cash
            preferred dividends on preferred securities of subsidiaries                     5,753              10,960
         Depreciation and amortization                                                     19,766              22,556
         Interest expense deferred and included in long-term debt, net of amounts
            capitalized on assets under construction                                       22,621              28,885
         Amortization of deferred financing costs included in interest expense                643                 701
         Contribution to 401(k) plan through issuance of common shares                        533                 464
         Net (gain) loss on disposal of long-lived assets                                    (641)                505
         Provision for impairment of long-lived assets                                          -               1,860
         Change in operating assets and liabilities:
             Receivables                                                                    5,119              (5,103)
             Inventory                                                                        226                (259)
             Prepaid expenses and deposits                                                    674               2,210
             Deferred subscriber acquisition costs                                         (1,263)             (2,048)
             Accounts payable and accrued liabilities                                       4,601              21,952
             Deferred revenue                                                                 675               2,364
                                                                                    ---------------     ---------------
                Net cash used by operating activities                                     (17,285)            (16,708)
                                                                                    ---------------     ---------------
Cash flows from investing activities:
      Decrease (increase) in long-term notes receivable from affiliate and others              71              (4,943)
      Acquisition of property, equipment and other assets                                 (60,634)            (71,268)
      Payments for construction of new headquarters                                        (3,584)             (4,944)
      Proceeds from disposition of property, equipment and other assets                     1,373                 353
      Proceeds from sale of new headquarters, net of selling and other costs                    -              26,859
      Sale of short-term investments                                                          854              83,281
      Decrease in restricted cash                                                             401               1,893
                                                                                    ---------------     ---------------
         Net cash (used) provided by investing activities                                 (61,519)             31,231
                                                                                    ---------------     ---------------
Cash  flows from financing activities: 
      Proceeds from issuance of common stock:
         Sales by ICG Funding, LLC                                                              -               3,385
         Exercise of options and warrants                                                     250               4,836
         Employee stock purchase plan                                                         807                 884
      Proceeds from issuance of subsidiary preferred stock, net of issuance costs          96,000                   -
      Proceeds from issuance of long-term debt                                            101,486             300,571
      Deferred long-term debt issuance costs                                               (3,543)             (9,575)
      Principal payments on capital lease obligations                                     (18,290)             (2,215)
      Principal payments on short-term debt                                                     -                  (1)
      Principal payments on long-term debt                                                   (417)               (412)
                                                                                    ---------------     ---------------
         Net cash provided by financing activities                                        176,293             297,473
                                                                                    ---------------     ---------------
         Net increase in cash and cash equivalents                                         97,489             311,996
         Effect of exchange rates on cash                                                       1                  17
Cash and cash equivalents, beginning of period                                            433,342             182,202
                                                                                    ===============     ===============
Cash and cash equivalents, end of period                                            $     530,832             494,215
                                                                                    ===============     ===============
                                                                                                            (Continued)

</TABLE>

<PAGE>
                                       8



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, Continued

<TABLE>
<CAPTION>

                                                                                       Three months ended March 31,
                                                                                    -----------------------------------
                                                                                         1997                1998
                                                                                    ----------------     --------------
                                                                                              (in thousands)
<S>                                                                                 <C>                       <C>  
Supplemental disclosure of cash flow information:

      Cash paid for interest                                                        $         1,918           2,298
                                                                                    ================     ==============
      Cash paid for income taxes                                                    $             7              13
                                                                                    ================     ==============

Supplemental schedule of non-cash financing and investing activity - assets
      acquired under capital leases                                                 $         3,225             991
                                                                                    ================     ==============
</TABLE>

          See accompanying notes to consolidated financial statements.





<PAGE>
                                       9


                    ICG COMMUNICATIONS INC. AND SUBSIDIARIES

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


(1)  Organization and Basis of Presentation

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

     On January 21,  1998,  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  has been
     accounted for as a pooling of interests, and accordingly,  the accompanying
     consolidated  financial  statements  have  been  restated  to  include  the
     operations  of NETCOM  for all  historical  periods  presented.  NETCOM was
     incorporated  in the state of California in August 1992 and  reincorporated
     in the state of Delaware in October 1994. 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.  ICG and its subsidiaries,  including ICG Services and NETCOM,  are
     collectively referred to as the "Company."

     The Company's principal business activity is  telecommunications  services,
     including Telecom Services,  Internet  Services,  Network Services and, for
     the periods presented in the consolidated  financial statements,  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.  Internet Services consists
     of the operations of NETCOM which includes Internet access,  World Wide Web
     (the  "Web")  site  hosting  services  and other  value-added  connectivity
     services,  which are primarily targeted to small and medium-sized  business
     customers  in the United  States,  Canada and the United  Kingdom.  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 provides
     satellite  voice  and  data  services  to  major  cruise  ship  lines,  the
     commercial  shipping  industry,  yachts,  the U.S.  Navy and  offshore  oil
     platforms.  To better focus its efforts on its core Telecom  Services unit,
     the Company entered into definitive agreements on April 1, 1998 to sell the
     capital stock of the two main  subsidiaries  within its Satellite  Services
     operations.

     (a)  Reference to Annual Reports and Basis of Presentation

          The accompanying  consolidated  financial  statements give retroactive
          effect to the merger of ICG and NETCOM on January 21, 1998,  which has
          been  accounted  for as a  pooling  of  interests,  and  includes  the
          accounts of NETCOM and its  subsidiaries  as of the end of and for the
          periods presented.


<PAGE>
                                      10


                    ICG COMMUNICATIONS INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(1)  Organization and Basis of Presentation (continued)

          These financial  statements  should be read in conjunction  with ICG's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1997
          and NETCOM's  Annual Report on Form 10-KSB/A for the fiscal year ended
          December  31,  1996,  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  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  three  months  ended  March  31,  1998  are  not  necessarily
          indicative  of the results  that may be  expected  for the fiscal year
          ending December 31, 1998.

     (b)  Deferred Subscriber Acquisition Costs

          The Company  expenses the costs of  advertising  as  incurred,  except
          direct response  advertising  expenses  relating to Internet  services
          which  are  included  in  deferred   subscriber   acquisition   costs.
          Subscriber  acquisition costs are deferred and amortized over a period
          determined by calculating  the ratio of current revenue related to the
          direct response  advertising versus the total expected revenue,  or 12
          months,   whichever  is  shorter.   These  costs  relate  directly  to
          subscriber   solicitations  and  principally   include  the  printing,
          production and shipping of starter packages and the costs of obtaining
          qualified prospects by various targeted direct marketing programs.  No
          indirect costs are included in subscriber  acquisition costs. To date,
          all   subscriber   acquisition   costs  have  been  incurred  for  the
          solicitation of specifically identified prospects. It is possible that
          these  estimates of anticipated  gross revenue could be reduced in the
          future based on management's current evaluation of the estimates used.
          As a result, the carrying value and/or the amortization  period of the
          subscriber acquisition costs could be reduced in the future.

     (c)  Foreign Currency Translation Adjustments

          The  functional  currency  for all  foreign  operations  is the  local
          currency.  As such, all assets and liabilities  denominated in foreign
          currencies  are  translated  at the exchange rate on the balance sheet
          date.  Revenue  and costs and  expenses  are  translated  at  weighted
          average rates of exchange  prevailing  during the period.  Translation
          adjustments are included in other comprehensive income and recorded as
          a separate  component of  stockholders'  equity  (deficit).  Gains and
          losses  resulting from foreign  currency  transactions are included in
          operations are not significant for the periods presented.

     (d)  Comprehensive Income

          In  June  1997,  the  Financial   Accounting  Standards  Board  issued
          Statement  No. 130,  "Reporting  Comprehensive  Income"  ("SFAS 130"),
          which  establishes  standards for the  presentation  of  comprehensive
          income in the  financial  statements.  Comprehensive  income  includes
          income and loss components  which are otherwise  recorded  directly to
          stockholders' deficit under generally accepted accounting  principles.
          The  Company  adopted  SFAS  130  effective  January  1,  1998 and has
          reported  accumulated other  comprehensive  income in the accompanying
          consolidated  balance sheets and the components of other comprehensive
          (loss) income in the accompanying statements of operations.

     (e)  Reclassifications

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


<PAGE>
                                       11


                    ICG COMMUNICATIONS INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(2)  Business Combination

     As discussed in note 1, on January 21, 1998, the Company completed a merger
     with  NETCOM.  Located in San Jose,  California,  NETCOM is a  provider  of
     Internet  connectivity and Web site hosting services and other  value-added
     Internet  services.  At the effective time of the merger,  each outstanding
     share of NETCOM common stock became  automatically  convertible into shares
     of ICG Common Stock at an exchange  ratio of 0.8628  shares of Common Stock
     per  NETCOM  common  share.  As a result of the  transaction,  the  Company
     expects to issue an estimated  10.2 million  shares of ICG Common Stock for
     the  NETCOM  common  shares  outstanding  on  January  21,  1998 and may be
     expected to issue as many as 1.7 million shares of ICG Common Stock related
     to common stock options of NETCOM  outstanding  on the merger closing date.
     Cash is paid in lieu of  fractional  shares.  The Company has accounted for
     the  business   combination  under  the   pooling-of-interests   method  of
     accounting and accordingly,  the Company's  financial  statements have been
     restated to reflect the  operations of NETCOM and the Company on a combined
     basis for all historical periods.

     The following unaudited pro forma information presents the combined results
     of operations of ICG and NETCOM as if the combination had been  consummated
     on  October  1, 1994.  The  Company  does not  anticipate  any  significant
     adjustments to conform the accounting  policies of NETCOM with those of the
     Company.

<TABLE>
<CAPTION>

                                                                          
                   Fiscal years ended                                     Fiscal year             Three months ended
                     September 30,              Three months ended           ended                     March 31,
               ----------------------------         December 31,          December 31,       -----------------------------
                   1995            1996                1996                   1997               1997            1998
               -------------    -----------    --------------------    -----------------    -------------    ------------
                                                            (in thousands)
<S>            <C>               <C>                 <C>                    <C>               <C>            <C>   
Revenue:
  ICG          $   111,610        169,094             56,956                 273,354           63,050          85,122
  NETCOM            52,422        120,540             36,379                 160,660           39,005          40,534
               =============    ===========    ====================    =================    =============    ============
     Combined  $   164,032        289,634             93,335                 434,014          102,055         125,656
               =============    ===========    ====================    =================    =============    ============

Net loss:
  ICG              (76,648)      (184,107)           (49,823)               (327,643)         (66,781)        (85,077)
  NETCOM           (14,064)       (44,265)           (11,490)                (33,092)          (9,211)        (16,678)
               =============    ===========    ====================    =================    =============    ============
     Combined  $   (90,712)      (228,372)           (61,313)               (360,735)         (75,992)       (101,755)
               =============    ===========    ====================    =================    =============    ============

Loss per share 
basic and diluted:
  ICG          $     (3.25)         (6.83)             (1.56)                 (10.11)           (2.09)
               =============    ===========    ====================    =================    =============
  NETCOM       $     (1.95)         (4.46)             (1.15)                  (3.27)           (0.92)
               =============    ===========    ====================    =================    =============
     Combined  $     (2.94)         (6.19)             (1.46)                  (8.49)           (1.81)          (2.30)
               =============    ===========    ====================    =================    =============    ============
</TABLE>

<PAGE>
                                       12


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

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

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

     <S>                                                                 <C>                   <C>    
     10% Senior discount notes, net of discount (a)                      $        -              304,442
     11 5/8% Senior discount notes, net of discount                         109,436              112,542
     12 1/2% Senior discount notes, net of discount                         367,494              378,742
     13 1/2% Senior discount notes, net of discount                         407,409              421,069
     Note payable with interest at the 90-day  commercial  
       paper rate plus 4 3/4% (10.2% at March 31, 1998), 
       due 2001, secured by certain telecommunications equipment              4,932                4,711
     Note payable with interest at 11%, due monthly
       through fiscal 1999, secured by equipment                              1,860                1,703
     Mortgage payable with interest at 8 1/2%, due
       monthly through 2009, secured by building                              1,131                1,119
     Other                                                                       90                   66
                                                                     --------------------    -----------------
                                                                            892,352            1,224,394
     Less current portion                                                    (1,784)              (7,534)
                                                                     ====================    =================
                                                                         $  890,568            1,216,860
                                                                     ====================    =================

     Redeemable preferred stock of subsidiary is summarized as follows :

                                                                       December 31, 1997       March 31, 1998
                                                                     --------------------    -----------------
                                                                                    (in thousands)
     14% Exchangeable preferred stock, mandatorily redeemable
       in 2008                                                           $  108,022              112,021
     14 1/4% Exchangeable preferred stock, mandatorily
       redeemable in 2007                                                   184,420              191,305
                                                                     ====================    =================
                                                                         $  292,442              303,326
                                                                     ====================    =================
</TABLE>

     (a)  10% Notes

          On February 12, 1998,  ICG Services  completed a private  placement of
          10%  Senior  Discount  Notes  due 2008  (the  "10%  Notes")  for gross
          proceeds  of  approximately  $300.6  million.  Net  proceeds  from the
          offering, after underwriting and other offering costs of approximately
          $9.6 million, were approximately $291.0 million.

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



<PAGE>
                                       13


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

          The  10%  Notes  were  originally  recorded  at  approximately  $300.6
          million. The discount on the 10% Notes and the debt issuance costs are
          being accreted over ten years until maturity at February 15, 2008. The
          accretion  of the  discount  and debt  issuance  costs is  included in
          interest   expense   in  the   accompanying   consolidated   financial
          statements.

     (b)  9 7/8% Notes

          On April 27,  1998,  ICG Services  completed a private  placement of 9
          7/8%  Senior  Discount  Notes due 2008 (the "9 7/8%  Notes") for gross
          proceeds  of  approximately  $250.0  million.  Net  proceeds  from the
          offering, after underwriting costs of approximately $7.5 million, were
          approximately $242.5 million.

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

          The 9 7/8% Notes were  originally  recorded  at  approximately  $250.0
          million.  The discount on the 9 7/8% Notes and the debt issuance costs
          will be accreted over ten years until  maturity at May 1, 2008.  

     (c)  6 3/4% Preferred Securities and ICG Preferred Stock

          During  fiscal 1997,  ICG Funding  completed a private  placement of 6
          3/4%  Exchangeable  Limited  Liability  Company  Preferred  Securities
          Mandatorily  Redeemable 2009 (the "6 3/4% Preferred  Securities")  for
          gross  proceeds  of $132.25  million.  Net  proceeds  from the private
          placement, after offering costs, were approximately $127.6 million.

          The 6 3/4%  Preferred  Securities  consist of  2,645,000  exchangeable
          preferred securities of ICG Funding that bear a cumulative dividend at
          the  rate of 6 3/4% per  annum.  The  dividend  is paid  quarterly  in
          arrears  each  February  15, May 15,  August 15 and  November  15, and
          commenced  November 15, 1997.  The dividend is payable in cash through
          November  15,  2000 and,  thereafter,  in cash or shares of ICG Common
          Stock, at the option of ICG Funding.  The 6 3/4% Preferred  Securities
          are  exchangeable,  at the option of the holder,  at any time prior to
          November 15, 2009 into shares of ICG Common Stock at an exchange  rate
          of 2.0812  shares of ICG Common Stock per  preferred  security,  or an
          exchange  price of $24.025  per  share,  subject  to  adjustment.  ICG
          Funding may, at its option,  redeem the 6 3/4% Preferred Securities at
          any time on or after  November  18,  2000.  Prior  to that  time,  ICG
          Funding  may redeem the 6 3/4%  Preferred  Securities  if the  current
          market value of ICG Common Stock equals or exceeds the exchange price,
          for at least 20 days of any 30-day  trading  period,  by 170% prior to
          November 16, 1998;  160% from  November 16, 1998 through  November 15,
          1999; and 150% from November 16, 1999 through November 15, 2000. The 6
          3/4%  Preferred  Securities  are subject to  mandatory  redemption  on
          November 15, 2009.

          On February 15, 1998,  ICG Funding used a portion of the proceeds from
          the private  placement of the 6 3/4% Preferred  Securities to purchase
          $112.4  million of ICG  Communications,  Inc.  Preferred  Stock  ("ICG
          Preferred  Stock")  which pays  dividends  each  February  15, May 15,
          August 15 and November 15 in additional  shares of ICG Preferred Stock
          through November 15, 2000.  Subsequent to November 15, 2000, dividends
          are payable in cash or shares of ICG Common Stock, at the option of


<PAGE>
                                       14


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

          ICG. The ICG  Preferred  Stock is  exchangeable,  at the option of ICG
          Funding,  at any time prior to  November  15,  2009 into shares of ICG
          Common Stock at an exchange  rate based on the exchange  rate of the 6
          3/4%  Preferred  Securities.  The ICG  Preferred  Stock is  subject to
          mandatory redemption on November 15, 2009.

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

(4)  Stockholders' Deficit

     (a)  Common Stock

          Common stock  outstanding at March 31, 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 March 31, 1998:
<TABLE>
<CAPTION>

                                                                                  Shares owned          Shares owned
                                                                                     by ICG           by third parties
                                                                                ------------------    -----------------
           <S>                                                                      <C>                  <C>        
           ICG Common Stock, $.01 par value, 100,000,000
                shares authorized; 43,950,959 and 44,640,189 shares
                issued and outstanding at December 31, 1997 and March 31,
                1998, respectively                                                           -           44,640,189
           Holdings-Canada Class A common shares, no par value,
                100,000,000 shares authorized; 31,822,756 shares issued and
                outstanding at December 31, 1997 and March 31, 1998:
                   Class A common shares, exchangeable on a one-for-one
                     basis for ICG Common Stock at any time                                  -               23,680
                   Class A common shares owned by ICG                               31,799,076                    -
                                                                                                      =================
           Total shares outstanding                                                                      44,663,869
                                                                                                      =================
</TABLE>

     (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.  Common
          stock  equivalents,  which include  options,  warrants and convertible
          subordinated  notes and preferred  stock,  are not included in the net
          loss per share calculation as their effect is anti-dilutive.


<PAGE>
                                       15


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)  Sale of Satellite Services Operating Subsidiaries

     On April 1, 1998, the Company  entered into  definitive  agreements to sell
     the capital stock of Maritime  Telecommunications Network, Inc. ("MTN") and
     MarineSat  Communications  Network, Inc. (formerly Maritime  Communications
     Network,  Inc.)  ("MCN"),  the two main  subsidiaries  within the Company's
     Satellite Services operations, for aggregate consideration of approximately
     $34.8  million.  The sales are  expected  to close  later this year and are
     subject to certain conditions, including regulatory approvals.

     At March 31,  1998,  the  Company  owned a 64.5%  interest in MTN. In April
     1998, the Company  purchased the minority interest in MTN for approximately
     $3.1 million.

(6)  Commitments and Contingencies

     (a)  Network Construction

          In March 1996,  the Company and  Southern  California  Edison  Company
          ("SCE") entered into a 25-year  agreement under which the Company will
          license 1,258 miles of fiber optic cable in Southern  California,  and
          can  install up to 500  additional  miles of fiber optic  cable.  This
          network,  which  will be  maintained  and  operated  primarily  by the
          Company,  stretches from Los Angeles to southern Orange County.  Under
          the terms of this agreement, SCE will be entitled to receive an annual
          fee for ten years,  certain  fixed  quarterly  payments,  a  quarterly
          payment equal to a percentage of certain network revenue,  and certain
          other  installation  and fiber  connection  fees. The aggregate  fixed
          payments  remaining under the agreement totaled  approximately  $144.1
          million at March 31, 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 is 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 is expected to be completed by August of 1998.
          The Company estimates costs to complete the initial build are expected
          to  be   approximately   $3.5   million.   The  Company  has  incurred
          approximately $6.5 million as of March 31, 1998, including the initial
          $5.5 million payment.

          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 complete by
          December  1998.  The  Company  is  responsible   for  payment  on  the
          construction as segments of the network are completed and has incurred
          approximately  $9.6 million as of March 31, 1998, with remaining costs
          anticipated  to be  approximately  $25.0  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


(6)  Commitments and Contingencies (continued)

     (b)  Company Headquarters

          During 1996, the Company  acquired  property for its new  headquarters
          and commenced  construction of the office  building that  accommodates
          most of the  Company's  Colorado  operations.  In  January  1998,  the
          Company sold the substantially completed building to a third party for
          net  proceeds of $26.9  million and entered into an agreement to lease
          back all of the office  space  under a 15-year  operating  lease which
          includes two ten-year  renewal terms.  No gain or loss was recorded in
          conjunction with the sale of the Company's headquarters.

     (c)  Other Commitments

          The Company has entered into  various  equipment  purchase  agreements
          with certain of its vendors.  Under these  agreements,  if the Company
          does not meet a minimum  purchase  level in any given year, the vendor
          may  discontinue  for that  year  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 $66.2 million at March 31, 1998.

     (d)  Reciprocal Compensation

          The Company has  recorded  revenue of  approximately  $4.9 million and
          $8.5  million  for fiscal  1997 and the three  months  ended March 31,
          1998,  respectively,  for  reciprocal  compensation  relating  to  the
          transport  and  termination  of  local  traffic  to  Internet  service
          providers from customers of incumbent local exchange carriers pursuant
          to various interconnection  agreements.  These local exchange carriers
          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 16
          states,  favorable  preliminary decisions from three additional states
          and  no  unfavorable   final  rulings  by  any  state  public  utility
          commission  or the FCC that would  indicate  that calls  placed by end
          users to Internet service providers would not qualify as local traffic
          subject to the payment of reciprocal compensation.  In addition, cases
          are pending before six other states.  Included in the Company's  trade
          receivables  at December  31, 1997 and March 31, 1998 was $4.4 million
          and $12.5 million, respectively, for receivables related to reciprocal
          compensation.  While the Company  believes  that all revenue  recorded
          through  March 31,  1998 is  collectible  and that  future  reciprocal
          compensation revenue will be realized,  there can be no assurance that
          such future regulatory rulings will be favorable to the Company.

     (e)  Litigation

          On April 4, 1997, certain shareholders of the Company's majority owned
          subsidiary,   Zycom   Corporation   ("Zycom"),   an  Alberta,   Canada
          corporation,  filed a  shareholder  derivative  suit and class  action
          complaint for unspecified damages, purportedly on behalf of all of the
          minority shareholders


<PAGE>
                                       17


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)  Commitments and Contingencies (continued)

          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
          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.

(7)  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
     subsidiaries and affiliates is as follows:
<TABLE>
<CAPTION>

                                         Condensed Balance Sheet Information

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


     <S>                                         <C>                                <C>    
     Current assets                              $         215,817                   276,035
     Property and equipment, net                          632,167                    654,847
     Other non-current assets, net                        122,768                    138,196
     Current liabilities                                   98,351                    125,316
     Long-term debt, less current portion                 890,503                    914,300
     Due to parent                                         30,970                    148,123
     Other long-term liabilities                           66,939                     66,041
     Preferred stock                                      292,442                    303,326
     Stockholder's deficit                               (408,453)                  (488,028)
</TABLE>

<PAGE>
                                       18


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(7)  Summarized Financial Information of ICG Holdings, Inc. (continued)
<TABLE>
<CAPTION>

                       Summarized Consolidated and Combined Statement of Operations Information

                                                                  Three months ended March 31,
                                                         ------------------------------------------------
                                                                  1997                     1998
                                                         -----------------------   ----------------------
                                                                         (in thousands)
   
            <S>                                           <C>                               <C>   
            Total revenue                                 $        63,050                    85,476
            Total operating costs and expenses                    103,681                   125,124
            Operating loss                                        (40,631)                  (39,648)
            Net loss                                              (66,629)                  (79,575)
</TABLE>

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

     Condensed financial information for Holdings-Canada only is as follows:
<TABLE>
<CAPTION>

                                         Condensed Balance Sheet Information

                                                           December 31, 1997           March 31, 1998
                                                        ------------------------    ---------------------
                                                                         (in thousands)
                                                        
            <S>                                         <C>                                <C>
            Current assets                              $            162                        162
            Advances to subsidiaries                              30,790                    148,123
            Non-current assets, net                                3,800                      2,573
            Current liabilities                                      107                        107
            Long-term debt, less current portion                      65                         65
            Due to parent                                         22,162                    138,301
            Share of losses of subsidiary                        408,453                   (488,028)
            Shareholders' deficit                               (396,035)                  (475,643)

</TABLE>
<TABLE>
<CAPTION>

                                    Condensed Statement of Operations Information

                                                                  Three months ended March 31,
                                                         ------------------------------------------------
                                                                  1997                     1998
                                                         -----------------------   ----------------------
                                                                         (in thousands)
  
            <S>                                          <C>                                <C>        
            Total revenue                                $              -                         -
            Total operating costs and expenses                         53                        33
            Operating loss                                            (53)                      (33)
            Losses from subsidiaries                              (66,629)                  (79,575)
            Net loss attributable to common shareholders          (66,682)                  (79,608)

</TABLE>

<PAGE>
                                       19


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(9)  Summarized Financial Information of ICG Funding, LLC

     The 6 3/4%  Preferred  Securities  issued by ICG Funding during fiscal 1997
     are guaranteed by ICG. The separate  complete  financial  statements of ICG
     Funding  have not been  included  herein  because  such  disclosure  is not
     considered  to  be  material  to  the  holders  of  the  6  3/4%  Preferred
     Securities.  For the three months ended March 31,  1998,  the  statement of
     operations of ICG Funding  included only the preferred  dividends  paid and
     accrued on the 6 3/4% Preferred  Securities  and interest  income earned on
     the proceeds from the offering of such securities.  The summarized  balance
     sheet information for ICG Funding is as follows:
<TABLE>
<CAPTION>

                                      Summarized Balance Sheet Information

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

         <S>                                                 <C>                            <C>
         Cash, cash equivalents and short-term
           investments available for sale                    $   108,282                          2
         Restricted cash                                          24,649                     22,755
         Investment in ICG Preferred Stock                             -                    112,413
         Dividends payable                                         1,218                      1,218
         Due to parent                                                 -                          4
         Preferred securities                                    132,250                    132,250
         Additional paid-in capital                                    -                      3,385
         Member deficit                                             (537)                    (1,687)

</TABLE>

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

     The  primary  assets  of  ICG  are  its  investments  in ICG  Services  and
     Holdings-Canada.  Certain  corporate  expenses  of the parent  company  are
     included in ICG's  statement  of  operations  and were  approximately  $0.5
     million  for the three  months  ended  March 31,  1998.  Additionally,  ICG
     incurred  merger costs for the three months ended March 31, 1998 associated
     with its merger  with  NETCOM of  approximately  $1.1  million.  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,  Internet,  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  for all  periods  presented
represent the combined results of ICG and NETCOM. 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

     The  Company  is  one  of  the  nation's  leading  competitive   integrated
communications  providers  ("ICPs")  based on estimates of the  industry's  1997
revenue.  ICPs seek to  provide  an  alternative  to  incumbent  local  exchange
carriers ("ILECs"), long distance carriers,  Internet service providers ("ISPs")
and other  communications  service  providers for a full range of communications
services in the increasingly deregulated  telecommunications  industry.  Through
its competitive local exchange carrier ("CLEC") operations, the Company operates
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 and subsequent to January 21, 1998, a variety of
Internet connectivity and other value-added Internet 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 and data  services to major cruise  lines,
commercial  shipping vessels,  yachts, the U.S. Navy and offshore oil platforms.
To better  focus its  efforts on its core  Telecom  Services  unit,  the Company
entered into definitive agreements on April 1, 1998 to sell the capital stock of
the two main subsidiaries within its Satellite Services operations.  The Company
will  include  the  results  of  operations  of these  subsidiaries  within  its
consolidated  results of  operations  through  the closing  dates.  As a leading
participant  in  the  rapidly  growing   competitive  local   telecommunications
industry,  the Company has experienced  significant  growth,  with total revenue
increasing from  approximately  $164.0 million for fiscal 1995 to  approximately
$457.6 million for the 12-month period ended March 31, 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  communication
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 services 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 three months ended March 31,
1998, the Company sold 178,470 and 36,248 local access lines,  respectively,  of
which  186,156 were in service at March 31, 1998.  In  addition,  the  Company's
operating  networks  have grown from 627 fiber  route miles at the end of fiscal
1995 to 3,194  fiber  route  miles as of March  31,  1998.  The  Company  has 20
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,  in January  1998,  the Company  completed  its merger with  NETCOM,  a
provider  of  Internet  connectivity  and Web site  hosting  services  and other
value-added services,  located in San Jose, California. For calendar years 1995,
1996 and 1997,  NETCOM  reported  revenue of $52.4  million,  $120.5 million and
$160.7  million,  respectively,  and EBITDA  losses of $(6.3)  million,  $(20.3)
million and $(1.7)  million,  respectively.  The Company has  accounted  for the
business  combination  under the  pooling-of-interests  method of accounting and
accordingly,  the Company's  financial  statements have been restated to reflect
the  operations of
<PAGE>
                                       21


NETCOM and the Company on a combined basis for all historical periods.

     Telecom  Services  revenue has increased from $32.3 million for fiscal 1995
to $204.2 million for the 12-month  period ended March 31, 1998. The Company has
experienced  declining  prices  and  increasing  price  competition  for  access
services which, to date, have been more than offset by increasing network usage.
The Company  expects to continue to experience  declining  prices and increasing
price competition for the foreseeable future.

     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.   Earnings  before  interest,  taxes,  depreciation  and
amortization  ("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 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 SG&A  expenses  supporting  its
Telecom  Services  networks,  any or all of which  may not  occur,  the  Company
anticipates that EBITDA losses will continue to improve in the near term.

     Currently,  the  Company has  experienced  and may  continue to  experience
negative  operating  margins  from its  wholesale  switched  services  while its
networks are in the  development and  construction  phases and while the Company
relies  on ILEC  networks  to  carry a  significant  portion  of its  customers'
switched  traffic.  The Company expects overall  operating margins from switched
services  to improve as local dial tone,  local  toll,  long  distance  and data
communications  services become a relatively  larger portion of its business mix
and the Company de-emphasizes its wholesale switched services. In addition,  the
Company believes that the unbundling of ILEC services and the  implementation of
local telephone number portability, which are mandated by the Telecommunications
Act,  will  reduce  the  Company's  costs of  providing  switched  services  and
facilitate the marketing of local and other  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.

     The Company  believes that the  provisions of the  Telecommunications  Act,
including the opening of the local  telephone  services  market to  competition,
will  facilitate  the  Company's  plan to  provide a full  array of local,  long
distance  and data  communications  services.  In order to fully  implement  its
strategy,  the Company must make  significant  capital  expenditures  to provide
additional switching capacity, network infrastructure, operating support systems
and electronic  components.  The Company must also make significant  investments
and expenditures to develop, train and manage its marketing and sales personnel.




<PAGE>
                                       22


Results of Operations

         The following table provides a breakdown of revenue and operating costs
for  Telecom  Services,   Internet  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 expenses,  operating
loss and EBITDA as a percentage of the Company's total revenue.
<TABLE>
<CAPTION>

                                                                    Three months ended March 31,
                                             ----------------------------------------------------------------------------
                                                          1997                                      1998
                                            ----------------------------------      -------------------------------------
                                                    $                 %                       $                  %
                                             ----------------   --------------       --------------------   -------------
<S>                                              <C>                  <C>                    <C>                  <C> 
                                                                             (unaudited)
Statement of Operations Data:                                              (in thousands)
Revenue:
   Telecom services                               38,280               37                     64,742               52
   Internet services                              39,005               38                     40,534               32
   Network services                               17,987               18                     11,431                9
   Satellite services                              6,783                7                      8,949                7
                                             ----------------   --------------       -----------------   ----------------
    Total revenue                                102,055              100                    125,656              100
 Operating costs:
   Telecom services                               41,450                                      52,008
   Internet services                              23,380                                      25,654
   Network services                               14,535                                      10,865
   Satellite services                              3,587                                       4,992
                                             ----------------   --------------       -----------------   ----------------
    Total operating costs                         82,952               81                     93,519               74
 Selling, general and administrative              50,576               50                     57,848               46
 Depreciation and amortization                    19,766               19                     22,556               18
 Net (gain) loss on disposal of long-lived          (641)               -                        505                -
    assets
 Provision for impairment of long-lived                -                -                      1,860                2
    assets
 Merger costs                                          -                -                      9,367                8
                                             ----------------   --------------       -----------------   ----------------
    Operating loss                               (50,598)             (50)                   (59,999)             (48)

 Other Data:
 EBITDA (1)                                      (31,473)             (31)                   (25,711)             (20)
 Net cash used by operating activities           (17,285)                                    (16,708)
 Net cash (used) provided by investing           
    activities                                   (61,519)                                     31,231
 Net cash provided by financing activities       176,293                                     297,473
 Capital expenditures (2)                         63,859                                      72,259
                                                                                                           (Continued)

</TABLE>


<PAGE>
                                       23


<TABLE>
<CAPTION>



                                                March 31,     June 30,      September 30,     December 31,     March 31,
                                                  1997          1997            1997              1997           1998
                                               ----------    ----------    --------------    -------------   ------------
                                                                              (unaudited)
Statistical Data (3):
<S>                                              <C>          <C>            <C>              <C>            <C>  
Full time employees:                               2,347        2,623            2,861            3,032          3,130
Telecom services:
   Access lines in service (4)                     5,371       20,108           50,551          141,035        186,156
   Buildings connected (5):
     On-net                                          545          560              590              596            637
     Hybrid (6)                                    1,550        1,704            1,726            1,725          3,294
                                               ----------    ----------    --------------    -------------   ------------
       Total buildings connected                   2,095        2,264            2,316            2,321          3,931
   Customer circuits in service (VGEs) (7)       816,238      917,656        1,006,916        1,111,697      1,171,801
   Operational switches:
     Voice                                            16           17               18               19             20
     Data                                             10           15               15               15             15
                                               ----------    ----------    --------------    -------------   ------------
       Total operational switches                     26           32               33               34             35
   Switched minutes of use (in millions)             682          742              788              660            639
   Fiber route miles (8):
     Operational                                   2,483        2,898            3,021            3,043          3,194
     Under construction                                -            -                -                -            972
   Fiber strand miles (9):
     Operational                                  83,334      101,788          109,510          111,435        118,074
     Under construction                                -            -                -                -         21,788
   Wireless miles (10)                               511          511              511              511            511
Internet services:
   Average monthly revenue per subscriber        $ 22.46        23.95            24.24            25.01          25.12
Satellite services:
   VSATs                                             875          895              934              957            921
   C-band installations  (11)                         57           57               54               57             59
   L-band installations  (12)                        355          671              768            1,239          1,450
</TABLE>

(1)  EBITDA  consists of revenue less operating  costs and selling,  general and
     administrative expenses.  Excluded from operating costs is the amortization
     of Internet  subscriber  acquisition costs of $3.0 million and $1.6 million
     for the three months ended March 31, 1997 and 1998, respectively. EBITDA is
     provided  because it is a measure  commonly used in the  telecommunications
     industry.  EBITDA is presented to enhance an understanding of the Company's
     operating results and is not intended to represent cash flows or results of
     operations in accordance  with  generally  accepted  accounting  principles
     ("GAAP") for the periods indicated.  EBITDA is not a measurement under GAAP
     and is not necessarily  comparable with similarly  titled measures of other
     companies.   Net  cash  flows  from  operating,   investing  and  financing
     activities as determined using GAAP are also presented in Other Data.

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

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

(4)  Access lines in service at March 31, 1998  includes  99,019 lines which are
     provisioned  through  the  Company's  switch  and  87,137  lines  which are
     provisioned through resale and other agreements with various local exchange
     carriers.  Resale  lines  typically  generate  lower  margins  and are used
     primarily to obtain customers.  Although the Company plans to migrate lines
     from resale to higher margin on-switch lines, there is no assurance that it
     will be successful in executing this strategy.

(5)  Prior to the 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 March 31, 1998, the Company had 3,194 fiber
     route  miles,  of which 109 fiber route miles were leased  under  operating


<PAGE>
                                       24

     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 March 31,  1998,  the  Company  had
     118,074 fiber strand  miles,  of which 2,154 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) L-band  installations  service  smaller  maritime  installations,  and both
     mobile and fixed land-based units.


Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997

     Revenue.  Revenue for the three months ended March 31, 1998 increased $23.6
million,  or 23%, from the three months ended March 31, 1997.  Telecom  Services
revenue  increased  69% to $64.7  million  due to an  increase  in revenue  from
switched local services,  long distance and special access  services,  offset in
part by a decline in average  unit pricing and in  wholesale  switched  services
revenue.  The Company  launched its  switched  local  services  during the first
quarter of 1997 and did not report any revenue from these services for the three
months  ended March 31,  1997,  compared to $23.1  million for the three  months
ended March 31, 1998.  Revenue from long distance generated $5.1 million for the
three months ended March 31, 1998, compared to no reported revenue for the three
months ended March 31, 1997. Switched access (terminating long distance) revenue
represented  approximately  $14.2  million of the  Company's  switched  services
revenue  component for the three months ended March 31, 1998,  compared to $18.6
million  for the three  months  ended March 31,  1997.  Special  access  revenue
increased  from $12.1 million for the three months ended March 31, 1997 to $16.1
million for the three months ended March 31,  1998.  Revenue from data  services
did not generate a material portion of total revenue during either period.  Also
included in Telecom  Services  revenue for the three months ended March 31, 1998
is $6.3  million  generated  by Zycom,  compared  to $7.6  million for the three
months ended March 31, 1997.  The decrease in Zycom revenue for the three months
ended  March 31,  1998 as  compared  to the same  period in 1997  relates to the
change in mix of customers between  comparative  periods and the loss of certain
customers which were contracted at higher than average per minute rates.

     Internet  Services  revenue  increased  4% to $40.5  million  for the three
months  ended March 31,  1998,  compared to $39.0  million for the three  months
ended March 31, 1997 due to an  increase of direct  access and Web site  hosting
customers  relative  to dial-up  customers,  which  generate  lower  revenue per
customer, and additional sales of the Company's premium dial-up products.

     Network  Services  revenue  decreased  36% to $11.4  million  for the three
months  ended March 31,  1998,  compared to $18.0  million for the three  months
ended March 31, 1997. The decrease in Network  Services revenue is primarily due
to non-recurring revenue generated from a single equipment sale during the three
months ended March 31, 1997.

     Satellite  Services  revenue  increased  32% to $8.9  million for the three
months ended March 31, 1998. This increase is primarily due to the operations of
MCN which  comprised $2.3 million of total  Satellite  Services  revenue for the
three  months ended March 31,  1998,  compared to $1.2  million  during the same
period in 1997.  The remaining  increase can be attributed to the general growth
of MTN and its  increased  sales of C-Band  equipment  to  offshore  oil and gas
customers.

     Operating costs. Total operating costs for the three months ended March 31,
1998  increased  $10.6  million,  or 13%,  from the three months ended March 31,

<PAGE>
                                       25



1997. Telecom Services operating costs increased from $41.5 million,  or 108% of
Telecom  Services  revenue,  for the three months ended March 31, 1997, to $52.0
million,  or 80% of Telecom Services  revenue,  for the three months ended March
31, 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 switched
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.  The
Company  expects that 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 ILEC  facilities  and obtains the right to use unbundled
ILEC facilities on satisfactory terms, any or all of which may not occur.

     Internet  Services  operating  costs  increased  10% to $25.7  million  and
increased as a percentage  of Internet  Services  revenue from 60% for the three
months  ended March 31, 1997 to 63% for the three  months  ended March 31, 1998.
The increase is due to increased  transport costs due to initiatives  related to
the conversion  from an analog to a digital based  network,  which produced some
duplicative costs during the period of conversion.

     Network  Services  operating  costs  decreased  25% to  $10.9  million  and
increased as a  percentage  of Network  Services  revenue from 81% for the three
months  ended March 31, 1997 to 95% for the three  months  ended March 31, 1998.
The  decrease in operating  costs in absolute  dollars is due to the decrease in
equipment sales and in general business volume between the comparative  periods.
Operating costs increased as a percentage of revenue due to cost overruns on two
larger projects.  Network Services operating costs include the cost of equipment
sold, direct hourly labor and other indirect project costs.

     Satellite  Services operating costs increased to $5.0 million for the three
months  ended March 31, 1998 from $3.6  million for the three months ended March
31,  1997.  Satellite  Services  operating  costs as a  percentage  of Satellite
Services  revenue also  increased  from 53% for the three months ended March 31,
1997 to 56% for the three months ended March 31, 1998.  This  increase is due to
an increase in MCN's sales as well as the increased  volume of equipment  sales,
both of which  provide  lower 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  March 31, 1998
increased  $7.3  million,  or 14%,  compared to the three months ended March 31,
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 and data communications services. SG&A expenses as a
percentage of total revenue  decreased from 50% for the three months ended March
31, 1997 to 46% for the three months ended March 31, 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 for Telecom  Services to
increase  slightly in absolute  dollars over the near term as a result of hiring
new staff to facilitate the marketing and development of local dial tone,  local
toll, long distance and data transmission services.

     Depreciation and amortization. Depreciation and amortization increased $2.8
million,  or 14%, for the three  months  ended March 31,  1998,  compared to the
three months ended March 31, 1997,  due to increased  investment in  depreciable
assets  resulting  from the continued  expansion of the  Company's  networks and
services.  The Company reports high levels of depreciation  expense  relative to
revenue  during the early years of operation  of a new network  because the full
cost of a network is depreciated using the straight-line  method despite the low
rate of capacity utilization in the early stages of network operation.

     Net (gain)  loss on  disposal  of  long-lived  assets.  Net (gain)  loss on
disposal of long-lived assets fluctuated from a net gain of $0.6 million for the
three  months  ended March 31, 1997 to a net loss of $0.5  million for the three
months ended March 31, 1998.  Net gain on disposal of long-lived  assets for the
three  months ended March 31, 1997  consists  primarily of a gain on the sale of

<PAGE>
                                       26


Satellite  Services'  Mexico  subsidiary.  For the three  months ended March 31,
1998,  net loss on disposal of  long-lived  assets  relates to the  write-off of
certain installation costs of disconnected special access customers.

     Provision for impairment of long-lived  assets.  For the three months ended
March 31,  1998,  provision  for  impairment  of  long-lived  assets  includes a
provision for the remaining net book value of goodwill  associated  with Zycom's
purchase of certain operating assets.

     Merger  costs.  The Company  recorded  merger costs of  approximately  $9.4
million  for the three  months  ended March 31,  1998  related to the  Company's
merger  with NETCOM in January  1998,  which  consist  primarily  of  investment
advisory, legal and accounting fees and other costs associated with the merger.

     Interest  expense.  Interest  expense  increased  $9.7 million,  from $25.2
million for the three months ended March 31, 1997 to $34.9 million for the three
months ended March 31, 1998, which includes $29.6 million of non-cash  interest.
The  increase  is  primarily  attributable  to an increase  in  long-term  debt,
primarily  the 11 5/8% Notes  issued in March  1997 and the 10% Notes  issued in
February 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 $0.6 million, from $6.1 million
for the three  months  ended March 31, 1997 to $6.7 million for the three months
ended March 31, 1998. The increase is  attributable  to the increase in cash and
invested cash balances from the proceeds from the issuances of the 11 5/8% Notes
and 14%  Preferred  Stock in March  1997,  the 6 3/4%  Preferred  Securities  in
September and October 1997 and the 10% Notes in February 1998.

     Other,  net.  Other,  net  decreased  from $0.6 million net expense for the
three  months  ended  March 31,  1997 to $0.3  million net expense for the three
months ended March 31, 1998.  Other expense  recorded in both periods  primarily
represents litigation settlement costs and other miscellaneous gains and losses.

     Income tax expense. Income tax expense for the three months ended March 31,
1997 and 1998 is  attributable  to state and foreign  income taxes  incurred and
paid by NETCOM.

     Minority  interest  in share of  losses,  net of  accretion  and  preferred
dividends on preferred securities of subsidiaries. Minority interest in share of
losses,  net of accretion  and  preferred  dividends on preferred  securities of
subsidiaries  increased  $7.4  million,  from $5.8  million for the three months
ended March 31, 1997 to $13.2 million for the three months ended March 31, 1998.
The increase is due primarily to the issuance of the 14% Exchangeable  Preferred
Stock Mandatorily  Redeemable 2008 (the "14% Preferred Stock") in March 1997 and
the 6 3/4% Preferred Securities in September and October 1997. Minority interest
in share of losses,  net of  accretion  and  preferred  dividends  on  preferred
securities of subsidiaries recorded during the three months ended March 31, 1998
consists of the  accretion of issuance  costs ($2.4  million) and the accrual of
the preferred  security  dividends  ($10.8  million)  associated with the 6 3/4%
Preferred  Securities,  the 14%  Preferred  Stock  and the 14 1/4%  Exchangeable
Preferred Stock Mandatorily Redeemable 2007 (the "14 1/4 Preferred Stock").

     Net loss. Net loss increased $25.8 million, or 34%, due to the increases in
operating  costs,  SG&A expense,  depreciation and  amortization,  merger costs,
interest expense and minority interest in share of losses,  net of accretion and
preferred dividends on preferred securities of subsidiaries as noted above.

Liquidity and Capital Resources

     The Company's growth has been funded through a combination of equity,  debt
and lease  financing.  As of March 31, 1998,  the Company had current  assets of
$625.8  million,   including  $523.2  million  of  cash,  cash  equivalents  and
short-term  investments,  which exceeded current  liabilities of $163.9 million,
providing working capital of $461.9 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.

<PAGE>
                                       27


Cash Used By Operating Activities

     The Company's operating activities used $17.3 million and $16.7 million for
the three  months  ended  March 31,  1997 and 1998,  respectively.  Cash used by
operations  is  primarily  due to net  losses,  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,  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 Telecom Services networks, any or all of which may not occur, the
Company  anticipates  that cash used by operating  activities  will  continue to
improve in the near term.

Cash Used By Investing Activities

     Investing  activities used $61.5 million and provided $31.2 million for the
three months ended March 31, 1997 and 1998, respectively. Cash used by investing
activities includes cash expended for the acquisition of property, equipment and
other assets of $60.6 million and $71.3 million for the three months ended March
31, 1997 and 1998, respectively. Additionally, cash used by investing activities
includes  payments for  construction  of the Company's new  headquarters of $3.6
million  and $4.9  million for the three  months  ended March 31, 1997 and 1998,
respectively. Offsetting the expenditures for investing activities for the three
months ended March 31, 1998 are the net proceeds  from the sale of the Company's
new  headquarters  of $26.9  million and the sale of short-term  investments  of
$83.3  million.  The Company  will  continue to use cash in 1998 and  subsequent
periods for the  construction  of new  networks,  and the  expansion of existing
networks and potentially  for  acquisitions.  The Company  acquired assets under
capitalized  leases of $3.2  million and $1.0 million for the three months ended
March 31, 1997 and 1998, respectively.

Cash (Used) Provided By Financing Activities

     Financing  activities  provided  $176.3  million and $297.5  million in the
three  months  ended March 31,  1997 and 1998,  respectively.  Cash  provided by
financing  activities  primarily  includes cash received in connection  with the
private placement of the 11 5/8% Notes and the 14% Preferred Stock in March 1997
and the 10% Senior  Discount  Notes due 2008 (the "10% Notes") in February 1998.
Historically, the funds to finance the Company's business acquisitions,  capital
expenditures,  working  capital  requirements  and  operating  losses  have been
obtained through public and private offerings of ICG and Holdings-Canada  common
shares,   convertible   subordinated  notes,  convertible  preferred  shares  of
Holdings-Canada,  capital lease  financings and various working capital sources,
including  credit  facilities,  in  addition  to the  private  placement  of the
securities previously mentioned and other securities offerings.

     On February 12, 1998,  ICG  Services  completed a private  placement of 10%
Notes  for net  proceeds,  after  underwriting  and  other  offering  costs,  of
approximately $291.0 million.  Interest will accrue at 10% per annum,  beginning
February 15, 2003,  and is payable  each  February 15 and August 15,  commencing
August 15, 2003. The 10% Notes will be redeemable at the option of ICG Services,
in whole or in part, on or after February 15, 2003.

     As of March 31, 1998, the Company had an aggregate of  approximately  $77.4
million of  capitalized  lease  obligations  and an aggregate  accreted value of
approximately  $1.2 billion was outstanding under the 13 1/2% Notes, the 12 1/2%
Notes,  11 5/8% Notes and the 10% 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  September 15, 2002
and mature on March 15, 2007. The 10% Notes require payments of interest in cash
commencing  on August  15,  2003 and mature on  February  15,  2008.  The 6 3/4%
Preferred  Securities  require  payments of dividends to be made in cash through
November  15,  2000.  In  addition,  the 14 %  Preferred  Stock  and the 14 1/4%

<PAGE>
                                       28

Preferred  Stock require payment of dividends to be made in cash commencing June
15, 2002 and August 1, 2001, respectively. As of March 31, 1998, the Company had
$7.6 million of other indebtedness  outstanding.  The Company's cash on hand and
amounts  expected to be available  through vendor  financing  arrangements  will
provide  sufficient  funds  necessary  for the  Company  to expand  its  Telecom
Services  business  as  currently  planned  and to fund its  operating  deficits
through 1999.  With respect to  indebtedness  outstanding on March 31, 1998, the
Company has cash interest payment obligations of approximately $113.3 million in
2001,  $158.0  million  in 2002 and  $192.4  million  in 2003.  With  respect to
preferred  securities  currently  outstanding,  the  Company  has cash  dividend
obligations of  approximately  $6.7 million  remaining in 1998,  $8.9 million in
each of 1999 and 2000,  $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 capitalized leases, or obtain 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.

     On April 27,  1998,  ICG Services  completed a private  placement of 9 7/8%
Notes,  for net proceeds,  after  underwriting  costs, of  approximately  $242.5
million. Interest will accrue at 9 7/8% per annum, beginning May 1, 2003, and is
payable each May 1 and November 1, commencing November 1, 2003. The 9 7/8% Notes
will be  redeemable  at the option of ICG  Services,  in whole or in part, on or
after May 1, 2003.

Capital Expenditures

     The Company's capital expenditures (including assets acquired under capital
leases  and   excluding   payments  for   construction   of  the  Company's  new
headquarters)  were $63.9  million and $72.3  million for the three months ended
March  31,  1997  and  1998,  respectively.  The  Company  anticipates  that the
expansion  of  existing  networks,  construction  of new  networks  and  further
development  of  the  Company's  products  and  services  will  require  capital
expenditures  of  approximately  $370.0  million  during the  remainder of 1998,
including  capital  expenditure   requirements  of  NETCOM.  To  facilitate  the
expansion of its services and networks,  the Company has entered into  equipment
purchase agreements with various vendors under which the Company must purchase a
substantial  amount of  equipment  and other  assets,  including a full range of
switching  systems,  fiber  optic  cable,  network  electronics,   software  and
services.  Actual capital expenditures will depend on numerous factors including
certain factors beyond the Company's  control.  These factors include the nature
of  future  expansion  and  acquisition   opportunities,   economic  conditions,
competition,  regulatory  developments and the availability of equity,  debt and
lease financing.

Other Cash Commitments and Capital Requirements

     The  Company's  operations  have  required  and will  continue  to  require
significant capital  expenditures for the development,  construction,  expansion
and acquisitions of  telecommunications  assets.  Significant amounts of capital
are  required to be  invested  before  revenue is  generated,  which  results in
initial  negative  cash flow.  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 three months ended March 31,
1998 included elsewhere herein.

     In  view  of the  continuing  development  of the  Company's  products  and
services,  the expansion of existing networks and the construction,  leasing and
licensing of new networks,  the Company will require  additional amounts of cash
in the future from outside sources.  Management believes that the Company's cash
on  hand  and  amounts  expected  to  be  available   through  vendor  financing
arrangements  will provide  sufficient funds necessary for the Company to expand
its Telecom  Services  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


<PAGE>
                                       29


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

     While the Company  believes  that its software  applications  are year 2000
compliant, there can be no assurance until the year 2000 occurs that all systems
will then function  adequately.  Further, if the software  applications of local
exchange  carriers,  long  distance  carriers  or others on whose  services  the
Company  depends are not year 2000 compliant,  it could have a material  adverse
effect on the Company's financial condition and results of operations.

<PAGE>
                                       30


                                     PART II


ITEM 1.   LEGAL PROCEEDINGS

          See  Note 6 (e)  to the  Company's  unaudited  Consolidated  Financial
          Statements  for the  three  months  ended  March  31,  1998  contained
          elsewhere in this Quarterly Report.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS

          None.

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

          On January 21, 1998,  ICG held a Special  Meeting of the  Stockholders
          (the "Special Meeting") to approve the issuance of ICG Common Stock in
          connection  with the Agreement  and Plan of Merger,  dated October 12,
          1997, as amended,  by and among ICG, ICG Acquisition,  Inc. and NETCOM
          On-Line Communication  Services,  Inc. Indicated below are the results
          of the stockholders' vote tabulated at the Special Meeting:

                                    For:             24,377,705
                                    Against:             62,318
                                    Abstentions:        396,723
                                    Broker non-votes: 4,059,346

ITEM 5.   OTHER INFORMATION

          None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (A)  Exhibits.

          (27) Financial Data Schedules.

               27.1:Restated Financial Data Schedule of ICG Communications, Inc.
                    for the Fiscal Year Ended September 30, 1995.

               27.2:Restated  Financial  Data  Schedule  of ICG  Communications,
                    Inc. for the Fiscal Year Ended September 30, 1996.

               27.3:Restated  Financial  Data  Schedule  of ICG  Communications,
                    Inc. for the Three Months Ended December 31, 1996.

               27.4:Restated  Financial  Data  Schedule  of ICG  Communications,
                    Inc. for the Fiscal Year Ended December 31, 1997.

               27.5:Restated  Financial  Data  Schedule  of ICG  Communications,
                    Inc. for the Three Months Ended March 31, 1997.


<PAGE>
                                       31


               27.6:Financial Data Schedule of ICG Communications,  Inc. for the
                    Three Months Ended March 31, 1998.

     (B)  Reports on Form 8-K. The  following  reports on Form 8-K were filed by
          the registrants during the three months ended March 31, 1998:

          (i)  Current Report on Form 8-K dated February 5, 1998,  regarding the
               announcement  of the completion of the merger with NETCOM On-Line
               Communication Services, Inc. on January 21, 1998.

          (ii) Current Report on Form 8-K dated February 10, 1998, regarding the
               announcement  of the private  placement of $200 million of Senior
               Discount Notes by ICG Services, Inc.

          (iii)Current Report on Form 8-K dated February 19, 1998, regarding the
               announcement  of the  completion  of  the  private  placement  of
               approximately  $300 million of 10% Senior  Discount  Notes by ICG
               Services, Inc.

          (iv) Current Report on Form 8-K dated February 26, 1998, regarding the
               announcement  of earnings  information  and results of operations
               for the fiscal year ended December 31, 1997.
<PAGE>

                                                  SIGNATURES


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



                           ICG COMMUNICATIONS, INC.





Date:  May 12, 1998        By:    /s/ James D. Grenfell
                              -------------------------------------------------
                              James D. Grenfell, Executive Vice President and
                              Chief Financial Officer






Date:  May 12, 1998        By:    /s/ Richard Bambach
                              -------------------------------------------------
                              Richard Bambach, Vice President and Corporate
                              Controller



<PAGE>


                                   SIGNATURES


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


                           ICG FUNDING, LLC




                           By:     ICG Communications, Inc.
                                   Common Member and Manager





Date:  May 12, 1998        By:     /s/ James D. Grenfell
                              -------------------------------------------------
                              James D. Grenfell, Executive Vice President and
                              Chief Financial Officer









<PAGE>


                                   SIGNATURES


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



                           ICG HOLDINGS (CANADA), INC.





Date:  May 12, 1998        By:    /s/ James D. Grenfell
                              -------------------------------------------------
                              James D. Grenfell, Executive Vice President and
                              Chief Financial Officer





Date:  May 12, 1998        By:    /s/ Richard Bambach
                              -------------------------------------------------
                              Richard Bambach, Vice President and Corporate
                              Controller




<PAGE>


                                   SIGNATURES


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



                           ICG HOLDINGS, INC.





Date:  May 12, 1998        By:    /s/ James D. Grenfell
                              -------------------------------------------------
                              James D. Grenfell, Executive Vice President,
                              Chief Financial Officer and Director





Date:  May 12, 1998        By:    /s/ Richard Bambach
                              -------------------------------------------------
                              Richard Bambach, Vice President and Corporate
                              Controller




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