UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 1999

                                       OR

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

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


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

161 Inverness Drive West                   c/o ICG Communications, Inc.
Englewood, Colorado 80112                  161 Inverness Drive West
                                           Englewood, Colorado 80112

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

         Indicate  by check  mark  whether  the  registrants  (1) have filed all
reports required to be filed by Section 13 or 15 (d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrants  were required to file such  reports),  and (2) have been subject to
such filing requirements for the past 90 days. Yes |X| No

         The number of registrants' outstanding common shares as of May 14, 1999
were 46,999,988,  31,931,558 and 1,918, respectively.  ICG Canadian Acquisition,
Inc., a wholly owned  subsidiary of ICG  Communications,  Inc.,  owns all of the
issued and outstanding  common shares of ICG Holdings  (Canada) Co. ICG Holdings
(Canada) Co. owns all of the issued and outstanding shares of ICG Holdings, Inc.

<PAGE>

                                TABLE OF CONTENTS




PART I  ....................................................................   3
    ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .................   3
               Consolidated Balance Sheets as of December 31, 1998 and
                March 31, 1999 (unaudited)..................................   3
               Consolidated Statements of Operations (unaudited) for the
                Three Months Ended March 31, 1998 and 1999..................   5
               Consolidated Statement of Stockholders' Deficit (unaudited)
                for the Three Months Ended March 31, 1999 ..................   7
               Consolidated Statements of Cash Flows (unaudited) for the 
                Three Months Ended March 31, 1998 and 1999 .................   8
               Notes to Consolidated Financial Statements, December 31,
                1998 and March 31, 1999 (unaudited).........................  10
    ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS  ..................................  23
    ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..  38

PART II   ..................................................................  40
    ITEM 1.    LEGAL PROCEEDINGS ...........................................  40
    ITEM 2.    CHANGES IN SECURITIES .......................................  40
    ITEM 3.    DEFAULTS UPON SENIOR SECURITIES .............................  40
    ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS .......  40
    ITEM 5.    OTHER INFORMATION ...........................................  40
    ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K ............................  40
               Exhibits ....................................................  40
               Reports on Form 8-K .........................................  41



                                       2
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                December 31, 1998 and March 31, 1999 (unaudited)

<TABLE>
<CAPTION>

                                                             December 31,           March 31,
                                                                 1998                 1999
                                                           ------------------    ----------------
    Assets                                                            (in thousands)
<S>                                                         <C>                      <C>
    Current assets:
       Cash, cash equivalents and restricted cash           $    210,831               291,876
       Short-term investments available for sale                  52,000                46,660
       Marketable trading securities (note 4)                          -                30,439
       Receivables:
          Trade, net of allowance of $15,473 and 
            $18,355 at December 31, 1998 and March
            31, 1999, respectively (note 6)                      132,920               174,105
          Revenue earned, but unbilled                            11,063                12,557
          Other                                                    1,156                11,040
                                                           ------------------    ----------------
                                                                 145,139               197,702

       Inventory                                                   2,821                 3,223
       Prepaid expenses and deposits                              12,036                15,697
                                                           ------------------    ----------------

          Total current assets                                   422,827               585,597
                                                           ------------------    ----------------

    Property and equipment                                     1,112,067             1,282,273
       Less accumulated depreciation                            (177,933)             (215,106)
                                                           ------------------    ----------------
          Net property and equipment                             934,134             1,067,167
                                                           ------------------    ----------------

    Restricted cash                                               16,912                15,527
    Investments in debt securities available for 
        sale and restricted preferred stock (note 4)                   -                27,466
    Other assets, net of accumulated amortization:
       Goodwill                                                  130,503               129,184
       Deferred financing costs                                   35,958                34,818
       Transmission and other licenses                             5,659                 1,920
       Deposits and other                                         25,189                15,580
                                                           ------------------    ----------------
                                                                 197,309               181,502
                                                           ------------------    ----------------

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

          Total assets (note 7)                             $  1,625,425             1,877,259
                                                           ==================    ================
                                                                                      (Continued)
</TABLE>

                                       3
<PAGE>

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

               Consolidated Balance Sheets (unaudited), Continued

<TABLE>
<CAPTION>

                                                                            December 31,            March 31,
                                                                                1998                   1999
                                                                         -------------------    -------------------
Liabilities and Stockholders' Deficit                                                 (in thousands)
<S>                                                                      <C>                       <C>
Current liabilities:
   Accounts payable                                                      $      33,781                 36,003
   Accrued liabilities                                                          55,816                 92,625
   Deferred revenue                                                              9,892                 10,337
   Deferred gain on sale (note 3)                                                    -                 22,195
   Current portion of capital lease obligations
      (note 6)                                                                   5,086                  8,311
   Current portion of long-term debt (note 5)                                       46                    861
   Net current liabilities of discontinued operations
      (note 3)                                                                  23,272                    934
                                                                         -------------------    -------------------
      Total current liabilities                                                127,893                171,266
                                                                         -------------------    -------------------

Capital lease obligations, less current portion
   (note 6)                                                                     63,359                 68,227
Long-term debt, net of discount, less current portion
   (note 5)                                                                  1,598,998              1,676,954
                                                                         -------------------    -------------------

   Total liabilities                                                         1,790,250              1,916,447
                                                                         -------------------    -------------------

Redeemable preferred stock of subsidiary ($358.5 
   million liquidation value at March 31, 1999) (note 5)                       338,310                350,787

Company-obligated mandatorily redeemable preferred
   securities of subsidiary limited liability 
   company which holds solely Company preferred
   stock ($133.4 million liquidation value at March
   31, 1999)                                                                   128,042                128,137

Stockholders' deficit:
   Common stock, $0.01 par value, 100,000 shares authorized;
     46,360,185 and 46,771,679 shares issued and outstanding at
     December 31, 1998 and March 31, 1999, respectively                            584                    468
   Additional paid-in capital                                                  577,820                584,170
   Accumulated deficit                                                      (1,209,462)            (1,102,750)
   Accumulated other comprehensive loss                                           (119)                     -
                                                                         -------------------    -------------------
      Total stockholders' deficit                                             (631,177)              (518,112)
                                                                         -------------------    -------------------

Commitments and contingencies (notes 5 and 6)

      Total liabilities and stockholders' deficit                        $    1,625,425             1,877,259
                                                                         ===================    ===================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>




                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                Consolidated Statements of Operations (unaudited)
                   Three Months Ended March 31, 1998 and 1999

<TABLE>
<CAPTION>

                                                                             Three months ended March 31,
                                                                        ---------------------------------------
                                                                              1998                  1999
                                                                        -----------------     -----------------
                                                                        (in thousands, except per share data)
<S>                                                                     <C>                         <C>
Revenue (note 7)                                                        $      78,867               129,519
                                                                               
Operating costs and expenses:
   Operating costs                                                             61,515                70,176
   Selling, general and administrative expenses                                42,326                48,893
   Depreciation and amortization (note 7)                                      13,603                39,031
   Net loss (gain) on disposal of long-lived assets                               505                  (908)
                                                                        -----------------     -----------------
      Total operating costs and expenses                                      117,949               157,192
                                                                        -----------------     -----------------

      Operating loss                                                          (39,082)              (27,673)

Other income (expense):
   Interest expense (note 7)                                                  (34,471)              (47,441)
   Interest income                                                              5,502                 4,105
   Other expense, net, including unrealized gain on marketable
     trading securities                                                          (321)                 (504)
                                                                        -----------------     -----------------
                                                                              (29,290)              (43,840)
                                                                        -----------------     -----------------

Loss from continuing operations before preferred dividends and
   extraordinary gain                                                         (68,372)              (71,513)
Accretion and preferred dividends on preferred securities of
   subsidiaries                                                               (13,192)              (14,804)
                                                                        -----------------     -----------------

Loss from continuing operations before extraordinary gain                     (81,564)              (86,317)
Loss from discontinued operations                                             (20,191)                    -
Extraordinary gain on sales of operations of NETCOM, net of income
   taxes of $6.4 million (note 3)                                                   -               193,029
                                                                        -----------------     -----------------

     Net (loss) income                                                  $    (101,755)              106,712
                                                                        =================     =================

Other comprehensive income - foreign currency translation adjustment              105                     -
                                                                        -----------------     -----------------

     Comprehensive (loss) income                                        $    (101,650)              106,712
                                                                        =================     =================

Net (loss) earnings per share - basic and diluted:
   Loss from continuing operations                                      $       (1.84)                (1.85)
   Loss from discontinued operations                                            (0.46)                    -
   Extraordinary gain on sales of operations of NETCOM                              -                  4.14
                                                                        -----------------     -----------------
     Net (loss) earnings per share - basic and diluted                  $       (2.30)                 2.29
                                                                        =================     =================

Weighted average number of shares outstanding - basic and diluted              44,311                46,538
                                                                        =================     =================
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       5
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholders' Deficit (unaudited)
                        Three Months Ended March 31, 1999

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

<S>                                                <C>      <C>            <C>         <C>               <C>          <C>      
Balances at January 1, 1999                        46,360   $    584       577,820     (1,209,462)       (119)        (631,177)
   Shares issued for cash in connection with the
     exercise of options and warrants                 232          2         2,767              -           -            2,769
   Shares issued for cash in connection with the
     employee stock purchase plan                      82          1         1,387              -           -            1,388
   Shares issued as contribution to 401(k) plan        98          1         2,076              -           -            2,077
   Exchange of ICG Holdings (Canada) Co.
     common shares for ICG common stock                 -       (120)          120              -           -                -
   Reversal of cumulative foreign currency
     translation adjustment (note 3)                    -          -             -              -         119              119
   Net income                                           -          -             -        106,712           -          106,712
                                                ----------- ----------- ------------- ------------- --------------- --------------
Balances at March 31, 1999                         46,772   $      468     584,170     (1,102,750)          -         (518,112)
                                                =========== =========== ============= ============= =============== ==============
</TABLE>


          See accompanying notes to consolidated financial statements.





                                       6
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (unaudited)
                   Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>

                                                                                              Three months ended March 31,
                                                                                          -------------------------------------
                                                                                               1998                 1999
                                                                                          ----------------     ----------------
                                                                                                     (in thousands)

Cash flows from operating activities:
<S>                                                                                       <C>                       <C>    
   Net (loss) income                                                                      $    (101,755)            106,712
   Loss from discontinued operations                                                             20,191                   -
   Extraordinary gain on sales of operations                                                          -            (193,029)
   Adjustments to reconcile net (loss) income to net cash used by operating
     activities:    
       Recognition of deferred gain                                                                   -              (3,805)
       Accretion and preferred dividends on preferred securities of
         subsidiaries                                                                            13,192              14,804
       Depreciation and amortization                                                             13,603              39,031
       Provision for uncollectible accounts                                                       2,582               3,651
       Interest expense deferred and included in long-term debt                                  31,885              46,283
       Interest expense deferred and included in capital lease obligations                        1,528               1,082
       Amortization of deferred financing costs included in interest expense                        701               1,406
       Interest expense capitalized on assets under construction                                 (3,000)             (3,168)
       Contribution to 401(k) plan through issuance of common stock                                 464               2,077
       Net loss (gain) on disposal of long-lived assets                                             505                (908)
       Unrealized gain on marketable trading securities                                               -                (439)
       Change in operating assets and liabilities, excluding the effects of
         dispositions and non-cash transactions:
            Receivables                                                                          (6,054)            (47,767)
            Inventory                                                                              (215)               (197)
            Prepaid expenses and deposits                                                         1,155              (2,873)
            Accounts payable and accrued liabilities                                             16,549              (8,330)
            Deferred revenue                                                                      2,130               1,637
                                                                                          ----------------     ----------------
               Net cash used by operating activities                                             (6,539)            (43,833)
                                                                                          ----------------     ----------------
Cash flows from investing activities:
  Increase in long-term notes receivable from affiliates and others                              (4,943)                  -
  Acquisition of property, equipment and other assets                                           (65,748)           (101,957)
  Payments for construction of corporate headquarters                                            (4,944)                  -
  Proceeds from sales of operations of NETCOM, net of cash included in sale                           -             252,881
  Proceeds from disposition of property, equipment and other assets                                 283               4,302
  Proceeds from sale of corporate headquarters, net of selling and other costs                   26,859                   -
  Proceeds from sales of short-term investments available for sale                               83,281               5,340
  Decrease in restricted cash                                                                     1,893               1,385
  Purchase of investments                                                                             -             (27,466)
  Purchase of minority interest in subsidiary                                                         -              (4,189)
                                                                                          ----------------     ----------------
       Net cash provided by investing activities                                                 36,681             130,296
                                                                                          ----------------     ----------------
                                                                                                                    (Continued)
</TABLE>
                                       7
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

          Consolidated Statements of Cash Flows (unaudited), Continued

<TABLE>
<CAPTION>

                                                                                             Three months ended March 31,
                                                                                        ----------------------------------------
                                                                                              1998                    1999
                                                                                        ------------------     -----------------
                                                                                                    (in thousands)

Cash flows from financing activities: 
      Proceeds from issuance of common stock:
<S>                                                                                     <C>                         <C>
      Sale by subsidiary                                                                $       3,385                  -
      Exercise of options and warrants                                                          4,836                2,769
      Employee stock purchase plan                                                                411                1,388
  Proceeds from issuance of long-term debt                                                    300,571                    -
  Deferred long-term debt issuance costs                                                       (9,575)                   -
  Principal payments on capital lease obligations                                              (2,787)              (1,858)
  Principal payments on long-term debt                                                           (413)                (589)
  Payments of preferred dividends                                                              (2,231)              (2,231)
                                                                                        ------------------     -----------------
      Net cash provided (used) by financing activities                                        294,197                 (521)
                                                                                        ------------------     -----------------

      Net increase in cash, cash equivalents and restricted cash                               324,339              85,942
      Net cash used by discontinued operations                                                   (393)              (4,897)
Cash, cash equivalents and restricted cash, beginning of period                               118,569              210,831
                                                                                        ------------------     =================
Cash, cash equivalents and restricted cash, end of period                                $    442,515              291,876
                                                                                        ==================     =================


Supplemental disclosure of cash flows information of continuing operations:
   Cash paid for interest                                                               $         3,357              1,838
                                                                                        ==================     =================
   Cash paid for income taxes                                                           $             -                409
                                                                                        ==================     =================

Supplemental schedule of non-cash investing and financing activities of
   continuing operations:
      Acquisition of corporate headquarters assets through the issuance
        of long-term debt and conversion of security deposit (note 5)                   $             -             33,719
                                                                                        ==================     =================
      Assets acquired under capital leases                                              $             -              3,760
                                                                                        ==================     =================
</TABLE>

          See accompanying notes to consolidated financial statements.




                                       8
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                December 31, 1998 and March 31, 1999 (unaudited)


(1)      Organization and Nature of Business

         ICG  Communications,   Inc.,  a  Delaware   corporation   ("ICG"),  was
         incorporated on April 11, 1996 and is the  publicly-traded  U.S. parent
         company  of ICG  Funding,  LLC,  a  special  purpose  Delaware  limited
         liability  company ("ICG Funding"),  ICG Holdings  (Canada) Co., a Nova
         Scotia unlimited liability company  ("Holdings-Canada"),  ICG Holdings,
         Inc., a Colorado corporation  ("Holdings"),  and ICG Services,  Inc., a
         Delaware corporation ("ICG Services"), and their subsidiaries.  ICG and
         its subsidiaries are collectively referred to as the "Company."

         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,
         was  automatically  converted into shares of ICG common stock, $.01 par
         value ("ICG Common  Stock"),  at an exchange  ratio of 0.8628 shares of
         ICG  Common  Stock  per  NETCOM  common  share.   The  Company   issued
         approximately  10.2 million  shares of ICG Common  Stock in  connection
         with the merger,  valued at approximately $284.9 million on the date of
         the merger. The business  combination was accounted for as a pooling of
         interests. On February 17 and March 16, 1999, the Company completed the
         sales of the  operations of NETCOM (see note 3) and,  accordingly,  the
         Company's  consolidated  financial  statements  prior to March 16, 1999
         reflect the  operations  and net assets of NETCOM as  discontinued.  In
         conjunction with the sales, the legal name of the NETCOM subsidiary was
         changed to ICG PST, Inc. ("PST") (see note 3).

         The  Company's   principal  business  activity  is   telecommunications
         services,  including Telecom  Services,  Network Services and Satellite
         Services.   Telecom  Services  consists   primarily  of  the  Company's
         competitive local exchange carrier operations which provide local, long
         distance  and data  services to business  end users,  Internet  service
         providers   ("ISPs")  and  long   distance   carriers  and   resellers.
         Additionally,  in February 1999, the Company began  marketing  Internet
         access   and   enhanced    network   services   to   ISPs   and   other
         telecommunications  providers.  Network Services  supplies  information
         technology  services  and  selected  networking  products,  focusing on
         network design, installation,  maintenance and support for a variety of
         end users,  including Fortune 1000 firms and other large businesses and
         telecommunications companies.  Satellite Services consists of satellite
         voice, data and video services provided to major cruise ship lines, the
         U.S.   Navy,   the  offshore  oil  and  gas  industry  and   integrated
         communications providers.

(2)      Significant Accounting Policies

         (a)   Basis of Presentation

               The Company's financial  statements should be read in conjunction
               with ICG's  Annual  Report on Form 10-K for the fiscal year ended
               December 31, 1998, as certain  information  and note  disclosures
               normally included in financial  statements prepared in accordance
               with generally accepted accounting principles have been condensed
               or omitted  pursuant to the rules and  regulations  of the United
               States Securities and Exchange Commission.  The interim financial
               statements  reflect all adjustments  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, 1999 are not necessarily indicative of the results that
               may be expected for the fiscal year ending December 31, 1999.

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



                                       9
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(2)      Significant Accounting Policies (continued)

         (b)   Cash, Cash Equivalents and Restricted Cash

               The Company considers all highly liquid investments with original
               maturities  of  three  months  or less  to be  cash  equivalents.
               Restricted  cash of $19.9 million,  held as collateral by a third
               party and remitted to the Company  subsequent  to March 31, 1999,
               is included in cash, cash  equivalents and restricted cash in the
               accompanying consolidated balance sheet.

         (c)   Investments

               The  Company   invests   primarily   in  high  grade   short-term
               investments which consist of money market instruments, commercial
               paper,  certificates  of  deposit,   government  obligations  and
               corporate  bonds, all of which are considered to be available for
               sale.  Available  for sale  investments  are carried at amortized
               cost, which approximates fair market value, with unrealized gains
               and  losses,   net  of  tax,   reported  in   accumulated   other
               comprehensive  income  or loss.  Realized  gains and  losses  and
               declines in value judged to be other than  temporary are included
               in the statement of operations.

               Marketable  securities consist of investments in common stock and
               are  stated  at fair  market  value  as  determined  by the  most
               recently  traded  price of the  securities  at the balance  sheet
               date,  net of  estimated  costs  of  disposition.  The  Company's
               marketable  securities  are accounted for as trading  securities,
               with  realized and  unrealized  gains and losses  included in the
               statement of operations.

               Investments  in common or  preferred  stock for which there is no
               public trading market and which  represent less than a 20% equity
               interest in the investee company are accounted for using the cost
               method, unless the Company exercises significant influence and/or
               control over the  operations  of the investee  company,  in which
               case the equity method is used.

         (d)   Net (Loss) Earnings Per Share

               Basic and diluted net (loss)  earnings per share is calculated by
               dividing net (loss)  earnings by the weighted  average  number of
               shares of common stock  outstanding.  Weighted  average number of
               shares  outstanding  represents ICG Common Stock  outstanding for
               the three  months  ended March 31, 1999 and  combined  ICG Common
               Stock and  Holdings-Canada  Class A common shares outstanding for
               the three months ended March 31, 1998.  Potential  common  stock,
               which  include  options,  warrants and  convertible  subordinated
               notes  and  preferred  securities,  are not  included  in the net
               (loss)  earnings  per  share   calculation  as  their  effect  is
               anti-dilutive.  The Company has presented net (loss) earnings per
               share from  discontinued  operations  and  extraordinary  gain on
               sales of  operations of NETCOM in the  consolidated  statement of
               operations for all periods presented.

         (e)   Reclassifications

               Certain 1998 amounts have been  reclassified  to conform with the
               1999 presentation.



                                       10
<PAGE>

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)      Discontinued Operations

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

                                                              Three months ended
                                                                   March 31,
                                                      -----------------------------------
                                                           1998                1999
                                                      ----------------    ---------------
                                                                 (in thousands)

<S>                                                   <C>                        <C> 
         Zycom (a)                                    $     (2,397)              -
         NETCOM (b)                                        (17,794)              -
                                                      ----------------    ---------------
             Loss from discontinued operations        $    (20,191)              -
                                                      ================    ===============
</TABLE>

         (a)    Zycom

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

               The call traffic assigned to ICN represented approximately 86% of
               Zycom's revenue for the year ended December 31, 1998. The loss of
               this   significant   portion   of   Zycom's   business,   despite
               management's  best  efforts to secure  other  sources of revenue,
               raised  substantial  doubt as to Zycom's  ability to operate in a
               manner which would benefit Zycom's or the Company's shareholders.
               Accordingly,  on August  25,  1998,  Zycom's  board of  directors
               approved a plan to wind down and ultimately  discontinue  Zycom's
               operations.  On October 22, 1998, Zycom completed the transfer of
               all customer traffic to other providers.  On January 4, 1999, the
               Company completed the sale of the remainder of Zycom's long-lived
               operating  assets to an unrelated  third party for total proceeds
               of $0.2  million.  As Zycom's  assets were  recorded at estimated
               fair  market  value at  December  31,  1998,  no gain or loss was
               recorded  on the sale  during the three  months  ended  March 31,
               1999.  Zycom  anticipates the disposition of its remaining assets
               and the discharge of its remaining operating  liabilities will be
               completed in 1999.

               The  Company's  consolidated  financial  statements  reflect  the
               operations of Zycom as  discontinued  for all periods  presented.
               Zycom reported net losses from operations of  approximately  $1.2
               million for the period from August 25, 1998 to December  31, 1998
               and  reported no income or losses from  operations  for the three
               months  ended  March 31,  1999.  The  Company has accrued for all
               expected  future net  losses of Zycom.  Included  in net  current
               liabilities and net non-current assets of discontinued operations
               in the Company's  consolidated  balance  sheets are the following
               accounts of Zycom:

                                       11
<PAGE>
                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)      Discontinued Operations (continued)
<TABLE>
<CAPTION>
                                                                            December 31,            March 31,
                                                                               1998                   1999
                                                                        -------------------    ------------------
                                                                                      (in thousands)
<S>                                                                     <C>                             <C>    
               Cash, cash equivalents and restricted cash               $            47                    -
               Receivables, net                                                      90                    -
               Prepaid expenses and deposits                                         11                    1
               Accounts payable and accrued liabilities                          (1,092)                (935)
                                                                        -------------------    ------------------

                   Net current liabilities of Zycom                     $          (944)                (934)
                                                                        ===================    ==================

               Net non-current assets of Zycom - property and
                   equipment, net                                       $           220                    -
                                                                        ===================    ==================
</TABLE>
         (b)   NETCOM

               On February 17, 1999,  the Company sold certain of the  operating
               assets and liabilities of NETCOM to MindSpring Enterprises, Inc.,
               an ISP located in Atlanta, Georgia ("MindSpring"). Total proceeds
               from the sale were $245.0  million,  consisting of $215.0 million
               in cash and 376,116 shares of common stock of MindSpring,  valued
               at approximately $79.76 per share at the time of the transaction.
               Assets and liabilities sold to MindSpring  include those directly
               related to the domestic  operations of NETCOM's Internet dial-up,
               dedicated  access and Web site hosting  services.  In conjunction
               with  the  sale  to  MindSpring,  the  Company  entered  into  an
               agreement  to lease  to  MindSpring  for a  one-year  period  the
               capacity of certain  network  operating  assets formerly owned by
               NETCOM and retained by the Company.  MindSpring  is utilizing the
               Company's  network  capacity  to provide  Internet  access to the
               dial-up  services  customers  formerly owned by NETCOM.  Over the
               term of the one-year agreement, MindSpring is required to pay the
               Company a minimum  of $27.0  million  for the  Company's  network
               capacity,  although such minimum is subject to increase dependent
               upon network usage.  In addition,  the Company is receiving for a
               one-year  period 50% of the gross  revenue  earned by  MindSpring
               from the dedicated  access  customers  formerly  owned by NETCOM,
               estimated to be  approximately  $10.0 million for the term of the
               agreement.  The Company,  through PST, is currently utilizing the
               retained network operating assets to provide  wholesale  capacity
               and other enhanced  network services to MindSpring and intends to
               provide  similar  services  to other ISPs and  telecommunications
               providers  in the  future.  The  carrying  value  of  the  assets
               retained  by  the  Company  was   approximately   $21.7  million,
               including  approximately  $17.5 million of network equipment,  on
               February 17, 1999. The Company also retained  approximately $11.3
               million of accrued liabilities and capital lease obligations.

               On March 16, 1999,  the Company sold all of the capital  stock of
               NETCOM's   international   operations   for  total   proceeds  of
               approximately  $41.1 million.  MetroNET  Communications  Corp., a
               Canadian  entity,  and  Providence  Equity  Partners,  located in
               Providence,  Rhode Island ("Providence"),  together purchased the
               80%  interest  in  NETCOM   Canada  Inc.   owned  by  NETCOM  for
               approximately  $28.9  million in cash.  Additionally,  Providence
               purchased  all of the  capital  stock of NETCOM  Internet  Access
               Services Limited,  NETCOM's operations in the United Kingdom, for
               approximately $12.2 million in cash.

               During  the three  months  ended  March  31,  1999,  the  Company
               recorded a combined gain on the sales of the operations of NETCOM
               of  approximately   $193.0  million,   net  of  income  taxes  of
               approximately  $6.4 million.  Offsetting the gain on the sales is
               approximately $16.6 million of net losses from operations of


                                       12
<PAGE>
                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)      Discontinued Operations (continued)

               NETCOM  from  November  3, 1998 (the date on which the  Company's
               board of  directors  adopted  the  formal  plan to dispose of the
               operations   of   NETCOM)   through   the  dates  of  the  sales.
               Additionally,  since the Company  expects to  generate  operating
               costs in excess of revenue under its network  capacity  agreement
               with  MindSpring  and  the  terms  of  the  sale  agreement  were
               dependent upon and  negotiated in  conjunction  with the terms of
               the   network   capacity   agreement,    the   Company   deferred
               approximately  $26.0  million  of  the  proceeds  from  the  sale
               agreement  to be  applied  on a  periodic  basis  to the  network
               capacity  agreement.  The deferred proceeds will be recognized in
               the Company's  statement of operations as the Company incurs cash
               operating   losses   under  the   network   capacity   agreement.
               Accordingly,  the  Company  does  not  expect  to  recognize  any
               revenue,  operating costs or selling,  general and administrative
               expenses from services provided to MindSpring for the term of the
               agreement.  Any  incremental  revenue or costs generated by other
               customers,  or by other services provided to MindSpring,  will be
               recognized in the Company's  consolidated statement of operations
               as incurred.  Since the operations sold were acquired by ICG in a
               transaction accounted for as a pooling of interests,  the gain on
               the  sales  of the  operations  of  NETCOM  is  classified  as an
               extraordinary  item in the  Company's  consolidated  statement of
               operations.  For  fiscal  1996,  1997 and 1998,  NETCOM  reported
               revenue of $120.5  million,  $160.7  million and $164.6  million,
               respectively.

(4)      Investments

         As discussed in note 3, the Company  received  376,116 shares of common
         stock of MindSpring,  valued at $79.76 per share, or $30.0 million,  at
         the time of the transaction,  as partial  consideration for the sale of
         the domestic  operations of NETCOM. In April 1999, the Company sold its
         investment  in  MindSpring  for net  proceeds  of  approximately  $30.4
         million.  The Company has recorded an unrealized gain of  approximately
         $0.4 million in its statement of operations  for the three months ended
         March 31, 1999.  The Company's  investment in MindSpring is included in
         marketable trading securities in the accompanying  consolidated balance
         sheet.

         On March 30,  1999,  the Company  purchased,  for  approximately  $10.0
         million in cash,  454,545  shares of  restricted  Series D-1  Preferred
         Stock (the "NorthPoint  Preferred Stock") of NorthPoint  Communications
         Holdings,  Inc., a Delaware  corporation and competitive local exchange
         carrier ("CLEC") based in San Francisco, California ("NorthPoint"). The
         NorthPoint  Preferred  Stock has no  voting  rights  and is  ultimately
         convertible  into a voting class of common stock of  NorthPoint,  at an
         exchange price which represents a discount, as provided in the relevant
         documentation,  to the initial public  offering  price of  NorthPoint's
         common  stock.  The Company is restricted  from selling the  NorthPoint
         Preferred   Stock  or  securities   obtained  upon  conversion  of  the
         NorthPoint  Preferred  Stock  until  March 23,  2000.  On May 5,  1999,
         NorthPoint  completed the initial public  offering of its common stock,
         at which time the NorthPoint  Preferred Stock, and additional shares of
         NorthPoint  Preferred Stock obtained as a result of stock splits,  were
         automatically  converted  into  shares  of  Class  B  common  stock,  a
         nonvoting class of common stock of NorthPoint (the "NorthPoint  Class B
         Shares"),  which  are  convertible  on or  after  March  23,  2000 on a
         one-for-one  basis into a voting class of common  stock of  NorthPoint.
         The Company will account for its  investment  in  NorthPoint  under the
         cost  method of  accounting  until the  NorthPoint  Class B Shares  are
         converted into voting and tradable  common stock of  NorthPoint,  after
         which the investment will be classified as a trading security.

                                       13
<PAGE>

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)        Long-term Debt and Redeemable Preferred Stock of Subsidiary

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

                                                                               December 31,            March 31,
                                                                                   1998                   1999
                                                                           ---------------------    -----------------
                                                                                        (in thousands)

<S>                                                                        <C>                          <C>    
           9 7/8% Senior discount notes of ICG Services, net of discount   $        266,918               273,401
           10% Senior discount notes of ICG Services, net of discount               327,699               335,793
           11 5/8% Senior discount notes of Holdings, net of discount               122,528               126,006
           12 1/2% Senior discount notes of Holdings, net of discount               414,864               427,565
           13 1/2% Senior discount notes of Holdings, net of discount               465,886               481,412
           Mortgage payable with interest at 8 1/2%, due monthly
             into 2009, secured by building                                             1,084                 1,073
           Mortgage payable with variable rate of interest (14.34% at
             March 31, 1999), due monthly into 2013, secured by
             corporate headquarters (a)                                                   -                32,500
           Other                                                                         65                    65
                                                                           ---------------------    -----------------
                                                                                  1,599,044             1,677,815
              Less current portion                                                      (46)                 (861)
                                                                           ---------------------    -----------------
                                                                           $      1,598,998             1,676,954
                                                                           =====================    =================
</TABLE>

             (a)  Note Payable

                  Effective   January  1,  1999,  the  Company  purchased  ICG's
                  corporate   headquarters   building,   land  and  improvements
                  (collectively, the "Corporate Headquarters") for approximately
                  $43.7 million,  which amount  represents  historical  cost and
                  approximates  fair value. The Company,  through a newly formed
                  subsidiary, financed the purchase primarily through a mortgage
                  secured  by  the  Corporate  Headquarters.   Payments  on  the
                  mortgage  are due  monthly  through  January 31,  2013,  at an
                  initial  interest  rate  of  14.34%  per  annum,   which  rate
                  increases  annually  by 0.003%.  The  seller of the  Corporate
                  Headquarters   has  retained  an  option  to  repurchase   the
                  Corporate  Headquarters  at the original  sales  price,  which
                  option is exercisable from January 1, 2004 through January 31,
                  2012.

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

                                                                               December 31,               March 31,
                                                                                   1998                      1999
                                                                           ----------------------     -------------------
                                                                                          (in thousands)
<S>                                                                        <C>                              <C>           
             14% Exchangeable preferred stock of Holdings,
               mandatorily redeemable in 2008                              $        124,867                 129,444
             14 1/4% Exchangeable preferred stock of Holdings,
               mandatorily redeemable in 2007                                       213,443                 221,343
                                                                           ----------------------     -------------------
                                                                           $        338,310                 350,787
                                                                           ======================     ===================
</TABLE>

                                       14
<PAGE>
                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(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 is entitled
               to receive an annual fee for ten years,  certain fixed  quarterly
               payments,  a quarterly  payment  equal to a percentage of certain
               network  revenue,   and  certain  other  installation  and  fiber
               connection fees. The aggregate fixed payments remaining under the
               agreement totaled approximately $134.5 million at March 31, 1999.
               The  agreement  has been  accounted for as a capital lease in the
               accompanying consolidated balance sheets.

               In June 1997, the Company entered into an  indefeasible  right of
               use  ("IRU")  agreement  with  Qwest  Communications  Corporation
               ("Qwest")  for  approximately  1,800 miles of fiber optic network
               and additional broadband capacity in California,  Colorado,  Ohio
               and  the  Southeast.  Network  construction  is  ongoing  and  is
               expected to be completed in 1999. The Company is responsible  for
               payment  on the  construction  as  segments  of the  network  are
               completed  and has  incurred  approximately  $20.2  million as of
               March  31,  1999,   with  remaining   costs   anticipated  to  be
               approximately  $14.8  million.   Additionally,  the  Company  has
               committed to purchase $6.0 million in network capacity from Qwest
               prior to the end of 1999, of which the Company has purchased $2.5
               million as of March 31, 1999.

         (b)   Network Capacity and Line Purchase Commitments

               In November 1998, the Company entered into two service agreements
               with WorldCom Network Services,  Inc.  ("WorldCom").  Both of the
               agreements have three-year  terms and were effective in September
               1998. Under the Telecom Services Agreement, WorldCom provides, at
               designated rates, switched  telecommunications services and other
               related services to the Company,  including termination services,
               toll-free  origination,  switched  access,  dedicated  access and
               travel  card  services.   Under  the  Carrier  Digital   Services
               Agreement,  WorldCom  provides the Company,  at designated rates,
               with  the  installation   and  operation  of  dedicated   digital
               telecommunications interexchange services, local access and other
               related  services,  which the Company believes  expedites service
               availability to its customers.  Both agreements  require that the
               Company provide  WorldCom with certain  minimum monthly  revenue,
               which if not met,  would  require  payment by the Company for the
               difference  between the minimum commitment and the actual monthly
               revenue.  Additionally,   both  agreements  limit  the  Company's
               ability  to  utilize  vendors  other than  WorldCom  for  certain
               telecommunications  services  specified  in the  agreements.  The
               Company's  policy is to accrue and include in operating costs the
               effect of any  shortfall  in minimum  revenue  commitments  under
               these  agreements in the period in which the shortfall  occurred.
               The  Company  has  successfully   achieved  all  minimum  revenue
               commitments to WorldCom under these agreements  through March 31,
               1999.

               In  March  1999,  the  Company  entered  into an  agreement  with
               NorthPoint,   which   designates   NorthPoint  as  the  Company's
               exclusive  digital  subscriber line ("DSL") provider through June
               1, 2001. Under the agreement, the Company is required to purchase
               49,000 digital subscriber lines before June 1, 2001 at designated
               intervals.  In  return,  the  Company  receives  substantial  DSL
               service  price   discounts   and  enhanced   market  access  from
               NorthPoint.   Price  discounts  are  determined   pursuant  to  a
               graduated  schedule  based on the  number of  digital  subscriber
               lines purchased by the Company,  with maximum discounts  achieved
               by purchasing  75,000 digital  subscriber lines over the two-year
               term.
                                       15
<PAGE>
                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)      Commitments and Contingencies (continued)

               The Company's  policy is to accrue and include in operating costs
               the  effect  of any  shortfall  in DSL  installations  under  its
               agreement  with  NorthPoint  in the period in which the shortfall
               occurred. The 49,000 digital subscriber line purchase requirement
               and the price  discounts  are  adjustable  based on  NorthPoint's
               compliance with a commitment schedule of DSL service availability
               for various U.S. locations.

               Additionally,  the  Company  agreed  to  sell  its  existing  DSL
               equipment to NorthPoint, for total proceeds of approximately $2.7
               million.

         (c)   Other Commitments

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

               Additionally, the Company has entered into certain commitments to
               purchase  capital  assets  with an  aggregate  purchase  price of
               approximately $91.9 million at March 31, 1999.

         (d)  Transport and Termination Charges

              The Company has recorded  revenue of  approximately  $4.9 million,
              $58.3 million and $30.8  million for fiscal 1997,  fiscal 1998 and
              the  three  months  ended  March  31,  1999,   respectively,   for
              reciprocal  compensation relating to the transport and termination
              of  local  traffic  to ISPs  from  customers  of  incumbent  local
              exchange carriers  ("ILECs")  pursuant to various  interconnection
              agreements.  The ILECs  have not paid most of the bills  they have
              received from the Company and have disputed  substantially  all of
              these  charges  based on the belief  that such calls are not local
              traffic as defined by the various  agreements  and under state and
              federal laws and public policies.

              The resolution of these disputes will be based on rulings by state
              public utility  commissions  and/or by the Federal  Communications
              Commission  ("FCC").  To date,  there  have been  favorable  final
              rulings from 31 state public utility  commissions that ISP traffic
              is subject to the payment of reciprocal compensation under current
              interconnection   agreements.   Many  of  these  state  commission
              decisions  have been appealed by the ILECs.  On February 25, 1999,
              the FCC  issued a  decision  that  ISP-bound  traffic  is  largely
              jurisdictionally  interstate  traffic.  The decision relies on the
              long-standing   federal   policy   that  ISP   traffic,   although
              jurisdictionally  interstate,  is  treated  as  though it is local
              traffic for pricing  purposes.  The decision also  emphasizes that
              because  there  are  no  federal  rules   governing   intercarrier
              compensation for ISP traffic, the determination as to whether such
              traffic is subject to reciprocal  compensation  under the terms of
              interconnection   agreements   properly   is  made  by  the  state
              commissions  and that carriers are bound by their  interconnection
              agreements and state commission decisions regarding the payment of
              reciprocal  compensation for ISP traffic.  The FCC has initiated a
              rulemaking   proceeding  regarding  the  adoption  of  prospective
              federal rules for intercarrier  compensation  for ISP traffic.  In
              its notice of rulemaking,  the FCC expresses its  preference  that
              compensation  rates  for  this  traffic  continue  to  be  set  by
              negotiations   between   carriers,   with  disputes   resolved  by
              arbitrations  conducted  by  state  commissions  pursuant  to  the
              Telecommunications  Act of 1996  (the  "Telecommunications  Act").
              Since the  issuance of the FCC's  decision on February  25,  1999,
              nine state  utility  commissions  have either ruled or  reaffirmed
              that ISP  traffic  is  subject to  reciprocal  compensation  under
              current interconnection agreements. On May 5, 1999,

                                       16
<PAGE>
                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)      Commitments and Contingencies (continued)

              the Public Utilities Commission of Ohio ("PUCO") issued a decision
              affirming  its August 1998 decision that ISP traffic is subject to
              reciprocal    compensation    under    the    Company's    current
              interconnection     agreement    with    Ameritech     Corporation
              ("Ameritech"). The PUCO also denied Ameritech's request for a stay
              of its  obligation  to remit  payment to the Company and  directed
              Ameritech to remit the amounts owed to the Company  within 45 days
              of May 5, 1999.  The  Company  expects  that  Ameritech  will seek
              judicial  review  of the PUCO  decision  and that  Ameritech  will
              request the reviewing  court to stay the decision  pending appeal.
              The Company cannot  predict how the reviewing  court would rule on
              Ameritech's  stay  request,  or the final outcome on the merits of
              the court appeal.  On March 4, 1999,  the Alabama  Public  Service
              Commission  (the "Alabama  PSC") issued a decision that found that
              reciprocal  compensation  is owed for Internet  traffic under four
              CLEC   interconnection   agreements  with  BellSouth   Corporation
              ("BellSouth"),  which  agreements were at issue in the proceeding.
              With respect to the Company's interconnection agreement, which was
              also at issue, the state commission  interpreted  certain language
              in the  Company's  agreement  to  exempt  ISP-bound  traffic  from
              reciprocal  compensation  under  certain  conditions.  The Company
              believes that the Alabama PSC failed to consider (i) the intent of
              the  parties  in   negotiating   and   executing   the   Company's
              interconnection  agreement,  and (ii) the specific language of the
              Company's  interconnection agreement and the impact of Alabama PSC
              and FCC policies,  and thereby  misinterpreted the agreement.  The
              Company  has  filed  a  request   with  the  Alabama  PSC  seeking
              determination  that  the  ruling  with  respect  to the  Company's
              agreement be reconsidered,  and that the Company should be treated
              the same as the other CLECs that  participated  in the  proceeding
              and for which the Alabama  PSC  ordered the payment of  reciprocal
              compensation.  While the Company intends to pursue  vigorously the
              petition  for  reconsideration  with the Alabama  PSC,  and if the
              Company deems it necessary,  judicial  review,  the Company cannot
              predict the final outcome of this issue.

              The  Company  has also  recorded  revenue of  approximately  $19.1
              million  and $5.2  million  for fiscal  1998 and the three  months
              ended March 31, 1999, respectively, related to other transport and
              termination  charges  to the  ILECs,  pursuant  to  the  Company's
              interconnection  agreements  with  these  ILECs.  Included  in the
              Company's  trade  receivables  at December  31, 1998 and March 31,
              1999 are $72.8 million and $105.5 million,  respectively,  for all
              receivables  related to transport  and  termination  charges.  The
              receivables  balance at March 31, 1999 is net of an  allowance  of
              $8.1 million for disputed amounts.

              As  the  Company's   interconnection   agreements  expire  or  are
              extended,  rates for transport and  termination  charges are being
              and  will  continue  to be  renegotiated.  Some  of the  Company's
              agreements  are already  being  affected.  Although the  Company's
              interconnection  agreement with BellSouth has expired, the Company
              has received written  notification from BellSouth that the Company
              may   continue   operating   under  the  expired   interconnection
              agreement,  until such agreement is  renegotiated or arbitrated by
              the  relevant  state  commissions.   Additionally,  the  Company's
              interconnection  agreement  with  Ameritech  recently was extended
              from June 15, 1999 to February 15, 2000.  The Company's  remaining
              interconnection  agreements expire in 1999 and 2000. The Company's
              extension of its interconnection agreement with Ameritech includes
              reduced  rates for  transport  and  termination  charges,  and the
              Company  expects that its  negotiations  with  BellSouth will also
              affect the rates for transport and termination charges included in
              its existing interconnection  agreement with BellSouth.  While the
              Company  believes that all revenue recorded through March 31, 1999
              is  collectible   and  that  future  revenue  from  transport  and
              termination   charges   billed   under   the   Company's   current
              interconnection  agreements  will  be  realized,  there  can be no
              assurance  that future  regulatory  and  judicial  rulings will be
              favorable to the Company, that the Alabama PSC will reconsider its
              ruling,   or  that  different  pricing  plans  for  transport  and
              
                                       17
<PAGE>
                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)      Commitments and Contingencies (continued)

               termination charges between carriers will not be adopted when the
               Company's   interconnection   agreements  are   renegotiated   or
               arbitrated,  or as a result of the FCC's rulemaking proceeding on
               future  compensation  methods. In fact, the Company believes that
               different  pricing  plans will be  considered  and  adopted,  and
               although the Company  expects that  revenue  from  transport  and
               termination charges likely will decrease as a percentage of total
               revenue from local  services in periods  after the  expiration of
               current   interconnection   agreements,   the   Company's   local
               termination services still will be required by the ILECs and must
               be provided  under the  Telecommunications  Act,  and likely will
               result in  increasing  volume in minutes due to the growth of the
               Internet and related  services  markets.  The Company  expects to
               negotiate reasonable  compensation and collection terms for local
               termination  services,  although  there is no assurance that such
               compensation will remain consistent with current levels.

          (e)  Litigation

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

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

(7)      Business Units

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

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

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


                                       18
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

                                                                     Three months ended March 31,
                                                                 --------------------------------------
                                                                       1998                1999
                                                                 -----------------  -------------------
                                                                            (in thousands)
Revenue:
<S>                                                              <C>                       <C>    
   Telecom Services                                              $       58,841            105,727
   Network Services                                                      13,430             17,592
   Satellite Services                                                     8,949             11,688
   Elimination of intersegment revenue                                   (2,353)            (5,488)
                                                                 -----------------  -------------------
         Total revenue                                           $       78,867            129,519
                                                                 =================  ===================

EBITDA (before nonrecurring charges) (a):
   Telecom Services                                              $      (17,861)            12,614
   Network Services                                                      (2,574)               490
   Satellite Services                                                       833              2,427
   Corporate Services                                                    (4,418)            (4,384)
   Eliminations                                                            (954)              (697)
                                                                 -----------------  -------------------
         Total EBITDA (before nonrecurring charges)              $      (24,974)            10,450
                                                                 =================  ===================

Depreciation and amortization (b):
   Telecom Services                                              $       11,730             35,111
   Network Services                                                         598                529
   Satellite Services                                                         -              2,127
   Corporate Services                                                     1,203                800
   Eliminations                                                              72                464
                                                                 -----------------  -------------------
         Total depreciation and amortization                     $       13,603             39,031
                                                                 =================  ===================

Interest expense (b):
   Telecom Services                                             $         1,816                  -
   Network Services                                                           1                  3
   Satellite Services                                                        48                  -
   Corporate Services                                                    32,606             47,438
                                                                -----------------  -------------------
         Total interest expense                                 $        34,471             47,441
                                                                ==================  ==================

Capital expenditures of continuing operations (c):
   Telecom Services                                              $       64,072            103,180
   Network Services                                                         147                 87
   Satellite Services                                                       182              2,718
   Corporate Services                                                     2,300                  -
   Eliminations                                                            (953)              (268)
                                                                 -----------------  -------------------
         Total capital expenditures of continuing operations     $       65,748            105,717
                                                                 =================  ==================
                                                                                          (Continued)
</TABLE>
                                       19
<PAGE>

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

                                                                               December 31,             March 31,
                                                                                   1998                   1999
                                                                           ---------------------   --------------------
                                                                                         (in thousands)
          Total assets:
<S>                                                                          <C>                         <C>      
             Telecom Services (d)                                            $   1,135,937               1,285,406
             Network Services                                                       34,378                  35,113
             Satellite Services (d)                                                 46,760                  45,841
             Corporate Services (d)                                                376,796                 545,291
             Eliminations                                                          (22,689)                (34,392)
             Net current assets of discontinued operations (e)                           -                       -
             Net non-current assets of discontinued operations                      54,243                       -
                                                                           ---------------------   --------------------
               Total assets                                                  $   1,625,425               1,877,259
                                                                           =====================   ====================
</TABLE>

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

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

          (c)  Capital expenditures include assets acquired under capital leases
               and excludes payments for construction of the Company's corporate
               headquarters and corporate  headquarters  assets acquired through
               the issuance of long-term debt.

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

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


                                       20
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

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

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

               Summarized Consolidated Balance Sheet Information
<TABLE>
<CAPTION>

                                                                      December 31,              March 31,
                                                                           1998                     1999
                                                                      --------------------    ---------------------
                                                                                     (in thousands)

<S>                                                                 <C>                           <C>    
          Current assets                                            $        277,098                270,315
          Property and equipment, net                                        636,747                650,250
          Other non-current assets, net                                      170,151                140,318
          Net non-current assets of discontinued operations                      220                      -
          Current liabilities                                                 81,299                 93,027
          Net current liabilities of discontinued operations                     944                    934
          Long-term debt, less current portion                             1,004,316              1,036,010
          Capital lease obligations, less current portion                     63,359                 63,651
          Due to parent                                                      191,889                209,020
          Due to ICG Services                                                137,762                123,368
          Redeemable preferred stock                                         338,311                350,787
          Stockholder's deficit                                             (733,664)              (815,914)
</TABLE>

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

                                                                      Three months ended March 31,
                                                              ---------------------------------------------
                                                                      1998                    1999
                                                              ---------------------   ---------------------
                                                                             (in thousands)

<S>                                                              <C>                          <C>    
    Total revenue                                                $      79,221                130,922
    Total operating costs and expenses                                 116,471                163,398
    Operating loss                                                     (37,250)               (32,476)
    Loss from continuing operations                                    (78,044)               (69,637)
    Net loss                                                           (79,575)               (82,250)
</TABLE>
  


                                       21
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

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

                                    Condensed Balance Sheet Information
<TABLE>
<CAPTION>

                                                               December 31,             March 31,
                                                                   1998                   1999
                                                            -------------------     ------------------
                                                                           (in thousands)

<S>                                                            <C>                       <C>
          Current assets                                       $       162                    162
          Advances to subsidiaries                                 191,889                209,020
          Non-current assets, net                                    2,414                  1,810
          Current liabilities                                           73                     73
          Long-term debt, less current portion                          65                     65
          Due to parent                                            182,101                199,231
          Share of losses of subsidiaries                          733,664                815,914
          Shareholders' deficit                                   (721,438)              (804,291)
</TABLE>

                              Condensed Statement of Operations Information
<TABLE>
<CAPTION>

                                                                    Three months ended March 31,
                                                            ------------------------------------------
                                                                    1998                   1999
                                                            -------------------    -------------------

<S>                                                             <C>                       <C>                             
          Total revenue                                         $         -                     -
          Total operating costs and expenses                             33                   603
          Operating loss                                                (33)                 (603)
          Losses of subsidiaries                                    (79,575)              (82,250)
          Net loss attributable to common shareholders              (79,608)              (82,853)
</TABLE>


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

         The primary  assets of ICG are its  investments  in ICG  Services,  ICG
         Funding and Holdings-Canada,  including advances to those subsidiaries.
         Certain corporate  expenses of the parent company are included in ICG's
         statement of operations  and were  approximately  $0.5 million for both
         the three months ended March 31, 1998 and 1999.  ICG has no  operations
         other than those of ICG Services,  ICG Funding and  Holdings-Canada and
         their subsidiaries.

                                       22
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The following  discussion includes certain  forward-looking  statements
which  are  affected  by  important  factors  including,  but  not  limited  to,
dependence on increased  traffic on the  Company's  facilities,  the  successful
implementation   of  the   Company's   strategy  of   offering   an   integrated
telecommunications  package of local, long distance, data and enhanced telephony
and  network   services,   continued   development  of  the  Company's   network
infrastructure and actions of competitors and regulatory  authorities that could
cause actual results to differ materially from the  forward-looking  statements.
The results of  operations  for the three  months  ended March 31, 1998 and 1999
represent the consolidated  operating results of the Company.  See the unaudited
condensed  consolidated financial statements of the Company for the three months
ended March 31, 1999  included  elsewhere  herein.  The  Company's  consolidated
financial  statements reflect the operations of Zycom and NETCOM as discontinued
for all periods  presented.  The terms  "fiscal" and "fiscal  year" refer to the
Company's  fiscal  year  ending  December  31.  All dollar  amounts  are in U.S.
dollars.

Company Overview

         ICG Communications Inc. ("ICG" or the "Company") is one of the nation's
leading competitive  integrated  communications  providers ("ICPs") based on the
industry's  1998 revenue.  ICPs seek to provide an  alternative to the incumbent
local   exchange   carriers   ("ILECs"),   long  distance   carriers  and  other
communications service providers for a full range of communications  services in
the increasingly deregulated  telecommunications industry. The Company's Telecom
Services  primarily  include its  competitive  local exchange  carrier  ("CLEC")
operations,  in which the Company  operates fiber networks in regional  clusters
covering major  metropolitan  statistical areas in California,  Colorado,  Ohio,
Texas and the  Southeast,  offering  local,  long  distance,  data and  enhanced
telephony  services to business  end users and ISPs.  Additionally,  in February
1999, the Company began providing wholesale network services over its nationwide
data  network.  The  Company  also  provides  a wide  range of  network  systems
integration  services  and  maritime and  international  satellite  transmission
services.  Network  Services  consists of  information  technology  services and
selected  networking  products,   focusing  on  network  design,   installation,
maintenance and support.  Satellite  Services  consists of satellite voice, data
and video services  provided to major cruise lines,  the U.S. Navy, the offshore
oil and gas industry and ICPs. As a leading  participant in the rapidly  growing
competitive  local  telecommunications  industry,  the Company  has  experienced
significant  growth,  with total revenue  increasing from  approximately  $154.1
million for fiscal 1996 to approximately  $448.3 million for the 12-month period
ended March 31, 1999.  The  Company's  rapid growth is the result of the initial
installation,  acquisition and subsequent  expansion of its fiber optic networks
and the expansion of its communications service offerings.

         The  Federal  Telecommunications  Act of 1996 (the  "Telecommunications
Act")  and  pro-competitive  state  regulatory  initiatives  have  substantially
changed the  telecommunications  regulatory  environment  in the United  States.
Under  the  Telecommunications  Act,  the  Company  is  permitted  to offer  all
interstate and intrastate telephone services,  including  competitive local dial
tone.  In early 1997,  the Company  began  marketing and selling local dial tone
services  in major  metropolitan  areas in  California,  Colorado,  Ohio and the
Southeast  and, in December 1998,  began  offering  services in Texas through an
acquired  business.  During fiscal 1997,  fiscal 1998 and the three months ended
March 31, 1999, the Company sold 178,470, 206,458 and 63,690 local access lines,
respectively,  net of  cancellations,  of which 418,610 were in service at March
31, 1999. In addition,  the Company's  regional  fiber  networks have grown from
2,143  fiber route miles at the end of fiscal 1996 to 4,351 fiber route miles at
March 31,  1999.  The Company  had 29  operating  high  capacity  digital  voice
switches and 17 data  communications  switches at March 31,  1999,  and plans to
install  additional  switches as demand  warrants.  As a complement to its local
exchange  services  offered to business end users,  the Company  markets bundled
service  offerings  provided over its regional  fiber network which include long
distance, enhanced telecommunications services and data services.  Additionally,
the Company  owns and  operates a  nationwide  data  network  with 236 points of
presence  ("POPs") over which the Company  recently  began  providing  wholesale
Internet access and enhanced network services to MindSpring  Enterprises,  Inc.,
an Internet service provider ("ISP") located in Atlanta, Georgia ("MindSpring"),
and  intends to offer  similar  services  to other  ISPs and  telecommunications
providers in the future.

         To better  focus its efforts on its core Telecom  Services  operations,
the  Company  disposed  of  certain  assets  which  management  believes  do not
complement its overall business  strategy.  Due primarily to the loss of a major
customer,  which  generated a  significant  obligation  under a volume  discount

                                       23
<PAGE>

agreement  with its call  transport  provider,  the board of  directors of Zycom
Corporation  ("Zycom")  approved  a plan on  August  25,  1998 to wind  down and
ultimately discontinue Zycom's operations.  On October 22, 1998, Zycom completed
the transfer of all customer  traffic to other providers and on January 4, 1999,
the Company completed the sale of the remainder of Zycom's long-lived  operating
assets to an  unrelated  third party.  On February  17,  1999,  the Company sold
certain of the operating assets and liabilities of NETCOM On-Line  Communication
Services,  Inc.  ("NETCOM") to MindSpring for total proceeds of $245.0  million,
and on March 16,  1999,  the Company  sold all of the capital  stock of NETCOM's
international  operations  in Canada and the United  Kingdom to other  unrelated
third parties for total  proceeds of  approximately  $41.1  million.  During the
three months ended March 31, 1999,  the Company  recorded a combined gain on the
sales of the operations of NETCOM of approximately $193.0 million, net of income
taxes  of  approximately  $6.4  million.  Offsetting  the  gain on the  sales is
approximately  $16.6  million  of net  losses  from  operations  of NETCOM  from
November 3, 1998 (the date on which the Company's board of directors adopted the
formal  plan to dispose of the  operations  of NETCOM)  through the dates of the
sales.  Since the operations  sold were acquired by the Company in a transaction
accounted for as a pooling of interests, the gain on the sales of the operations
of NETCOM is classified as an extraordinary  item in the Company's  consolidated
statement  of  operations.  For  fiscal  1996,  1997 and 1998,  Zycom and NETCOM
combined reported revenue of $135.4 million,  $189.0 million and $181.6 million,
respectively,  and  EBITDA  losses  (before  nonrecurring  charges)  of  $(30.4)
million,  $(12.1)  million  and $(18.0)  million,  respectively.  The  Company's
consolidated  financial statements reflect the operations of Zycom and NETCOM as
discontinued  for all  periods  presented.  The  Company  will from time to time
evaluate  all of its assets as to their core need and,  based on such  analysis,
may sell or  otherwise  dispose of assets  which do not  complement  its overall
business strategy.

         In  conjunction  with the sale to  MindSpring,  the  legal  name of the
NETCOM  subsidiary  was changed to ICG PST, Inc.  ("PST").  PST has retained the
domestic  Internet  backbone  assets  formerly owned by NETCOM which include 236
POPs serving  approximately  700 cities  nationwide.  PST intends to utilize the
retained  network  operating  assets to provide  wholesale  Internet  access and
enhanced  network  services to MindSpring and other ISPs and  telecommunications
providers.  On February 17, 1999, the Company entered into an agreement to lease
to MindSpring for a one-year  period the capacity of certain  network  operating
assets  formerly  owned by NETCOM and  retained by the  Company.  MindSpring  is
utilizing  the  Company's  network  capacity to provide  Internet  access to the
dial-up  services  customers  formerly  owned  by  NETCOM.  Over the term of the
one-year agreement, MindSpring is required to pay the Company a minimum of $27.0
million,  although  such minimum is subject to increase  dependent  upon network
usage.  In addition,  the Company is receiving for a one-year  period 50% of the
gross revenue earned by MindSpring from the dedicated access customers  formerly
owned by NETCOM, estimated to be approximately $10.0 million for the term of the
agreement.  Although the Company expects to generate cash operating losses under
this  agreement,  any such losses will be offset by the periodic  recognition of
approximately $26.0 million of the proceeds from the sale of certain of NETCOM's
domestic  operating  assets and  liabilities  to  MindSpring,  which the Company
deferred on  February  17,  1999.  Accordingly,  the Company  does not expect to
recognize any revenue,  operating costs or selling,  general and  administrative
expenses from services provided to MindSpring for the term of the agreement. Any
incremental revenue or costs generated by other customers,  or by other services
provided  to  MindSpring,  will  be  recognized  in the  Company's  consolidated
statement of operations as incurred.

         Additionally,  the  Company  intends to provide  network  capacity  and
enhanced  data  services  to ISPs and  other  telecommunications  providers,  as
required.  In December  1998, the Company  announced  plans to offer several new
network  services to its business and ISP customers by utilizing its  nationwide
data network and service capabilities to carry out-of-region traffic and enhance
data services provided. One of the services currently being offered is modemless
remote access service ("RAS"). RAS, also known as managed modem service,  allows
the  Company  to  provide  modem  access  at its own  switch  location,  thereby
eliminating the need for ISPs to deploy modems physically at each of their POPs.
The benefits to ISPs,  including  reduced capital  expenditures and the shift of
network management  responsibility from the ISPs to the Company,  will allow the
Company to act as an  aggregator  of ISP traffic.  In offering  RAS, the Company
provides  radius  routing and proxy  services at the modem bank connected to the
Company's local switch, which services are the authentication services necessary
to validate and  accurately  route incoming call traffic to the ISP. The Company
also provides  transport  services to deliver all Internet  protocol ("IP") data
packets  either  directly  to the  ISP,  if the  ISP  is not  collocated  at the
Company's  local  switch,  or  directly  to the  Internet,  bypassing  the  ISP.
Additionally,  through its network  operations  center, the Company monitors the

                                       24
<PAGE>

usage of each port and is  responsible  for the  administration  of all  network
repair and maintenance. The Company is currently offering Internet RAS services,
or  expanded  originating  services,  to  MindSpring  and expects to extend such
services  offerings  to other ISPs in the future.  In August  1998,  the Company
began  offering  enhanced  telephony  services  via IP  technology.  The Company
currently offers this service in 230 major cities in the United States, covering
more than 90% of the commercial long distance market. The Company carries the IP
traffic over its  nationwide  data network and terminates a large portion of the
traffic via its own POPs.  The Company  also began  offering  integrated  access
service  ("IAS")  which  allows voice and data traffic to be carried on the same
circuit.  Through equipment  installed by the Company at the customers' premises
and in the Company's central offices,  IAS provides expanded bandwidth for small
to medium-sized  business  customers as an alternative to purchasing  additional
circuits.  Data traffic,  including Internet traffic, from IAS service offerings
will be carried over the Company's  nationwide network. The Company's nationwide
network will also be utilized in offering peering services to its ISP customers,
in which service offerings the Company will become the general backbone provider
for its customers.  Additionally,  the Company intends to provide other enhanced
network services as demand warrants.

         The Company will  continue to expand its network and service  offerings
through  construction,  leased facilities,  strategic  alliances and mergers and
acquisitions.  For example,  on December 31, 1998,  the Company  purchased  from
Central and South West Corporation ("CSW") 100% of the partnership  interests in
ICG ChoiceCom, L.P. ("ChoiceCom"),  a strategic alliance with CSW formed for the
purpose of  developing  and  marketing  telecommunications  services  in certain
cities in Texas.  ChoiceCom  is based in Austin,  Texas and  currently  provides
local exchange and long distance  services in Austin,  Corpus  Christi,  Dallas,
Houston and San Antonio,  Texas.  For fiscal 1997 and 1998,  ChoiceCom  reported
revenue of $0.3  million  and $5.8  million,  respectively,  and  EBITDA  losses
(before   nonrecurring   charges)  of  $(5.5)   million  and  $(13.6)   million,
respectively.   Additionally,  on  the  acquisition  date,  ChoiceCom  had  five
operating  high  capacity  digital  voice  switches and two data  communications
switches and had 19,569 access lines in service,  including  15,282 access lines
previously  sold by ICG on behalf  of  ChoiceCom.  In March  1999,  the  Company
entered  into an agreement  with  NorthPoint  Communications,  Inc., a data CLEC
based in San Francisco,  California ("NorthPoint"),  which designates NorthPoint
as the Company's preferred digital subscriber line ("DSL") provider through June
1, 2001. A  significant  portion of the  Company's DSL traffic will be routed by
NorthPoint to the  Company's  asynchronous  transfer  mode ("ATM")  switches and
transported by the Company either to the ISP, via a point to point connection or
via IP technology, or directly to the Internet, as required. The Company expects
to purchase a minimum of 75,000 digital  subscriber lines from NorthPoint during
the term of the agreement. In April 1999, the Company signed a nonbinding letter
of intent with a large national ISP which is currently a local exchange customer
of the Company. If the agreement is finalized, the Company will provide Internet
RAS to the ISP for a seven-year  period for an estimated $290.0 million over the
term of the  agreement.  The Company is currently  converting the ISP's existing
primary rate interface  ("PRI") lines to accommodate  RAS service and expects to
convert  a total  of  60,000  PRI  lines  in  conjunction  with  the  agreement.
Additionally,  the letter of intent contains  pricing  provisions  which, if the
agreement is finalized,  will reduce the Company's reliance in future periods on
revenue from  transport  and  termination  charges  generated by local  exchange
services  provided  to  customers  of the  ISP.  See  "Liquidity  Transport  and
Termination Charges." Also in April 1999, the Company announced its intention to
expand its RAS and other network service offerings during 1999 to the major U.S.
markets of Boston, New York, Washington D.C., Miami, Chicago and Seattle.

         In conjunction with the increase in its service offerings,  the Company
has and will continue to need to spend significant amounts on sales,  marketing,
customer  service,  engineering and support personnel prior to the generation of
corresponding  revenue.   EBITDA,  EBITDA  (before  nonrecurring  charges),  and
operating  and net losses have  generally  increased  immediately  preceding and
during  periods of relatively  rapid network  expansion and  development  of new
services.  Since  the  quarter  ended  June  30,  1996,  EBITDA  losses  (before
nonrecurring  charges) have improved for each consecutive  quarter,  through and
including  the  quarter  ended  March 31,  1999 for which the  Company  reported
positive  EBITDA before  nonrecurring  charges of $10.5 million.  As the Company
provides a greater volume of higher margin services,  principally local exchange
services, carries more traffic on its own facilities rather than ILEC facilities
and obtains  the right to use  unbundled  ILEC  facilities,  while  experiencing
decelerating   increases   in   personnel   and  other   selling,   general  and
administrative  expenses supporting its operations,  any or all of which may not
occur, the Company  anticipates that EBITDA performance will continue to improve
in the near term.

                                       25
<PAGE>

Results of Operations

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

                                                                       Three months ended March 31,
                                                ---------------------------------------------------------------------------
                                                             1998                                     1999
                                               ----------------------------------     -------------------------------------
                                                      $                 %                       $                  %
                                                ---------------   --------------       --------------------   -------------
                                                                               (unaudited)
 Statement of Operations Data:                                                (in thousands)
 Revenue:
<S>                                                 <C>                <C>                      <C>                 <C>
   Telecom services                                  58,487              74                     104,331              81
   Network services                                  11,431              15                      13,500              10
   Satellite services                                 8,949              11                      11,688               9
                                                ---------------   ---------------       -----------------  ----------------
     Total revenue                                   78,867             100                     129,519             100
 Operating costs:
   Telecom services                                  45,658                                      53,649
   Network services                                  10,865                                      10,303
   Satellite services                                 4,992                                       6,224
                                                ---------------   ---------------       -----------------  ----------------
     Total operating costs                           61,515              78                      70,176              54
 Selling, general and administrative:
   Telecom services                                  30,964                                      38,424
   Network services                                   3,818                                       3,049
   Satellite services                                 3,126                                       3,036
   Corporate services (1)                             4,418                                       4,384
                                                ---------------   ---------------       -----------------  ----------------
     Total selling, general and administrative       42,326              54                      48,893              38
 Depreciation and amortization                       13,603              17                      39,031              30
 Net loss (gain) on disposal of long-lived
   assets                                               505               1                        (908)             (1)
                                                ---------------   ---------------       -----------------  ----------------
        Operating loss                              (39,082)            (50)                    (27,673)            (21)

Other Data:
Net cash used by operating activities                (6,539)                                    (43,833)
Net cash provided by investing activities            36,681                                     130,296
Net cash provided (used) by financing
  activities                                        294,197                                        (521)
EBITDA (2)                                          (25,479)            (32)                     11,358               9
EBITDA (before nonrecurring charges) (2)            (24,974)            (32)                     10,450               8
Capital expenditures of continuing
  operations (3)                                     65,748                                     105,717
Capital expenditures of discontinued
  operations (3)                                      6,511                                           -
                                                                                                                (Continued)
</TABLE>

                                       26
<PAGE>
<TABLE>
<CAPTION>
                                             March 31,          June 30,        September 30,     December 31,        March 31,
                                                1998              1998              1998              1998              1999
                                           ---------------    -------------    ----------------   --------------    --------------
                                                                                (unaudited)
Statistical Data (4):
<S>                                            <C>              <C>                <C>              <C>                <C>  
Full time employees                              3,050            3,089              3,251            3,415              2,665
Telecom services:
   Access lines in service (5)                 186,156          237,458            290,983          354,482            418,610
   Buildings connected:
     On-net                                        637              665                684              777                789
     Hybrid (6)                                  3,294            3,733              4,217            4,620              5,337
                                           ---------------    --------------    -------------     -------------     --------------
       Total buildings connected                 3,931            4,398              4,901            5,397              6,126
   Operational switches:
     Voice                                          20               20                 21               29                 29
     Data                                           15               15                 15               16                 17
                                           ---------------    --------------    -------------     -------------     --------------
       Total operational switches                   35               35                 36               45                 46
   Fiber route miles (7):
     Operational                                 3,194            3,812              3,995            4,255              4,351
     Under construction                              -                -                  -                -                533
   Fiber strand miles (8):
     Operational                               118,074          124,642            127,756          134,152            155,788
     Under construction                              -                -                  -                -             15,863
   Collocations with ILECs                          35               45                 47               59                111
Satellite services:
   C-Band installations (9)                         59               66                 69               76                 78
</TABLE>
(1)     Corporate   Services  consists  of  the  operating   activities  of  ICG
        Communications,  Inc., ICG Funding, LLC, ICG Canadian Acquisition, Inc.,
        ICG Holdings  (Canada) Co., ICG Holdings,  Inc., ICG Services,  Inc. and
        ICG Equipment, Inc., which primarily hold securities and provide certain
        legal,  accounting  and  finance,  personnel  and  other  administrative
        support services to the business units.

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

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

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

(5)     Access lines in service at March 31, 1999  includes  331,146 lines which
        are provisioned  through the Company's switch and 87,464 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.

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

                                       27
<PAGE>
(7)     Fiber  route miles  refers to the number of miles of fiber optic  cable,
        including  leased  fiber.  As of March 31,  1999,  the Company had 4,351
        fiber route  miles,  of which 48 fiber  route  miles were  leased  under
        operating leases. Fiber route miles under construction  represents fiber
        under  construction  which is  expected  to be  operational  within  six
        months.

(8)     Fiber strand miles refers to the number of fiber route miles,  including
        leased fiber, along a  telecommunications  path multiplied by the number
        of fiber strands along that path. As of March 31, 1999,  the Company had
        15,863 fiber strand  miles,  of which 856 fiber strand miles were leased
        under operating leases. Fiber strand miles under construction represents
        fiber under  construction which is expected to be operational within six
        months.

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

Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998

         Revenue.  Total  revenue  for the three  months  ended  March 31,  1999
increased  $50.7  million,  or 64%,  from the three months ended March 31, 1998.
Telecom Services  revenue  increased 78% to $104.3 million due to an increase in
revenue from local  services  (dial  tone),  long  distance  and special  access
services,  offset in part by a decline in average  unit pricing and in wholesale
switched services  revenue.  Local services revenue increased from $24.3 million
(42% of Telecom  Services  revenue) for the three months ended March 31, 1998 to
$67.4 million (65% of Telecom Services revenue) for the three months ended March
31, 1999,  primarily due to an increase in local access lines from 186,156 lines
in service at March 31, 1998 to 418,610  lines in service at March 31, 1999.  In
addition,  local access revenue includes  revenue of approximately  $8.5 million
and  $30.8  million  for the  three  months  ended  March  31,  1998  and  1999,
respectively,   for  reciprocal  compensation  relating  to  the  transport  and
termination of local traffic to ISPs from customers of ILECs pursuant to various
interconnection  agreements.  These agreements are subject to renegotiation over
the next several months. While management believes that these agreements will be
replaced by agreements  offering the Company some form of  compensation  for ISP
traffic,   the   renegotiated   agreements  may  reflect  rates  for  reciprocal
compensation  which are lower than the rates  under the current  contracts.  See
"Liquidity - Transport  and  Termination  Charges."  Revenue from long  distance
services  increased  from $3.9 million for the three months ended March 31, 1998
to $5.1  million for the three  months  ended  March 31,  1999.  Special  access
revenue  increased from $16.1 million (28% of Telecom Services  revenue) for the
three  months  ended March 31, 1998 to $22.6  million  (22% of Telecom  Services
revenue) for the three months ended March 31, 1999. Switched access (terminating
long  distance)  revenue  decreased  to $9.2  million for the three months ended
March 31, 1999,  compared to $14.2  million for the three months ended March 31,
1998. The Company has raised prices on its wholesale  switched  services product
in order to improve  margins.  Revenue  from data  services  did not  generate a
material portion of total revenue during either period.

         Network Services  revenue  increased 18% to $13.5 million for the three
months  ended March 31,  1999,  compared to $11.4  million for the three  months
ended March 31, 1998. The increase in Network  Services revenue is primarily due
to an increase in the volume of  integrated  cabling  services in addition to an
overall increase in other service installations.  In addition,  Network Services
provides  certain  cabling and other service  installation  on behalf of Telecom
Services, as Telecom Services provisions new customers and services.  Due to the
growth of Telecom  Services during fiscal 1998 and into 1999,  Network  Services
has  been and will  continue  to be  required  to  spend  increasing  management
attention and resources on providing cabling and other service  installation for
Telecom  Services.  Amounts received from Telecom Services for work performed is
eliminated in consolidation.

         Satellite  Services  revenue  increased $2.7 million,  or 31%, to $11.7
million for the three months ended March 31, 1999.  This  increase is due to the
operations of Maritime Telecommunications Network, Inc. ("MTN"), which comprised
all of  Satellite  Services  revenue for the three  months ended March 31, 1999,
compared  to  $5.4   million  for  the  same  period  in  1998.   MTN's   C-band
installations, which include both military and cruise vessels, increased from 59
at March 31, 1998 to 78 at March 31, 1999,  an increase of 32%. The Company sold
the remaining operating  subsidiaries of Satellite Services,  other than MTN, in
August and November 1998.

         Operating costs. Total operating costs for the three months ended March
31, 1999 increased  $8.7 million,  or 14%, from the three months ended March 31,

                                       28
<PAGE>

1998. Telecom Services  operating costs increased from $45.7 million,  or 78% of
Telecom  Services  revenue,  for the three  months ended March 31, 1998 to $53.6
million,  or 51% of Telecom Services  revenue,  for the three months ended March
31, 1999.  Telecom Services operating costs consist of payments to ILECs for the
use of network  facilities  to support  special and  switched  access  services,
network  operating  costs,  right of way fees and other  costs.  The increase in
operating costs in absolute dollars is attributable to the increase in volume of
local and special access  services and the increase in network  operating  costs
which include engineering and operations  personnel dedicated to the development
and launch of local  exchange  services.  The decrease in  operating  costs as a
percentage of Telecom  Services  revenue is due primarily to a greater volume of
higher margin services, principally local exchange services. The Company expects
the Telecom Services ratio of operating costs to revenue will further improve as
the Company  provides a greater  volume of higher margin  services,  principally
local exchange services,  carries more traffic on its own facilities rather than
the ILEC  facilities and obtains the right to use unbundled  ILEC  facilities on
satisfactory terms, any or all of which may not occur.

         Network  Services  operating  costs  decreased 5% to $10.3  million and
decreased as a  percentage  of Network  Services  revenue from 95% for the three
months  ended March 31, 1998 to 76% for the three  months  ended March 31, 1999.
The  decrease in  operating  costs in absolute  dollars and as a  percentage  of
revenue is due to the decrease in cost overruns between the comparative  periods
and the  decentralization  of Network  Services in fiscal 1998 which  eliminated
certain  duplicate costs.  Network Services  operating costs include the cost of
equipment sold, direct hourly labor and other indirect project costs.

         Satellite  Services  operating  costs increased to $6.2 million for the
three months ended March 31, 1999,  from $5.0 million for the three months ended
March 31, 1998.  Satellite Services operating costs as a percentage of Satellite
Services revenue decreased from 56% for the three months ended March 31, 1998 to
53% for the three  months  ended March 31,  1999 as a result of the  increase in
revenue of MTN which provides  relatively higher margins than the other maritime
services  operations which the Company sold in August 1998.  Satellite  Services
operating  costs consist  primarily of  transponder  lease costs and the cost of
equipment sold.

         Selling,  general and administrative  expenses.  Total selling, general
and  administrative  ("SG&A") expenses for the three months ended March 31, 1999
increased  $6.6  million,  or 16%,  compared to the three months ended March 31,
1998,  and  decreased  as a percentage  of total  revenue from 54% for the three
months  ended March 31, 1998 to 38% for the three  months  ended March 31, 1999.
Telecom  Services SG&A expense  increased from $31.0 million,  or 53% of Telecom
Services revenue, for the three months ended March 31, 1998 to $38.4 million, or
37% of Telecom Services revenue,  for the three months ended March 31, 1999. The
increase in absolute dollars is principally due to the continued rapid expansion
of the Company's Telecom Services networks and related significant  additions to
the Company's management  information systems,  customer service,  marketing and
sales  staffs  dedicated  to  the  expansion  of  the  Company's   networks  and
implementation  of the  Company's  expanded  services  strategy,  primarily  the
development of local and long distance telephone services. As the Company begins
to benefit from the revenue  generated  by newly  developed  services  requiring
substantial  administrative,  selling  and  marketing  expense  prior to initial
service  offerings,  Telecom Services has experienced and expects to continue to
experience declining SG&A expenses as a percentage of Telecom Services revenue.

         Network  Services  SG&A  expense  decreased  $0.8  million,  from  $3.8
million,  or 33% of Network Services  revenue,  for the three months ended March
31, 1998 to $3.0  million,  or 23% of Network  Services  revenue,  for the three
months ended March 31, 1999.  This  decrease is primarily  due to a reduction in
personnel as a result of the  decentralization of Network Services during fiscal
1998. In addition,  certain long-term  operating leases on field offices expired
during fiscal 1998 and were not renewed or replaced.

         Satellite  Services  SG&A expense  decreased  from $3.1 million for the
three  months  ended March 31, 1998 to $3.0  million for the three  months ended
March  31,  1999.  Additionally,  SG&A  expense  decreased  as a  percentage  of
Satellite Services revenue from 35% for the three months ended March 31, 1998 to
26% for the three  months ended March 31, 1999 due to the growth of MTN revenue,
without proportional  increases in SG&A expenses, and the sales of the remaining
operating  subsidiaries  of  Satellite  Services  other than MTN,  in August and
November 1998,  which  companies  generated  higher SG&A expenses in relation to
revenue than MTN.

          Corporate Services SG&A expense for both the three months ended March
31, 1998 and 1999 was $4.4 million.

                                       29
<PAGE>

         Depreciation and amortization.  Depreciation and amortization increased
$25.4 million,  or 187%, for the three months ended March 31, 1999,  compared to
the three months ended March 31, 1998,  primarily due to increased investment in
depreciable  assets  resulting  from the  continued  expansion of the  Company's
networks and services and increased  amortization arising from goodwill recorded
in conjunction with three purchase  business  combinations  completed during the
second  half  of  fiscal  1998.  The  Company  expects  that   depreciation  and
amortization will continue to increase as the Company continues to invest in the
expansion and upgrade of its regional fiber and nationwide data networks.

           Net loss (gain) on disposal of long-lived  assets. Net loss (gain) on
disposal of long-lived assets fluctuated from a net loss of $0.5 million for the
three  months  ended March 31, 1998 to a net gain of $0.9  million for the three
months ended March 31, 1999.  Net loss on disposal of long-lived  assets for the
three  months  ended  March  31,  1998  relates  to  the  write-off  of  certain
installation  costs of  disconnected  special  access  customers.  For the three
months ended March 31, 1999,  net gain on disposal of long-lived  assets relates
primarily  to the  sale  of  certain  of the  Company's  Federal  Communications
Commission ("FCC") licenses.

         Interest expense.  Interest expense increased $12.9 million, from $34.5
million for the three  months  ended March 31,  1998,  to $47.4  million for the
three months  ended March 31, 1999,  which  includes  $45.6  million of non-cash
interest.  The  increase is primarily  attributable  to an increase in long-term
debt,  primarily the 10% Senior Discount Notes due 2008 (the "10% Notes") issued
in  February  1998 and the 9 7/8%  Senior  Discount  Notes due 2008 (the "9 7/8%
Notes")  issued in April 1998.  In  addition,  the  Company's  interest  expense
increased,  and will continue to increase,  because the principal  amount of its
indebtedness  increases until the Company's  senior  indebtedness  begins to pay
interest in cash.

         Interest  income.  Interest  income  decreased $1.4 million,  from $5.5
million for the three months ended March 31, 1998, to $4.1 million for the three
months ended March 31, 1999.  The  decrease is  attributable  to the decrease in
cash, cash equivalents and short-term investments as the Company funds operating
losses and continues to invest  available  cash  balances in  telecommunications
equipment and other assets.

         Other expense,  net. Other expense, net increased from $0.3 million for
the three months ended March 31, 1998 to $0.5 million for the three months ended
March 31, 1999. Other expense,  net recorded in the three months ended March 31,
1998 consists of litigation  settlement  costs. For the three months ended March
31, 1999, other expense,  net primarily  includes  litigation  settlement costs,
offset by an unrealized gain on the common stock of MindSpring which the Company
received as partial  consideration  for the sale of the domestic  operations  of
NETCOM.

         Accretion   and   preferred   dividends  on  preferred   securities  of
subsidiaries.  Accretion  and  preferred  dividends on preferred  securities  of
subsidiaries  increased  $1.6  million,  from $13.2 million for the three months
ended March 31, 1998 to $14.8 million for the three months ended March 31, 1999.
The increase is due  primarily  to the periodic  payment of dividends on the 14%
Exchangeable  Preferred  Stock  Mandatorily  Redeemable 2008 (the "14% Preferred
Stock") and the 14 1/4% Exchangeable Preferred Stock Mandatorily Redeemable 2009
(the "14 1/4% Preferred  Stock") in additional shares of 14% Preferred Stock and
14 1/4% of  Preferred  Stock.  Accretion  and  preferred  dividends on preferred
securities of subsidiaries recorded during the three months ended March 31, 1999
consists of the  accretion of issuance  costs ($0.3  million) and the accrual of
the preferred  securities  dividends ($14.5 million)  associated with the 6 3/4%
Exchangeable   Limited  Liability  Company  Preferred   Securities   Mandatorily
Redeemable 2009 (the "6 3/4% Preferred Securities"), the 14% Preferred Stock and
the 14 1/4% Preferred Stock.

         Loss  from  continuing  operations.  Loss  from  continuing  operations
increased  $4.8  million,  or 6%, from $81.6  million for the three months ended
March 31, 1998 to $86.3 million for the three months ended March 31, 1999 due to
the increases in depreciation and amortization and interest  expense,  offset by
an increase in operating margin, as noted above.

         Loss from discontinued operations. For the three months ended March 31,
1998,  loss from  discontinued  operations  was $20.2  million,  or 20%,  of the
Company's net loss and consists of the combined net loss of Zycom and NETCOM for
the three-month  period.  Zycom terminated its normal  operations on October 22,
1998 and, accordingly, the Company reported no loss from discontinued operations

                                       30
<PAGE>
of Zycom for the three months ended March 31, 1999.  Since the Company  expected
to report a gain on the  disposition  of NETCOM,  the Company  deferred  the net
losses from  operations  of NETCOM from  November 3, 1998 (the date on which the
Company's  board  of  directors  adopted  the  formal  plan  to  dispose  of the
operations  of  NETCOM)  through  the dates of the sales and,  accordingly,  the
Company  reported no loss from  discontinued  operations of NETCOM for the three
months ended March 31, 1999.

         Extraordinary  gain on sales  of  operations  of  NETCOM.  The  Company
reported an  extraordinary  gain on the sales of the operations of NETCOM during
the three months ended March 31, 1999 of $193.0 million,  net of income taxes of
$6.4 million. Offsetting the gain on the sales is approximately $16.6 million of
net losses of  operations  of NETCOM from  November 3, 1998 through the dates of
the sales and $26.0 million of deferred  sales proceeds from the sale of certain
of the domestic  operating  assets and liabilities of NETCOM to MindSpring.  The
deferred  proceeds will be  recognized on a periodic  basis over the term of the
Company's network capacity agreement with MindSpring.

Liquidity and Capital Resources

         The Company's  growth has been funded  through a combination of equity,
debt and lease  financing.  As of March 31, 1999, the Company had current assets
of  $585.6  million,   including  $338.5  million  of  cash,  cash  equivalents,
restricted cash and short-term  investments  available for sale,  which exceeded
current  liabilities  of $171.3  million,  providing  working  capital of $414.3
million.   The  Company   invests   excess  funds   primarily   in   short-term,
interest-bearing  investment-grade  securities until such funds are used to fund
the capital  investments  and  operating  needs of the Company's  business.  The
Company's short term investment  objectives are safety,  liquidity and yield, in
that order.

Net Cash Used By Operating Activities

         The Company's operating  activities used $6.5 million and $43.8 million
for the three months ended March 31, 1998 and 1999, respectively.  Net cash used
by operating  activities is primarily due to losses from  continuing  operations
and increases in receivables,  which are partially  offset by changes in working
capital items and non-cash  expenses,  such as  depreciation  and  amortization,
deferred  interest  expense and accretion and preferred  dividends on subsidiary
preferred securities.

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

Net Cash Provided By Investing Activities

         Investing  activities  provided $36.7 million and $130.3 million in the
three months ended March 31, 1998 and 1999,  respectively.  Net cash provided by
investing  activities  includes cash expended for the  acquisition  of property,
equipment  and other  assets of $65.7  million and $102.0  million for the three
months ended March 31, 1998 and 1999,  respectively.  Also  included in net cash
provided by  investing  activities  for the three months ended March 31, 1999 is
the purchase of long-term investments of $27.5 million,  offset by proceeds from
the sales of the  operations of NETCOM of $252.9  million.  For the three months
ended March 31, 1998,  the Company  received  net proceeds  from the sale of the
Company's corporate headquarters of $26.9 million and proceeds from the sales of
short-term  investments  available for sale of $83.3  million.  The Company will
continue to use cash in 1999 and subsequent  periods for the construction of new
networks, the expansion of existing networks and, potentially, for acquisitions.
The Company  acquired  assets under  capital  leases of $3.8 million  during the
three months ended March 31, 1999.

Net Cash Provided (Used) By Financing Activities

         Financing  activities  provided $294.2 million and used $0.5 million in
the three months ended March 31, 1998 and 1999, respectively.  Net cash provided
by financing  activities  for the three months ended March 31, 1998 includes net
proceeds  from  the  private  placement  of 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

                                       31
<PAGE>
obtained through public and private  offerings of ICG and ICG Holdings  (Canada)
Co.   ("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. Net cash provided (used) by financing activities for the three months
ended March 31, 1998 and 1999 also include  proceeds from the issuance of common
stock in conjunction with the exercise of options and warrants and the Company's
employee stock purchase plan, offset by principal payments on long-term debt and
capital  leases and payments of preferred  dividends on preferred  securities of
subsidiaries.

         As of March 31, 1999,  the Company had an  aggregate  of  approximately
$76.5 million of capital lease  obligations  and an aggregate  accreted value of
approximately  $1.6 billion was  outstanding  under the 13 1/2% Senior  Discount
Notes due 2005 (the "13 1/2 % Notes"),  the 12 1/2%  Senior  Discount  Notes due
2006 (the "12 1/2 % Notes"), the 11 5/8% Senior Discount Notes due 2007 (the "11
5/8 % Notes"),  the 10% Notes and the 9 7/8%  Notes.  The 13 1/2% Notes  require
payments of interest to be made in cash commencing  March 15, 2001 and mature on
September 15, 2005. The 12 1/2% Notes require payments of interest to be made in
cash  commencing  November 1, 2001 and mature on May 1, 2006.  The 11 5/8% Notes
require  payments of interest to be made in cash  commencing  September 15, 2002
and mature on March 15, 2007. The 10% Notes require payments of interest in cash
commencing  August 15, 2003 and mature on February  15,  2008.  The 9 7/8% Notes
require  payments of interest in cash commencing  November 1, 2003 and mature on
May 1, 2008. The 6 3/4% Preferred Securities require payments of dividends to be
made in cash through November 15, 2000. In addition, the 14% Preferred Stock and
14  1/4%  Preferred  Stock  require  payments  of  dividends  to be made in cash
commencing June 15, 2002 and August 1, 2001, respectively. As of March 31, 1999,
the Company had $33.6 million of other indebtedness outstanding. With respect to
senior indebtedness outstanding on March 31, 1999, the Company has cash interest
payment  obligations of approximately  $113.3 million in 2001, $158.0 million in
2002,  $212.6  million  in 2003 and  $257.2  million  in 2004.  With  respect to
preferred  securities  currently  outstanding,  the  Company  has cash  dividend
obligations of approximately  $6.7 million remaining in 1999 and $8.9 million in
2000,  for which the Company has  restricted  cash  balances  available for such
dividend payments, $10.7 million in 2001 and $35.4 million in 2002 and each year
thereafter  through  2007.  Accordingly,  the  Company  may have to  refinance a
substantial amount of indebtedness and obtain substantial additional funds prior
to March  2001.  The  Company's  ability to do so will  depend on,  among  other
things,  its financial  condition at the time,  restrictions  in the instruments
governing its  indebtedness,  and other factors,  including  market  conditions,
beyond the control of the Company.  There can be no  assurance  that the Company
will be able to refinance such  indebtedness,  including such capital leases, or
obtain  such  additional  funds,  and if the  Company  is unable to effect  such
refinancings or obtain additional funds, the Company's ability to make principal
and interest payments on its indebtedness or make payments of cash dividends on,
or the mandatory  redemption  of, its preferred  securities,  would be adversely
affected.

Capital Expenditures

         The Company's capital expenditures of continuing  operations (including
assets acquired under capital leases and excluding  payments for construction of
the Company's corporate  headquarters) were $65.7 million and $105.7 million for
the three  months  ended  March 31,  1998 and 1999,  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  $345.0  million  during  the
remainder  of 1999,  including  approximately  $40.0  million  which the Company
expects to incur under its letter of intent with a large national ISP to provide
Internet  RAS. To facilitate  the  expansion of its services and  networks,  the
Company has entered into  equipment  purchase  agreements  with various  vendors
under which the  Company  has  committed  to  purchase a  substantial  amount of
equipment and other assets,  including a full range of switching systems,  fiber
optic cable, network electronics, software and services. If the Company fails to
meet the minimum  purchase level in any given year,  the vendor may  discontinue
certain discounts,  allowances and incentives otherwise provided to the Company.
Actual capital  expenditures will depend on numerous factors,  including certain
factors beyond the Company's control. These factors include the nature of future
expansion  and  acquisition  opportunities,  economic  conditions,  competition,
regulatory   developments  and  the  availability  of  equity,  debt  and  lease
financing.
                                       32
<PAGE>
Other Cash Commitments and Capital Requirements

         The  Company's  operations  have  required and will continue to require
significant capital  expenditures for development,  construction,  expansion and
acquisition of  telecommunications  assets.  Significant  amounts of capital are
required to be invested  before  revenue is generated,  which results in initial
negative cash flows. In addition to the Company's planned capital  expenditures,
it has other cash  commitments  as described in the  footnotes to the  Company's
unaudited consolidated financial statements for the three months ended March 31,
1999 included elsewhere herein.

         In view of the  continuing  development  of the Company's  products and
services,  the expansion of existing networks and the construction,  leasing and
licensing of new networks,  the Company will require  additional amounts of cash
in the future from outside sources.  Management believes that the Company's cash
on hand and amounts  expected to be available  through  asset sales,  cash flows
from  operations,  including the  collection of  receivables  from transport and
termination  charges,  vendor financing  arrangements and credit facilities will
provide  sufficient  funds  necessary  for the Company to expand its business as
currently planned and to fund its operations through 2000. Additional sources of
cash may  include  public  and  private  equity  and debt  financings,  sales of
non-strategic assets,  capital leases and other financing  arrangements.  In the
past,  the Company has been able to secure  sufficient  amounts of  financing to
meet its capital needs. There can be no assurance that additional financing will
be available to the Company or, if  available,  that it can be obtained on terms
acceptable to the Company.

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

Transport and Termination Charges

           The Company has recorded revenue of approximately $4.9 million, $58.3
million and $30.8  million  for fiscal  1997,  fiscal 1998 and the three  months
ended March 31, 1999, respectively,  for reciprocal compensation relating to the
transport  and  termination  of local  traffic to ISPs from  customers  of ILECs
pursuant to various interconnection  agreements. The ILECs have not paid most of
the bills they have received  from the Company and have  disputed  substantially
all of these  charges  based on the belief that such calls are not local traffic
as defined by the various agreements and under state and federal laws and public
policies.  As a result,  the Company  expects  receivables  from  transport  and
termination  charges will  continue to increase  until these  disputes have been
resolved.

         The  resolution  of these  disputes  will be based on  rulings by state
public utility commissions and/or by the FCC. To date, there have been favorable
final  rulings  from 31 state  public  utility  commissions  that ISP traffic is
subject to the payment of reciprocal  compensation under current interconnection
agreements.  Many of these state commission  decisions have been appealed by the
ILECs. On February 25, 1999, the FCC issued a decision that ISP-bound traffic is
largely  jurisdictionally   interstate  traffic.  The  decision  relies  on  the
long-standing  federal  policy  that  ISP  traffic,   although  jurisdictionally
interstate,  is treated as though it is local traffic for pricing purposes.  The
decision  also  emphasizes  that because  there are no federal  rules  governing
intercarrier  compensation for ISP traffic, the determination as to whether such
traffic is subject to reciprocal compensation under the terms of interconnection
agreements properly is made by the state commissions and that carriers are bound
by their interconnection agreements and state commission decisions regarding the
payment of  reciprocal  compensation  for ISP traffic.  The FCC has  initiated a
rulemaking  proceeding  regarding the adoption of prospective  federal rules for
intercarrier compensation for ISP traffic. In its notice of rulemaking,  the FCC
expresses its preference that compensation rates for this traffic continue to be
set by negotiations  between  carriers,  with disputes  resolved by arbitrations
conducted by state commissions,  pursuant to the  Telecommunications  Act. Since
the  issuance of the FCC's  decision on February 25,  1999,  nine state  utility
commissions  have  either  ruled or  reaffirmed  that ISP  traffic is subject to
reciprocal  compensation  under current  interconnection  agreements.  On May 5,
1999,  the  Public  Utilities  Commission  of Ohio  ("PUCO")  issued a  decision
affirming  its August 1998  decision  that ISP traffic is subject to  reciprocal
compensation  under  the  Company's  current   interconnection   agreement  with
Ameritech  Corporation  ("Ameritech").  The PUCO also denied Ameritech's request
for a stay of its  obligation  to remit  payment  to the  Company  and  directed

                                       33
<PAGE>
Ameritech  to remit the  amounts  owed to the  Company  within 45 days of May 5,
1999. The Company  expects that Ameritech will seek judicial  review of the PUCO
decision  and  that  Ameritech  will  request  the  reviewing  court to stay the
decision  pending  appeal.  The Company cannot  predict how the reviewing  court
would rule on  Ameritech's  stay request,  or the final outcome on the merits of
the court appeal.  On March 4, 1999, the Alabama Public Service  Commission (the
"Alabama PSC") issued a decision that found that reciprocal compensation is owed
for Internet traffic under four CLEC  interconnection  agreements with BellSouth
Corporation  ("BellSouth"),  which  agreements  were at issue in the proceeding.
With  respect  to the  Company's  interconnection  agreement,  which also was at
issue,  the state  commission  interpreted  certain  language  in the  Company's
agreement to exempt ISP-bound traffic from reciprocal compensation under certain
conditions. The Company believes that the Alabama PSC failed to consider (i) the
intent of the parties in negotiating and executing the Company's interconnection
agreement,  and (ii) the  specific  language  of the  Company's  interconnection
agreement  and  the  impact  of  Alabama  PSC  and  FCC  policies,  and  thereby
misinterpreted  the agreement.  The Company has filed a request with the Alabama
PSC  seeking  determination  that  the  ruling  with  respect  to the  Company's
agreement be  reconsidered,  and that the Company  should be treated the same as
the other CLECs that  participated  in the  proceeding and for which the Alabama
PSC ordered the payment of reciprocal compensation. While the Company intends to
pursue vigorously the petition for reconsideration  with the Alabama PSC, and if
the Company deems it necessary,  judicial review, the Company cannot predict the
final outcome of this issue.

         The Company has also recorded  revenue of  approximately  $19.1 million
and $5.2  million for fiscal  1998 and the three  months  ended March 31,  1999,
respectively,  related to other transport and termination  charges to the ILECs,
pursuant to the Company's interconnection  agreements with these ILECs. Included
in the Company's  trade  receivables at December 31, 1998 and March 31, 1999 are
$72.8 million and $105.5 million,  respectively,  for all receivables related to
transport and termination  charges. The receivables balance at March 31, 1999 is
net of an allowance of $8.1 million for disputed amounts.

         As the  Company's  interconnection  agreements  expire or are extended,
rates for  transport and  termination  charges are being and will continue to be
renegotiated.  Some of the  Company's  agreements  are already  being  affected.
Although the Company's interconnection agreement with BellSouth has expired, the
Company has received  written  notification  from BellSouth that the Company may
continue  operating  under the  expired  interconnection  agreement,  until such
agreement is  renegotiated  or  arbitrated  by the relevant  state  commissions.
Additionally,  the Company's  interconnection  agreement with Ameritech recently
was  extended  from  the June 15,  1999 to  February  15,  2000.  The  Company's
remaining  interconnection  agreements  expire in 1999 and 2000.  The  Company's
extension of its interconnection agreement with Ameritech includes reduced rates
for  transport  and  termination  charges,  and the  Company  expects  that  its
negotiations  with  BellSouth  will also  affect  the rates  for  transport  and
termination  charges  included in its existing  interconnection  agreement  with
BellSouth.  While the Company  believes that all revenue  recorded through March
31, 1999 is collectible  and that future revenue from transport and  termination
charges billed under the Company's  current  interconnection  agreements will be
realized,  there can be no assurance that future regulatory and judicial rulings
will be  favorable  to the  Company,  that the Alabama PSC will  reconsider  its
ruling,  or that different  pricing plans for transport and termination  charges
between  carriers  will  not  be  adopted  when  the  Company's  interconnection
agreements  are  renegotiated  or  arbitrated,  or  as a  result  of  the  FCC's
rulemaking  proceeding  on future  compensation  methods.  In fact,  the Company
believes  that  different  pricing  plans will be  considered  and adopted,  and
although the Company expects that revenue from transport and termination charges
likely will  decrease as a percentage  of total  revenue from local  services in
periods  after  the  expiration  of  current  interconnection   agreements,  the
Company's  local  termination  services  still will be required by the ILECs and
must be provided  under the  Telecommunications  Act,  and likely will result in
increasing  volume in minutes  due to the  growth of the  Internet  and  related
services markets. The Company expects to negotiate  reasonable  compensation and
collection terms for local termination services,  although there is no assurance
that such compensation will remain consistent with current levels. Additionally,
the Company  expects to supplement  its current  operations  with  revenue,  and
ultimately  EBITDA,  from new services  offerings  such as RAS and DSL services,
however,  the Company may or may not be successful in its efforts to deploy such
services profitably.

                                       34
<PAGE>
Year 2000 Compliance

Importance

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

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

Strategy

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

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

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

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

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

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

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

                                       35
<PAGE>

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

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

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

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

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

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

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

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

Current State of Readiness

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

                                       36
<PAGE>
<TABLE>
<CAPTION>
<S>                             <C>                    <C>                  <C><C>                     <C>
------------------------------- ----------------------------------------------------------------------------------------------
                                                                            Phase
------------------------------- ----------------------------------------------------------------------------------------------
                                          I                      II                     III                      IV
System and Level of Priority         Assessment             Remediation               Testing              Implementation
------------------------------- ----------------------------------------------------------------------------------------------
Networks and Products
------------------------------- ----------------------------------------------------------------------------------------------
     High                       Complete               In progress             In progress             In progress
                                                       To complete Q2 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               In progress             In progress             In progress
                                                       To complete Q2 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Low                        Complete               Complete                Complete                Complete
------------------------------- ----------------------------------------------------------------------------------------------
IT Systems
------------------------------- ----------------------------------------------------------------------------------------------
     High                       Complete               In progress             In progress             In progress
                                                       To complete Q2 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               In progress             In progress             In progress
                                                       To complete Q2 1999     To complete Q3 1999     To complete Q3 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Low                        Complete               Complete                In progress             In progress
                                                                               To complete Q3 1999     To complete Q3 1999
------------------------------- ----------------------------------------------------------------------------------------------
Building and Facilities
------------------------------- ----------------------------------------------------------------------------------------------
     High                       In progress            In progress                To be determined based on the results of
                                To complete Q2 1999    To complete Q2 1999                        Phase II
------------------------------- ---------------------- -----------------------------------------------------------------------
     Medium                     In progress                       To be determined based on the results of Phase I
                                To complete Q2 1999
------------------------------- ---------------------- -----------------------------------------------------------------------
     Low                        To begin  Q2 1999                 To be determined based on the results of Phase I
                                To complete Q3 1999
------------------------------- ----------------------------------------------------------------------------------------------
Office Equipment
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     High                       Complete               Complete                In progress             In progress
                                                                               To complete Q2 1999     To complete Q2 1999
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Medium                     Complete               Complete                Complete                Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
     Low                        Complete               Complete                Complete                Complete
------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
</TABLE>
         Separately,  the Company is in the process of reviewing  the  Company's
material  contracts with contractors and  vendors/suppliers  and considering the
necessity of renegotiating  certain existing  contracts,  to the extent that the
contracts  fail to address the  allocation  of potential  Year 2000  liabilities
between parties. Prior to entering into any new material contracts,  the Company
will seek to address the allocation of potential  Year 2000  liabilities as part
of the initial negotiation.

Costs

         The Company  expenses all incremental  costs to the Company  associated
with Year 2000 compliance issues as incurred. Through March 31, 1999, such costs
incurred were  approximately  $0.6 million,  consisting of approximately $0.4 of
replacement  hardware and software and approximately  $0.2 million of consulting
fees  and  other  miscellaneous  costs of Year  2000  compliance  reference  and
planning  materials.  The  Company has also  incurred  certain  internal  costs,
including  salaries and benefits for employees  dedicating  various  portions of
their time to Year 2000 compliance  issues,  of which costs the Company believes
has not exceeded $0.5 million  through March 31, 1999. The Company  expects that
total  future  incremental  costs  of  Year  2000  compliance  efforts  will  be
approximately $3.8 million,  consisting of $2.3 million in consulting fees, $1.5
million in  replacement  hardware and software  and other  miscellaneous  costs.
These  anticipated  costs have been included in the Company's fiscal 1999 budget
and  represent   approximately  4%  of  the  Company's   budgeted  expenses  for
information  technology  through fiscal 1999. Such cost estimates are based upon
presently available information and may change as the Company continues with its
Year 2000 compliance plan. The Company intends to use cash on hand for Year 2000
compliance costs, as necessary.

                                       37
<PAGE>
Risk, Contingency Planning and Reasonably Likely Worst Case Scenario

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

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

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

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

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

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

         The Company  invests  primarily  in high grade  short-term  investments
which consist of money market  instruments,  commercial  paper,  certificates of
deposit, government obligations and corporate bonds, all of which are considered
to be available for sale and generally have  maturities of one year or less. The
Company's short-term investment  objectives are safety,  liquidity and yield, in
that order. As of March 31, 1999, the Company had  approximately  $338.5 million
in cash, cash equivalents,  restricted cash and short-term investments available
for sale and approximately $17.5 million in long-term debt securities  available
for sale, at a weighted average fixed interest rate of 4.5% for the three months
ended March 31, 1999. A hypothetical 10% fluctuation in market rates of interest
would cause a change in the fair value of the Company's investment in marketable

                                       38
<PAGE>
securities  at March 31, 1999 of  approximately  $0.1 million and,  accordingly,
would not cause a material impact on the Company's financial  position,  results
of operations or cash flows.

         At March 31, 1999,  the  Company's  indebtedness  included $1.6 billion
under the 13 1/2%  Notes,  12 1/2% Notes,  11 5/8%  Notes,  10% Notes and 9 7/8%
Notes and $478.9 million under the 14 1/4% Preferred  Stock, 14% Preferred Stock
and 6 3/4% Preferred Securities. These instruments contain fixed annual interest
and  dividend  rates,  respectively,  and,  accordingly,  any  change  in market
interest rates would have no impact on the Company's financial position, results
of operations or cash flows.  Future  increases in interest rates could increase
the cost of any new  borrowings  by the  Company.  The  Company  does not  hedge
against future changes in market rates of interest.

Equity Price Risk

         On February 17, 1999,  the Company  completed  the sale of the domestic
operations of NETCOM to  MindSpring,  in exchange for a combination  of cash and
376,116 shares of common stock of MindSpring, valued at approximately $79.76 per
share, or $30.0 million, at the time of the transaction. Through April 16, 1999,
the Company bore some risk of market price  fluctuations  in its  investment  in
MindSpring.  In order to  mitigate  the risk  associated  with a decrease in the
market value of the Company's investment in MindSpring, the Company entered into
a hedging contract. In April 1999, the Company sold its investment in MindSpring
for net  proceeds  of  approximately  $30.4  million.  The  Company  recorded an
unrealized gain on its investment in MindSpring of approximately $0.4 million in
its  statement of  operations  for the three  months  ended March 31, 1999.  The
hedging contract was terminated upon the sale of the common stock of MindSpring.

         On March 30,  1999,  the Company  purchased,  for  approximately  $10.0
million in cash,  454,545 shares of NorthPoint  Preferred  Stock. The NorthPoint
Preferred Stock has no voting rights and is ultimately convertible into a voting
class of common stock of  NorthPoint,  at an exchange  price which  represents a
discount,  as  provided in the  relevant  documentation,  to the initial  public
offering  price of  NorthPoint's  common stock.  The Company is restricted  from
selling the NorthPoint Preferred Stock or securities obtained upon conversion of
the NorthPoint  Preferred Stock until March 23, 2000.  Accordingly,  the Company
will be subject to the effects of  fluctuations  in the fair value of the common
stock of  NorthPoint  until such time when the Company is permitted to liquidate
its investment in NorthPoint.  Although  changes in the fair market value of the
common stock of  NorthPoint  may affect the fair market  value of the  Company's
investment in NorthPoint  and cause  unrealized  gains or losses,  such gains or
losses will not be realized until the securities are sold.

                                       39
<PAGE>

                                     PART II


ITEM 1.   LEGAL PROCEEDINGS
          -----------------

          See  Note 6 (e)  to the  Company's  unaudited  condensed  consolidated
          financial  statements  for the  three  months  ended  March  31,  1999
          contained elsewhere in this Quarterly Report.

ITEM 2.   CHANGES IN SECURITIES
          ---------------------

          None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
          -------------------------------

          None.

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

          None.

ITEM 5.   OTHER INFORMATION
          -----------------

          None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

   (A)   Exhibits.

      (10)  Material Contracts.

            10.1:   Extension and Amendment to  Employment  Agreement,  dated as
                    of March 10, 1999, by  and between  ICG Communications, Inc.
                    and J. Shelby Bryan.

            10.2:   Deferred Compensation Agreement,  dated as of April 1, 1999,
                    by and between ICG Communications, Inc. and J. Shelby Bryan.

            10.3:   Loan  Agreement,  dated as of January 1, 1999,  by and among
                    TriNet Realty Capital, Inc. and ICG Services, Inc.

            10.4:   Promissory  Note, dated  as of January 1, 1999, by and among
                    TriNet Realty Capital, Inc. and ICG Services, Inc.

            10.5:   Deed of Trust, Assignment of Rents and  Security  Agreement,
                    made as of  January 1, 1999, granted  by  ICG Services, Inc.
                    for the benefit of TriNet Realty Capital, Inc.

            10.6:   Purchase  Agreement, dated as  of  January 1, 1999,  by  and
                    among TriNet  Essential Facilities X, Inc. and ICG Services,
                    Inc.
                    
      (27)  Financial Data Schedule.

            27.1:   Financial Data Schedule of ICG Communications,  Inc. for the
                    Three Months Ended March 31, 1999.

                                       40
<PAGE>
    (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, 1999:
                
               ICG Communications, Inc.
               ------------------------
          (i)  Current  Report on Form 8-K dated January 6, 1999,  regarding the
               announcement  of the Company's  definitive  agreement to sell the
               domestic  operations of NETCOM  On-Line  Communication  Services,
               Inc. to MindSpring Enterprises, Inc.

          (ii) Current  Report on Form 8-K dated  March 4, 1999,  regarding  the
               disposition  of  NETCOM  On-Line  Communication  Services,  Inc.,
               including pro forma financial information.

               ICG Communications, Inc.
               ICG Holdings (Canada) Co.
               ICG Holdings, Inc.              
               -------------------------
          (iii)Current  Report on Form 8-K dated  February 26,  1999,  regarding
               the  announcement  of  the  Company's  earnings  information  and
               results of operations for the quarter and year ended December 31,
               1998.

 
<PAGE>

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



<PAGE>

                                INDEX TO EXHIBITS




10.1:     Extension and Amendment to Employment Agreement, dated as of March 10,
          1999, by and between ICG Communications, Inc. and J. Shelby Bryan.

10.2:     Deferred  Compensation  Agreement,  dated as of April 1, 1999,  by and
          between ICG Communications, Inc. and J. Shelby Bryan.

10.3:     Loan  Agreement,  dated as of  January 1,  1999,  by and among  TriNet
          Realty Capital, Inc. and ICG Services, Inc.

10.4:     Promissory  Note,  dated as of January 1,  1999,  by and among  TriNet
          Realty Capital, Inc. and ICG Services, Inc.

10.5:     Deed of Trust, Assignment of Rents and Security Agreement,  made as of
          January 1, 1999,  granted by ICG  Services,  Inc.  for the  benefit of
          TriNet Realty Capital, Inc.

10.6:     Purchase  Agreement,  dated as of January 1, 1999, by and among TriNet
          Essential Facilities X, Inc. and ICG Services, Inc.

27.1:     Financial  Data  Schedule of ICG  Communications,  Inc.  for the Three
          Months Ended March 31, 1999.


<PAGE>


                                  EXHIBIT 10.1

Extension and Amendment to Employment Agreement, dated as of March 10, 1999, by
           and between ICG Communications, Inc. and J. Shelby Bryan.



<PAGE>


                                  EXHIBIT 10.2

 Deferred Compensation Agreement, dated as of April 1, 1999, by and between ICG
                   Communications, Inc. and J. Shelby Bryan.



<PAGE>


                                  EXHIBIT 10.3

     Loan Agreement, dated as of January 1, 1999, by and among TriNet Realty
                      Capital, Inc. and ICG Services, Inc.


<PAGE>


                                  EXHIBIT 10.4

    Promissory Note, dated as of January 1, 1999, by and among TriNet Realty
                      Capital, Inc. and ICG Services, Inc.



<PAGE>


                                  EXHIBIT 10.5

Deed of Trust, Assignment of Rents and Security Agreement, made as of January 1,
      1999, granted by ICG Services, Inc. for the benefit of TriNet Realty
                                 Capital, Inc.


<PAGE>


                                  EXHIBIT 10.6

 Purchase Agreement, dated as of January 1, 1999, by and among TriNet Essential
                   Facilities X, Inc. and ICG Services, Inc.



<PAGE>


                                  EXHIBIT 27.1

 Financial Data Schedule of ICG Communications, Inc. for the Three Months Ended
                                March 31, 1999.
<PAGE>

                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 14, 1999.



                                  ICG COMMUNICATIONS, INC.





Date:  May 14, 1999           By:  /s/ Harry R. Herbst
                                   -------------------------------------------
                                   Harry R. Herbst, Executive Vice President and
                                   Chief Financial Officer (Principal Financial 
                                   Officer)





Date:  May 14, 1999           By:  /s/ Richard Bambach
                                   -------------------------------------------
                                   Richard Bambach, Vice President and Corporate
                                   Controller (Principal Accounting Officer)


<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 14, 1999.



                                ICG HOLDINGS (CANADA) CO.





Date:  May 14, 1999          By:  /s/ Harry R. Herbst
                                  ----------------------------------------------
                                  Harry R. Herbst, Executive Vice President and
                                  Chief Financial Officer (Principal Financial
                                  Officer)






Date:  May 14, 1999          By:  /s/ Richard Bambach
                                  ----------------------------------------------
                                  Richard Bambach, Vice President and Corporate
                                  Controller (Principal Accounting Officer)


<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 14, 1999.



                               ICG HOLDINGS, INC.





Date:  May 14, 1999        By:  /s/ Harry R. Herbst
                                ----------------------------------------------
                                Harry R. Herbst, Executive Vice President and
                                Chief Financial Officer (Principal Financial 
                                Officer)






Date:  May 14, 1999        By:  /s/ Richard Bambach
                                ----------------------------------------------
                                Richard Bambach, Vice President and Corporate
                                Controller (Principal Accounting Officer)