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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K



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

For the fiscal year ended December 31, 1999

Commission File No. 000-22939

NEXTLINK COMMUNICATIONS, INC.

NEXTLINK CAPITAL, INC.

|                         |  |                               
|------------------------ |  | ------------------------------
|A Delaware Corporation   |  | I.R.S. Employer No. 91-1738221
|A Washington Corporation |  | I.R.S. Employer No. 91-1716062

1505 Farm Credit Drive, McLean, Virginia 22102

Telephone Number (703) 547-2000


Securities registered pursuant to Section 12(b) of the
Act:

NONE


Securities registered pursuant to Section 12(g) of the
Act:

Class A Common Stock, Par Value $0.02


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 
[   ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Registration S-K is not
contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.  [   ]

The aggregate market value of the Class A and Class B
Common Stock held by non-affiliates of the Registrants, based
upon the closing sale price of the Common Stock on March 15,
 2000, as reported on the NASDAQ National Market System, was
approximately $8,347,496,373. Shares of Class A and
Class B Common Stock held by each executive officer and
director and by certain persons who own 5% or more of the
outstanding Class A and Class B Common Stock have been
excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

As of March 15, 2000, the number of outstanding shares of
NEXTLINK Communications, Inc.s Class A Common Stock
was 80,621,499 and Class B Common Stock was 54,880,765.
NEXTLINK Capital, Inc. had outstanding 1,000 shares of Common
Stock, par value $0.01 per share.

NEXTLINK Capital, Inc. (NEXTLINK Capital and together
 with NEXTLINK Communications, Inc., the Registrants)
 meets the conditions set forth in General Instruction I
(1)(a) and (b) of Form 10-K and is therefore filing
this form with the reduced disclosure format.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K (e.g., Part I,
Part II, etc.) into which the document is incorporated:
(1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed
 pursuant to Rule 424(b) or (c) under the Securities
Act of 1933. The listed documents should be clearly described for
 identification purposes (e.g., annual report to security holders
 for fiscal year ended December 24, 1980).

Portions of the Companys Definitive Proxy Statement for the
 2000 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K.









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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Item 1. Business                                                                             
|Item 2. Properties                                                                           
|Item 3. Legal Proceedings                                                                    
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 5. Market for Registrants Common Stock and Related Stockholder Matters                 
|Item 6. Selected Financial Data                                                              
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 7A. Quantitative and Qualitative Disclosure About Market Risk                           
|Item 8. Financial Statements and Supplementary Data                                          
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|Item 10. Directors and Executive Officers of the Registrant                                  
|Item 11. Executive Compensation                                                              
|Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|Item 13. Certain Relationships and Related Transactions                                      
|Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                    



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TABLE OF CONTENTS

|         |  |                                                                                        |  |  |    | 
|-------- |  | -------------------------------------------------------------------------------------- |  |  | -- | 
|        
|        
|        
|        
|PART I  
|        
|        
|        
|        
|1.       |  | Business                                                                               |  |  | 1  | 
|        
|        
|        
|        
|2.       |  | Properties                                                                             |  |  | 34 | 
|        
|        
|        
|        
|3.       |  | Legal Proceedings                                                                      |  |  | 34 | 
|        
|        
|        
|        
|4.       |  | Submission of Matters to a Vote of Security Holders                                    |  |  | 34 | 
|        
|        
|        
|        
|PART II 
|        
|        
|        
|        
|5.       |  | Market for Registrants Common Stock and Related Stockholder
	 Matters                 |  |  | 37 | 
|        
|        
|        
|        
|6.       |  | Selected Financial Data                                                                |  |  | 38 | 
|        
|        
|        
|        
|7.       |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  |  | 38 | 
|        
|        
|        
|        
|7A.      |  | Quantitative and Qualitative Disclosure about Market Risk                              |  |  | 47 | 
|        
|        
|        
|        
|8.       |  | Financial Statements and Supplementary Data                                            |  |  | 48 | 
|        
|        
|        
|        
|9.       |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |  |  | 48 | 
|        
|        
|        
|        
|PART III
|        
|        
|        
|        
|10.      |  | Directors and Executive Officers of the Registrant                                     |  |  | 48 | 
|        
|        
|        
|        
|11.      |  | Executive Compensation                                                                 |  |  | 48 | 
|        
|        
|        
|        
|12.      |  | Security Ownership of Certain Beneficial Owners and Management                         |  |  | 48 | 
|        
|        
|        
|        
|13.      |  | Certain Relationships and Related Transactions                                         |  |  | 49 | 
|        
|        
|        
|        
|PART IV 
|        
|        
|        
|        
|14.      |  | Exhibits, Financial Statement Schedules, and Reports on
	Form 8-K                      |  |  | 49 | 



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##### Table of Contents



NEXTLINK Communications, Inc.

PART I




Item 1.  Business

Introduction

NEXTLINK Communications, Inc., NEXTLINK or the Company, is a
Delaware corporation, which, through its predecessor entities,
was formed on September 16, 1994. The Company was originally
organized as NEXTLINK Communications, L.L.C., a Washington
limited liability company. On January 31, 1997, NEXTLINK
Communications, L.L.C. merged into NEXTLINK Communications, Inc.,
 a Washington corporation, which on June 4, 1998
reincorporated in Delaware under the same name.

NEXTLINKs principal executive and administrative offices
currently are located at 1505 Farm Credit Drive, McLean, Virginia
 22102, and its telephone number is (703) 547-2000.

Overview

Since 1996, NEXTLINK has provided high-quality telecommunications
 services to the rapidly growing business market. We believe that
 increasing usage of both telephone service and newer data and
information services will continue to increase demand for
telecommunications capacity, or bandwidth, and for new
telecommunications services and applications.

To serve our customers broad and expanding
telecommunications needs, we have assembled a unique collection
of high-bandwidth, local and national network assets. We intend
to integrate these assets with advanced communications
technologies and services in order to become one of the
nations leading providers of a comprehensive array of
communications services.

To accomplish this:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we have built 31 high-bandwidth, or broadband, local networks in
	19 states, generally located in the central business districts of
	 the cities we serve, and we are continuing to build additional
	networks;                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | we have become the nations largest holder of broadband
	fixed wireless spectrum, with Federal Communications Commission,
	or FCC, licenses covering 95% of the population of the 30 largest
	 U.S. cities, which we will use to extend the reach of our
	networks to additional customers; and                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | we have acquired, through a joint venture known as INTERNEXT,
	rights to use unlit fiber optic strands, known as dark fiber, and
	 an empty conduit in a national broadband network now being built
	 to traverse over 16,000 miles and to connect more than 50 cities
	 in the United States and Canada, including most of the major
	metropolitan markets that our current and planned local networks
	serve. By acquiring dark fiber rather than leasing
	lit fiber capacity, we have retained control over
	decisions on where and how to deploy existing or new generations
	of optical transmission equipment to enhance our networks
	capacity and performance.

We currently offer our customers a variety of voice services and
high-speed Internet access. As our networks become increasingly
optimized for data transmission and through our pending
acquisition of Concentric Network Corporation, we plan to expand
our Internet access business and offer additional data services,
such as Internet web hosting, support for e-commerce, virtual
private network services and other customized data communications
 services. By web hosting, we mean support for customers
web sites at our central offices, running either on their
computers or on ours.

In addition, through our NEXTLINK Interactive subsidiary, we
currently provide a number of voice response, speech recognition
and e-commerce services. We plan to build on our existing
expertise in customized information and automated order
fulfillment to serve clients with e-commerce businesses, that is,
 businesses conducting high volume retail transactions over the
Internet.

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We are now operating 31 broadband local networks in 49 cities. We
 are currently building additional networks, and plan to have
operational networks in most of the 30 largest U.S. cities by the
 end of 2000. We have been successful in attracting customers in
the markets that we serve. We provided nearly 428,000 business
telephone lines to our customers as of December 31, 1999, of
 which more than 78,000 were installed in the fourth quarter of
1999.

Our local and national networks employ fiber optic technology,
which uses light waves to transmit signals over cables consisting
 of many glass fiber strands. Fiber optic strands have enough
capacity to carry tens of thousands times more traffic than
traditionally-configured copper wire. Rings of our fiber optic
cables typically encircle a citys central business district
 and connect to our central offices. These central offices
contain the switches and routers that direct calls and data
traffic to their destinations, and have space to house the
additional equipment necessary for future telecommunications
services. Wherever we can, we build and own these local networks
ourselves. We believe that owning our own network assets will
enable us to deliver higher quality and new services at a lower
cost, which we expect will increase our operating margins.

Our goal is to provide our customers with complete voice and data
 network solutions for all of their communications needs, using
our own fiber, switches and other facilities to the greatest
extent possible. Today, however, we frequently lease the existing
 copper telephone wires from the dominant local telephone company
 to make the physical connection for the short distance between
our customers and our fiber optic networks. Congress and our
industry refer to this dominant local carrier as the incumbent
local exchange carrier, or the incumbent carrier.

To reduce our reliance on connections leased from the incumbent
carrier, we intend to increase the number of customers connected
directly to our networks. In some cases, we will construct a new
fiber optic extension from our network to the customers
premises. In other cases, using our fixed wireless spectrum, we
will deploy a high-bandwidth wireless connection between an
antenna on the roof of the customers premises and an
antenna attached to our fiber rings. These wireless connections
offer high-quality broadband capacity and, in many cases, cost
less than fiber to install. We expect to deploy wireless direct
connections to our networks in 25 markets by the end of 2000.

We are also deploying a technology called Digital Subscriber
Line, or DSL, to meet the high bandwidth needs of those customers
 whose connection to our network remains over copper wire. DSL
technology increases the effective capacity of existing copper
telephone wires. We are installing our own DSL equipment to
provide these services ourselves, and we also resell another
providers DSL services.

Our networks support a variety of communications technologies.
This permits us to offer customers a set of technology options to
 meet their changing needs, and introduce new technologies as
they become available. For example, we have begun to install
Internet Protocol, or IP, routers, which will enable us to carry
Internet traffic more efficiently and to provide more data
services. We also have been installing Asynchronous Transfer
Mode, or ATM, routers and switches in our local networks, which
will enable us to meet the demands of large, high-volume
customers.

We anticipate that future IP technologies will enable the
high-bandwidth, end-to-end national network we are building to
carry data, voice and video. Such a network should also enable us
 to offer our customers entirely new classes of IP services. To
serve our customers present needs and to take advantage of
the future opportunities that technological advances may bring,
we intend to remain flexible in our technology choices.

Business Strategy

Our goal is to provide integrated, end-to-end solutions for all
of our customers communications needs over our own network.
 We plan to deliver these solutions primarily through equipment
and networks we own or control and, therefore, continue to be a
facilities-based carrier. The key components of our strategy to
achieve this goal are to:



| |   |                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Build Broadband Local Networks. We build high-bandwidth
	local networks using fiber optic cable bundles, which are capable
	 of carrying high volumes of data, voice, video and Internet
	traffic as well as other high-bandwidth services. In our newer
	markets, we install as many as 400 fiber strands in each

2



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | network, with built-in capacity for future growth. We plan to
	have completed broadband local networks in most of the
	nations 30 largest cities by the end of 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Increase Direct Customer Connections. We generally build
	our networks in the central business districts of our markets to
	permit direct connections to a high percentage of the areas
	 commercial buildings at a lower capital cost. For buildings
	where direct fiber connections to our networks are not economic,
	we will use our fixed wireless spectrum to make broadband direct
	connections where appropriate.                                                                                                                                                                                                                                                                                                        
|
| |  | Create an Integrated, End-To-End, Facilities-Based National
	Network.We will use our interest in a 16,000 mile, national
	fiber optic network to offer end-to-end communications services
	over our own facilities, rather than lines leased from others. By
	 owning these high-speed facilities rather than leasing
	lit fiber capacity, we will be able to upgrade our
	system as new generations of optical transmission equipment
	become available. This will allow us to maximize the capacity and
	 enhance the performance of our network as needed to meet our
	customers current and future broadband data and other
	communication needs, rather than relying on the owner of leased
	lines to make those upgrades.
|
| |  | Deploy New Technology Optimized for IP. We are installing
	high-capacity IP routers and switches, wavelength division
	multiplexing technology, and the latest fiber optic technology in
	 our network to further increase its capacity to meet our
	customers growing data needs. We believe that future IP
	technologies will enable our network to carry all types of
	communications traffic, including data, voice and video services.                                                                                                                                                                                                                                                                                      
|
| |  | Introduce New Internet Services. In addition to our
	current offering of high-speed Internet access, we plan to offer
	customers secure, robust web hosting services at our central
	offices, and provide extensive back-office support for their
	e-commerce operations. We expect to substantially accelerate the
	deployment of data services as a result of our pending
	acquisition of Concentric.                                                                                                                                                                                                                                                                                                                           
|
| |  | Build on Our Customer Base, Staff and Systems to Succeed in
	the Data Services Market.We will combine the strategies and
	skills we have developed competing successfully in the local
	exchange market with the proven skills of Concentric to compete
	in the expanding data services market. These include a focus on
	the business customer, close attention to customer care, and
	effective, reliable back-office systems.                                                                                                                                                                                                                                                                                                  
|
| |  | Expand Our Targeted Customer Base. Historically, our
	targeted customer base has consisted primarily of small and
	medium-sized businesses. As our capabilities expand through the
	completion of INTERNEXTs national fiber optic network, the
	addition of data service capabilities, including enhancements of
	those capabilities resulting from the Concentric acquisition, and
	 the addition of ATM and IP technology to our networks, we plan
	to expand our targeted customers to include larger national
	customers that can benefit from our unique end-to-end
	 broadband capabilities.                                                                                                                             
|
| |  | Attract Experienced Management at All Key Levels. We have
	attracted a highly qualified senior management team at our
	headquarters and throughout our field operations. Experienced
	telecommunications and technology industry executives will lead
	the implementation of our integrated telecommunications strategy.
	 We expect to benefit from the skills and experience of the
	seasoned executive, technical and marketing personnel who will be
	 joining us when the Concentric acquisition is completed.                                                                                                                                                                                                               

1999 Transactions and Developments

Local Fiber Optic Network Development. We launched service
 in 10 major metropolitan markets in 1999, each of which includes
 one or more fiber optic rings each consisting of up to 432 fiber
 optic strands. These market launches included San Diego, Seattle
 and Washington, D.C. during the first half of 1999, Newark,
Detroit and Houston during the third quarter of 1999, and
Phoenix, Boston, St. Louis and Sacramento in the fourth quarter
of 1999. In September 1999, we also connected two additional
markets to our South Bay fiber ring in the San Francisco area by
launching service in Mountain View and Santa Clara, California.

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Acquisition of Fixed Wireless Spectrum. In 1999, we
acquired licenses for broadband fixed wireless spectrum for local
 multi-point distribution services, or LMDS, in order to expand
on our ability to directly connect customers to our network. We
are now the largest owner of LMDS spectrum in the United States
holding 82 licenses covering approximately 95 percent of the
 top 30 United States markets, and have entered into agreements
to acquire additional licenses. These pending and completed
transactions include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | WNP Communications. In April 1999, we acquired
	 WNP Communications, Inc., which owned licenses for 1,150 MHz of
	LMDS spectrum, or A block LMDS licenses, in 39 cities and one
	license for 150 MHz of LMDS spectrum, or B block LMDS license, in
	 one city. The purchase price was $698.2 million, of which
	$157.7 million was paid in cash to the FCC for license fees,
	 including interest. The remainder was paid to stockholders of
	WNP, and consisted of $190.1 million in cash and 11,431,662
	shares of NEXTLINK Class A common stock.                                   
|
| |  | NEXTBAND. In June 1999, we acquired from
	Nextel Communications Inc. its 50% interest in NEXTBAND, a joint
	venture formed in January 1998 by us and Nextel. As a result, we
	now own all of NEXTBAND, which holds A and B block LMDS licenses
	in 42 markets throughout the United States. The purchase price
	for Nextels interest was $137.7 million in cash, and was
	determined based on a formula derived from the purchase price
	paid in the WNP acquisition.                                                                                                                
|
| |  | SPEEDUS.com. In July 1999, we purchased a
	license for 150 MHz of LMDS spectrum held by SPEEDUS.com, Inc. in
	 the five boroughs that comprise New York City and 2,000,000
	shares of SPEEDUS.com common stock for a total of
	$40.0 million. SPEEDUS.com is a facilities based high-speed
	Internet service provider.                                                                                                                                                                                                                                                                
|
| |  | HighSpeed. In November 1999, we announced a
	strategic partnership with HighSpeed.Com, L.L.C. in which we will
	 acquire a 15% equity interest in HighSpeed and a license for 300
	 MHz of LMDS spectrum in Denver, Colorado. In addition to the
	Denver LMDS license, HighSpeed holds LMDS licenses covering areas
	 where approximately 12 million people live or work in seven
	 western states. We have agreed to pay $18.7 million to
	HighSpeed.Com in exchange for the 15% interest and the LMDS
	spectrum. We expect this transaction to close in the second
	quarter of 2000.

Field Testing of Fixed Wireless Technology.In
September 1999, we began field testing LMDS technology with
several customers in the Los Angeles and Dallas areas. For the
year prior to that, we had been testing broadband wireless
equipment in our Plano, Texas research lab. Field testing gives
us the opportunity to test wireless point-to-multipoint and
point-to-point equipment from several vendors in several
operating environments. In our field tests, we used a
point-to-multi-point wireless hub site to connect customers
directly to our Los Angeles-area and Dallas fiber networks.
Although point-to-point equipment has performed to our standards,
 we believe that improvements in the price, features, and
functionality of the point-to-multi-point equipment must be made
before we undertake a broader commercial launch of services using
 this technology. Our vendors have advised us that these
improvements will be incorporated in their second generation
equipment, which is expected to be available later this year.

In January 2000, we completed our field tests and made
commercial broadband wireless services available using the
point-to-point equipment to a limited group of customers in Los
Angeles and Dallas. We have announced commencement of lab testing
 of the second generation point-to-multi-point equipment that we
plan to deploy throughout our networks this year. We plan to
deploy service using fixed wireless technology in 25 markets by
the end of 2000 as an alternative to fiber to connect customers
directly to our fiber optic networks.

Construction of National Network. In December 1999,
the first segment of the intercity national fiber optic network
being constructed for INTERNEXT was completed. This segment
consisted of most of the network connecting Dallas, Houston,
Austin and San Antonio, Texas, the remainder of which is now
substantially complete. We expect the construction of the
remainder of the fiber backbone in the network to be
substantially completed in segments during 2000 and 2001. In
January 2000, we entered into an agreement

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Equity and Debt Financings. In 1999, we completed public
offerings of our Class A common stock, 10 3/4% Senior
Notes due 2009 and 12  1/4% Senior Discount Notes due 2009,
and private offerings of 10 1/2% Senior Notes due 2009 and
12  1/8% Senior Discount Notes due 2009, with aggregate net
proceeds of approximately $1,940.7 million dollars.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Common Stock Offering. On June 1, 1999, we
	completed the sale of 15,200,000 shares of Class A common
	stock at $38.00 per share. Of the total shares sold, NEXTLINK
	offered 8,464,100 shares and certain stockholders who previously
	owned interests in WNP offered 6,735,900 shares. Gross proceeds
	from the shares offered by NEXTLINK totaled $321.6 million,
	which yielded proceeds net of underwriting discounts, advisory
	fees and estimated expenses of approximately $310.5 million.
|
| |  | Offering of 10 3/4% Senior Notes due 2009 and
	12 1/4% Senior Discount Notes due 2009.Concurrent
	with our June 1, 1999 common stock offering, we completed
	the sale of $675.0 million of 10 3/4% Senior Notes due
	2009 and $588.9 million in principal amount at maturity of
	12 1/4% Senior Discount Notes due 2009. From these sales, we
	 received net proceeds of approximately $979.5 million.                                                                                            
|
| |  | Private Offerings of 10 1/2% Senior Notes due 2009 and
	 12 1/8% Senior Discount Notes due 2009.On
	November 17, 1999, we completed the sale of
	$400.0 million of 10 1/2% Senior Notes due 2009 and
	$455.0 million in principal amount at maturity of 12 1/8%
	Senior Discount Notes due 2009. From these sales, we received net
	 proceeds of approximately $639.6 million.                                                                                                                    

In accordance with the terms under which the notes were issued,
we are in the process of registering an exchange offer with the
Securities and Exchange Commission, in which we will offer
holders of these notes the opportunity to exchange the
unregistered notes originally issued for registered notes with
identical terms and conditions.

Investment by Forstmann Little & Co.In
December 1999, several Forstmann Little & Co. investment
 funds agreed to invest $850.0 million in NEXTLINK in
exchange for newly-created convertible preferred stock of
NEXTLINK, to be used to expand our networks and services,
introduce new technologies and fund our business plan. The
investment closed in January 2000. Pursuant to the terms of
the preferred stock, Nicholas C. Forstmann and Sandra J. Horbach,
 both general partners at Forstmann Little, joined
NEXTLINKs Board of Directors in January 2000.

Acquisition of Canadian Fixed Wireless Spectrum. In
December 1999, our NEXTLINK International subsidiary joined
a venture, Wispra Networks, Inc., with TD Capital Group, a
leading Canadian private equity investor in the communications
and media industry, and Wispra Inc., a previous participant in
Canadas broadband wireless marketplace. In December, Wispra
 Networks was named the provisional winner of six fixed broadband
 wireless 24 GHz spectrum licenses, following an auction of the
licenses by Industry Canada, covering areas in which
approximately 14.3 million people live or work, including
Toronto, Montreal, Vancouver, Ottawa, Edmonton, Calgary and
surrounding areas. Wispra Networks has paid a total of
approximately Cdn. $74 million for 400 MHz of spectrum in
the six market areas. Wispra Networks anticipates that Industry
Canada will officially issue the licenses for the spectrum in
2000. Wispra was founded to provide broadband telecommunications
services in Canada using emerging wireless telecommunications
technologies.

Post Year-End Transactions and Developments

Agreement to Acquire Concentric Network Corporation. In
January 2000, we agreed to acquire Concentric Network
Corporation, a provider of high-speed DSL, web hosting,
e-commerce, and other Internet services. As a combined company,
we will be able to offer a complete, single source communications
 solution to our customers by combing our voice and data products
 with the full array of products from Concentrics Internet
business, data center, and application service provider services.

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In this transaction, both NEXTLINK and Concentric will merge into
 a newly-formed company, to be renamed NEXTLINK Communications,
Inc., which will assume all of our and Concentrics
outstanding debt obligations. In the transaction, each
outstanding share of our Class A common stock and
Class B common stock would be converted into one share of
Class A common stock or Class B common stock, as applicable,
 of the corporation surviving the merger, which stock will be
substantially identical to our Class A and Class B
common stock. In addition, each outstanding share of Concentric
common stock would be converted into 0.495 of a share of
Class A common stock of the surviving corporation, unless
the trading price of our Class A common stock at the
effective time is less than or equal to $90.91, in which case
each outstanding share would be converted into $45.00 of
Class A common stock of the surviving corporation (based on
the trading price of our Class A common stock prior to the
effective time). If at the effective time our average stock price
 is less than $69.23, each outstanding share of Concentric common
 stock would covert into 0.650 of a share of Class A common
stock of the surviving corporation. The transaction is subject to
 approval of the Concentric stockholders and other customary
closing conditions, and is expected to close in the second
quarter of 2000.

Acquisition of INTERNEXT Interest.

In January 2000, as part of the reorganization of NEXTLINK
under which we will acquire Concentric Network Corporation, we
entered into an agreement with Eagle River Investments, LLC, to
acquire the 50% interest of INTERNEXT, L.L.C. that we do not
currently own. NEXTLINK and Eagle River formed INTERNEXT to hold
our interests in the national network. The purchase price for
Eagle Rivers interest is approximately 3.4 million
shares of the Class A common stock of the corporation
surviving the reorganization. As a result of this acquisition,
which is expected to be consummated in the second quarter of
2000, we will own the entire interest in this 16,000 mile, 50
city national broadband network. The closing of this transaction
is not conditioned on the closing of the Concentric acquisition.

Secured Credit Facility. On February 3, 2000, we
entered into a $1.0 billion senior secured credit facility
underwritten by a syndicate of banks and other financial
institutions. The credit facility consists of a
$387.5 million tranche A term loan facility, a
$225.0 million tranche B term loan facility and a
$387.5 million revolving credit facility. We have borrowed
$375.0 million under this facility.

The security of the credit facility consists of the assets
purchased using the proceeds thereof, the stock of certain of our
 direct subsidiaries, all assets of NEXTLINK and, to the extent
of $125.0 million of guaranteed debt, all assets of certain
of our subsidiaries.

Both the revolving credit facility and the tranche A term loan
facility mature on December 31, 2006, and the tranche B term
 loan facility matures on June 30, 2007. The maturity date
for each of the facilities may be accelerated to October 31,
 2005 unless we have refinanced our $350.0 million
12 1/2% Senior Notes due 2006 by April 15, 2005. We
also are required to repay the facilities in full upon the
occurrence of a change of control.

Amounts drawn under the revolving credit facility and the term
loans bear interest, at our option, at the alternate base rate or
 reserve-adjusted London Interbank Offered Rate
(LIBOR) plus, in each case, applicable margins.

The credit agreement contains customary events of default and
covenants restricting and limiting our ability to engage in
certain activities, including but not limited to:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | limitations on indebtedness, guarantee obligations and the
	incurrence of liens,                                                                                                   
|
| |  | restrictions on sale lease back transactions, consolidations,
	mergers, liquidations, dissolutions, leases, certain sales of
	assets, transactions with affiliates and investments,
|
| |  | restrictions on issuance of preferred stock, dividends and
	distributions on capital stock and other similar distributions,
	and                                                   
|
| |  | restrictions on optional payments and modifications of other debt
	 instruments, changes in fiscal year, and changes in lines of
	business.                                        

Two-for-One Stock Split. In February 2000, our Board
of Directors declared a two-for-one stock split of our common
stock, to be paid on June 15, 2000 in the form of a stock
dividend. The split is subject to

6



---



##### Table of Contents





Industry and Market Overview

Prior to 1984, AT&T Corp. dominated both the local exchange
and long distance marketplace by owning the operating entities
that provided both local exchange and long distance services to
most of the U.S. population. While the court-ordered breakup of
AT&T established the conditions for competition in the long
distance services market in 1984, the market for local exchange
services has been, until recently, virtually closed to
competition and has largely been dominated by regulated
monopolies. To foster competition in the long distance market,
AT&Ts divested local exchange businesses, the Regional
Bell Operating Companies, or RBOCs, were prohibited from
providing long distance services to customers in their home
markets.

We believe that a similarly critical event occurred in 1996 with
the passage of the Telecommunications Act of 1996, or the Telecom
 Act. Before passage of this law, in most locations throughout
the United States, the incumbent carrier operated a virtual
monopoly in the provision of most local exchange services.
However, just as competition slowly emerged in the long distance
business prior to the mandated breakup of AT&T, competitive
opportunities also have slowly emerged over the last
10 years at the local exchange level.

We believe that the Telecom Act provided the opportunity to
accelerate the development of competition at the local level by,
among other things, requiring the incumbent carriers to cooperate
 with competitors entry into the local exchange market.
These provisions include:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interconnectionprovides competitors the right to connect to
	 the incumbent carriers networks at any technically
	feasible point and to obtain access to its rights-of-way;
|
| |  | Unbundling of the Local Networkallows competitors to
	purchase and utilize components of the incumbent carriers
	network selectively;                                      
|
| |  | Reciprocal Compensationestablishes the framework for
	pricing between a competitor and the incumbent carrier for use of
	 each others networks; and                        
|
| |  | Number Portabilityallows incumbent carrier customers to
	retain their current telephone numbers when they switch to a
	competitor.                                          

The Telecom Act and the subsequent rules issued by the FCC
governing competition, as well as pro-competitive policies
already developed by state regulatory commissions, have caused
fundamental changes in the structure of the local exchange
markets. These developments created opportunities for new
entrants into the local exchange market to capture a portion of
the incumbent carriers dominant, and historically monopoly
controlled, market share of local services. The development of
switched local service competition, however, is still in its
early stages.

Industry sources estimate that in 1998 the total revenues from
local and long distance telecommunications services were
approximately $210 billion, of which approximately
$105 billion were derived from local exchange services and
approximately $105 billion from long distance services.
Based on FCC information, total revenues for local and long
distance services grew at a compounded annual rate of
approximately 5.4% between 1992 and 1998.

In addition to traditional local and long distance voice
services, telecommunication services have been growing at an
accelerated pace because of increased data telecommunications,
such as Internet usage. As technology advances, we believe the
demand for broadband capacity and additional business and
consumer telecommunications services will increase.

The emergence of the Internet and the widespread adoption of IP
as a data transmission standard in the 1990s, combined with
deregulation of the telecommunications industry and advances in
telecommunications technology, have significantly increased the
attractiveness of providing data communication applications and
services over public networks. At the same time, growth in
client/server computing, multimedia personal computers and online
 computing services and the proliferation of networking
technologies have resulted in a

7



---



##### Table of Contents





The ubiquitous nature and relatively low cost of the Internet
have resulted in its widespread usage for certain applications,
most notably Web access and email. However, usage of the Internet
 for business applications has been impeded by the limited
security and unreliable performance inherent in the structure and
 management of the Internet. In addition, transmission delays
make the Internet less appealing for these emerging applications.
 Although private networks are capable of offering lower and more
 stable transmission delays, providers of these emerging
applications also desire a network that will offer their
customers full access to the Internet. As a result, these
businesses and applications providers require a network that
combines the best features of the Internet, such as openness,
ease of access and low cost made possible by the IP standard,
with the advantages of a private network, such as high security,
low/fixed latency and customized features.

Industry analysts expect the market size for both value-added IP
data networking services and Internet access to grow rapidly as
businesses and consumers increase their use of the Internet,
intranets and privately managed IP networks. According to
industry analyst Forrester Research, Inc., the Internet services
market will grow from $2.8 billion in 1998 to
$56.6 billion in 2003. Forrester Research predicts that
access revenue will comprise nearly $42.0 billion of the
2003 market and hosting services revenue will comprise the
remainder.

NEXTLINKs Networks

We have built, and are continuing to build, fiber optic networks
with robust capacity in urban centers across the country. Our
IP-optimized national network will connect these local networks
to one another. Our fiber optic and wireless customer connections
 will complete our goal of becoming an end-to-end,
facilities-based provider of broadband communications services.

Local Fiber Optic Networks

The core of each of our local networks is a ring of fiber optic
cable in a citys central business district that connects to
 our central offices. These facilities contain the switches and
routers that direct data and voice traffic to their destinations,
 and also have the space to house the additional equipment
necessary for future telecommunications services.

We are now operating 31 broadband local networks in 49 cities,
having launched networks in 10 major metropolitan markets in 1999
 and having connected two additional markets to our South Bay
Area network. Based on our recent successes in operating and
expanding our existing networks, as well as new opportunities in
other markets, we are pursuing an aggressive growth plan. We are
currently building additional local networks, and plan to have
operational networks in most of the 30 largest U.S. cities by the
 end of 2000.

8



---



##### Table of Contents



The following table provides information on the markets in which
we have launched bundled switched local and long distance
services.

|                     |  |                             |                  |                          |               
|-------------------- |  | --------------------------- | ---------------- | ------------------------ | --------------
|                     |  |                             |                  | Launch Date for Switched
|State                |  | Market                      |                  | Local Services          
|                     |  |                             |                  |                         
|Arizona:             |  | Phoenix                     |                  | October 1999            
|                    
|                    
|                    
|                    
|California:          |  | Los Angeles/ Orange County: |                  |                         
|                    
|                    
|                    
|                    
|                     |  |                             | Anaheim          |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Costa Mesa       |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Fullerton        |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Garden Grove     |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Huntington Beach |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Inglewood        |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Irvine           |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Long Beach       |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Los Angeles      |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Orange           |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  |                             | Santa Ana        |                          | July 1997     
|                    
|                    
|                    
|                    
|                     |  | Sacramento                  |                  | December 1999           
|                    
|                    
|                    
|                    
|                     |  | San Diego                   |                  | March 1999              
|                     |  | San Francisco Bay Area:     |                  |                         
|                    
|                    
|                    
|                    
|                     |  |                             | Fremont          |                          | May 1998      
|                    
|                    
|                    
|                    
|                     |  |                             | Milpitas         |                          | May 1998      
|                    
|                    
|                    
|                    
|                     |  |                             | San Jose         |                          | May 1998      
|                    
|                    
|                    
|                    
|                     |  |                             | Palo Alto        |                          | May 1998      
|                    
|                    
|                    
|                    
|                     |  |                             | Sunnyvale        |                          | May 1998      
|                    
|                    
|                    
|                    
|                     |  |                             | Mountain View    |                          | September 1999
|                    
|                    
|                    
|                    
|                     |  |                             | Santa Clara      |                          | September 1999
|                    
|                    
|                    
|                    
|Colorado             |  | Denver                      |                  | December 1998           
|                    
|                    
|                    
|                    
|District of Columbia |  | Washington                  |                  | June 1999               
|                    
|                    
|                    
|                    
|Florida              |  | Miami                       |                  | December 1998           
|                    
|                    
|                    
|                    
|Georgia              |  | Atlanta                     |                  | September 1998          
|                    
|                    
|                    
|                    
|                     |  | Marietta                    |                  | September 1998          
|                    
|                    
|                    
|                    
|Illinois             |  | Chicago                     |                  | February 1998           
|                    
|                    
|                    
|                    
|Massachusetts        |  | Boston                      |                  | November, 1999          
|                    
|                    
|                    
|                    
|Michigan             |  | Detroit                     |                  | September 1999          
|                    
|                    
|                    
|                    
|Missouri             |  | St. Louis                   |                  | December 1999           
|                    
|                    
|                    
|                    
|Nevada               |  | Las Vegas                   |                  | April 1997              
|                    
|                    
|                    
|                    
|New Jersey           |  | Newark                      |                  | July 1999               
|                    
|                    
|                    
|                    
|New York             |  | Manhattan                   |                  | September 1998          
|                    
|                    
|                    
|                    
|Ohio                 |  | Cleveland                   |                  | April 1997              
|                    
|                    
|                    
|                    
|                     |  | Columbus                    |                  | April 1997              
|                    
|                    
|                    
|                    
|Pennsylvania         |  | Allentown                   |                  | July 1996               
|                    
|                    
|                    
|                    
|                     |  | Harrisburg                  |                  | July 1996               
|                    
|                    
|                    
|                    
|                     |  | Lancaster                   |                  | July 1996               
|                    
|                    
|                    
|                    
|                     |  | Reading                     |                  | July 1996               
|                    
|                    
|                    
|                    
|                     |  | Philadelphia                |                  | July 1997               
|                    
|                    
|                    
|                    
|                     |  | Scranton/ Wilkes Barre      |                  | December 1997           
|                    
|                    
|                    
|                    
|Tennessee            |  | Memphis                     |                  | July 1996               
|                    
|                    
|                    
|                    
|                     |  | Nashville                   |                  | July 1996               
|                    
|                    
|                    
|                    
|Texas                |  | Dallas                      |                  | December 1998           
|                    
|                    
|                    
|                    
|                     |  | Houston                     |                  | September 1999          

9



---



##### Table of Contents



|           |  |                |  |                         
|---------- |  | -------------- |  | ------------------------
|           |  |                |  | Launch Date for Switched
|State      |  | Market         |  | Local Services          
|           |  |                |  |                         
|Utah       |  | Salt Lake City |  | January 1997            
|          
|          
|          
|          
|           |  | Orem/ Provo    |  | September 1997          
|          
|          
|          
|          
|Washington |  | Spokane        |  | July 1996               
|          
|          
|          
|          
|           |  | Seattle        |  | June 1999               

We build high capacity networks using a backbone density ranging
between 72 and 432 strands of fiber optic cable. Fiber optic
cables have the capacity, or bandwidth, to carry tens of
thousands times the amount of traffic as traditionally-configured
 copper wire. We believe that installing high-count fiber strands
 will allow us to offer a higher volume of broadband and voice
services without incurring significant additional construction
costs. To enhance our ability to connect customers directly to
our networks, we design them to serve both core downtown areas
and other metropolitan and suburban areas where business
development supports the capital required for the network build.

Our customer base has been growing rapidly, as the following
table of access lines installed on our networks illustrates:

|                  |  |            |    |                 |  |  |         | 
|----------------- |  | ---------- | -- | --------------- |  |  | ------- | 
|                  |  | Markets    |    | Total Access   
|As of             |  | in Service |    | Lines Installed
|                  |  |            |    |                
|December 31, 1996 |  |            | 7  |                 |  |  | 8,511   | 
|                 
|                 
|                 
|                 
|December 31, 1997 |  |            | 25 |                 |  |  | 50,131  | 
|                 
|                 
|                 
|                 
|December 31, 1998 |  |            | 37 |                 |  |  | 174,182 | 
|                 
|                 
|                 
|                 
|December 31, 1999 |  |            | 49 |                 |  |  | 428,035 | 

National Network

We are creating a single, end-to-end network by linking our local
 networks to one another through the use of a national fiber
optic backbone network currently being constructed by Level 3
Communications for INTERNEXT. When complete, we will be able to
utilize this network to offer our customers integrated,
end-to-end telecommunications services over facilities we
control. By owning these high-speed dark fiber
facilities rather than leasing lit fiber capacity
from others, we have retained control over decisions on where and
 how to deploy existing or new generations of optical
transmission equipment. This will allow us to maximize the
capacity and enhance the performance of our network as needed to
meet our customers current and future broadband data and
other communications needs, rather than relying on the owners of
leased lines to make those upgrades.

This national network is planned to cover more than 16,000 route
miles with six or more conduits and connect 50 cities in the
United States and Canada. INTERNEXT L.L.C., a joint venture
managed by us and currently owned 50% each by us and Eagle River,
 has entered into a cost sharing agreement with Level 3 with
respect to this network. Under this agreement, INTERNEXT has:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | an exclusive interest in 24 dark fibers in a shared,
	filled conduit throughout this network;                           
|
| |  | an exclusive interest in one empty conduit, through which we
	expect to be able to pull up to 432 fiber optic strands; and
|
| |  | the right to 25% of the dark fibers pulled by Level 3
	 through the sixth and any additional conduits in the network.   

We expect the construction of the fiber backbone in the national
network to be substantially completed in years 2000 and 2001.

We have entered into an agreement to acquire from Eagle River the
 50% interest that we did not own of INTERNEXT. As a result of
this acquisition, which is expected to close in the second
quarter of 2000, we will have complete control over this national
 network. Although this acquisition is part of the transition in
which we will acquire Concentric, the two closings are not
conditioned on one another.

10



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##### Table of Contents



Connecting Customers to Our
Networks

We intend to reduce our reliance on customer connections leased
from the incumbent carrier by increasing the number of customers
connected directly to our networks. We believe that by deploying
direct connections to our customers, rather than connecting
through the incumbent carriers facilities, we will be
better positioned to meet our customers communications
requirements. Direct customer connections enhance our ability to:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | ensure technological support for high-bandwidth communications;  
|
| |  | manage and control the quality of services used by our customers;
|
| |  | meet the varying bandwidth needs of our customers; and           
|
| |  | achieve better operating margins.                                

By designing and deploying high capacity local networks, we
maximize the number of customers that can be connected directly
to our networks with fiber strands that we own or using our LMDS
spectrum. By having both fiber and LMDS spectrum at our disposal,
 we can directly connect customers to our network using the most
cost efficient means. In those instances where it is not cost
effective or feasible to directly connect customers to our
networks using fiber or fixed wireless technology, we can connect
 them by leasing the incumbent carriers facilities, and
meet their high bandwidth needs by deploying DSL technology where
 available.

Fiber Optics. In cases where expected revenues justify the
 cost, we will construct a new fiber optic extension from our
network to the customers premises. Whether it is economic
to construct a fiber optic extension depends, among other things,
 on:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | the existing and potential revenue base located in the building
	in question;
|
| |  | the building location relative to our network, and                           
|
| |  | local permitting requirements.                                               

Even if we initially determine that it is not economic to
construct a fiber connection to a building, we will continually
reexamine the costs and benefits of a fiber connection and may at
 a later date determine that construction of one is justified.

Making a direct fiber optic connection for a customer who is a
tenant in an office building requires installation of in-building
 cabling through the buildings risers from the
customers office to our fiber in the street. Space in
building risers for fiber optic cables is limited, and in some
office buildings, particularly the premier buildings in the
largest markets, competition among carriers to gain access to
this space is intense. Moreover, increasingly the owners of these
 buildings are seeking to impose fees or other revenue sharing
arrangements as a condition of access.

Broadband Wireless Spectrum. In cases where construction
of a fiber optic connection is not economic, we plan to deploy a
high-bandwidth wireless connection between an antenna on the roof
 of the customers premises and an antenna attached to our
fiber rings. These wireless connections offer high-quality
broadband capacity and, in many cases, cost less to install than
fiber connections.

In January 2000, we announced completion of our first
generation broadband wireless field tests and the availability of
 commercial broadband wireless services to a limited group of
customers in Los Angeles and Dallas. We also announced
commencement of lab testing of the second generation
point-to-multi-point equipment that we plan to deploy throughout
our networks this year and that we will purchase broadband,
point-to-multi-point access equipment from Nortel Networks on a
non-exclusive basis. We expect to deploy wireless direct
connections to our networks in 25 markets by the end of 2000.

Through a series of auction bids and acquisitions, we have become
 the largest holder of broadband fixed wireless spectrum in North
 America. We hold licenses to 1,150 to 1,300 MHz of LMDS spectrum
 in 52 cities, covering areas where 95% of the population of the
30 largest U.S. cities live or work. Our licenses also include

11



---



##### Table of Contents





The following table provides information on the markets in which
we hold LMDS licenses.

|                                    |  |     |       | 
|----------------------------------- |  | --- | ----- | 
|Market                              |  | MHz
|                                    |  |    
|Birmingham, AL                      |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Huntsville, AL                      |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Los Angeles, CA                     |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Sacramento, CA                      |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|San Diego, CA                       |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|San Francisco, CA                   |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|San Luis Obispo, CA                 |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Santa Barbara-Santa Monica, CA      |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Denver, CO(1)                       |  |     | 300   | 
|                                   
|                                   
|                                   
|                                   
|Hartford, CT                        |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|New Haven-Waterbury-Meriden, CT     |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|New London, CT                      |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Washington, DC                      |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Jacksonville, FL                    |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Lakeland-Winterhaven, FL            |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Miami-Ft. Lauderdale, FL            |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Ocala, FL                           |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Tampa-St. Petersburg-Clearwater, FL |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|West Palm Beach-Boca Raton, FL      |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Atlanta, GA                         |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Chicago, IL                         |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Indianapolis, IN                    |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Des Moines, IA                      |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Lexington, KY                       |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Louisville, KY                      |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Baltimore, MD                       |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Boston, MA                          |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Springfield-Holyoke, MA             |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Worcester-Fitchburg-Leominster, MA  |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Detroit, MI                         |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Minneapolis-St. Paul, MN            |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Kansas City, MO                     |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|St. Louis, MO                       |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Manchester-Nashua-Concord, NH       |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Albany-Schenectady, NY              |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Buffalo-Niagara Falls, NY           |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|New York, NY(2)                     |  |     | 300   | 
|                                   
|                                   
|                                   
|                                   
|Rochester, NY                       |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Syracuse, NY                        |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Charlotte-Gastonia, NC              |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Hickory-Lenoir-Morganton, NC        |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Raleigh-Durham, NC                  |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Cleveland, OH                       |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Cincinnati, OH                      |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Columbus, OH                        |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Mansfield, OH                       |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Toledo, OH                          |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Klamath Falls, OR                   |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Medford-Grants Pass, OR             |  |     | 150   | 
|                                   
|                                   
|                                   
|                                   
|Portland, OR                        |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Philadelphia, PA-Wilmington, DE     |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Pittsburgh, PA                      |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Providence-Pawtucket, RI            |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Columbia, SC                        |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Greenville-Spartanburg, SC          |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Chattanooga, TN                     |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Knoxville, TN                       |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Memphis, TN                         |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Nashville, TN                       |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Austin, TX                          |  |     | 1,300 | 
|                                   
|                                   
|                                   
|                                   
|Dallas-Ft. Worth, TX                |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Houston, TX                         |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|San Antonio, TX                     |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Richmond-Petersburg, VA             |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Seattle, WA                         |  |     | 1,150 | 
|                                   
|                                   
|                                   
|                                   
|Milwaukee, WI                       |  |     | 1,300 | 




|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Pending closing of the transaction with HighSpeed.Com.                                                                                                                                       
|   
|(2) | For the five boroughs comprising New York City, we hold licenses
	for 300 MHz of spectrum. For the remainder of the New York Basic
	Trading Area, we hold licenses for 1,300 MHz of spectrum.

In order to obtain the necessary access to install our LMDS
equipment and connect our intended customers, we must secure roof
 and other building access rights, including access to conduits
and wiring from the owners of each building or other structure on
 which we propose to install our equipment, and may need to
obtain construction, zoning, franchise or other governmental
permits.

12



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##### Table of Contents



DSL Technology. We are also currently deploying DSL
technology to meet the high-bandwidth needs of those customers
located less than three miles from the incumbent carriers
central office and whose customer connection remains over copper
wire. DSL technology reduces the bottleneck in the transport of
information, particularly for data services, by increasing the
data carrying capacity of copper telephone lines. We believe
that, for many locations, existing copper connections using DSL
technology from customer buildings to our local fiber optic
networks will offer a lower cost solution for providing
high-quality broadband services than fiber or LMDS connections.

We have arrangements with incumbent carriers with respect to more
 than 247 of their central offices that enable us to make direct
connections to each business or resident connected to that
central office over leased lines. These arrangements are known in
 our industry as collocations. We have introduced our own DSL
equipment and services at many of our collocation sites, and plan
 to introduce DSL equipment and services at other collocation
sites, to provide our customers with increased data carrying
capacity.

Technology

The wires, cables and spectrum that comprise the physical layer
of our networks can support a variety of communications
technologies. We seek to offer customers a set of technology
options to meet their changing needs, and introduce new
technologies as necessary. Specifically, we believe that a
service platform based on Internet Protocol, or IP, will provide
us with significant future opportunities, because it will enable
data, voice and video to be carried inexpensively over our
end-to-end, facilities-based network. We have, therefore, begun
to supplement our current data and voice switching technology
with IP and ATM equipment.

These technologies will enable us to offer our customers
additional services, such as high-speed Internet access, Internet
 web hosting, e-commerce and other Internet services. Because
they are more efficient, IP and ATM technology increase the
effective capacity of networks for these types of applications,
and in the future may become the preferred technology for voice
calls and faxes as well.

Circuit Switching vs. Packet
Switching

There are two widely used switching technologies in currently
deployed communications networks: circuit-switching systems and
packet-switching systems. Circuit switch-based communications
systems, which currently dominate the public telephone network,
establish a dedicated channel for each communication (such as a
telephone call for voice or fax), maintain the channel for the
duration of the call, and disconnect the channel at the
conclusion of the call.

Packet switch-based communications systems, which format the
information to be transmitted into a series of shorter digital
messages called packets, are the preferred means of
data transmission. Each packet consists of a portion of the
complete message plus the addressing information to identify the
destination and return address. A key feature that distinguishes
Internet architecture from the public telephone network is that
on the packet-switched Internet, a single dedicated channel
between communication points is not required.

Packet switch-based systems offer several advantages over circuit
 switch-based systems, particularly the ability to commingle
packets from several communications sources together
simultaneously onto a single channel. For most communications,
particularly those with bursts of information followed by periods
 of silence, the ability to commingle packets
provides for superior network utilization and efficiency,
resulting in more information being transmitted through a given
communication channel.

IP technology, an open protocol that allows unrelated computer
networks to exchange data, is the technological basis of the
Internet. The Internets explosive growth in recent years
has focused intensive efforts worldwide on developing IP-based
networks and applications. In contrast to protocols like ATM,
which was the product of elaborate negotiations between the
worlds monopoly telephone companies, IP is an open
standard, subject to continuous improvement.

We believe that a form of IP-based switching will eventually
replace both ATM and circuit switched technologies, and will be
the foundation of integrated networks that treat all
transmissions  including voice, fax and video  simply
 as forms of data transmission. Current implementations of IP
technology over the

13



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We are in the process of constructing IP points of presence in
all of our major markets using high-capacity IP routers. We have
launched points of presence in eight of our markets, through
which we offer Internet-related services, and plan to launch and
acquire, through the Concentric acquisition, additional points of
 presence in 2000. We currently connect these points of presence
with leased backbone facilities. On completion, our national
network will serve as our IP backbone.

We believe that the IP deployment currently under way on our
network will enable us to implement new services based on current
 IP technology, and position us to adopt future IP technology
implementations as they evolve to support fully integrated
communications networks. We anticipate remaining flexible in our
use of technology, however, so that as underlying communications
technology changes, we will have the ability to take advantage of
 and implement these new technologies.

To enhance the capacity of our networks, we are incorporating
wavelength division multiplexing technology, which increases the
capacity of an optical fiber by simultaneously operating at more
than one wavelength, thereby allowing the transmission of
multiple signals through the same fiber at different wavelengths.
 To further enhance our networks capacity, we also are
using the latest in fiber technology. In our national network, we
 are deploying a new generation of fiber that allows for faster
transmission of traffic with less dispersion than previous
generations, which can enhance the speed and capacity of the
national network.

LMDS Wireless Technology

LMDS is a fixed broadband service that the license holder may use
 to provide high-speed data transfer, wireless local telephone
service, wireless transmission of telephone calls in bulk
quantity, video broadcasting and videoconferencing, in any
combination. This spectrum is not suitable for mobile telephones,
 but can transmit voice, data or video signals from one fixed
antenna to many others. As the word local in the
local multipoint distribution service name implies, the radio
links provided using LMDS frequencies are of limited distance,
typically of a few miles or less, due to the degradation of these
 high-frequency signals over greater distances.

A wireless connection typically consists of paired antennas that
we anticipate will be placed at a distance of up to 2.5 miles
from one another with a direct, unobstructed line of sight. The
antennas are typically installed on rooftops, towers or windows.
Point-to-multipoint technology allows a single hub site antenna
to be used to form multiple paths with antennas located on
numerous customer buildings. As few as four hub site antennas can
 provide telecommunications connections to buildings in all
directions that have line of sight visibility.

Wireless local loop technology typically utilizes millimeter wave
 transmissions having narrow beam width, reducing the potential
for channel interference and allowing dense deployment and
channel re-use. This means that, like cellular telephone systems,
 LMDS sites can be split into sectors in order to increase the
available capacity. The large amount of capacity in each channel
permits the simultaneous use of multiple voice and data
applications.

LMDS and other wireless broadband services require a direct line
of sight between two antennas comprising a link and are subject
to distance and rain attenuation. We expect that the average
coverage radius of a base station will be up to approximately 2.5
 miles, depending on local conditions, and we expect that our
base stations will utilize power control to increase signal
strength where necessary to mitigate the effects of rain
attenuation. In areas of heavy rainfall, transmission links will
be engineered for shorter distances and greater power to maintain
 transmission quality. This reduction of path link distances to
maintain transmission quality requires more closely spaced
transceivers and, therefore, tends to increase the cost of
service coverage.

Due to line of sight limitations, we currently plan to install
our transceivers and antennas on the rooftops of buildings. Line
of sight and distance limitations generally do not present
problems in urban areas, provided that suitable roof rights can
be obtained, due to the existence of unobstructed structures from
 which to

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Applications and Services

Voice Applications and
Services

In each market in which we operate, we currently offer the
telephone services listed below, at prices generally determined
and implemented locally in each market. These prices are
generally 10% to 15% lower than the pricing for comparable local
services from the incumbent carrier. Our service offerings
include:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | standard dial tone, including touch tone dialing, 911 and
	operator assisted calling;                     
|
| |  | multi-trunk services, including direct inward dialing, or DID,
	and direct outward dialing, or DOD;       
|
| |  | long distance service, including 1+, 800/888 and operator
	services;                                      
|
| |  | voice messaging with personalized greetings, send, transfer,
	reply and remote retrieval capabilities; and
|
| |  | directory listings and assistance.                                                                        

In each of our operational markets, we have negotiated and
entered into interconnection agreements with the incumbent
carrier, and implemented permanent local number portability,
which allows customers to retain their telephone numbers when
changing telephone service providers.

Additionally, in each of our markets we offer the following
services to long distance carriers and high volume customers,
which our customers use as both primary and back-up circuits:



| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | special access circuits that connect end users to long distance
	carriers;                   
|
| |  | special access circuits that connect long distance carriers
	 facilities to one another; and
|
| |  | private line circuits that connect several facilities owned by
	the same end user.           

Historically, our targeted customer base has consisted of
primarily small and medium-sized businesses. As our capabilities
expand through the completion of INTERNEXTs national fiber
optic network, the addition of data service capabilities,
including enhancements of those capabilities resulting from the
Concentric acquisition, and the addition of IP technology to our
networks, we plan to expand our targeted customers to include
larger national customers that can benefit from our unique
end-to-end broadband capabilities.

Data Applications and
Services

In the eight markets in which we have launched IP points of
presence, we offer Internet access services. We will offer
Internet access services in all of our markets as we launch
additional points of presence this year or acquire them in the
Concentric acquisition. We offer these services on a stand-alone
basis and bundled with local and long distance telephone service.

We intend to configure the central offices of our network
backbone with electrical and environmental controls and 24-hour
maintenance and technical support, which will provide an
attractive location for our customers to locate their larger
computers (which are known as servers) or from which they can run
 important applications on servers that we will maintain. This
will enable us to offer:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | Web Hosting: support for customers websites,
	including design, maintenance and telecommunications services;
|
| |  | Server Hosting: collocation of customers servers in
	our central offices;                                   

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| |   |                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Application Hosting: running our customers
	enterprise-wide applications at our central offices and
	distributing them as needed over our network to ensure
	uniformity, reduce costs and implement upgrades on a continuous
	and immediate basis; and
|
| |  | E-Commerce Support: support for high-volume purchases over
	 the Internet, including system design, order fulfillment and
	network security.                                                                                                           

In December 1999, we launched Internet access services as an
 Internet service provider, or ISP, in eight markets. We expect
that our acquisition of Concentric will significantly accelerate
implementation of our data services strategy and, in particular
will significantly enhance our ability to market Internet access
services utilizing Concentrics status as an ISP with
significant peering arrangements. Concentric provides high speed
Internet access, virtual private networks and web hosting
services principally to small to medium-sized enterprises.

We also plan to combine the capabilities of our national network
with the mass-market e-commerce expertise we have developed
through NEXTLINK Interactive to offer customers a broad range of
services to their e-commerce activities, including
telecommunications, web-site design, order fulfillment and
enhancement of back-office systems.

Other Businesses

NEXTLINK Interactive

Through our NEXTLINK Interactive subsidiary, we develop systems
for clients that enable those clients consumers to order
products and services, receive information, seek assistance, and
a host of other capabilities via the Internet, through a call
center or within a physical store location. NEXTLINK
Interactives systems enable its clients to seamlessly
integrate sales and customer service functions across their
Internet site, call center and physical store, thereby creating a
 uniform experience for its clients customers regardless of
 how a customer chooses to interact with the NEXTLINK Interactive
 client. NEXTLINK Interactive builds, operates, maintains and
hosts customized Internet and telephony-based third-party
software applications and technologies that are integrated with
its clients existing or desired operational and business
systems. It hosts these applications in data centers and deploys
them to the client across a network, thereby alleviating the
clients need to purchase, own, install, or maintain these
applications. Clients pay for the use of these customized
solutions through a combination of upfront payments
for installation and system integration and recurring fees based
on transaction volume.

Examples of solutions that NEXTLINK Interactive has developed and
 operated for its clients include:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | Automated cross channel purchasing and customer service;                                                                     
|
| |  | Applications that identify and supply consumers with information
	that directs them to the closest retail location or dealer;
|
| |  | Applications that configure and prices a product or service for a
	 consumer; and                                            
|
| |  | Subscription or metered based service delivery.                                                                              

Examples of key technologies and capabilities include:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | Hardware and software integration expertise;                                           
|
| |  | E-commerce application development;                                                    
|
| |  | Interactive Voice Response (IVR) and natural language speech
	 recognition development;
|
| |  | Call center solutions development and integration;                                     
|
| |  | Handheld and kiosk application development; and                                        
|
| |  | Application management and hosting.                                                    

16



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Significantly, in February 2000, NEXTLINK Interactive
announced that it entered into an agreement to develop one of the
 largest installations in the world of interactive voice response
 and natural language speech recognition applications for Federal
 Express Corp.

NEXTLINK Interactives service offerings currently are not
integrated with NEXTLINKs telecommunications networks and
services. We, however, plan to use these service offerings as a
means to expand the relationship with NEXTLINK Interactives
 customers to include utilization of telecommunications services
on our network.

For financial information regarding NEXTLINK Interactives
operations, see note 16 to our consolidated financial statements
regarding reportable segments.

Shared Tenant Services

Through our NEXTLINK One subsidiary (formerly known as Start
Technologies) acquired in November 1997, we provide shared
tenant services. Shared tenant services are telecommunications
management services provided to groups of small and medium-sized
businesses located in the same office building. This service
enables businesses too small to justify hiring their own
telecommunications managers to benefit from the efficiencies,
including volume discounts, normally available only to larger
enterprises.

NEXTLINK One installs an advanced telecommunications system
throughout each building it serves, leasing space for on-site
sales and service, and offers tenants products and services such
as telephones, voice mail, local calling lines, discounted long
distance and high speed Internet connections, all on a single,
detailed invoice.

Sales and Customer Care

Overview

We use a two-pronged sales strategy, one directed to the sale of
local, long distance, and high-speed Internet access services and
 the other to enhanced communications services. Historically, our
 primary sales efforts have focused on selling switched local and
 long distance to small and medium-sized businesses and
professional groups with fewer than 50 business lines. Our market
 research indicates that these customers prefer a single source
for all of their telecommunications requirements, including
products, billing, installation, maintenance, and customer
service. Using direct sales efforts, we offer bundled local and
long distance services that are generally priced at a 10% to 15%
discount from the incumbent carrier. By bundling local and long
distance services, we believe we provide our customers a level of
 convenience that has been generally unavailable since the
break-up of AT&T.

In some of our markets, we also target high concentrations of
business customers in multi-tenant commercial office buildings in
 major metropolitan areas. This allows these business customers
to benefit from voice and data services offered through our
on-site facilities and technical staff. We market our enhanced
communications services nationally through a separate direct
sales force.

In addition, we employ a national sales team to market services
to long distance carriers and large commercial users. As our
capabilities expand through the completion of INTERNEXTs
national fiber optic network, the addition of data service
capabilities, including enhancements of those capabilities
resulting from the Concentric acquisition and the addition of IP
technology to our networks, we plan to expand our targeted
customers to include larger national customers that can benefit
from our unique end-to-end broadband capabilities.

Sales Force

We have established a highly motivated and experienced direct
sales force and customer care organization that is designed to
establish a direct and personal relationship with our customers.
We seek to recruit salespeople with strong sales backgrounds,
including salespeople from long distance companies,
telecommunications equipment manufacturers, network systems
integrators and the incumbent carriers. We have expanded

17



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##### Table of Contents





Concentric pursues a multi-tiered sales strategy consisting of
third party distribution channels, inbound and outbound
telesales, value-added resellers, original equipment
manufacturers and a direct sales force. After closing the
Concentric acquisition, we plan to leverage these distribution
channels as a means to complement our direct sales force
approach.

Customer Care

We augment our direct sales approach with customer care and
support from locally based customer care representatives. We have
 structured our customer care organization so that each customer
has a single customer care point of contact who is responsible
for solving problems and responding to customer inquiries. We
have expanded our customer care organization from 256 customer
care employees at December 31, 1998 to 321 employees at
December 31, 1999. Our goal is to provide a customer care
group that has the ability and resources to respond to and
resolve customer problems as they arise. We believe that customer
 care representatives are most effective if they are based in the
 communities in which we offer services, which also allows, among
 other things, the opportunity for the representatives to visit
the customers location.

Regulatory Overview

Overview

The Telecom Act, which substantially revised the Communications
Act of 1934, established the regulatory framework for the
introduction of competition for local telecommunications services
 throughout the United States by new competitive entrants such as
 NEXTLINK. Prior to the passage of the Telecom Act, states
typically granted an exclusive franchise in each local service
area to a single dominant carrier  often a former
subsidiary of AT&T, known as a Regional Bell Operating
Company, or RBOC  which owned and operated the entire
local exchange network. The RBOCs, following some recent
consolidation, now consist of the following companies: BellSouth,
 Bell Atlantic, U S WEST (which has agreed to merge with Qwest
Communications International, Inc.), and SBC Communications.
Among other things, the Telecom Act preempts state or local
governments from prohibiting any entity from providing
telecommunications service, which had the effect of eliminating
prohibitions on entry found in almost half of the states at the
time the Telecom Act was enacted.

The Telecom Act requires incumbent carriers to interconnect their
 facilities with those of their competitors, including NEXTLINK.
This interconnection obligation permits our customers to exchange
 telecommunications traffic with the customers of other carriers,
 including the incumbent carrier. This ability to interconnect
with incumbent carriers and the preemption of state and local
prohibitions on entry are essential to our ability to be a full
service provider of telecommunications services.

At the same time, the Telecom Act preserved state and local
jurisdiction over many aspects of local telephone service, and,
as a result, we are subject to varying degrees of federal, state
and local regulation. Consequently, federal, state and local
regulation, and other legislative and judicial initiatives
relating to the telecommunications industry, could significantly
affect our business.

Federal
Regulation

Although the FCC exercises jurisdiction over our communication
facilities and services, we are not currently required to obtain
FCC authorization for the installation, acquisition or operation
of our wireline network facilities. We are, however, required to
hold and have obtained FCC authorizations for the operation of
our fixed wireless LMDS facilities. Unlike incumbent carriers, we
 are not currently subject to price cap or rate of return
regulation, which leaves us freer to set our own pricing
policies. The FCC does require us to file interstate tariffs on
an ongoing basis for interstate access, rates charged among
carriers for access to their networks, and domestic and
international long distance service. An FCC order that could have
 exempted us

18



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##### Table of Contents





The following table summarizes the interconnection rights granted
 by the Telecom Act that are most important for full local
competition and our belief as to the effect of the requirements,
if properly implemented.

|                        |  |                                                                                                                                                                          |  |                                                                                                                                 
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------
|Issue                   |  | Definition                                                                                                                                                               |  | Effect                                                                                                                          
|                        |  |                                                                                                                                                                          |  |                                                                                                                                 
|Interconnection         |  | Efficient network interconnection to transfer calls back and
	forth between incumbent carriers and competitive networks
	(including 911, 0+, directory assistance, etc.) |  | Allows the customers of NEXTLINK and other competitors to
	exchange traffic with customers connected to other networks          
|                       
|                       
|                       
|                       
|Local Loop Unbundling   |  | Allows competitors to selectively gain access to incumbent
	carriers facilities and wires which connect the incumbent
	carriers central offices with customer premises |  | Reduces the capital costs of NEXTLINK and other competitors to
	serve customers not directly connected to their networks        
|                       
|                       
|                       
|                       
|Reciprocal Compensation |  | Mandates reciprocal compensation for local traffic exchange
	between incumbent carriers and NEXTLINK and other competitors                                               |  | Improves NEXTLINKs and other competitors margins for
	local service                                                           
|                       
|                       
|                       
|                       
|Number Portability      |  | Allows customers to change local carriers without changing
	numbers                                                                                                      |  | Allows customers to switch to NEXTLINKs and other
	competitors local service without changing phone numbers                   
|                       
|                       
|                       
|                       
|Access to Phone Numbers |  | Mandates assignment of new telephone numbers to NEXTLINKs
	and other competitors customers                                                                             |  | Allows NEXTLINK and other competitors to provide telephone
	numbers to new customers on the same basis as the incumbent
	carrier

In January 1999, the U.S. Supreme Court upheld key
provisions of the FCC rules implementing the Telecom Act, in a
decision that was generally favorable to competitive telephone
companies such as NEXTLINK. In finding that the FCC has general
jurisdiction to implement the Telecom Acts local
competition provisions, the Supreme Court confirmed the
FCCs role in establishing national telecommunications
policy, and thereby created certainty regarding the rules
governing local competition going forward.

Although the rights established in the Telecom Act are a
necessary prerequisite to the introduction of full local
competition, they must be properly implemented to permit
competitive telephone companies like NEXTLINK to complete
effectively with the incumbent carriers. Discussed below are
several FCC and court proceedings relating to the application of
certain FCC rules and policies that are significant to our
operations.

Unbundling of Incumbent Network Elements. In the
January 1999 Supreme Court decision discussed above, the
Court affirmed the FCCs interpretation of matters related
to unbundling of incumbent carriers network elements. It
held that the FCC correctly interpreted the meaning of the term
network element, which defines the parts of an
incumbent carriers operations that may be subject to the
unbundling requirement of the Telecom Act. The Court,
 however, also held that the FCC did not correctly determine
which network elements must be unbundled and made available to
competitive telephone companies such as NEXTLINK. In
November 1999, the FCC released its order addressing the
deficiencies in the FCCs original ruling cited by the
Supreme Court. The order is generally viewed as favorable to
NEXTLINK and other

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##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | loops, including loops used to provide high-capacity and advanced
	 telecommunications services, which allows competitors to access
	all of the features, functions and capabilities of the
	transmission facilities owned by the incumbent carrier between
	its central office and the customers location;
|
| |  | network interface devices, which permits competitors to connect
	their facilities with the telephone wiring inside the
	customers location;                                                                                                                                                                
|
| |  | local circuit switching (except for larger business customers in
	major urban markets), which allows competitors to access all of
	the features, functions and capabilities of the incumbent
	carriers switch;                                                                                             
|
| |  | dedicated and shared transport, which allows competitors to
	utilize transmission facilities owned by the incumbent carrier
	between customer locations and the incumbent carriers
	switches or between the incumbent carriers switch
	locations;                                                         
|
| |  | signaling and call-related databases, which competitors use to
	correctly route and bill calls; and                                                                                                                                                                                                         
|
| |  | operations support systems, which permit competitors to submit
	orders to the incumbent for unbundled network elements and for
	provisioning, repair and maintenance services.                                                                                                                              

In addition, incumbent carriers must provide access to
combinations of elements if they are currently combined in the
networks, but the FCC did not address whether an incumbent
carrier must combine network elements that are not already
combined in the network because that issue is pending before the
Eighth Circuit Court of Appeals.

The FCC declined, except in limited circumstances, to require
incumbents to unbundle the facilities used to provide high-speed
Internet access and other data services. In addition, the FCC did
 not require incumbents to provide competitive carriers with
access to operator and directory assistance services. These
aspects of the order are not expected to have a material adverse
effect on our operations.

The Supreme Courts decision did not address or resolve the
incumbent carriers challenge to the FCCs
forward-looking pricing methodology for unbundling network
elements. The incumbent carriers have challenged this methodology
 before the Eighth Circuit Court of Appeals, claiming that the
pricing procedure should take into account historical costs. If
the incumbent carriers succeed in this contention, we would be
required to pay more to purchase network elements, which could
increase our cost of doing business.

Regulation of the RBOCs Ability to Provide Long Distance
 Service.The FCC has primary jurisdiction over the
implementation of Section 271 of the Telecom Act, which
provides that the RBOCs cannot combine in-region long distance
services with the local services they offer until they have
demonstrated that:



| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | they have entered into an approved interconnection agreement with
	 a facilities-based competitive telephone company or that no such
	 competitive telephone company has requested interconnection as
	of a statutorily determined deadline,
|
| |  | they have satisfied a 14-element checklist designed to ensure
	that the RBOC is offering access and interconnection to all local
	 exchange carriers on competitive terms, and                                                              
|
| |  | the FCC has determined that allowing the RBOC to offer in-region,
	 long distance services is consistent with the public interest,
	convenience and necessity.                                                                              

In December 1999, Bell Atlantic became the first RBOC to win
 Section 271 authority when the FCC approved its application
 to provide long distance services in the State of New York. SBC
Communications has pending an application filed with the FCC in
January 2000 for Section 271 authority to enter the
long distance market in Texas. The FCC is expected to rule on
this application in April 2000. In addition, several
applications are currently pending before state commissions and
it is expected that these applications plus several new
applications are likely to be filed with the FCC in the near
future. We cannot predict if any of these applications will be
approved or when such approval is likely to occur. Approval could
 have an adverse

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##### Table of Contents





Provision of Advanced Telecommunications Services. Rules
promulgated under the Telecom Act restrict the RBOCs
ability to provide advanced telecommunications services, such as
data and DSL services. In August 1998, the FCC denied the
request of various RBOCs that the FCC waive enforcement of these
restrictions, but the agency also initiated a proceeding, which
is still pending, to determine whether to relax some of the
restrictions. Certain of the RBOCs also have filed tariffs for
the provision of advanced services, such as DSL, that are based
upon an assumption that these services are outside the purview of
 the Telecom Act under certain circumstances. The FCC has allowed
 these tariffs to go into effect and has determined that the
RBOCs treatment of these services is lawful. This decision
may have the effect of allowing RBOCs to provide terms,
conditions and pricing to their own affiliates that provide data
services that are better than those made available to
unaffiliated competitors.

Universal Service. In 1997, the FCC established a
significantly expanded federal telecommunications subsidy regime
known as universal service. For example, the FCC
established new subsidies for services provided to qualifying
schools and libraries and rural health care providers, and
expanded existing subsidies to low income consumers. Most
telecommunications companies, including NEXTLINK, must pay for
these programs based on its share of certain defined
telecommunications revenues. In a 1999 decision, the Fifth
Circuit Court of Appeals issued a ruling that had the net effect
of somewhat lowering our contribution of revenues to universal
service. We cannot be sure that legislation or FCC rulemaking
will not increase the size of our subsidy payments or the scope
of the subsidy program.

Access Charge Reform. Long distance carriers pay local
carriers, including NEXTLINK, interstate access charges for both
originating and terminating the interstate calls of long distance
 customers on the local carriers networks. Historically,
the RBOCs set access charges higher than cost and justified this
pricing to regulators as a subsidy to the cost of providing local
 telephone service to higher cost customers. With the
establishment of an explicit universal service subsidy mechanism,
 however, the FCC is under increasing pressure to revise the
current access charge regime to bring the charges closer to the
cost of providing access. In response, the FCC has initiated a
proceeding to consider whether competitors access charges
should be regulated and a request by AT&T that
competitors access rates be set through negotiation rather
than tariffing. The method selected and the timing of a FCC
decision to lower access charge levels or an FCC decision
requiring that competitors access rates be set through
negotiation rather than tariffing may reduce access charge
revenue that we receive from long distance carriers. Although an
FCC decision lowering access charges may reduce our access charge
 revenues, we do not expect that such a reduction would have a
material impact on our total revenues or financial position.

Regulation of Business Combinations. The FCC, along with
the Department of Justice and state commissions, has jurisdiction
 over business combinations involving telecommunications
companies. The FCC has reviewed a number of recent and proposed
combinations to determine whether the combination would undermine
 the market-opening incentives of the Telecom Act by permitting
the combined company to expand its operations without opening its
 local markets to competition or have other anti-competitive
effects on the telecommunications and Internet access markets.
For example, the FCC conditioned its approval of the recent
Ameritech and SBC Communications combination on the parties
 agreement to a series of safeguards intended to neutralize any
adverse affect on competitors. In addition, the FCC approved the
Qwest and US West combination, subject to Qwests
divestiture of long distance customers in US West territory. We
cannot predict whether these conditions will be effective, nor
can we predict whether the FCC will impose similar conditions
should it approve future business combinations currently under
consideration by the FCC, including the proposed mergers of GTE
with Bell Atlantic and MCI WorldCom with Sprint.

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State Regulation

State regulatory commissions retain jurisdiction over our
facilities and services to the extent they are used to provide
intrastate communications. We expect that we will be subject to
direct state regulation in most, if not all, states in which we
operate in the future. Many states require certification before a
 company can provide intrastate communications services. We are
certified in all states where we have operations and
certification is required. We cannot be sure that we will retain
such certifications or that we will receive authorization for
markets in which we expect to operate in the future.

Most states require us to file tariffs or price lists setting
forth the terms, conditions and prices for services that are
classified as intrastate. In some states, our tariff can list a
range of prices for particular services. In other states, prices
can be set on an individual customer basis. We are not subject to
 price cap or to rate of return regulation in any state in which
we currently provide service.

Under the regulatory arrangement contemplated by the Telecom Act,
 state authorities continue to regulate matters related to
universal service, public safety and welfare, quality of service
and consumer rights. All of these regulations, however, must be
competitively neutral and consistent with the Telecom Act, which
generally prohibits state regulation that has the effect of
prohibiting us from providing telecommunications services in any
particular state. State commissions also enforce some of the
Telecom Acts local competition provisions, including those
governing the arbitration of interconnection disputes between the
 incumbent carriers and competitive telephone companies.

Local Government Regulation

In certain locations, we must obtain local franchises, licenses
or other operating rights and street opening and construction
permits to install, expand and operate our fiber-optic networks.
In some of the areas where we provide network services, our
subsidiaries pay license or franchise fees based on a percentage
of gross revenues or on a per linear foot basis. Cities that do
not currently impose fees might seek to impose them in the
future, and after the expiration of existing franchises, fees
could increase. Under the Telecom Act, state and local
governments retain the right to manage the public rights-of-way
and to require fair and reasonable compensation from
telecommunications providers, on a competitively neutral and
nondiscriminatory basis, for use of public rights-of-way. As
noted above, these activities must be consistent with the Telecom
 Act, and may not have the effect of prohibiting us from
providing telecommunications services in any particular local
jurisdiction.

If an existing franchise or license agreements were terminated
prior to its expiration date and we were forced to remove our
fiber from the streets or abandon our network in place, our
operations in that area would cease, which could have a material
adverse effect on our business as a whole. We believe that the
provisions of the Telecom Act barring state and local
requirements that prohibit or have the effect of prohibiting any
entity from providing telecommunications service should be
construed to limit any such action. Although none of our existing
 franchise or license agreements have been terminated, and we
have received no threat of such a termination, there can be no
assurance that one or more local authorities will not attempt to
take such action. Nor is it clear that we would prevail in any
judicial or regulatory proceeding to resolve such a dispute.

Environmental Regulation

Our switch site and customer premise locations are equipped with
back-up power sources in the event of an electrical failure. Each
 of our switch site locations has battery and diesel fuel powered
 back-up generators, and we use batteries to back-up some of our
customer premise equipment. Federal, state and local
environmental laws require that we notify certain authorities of
the location of hazardous materials and that we implement spill
prevention plans. During 1999, we instituted a program, retained
environmental consultants, and worked with federal and state
environmental regulators to bring us into compliance with these
laws and regulations. The cost related to those efforts are not
expected to be material. We believe that we currently are in
compliance with these requirements in all material respects.

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Canadian Regulation

Wispra Networks, as the provisional winner of fixed broadband
wireless spectrum licenses in Canadas recent spectrum
auction, will be subject to regulation by Industry Canada, which
regulates wireless licensees, and the Canadian Radio-television
and Telecommunications Commission, known as CRTC, which regulates
 local, interexchange and international telecommunications
carriers operating in Canada. To be eligible to hold wireless
licenses or to operate as a Canadian competitive local exchange
carrier, an entity must be Canadian-owned and controlled and
incorporated under the laws of Canada. Although Wispra expects
that its applications to hold its wireless licenses and for
competitive carrier status ultimately will be approved, it cannot
 predict whether that approval will be conditioned upon changes
to the joint venture between NEXTLINK International and its
Canadian partners that are adverse to our interests. Wispra must
also secure licenses from the cities in its markets to occupy the
 municipal rights of way. Wispra has no assurance that these
licenses will be granted, or that if they are granted that they
are on terms and conditions favorable to Wispra.

Like in the United States, incumbent carriers in Canada must
provide competitive carriers with interconnection, including
collocation in their central offices and access to unbundled
network elements. There, however, are significant differences
between the Canadian and the United States regulatory structures.
 In many cases, the Canadian regulations are less favorable for
competitive carriers than those applicable in the United States.
In addition, Canadian regulation promotes the ownership and
control of Canadian telecommunications carriers by Canadians and
restricts the voting rights and equity participation of
non-Canadian investors like us in ventures like Wispra.

Competition

The regulatory environment in which we operate is changing
rapidly. The passage of the Telecom Act combined with other
actions by the FCC and state regulatory authorities continues to
promote competition in the provision of telecommunications
services.

Incumbent Carriers

In each market we serve, we face, and expect to continue to face,
 significant competition from the incumbent carriers, which
currently dominate the local telecommunications markets. We
compete with the incumbent carriers in our markets for local
exchange services on the basis of product offerings, reliability,
 state-of-the-art technology, price, route diversity, ease of
ordering and customer service. However, the incumbent carriers
have long-standing relationships with their customers and provide
 those customers with various transmission and switching services
 that we, in many cases, do not currently offer. Current
competition for telecommunications services is based primarily on
 quality, capacity and reliability of network facilities,
customer service, response to customer needs, service features
and price, and is not based on any proprietary technology.
Because our fiber optic networks have been recently installed
compared to those of the incumbent carriers, our networks
dual path architectures and state-of-the-art technology may
provide us with cost, capacity, and service quality advantages
over some existing incumbent carrier networks.

Other Competitors

We also face, and expect to continue to face, competition for
local telecommunications services from other competitors and
potential competitors. In addition to the incumbent carriers,
competitors and potential competitors offering or capable of
offering switched local and long distance services include long
distance carriers such as AT&T, MCI WorldCom, Inc. and Sprint
 Corporation (which has agreed to merge with MCI WorldCom), cable
 television companies the largest of which have merged or agreed
to merge with AT&T and America Online, Inc., electric
utilities, microwave carriers, wireless telephone system
operators and private networks built by large end users, as well
as other new entrants such as Qwest, Level 3, McLeodUSA
Incorporated, Winstar Communications, Inc. and Teligent, Inc.

We also compete with long distance carriers in the provision of
long distance services. Although the long distance market is
dominated by three major competitors, AT&T, MCI WorldCom, and
 Sprint, hundreds of

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Many of our existing and potential competitors have financial,
personnel and other resources, including name recognition,
significantly greater than ours.

Data Service Competitors

Whether or not the Concentric acquisition closes, we will face
competition from at least four groups of companies for Internet
access and other data services, and the following are examples of
 the key competitors in these groups:



| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Telecommunications companies: AT&T, MCI WorldCom,
	Sprint, Qwest, Level 3 Communications, the incumbent carriers;                                                                              
|
| |  | Online service providers: America Online, Inc., CompuServe
	 Corporation, MSN, the Microsoft Network, Prodigy Communications
	Corporation;                                                     
|
| |  | Internet service providers: BBN Corporation, a subsidiary
	of GTE, EarthLink Network, Inc., MindSpring Enterprises, Inc.,
	PSINet Inc., Verio Inc., other national and regional providers;
	and
|
| |  | Web hosting providers: AboveNet Communications, Exodus
	Communications.                                                                                                                        

Additional groups of competitors include cable companies and DSL
providers, including Covad Communications Group, Inc. and Rhythms
 Netconnections, Inc.

Many of these competitors have greater market presence,
engineering and marketing capabilities, and financial,
technological and personnel resources than those available to us,
 even if the Concentric acquisition closes.

Other Business Competitors

Our enhanced communications service offerings are also subject to
 competition. For example, there are several competitors that
offer interactive voice response services similar to those
offered by NEXTLINK Interactive, such as Call Interactive and
West Teleservices Corporation, which we believe focus their sales
 efforts on large volume interactive voice response service
users. Additionally, many of the long distance competitors
discussed above have their own enhanced services products that
compete with those offered by NEXTLINK Interactive.

Our shared tenant services business competes with a number of
companies offering similar services, including Allied Riser
Communications Corporation, OnSite Access and Cypress
Communications.

Employees

As of December 31, 1999, we employed approximately 3,500
people, including full-time and part-time employees. We consider
our employee relations to be good. None of our employees is
covered by a collective bargaining agreement.

Risk Factors

Risks Related to Liquidity
and Financial Resources

We have a history of increasing net losses and negative cash
flow from operations and may not be able to satisfy our cash
needs from operations

For each period since inception, we have incurred substantial and
 increasing net losses and negative cash flow from operations.
For 1999, we posted a net loss attributable to common
stockholders of approximately $627.9 million and showed
negative cash flow from operations of approximately
$358.9 million. Our accumulated deficit was approximately
$1,217.5 million at December 31, 1999. We expect that
losses and negative cash flow from operations will continue over
the next several years.

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Our existing operations do not currently, and are not expected to
 in the near future to, generate cash flows from which we can
make interest payments on our outstanding notes, make dividend
payments on our outstanding preferred stock or fund continuing
operations and planned capital expenditures. We cannot know when,
 if ever, net cash generated by our internal business operations
will support our growth and continued operations. If we are
unable to generate cash flow in the future sufficient to cover
our fixed charges and are unable to raise sufficient funds from
other sources, we may be required to:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | refinance all or a portion of our existing debt and redeemable
	preferred stock; or
|
| |  | sell all or a portion of our assets.                                               

We have substantial existing debt and we will incur
substantial additional debt

As of December 31, 1999, we had outstanding nine issues of
senior notes totaling $3,733.3 million in principal amount,
approximately $4.1 million in miscellaneous debt obligations
 of our subsidiaries, and two series of redeemable preferred
stock. These preferred stock series include 8,324,796 shares of
14% exchangeable preferred stock, with a liquidation preference
of $50 per share, and 4,000,000 shares of 6 1/2% cumulative
convertible preferred stock, with a liquidation preference of $50
 per share.

Since December 31, 1999, we have obtained a
$1,000.0 million credit facility, of which
$375.0 million has been drawn, and have issued two
additional series of preferred stock in connection with the
Forstmann Little investment. These preferred stock issuances
included 584,375 shares of Series C cumulative convertible
participating preferred stock and 265,625 shares of Series D
 convertible participating preferred stock, both with a
liquidation preference of $1,000 per share.

At December 31, 1999 Concentrics total liabilities
(including current portion) was $214.8 million, including
its 12  3/4% Senior Notes due 2007, which has an aggregate
principal amount of $150.0 million. Concentric also has
outstanding 187,205 shares of preferred stock with dividends
which accrue at the rate of 13 1/2% per year which, prior to
 June 1, 2003, are payable in additional shares of preferred
 stock at Concentrics option, and which are redeemable at
$1,000 per share, and 50,000 shares of preferred stock with
dividends which accrue at the rate of 7% per year, redeemable at
$1,000 per share.

The indentures under which our notes have been issued, and our
credit facility, permit us to incur substantial additional debt.
We fully expect to draw down the remaining $625 million
available under our credit facility and borrow substantial
additional funds in the next several years. This additional
indebtedness, together with any indebtedness we assume in
connection with the Concentric acquisition, will further increase
 the risk of a default unless we can establish an adequate
revenue base and generate sufficient cash flow to repay our
indebtedness. We cannot assure you that we will ever establish an
 adequate revenue base to produce an operating profit or generate
 adequate positive cash flow to provide future capital
expenditures and repayment of debt.

We do not have sufficient additional financing commitments to
meet our long term needs and, if we are not successful in raising
 additional capital, we will not be able to build and maintain
our business

Building our business will require substantial additional capital
 spending. Our capital spending plans have increased
substantially over time, as our strategy has evolved and our
planned networks have grown larger and more robust. We will need
to raise additional capital because our anticipated future
capital requirements exceed the $1,881.8 million in cash and
 marketable securities we had on hand as of December 31,
1999, the $850.0 million that we received in
January 2000 in connection with the Forstmann Little
investment, the $375.0 million that we received in
February 2000 in connection with our credit facility, and
the $625.0 million currently available under our credit
facility, our only current commitment for additional financing.
If we fail to raise sufficient capital, we may be required to
delay or abandon some of our planned future expansion or
expenditures, which could have a material adverse effect on our
growth and our ability to compete in the telecommunications
services industry and generate profits for stockholders, and
could even result in a payment default on our existing debt.

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Under the terms of the indenture governing Concentrics
12 3/4% Senior Notes due 2007, and the terms of its
13 1/2% Series B Senior Redeemable Exchangeable
Preferred Stock, upon completion of the Concentric acquisition we
 will be required to offer to repurchase those outstanding senior
 notes and shares of preferred stock at a purchase price equal to
 101% of the principal amount of the senior notes and 101% of the
 liquidation preference of the shares of the preferred stock. As
of December 31, 1999, the total principal amount of the
senior notes and the liquidation preference of the shares of
preferred stock outstanding was approximately
$338.7 million. If we were required to utilize available
cash to fund repurchase of all or a significant amount of
Concentrics senior notes and preferred stock, it would
reduce the amount of funds available to implement our business
plan.

The covenants in our indentures and credit facility restrict
our financial and operational flexibility, which could have an
adverse affect on our results of operations

The indentures under which our senior notes have been issued and
our credit facility contains covenants that restrict, among other
 things, our ability to borrow money, make particular types of
investments or other restricted payments, sell assets or merge or
 consolidate. Our credit facility also requires us to maintain
specified financial ratios. If we fail to comply with these
covenants or meet these financial ratios, the noteholders or the
lenders under our credit facility could declare a default and
demand immediate repayment. Unless we cure any such default, they
 could seek a judgment and attempt to seize our assets to satisfy
 the debt to them. The security for our credit facility consists
of all of the assets purchased with the proceeds thereof, the
stock of certain of our direct subsidiaries, all assets of
NEXTLINK and, to the extent of $125 million of guaranteed
debt, all assets of certain of our subsidiaries. In addition, a
default under any of these obligations could adversely affect our
 rights under other commercial agreements.

Our existing debt obligations and outstanding redeemable
preferred stock also could affect our financial and operational
flexibility, as follows:



| |   |                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | they may impair our ability to obtain additional financing in the
	 future;                                                                                                                                                                          
|
| |  | they will require that a substantial portion of our cash flow
	from operations and financing activities be dedicated to the
	payment of interest on debt and dividends on preferred stock,
	which will reduce the funds available for other purposes;
|
| |  | they may limit our flexibility in planning for or reacting to
	changes in market conditions; and                                                                                                                                                     
|
| |  | they may cause us to be more vulnerable in the event of a
	downturn in our business.                                                                                                                                                                 

Risks Related to Network
Development

If we cannot quickly and efficiently install our hardware, we
will be unable to generate revenue

Each of our networks consists of many different pieces of
hardware, including switches, routers, fiber optic cables,
electronics and combination radio transmitter/receivers, known as
 transceivers, and associated equipment, which are difficult to
install. If we cannot install this hardware quickly, the time in
which customers can be connected to our network and we can begin
to generate revenue from our network will be delayed. You should
be aware that the construction of our national fiber optic
network is not under our control, but is under the control of
Level 3 Communications. If Level 3 fails to complete its network
on time or if it fails to perform as specified, our strategy of
linking our local networks to one another and creating an
end-to-end national network will be delayed.

IP technology has not yet been perfected for full service
networks like ours

We plan to rely on IP technology as the basis for our planned
end-to-end network. Although IP technology is used throughout the
 Internet, its extension to support other telecommunications
applications, such as voice and video, has not yet been
perfected, and IP technology currently has several deficiencies,
including poor reliability and quality. Integrating these
technologies into our network may prove difficult and may be
subject to delays. We cannot assure you that these improvements
will become available in a timely

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We may not be able to connect our network to the incumbent
carriers network or obtain Internet peering arrangements on
 favorable terms

We require interconnection agreements with the incumbent carrier
to connect our customers to the public telephone network. We
cannot assure you that we will be able to negotiate or
renegotiate interconnection agreements in all of our markets on
favorable terms.

If we fail to consummate the Concentric merger for any reason, we
 will require peering arrangements with other ISPs, particularly
the large, national ISPs, to implement our planned expansion of
data services including Internet access services. Peering
arrangements are agreements among Internet backbone providers to
exchange data traffic. Depending on the relative size of the
carriers involved, these exchanges may be made without settlement
 charge. Although we anticipate that we would be able to enter
into the agreements necessary to become an ISP, the terms and
conditions of these peering agreements are becoming more
restrictive as Internet service becomes increasingly
commercialized, and we cannot be sure that these peering
arrangements would be on favorable terms.

Physical space limitations in office buildings and landlord
demands for fees or revenue sharing could limit our ability to
connect customers directly to our networks and reduce our
operating margins

Connecting a customer who is a tenant in an office building
directly to our network requires installation of in-building
cabling through the buildings risers from the
customers office to our fiber in the street or our antenna
on the roof. In some office buildings, particularly the premier
buildings in the largest markets, the risers are already close to
 their maximum physical capacity due to the entry of other
competitive carriers into the market. Moreover, the owners of
these buildings are increasingly requiring competitive
telecommunications service providers like NEXTLINK to pay fees or
 otherwise share revenue as a condition of access. We have not
been required to pay these fees in the smaller markets we have
served in the past, but may be required to do so to penetrate
larger markets, which would reduce our operating margins. In
addition, some major office building owners have equity interests
 in, or joint ventures with, companies offering broadband
communications services over fiber optic networks and may have an
 incentive to encourage their tenants to choose those
companies services over ours or to grant those companies
more favorable terms for installation of in-building cabling.

Our deployment of wireless first mile connections could be
delayed by a lack of acceptable equipment and by installation
risks

Our LMDS broadband wireless spectrum is a newly-authorized
service, and equipment vendors are only beginning to offer
radios, transceivers and related equipment designed to work at
these frequencies. Recently completed field testing revealed that
 improvements in the price, features and functionality of the
point-to-multi-point equipment must be made before we undertake a
 broader commercial launch of services using this technology.
Although our vendors have advised us that these improvements will
 be incorporated in their second generation equipment, this
equipment is still in development. We cannot be certain that
commercial quantities of equipment meeting our standards will be
available in time to meet our development schedule.

LMDS direct connections require us to obtain access to rooftops
from building owners and to satisfy local construction and zoning
 rules for antennas and transmitters. The need to obtain these
authorizations could be an additional source of cost and delay.

We cannot accurately predict the total cost of our wireless
first mile deployment

Although we have selected one vendor from which we will purchase
LMDS equipment, because our fixed wireless deployment strategy
contemplates utilizing a number of equipment vendors, we do not
know precisely how much the equipment we will need will cost.
Installation costs are expected to vary greatly, depending on the
 particular characteristics of the locations to be served. After
initial installation, we

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It is expensive and difficult to switch new customers to our
network, and provisioning bottlenecks with the incumbent carrier
can slow the new customer connection process

It is expensive and difficult for us to switch a new customer to
our network because:



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | a potential customer faces switching costs if it decides to
	become our customer, and                                                     
|
| |  | we require cooperation from the incumbent carrier in instances
	where there is no direct connection between the customer and our
	network.

Our principal competitors, the incumbent carriers, are already
established providers of local telephone services to all or
virtually all telephone subscribers within their respective
service areas. Their physical connections from their premises to
those of their customers are expensive and difficult to
duplicate. To complete the new customer provisioning process, we
rely on the incumbent carrier to process certain information. The
 incumbent carriers have a financial interest in retaining their
customers, which could reduce their willingness to cooperate with
 our new customer provisioning requests.

If we lose key personnel and qualified technical staff, our
ability to manage the day-to-day aspects of our complex network
will be weakened

We believe that a critical component for our success will be the
attraction and retention of qualified professional and technical
personnel. There is intense competition for qualified personnel
in our business with the technical and other skill sets that we
seek. The loss of the services of our senior executive management
 team or other key personnel, or the inability to attract
additional qualified personnel, could cause us to make less
successful strategic decisions, which could hinder the
introduction of new services or the entry into new markets. We
could also be less prepared for technological or marketing
problems, which could reduce our ability to serve our customers
and lower the quality of our services. We may not be able to
attract, develop, motivate and retain experienced and innovative
personnel. In addition, we must also develop and retain a large
and sophisticated sales force, particularly in connection with
our plan to target larger national customers. If we fail to do
so, there will be an adverse effect on our ability to generate
revenue and, consequently, our operating cash flow.

Risks Related to Competition
and Our Industry

We face competition in local markets from other carriers,
putting downward pressure on prices

We face competition in each of our markets principally with the
incumbent carrier in that market, but also from recent and
potential market entrants, including long distance carriers
seeking to enter, reenter or expand entry into the local exchange
 marketplace, such as AT&T, MCI WorldCom and Sprint (which
has agreed to merge with MCI WorldCom). This competition places
downward pressure on prices for local telephone service and data
services, which can adversely affect our operating results. In
addition, we expect competition from other companies, such as
cable television companies, electric utilities, microwave
carriers, wireless telephone system operators and private
networks built by large end-users. We cannot assure you that we
will be able to compete effectively with these industry
participants.

We face competition in long distance markets, putting downward
 pressure on prices

We also face intense competition from long distance carriers in
the provision of long distance services, which places downward
pressure on prices for long distance services, including both
voice and data services, and makes it difficult for us to achieve
 positive operating cash flow. Although the long distance market
is dominated by three major competitors, AT&T, MCI WorldCom
and Sprint (which has agreed to merge with MCI WorldCom),
hundreds of other companies, such as Qwest, also compete in the
long distance marketplace. We also anticipate that the incumbent
carriers will be competing in the long distance market in

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We face competition in creating a national broadband network

Several of our competitors, such as AT&T, MCI WorldCom,
Qwest, Level 3, IXC and Williams, are creating end-to-end
broadband networks that would compete directly with the network
we are building. In addition, other competitors have the ability
to do so as well. We cannot assure you that we will be able to
successfully compete with these service providers.

We face competition for data services

Competitors for data services consist of online service
providers, Internet service providers and Web hosting providers.
New competitors continue to enter this market and include large
computer hardware, software, media and other technology and
telecommunications companies, including the incumbent carriers.
Certain telecommunications companies and online services
providers are currently offering or have announced plans to offer
 Internet or online services or to expand their network services.
 Certain companies, including America Online, BBN, PSINet and
Verio, have also obtained or expanded their Internet access
products and services.

Many of these competitors have superior resources, which may
place us at a cost and price disadvantage

Many of our current and potential competitors have market
presence, engineering, technical and marketing capabilities and
financial, personnel and other resources substantially greater
than those of NEXTLINK. As a result, some of our competitors can
raise capital at a lower cost than we can, and they may be able
to develop and expand their communications and network
infrastructures more quickly, adapt more swiftly to new or
emerging technologies and changes in customer requirements, take
advantage of acquisition and other opportunities more readily,
and devote greater resources to the marketing and sale of their
products and services than we can. Also, our competitors
greater brand name recognition may require us to price our
services at lower levels in order to win business. Finally, our
competitors cost advantages give them the ability to reduce
 their prices for an extended period of time if they so choose.

The technologies we use may become obsolete, which would limit
 our ability to compete effectively

The telecommunications industry is subject to rapid and
significant changes in technology. If we do not replace or
upgrade technology and equipment that becomes obsolete, we will
be unable to compete effectively because we will not be able to
meet the expectations of our customers.

The following technologies and equipment that we use or will use
are subject to obsolescence: wireline and wireless transmission
technologies, circuit and packet switching technologies,
multiplexing technologies and data transmission technologies,
including the DSL, ATM and IP technologies. In addition, we
cannot assure you that the technologies in which we choose to
invest will lead to successful implementation of our business
plan.

Additionally, the markets for data and Internet-related services
are characterized by rapidly changing technology, evolving
industry standards, changes in customer needs, emerging
competition and frequent new product and service introductions.
The future success of our data services business will depend, in
part, on our ability to accomplish the following in a timely and
cost-effective manner:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | effectively use leading technologies;                                                 
|
| |  | continue to develop technical expertise;                                              
|
| |  | enhance current networking services;                                                  
|
| |  | develop new services that meet changing customer needs; and                           
|
| |  | influence and respond to emerging industry standards and other
	technological changes.

29



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Our pursuit of necessary technological advances may require
substantial time and expense.

We may be required to pay patent licensing fees, which will
divert funds which could be used for other purposes

From time to time, we receive requests to consider licensing
certain patents held by third parties that may have bearing on
our interactive voice response, other enhanced, or data services.
 Should we be required to pay license fees in the future, such
payments, if substantial, could have a material adverse effect on
 our results of operations.

Our company and industry are highly regulated, imposing
substantial compliance costs and restricting our ability to
compete in our target markets

We are subject to varying degrees of federal, state and local
regulation. This regulation imposes substantial compliance costs
on us. It also restricts our ability to compete. For example, in
each state in which we desire to offer our services, we are
required to obtain authorization from the appropriate state
commission. We cannot assure you that we will receive
authorization for markets or services to be launched in the
future. For further discussion regarding regulatory matters and
risks related thereto, see Business  Regulatory
Overview.

The requirement that we obtain permits and rights-of-way
increases our cost of doing business

In order for us to acquire and develop our fiber networks, we
must obtain local franchises and other permits, as well as
rights-of-way and fiber capacity from entities such as incumbent
carriers and other utilities, railroads, long distance companies,
 state highway authorities, local governments and transit
authorities. You should be aware that the process of obtaining
these permits and rights-of-way increases our cost of doing
business.

We cannot assure you that we will be able to maintain our
existing franchises, permits and rights-of-way that we need to
implement our business. Nor can we assure you that we will be
able to obtain and maintain the other franchises, permits and
rights that we require. A sustained and material failure to
obtain or maintain these rights could materially adversely affect
 our business in the affected metropolitan area.

Risks Related to Growth,
Development of Data Services and the Concentric Acquisition

Continued rapid growth of our network, services and
subscribers could be slowed if we cannot manage this growth

We have rapidly expanded and developed our network, services and
subscribers, and expect to continue to do so. This has placed and
 will continue to place significant demands on our management,
operational and financial systems and procedures and controls. We
 may not be able to manage our anticipated growth effectively,
which would harm our business, results of operations and
financial condition. Further expansion and development will
depend on a number of factors, including:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | technological developments;                                                                                                              
|
| |  | our ability to hire, train and retain qualified personnel in a
	competitive labor market;                                                
|
| |  | availability of rights-of-way, building access and antenna sites;                                                                        
|
| |  | development of customer billing, order processing and network
	management systems that are capable of serving our growing
	customer base;
|
| |  | cooperation of the existing local telephone companies;                                                                                   
|
| |  | regulatory and governmental developments; and                                                                                            
|
| |  | existence of strategic alliances or relationships.                                                                                       

30



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We will need to continue to improve our operational and financial
 systems and our procedures and controls as we grow. We must also
 develop, train and manage our employees.

Our ability to succeed in the data services market is
uncertain

Our ability to succeed in the data services market depends to a
large extent on our ability to build a tailored, value-added
network services business. Our ability to do so is subject to the
 following risks:



| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the data services markets are relatively new, and current and
	future competitors are likely to introduce competing services or
	products which may result in market saturation;                                                                                                      
|
| |  | certain critical issues concerning commercial use of tailored,
	value-added services and Internet services, including, among
	others, security, reliability, ease and cost of access, and
	quality of service, remain unresolved and may impact the growth
	of such services;         
|
| |  | the market for data services may fail to grow or grow more slowly
	 than anticipated;                                                                                                                                                                                                 
|
| |  | reliability, quality or compatibility problems with new
	enterprise service offerings which we may introduce could
	significantly delay or hinder market acceptance and could divert
	technical and other resources;                                                                  
|
| |  | our inability to obtain sufficient quantities of sole- or
	limited-source components required to provide data services or to
	 develop alternative sources, if required, could result in delays
	 and increased costs in expanding, and overburdening of, our
	network infrastructure;
|
| |  | suppliers may not provide us with products or components that
	comply with Internet standards or that inter-operate with other
	products or components used in our network infrastructure;                                                                                            
|
| |  | capacity constraints that adversely affect the system performance
	 if demand for data services were to increase faster than
	projected or were to exceed current forecasts;                                                                                                          
|
| |  | our ability to respond to changing customer requirements or
	evolving industry trends;                                                                                                                                                                                                
|
| |  | the failure of any link in the delivery chain, including the
	networks with which we may establish public or private peering
	arrangements or private transit;                                                                                                                        
|
| |  | the market for tailored value-added network services is extremely
	 competitive, and we expect that competition will intensify in
	the future;                                                                                                                                        
|
| |  | increased price and other competition due to Internet industry
	consolidation;                                                                                                                                                                                                        
|
| |  | interruptions in service due to a natural disaster, such as an
	earthquake, or other unanticipated problem; and                                                                                                                                                                       
|
| |  | liability for information disseminated through our network.                                                                                                                                                                                                                           

If the Concentric acquisition closes, we could face these risks
sooner, and the magnitude of such risks could be greater, than if
 we fully implemented our data services strategy organically.

The Concentric acquisition remains subject to Concentric
stockholder approval and other conditions

If Concentric stockholders fail to approve our proposed
acquisition, or if that transaction fails to close for any other
reason, our data strategy will likely take longer than if we
combined with Concentric and our entry into the data services and
 web hosting business will be delayed. As a consequence, our
business will not expand as rapidly in this significant, rapidly
growing area of the telecommunications market.

If the Concentric acquisition closes we will face challenges
integrating our business with theirs, and difficulties in the
integration process may prevent the benefits of the merger from
being realized

The Concentric acquisition will be the largest acquisition we
have made to date. As a result of the differing nature of
Concentrics and NEXTLINKs operations, it may be
difficult to quickly integrate the

31



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| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Distracting management and other key personnel, particularly
	sales and marketing personnel and senior engineers involved in
	network deployment, from the business of the combined company;
|
| |  | Failure to integrate complex technology, product lines and
	development plans and the difficulty of maintaining uniform
	standards, controls, procedures and policies;                      
|
| |  | Potential incompatibility of business cultures;                                                                                                                                             
|
| |  | Costs and delays in implementing common systems and procedures,
	particularly in integrating different information systems;                                                                 
|
| |  | Inability to retain and integrate key management, technical,
	sales and customer support personnel;                                                                                         
|
| |  | Disruptions in the combined sales forces that may result in a
	loss of current customers or the inability to close sales with
	potential customers;                                         
|
| |  | The additional financial resources that may be needed to fund
	combined operations;                                                                                                         
|
| |  | Incorporating acquired technology or businesses into service
	offerings to maximize the combined companys financial and
	strategic position; and                                           
|
| |  | Impairment of relationships with employees and customers as a
	result of changes in management.                                                                                             

If we cannot quickly and efficiently integrate Concentrics
personnel, products and services with our own following the
closing, we will not enjoy the full benefits we anticipate from
the transaction. Concentric officers and employees have valuable
knowledge of the data services and web hosting business that
would be difficult to replace if we do not retain the services of
 a substantial portion of them.

We face risks associated with international expansion

We have begun to expand into Canadian markets, and through the
Concentric acquisition we would acquire a subsidiary in the
United Kingdom. We may in the future expand into other
international markets, either through acquisition of businesses
or assets, organic development, or a combination thereof. The
following risks are inherent in doing business on an
international level:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | unexpected changes in regulatory requirements;                                                                         
|
| |  | export restrictions;                                                                                                   
|
| |  | export controls relating to encryption technology;                                                                     
|
| |  | tariffs and other trade barriers;                                                                                      
|
| |  | difficulties in staffing and managing foreign operations;                                                              
|
| |  | longer payment cycles;                                                                                                 
|
| |  | problems in collecting accounts receivable;                                                                            
|
| |  | political instability;                                                                                                 
|
| |  | fluctuations in currency exchange rates;                                                                               
|
| |  | seasonal reductions in business activity during the summer months
	 in Europe and certain other parts of the world; and
|
| |  | potentially adverse tax consequences that could adversely impact
	the success of our international operations.         

32



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We cannot assure you that one or more of such factors will not
have a material adverse effect on our future international
operations.

Other Risks

Craig O. McCaw, who controls approximately 55% of the voting
power of NEXTLINK, may have interests which are adverse to your
interests

Craig O. McCaw, primarily through his majority ownership and
control of Eagle River Investments, L.L.C., currently controls
approximately 55% of NEXTLINKs total voting power, and
holds proxies that are likely to continue to assure that
Mr. McCaw will hold a majority of that voting power. Because
 Mr. McCaw has the ability to control the direction and future
operations of NEXTLINK and has interests in other companies that
may compete with NEXTLINK, he may make decisions which are
adverse to your interests and the interests of other NEXTLINK
security holders.

Mr. McCaw effectively controls a decision whether a change
of control of NEXTLINK will occur. Moreover, Delaware corporate
law could make it more difficult for a third party to acquire
control of us, even if a change of control could be beneficial to
 you.

We do not plan on paying any dividends on our common stock

We do not anticipate paying any dividends for the foreseeable
future. Our credit facility and the indentures governing our
senior notes restrict our ability to pay cash dividends.

Forward-Looking Statements

Our forward-looking statements are subject to a variety of
factors that could cause actual results to differ significantly
from current beliefs

Some statements and information contained in this report are not
historical facts, but are forward-looking statements,
 as such term is defined in the Private Securities Litigation
Reform Act of 1995. These forward-looking statements can be
identified by the use of forward-looking terminology such as
believes, expects, plans,
may, will, would,
could, should, or anticipates
 or the negative of these words or other variations of these
words or other comparable words, or by discussions of strategy
that involve risks and uncertainties. Such forward-looking
statements include, but are not limited to, statements regarding:



| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | market development, the number of markets we expect to serve, and
	 the expected number of addressable business lines in such
	markets;                                                                                                                                 
|
| |  | network development, including those with respect to IP and ATM
	network and facilities development and deployment, broadband
	fixed wireless technology, testing and installation, high speed
	technologies such as DSL, and matters relevant to our national
	network;
|
| |  | liquidity and financial resources, including anticipated capital
	expenditures, funding of capital expenditures and anticipated
	levels of indebtedness; and                                                                                                            
|
| |  | statements with respect to the Concentric acquisition and its
	effects.                                                                                                                                                                                                 

All such forward-looking statements are qualified by the inherent
 risks and uncertainties surrounding expectations generally, and
also may materially differ from our actual experience involving
any one or more of these matters and subject areas. The operation
 and results of our business also may be subject to the effect of
 other risks and uncertainties in addition to the relevant
qualifying factors identified in the above Risk
Factors section and elsewhere in this report, including,
but not limited to:



| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general economic conditions in the geographic areas that we are
	targeting for communications services;                                                       
|
| |  | the ability to achieve and maintain market penetration and
	average per access line revenue levels sufficient to provide
	financial viability to our business;
|
| |  | access to sufficient debt or equity capital to meet our operating
	 and financing needs;                                                                      
|
| |  | the quality and price of similar or comparable communications
	services offered or to be offered by our competitors; and                                      
|
| |  | future telecommunications-related legislation or regulatory
	actions.                                                                                         

33



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##### Table of Contents



NEXTLINK Capital, Inc.

NEXTLINK Capital, Inc. is a Washington corporation and a
wholly-owned subsidiary of NEXTLINK Communications. NEXTLINK
Capital was formed for the sole purpose of obtaining financing
from external sources when NEXTLINK Communications was a limited
liability company. It is a joint obligor with NEXTLINK
Communications on the 12 1/2% Senior Notes due 2006.
NEXTLINK Capital has had no operations to date.




Item 2.  Properties

We own or lease, in our operating territories, telephone property
 which includes: fiber optic backbone and distribution network
facilities; point-to-point distribution capacity; central office
switching equipment; connecting lines between customers
premises and the central offices; and customer premise equipment.
 Our central office switching equipment includes electronic
switches and peripheral equipment.

The fiber optic backbone and distribution network and connecting
lines include aerial and underground cable, conduit, and poles
and wires. These facilities are located on public streets and
highways or on privately-owned land. We have permission to use
these lands pursuant to consent or lease, permit, easement, or
other agreements.

We, and our subsidiaries, lease facilities for our and their
administrative and sales offices, central switching offices
network nodes and warehouse space. The various leases expire in
years ranging from 2000 to 2008. Most have renewal options.

We recently relocated our headquarters to McLean, Virginia, where
 we are currently leasing 9,500 square feet of office space on an
 interim basis. We have entered into a lease for approximately
212,000 square feet of space located in Reston, Virginia, which
will serve as our permanent headquarters beginning in the third
quarter of 2000. We still maintain some operation in the 45,000
square feet in Bellevue, Washington, leased for our former
headquarters. Additional office space and equipment rooms will be
 leased as the Companys operations and networks are
expanded and as new networks are constructed.




Item 3.  Legal Proceedings

We are not currently a party to any legal proceedings, other than
 regulatory and other proceedings that are in the normal course
of its business.




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

No matters were submitted to a vote of security holders during
the quarter ended December 31, 1999.

Effective October 19, 1999, our Board of Directors approved
amendments to the NEXTLINK Communications, Inc. Stock Option Plan
 to authorize an additional 5,000,000 shares of our Class A
common stock to be issued under the plan, increasing the maximum
number of shares authorized for issuance under the plan to
41,000,000, adjusted for NEXTLINKs 100% stock dividend paid
 in August 1999. The amendment also provided that the
maximum number of shares of Class A stock with respect to
which options may be granted to any individual in any calendar
year is limited to the maximum number of shares authorized under
the plan. These amendments also were approved by one of our
stockholders, Eagle River, which, as of October 19, 1999,
held 37,743,574 shares of our Class B common stock,
representing shares with a majority of the total number of votes
attributable to all shares of outstanding common stock. Our
common stock is the only outstanding class of capital stock of
NEXTLINK entitled to vote on this matter. Eagle River approved
the Boards action by a written consent in lieu of
stockholder meetings dated October 19, 1999, pursuant to
Section 228(a) of the Delaware General Corporation Law.
Because we are a corporation organized under the laws of the
State of Delaware, our stockholders may take action by written
consent without a meeting. The Board did not solicit any proxies
or consents from any other stockholders in connection with this
action. The amendments became effective on or about
December 12, 1999, 20 days after the date on which we
mailed the information statement to stockholders of NEXTLINK in
accordance with rules of the Securities and Exchange Commission.

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##### Table of Contents



Executive Officers of the Registrant

The following table sets forth the names, ages and positions of
NEXTLINKs executive officers. Their respective backgrounds
are described following the table.

|                   |  |     |    |       |  |                                                             
|------------------ |  | --- | -- | ----- |  | ------------------------------------------------------------
|Name               |  | Age |    | Title
|                   |  |     |    |      
|Daniel F. Akerson  |  |     | 51 |       |  | Chairman, Chief Executive Officer                           
|                  
|                  
|                  
|                  
|Nathaniel A. Davis |  |     | 46 |       |  | President and Chief Operating Officer                       
|                  
|                  
|                  
|                  
|Steven W. Hooper   |  |     | 47 |       |  | Executive Vice President                                    
|                  
|                  
|                  
|                  
|Wayne M. Perry     |  |     | 50 |       |  | Executive Vice President                                    
|                  
|                  
|                  
|                  
|Gary D. Begeman    |  |     | 41 |       |  | Senior Vice President, General Counsel and Secretary        
|                  
|                  
|                  
|                  
|Doug L. Carter     |  |     | 49 |       |  | Senior Vice President, Chief Technology Officer             
|                  
|                  
|                  
|                  
|Nancy B. Gofus     |  |     | 46 |       |  | Senior Vice President, Chief Marketing Officer              
|                  
|                  
|                  
|                  
|Mark S. Gunning    |  |     | 43 |       |  | Senior Vice President, Chief Financial Officer              
|                  
|                  
|                  
|                  
|Charles W. Sackley |  |     | 46 |       |  | Senior Vice President, National Accounts Sales and Marketing
|                  
|                  
|                  
|                  
|R. Gerard Salemme  |  |     | 46 |       |  | Senior Vice President, Regulatory and Legislative Affairs   
|                  
|                  
|                  
|                  
|Scott G. Macleod   |  |     | 37 |       |  | Vice President, Chief Corporate Development Officer         
|                  
|                  
|                  
|                  
|Dennis OConnell   |  |     | 40 |       |  | President, North Region                                     
|                  
|                  
|                  
|                  
|Michael Ruley      |  |     | 40 |       |  | President, West Region                                      

Daniel F. Akerson. Mr. Akerson has served as our
Chairman of the Board of Directors and Chief Executive Officer
since joining NEXTLINK in September 1999. Since
March 1996, he has been the Chairman of the Board of
Directors of Nextel Communications, Inc. From March 1996 to
July 1999, he was Chief Executive Officer of Nextel. From
1993 until March 1996, Mr. Akerson served as a general
partner of Forstmann Little & Co., a private investment firm.
 While serving as a general partner of Forstmann Little,
Mr. Akerson also held the positions of Chairman of the Board
 and Chief Executive Officer of General Instrument Corporation, a
 technology company acquired by Forstmann Little. From 1983 to
1993, Mr. Akerson held various senior management positions
with MCI Communications Corporation, including president and
chief operating officer. In addition, Mr. Akerson is a
member of Eagle River and he currently serves as a director of
the American Express Company, America OnLine, Inc., and Nextel
International, Inc., a substantially wholly owned subsidiary of
Nextel.

Nathaniel A. Davis. Mr. Davis has served as our
President and Chief Operating Officer since joining NEXTLINK in
January 2000. In February 2000, he was elected to serve
 on our Board of Directors. From October 1998 to January
2000, Mr. Davis served as Vice President of Technical
Services for Nextel. From November 1996 to
September 1998, Mr. Davis was Chief Financial Officer
of U.S. Operations at MCI. From January 1994 to
October 1996, he was Chief Operating Officer of MCImetro, a
subsidiary of MCI. From July 1992 to December 1993, Mr.
 Davis was Senior Vice President of Access Services for MCI.
Mr. Davis currently serves as a director of Mutual of
America Capital Management Corporation and XM Satellite Radio,
Inc.

Steven W. Hooper. Mr. Hooper has been an Executive
Vice President of NEXTLINK since February 2000. From
September 1999 to February 2000, he was our Vice
Chairman  Strategic Development and served as a member
 of our Board of Directors. From March 1999 to
September 1999, Mr. Hooper was our Chief Executive
Officer. From July 1997 to September 1999, he was our
Chairman of the Board of Directors. From January 1998 to
July 1999, he was Co-Chief Executive Officer with Craig O.
McCaw of Teledesic Corporation, a satellite telecommunications
company. From January 1995 to June 1997,
Mr. Hooper was President and Chief Executive Officer of
AT&T Wireless Services, Inc. From January 1993 to
January 1995, he served as Chief Financial Officer of
AT&T Wireless Services.

35



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##### Table of Contents



Wayne M. Perry. Mr. Perry has been an Executive Vice
President of NEXTLINK since February 2000. From
June 1997 to February 2000, he was a Vice Chairman of
NEXTLINK. From July 1997 to March 1999, Mr. Perry
was Chief Executive Officer of NEXTLINK. From September 1994
 to July 1997, he was a Vice Chairman of AT&T Wireless
Services, Inc. From December 1985 to June 1989, served
as President McCaw Cellular and, from June 1989 to
September 1994, he served as Vice Chairman of the Board of
McCaw Cellular.

Gary D. Begeman. Mr. Begeman has served as our Senior
 Vice President, General Counsel and Secretary since
November 1999. From May 1997 to November 1999, he was
Deputy General Counsel of Nextel, and from August 1999 to
November 1999, he also was a Vice President of Nextel. From
January 1992 to May 1997, Mr. Begeman was a
partner of the law firm Jones, Day, Reavis & Pogue,
specializing in corporate and securities law and mergers and
acquisitions.

Doug L. Carter. Mr. Carter has served as our Senior
Vice President, Chief Technology Officer since May 1999.
From July 1998 to May 1999, he was our Senior Vice
President, Technology. From February 1998 to
November 1998, Mr. Carter also was the Vice President,
Technology of Teledesic. From June 1996 to
January 1998, he was Senior Vice President, Network
Operations of AT&T Wireless Services and from June 1995
to May 1996, he was AT&T Wireless Vice President,
Network Operations. From January 1987 to May 1995, Mr.
Carter was Director, Technology of McCaw Cellular.

Nancy B. Gofus. Ms. Gofus has served as our Senior
Vice President, Chief Marketing Officer since January 2000.
From March 1999 to December 1999, she was the Chief
Operating Officer of Concert Management Services, Inc., which
previously was a wholly-owned subsidiary of British Telecom and
is a global provider of managed telecommunications services. From
 March 1995 to March 1998, Ms. Gofus was
Concerts Senior Vice President of Marketing.

Mark S. Gunning. Mr. Gunning has served as our Senior
 Vice President, Chief Financial Officer since March 2000.
From August 1996 to November 1999, he was Chief
Financial Officer of Primco Personal Communications, a wireless
telecommunications company. From March 1988 to
November 1999, Mr. Gunning held various positions in
finance with Airtouch Communications, a wireless
telecommunications company, which owned 50% of Primco, including
Vice President from 1996 to 1999.

Charles W. Sackley. Mr. Sackley has served as our
Senior Vice President, National Accounts Sales and Marketing
since February 2000. From May 1999 to
February 2000, he was Senior Vice President, Sales and
Marketing for Wireless Facilities, Inc. and, from
February 1998 to May 1999, he was Wireless
Facilities Vice President, Sales and Business Development.
From May 1997 to January 1998, Mr. Sackley was
Executive Director of Marketing  Americas for
Broadband Networks, Inc. From 1995 to 1997, he was Senior
Director  Intelligent Network Operations of the
Cellular Infrastructure Group of Motorola Inc. and, from 1993 to
1995, he was the Cellular Infrastructure Groups
Director  Switching and Intelligent Network
Operations.

R.  Gerard Salemme. Mr. Salemme has served as
our Senior Vice President, Regulatory and Legislative Affairs
since January 2000. From March 1998 to
January 2000, he served as our Senior Vice President,
External Affairs and Industry Relations. From July 1997 to
March 1998, he was our Vice President, External Affairs and
Industry Relations. From December 1994 to July 1997,
Mr. Salemme was Vice President, Government Affairs at AT&T
Corp. From 1991 to 1994, Mr. Salemme was Senior Vice
President, External Affairs at McCaw Cellular.

Scott G. Macleod. Mr. Macleod has been our Vice
President, Chief Corporate Development Officer since May, 1999.
From January 1992 to May 1999, he was an investment
banker with Merrill Lynch & Co., in its telecommunications
group. While Mr. Macleod was with Merrill Lynch, he was a
Vice President from 1993 to 1995, a director in 1996, and a
managing director from 1997 to May 1999.

Dennis OConnell. Mr. OConnell has been
our President, North Region since January 2000. From
April 1998 to January 2000, he was the President of our
 Northeast Region and, from June 1999 to January 2000,
he was also our President, North American Operations. From
June 1995 to March 1998, Mr. OConnell was
President of the Northeast Region for AT&T Wireless. From
January 1992 to May 1995, Mr. OConnell was the
New York Vice President of Operations for AT&T Wireless.

36



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##### Table of Contents



Michael S. Ruley. Mr. Ruley has been our President,
West Region since June 1999. From April 1998 to
June 1999, he was the President of our Southwest Region.
Mr. Ruley has over 15 years of experience in the
telecommunications field. From June 1996 to April 1998,
 Mr. Ruley held various positions at TCG, including Regional
 Vice President of the Pacific Bell Territory and Vice President
and General Manager of both the San Francisco and Colorado
markets. From March 1993 to June 1996, Mr. Ruley
was the Director of New Business Development for BPI
Communications, a Colorado based telecommunications and
technology company. Mr. Ruley has also managed District
Sales for Librex Computer Express in Colorado; and was
Vice-President of Sales and Marketing for Integrated Management
Systems of Denver, Colorado.

PART II




Item 5.  Market for Registrants Common
Stock and Related Stockholder Matters

Market Information

NEXTLINKs Class A common stock is traded on the NASDAQ
 National Market under the symbol NXLK. The following
 table shows, for the periods indicated, the high and low bid
prices for our Class A common stock as reported by the
NASDAQ National Market tier of The NASDAQ Stock Market. The
prices below have been adjusted for the two-for-one stock split
effected August 27, 1999.

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 1999 |       | 1998
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 31.44 |      |  | $    | 13.00 |     |  | $ | 18.44 |  |  | $ | 10.60 | 
|              
|              
|              
|              
|Second Quarter |  | $    | 43.38 |      |  | $    | 26.63 |     |  | $ | 18.91 |  |  | $ | 12.94 | 
|              
|              
|              
|              
|Third Quarter  |  | $    | 56.88 |      |  | $    | 38.00 |     |  | $ | 20.37 |  |  | $ | 10.32 | 
|              
|              
|              
|              
|Fourth Quarter |  | $    | 91.31 |      |  | $    | 49.81 |     |  | $ | 16.75 |  |  | $ | 5.50  | 

There is no public trading market for our Class B common
stock or NEXTLINK Capitals common equity. NEXTLINK Capital
is a wholly owned subsidiary of ours, formed for the sole purpose
 of obtaining financing from external sources.

As of March 15, 2000, the approximate number of shareholders
 of our Class A and Class B common stock was
approximately 44,000 and nine, respectively. NEXTLINK is the sole
 holder of record of NEXTLINK Capitals common stock.

Use of Proceeds

The initial public offering (IPO) of our Class A common
 stock took place in October 1997 (File No. 333-32001).
 The net proceeds we received from the offering totaled
approximately $226.8 million. As of December 31, 1999,
proceeds from the IPO remain available for future network build
out and working capital requirements. We have raised additional
funding from debt and additional equity offerings in 1998 and
1999. The proceeds from these recent offerings have been applied
first in funding the expansion of our network and other working
capital requirements.

Dividends

Neither we nor NEXTLINK Capital have declared a cash dividend on
any of our respective common stock. Covenants in our credit
facility and the indentures pursuant to which our and NEXTLINK
Capitals Senior Notes have been issued restrict our ability
 to pay cash dividends on our capital stock.

Sales of Unregistered Securities

On November 17, 1999, we completed the issuance and sale in
a private placement transaction of $400.0 million of
10 1/2% Senior Notes due 2009 and $455.0 million in
principal amount at stated maturity of 12  1/8% Senior
Discount Notes due 2009. The Senior Notes were sold at 100% of
their principal amount,

37



---



##### Table of Contents








Item 6.  Selected Financial Data

|                                                  |                                      |                                       |            |           |   |      |            |           |   |      |          |           |  |   |          |         |   |   |         |        | 
|------------------------------------------------- | ------------------------------------ | ------------------------------------- | ---------- | --------- | - | ---- | ---------- | --------- | - | ---- | -------- | --------- |  | - | -------- | ------- | - | - | ------- | ------ | 
|                                                  |                                      |                                      
|                                                  |                                      | Year Ended December 31,              
|                                                  |                                      |                                      
|                                                  |                                      | 1999                                  |            | 1998      |   | 1997 |            | 1996      |   | 1995
|                                                  |                                      |                                       |            |           |   |      |            |           |   |     
|                                                  |                                      |                                      
|                                                  |                                      | (In Thousands, Except per Share Data)
|                                                 
|                                                 
|                                                 
|                                                 
|Statement of Operations Data:                     |                                      |                                       |            |           |   |      |            |           |   |      |          |           |  |   |          |         |   |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|Revenue                                           |                                      | $                                     | 274,324    |           |   | $    | 139,667    |           |   | $    | 57,579   |           |  | $ | 25,686   |         |   | $ | 7,552   |       
|                                                 
|                                                 
|                                                 
|                                                 
|Loss from operations                              |                                      |                                       | (366,530   | )         |   |      | (206,184   | )         |   |      | (102,621 | )         |  |   | (51,015  | )       |   |   | (12,462 | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Net loss                                          |                                      |                                       | (558,692   | )         |   |      | (278,340   | )         |   |      | (129,004 | )         |  |   | (71,101  | )       |   |   | (12,731 | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Net loss applicable to common shares              |                                      |                                       | (627,881   | )         |   |      | (337,113   | )         |   |      | (168,324 | )         |  |   | (71,101  | )       |   |   | (12,731 | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Net loss per share (1)                            |                                      |                                       | (5.02      | )         |   |      | (3.13      | )         |   |      | (1.96    | )         |  |   | (0.91    | )       |   |   |        |       
|                                                 
|                                                 
|                                                 
|                                                 
|Statement of Cash Flow Data:                      |                                      |                                       |            |           |   |      |            |           |   |      |          |           |  |   |          |         |   |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|Net cash used in operating activities             |                                      | $                                     | (358,916   | )         |   | $    | (174,484   | )         |   | $    | (97,320  | )         |  | $ | (40,563  | )       |   | $ | (9,180  | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Net cash used in investing activities             |                                      |                                       | (1,040,620 | )         |   |      | (1,276,747 | )         |   |      | (470,195 | )         |  |   | (227,012 | )       |   |   | (35,417 | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Net cash provided by financing activities         |                                      |                                       | 1,948,503  |           |   |      | 1,381,653  |           |   |      | 879,782  |           |  |   | 343,032  |         |   |   | 45,922  |       
|                                                 
|                                                 
|                                                 
|                                                 
|Other Data:                                       |                                      |                                       |            |           |   |      |            |           |   |      |          |           |  |   |          |         |   |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|EBITDA, as adjusted (2)                           |                                      | $                                     | (214,248   | )         |   | $    | (140,937   | )         |   | $    | (72,184  | )         |  | $ | (30,761  | )       |   | $ | (8,629  | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Balance Sheet Data:                               |                                      |                                       |            |           |   |      |            |           |   |      |          |           |  |   |          |         |   |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|Cash, cash equivalents and marketable securities  |                                      | $                                     | 1,881,764  |           |   | $    | 1,478,062  |           |   | $    | 742,357  |           |  | $ | 124,520  |         |   | $ | 1,350   |       
|                                                 
|                                                 
|                                                 
|                                                 
|Property and equipment, net                       |                                      |                                       | 1,180,021  |           |   |      | 594,408    |           |   |      | 253,653  |           |  |   | 97,784   |         |   |   | 29,664  |       
|                                                 
|                                                 
|                                                 
|                                                 
|Investment in fixed wireless licenses, net        |                                      |                                       | 933,128    |           |   |      | 67,352     |           |   |      |         |           |  |   |         |         |   |   |        |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Total assets                         |                                       |            | 4,597,108 |   |      |            | 2,483,106 |   |      |          | 1,219,978 |  |   |          | 390,683 |   |   |         | 53,461 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term debt                                    |                                      |                                       | 3,733,342  |           |   |      | 2,013,192  |           |   |      | 750,000  |           |  |   | 350,000  |         |   |   |        |       
|                                                 
|                                                 
|                                                 
|                                                 
|Redeemable preferred stock, net of issuance costs |                                      |                                       | 612,352    |           |   |      | 556,168    |           |   |      | 313,319  |           |  |   |         |         |   |   |        |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Total shareholders equity (deficit) |                                       |            | (13,122   | ) |      |            | (246,463  | ) |      |          | 71,285    |  |   |          | (18,654 | ) |   |         | 36,719 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The net loss per share data above has been
	adjusted for the stock splits effected in 1999 and in prior
	periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(2) | EBITDA represents net loss before interest
	expense, interest income, depreciation, amortization and deferred
	 compensation expense, and has been adjusted to exclude the
	non-recurring restructuring charge recorded in the fourth quarter
	 of 1999. EBITDA is commonly used to analyze companies on the
	basis of operating performance, leverage and liquidity. While
	EBITDA should not be construed as a substitute for operating
	income or a better measure of liquidity than cash flow from
	operating activities, which are determined in accordance with
	generally accepted accounting principles, it is included herein
	to provide additional information with respect to our ability to
	meet future debt service, capital expenditure and working capital
	 requirements.




Item 7.  Managements Discussion and
Analysis of Financial Condition and Results of Operations

Forward-looking and Cautionary Statements

Some of the statements contained in this Managements
Discussion and Analysis of Financial Condition and Results of
Operations may be deemed to be forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements involve a number of risks, uncertainties
and other factors that could cause actual results to differ
materially, as discussed further elsewhere in this report and in
our public filings with the Securities and Exchange Commission.

38



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##### Table of Contents



Overview

Since 1996, we have provided high-quality telecommunications
services to the rapidly growing business market. We believe that
increasing usage of both telephone service and newer data and
information services will continue to increase demand for
telecommunications capacity, or bandwidth, and for new
telecommunications services and applications.

To serve our customers expanding telecommunications needs,
we have assembled a unique collection of high-bandwidth local and
 national network assets. We intend to integrate these assets
with advanced communications technologies and services in order
to become one of the nations leading providers of a
comprehensive array of communications services and applications.

To accomplish this:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have built 31 high-bandwidth or broadband local networks in 19
	 states, generally located in the central business districts of
	the cities we serve, and we continue to build additional
	networks;                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | We have become the nations largest holder of broadband
	fixed wireless spectrum with FCC licenses covering 95% of the
	population of the 30 largest U.S. cities, which we will use to
	extend the reach of our networks to additional customers; and                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | We have acquired, through a joint venture known as INTERNEXT,
	rights to use unlit fiber optic strands, known as dark fiber, and
	 an empty conduit in a national broadband network now being built
	 to traverse over 16,000 miles and to connect more than 50 cities
	 in the United States and Canada, including all of the largest
	cities that our current and planned local networks serve. By
	acquiring dark fiber rather than leasing
	lit fiber capacity, we have retained control over
	decisions on where and how to deploy existing or new generations
	of optical transmission equipment to enhance our networks
	capacity and performance.

We currently offer our customers a variety of voice services and
high-speed Internet access. As our networks become increasingly
optimized for data transmission and through our pending
acquisition of Concentric Network Corporation (Concentric), we
plan to expand our Internet access business and offer additional
data services, such as Internet web hosting, support for
e-commerce, virtual private network services and other customized
 data communications services.

In addition, through our NEXTLINK Interactive subsidiary, we
currently provide a number of voice response, speech recognition,
 and e-commerce services. We plan to build on our existing
expertise in customized information and automated order
fulfillment to serve clients with e-commerce businesses, that is,
 businesses conducting high volume retail transactions over the
Internet.

We currently operate 31 broadband local networks in 49 cities. We
 launched services in San Diego, Seattle and Washington D.C.
during the first half of 1999, in Newark, Detroit and Houston
during the third quarter of 1999, and, most recently, in Phoenix,
 Boston, St. Louis and Sacramento. We are currently building
additional local networks, and plan to have operational networks
in most of the 30 largest U.S. cities by the end of 2000.

Our goal is to provide customers with complete voice and data
network solutions for all of their communications needs, using
our own fiber, switches and other facilities to the greatest
extent possible. To reduce reliance on the physical connection
for the short distance between our customers and our fiber optic
networks, which are, in most instances, leased from the dominant
carrier, we intend to increase the number of customers connected
directly to our networks. In some cases, using our fixed wireless
 spectrum, we will construct a new fiber optic extension from our
 network to the customers premises. In other cases, we will
 deploy a high-bandwidth wireless connection between an antenna
on the roof of the customers premises and an antenna
attached to our fiber rings. These fixed wireless connections
offer high-quality broadband capacity and, in most cases, will
cost less than fiber to install. In December 1999, we
completed our first generation broadband wireless field testing
and announced the availability of commercial services to a
limited group of customers in Los Angeles and Dallas. We continue
 to evaluate vendors for participation in our planned commercial
rollout of broadband wireless service in 25 markets scheduled for
 the end of 2000.

39



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##### Table of Contents



We are also deploying a technology called Digital Subscriber
Line, or DSL, to meet the high bandwidth needs of those customers
 whose connection to our network remains over copper wire. DSL
technology increases the effective capacity of existing copper
telephone wires. We are installing our own DSL equipment to
provide these services ourselves, and we also resell another
providers DSL services.

Our networks support a variety of communications technologies,
which permit us to offer our customers a set of technology
options to meet their changing needs, and introduce new
technologies, as they become available. For example, we have
begun to install Internet Protocol (IP) routers, which will
enable us to carry Internet traffic more efficiently and to
provide more data services. We also have been installing
Asynchronous Transfer Mode (ATM) routers and switches in our
 local network, which will enable us to meet the demands of
large, high volume customers.

We anticipate that future IP technologies will enable the
high-bandwidth, end-to-end national network we are building to
carry data, voice and video. Such a network should also enable us
 to offer our customers entirely new classes of IP services. To
serve our customers present needs and to take advantage of
future opportunities that technological advances may bring, we
intend to remain flexible with respect to technology choices.

The table provides selected key operational data:

|                    |                                 |                    |  |         |  |        |  |         |  |  |  |        | 
|------------------- | ------------------------------- | ------------------ |  | ------- |  | ------ |  | ------- |  |  |  | ------ | 
|                    |                                 |                   
|                    |                                 | As of December 31,
|                    |                                 |                   
|                    |                                 |                    |  | 99-98
|                    |                                 |                    |  | %      
|                    |                                 | 1999               |  | 1998    |  | Change
|                    |                                 |                    |  |         |  |       
|Operating data (1): |                                 |                    |  |         |  |        |  |         |  |  |  |       
|                   
|                   
|                   
|                   
|                    | Route miles (2)                 |                    |  | 4,285   |  |        |  | 2,477   |  |  |  | 73.0%  | 
|                   
|                   
|                   
|                   
|                    | Fiber miles (3)                 |                    |  | 378,200 |  |        |  | 195,531 |  |  |  | 93.4%  | 
|                   
|                   
|                   
|                   
|                    | On-net buildings connected (4)  |                    |  | 1,320   |  |        |  | 801     |  |  |  | 64.8%  | 
|                   
|                   
|                   
|                   
|                    | Off-net buildings connected (5) |                    |  | 28,656  |  |        |  | 13,443  |  |  |  | 113.2% | 
|                   
|                   
|                   
|                   
|                    | Switches installed              |                    |  | 32      |  |        |  | 21      |  |  |  | 52.4%  | 
|                   
|                   
|                   
|                   
|                    | Access lines in service (6)     |                    |  | 428,035 |  |        |  | 174,182 |  |  |  | 145.7% | 
|                   
|                   
|                   
|                   
|                    | Employees                       |                    |  | 3,500   |  |        |  | 2,299   |  |  |  | 52.2%  | 




| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The operating data include 100% of the statistics of the Las
	Vegas network, which we manage and in which we have a 40%
	membership interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (2) | Route miles refer to the number of miles of the
	telecommunications path in which we own or lease the fiber optic
	cables that are installed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (3) | Fiber miles refer to the number of route miles installed along a
	telecommunications path, multiplied by our estimate of the number
	 of fibers along that path.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (4) | Represents buildings physically connected to our networks,
	excluding those connected by unbundled dominant local exchange
	carrier facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (5) | Represents buildings connected to our networks through leased or
	unbundled dominant carrier facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (6) | Represents the number of access lines in service, including those
	 lines that are provided through resale of Centrex services, for
	which we are billing services. We serviced 1,463 resold access
	lines as of December 31, 1999. An access line is defined as a
	telephone connection between our facilities and a customer
	purchasing local telephone services. This connection does not
	include so-called access line equivalents (ALEs), and is a
	one-for-one relationship with no multipliers used for trunk
	ratios, except for those trunks over which we provide primary
	rate interface (PRI) service is provided, which are counted
	as 23 access lines.

Concentric Acquisition

In January 2000, we agreed to acquire Concentric, a provider
 of high-speed DSL, web hosting, e-commerce and other Internet
services. As a combined company, we will be able to offer a
complete, single

40



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##### Table of Contents





In this transaction, both the Company and Concentric will merge
into a newly-formed company, to be renamed NEXTLINK
Communications, Inc., which will succeed to both companies
assets and businesses and will assume all of NEXTLINKs and
Concentrics outstanding debt obligations and other
liabilities. In the transaction, each outstanding share of our
Class A common stock and Class B common stock would be
converted into one share of Class A common stock or
Class B common stock, as applicable, of the corporation
surviving this merger, which stock will be substantially
identical to our Class A and Class B common stock. In
addition, each outstanding share of Concentric common stock would
 be converted into 0.495 of a share of Class A common stock
of the surviving corporation, unless the trading price of our
Class A common stock at the effective time is less than or
equal to $90.91, in which case each outstanding share would be
converted into $45.00 of Class A common stock of the
surviving corporation (based on the trading price of our
Class A common stock prior to the effective time). If at the
 effective time our average stock price is less than $69.23, each
 outstanding share of Concentric common stock would convert into
0.650 of a share of the Class A common stock of the
surviving corporation.

This transaction is intended to be tax-free to our shareholders
and Concentrics shareholders and has been unanimously
approved by both our and Concentrics boards of directors,
but remains subject to approval by Concentric stockholders. Eagle
 River, the majority holder of our voting power, has agreed to
approve the transaction. The parties have obtained the consent of
 Concentrics bond and preferred stock holders to certain
amendments to those securities that are necessary to complete
this transaction. The transaction is subject to customary closing
 conditions and is expected to close during the second quarter of
 2000. The merger will be accounted for under the purchase method
 of accounting.

Results of Operations

Revenue grew 96% to $274.3 million in 1999, from
$139.7 million in 1998. In 1998, revenue increased 143% to
$139.7 million from $57.6 million in 1997. Revenue
reported consisted of the following components (dollars in
thousands):

|                                 |               |      |         |         |  |           |        |         |  |           |       |      |   |   |        |        |  |  |        |        | 
|-------------------------------- | ------------- | ---- | ------- | ------- |  | --------- | ------ | ------- |  | --------- | ----- | ---- | - | - | ------ | ------ |  |  | ------ | ------ | 
|                                 |               |      |         |         |  | 19991998 |        |         |  | 19981997
|                                 |               | 1999 |         | 1998    |  | % Change  |        | 1997    |  | % Change 
|                                 |               |      |         |         |  |           |        |         |  |          
|Core services                    |               | $    | 217,052 |         |  | $         | 76,654 |         |  |           | 183.2 | %    |   | $ | 20,342 |        |  |  | 276.8% |       
|                                
|                                
|                                
|                                
|Shared tenant services           |               |      | 13,805  |         |  |           | 12,781 |         |  |           | 8.0   | %    |   |   | 2,018  |        |  |  | 533.3% |       
|                                
|                                
|                                
|                                
|Long distance telephone services |               |      | 21,233  |         |  |           | 26,937 |         |  |           | (21.2 | )%   |   |   | 16,478 |        |  |  | 63.5%  |       
|                                
|                                
|                                
|                                
|Enhanced services                |               |      | 22,234  |         |  |           | 23,295 |         |  |           | (4.6  | )%   |   |   | 18,741 |        |  |  | 24.3%  |       
|                                 |               |      |         |         |  |           |        |         |  |           |       |      |   |   |        |        |  |  |        |       
|                                 | Total revenue |      | $       | 274,324 |  |           | $      | 139,667 |  |           |       | 96.4 | % |   | $      | 57,579 |  |  |        | 142.6% | 
|                                 |               |      |         |         |  |           |        |         |  |           |       |      |   |   |        |        |  |  |        |       

Core services revenue, consisting of bundled local and long
distance, as well as dedicated services, grew 183% to
$217.1 million from $76.7 million in 1998. In 1998,
core services revenue grew 277% from $20.3 million in 1997.
This revenue growth corresponded to an increase in customer
access lines installed, which was driven by growth in our
existing markets, as well as expansion into new markets. During
1999, access lines in service grew 146% to 428,035 as of
December 31, 1999 from 174,182 at December 31, 1998. At
 December 31, 1997 access lines in service totaled 50,131.
Our quarterly customer access line installation rate grew 97% to
78,881 in the fourth quarter of 1999 from 40,075 in the same
quarter of 1998.

Through our NEXTLINK One subsidiary, we provide shared tenant
services, including telecommunications management services, to
groups of small and medium-sized businesses located in the same
office building. This service enables businesses too small to
justify hiring their own telecommunications managers to benefit
from the efficiencies, including volume discounts, normally only
available to larger enterprises. We acquired our NEXTLINK One
subsidiary (formerly Start Technologies Corporation) in the
fourth quarter of 1997; therefore, 1998 was the first full year
of shared tenant services revenue recognized.

41



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##### Table of Contents



Revenue from our stand-alone long distance telephone services
declined in 1999 from 1998, primarily due the conversion of those
 customers onto our local networks, as we began servicing those
customers with our bundled local and long distance services. We
expect this trend to continue in future periods both in absolute
terms and as a percentage of revenue. In 1998, revenue from this
source increased due to the acquisition of Chadwick
Telecommunications Corporation, a switch-based long distance
service reseller, in the fourth quarter of 1997.

Enhanced revenue consists primarily of interactive voice response
 (IVR) services provided by our NEXTLINK Interactive subsidiary.
IVR is a platform that allows a consumer to dial into a
computer-based system using a toll-free number and a touch-tone
phone and access a variety of information by following a
customized menu. Simultaneously, a profile of the caller is left
behind for either our use or the use of our customer.

The table below provides expenses by classification and as a
percentage of revenue:

|                    |                       |                                                                          |   |              |  |        |  |              |  |        |   |              |  |  |  |        |  |  |   |        |  |  |  |        | 
|------------------- | --------------------- | ------------------------------------------------------------------------ | - | ------------ |  | ------ |  | ------------ |  | ------ | - | ------------ |  |  |  | ------ |  |  | - | ------ |  |  |  | ------ | 
|                    |                       |                                                                         
|                    |                       | Expense Classification as a Percentage of Revenue (dollars in thousands)
|                    |                       |                                                                         
|                    |                       |                                                                          |   |              |  |       
|                    |                       | 1999                                                                     |   | 1998         |  | 1997  
|                    |                       |                                                                          |   |              |  |       
|                    |                       | Amount                                                                   |   | % of Revenue |  | Amount |  | % of Revenue |  | Amount |   | % of Revenue
|                    |                       |                                                                          |   |              |  |        |  |              |  |        |   |             
|Costs and expenses: |                       |                                                                          |   |              |  |        |  |              |  |        |   |              |  |  |  |        |  |  |   |        |  |  |  |       
|                   
|                   
|                   
|                   
|                    | Operating             |                                                                          | $ | 221,664      |  |        |  | 80.8%        |  |        | $ | 123,675      |  |  |  | 88.5%  |  |  | $ | 54,031 |  |  |  | 93.8%  | 
|                   
|                   
|                   
|                   
|                    | SG&A                  |                                                                          |   | 266,908      |  |        |  | 97.3%        |  |        |   | 156,929      |  |  |  | 112.4% |  |  |   | 75,732 |  |  |  | 131.5% | 
|                   
|                   
|                   
|                   
|                    | Restructuring         |                                                                          |   | 30,935       |  |        |  | 11.3%        |  |        |   |             |  |  |  |       |  |  |   |       |  |  |  |       | 
|                   
|                   
|                   
|                   
|                    | Deferred compensation |                                                                          |   | 12,872       |  |        |  | 4.7%         |  |        |   | 4,993        |  |  |  | 3.6%   |  |  |   | 3,247  |  |  |  | 5.6%   | 
|                   
|                   
|                   
|                   
|                    | Depreciation          |                                                                          |   | 93,097       |  |        |  | 33.9%        |  |        |   | 45,638       |  |  |  | 32.7%  |  |  |   | 18,851 |  |  |  | 32.7%  | 
|                   
|                   
|                   
|                   
|                    | Amortization          |                                                                          |   | 15,378       |  |        |  | 5.6%         |  |        |   | 14,616       |  |  |  | 10.5%  |  |  |   | 8,339  |  |  |  | 14.5%  | 

Operating expenses consist of costs directly related to providing
 facilities-based network and enhanced communications services
and also includes salaries, benefits and related costs of
operations and engineering personnel. Operating expenses
increased 79% in 1999 to $221.7 million versus $123.7
million in 1998. In 1998, operating expenses increased 129% from
$54.0 million in 1997. The increase in both years was
attributable to increased network costs related to provisioning
higher volumes of local, long distance and enhanced
communications services, an increase in employees and an increase
 in other related costs primarily to expand our switched local
and long distance service businesses in existing and planned
markets. To a lesser extent, the acquisitions of Start and
Chadwick in the fourth quarter of 1997 also contributed to the
increase in operating costs in 1998 over those in 1997. We expect
 operating expenses to continue to increase in future periods in
connection with our growth and expansion plans.

Selling, general and administrative (SG&A) expenses include
salaries and related personnel costs, facilities expenses, sales
and marketing, information systems costs, consulting and legal
costs and equity in loss of affiliated companies. SG&A
expenses increased 70% in 1999 to $266.9 million from $156.9
 million in 1998. In 1998, SG&A increased 107% from
$75.7 million in 1997. Consistent with the cost drivers of
our operating expenses, the increases in SG&A in both periods
 was primarily due to increases in employees and other costs
associated with the expansion of our switched local and long
distance service businesses in existing and planned markets.

In the fourth quarter of 1999, we recorded a $30.9 million
non-recurring restructuring charge for costs associated with
relocating our Bellevue, Washington headquarters to Northern
Virginia. Approximately $28.0 million of the charge resulted
 from non-cash stock option compensation charges that arose from
accelerated vesting on certain employee options associated with
their severance.

Deferred compensation expense was recorded in connection with our
 Equity Option Plan until April 1997, and in connection with
 our Stock Option Plan, which replaced the Equity Option Plan,
subsequent to April 1997. The stock options granted under
the Equity Option Plan were considered compensatory. All options
outstanding under the Equity Option Plan were re-granted under
the Stock Option Plan with terms and conditions substantially the
 same as under the Equity Option Plan. As such, we continue to
record

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Depreciation expense increased 104% in 1999 to $93.1 million
 from $45.6 million in 1998. In 1998, depreciation expense
increased 142% from $18.9 million in 1997. The increase in both
years was primarily due to placement in service of additional
telecommunications network assets, including switches, fiber
optic cable, and network electronics and related equipment. As we
 expand our networks and install additional switches and related
equipment and other network technology, depreciation expense is
expected to continue to increase. Amortization of intangible
assets increased in 1998 over 1997 primarily as a result of the
Start and Chadwick acquisitions in the fourth quarter of 1997.

In 1999, interest expense increased 96% to $283.1 million
from $144.6 million in 1998. In 1998, interest expense increased
165% from $54.5 million in 1997. The increase in both years
was due to an increase in our average outstanding indebtedness.
Interest expense will increase in future periods in conjunction
with an increase in our average outstanding indebtedness. For
more information, see Liquidity and Capital
Resources. A portion of interest costs is capitalized as
part of the construction cost of our communications networks.
Capitalized interest was $9.9 million in 1999,
$4.3 million in 1998, and $1.8 million in 1997.

Interest income increased 26% in 1999 to $91 million from
$72.4 million in 1998. In 1998, interest income increased
157% from $28.1 million in 1997. The increases in both years
 corresponded to the increase in our average cash and investment
balances.

Liquidity and Capital Resources

Our business is capital-intensive and, as such, has required and
will continue to require substantial capital investment. We build
 high capacity networks with broad market coverage, a strategy
that initially increases our level of capital expenditures and
operating losses and requires us to make a substantial portion of
 our capital investments before we realize any revenue from them.
 These capital expenditures, together with the associated early
operating expenses, will continue to result in negative cash flow
 unless and until we are able to establish an adequate customer
base. We believe, however, that over the long term this strategy
will enhance our financial performance by increasing the traffic
flow over our networks.

Capital Uses

During 1999, we used $358.9 million in cash for operating
activities, compared to $174.5 million used in 1998 and
$97.3 million used in 1997. The increase was primarily due
to a substantial increase in our activities associated with the
continued development and expansion of switched local and long
distance service operations. Accounts receivable increased 123%
during 1999, primarily due to the increase in revenue in the same
 period. Increases in accounts payable and accured liabilities
were proportional with the increase in operating costs and
selling, general, and administrative expenses. In addition,
during 1999, we invested an additional $1,127.1 million in
property and equipment, and acquisitions of telecommunications
assets, including a $515.6 million investment in fixed
wireless licenses.

During 1999, we acquired a number of licenses to broadband fixed
wireless spectrum. We plan to use our fixed wireless licenses to
extend the reach of our fiber networks and to connect additional
customers directly to our fiber networks. Deploying the
technologies associated with this strategy will require
additional capital expenditures. The transactions completed
included the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In April 1999, we acquired WNP Communications, Inc. for
	$698.2 million. Of this amount, we paid $157.7 million
	to the FCC for license fees, including interest. We paid the
	remainder of the purchase price, consisting of $190.1 million in
	cash and 11,431,662 shares of Class A common stock, to the
	stockholders of WNP. In this transaction, we acquired licenses
	for 1,150 MHz of local multi-point distribution services
	(LMDS) spectrum (A block LMDS licenses) in 39 cities and one
	 license for 150 MHz of LMDS spectrum (B block LMDS license) in
	one city.

43



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| |   |                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In June 1999, we acquired from Nextel Communications Inc.
	(Nextel) its 50% interest in NEXTBAND, a joint venture we formed
	with Nextel in January 1998, for $137.7 million in
	cash. NEXTBAND owns LMDS licenses in 42 markets throughout the
	U.S. The purchase price was determined based on a formula derived
	 in conjunction with our acquisition of WNP.

In July 1998, we formed INTERNEXT L.L.C., which is currently
 beneficially owned 50% each by us and Eagle River Investments,
LLC. INTERNEXT entered into an agreement with Level 3
Communications, Inc., which is constructing a fiber optic network
 that is expected to cover more than 16,000 route miles with six
or more conduits and connect 50 cities in the United States and
Canada. Pursuant to this agreement, INTERNEXT will receive an
exclusive interest in 24 dark fibers in a shared,
filled conduit, one empty conduit and the right to 25% of the
fibers pulled through the sixth and any additional conduits in
the network. INTERNEXT will pay $700.0 million in exchange
for these rights, the majority of which will be payable as
segments of the network are completed and accepted, which is
expected to occur substantially during 2000 and 2001. As of
December 31 1999, INTERNEXT had paid $47.6 million to
Level 3 of which $19.8 million was paid in 1999.

In January 2000, we entered into an agreement with Eagle
River to purchase the 50% interest that we did not own of
INTERNEXT. The purchase price for Eagle Rivers interest is
approximately 3.4 million shares of the Class A common
stock of the corporation surviving the Concentric acquisition. As
 a result of this acquisition, which is expected to be
consummated in the second quarter of 2000, we will have complete
control over this national broadband network.

We expect to make substantial capital expenditures in 2000 and
beyond relating to our existing and planned network development
and operations. These expenditures include:



| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the purchase and installation of switches, routers, servers and
	other data-related equipment and related electronics in existing
	networks and in networks to be constructed or acquired in new or
	adjacent markets;
|
| |  | the purchase and installation of fiber optic cable and
	electronics to expand existing networks and develop new networks,
	 including the connection of new buildings;                                                
|
| |  | the development of our comprehensive information technology
	platform;                                                                                                                                                
|
| |  | the purchase and installation of equipment associated with the
	deployment of LMDS using our LMDS spectrum;                                                                                                           
|
| |  | funding of the commitments to build our national network, and
	related expenses we expect to incur in building our national
	network;                                                                                 
|
| |  | the purchase and installation of equipment associated with
	deployment of DSL services; and                                                                                                                           
|
| |  | the funding of operating losses and working capital.                                                                                                                                                                  

Our strategic plan also calls for expansion into additional
market areas. This expansion will require significant additional
capital for:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | potential acquisitions of businesses or assets;                                               
|
| |  | design, development and construction of new networks; and                                     
|
| |  | the funding of operating losses and working capital during the
	start-up phase of each market.

In addition, our proposed acquisition of Concentric may result in
 additional capital uses. Specifically, under the terms of the
indenture governing Concentrics 12 3/4% Senior Notes
due 2007 and the terms of Concentrics 13 1/2%
Series B Senior Redeemable Exchangeable Preferred Stock,
upon completion of the Concentric transaction we will be required
 to offer to repurchase those outstanding senior notes and shares
 of preferred stock at a purchase price equal to 101% of the
principal amount of the senior notes and 101% of the liquidation
preference of the shares of the preferred stock. As of
December 31, 1999, the total principal amount of the
Concentric senior notes and the liquidation preference of the
shares of Concentric preferred

44



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Based on the current and historical trading prices of
Concentrics senior notes and preferred stock, we do not
expect that the holders of these notes and preferred stock will
tender them for repurchase. However, if there is a significant
adverse change in the market for these securities or an adverse
change with respect to either of us or Concentric, it is likely
that some or all of the Concentric senior notes and preferred
stock will be tendered in the repurchase offer.

Capital Resources

1999 Financing Activities.In November 1999, we sold
$400.0 million of 10 1/2% Senior Notes and
$455.0 million in principal amount at stated maturity of
12  1/8% Senior Discount Notes both due December 1,
2009. The transaction generated proceeds, net of discounts,
commissions, advisory fees and expenses, totaling approximately
$639.6 million. Interest payments on the 10 1/2% Notes
are due semi-annually, beginning June 1, 2000. The 12 
1/8% Notes were issued at a discount from their principal amount
to generate aggregate gross proceeds of approximately
$251.4 million. The 12  1/8% Notes accrete at a rate of
 12  1/8% compounded semi-annually, to an aggregate
principal amount of $455.0 million by December 1, 2004.
 No cash interest will accrue on the 12  1/8% Notes until
December 1, 2004. Interest will become payable in cash
semi-annually beginning June 1, 2005. We have the option to
redeem both the 10 1/2% Notes and the 12  1/8% Notes,
in whole or in part, beginning December 1, 2004 at
established redemption prices that decline to 100% of the stated
principal amount thereof by December 1, 2007.

In June 1999, we completed the sale of $675.0 million
of 10 3/4% Senior Notes and $588.9 million in principal
 amount at stated maturity of 12 1/4% Senior Discount Notes,
 both due June 1, 2009. The transaction generated proceeds,
net of discounts, underwriting commissions, advisory fees and
expenses, totaling approximately $979.5 million. Interest
payments on the 10 3/4% Notes due 2009 are due
semi-annually, beginning December 1, 1999. The 12 1/4%
Notes were issued at a discount from their principal amount to
generate aggregate gross proceeds of approximately
$325.0 million. The 12 1/4% Notes accrete at a rate of
12 1/4% compounded semi-annually, to an aggregate principal
amount of approximately $588.9 million by June 1, 2004.
 No cash interest will accrue on the 12 1/4% Notes until
June 1, 2004. Interest will become payable in cash
semi-annually beginning December 1, 2004. We have the option
 to redeem both the 10 3/4% Notes and the 12 1/4%
Notes, in whole or in part, beginning June 1, 2004 at
established redemption prices that decline to 100% of the stated
principal amount thereof by June 1, 2007.

Our operating flexibility with respect to certain business
matters is, and will continue to be, limited by covenants
associated with our outstanding indebteness and preferred stock.
Among other things, these covenants limit our ability to incur
additional indebtedness, create liens upon assets, apply the
proceeds from the disposal of assets, make dividend payments and
other distributions on capital stock and redeem capital stock.

We are required to use the proceeds from the sale of certain
series of our senior notes solely to fund 80% of the expenditures
 for the construction, improvement and acquisition of new and
existing networks and services and direct and indirect
investments in certain joint ventures, by covenants in the
indentures under which these and other of our notes were issued.
We expect to fund the remainder of these costs with the proceeds
of other offerings. These covenants may adversely affect our
ability to finance our future operations or capital needs or to
engage in other business activities that may be in our interest.

In June 1999, we completed the sale of 15,200,000 shares of
Class A common stock at $38.00 per share, 8,464,100 shares
of which we offered and 6,735,900 shares of which were offered by
 certain stockholders that previously owned interests in WNP.
Gross proceeds from the offering totaled $321.6 million, and
 our proceeds, net of underwriting discounts, advisory fees and
expenses, aggregated approximately $310.5 million.

At December 31, 1999 we had $150.6 million of
comprehensive income generated from net unrealized holding gains
and losses on our equity investments in marketable securities.
These investments were classified

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Secured Credit Facility. In February 2000, we entered
 into a $1.0 billion Senior Secured Credit Facility with
various lenders, and certain of our subsidiaries, as guarantors.
The security for the facility consists of all of the assets
purchased with the proceeds thereof, the stock of certain of our
subsidiaries, all assets of NEXTLINK and, to the extent of
$125.0 million of guaranteed debt, all assets of certain of
our subsidiaries. A portion of the facility is available to
provide working capital and for other general corporate purposes
with the remainder available to provide financing for the
construction, acquisition or improvement of telecommunication
assets. The facility consists of a $387.5 million multi-draw
 term loan A, a $225.0 million term loan B, and a
$387.5 million revolving credit facility. In addition, the
facility may be increased by up to an additional
$1.0 billion under certain circumstances. At closing, we
borrowed $150.0 million of the term loan A and the entire
$225.0 million of the term loan B.

The revolving credit facility and the term loan A mature on
December 31, 2006, and the term loan B matures on
June 30, 2007. The maturity date for each of the facilities
may be accelerated to October 31, 2005 unless we have
refinanced our $350.0 million 12 1/2% Senior Notes by
April 15, 2005. Amounts drawn under the revolving credit
facility and the term loans are expected to bear interest, at our
 option, at the alternate base rate or reserve-adjusted London
Interbank Offered Rate (LIBOR) plus, in each case,
applicable margins.

Forstmann Little Investment. In December 1999,
several Forstmann Little & Co. investment funds agreed to
invest $850.0 million in NEXTLINK, to be used to expand our
networks and services, introduce new technologies and fund our
business plan. The investment closed in January 2000. In the
 transaction, the investors acquired shares of two series of
convertible preferred stock that together are convertible into
Class A common stock at a conversion price of $63.25 per
share and provide for a 3.75% dividend payable quarterly. Under
the agreement, the holders may convert the preferred stock into
Class A common stock at any time after January 20,
2001, and we may redeem the preferred stock at any time after the
 later of January 20, 2005 and the date we have redeemed our
 12 1/2% Notes in full. The preferred stock is redeemable at
 the option of the holders during the 180-day period commencing
January 20, 2010.

Liquidity Assessment

We believe that the net proceeds from the Forstmann Little
investment together with the amounts borrowed and available under
 the secured credit facility, cash and marketable securities on
hand and cash generated from operations, will provide sufficient
funds for us to expand our business as planned and to fund
operating losses until the latter half of 2001. However, the
amount of future funding requirements will depend on a number of
factors, including the success of our business, the dates at
which we further expand our network, the types of services we
offer, staffing levels, acquisitions and customer growth, as well
 as other factors that are not within our control, including the
obligation to fund the repurchase offer obligation with respect
to Concentrics senior notes and preferred shares that will
be triggered upon completion of the Concentric transaction,
competitive conditions, government regulatory developments and
capital costs. In the event our plan or assumptions change or
prove to be inaccurate, or available borrowings under the secured
 credit facility, cash and investments on hand and cash generated
 from operations prove to be insufficient to fund our growth in
the manner and at the rate currently anticipated, we may be
required to delay or abandon some or all of our development and
expansion plans or we may be required to seek additional sources
of financing earlier than currently anticipated. In the event we
are required to seek additional financing, there can be no
assurance that such financing will be available on acceptable
terms or at all.

Impact of Year 2000

Prior to January 1, 2000, considerable concern was raised as
 to Year 2000 readiness of computer systems. The Year 2000
concerns arose because certain older computer systems and
applications were written to define a given year with abbreviated
 dates using the last two digits in a year rather than the entire
 four digits. As a result, when computer systems attempt to
process dates both before and after January 1, 2000, two
digit year

46



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##### Table of Contents





State of Readiness

We had adopted a formal Year 2000 plan, the purpose of which was
to develop and perform reasonable steps intended to prevent our
critical operational functions from being impaired due to the
Year 2000 problem. We engaged outside consultants to aid in
formulating and implementing the plan. Prior to December 31,
 1999 our assessments, which included testing and vendor
confirmations, indicated that our major operational support
systems, including our billing, order management, network
management, and financial systems were Year 2000 ready.

Costs to Address Year 2000 Issues

We have not incurred material historical costs for Year 2000
awareness, inventory, assessment, analysis, conversion, or
contingency planning. We currently do not anticipate any future
costs for these purposes.

Year 2000 Risk Factors and Contingency
Plans

In the unlikely event that a post Year 2000 date-related incident
 does occur, our contingency plans developed prior to
December 31, 1999 would be implemented.




Item 7A.  Quantitative and Qualitative Disclosure
 About Market Risk

We currently have instruments sensitive to market risks relating
to exposure to changing interest rates. As disclosed in Notes 8
and 9 to the consolidated financial statements, we had
$3,733.3 million in fixed rate debt and $612.3 million
in fixed rate redeemable preferred stock as of December 31,
1999. We do not have significant cash flow exposure to changing
interest rates on our long term debt and redeemable preferred
stock because the interest rates are fixed. However, the
estimated fair values of the fixed-rate debt and redeemable
preferred stock are subject to market risk.

We also maintain an investment portfolio consisting of U.S.
government and other securities with an average maturity of less
than one year. These securities are classified as available
 for sale. If interest rates were to increase or decrease
immediately, it could have a material impact on the fair value of
 these financial instruments. However, changes in interest rates
would not likely have a material impact on interest earned on our
 investment portfolio. We do not currently hedge these interest
rate exposures. We have in the past hedged certain equity
securities available-for-sale to reduce our risk of exposure to
declines in the market price of such securities.

Presented below is an analysis of our financial instruments, as
of December 31, 1999, that are sensitive to changes in
interest rates. The model demonstrates the change in fair value
of the instruments calculated for an

47



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##### Table of Contents





|                       |  |                                  |       |           |  |                                  |       |  |  |        |       |         |  |         |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|---------------------- |  | -------------------------------- | ----- | --------- |  | -------------------------------- | ----- |  |  | ------ | ----- | ------- |  | ------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                       |  |                                  |       | No        |  |                                 
|                       |  | Valuation of Securities Given an |       | Change in |  | Valuation of Securities Given an
|                       |  | Interest Rate Decrease of        |       | Interest  |  | Interest Rate Increase of       
|Interest Rate Risk     |  | X Basis Points                   |       | Rates     |  | X Basis Points                  
|                       |  |                                  |       |           |  |                                 
|                       |  | (150 BPS)                        |       | (100 BPS) |  | (50 BPS)                         |       |  |  | 50 BPS |       | 100 BPS |  | 150 BPS
|                       |  |                                  |       |           |  |                                  |       |  |  |        |       |         |  |        
|Financial Assets:      |  |                                  |       |           |  |                                  |       |  |  |        |       |         |  |         |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|                      
|                      
|                      
|                      
|Marketable securities  |  | $                                | 1,020 |           |  | $                                | 1,018 |  |  | $      | 1,015 |         |  | $       | 1,013 |  |  | $ | 1,011 |  |  | $ | 1,008 |  |  | $ | 1,005 | 
|                      
|                      
|                      
|                      
|Financial Liabilities: |  |                                  |       |           |  |                                  |       |  |  |        |       |         |  |         |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|                      
|                      
|                      
|                      
|Fixed rate debt        |  | $                                | 4,041 |           |  | $                                | 3,919 |  |  | $      | 3,802 |         |  | $       | 3,690 |  |  | $ | 3,582 |  |  | $ | 3,478 |  |  | $ | 3,361 | 

The sensitivity analysis provides only a limited, point-in-time
view of the market risk sensitivity of certain of our financial
instruments. The actual impact of market interest rate and price
changes on the financial instruments may differ significantly
from those shown in the sensitivity analysis.




Item 8.  Financial Statements and
Supplementary Data

Our consolidated financial statements are filed under this Item,
beginning on page F-1 of this Report, and NEXTLINK Capitals
 balance sheet is filed under this Item, beginning on Page F-24
of this Report.






|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on Accounting
	 and Financial Disclosure

None.

PART III




Item 10.  Directors and Executive Officers
of the Registrant

The information required herein regarding directors is
incorporated herein by reference from the definitive Proxy
Statement for NEXTLINKs 2000 Annual Meeting, which is
scheduled to be filed on or before April 29, 2000, under the
 caption Election of Directors. The information
required herein regarding executive officers required is set
forth in Part I hereof under the heading Executive Officers
 of the Registrant, which information is incorporated
herein by reference. The information required by this item
regarding compliance with Section 16(a) of the Securities
and Exchange Act of 1934 by NEXTLINKs directors and
executive officers, and holders of ten percent of a registered
class of NEXTLINKs equity securities is incorporated herein
 by reference from the definitive Proxy Statement for
NEXTLINKs 2000 Annual Meeting which is scheduled to be
filed on or before April 29, 2000, under the caption
Other Information-Section 16(a) Beneficial Ownership
Reporting Compliance.




Item 11.  Executive Compensation

The information required by this item regarding compensation of
executive officers and directors is incorporated herein by
reference from the definitive Proxy Statement for NEXTLINKs
 2000 Annual Meeting, which is scheduled to be filed on or before
 April 29, 2000, under the captions Director
Compensation and Executive Compensation.




Item 12.  Security Ownership of Certain
Beneficial Owners and Management

The information required by this item is incorporated herein by
reference from the definitive Proxy Statement for NEXTLINKs
 2000 Annual Meeting, which is scheduled to be filed on or before
 April 29, 2000, under the caption NEXTLINK Common
Stock Ownership.

48



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##### Table of Contents






Item 13.  Certain Relationships and Related
Transactions

The information required by this item is incorporated herein by
reference from the definitive Proxy Statement for NEXTLINKs
 2000 Annual Meeting, which is scheduled to be filed on or before
 April 29, 2000, under the caption Certain
Relationships and Related Transactions.

PART IV




Item 14.  Exhibits, Financial Statement Schedules
 and Reports on Form 8-K.

(a)  1. and 2. Financial Statements and Schedules:

|                                                                                                                |  |  |      | 
|--------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Nextlink Communications, Inc.                                                                                   |  |  |      | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Report of Independent Public Accountants                                                                        |  |  | F-1  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Balance Sheets as of December 31, 1999 and 1998                                                    |  |  | F-2  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Operations for the Years Ended
	December 31, 1999, 1998 and 1997                     |  |  | F-3  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Shareholders Equity (Deficit)
	for the Years Ended December 31, 1999, 1998 and 1997 |  |  | F-4  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Cash Flows for the Years Ended
	December 31, 1999, 1998 and 1997                     |  |  | F-5  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Notes to Consolidated Financial Statements                                                                      |  |  | F-6  | 
|NEXTLINK Capital, Inc.                                                                                          |  |  |      | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Report of Independent Public Accountants                                                                        |  |  | F-24 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Balance Sheets as of December 31, 1999 and 1998                                                                 |  |  | F-25 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Note to Balance Sheets                                                                                          |  |  | F-26 | 

(3)  List of Exhibits  Refer to
Exhibit Index, which is incorporated herein by reference.

(b)  Reports on Form 8-K:

(1)  Current Report on Form 8-K dated November 17,
 1999, reporting under Item 5 certain completed and proposed
 financings of NEXTLINK Communications, Inc.

(2)  Current Report on Form 8-K dated December 7,
1999, reporting under Item 5 that NEXTLINK Communications,
Inc. had entered into certain financing and other agreements.

(3)  Current Report on Form 8-K dated January 11,
2000, reporting under Item 5 that NEXTLINK Communications,
Inc. had entered into an Agreement and Plan of Merger and Share
Exchange Agreement with Concentric Network Corporation and Eagle
River Investments, L.L.C.

(4)  Current Report on Form 8-K dated January 24,
2000, reporting under Item 5 the closing of the previously
announced $850 million investment by Forstmann Little &
Co. in NEXTLINK Communications, Inc.

(5)  Current Report on Form 8-K dated January 24,
2000, reporting under Item 5 certain details regarding the
Concentric acquisition and the closing of the previously
announced $1 billion credit facility with various lenders,
Goldman Sachs Credit Partners L.P., as syndication agent, Toronto
 Dominion (Texas), Inc., as administrative agent, Barclays Bank
PLC, and The Chase Manhattan Bank, as co-documentation agents and
 Goldman Sachs Credit Partners L.P., and TD Securities
(USA) Inc., as joint lead arrangers, and certain
subsidiaries of NEXTLINK, as guarantors.

49



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrants have duly
caused this report to be signed on their behalf by their
undersigned thereunto duly authorized.



| |                              
| | -----------------------------
| | NEXTLINK Communications, Inc.

|                     |  |                                                                                                        
|-------------------- |  | -------------------------------------------------------------------------------------------------------
|Date: March 29, 2000 |  | By: /s/ DANIEL F. AKERSONDaniel F. Akerson
	Chief Executive Officer
	Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 29, 2000 by
 the following persons on behalf of the Registrants and in the
capacities indicated:

|                                               |  |                                                                                                               
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|Name                                           |  | Title                                                                                                         
|                                               |  |                                                                                                               
|/s/ DANIEL F. AKERSONDaniel F. Akerson         |  | Chief Executive Officer (Principal Executive Officer) Chairman of
	 the Board of Directors                    
|                                              
|/s/ MARK S. GUNNINGMark S. Gunning             |  | Senior Vice President, Chief Financial Officer (Principal
	Financial Officer and Principal Accounting Officer)
|                                              
|/s/ JOSEPH L. COLEJoseph L. Cole               |  | Director                                                                                                      
|                                              
|/s/ NATHANIEL A. DAVISNathaniel A. Davis       |  | Director                                                                                                      
|                                              
|/s/ NICHOLAS C. FORSTMANNNicholas C. Forstmann |  | Director                                                                                                      
|                                              
|William A. Hoglund                             |  | Director                                                                                                      
|                                              
|/s/ SANDRA J. HORBACHSandra J. Horbach         |  | Director                                                                                                      
|                                              
|/s/ NICOLAS KAUSERNicolas Kauser               |  | Director                                                                                                      
|                                              
|Craig O. McCaw                                 |  | Director                                                                                                      

50



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|                                         |  |         
|---------------------------------------- |  | --------
|Name                                     |  | Title   
|                                         |  |         
|/s/ SHARON L. NELSONSharon L. Nelson     |  | Director
|                                        
|/s/ JEFFREY S. RAIKESJeffrey S. Raikes   |  | Director
|                                        
|/s/ DENNIS M. WEIBLINGDennis M. Weibling |  | Director

Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrants have duly
caused this report to be signed on their behalf by their
undersigned thereunto duly authorized.



| |                       
| | ----------------------
| | NEXTLINK Capital, Inc.

|                     |  |                                                                    
|-------------------- |  | -------------------------------------------------------------------
|Date: March 29, 2000 |  | By: /s/ DANIEL F. AKERSONDaniel F. Akerson
	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 29, 2000 by
 the following persons on behalf of the Registrants and in the
capacities indicated:

|                                       |  |                                                                                                               
|-------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|Name                                   |  | Title                                                                                                         
|                                       |  |                                                                                                               
|/s/ DANIEL F. AKERSONDaniel F. Akerson |  | Chief Executive Officer (Principal Executive Officer)                                                         
|                                      
|/s/ MARK S. GUNNINGMark S. Gunning     |  | Senior Vice President, Chief Financial Officer (Principal
	Financial Officer and Principal Accounting Officer)
|                                      
|/s/ GARY D. BEGEMANGary D. Begeman     |  | Director                                                                                                      

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EXHIBIT INDEX

|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|----- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1   |  |  |  | Agreement and Plan of Merger and Share Exchange Agreement, dated
	January 9, 2000, by and among Concentric Network
	Corporation, NEXTLINK Communications, Inc., Eagle River
	Investments, L.L.C. and NM Acquisition Corp. (Incorporated herein
	 by reference to exhibit 10.1 filed with the current report
	on Form 8-K filed on January 11, 2000)                                                                 
|3.1.1 |  |  |  | Certificate of Incorporation of NEXTLINK Communications, Inc.
	(Incorporated herein by reference to exhibit 3.1 filed with
	the Registration Statement on Form S-4 of NEXTLINK
	Communications, Inc. (Commission File No. 333-53975))                                                                                                                                                                               
|3.1.2 |  |  |  | Certificate of Amendment of Certificate of Incorporation of
	NEXTLINK Communications, Inc., dated August 25, 1999
	(Incorporated herein by reference to exhibit 3.2 filed with
	the quarterly report on Form 10-Q for the quarterly period
	ended September 30, 1999 of NEXTLINK Communications, Inc.
	and NEXTLINK Capital, Inc.)                                                                                  
|3.1.3 |  |  |  | Certificate of Designation of the Powers, Preferences and
	Relative, Participating, Optional and Other Special Rights of 14%
	 Senior Exchangeable Redeemable Preferred Shares and
	Qualifications, Limitations and Restrictions Thereof
	(Incorporated herein by reference to the exhibit 4.2 filed
	with the Registration Statement on Form S-4 of NEXTLINK
	Communications, Inc. (Commission File No. 333-53975))
|3.1.4 |  |  |  | Certificate of Designation of Powers, Preferences and Relative,
	Participating, Optional and Other Special Rights of 6 1/2%
	Cumulative Convertible Preferred Stock and Qualifications,
	Limitations and Restrictions Thereof (Incorporated herein by
	reference to exhibit 4.8 filed with the Registration
	Statement on Form S-4 of NEXTLINK Communications, Inc.
	(Commission File No. 333-53975))               
|3.1.5 |  |  |  | Certificate of Designation of Powers, Preferences and Relative,
	Participating, Optional and Other Special Rights of Series C
	 Cumulative Convertible Participating Preferred Stock and
	Qualifications, Limitations and Restrictions Thereof                                                                                                                                                                      
|3.1.6 |  |  |  | Certificate of Designation of the Powers, Preferences and
	Relative, Participating, Optional and Other Special Rights of
	Series D Convertible Participating Preferred Stock and
	Qualifications, Limitations and Restrictions Thereof                                                                                                                                                                              
|3.2   |  |  |  | By-laws of NEXTLINK Communications, Inc. (Incorporated herein by
	reference to exhibit 3.2 filed with the Registration
	Statement on Form S-4 of NEXTLINK Communications, Inc.
	(Commission File No. 333-53975))                                                                                                                                                                                                    
|3.3   |  |  |  | Articles of Incorporation of NEXTLINK Capital, Inc. (Incorporated
	 herein by reference to exhibit 3.3 filed with the
	Registration Statement on Form S-4 of NEXTLINK
	Communications, L.L.C. (the predecessor of NEXTLINK
	Communications, Inc.) and NEXTLINK Capital, Inc. (Commission File
	 No. 333-4603))                                                                                                      
|3.4   |  |  |  | By-laws of NEXTLINK Capital, Inc. (Incorporated herein by
	reference to exhibit 3.4 filed with the Registration
	Statement on Form S-4 of NEXTLINK Communications, L.L.C.
	(the predecessor of NEXTLINK Communications, Inc.) and NEXTLINK
	Capital, Inc. (Commission File No. 333-4603))                                                                                                                           
|4.1.1 |  |  |  | Form of stock certificate of 14% Senior Exchangeable Redeemable
	Preferred Shares (Incorporated herein by reference to
	exhibit 4.4 filed with the Annual Report on Form 10-KSB
	 for the year ended December 31, 1996 of NEXTLINK
	Communications, Inc. and NEXTLINK Capital, Inc.)                                                                                                                                
|4.1.2 |  |  |  | Form of stock certificate of Class A common stock
	(Incorporated herein by reference to exhibit 4.4 filed with
	the Registration Statement on Form S-1 of NEXTLINK
	Communications, Inc. (Commission File No. 333-32001))                                                                                                                                                                                           
|4.1.3 |  |  |  | Form of stock certificate of 6 1/2% Cumulative Convertible
	Preferred Stock                                                                                                                                                                                                                                                                                                                                         
|4.1.4 |  |  |  | Form of stock certificate of Series C Cumulative Convertible
	 Participating Preferred Stock                                                                                                                                                                                                                                                                                                                        
|4.1.5 |  |  |  | Form of stock certificate of Series D Convertible
	Participating Preferred Stock                                                                                                                                                                                                                                                                                                                                    

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|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2.1 |  |  |  | Indenture, dated as of April 25, 1996, by and among NEXTLINK
	 Communications, Inc., NEXTLINK Capital, Inc. and United States
	Trust Company of New York, as Trustee, relating to 12 1/2%
	Senior Notes due April 15, 2006, including form of global
	note (Incorporated herein by reference to exhibit 4.1 filed
	with the Registration Statement on Form S-4 of NEXTLINK
	Communications, L.L.C. (the predecessor of NEXTLINK
	Communications, Inc.) and NEXTLINK Capital, Inc. (Commission File
	 No. 333-4603))
|4.2.2 |  |  |  | First Supplemental Indenture, dated as of January 31, 1997,
	by and among NEXTLINK Communications, Inc., NEXTLINK
	Communications, L.L.C., NEXTLINK Capital, Inc. and United States
	Trust Company of New York, as Trustee (Incorporated herein by
	reference to exhibit 4.6 filed with the Annual Report on
	Form 10-KSB for the year ended December 31, 1996 of
	NEXTLINK Communications, Inc. and NEXTLINK Capital, Inc.)                                                                                       
|4.2.3 |  |  |  | Second Supplemental Indenture, dated June 3, 1998, amending
	Indenture dated April 25, 1996, by and among NEXTLINK
	Communications, Inc., NEXTLINK Capital, Inc. and United States
	Trust Company of New York, as Trustee (Incorporated herein by
	reference to exhibit 4.10 filed with the Registration
	Statement on Form S-4 of NEXTLINK Communications, Inc.
	(Commission File No. 333-53975))                                                                                                                 
|4.3.1 |  |  |  | Indenture dated September 25, 1997 between United States
	Trust Company, as Trustee and NEXTLINK Communications, Inc.,
	relating to the 9 5/8% Senior Notes due 2007 (Incorporated
	herein by reference to exhibit 4.7 filed with the
	Registration Statement on Form S-3 of NEXTLINK
	Communications, Inc. (Commission File No. 333-77577))                                                                                                                                                                       
|4.3.2 |  |  |  | First Supplemental Indenture, dated June 3, 1998, amending
	Indenture dated September 25, 1997, by and between NEXTLINK
	Communications, Inc. and United States Trust Company of New York,
	 as Trustee (Incorporated herein by reference to
	exhibit 4.11 filed with the Registration Statement on
	Form  S-4 of NEXTLINK Communications, Inc. (Commission File
	No.  333-53975))                                                                                                                                 
|4.4.1 |  |  |  | Indenture, dated March 3, 1998, between United States Trust
	Company, as Trustee and NEXTLINK Communications, Inc., relating
	to the 9% Senior Notes due 2008 (Incorporated herein by reference
	 to exhibit 4.7 filed with the Annual Report on
	Form 10-KSB for the year ended December 31, 1997 of
	NEXTLINK Communications, Inc. and NEXTLINK Capital, Inc.)                                                                                                                                                   
|4.4.2 |  |  |  | First Supplemental Indenture, dated June 3, 1998, amending
	Indenture dated March 3, 1998, by and between NEXTLINK
	Communications, Inc. and United States Trust Company of New York,
	 as Trustee (Incorporated herein by reference to
	exhibit 4.12 filed with the Registration Statement on
	Form  S-4 of NEXTLINK Communications, Inc. (Commission File
	No.  333-53975))                                                                                                                                      
|4.5.1 |  |  |  | Indenture, dated April 1, 1998, between United States Trust
	Company, as Trustee and NEXTLINK Communications, Inc., relating
	to the 9.45% Senior Discount Notes due 2008 (Incorporated herein
	by reference to exhibit 4.9 filed with the quarterly report
	on Form 10-Q for the quarterly period ended March 31,
	1998 of NEXTLINK Communications, Inc. and NEXTLINK Capital, Inc.)                                                                                                                              
|4.5.2 |  |  |  | First Supplemental Indenture, dated June 3, 1998, amending
	Indenture dated April 1, 1998, by and between NEXTLINK
	Communications, Inc. and United States Trust Company of New York,
	 as Trustee (Incorporated herein by reference to
	exhibit 4.13 filed with the Registration Statement on
	Form  S-4 of NEXTLINK Communications, Inc. (Commission File
	No.  333-53975))                                                                                                                                      
|4.6   |  |  |  | Indenture, dated November 12, 1998, by and among NEXTLINK
	Communications, Inc. and United States Trust Company of New York,
	 as trustee relating to the 10 3/4% Senior Notes due 2008
	(Incorporated herein by reference to exhibit 4.1 filed with
	the Registration Statement on Form S-4 of NEXTLINK
	Communications, Inc. (Commission File No. 333-71749))                                                                                                                                                    

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|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.7   |  |  |  | Indenture, dated June 1, 1999, by and among NEXTLINK
	Communications, Inc. and United States Trust Company of New York,
	 as Trustee, relating to the 10 3/4% Senior Notes due 2009
	(Incorporated herein by reference to exhibit 4.16 filed with
	 the quarterly report on Form 10-Q for the quarterly period
	ended September 30, 1999 of NEXTLINK Communications, Inc.
	and NEXTLINK Capital, Inc.)   
|4.8   |  |  |  | Indenture, dated June 1, 1999, by and among NEXTLINK
	Communications Inc. and United States Trust Company of Texas, as
	Trustee, related to the 12 1/4% Senior Discount Notes due
	2009 (Incorporated herein by reference to exhibit  4.17
	filed with the quarterly report on Form 10-Q for the
	quarterly period ended September 30, 1999 of NEXTLINK
	Communications, Inc. and NEXTLINK Capital, Inc.)
|4.9   |  |  |  | Indenture, dated November 17, 1999, by and among NEXTLINK
	Communications, Inc. and United States Trust Company of New York,
	 as Trustee, relating to the 10 1/2% Senior Notes due 2009
	(Incorporated herein by reference to exhibit 4.1(i) filed
	with the Registration Statement on Form S-4 of NEXTLINK
	Communications, Inc. (Commission File No.  333-30388))                                     
|4.10  |  |  |  | Indenture, dated November 17, 1999, by and among NEXTLINK
	Communications, Inc. and United States Trust Company of Texas, as
	 Trustee, relating to the 12 1/8% Senior Discount Notes due
	2009 (Incorporated herein by reference to exhibit  4.1(ii)
	filed with the Registration Statement on Form S-4 of
	NEXTLINK Communications, Inc. (Commission File No. 
	333-30388))                            
|10.1  |  |  |  | Stock Option Plan of NEXTLINK Communications, Inc. as amended                                                                                                                                                                                                                                                                                                                                            
|10.2  |  |  |  | Employee Stock Purchase Plan of NEXTLINK Communications, Inc.
	(Incorporated herein by reference to exhibit 10.2 filed with
	 the Registration Statement on Form S-4 of NEXTLINK
	Communications, Inc. (Commission File No.  333-53975))                                                                                                                                                                 
|10.3  |  |  |  | NEXTLINK Communications, Inc. Change of Control Retention Bonus
	and Severance Pay Plan                                                                                                                                                                                                                                                                                                                  
|10.4  |  |  |  | Registration Rights Agreement, dated as of January 15, 1997,
	 between NEXTLINK Communications, Inc. and the signatories listed
	 therein (Incorporated herein by reference to exhibit 10.4
	filed with the Annual Report on Form  10-KSB for the year
	ended December 31, 1996 of NEXTLINK Communications, Inc. and
	 NEXTLINK Capital, Inc.)                                                           
|10.5  |  |  |  | Registration Rights Agreement, dated as of November 4, 1997,
	 between NEXTLINK Communications, Inc. and Wendy P. McCaw                                                                                                                                                                                                                                                                                  
|10.6  |  |  |  | Registration Right Agreement, dated as of June 30, 1999,
	between NEXTLINK Communications, Inc. and Craig O. McCaw                                                                                                                                                                                                                                                                                       
|10.7  |  |  |  | Registration Rights Agreement dated as of January 20, 2000,
	between NEXTLINK Communications, Inc. and the purchasers listed
	on the signature pages thereto, relating to Class A common
	stock issuable upon conversion of Series C and D convertible
	 preferred stock                                                                                                                                 
|10.8  |  |  |  | Registration Rights Agreement, dated January 14, 1999,
	between NEXTLINK Communications, Inc. and the Holders referred to
	 therein. (Incorporated herein by reference to exhibit 10.2
	filed with the current report on Form 8-K filed on
	January 19, 1999)                                                                                                                                            
|10.9  |  |  |  | Employment Agreement, effective September 21, 1999, by and
	between Daniel Akerson and NEXTLINK Communications, Inc.
	(Incorporated herein by reference to exhibit 10.11 filed
	with the quarterly report on Form 10-Q for the quarterly
	period ended September 30, 1999 of NEXTLINK Communications,
	Inc. and NEXTLINK Capital, Inc.)                                                                  
|10.10 |  |  |  | Letter agreement, dated June 9, 1998, between NEXTLINK
	Communications, Inc. and Jan Loichle                                                                                                                                                                                                                                                                                                             
|10.11 |  |  |  | Employment Agreement, dated as of January 3, 2000, by and
	between Nathaniel A. Davis and NEXTLINK Communications, Inc.                                                                                                                                                                                                                                                                                  
|10.12 |  |  |  | Fiber Lease and Innerduct Use Agreement, dated February 23,
	1998, by and between NEXTLINK Communications, Inc. and Metromedia
	 Fiber Network, Inc. (Incorporated herein by reference to
	exhibit 10.5 filed with the Annual Report on
	Form 10-KSB for the year ended December 31, 1997 of
	NEXTLINK Communications, Inc. and NEXTLINK Capital, Inc.)                                                  

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|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13 |  |  |  | Amendment No. 1 to Fiber Lease and Innerduct Use Agreement,
	dated March 4, 1998, by and between NEXTLINK Communications,
	 Inc. and Metromedia Fiber Network, Inc. (Incorporated herein by
	reference to exhibit 10.6 filed with the Annual Report on
	Form 10-KSB for the year ended December 31, 1997 of
	NEXTLINK Communications, Inc. and NEXTLINK Capital, Inc.)                                                                                                                                                                                                                                                   
|10.14 |  |  |  | Cost sharing and IRU Agreement, dated July 18, 1998, between
	 Level 3 Communications, LLC and INTERNEXT LLC.
	(Incorporated herein by reference to exhibit 10.8 filed with
	 the quarterly report on Form 10-Q for the quarterly period
	ended September 30, 1998 of NEXTLINK Communications, Inc.
	and NEXTLINK Capital, Inc.)                                                                                                                                                                                                                                                                                         
|10.15 |  |  |  | Guaranty Agreement, dated July 18, 1998, between NEXTLINK
	Communications, Inc. and Level 3 Communications, LLC.
	(Incorporated herein by reference to exhibit 10.7 filed with
	 the quarterly report on Form 10-Q for the quarterly period
	ended September 30, 1998 of NEXTLINK Communications, Inc.
	and NEXTLINK Capital, Inc.)                                                                                                                                                                                                                                                                                      
|10.16 |  |  |  | Credit and Guaranty Agreement, dated as of February 3, 2000,
	 among NEXTLINK Communications, Inc., certain subsidiaries of
	NEXTLINK Communications, Inc., as guarantors, various lenders,
	Goldman Sachs Credit Partners L.P., as syndication agent, Toronto
	 Dominion (Texas), Inc., as administrative agent, Barclays Bank
	PLC, and The Chase Manhattan Bank, as co-documentation agents and
	 Goldman Sachs Credit Partners L.P., and TD Securities
	(USA) Inc., as joint lead arrangers (Incorporated herein by
	reference to exhibit 10.1 filed with the current report on
	Form 8-K filed on February 16, 2000)
|21    |  |  |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|23    |  |  |  | Consent of Independent Public Accountants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|27    |  |  |  | Financial Data Schedule                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

55



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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of 
 NEXTLINK Communications, Inc.:

We have audited the accompanying consolidated balance sheets of
NEXTLINK Communications, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders
 equity (deficit) and cash flows for each of the three years
 in the period ended December 31, 1999. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
 about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of NEXTLINK Communications, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted
 in the United States.

/s/ ARTHUR ANDERSEN LLP

Seattle, Washington



F-1



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##### Table of Contents



NEXTLINK Communications, Inc.

Consolidated Balance Sheets

(Dollars in thousands, except share and per share amounts)


|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |           |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------- | ---------- | --------- | - | --------- | --------- | --------- | -
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                            
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  | December 31,                               
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                            
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  | 1999                                        |           | 1998      
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |           
|ASSETS                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Current assets:                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                        |                                             | $         | 868,463    |           |   | $         | 319,496   |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Marketable securities                                                                                                                                                                                                                                                                                                                                            |                                             |           | 1,013,301  |           |   |           | 1,158,566 |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Accounts receivable, net of allowance for doubtful accounts of
	$4,246 and $3,022, respectively                                                                                                                                                                                                                                                                  |                                             |           | 80,746     |           |   |           | 36,115    |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Other current assets                                                                                                                                                                                                                                                                                                                                             |                                             |           | 24,498     |           |   |           | 16,480    |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Pledged securities                                                                                                                                                                                                                                                                                                                                               |                                             |           | 40,759     |           |   |           | 21,500    |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  | Total current assets                        |           |            | 2,027,767 |   |           |           | 1,552,157 |  
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Property and equipment, net                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                  |                                             | 1,180,021 |            |           |   | 594,408   |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Investment in fixed wireless licenses, net                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                  |                                             | 933,128   |            |           |   | 67,352    |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Other assets, net                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                  |                                             | 456,192   |            |           |   | 269,189   |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  | Total assets                                |           | $          | 4,597,108 |   |           | $         | 2,483,106 |  
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|LIABILITIES AND SHAREHOLDERS DEFICIT                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Current liabilities:                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Accounts payable                                                                                                                                                                                                                                                                                                                                                 |                                             | $         | 81,841     |           |   | $         | 61,175    |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Other accrued liabilities                                                                                                                                                                                                                                                                                                                                        |                                             |           | 119,795    |           |   |           | 45,056    |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Accrued interest payable                                                                                                                                                                                                                                                                                                                                         |                                             |           | 45,578     |           |   |           | 34,670    |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Current portion of long-term obligations                                                                                                                                                                                                                                                                                                                         |                                             |           | 2,003      |           |   |           | 2,755     |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  | Total current liabilities                   |           |            | 249,217   |   |           |           | 143,656   |  
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Long-term debt                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                  |                                             | 3,733,342 |            |           |   | 2,013,192 |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Other long-term liabilities                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                  |                                             | 15,319    |            |           |   | 16,553    |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  | Total liabilities                           |           |            | 3,997,878 |   |           |           | 2,173,401 |  
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Redeemable preferred stock, par value $0.01 per share, 25,000,000
	 shares authorized; 14% Preferred, aggregate liquidation
	preference $425,952; 8,324,796 and 7,254,675 shares issued and
	outstanding in 1999 and 1998, respectively; 6 1/2%
	Convertible Preferred, aggregate liquidation preference $200,000;
	 4,000,000 shares issued and outstanding |                                                                                                                                                                                                                                                                                                                                                                  |                                             | 612,352   |            |           |   | 556,168   |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|Shareholders deficit:                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Common stock, par value $0.02 per share, stated at amounts paid
	in; Class A, 400,000,000 shares authorized, 75,228,632 and
	48,340,234 shares issued and outstanding at December 31,
	1999 and 1998, respectively; Class B, 60,000,000 shares
	authorized, 58,742,550 and 60,595,804 shares issued and
	outstanding at December 31, 1999 and 1998, respectively |                                             |           | 1,139,232  |           |   |           | 354,525   |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Deferred compensation                                                                                                                                                                                                                                                                                                                                            |                                             |           | (85,489    | )         |   |           | (11,370   | )        
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Accumulated other comprehensive income                                                                                                                                                                                                                                                                                                                           |                                             |           | 150,634    |           |   |           |          |          
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                             | Accumulated deficit                                                                                                                                                                                                                                                                                                                                              |                                             |           | (1,217,499 | )         |   |           | (589,618  | )        
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  | Total shareholders deficit                 |           |            | (13,122   | ) |           |           | (246,463  | )
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  | Total liabilities and shareholders deficit |           | $          | 4,597,108 |   |           | $         | 2,483,106 |  
|                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                  |                                             |           |            |           |   |           |          

See accompanying notes to consolidated financial statements.

F-2



---



##### Table of Contents



NEXTLINK Communications, Inc.

Consolidated Statements of Operations

(Dollars in thousands, except share and per share amounts)


|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |        |         | 
|-------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------ | ----------- | ------- | ------- | ---- | ----------- | ------- | ------- | - | ---------- | ------ | ------- | 
|                                                                                                         |                                                                  |                         
|                                                                                                         |                                                                  | Year Ended December 31, 
|                                                                                                         |                                                                  |                         
|                                                                                                         |                                                                  | 1999                     |             | 1998    |         | 1997
|                                                                                                         |                                                                  |                          |             |         |         |     
|Revenue                                                                                                  |                                                                  | $                        | 274,324     |         |         | $    | 139,667     |         |         | $ | 57,579     |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Costs and expenses:                                                                                      |                                                                  |                          |             |         |         |      |             |         |         |   |            |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Operating                                                        |                          |             | 221,664 |         |      |             | 123,675 |         |   |            | 54,031 |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Selling, general and administrative                              |                          |             | 266,908 |         |      |             | 156,929 |         |   |            | 75,732 |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Restructuring (including $28,016 in non-cash stock compensation) |                          |             | 30,935  |         |      |             |        |         |   |            |       |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Deferred compensation                                            |                          |             | 12,872  |         |      |             | 4,993   |         |   |            | 3,247  |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Depreciation                                                     |                          |             | 93,097  |         |      |             | 45,638  |         |   |            | 18,851 |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Amortization                                                     |                          |             | 15,378  |         |      |             | 14,616  |         |   |            | 8,339  |        
|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |       
|                                                                                                         |                                                                  | Total costs and expenses |             |         | 640,854 |      |             |         | 345,851 |   |            |        | 160,200 | 
|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |       
|Loss from operations                                                                                     |                                                                  |                          | (366,530    | )       |         |      | (206,184    | )       |         |   | (102,621   | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Interest income                                                                                          |                                                                  |                          | 90,961      |         |         |      | 72,409      |         |         |   | 28,112     |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Interest expense                                                                                         |                                                                  |                          | (283,123    | )       |         |      | (144,565    | )       |         |   | (54,495    | )     
|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |       
|Net loss                                                                                                 |                                                                  | $                        | (558,692    | )       |         | $    | (278,340    | )       |         | $ | (129,004   | )     
|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |       
|Preferred stock dividends and accretion of preferred stock
	redemption obligation, including issue costs |                                                                  |                          | (69,189     | )       |         |      | (58,773     | )       |         |   | (39,320    | )     
|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |       
|Net loss applicable to common shares                                                                     |                                                                  | $                        | (627,881    | )       |         | $    | (337,113    | )       |         | $ | (168,324   | )     
|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |       
|Net loss per share (basic and diluted)                                                                   |                                                                  | $                        | (5.02       | )       |         | $    | (3.13       | )       |         | $ | (1.96      | )     
|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |       
|Shares used in computation of net loss per share                                                         |                                                                  |                          | 125,132,459 |         |         |      | 107,708,264 |         |         |   | 86,111,770 |       
|                                                                                                         |                                                                  |                          |             |         |         |      |             |         |         |   |            |       

See accompanying notes to consolidated financial statements.

F-3



---



##### Table of Contents



NEXTLINK Communications, Inc.

Consolidated Statements of Shareholders Equity (Deficit)

(Dollars in thousands)


|                              |                                                                                                                                |              |            |            |  |          |            |              |   |               |           |         |  |   |         |         |   |   |            |          |   |   |         |         | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------ | ---------- | ---------- |  | -------- | ---------- | ------------ | - | ------------- | --------- | ------- |  | - | ------- | ------- | - | - | ---------- | -------- | - | - | ------- | ------- | 
|                              |                                                                                                                                |              |            |            |  |          |            |             
|                              |                                                                                                                                | Common Stock |            |            |  |          |            |             
|                              |                                                                                                                                |              |            |            |  |          |            |             
|                              |                                                                                                                                |              |            |            |  |          |            |              |   | Accumulated  
|                              |                                                                                                                                | Shares       |            |            |  |          |            |              |   | Other        
|                              |                                                                                                                                |              |            |            |  | Deferred |            | Accumulated  |   | Comprehensive
|                              |                                                                                                                                | Class A      |            | Class B    |  | Amount   |            | Compensation |   | Deficit       |           | Income 
|                              |                                                                                                                                |              |            |            |  |          |            |              |   |               |           |        
|Balance at December 31, 1996. |                                                                                                                                |              |           |            |  |          |           |              |   | $             |          |         |  | $ |        |         |   | $ | (84,181    | )        |   | $ |        |        
|                             
|                             
|                             
|                             
|                              | Merger of NEXTLINK Communications, L.L.C. with and into NEXTLINK
	Communications, Inc.                                         |              |            |           |  |          |            | 72,330,518   |   |               |           | 65,527  |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Conversion of Equity Option Plan into Stock Option Plan                                                                        |              |            |           |  |          |            |             |   |               |           | 15,363  |  |   |         | (4,234  | ) |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of compensatory stock option                                                                                          |              |            |           |  |          |            |             |   |               |           | 4,872   |  |   |         | (4,872  | ) |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Compensation attributable to stock options vesting                                                                             |              |            |           |  |          |            |             |   |               |           |        |  |   |         | 2,335   |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock under leasing agreement                                                                               |              |            | 353,068    |  |          |            |             |   |               |           | 1,400   |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock through Stock Option Plan                                                                             |              |            | 1,345,756  |  |          |            | 1,842,628    |   |               |           | 115     |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock in initial public offering                                                                            |              |            | 28,560,000 |  |          |            |             |   |               |           | 226,760 |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Sale of common stock by selling shareholder in initial public
	offering                                                        |              |            | 6,400,000  |  |          |            | (6,400,000   | ) |               |           |        |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock in acquisitions                                                                                       |              |            | 1,396,974  |  |          |            |             |   |               |           | 16,524  |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Conversion of Class B common stock into Class A common
	stock                                                                  |              |            | 280,000    |  |          |            | (280,000     | ) |               |           |        |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Cumulative redeemable stock redemption obligation, including
	issue costs                                                      |              |            |           |  |          |            |             |   |               |           |        |  |   |         |        |   |   |            | (39,320  | ) |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Net loss                                                                                                                       |              |            |           |  |          |            |             |   |               |           |        |  |   |         |        |   |   |            | (129,004 | ) |   |         |        | 
|                              |                                                                                                                                |              |            |            |  |          |            |              |   |               |           |         |  |   |         |         |   |   |            |          |   |   |         |        
|Balance at December 31, 1997. |                                                                                                                                |              | 38,335,798 |            |  |          | 67,493,146 |              |   |               | 330,561   |         |  |   | (6,771  | )       |   |   | (252,505   | )        |   |   |        |        
|                             
|                             
|                             
|                             
|                              | Issuance of compensatory stock options                                                                                         |              |            |           |  |          |            |             |   |               |           | 9,592   |  |   |         | (9,592  | ) |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Compensation attributable to stock options vesting                                                                             |              |            |           |  |          |            |             |   |               |           |        |  |   |         | 4,993   |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock through employee benefit plans                                                                        |              |            | 1,688,570  |  |          |            |             |   |               |           | 3,695   |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock for purchase of minority interest                                                                     |              |            |           |  |          |            | 378,624      |   |               |           | 5,727   |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Conversion of Class B common stock into Class A common
	stock                                                                  |              |            | 8,315,866  |  |          |            | (8,315,866   | ) |               |           |        |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Termination of common stock redemption obligation                                                                              |              |            |           |  |          |            | 1,039,900    |   |               |           | 4,950   |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Cumulative redeemable preferred stock dividends and accretion of
	preferred stock redemption obligation, including issue costs |              |            |           |  |          |            |             |   |               |           |        |  |   |         |        |   |   |            | (58,773  | ) |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Net loss                                                                                                                       |              |            |           |  |          |            |             |   |               |           |        |  |   |         |        |   |   |            | (278,340 | ) |   |         |        | 
|                              |                                                                                                                                |              |            |            |  |          |            |              |   |               |           |         |  |   |         |         |   |   |            |          |   |   |         |        
|Balance at December 31, 1998  |                                                                                                                                |              | 48,340,234 |            |  |          | 60,595,804 |              |   |               | 354,525   |         |  |   | (11,370 | )       |   |   | (589,618   | )        |   |   |        |        
|                             
|                             
|                             
|                             
|                              | Issuance of common stock in public offering                                                                                    |              |            | 8,464,100  |  |          |            |             |   |               |           | 310,533 |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock in acquisition                                                                                        |              |            | 11,431,662 |  |          |            |             |   |               |           | 350,438 |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of compensatory stock options                                                                                         |              |            |           |  |          |            |             |   |               |           | 86,991  |  |   |         | (86,991 | ) |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Compensation attributable to stock options vesting                                                                             |              |            |           |  |          |            |             |   |               |           |        |  |   |         | 12,872  |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock through employee benefit plans                                                                        |              |            | 4,596,708  |  |          |            |             |   |               |           | 36,468  |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Conversion of Class B common stock into Class A common
	stock                                                                  |              |            | 2,391,060  |  |          |            | (2,391,060   | ) |               |           |        |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock for purchase of minority interest                                                                     |              |            |           |  |          |            | 537,806      |   |               |           | 210     |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Issuance of common stock under leasing arrangement                                                                             |              |            | 4,868      |  |          |            |             |   |               |           | 67      |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Cumulative redeemable preferred stock dividends and accretion of
	preferred stock redemption obligation, including issue costs |              |            |           |  |          |            |             |   |               |           |        |  |   |         |        |   |   |            | (69,189  | ) |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Net loss                                                                                                                       |              |            |           |  |          |            |             |   |               |           |        |  |   |         |        |   |   |            | (558,692 | ) |   |         |        | 
|                             
|                             
|                             
|                             
|                              | Other comprehensive income  unrealized holding gains
	arising during the period                                               |              |            |           |  |          |            |             |   |               |           |        |  |   |         |        |   |   |            |         |   |   |         | 150,634 | 
|                              |                                                                                                                                |              |            |            |  |          |            |              |   |               |           |         |  |   |         |         |   |   |            |          |   |   |         |        
|                              | Total comprehensive income                                                                                                     |              |            |           |  |          |            |             |   |               |           |        |  |   |         |        |   |   |            |         |   |   |         |        | 
|                             
|                             
|                             
|                             
|Balance at December 31, 1999. |                                                                                                                                |              | 75,228,632 |            |  |          | 58,742,550 |              |   | $             | 1,139,232 |         |  | $ | (85,489 | )       |   | $ | (1,217,499 | )        |   | $ | 150,634 |        
|                              |                                                                                                                                |              |            |            |  |          |            |              |   |               |           |         |  |   |         |         |   |   |            |          |   |   |         |        

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                              |                                                                                                                                |          |        |         |   |   |          |          |  
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | -------- | ------ | ------- | - | - | -------- | -------- | -
|                              |                                                                                                                                | Members |        |        
|                              |                                                                                                                                | Capital  |        | Total  
|                              |                                                                                                                                |          |        |        
|Balance at December 31, 1996. |                                                                                                                                | $        | 65,527 |         |   | $ | (18,654  | )       
|                             
|                             
|                             
|                             
|                              | Merger of NEXTLINK Communications, L.L.C. with and into NEXTLINK
	Communications, Inc.                                         |          |        | (65,527 | ) |   |          |         |  
|                             
|                             
|                             
|                             
|                              | Conversion of Equity Option Plan into Stock Option Plan                                                                        |          |        |        |   |   |          | 11,129   |  
|                             
|                             
|                             
|                             
|                              | Issuance of compensatory stock option                                                                                          |          |        |        |   |   |          |         |  
|                             
|                             
|                             
|                             
|                              | Compensation attributable to stock options vesting                                                                             |          |        |        |   |   |          | 2,335    |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock under leasing agreement                                                                               |          |        |        |   |   |          | 1,400    |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock through Stock Option Plan                                                                             |          |        |        |   |   |          | 115      |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock in initial public offering                                                                            |          |        |        |   |   |          | 226,760  |  
|                             
|                             
|                             
|                             
|                              | Sale of common stock by selling shareholder in initial public
	offering                                                        |          |        |        |   |   |          |         |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock in acquisitions                                                                                       |          |        |        |   |   |          | 16,524   |  
|                             
|                             
|                             
|                             
|                              | Conversion of Class B common stock into Class A common
	stock                                                                  |          |        |        |   |   |          |         |  
|                             
|                             
|                             
|                             
|                              | Cumulative redeemable stock redemption obligation, including
	issue costs                                                      |          |        |        |   |   |          | (39,320  | )
|                             
|                             
|                             
|                             
|                              | Net loss                                                                                                                       |          |        |        |   |   |          | (129,004 | )
|                              |                                                                                                                                |          |        |         |   |   |          |         
|Balance at December 31, 1997. |                                                                                                                                |          |       |         |   |   | 71,285   |         
|                             
|                             
|                             
|                             
|                              | Issuance of compensatory stock options                                                                                         |          |        |        |   |   |          |         |  
|                             
|                             
|                             
|                             
|                              | Compensation attributable to stock options vesting                                                                             |          |        |        |   |   |          | 4,993    |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock through employee benefit plans                                                                        |          |        |        |   |   |          | 3,695    |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock for purchase of minority interest                                                                     |          |        |        |   |   |          | 5,727    |  
|                             
|                             
|                             
|                             
|                              | Conversion of Class B common stock into Class A common
	stock                                                                  |          |        |        |   |   |          |         |  
|                             
|                             
|                             
|                             
|                              | Termination of common stock redemption obligation                                                                              |          |        |        |   |   |          | 4,950    |  
|                             
|                             
|                             
|                             
|                              | Cumulative redeemable preferred stock dividends and accretion of
	preferred stock redemption obligation, including issue costs |          |        |        |   |   |          | (58,773  | )
|                             
|                             
|                             
|                             
|                              | Net loss                                                                                                                       |          |        |        |   |   |          | (278,340 | )
|                              |                                                                                                                                |          |        |         |   |   |          |         
|Balance at December 31, 1998  |                                                                                                                                |          |       |         |   |   | (246,463 | )       
|                             
|                             
|                             
|                             
|                              | Issuance of common stock in public offering                                                                                    |          |        |        |   |   |          | 310,533  |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock in acquisition                                                                                        |          |        |        |   |   |          | 350,438  |  
|                             
|                             
|                             
|                             
|                              | Issuance of compensatory stock options                                                                                         |          |        |        |   |   |          |         |  
|                             
|                             
|                             
|                             
|                              | Compensation attributable to stock options vesting                                                                             |          |        |        |   |   |          | 12,872   |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock through employee benefit plans                                                                        |          |        |        |   |   |          | 36,468   |  
|                             
|                             
|                             
|                             
|                              | Conversion of Class B common stock into Class A common
	stock                                                                  |          |        |        |   |   |          |         |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock for purchase of minority interest                                                                     |          |        |        |   |   |          | 210      |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock under leasing arrangement                                                                             |          |        |        |   |   |          | 67       |  
|                             
|                             
|                             
|                             
|                              | Cumulative redeemable preferred stock dividends and accretion of
	preferred stock redemption obligation, including issue costs |          |        |        |   |   |          | (69,189  | )
|                             
|                             
|                             
|                             
|                              | Net loss                                                                                                                       |          |        |        |   |   |          | (558,692 | )
|                             
|                             
|                             
|                             
|                              | Other comprehensive income  unrealized holding gains
	arising during the period                                               |          |        |        |   |   |          | 150,634  |  
|                              |                                                                                                                                |          |        |         |   |   |          |         
|                              | Total comprehensive income                                                                                                     |          |        |        |   |   |          | (408,058 | )
|                              |                                                                                                                                |          |        |         |   |   |          |         
|Balance at December 31, 1999. |                                                                                                                                | $        |       |         |   | $ | (13,122  | )       
|                              |                                                                                                                                |          |        |         |   |   |          |         

See accompanying notes to consolidated financial statements.

F-4



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##### Table of Contents



NEXTLINK Communications, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)


|                                                                             |                                        |                         |            |         |   |      |            |         |   |   |            |         |  
|---------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | ---------- | ------- | - | ---- | ---------- | ------- | - | - | ---------- | ------- | -
|                                                                             |                                        |                        
|                                                                             |                                        | Year Ended December 31,
|                                                                             |                                        |                        
|                                                                             |                                        | 1999                    |            | 1998    |   | 1997
|                                                                             |                                        |                         |            |         |   |     
|OPERATING ACTIVITIES:                                                        |                                        |                         |            |         |   |      |            |         |   |   |            |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Net loss                                                                     |                                        | $                       | (558,692   | )       |   | $    | (278,340   | )       |   | $ | (129,004   | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Adjustments to reconcile net loss to net cash used in operating
	activities: |                                        |                         |            |         |   |      |            |         |   |   |            |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Restructuring charge                   |                         |            | 28,016  |   |      |            |        |   |   |            |        |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Deferred compensation expense          |                         |            | 12,872  |   |      |            | 4,993   |   |   |            | 3,247   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Equity in loss of affiliates           |                         |            | 4,386   |   |      |            | 3,677   |   |   |            | 2,544   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Depreciation and amortization          |                         |            | 108,475 |   |      |            | 60,254  |   |   |            | 27,190  |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accretion of interest on senior notes  |                         |            | 68,731  |   |      |            | 28,869  |   |   |            |        |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Changes in assets and liabilities, net of effects from
	acquisitions:        |                                        |                         |            |         |   |      |            |         |   |   |            |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accounts receivable                    |                         |            | (44,631 | ) |      |            | (13,160 | ) |   |            | (11,206 | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other current assets                   |                         |            | (11,414 | ) |      |            | (4,996  | ) |   |            | (4,778  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other long-term assets                 |                         |            | 6,034   |   |      |            | (16,179 | ) |   |            | (1,208  | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accounts payable                       |                         |            | (6,924  | ) |      |            | 5,742   |   |   |            | 4,116   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accrued expenses and other liabilities |                         |            | 23,323  |   |      |            | 18,866  |   |   |            | 2,149   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Accrued interest payable               |                         |            | 10,908  |   |      |            | 15,790  |   |   |            | 9,630   |  
|                                                                             |                                        |                         |            |         |   |      |            |         |   |   |            |        
|Net cash used in operating activities                                        |                                        |                         | (358,916   | )       |   |      | (174,484   | )       |   |   | (97,320    | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|INVESTING ACTIVITIES:                                                        |                                        |                         |            |         |   |      |            |         |   |   |            |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Purchase of property and equipment                                           |                                        |                         | (611,511   | )       |   |      | (268,255   | )       |   |   | (142,170   | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Investment in fixed wireless licenses (net of cash received)                 |                                        |                         | (515,627   | )       |   |      | (67,354    | )       |   |   |           |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Investment in assets of acquired businesses (net of cash
	acquired)          |                                        |                         |           |         |   |      |           |         |   |   | (61,609    | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cash placed into escrow in conjunction with acquisition                      |                                        |                         |           |         |   |      |           |         |   |   | 6,000      |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Assets acquired in network lease                                             |                                        |                         |           |         |   |      | (92,000    | )       |   |   |           |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Investments in unconsolidated affiliates                                     |                                        |                         | (1,776     | )       |   |      | (80,836    | )       |   |   | (6,766     | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Purchase of pledged securities                                               |                                        |                         | (40,759    | )       |   |      |           |         |   |   |           |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Maturity of pledged securities                                               |                                        |                         | 21,135     |         |   |      | 36,981     |         |   |   | 39,920     |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Purchase of marketable securities                                            |                                        |                         | (9,095,139 | )       |   |      | (4,699,018 | )       |   |   | (2,100,916 | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Sale of marketable securities                                                |                                        |                         | 9,203,057  |         |   |      | 3,893,735  |         |   |   | 1,795,346  |        
|                                                                             |                                        |                         |            |         |   |      |            |         |   |   |            |        
|Net cash used in investing activities                                        |                                        |                         | (1,040,620 | )       |   |      | (1,276,747 | )       |   |   | (470,195   | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|FINANCING ACTIVITIES:                                                        |                                        |                         |            |         |   |      |            |         |   |   |            |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Net proceeds from issuance of redeemable preferred stock                     |                                        |                         |           |         |   |      | 193,824    |         |   |   | 274,000    |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Repayment of payable to affiliates                                           |                                        |                         |           |         |   |      |           |         |   |   | (1,500     | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Repayment of note payable and other obligations                              |                                        |                         | (2,954     | )       |   |      | (11,417    | )       |   |   | (7,865     | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Dividends paid on convertible preferred stock                                |                                        |                         | (13,000    | )       |   |      | (9,750     | )       |   |   |           |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Net proceeds from sale of common stock                                       |                                        |                         | 310,533    |         |   |      |           |         |   |   | 226,760    |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Proceeds from sale of senior notes                                           |                                        |                         | 1,651,419  |         |   |      | 1,234,323  |         |   |   | 400,000    |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Proceeds from issuance of common stock upon exercise of stock
	options       |                                        |                         | 36,468     |         |   |      | 3,695      |         |   |   | 115        |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Costs incurred in connection with debt financing                             |                                        |                         | (33,963    | )       |   |      | (29,022    | )       |   |   | (11,728    | )      
|                                                                             |                                        |                         |            |         |   |      |            |         |   |   |            |        
|Net cash provided by financing activities                                    |                                        |                         | 1,948,503  |         |   |      | 1,381,653  |         |   |   | 879,782    |        
|                                                                             |                                        |                         |            |         |   |      |            |         |   |   |            |        
|Net increase (decrease) in cash and cash equivalents                         |                                        |                         | 548,967    |         |   |      | (69,578    | )       |   |   | 312,267    |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cash and cash equivalents, beginning of year                                 |                                        |                         | 319,496    |         |   |      | 389,074    |         |   |   | 76,807     |        
|                                                                             |                                        |                         |            |         |   |      |            |         |   |   |            |        
|Cash and cash equivalents, end of year                                       |                                        | $                       | 868,463    |         |   | $    | 319,496    |         |   | $ | 389,074    |        
|                                                                             |                                        |                         |            |         |   |      |            |         |   |   |            |        
|SUPPLEMENTAL DATA:                                                           |                                        |                         |            |         |   |      |            |         |   |   |            |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cash paid for interest                                                       |                                        | $                       | 202,431    |         |   | $    | 100,551    |         |   | $ | 44,865     |        
|                                                                             |                                        |                         |            |         |   |      |            |         |   |   |            |        

See accompanying notes to consolidated financial statements.

F-5



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##### Table of Contents



NEXTLINK Communications, Inc.

Notes to Consolidated Financial Statements

December 31, 1999, 1998 and 1997


1.  ORGANIZATION AND DESCRIPTION OF BUSINESS

The consolidated financial statements include the accounts of
NEXTLINK Communications, Inc., a Delaware corporation, and its
majority-owned subsidiaries (collectively referred to as the
Company). The Company, through predecessor entities, was formed
in September 1994 and, through its subsidiaries, provides
competitive local, long distance and enhanced telecommunications
services in selected markets in the United States. The Company is
 a majority-owned subsidiary of Eagle River Investments, LLC
(Eagle River).

As the competitive local telecommunications service business is a
 capital intensive business, the Companys operations are
subject to significant risks and uncertainties including
competitive, financial, developmental, operational, growth and
expansion, technological, regulatory, and other risks associated
with developing the Companys business.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Companys financial statements include 100% of the
assets, liabilities and results of operations of subsidiaries in
which the Company has a controlling interest. All significant
inter-company accounts and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments with
maturities of three months or less at the time of purchase to be
cash equivalents.

Marketable Securities

Investments in marketable securities are classified as
available-for-sale and are reported at fair value in accordance
with SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. The fair values are based on
 quoted market prices. Unrealized gains and losses on marketable
securities are reported as a separate component of comprehensive
income, if significant. The Companys marketable securities
consist of U.S. government and other securities with original
maturities beyond three months.

Pledged Securities

As of December 31, 1999, the Company had pledged
$40.0 million in marketable securities as collateral against
 certain hedge options. The Company had entered into a hedge
transaction during 1999 to reduce its risk of significant market
declines on certain highly volatile equity securities. The hedge
was closed out in early 2000.

As of December 31, 1998, the Company had pledged
$20.5 million in U.S. government securities to be used to
satisfy interest payment obligations on its 12 1/2% Senior
Notes due 2006. In connection with the sale of 12 1/2%
Senior Notes, a portion of the net proceeds was used to purchase
a portfolio consisting of U.S. government securities, which
matured at dates sufficient to provide for interest payments in
full on the 12 1/2% Senior Notes through April 15,
1999. All of such pledged securities were used for such interest
payments with remaining amounts released to the Company.

The pledged securities are stated at cost, adjusted for premium
amortization and accrued interest. The fair value of the pledged
securities approximates the carrying value.

F-6



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

Property and Equipment

Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the
assets. Direct costs of construction are capitalized, including
$9.9 million, $4.3 million, and $1.8 million of
interest costs related to construction during 1999, 1998 and
1997, respectively.

Estimated useful lives of property and equipment are as follows:

|                                      |  |                                                                     
|------------------------------------- |  | --------------------------------------------------------------------
|                                     
|                                     
|                                     
|                                     
|Telecommunications networks           |  | 5-20 years                                                          
|                                     
|                                     
|                                     
|                                     
|Office equipment, furniture and other |  | 3-5 years                                                           
|                                     
|                                     
|                                     
|                                     
|Leasehold improvements                |  | the lesser of the estimated useful lives or the terms of the
	leases

Investment in Fixed Wireless Licenses

Investment in fixed wireless licenses consists of direct and
indirect costs to acquire fixed wireless license rights. Such
costs will be amortized using the straight-line method over
20 years commencing when the license is placed into use, or
when commercial service using fixed wireless technology is
deployed in the licenses geographic area.

Other Assets

Other assets consist primarily of intangible assets including
costs allocated in acquisitions to customer bases, software and
related intellectual property, and goodwill. Such costs are
amortized using the straight-line method over the estimated
useful lives of the assets as follows:

|                                           |  |            
|------------------------------------------ |  | -----------
|                                          
|                                          
|                                          
|                                          
|Customer bases                             |  | 5 years    
|                                          
|                                          
|                                          
|                                          
|Software and related intellectual property |  | 5 years    
|                                          
|                                          
|                                          
|                                          
|Goodwill                                   |  | 15-20 years

The Company periodically evaluates the recoverability of goodwill
 based upon projected undiscounted cash flows and operating
income or other valuation techniques.

Costs incurred in connection with securing the Companys
debt facilities, including underwriting and advisory fees and
other such costs, are deferred and included in other assets, and
are amortized over the term of the financing using the
straight-line method.

Other assets also includes investments in entities in which the
Company has less than a majority interest but can exercise
significant influence. The Company uses the equity method to
account for such investments. Under the equity method,
investments originally recorded at cost, are adjusted to
recognize the Companys share of net earnings or losses of
the affiliates as they occur, rather than as dividends or other
distributions received, limited to the extent of the
Companys investment in, advances to and guarantees for the
investees. Investments in publicly traded equity securities are
marked to market in accordance with SFAS No. 115
Accounting for Certain Investments in Debt and Equity
Securities. Investments in entities in which the Company
has no significant influence are accounted for under the cost
method and included in other assets.

Income Taxes

The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, Accounting for Income
Taxes, which requires that deferred income taxes be
determined based on the estimated future tax effects of
differences between the financial statement and tax bases of
assets and liabilities given the provisions of the enacted tax
laws.

F-7



---



##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

Revenue Recognition

The Company recognizes revenue on telecommunications and enhanced
 communications services in the period that services are
provided.

Net Loss Per Share

Net loss per share has been computed in accordance with SFAS
No. 128, Earnings Per Share. Accordingly, net
loss per share amounts are based on the weighted average number
of common shares outstanding during each period. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin
No. 98, nominal issuances of shares and common stock
equivalents during the twelve-month period preceding the
Companys initial public offering in September 1997
have been included as if such shares were outstanding for all
periods presented. All other common share equivalents are
excluded from the calculation of net loss per share due to their
antidilutive effect. Therefore, the weighted average number of
common shares outstanding for basic and dilutive net loss per
share calculations are equal for all periods presented.

Stock-Based Compensation

As allowed by SFAS No. 123, Accounting for Stock-Based
 Compensation, the Company has chosen to account for
compensation cost associated with its stock option plans in
accordance with Accounting Principles Bulletin Opinion
No. 25 adopting the disclosure-only provisions of
SFAS 123. Accordingly, the excess, if any, of the market
value of the common stock over the exercise price of the option
on the date of grant is recorded as expense ratably over the
vesting period.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade
receivables. The Companys trade receivables are
geographically dispersed and include customers in many different
industries. Management believes that any risk of loss is
significantly reduced due to the diversity of its customers and
geographic sales areas. The Company continually evaluates the
creditworthiness of its customers; however, it generally does not
 require collateral. The Companys allowance for doubtful
accounts is based on historical trends, current market conditions
 and other relevant factors.

Use of Estimates

The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
 management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to prior period amounts
in order to conform to the current year presentation.

Accounting Changes

Comprehensive Income

Under SFAS No. 130 Reporting Comprehensive
Income, the Company is required to report comprehensive
income, which includes the Companys net income, as well as
changes in equity from other sources. In the Companys case,
 the other changes in equity included in comprehensive income
comprise unrealized gains and losses on available-for-sale
investments.

F-8



---



##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

Segment Information

In the first quarter of 1998, the Company adopted SFAS
No. 131 Disclosures about Segments of an Enterprise
and Related Information. SFAS No. 131 supersedes SFAS
No. 14 Financial Reporting for Segments of a Business
Enterprise. Under the new standard the Company uses the
management approach to reporting its segments. Under
the management approach, the internal organization that is used
by management for making operating decisions and assessing
performance is the basis for designating the Companys
segments.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133 Accounting for
Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The
standard was initially proposed to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999,
however the FASB issued SFAS 137 Accounting for Derivative
Instruments and Hedging Activities  Deferral of the
Effective Date of FASB Statement No. 133, and the
effective date of this SFAS has been deferred until issuance by
the FASB. Management believes that the adoption of SFAS 133 will
not materially impact the Companys financial position.

In January 2000, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin 101, Revenue
Recognition, that will be effective for the Companys
year ending December 31, 2000. The bulletin provides
guidance for applying Generally Accepted Accounting Principles to
 revenue recognition, presentation, and disclosure in financial
statements filed with the SEC. Management believes that the
bulletin will not materially impact the Companys financial
position.

3.  ACQUISITIONS

In April 1999, the Company acquired WNP Communications, Inc
(WNP), for a total of $698.2 million. Of this amount the
Company paid $157.7 million to the FCC in license fees,
including interest. The remainder of the purchase price,
consisting of $190.1 million in cash and 11,431,662 shares
of Class A common stock, was paid to the stockholders of
WNP. In this transaction, the Company acquired 39 A block local
multi-point distribution services, or LMDS, wireless licenses and
 one B block LMDS wireless license. At the time of the
acquisition, WNP was a holding company for the fixed wireless
licenses and did not have any operations.

In June 1999, the Company acquired from Nextel
Communications Inc. (Nextel) its 50% interest in NEXTBAND, a
joint venture formed between the Company and Nextel in
January 1998, for $137.7 million in cash. NEXTBAND owns
 LMDS licenses in 42 markets throughout the U.S. The purchase
price was determined based on a formula derived in conjunction
with the acquisition of WNP.

In July 1998, the Company formed INTERNEXT L.L.C., which is
beneficially owned 50% each by the Company and Eagle River.
INTERNEXT entered into an agreement with Level 3 Communications,
Inc. Level 3 is constructing a fiber optic network that is
expected to cover more than 16,000 route miles with six or more
conduits and connect 50 cities in the United States and Canada.
Pursuant to this agreement, INTERNEXT will receive an exclusive
interest in 24 dark fibers in a shared, filled
conduit, one empty conduit and the right to 25% of the fibers
pulled through the sixth and any additional conduits in the
network. INTERNEXT will pay $700 million in exchange for
these rights, the majority of which will be payable as segments
of the network are completed and accepted, substantially all of
which is expected to occur during 2000 and 2001. As of
December 31, 1999, INTERNEXT had paid $47.6 million to
Level 3 of which $19.8 million was paid in 1999. The
investment is recorded in Other Assets.

F-9



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

In November 1997, the Company acquired all of the
outstanding shares of Start Technologies Corporation (Start), a
shared tenant services provider offering local and long distance
services, Internet access and customer premise equipment
management in Texas and Arizona. The Company paid consideration
for the transaction consisting of $20.0 million in cash,
882,672 shares of Class A common stock, and the assumption
of approximately $5.3 million in liabilities.

In October 1997, the Company acquired all of the outstanding
 shares of Chadwick Telecommunications Corporation, a
switch-based long distance reseller in central Pennsylvania,
through a merger transaction between Chadwick and a wholly owned
subsidiary of the Company. The purchase price consisted of a $5.0
 million promissory note paid in January 1998, issuance of
1,028,604 and 578,588 shares of Class A common stock in 1997
 and March 2000, respectively, and the repayment of
long-term debt and other liabilities totaling $6.6 million.
The Company also has agreed to issue an additional 96,432 shares
of Class A common stock in the event that certain
performance goals are achieved by March 31, 2002.

4.  MARKETABLE SECURITIES

Of the marketable securities outstanding as of December 31,
1999, $532.9 million matures within one year. The remainder
matures in less than two years.

As of December 31, 1999, the Companys marketable
securities were recorded at fair value. As of December 31,
1998, such securities were recorded at amortized cost which
approximated fair value. The Companys marketable securities
 consisted of the following (in thousands):

|                                           |  |              |           |      |  |   |           | 
|------------------------------------------ |  | ------------ | --------- | ---- |  | - | --------- | 
|                                           |  |             
|                                           |  | December 31,
|                                           |  |             
|                                           |  | 1999         |           | 1998
|                                           |  |              |           |     
|U.S. Government and agency notes and bonds |  | $            | 552,394   |      |  | $ | 653,554   | 
|                                          
|                                          
|                                          
|                                          
|State and municipal notes and bonds        |  |              |          |      |  |   | 28,561    | 
|                                          
|                                          
|                                          
|                                          
|Foreign government notes and bonds         |  |              | 21,195    |      |  |   | 7,016     | 
|                                          
|                                          
|                                          
|                                          
|Corporate notes and bonds                  |  |              | 439,712   |      |  |   | 469,435   | 
|                                           |  |              |           |      |  |   |           | 
|                                           |  | $            | 1,013,301 |      |  | $ | 1,158,566 | 
|                                           |  |              |           |      |  |   |           | 

5.  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following components (in
thousands):

|                                                              |  |              |           |      |  |   |         | 
|------------------------------------------------------------- |  | ------------ | --------- | ---- |  | - | ------- | 
|                                                              |  |             
|                                                              |  | December 31,
|                                                              |  |             
|                                                              |  | 1999         |           | 1998
|                                                              |  |              |           |     
|Telecommunications networks                                   |  | $            | 781,899   |      |  | $ | 379,277 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Office equipment, leasehold improvements, furniture and other |  |              | 216,456   |      |  |   | 107,991 | 
|                                                              |  |              |           |      |  |   |         | 
|                                                              |  |              | 998,355   |      |  |   | 487,268 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Less accumulated depreciation                                 |  |              | 174,134   |      |  |   | 81,212  | 
|                                                              |  |              |           |      |  |   |         | 
|                                                              |  |              | 824,221   |      |  |   | 406,056 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Network construction in progress                              |  |              | 355,800   |      |  |   | 188,352 | 
|                                                              |  |              |           |      |  |   |         | 
|                                                              |  | $            | 1,180,021 |      |  | $ | 594,408 | 
|                                                              |  |              |           |      |  |   |         | 

In February 1998, the Company entered into a 20-year capital
 lease for exclusive rights to multiple fibers and innerducts
throughout New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland and Washington D.C. The Company paid
$97.0 million in the transaction, of which $5.0 million
 was paid for rights-of-way. Of the purchase price,
$80.3 million was placed into escrow pending completion and
delivery of segments of the network route to the Company. The
payment was recorded as a long-term asset, and is

F-10



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

reclassified as property and equipment as portions of the network
 are completed. As of December 31, 1999, $25.2 million
has been released from escrow for delivery of portions of the
network. The Company has the option to renew the lease for two
additional 10 year terms.

6.  OTHER ASSETS

Other assets consisted of the following components (in
thousands):

|                                         |  |              |         |      |  |   |         | 
|---------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                         |  |             
|                                         |  | December 31,
|                                         |  |             
|                                         |  | 1999         |         | 1998
|                                         |  |              |         |     
|Customer bases                           |  | $            | 53,447  |      |  | $ | 53,397  | 
|                                        
|                                        
|                                        
|                                        
|Investments in unconsolidated affiliates |  |              | 58,499  |      |  |   | 17,839  | 
|                                        
|                                        
|                                        
|                                        
|Financing costs                          |  |              | 72,528  |      |  |   | 50,572  | 
|                                        
|                                        
|                                        
|                                        
|Assets acquired in network lease         |  |              | 66,800  |      |  |   | 92,000  | 
|                                        
|                                        
|                                        
|                                        
|Goodwill                                 |  |              | 62,599  |      |  |   | 62,330  | 
|                                        
|                                        
|                                        
|                                        
|Other non-current assets                 |  |              | 186,681 |      |  |   | 27,886  | 
|                                         |  |              |         |      |  |   |         | 
|                                         |  |              | 500,554 |      |  |   | 304,024 | 
|                                        
|                                        
|                                        
|                                        
|Less accumulated amortization            |  |              | 44,362  |      |  |   | 34,835  | 
|                                         |  |              |         |      |  |   |         | 
|                                         |  | $            | 456,192 |      |  | $ | 269,189 | 
|                                         |  |              |         |      |  |   |         | 

7.  OTHER ACCRUED LIABILITIES

Other accrued liabilities consisted of the following components
(in thousands)

|                            |  |              |         |      |  |   |        | 
|--------------------------- |  | ------------ | ------- | ---- |  | - | ------ | 
|                            |  |             
|                            |  | December 31,
|                            |  |             
|                            |  | 1999         |         | 1998
|                            |  |              |         |     
|Accrued compensation        |  | $            | 27,516  |      |  | $ | 11,410 | 
|                           
|                           
|                           
|                           
|Accrued restructuring costs |  |              | 30,935  |      |  |   |       | 
|                           
|                           
|                           
|                           
|Other accrued liabilities   |  |              | 61,344  |      |  |   | 33,646 | 
|                            |  |              |         |      |  |   |        | 
|                            |  | $            | 119,795 |      |  | $ | 45,056 | 
|                            |  |              |         |      |  |   |        | 

F-11



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

8.  LONG-TERM DEBT

Long-term debt consisted of the following components (in
thousands):

|                                                     |  |              |           |            |  |          |           |  |  |   |           | 
|---------------------------------------------------- |  | ------------ | --------- | ---------- |  | -------- | --------- |  |  | - | --------- | 
|                                                     |  |             
|                                                     |  | December 31,
|                                                     |  |             
|                                                     |  |              |           |           
|                                                     |  | 1999         |           | 1998      
|                                                     |  |              |           |           
|                                                     |  | Carrying     |           | Estimated  |  | Carrying
|                                                     |  | Value        |           | Fair Value |  | Value   
|                                                     |  |              |           |            |  |         
|Senior Notes, 10 1/2%, due December 1, 2009          |  | $            | 400,000   |            |  | $        | 400,000   |  |  | $ |          | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior Discount Notes, 12 1/8%, due December 1, 2009 |  |              | 255,230   |            |  |          | 259,206   |  |  |   |          | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior Notes, 10 3/4%, due June 1, 2009              |  |              | 675,000   |            |  |          | 684,797   |  |  |   |          | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior Discount Notes, 12 1/4%, due June 1, 2009     |  |              | 348,425   |            |  |          | 358,711   |  |  |   |          | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior Notes, 10 3/4%, due November 15, 2008         |  |              | 500,000   |            |  |          | 507,038   |  |  |   | 500,000   | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior Discount Notes, 9.45%, due April 15, 2008     |  |              | 470,420   |            |  |          | 408,483   |  |  |   | 428,813   | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior Notes, 9%, due March 15, 2008                 |  |              | 334,267   |            |  |          | 308,059   |  |  |   | 334,379   | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior Notes, 9 5/8%, due October 1, 2007            |  |              | 400,000   |            |  |          | 382,042   |  |  |   | 400,000   | 
|                                                    
|                                                    
|                                                    
|                                                    
|Senior Notes, 12 1/2%, due April 15, 2006            |  |              | 350,000   |            |  |          | 381,391   |  |  |   | 350,000   | 
|                                                     |  |              |           |            |  |          |           |  |  |   |           | 
|                                                     |  | $            | 3,733,342 |            |  | $        | 3,689,727 |  |  | $ | 2,013,192 | 
|                                                     |  |              |           |            |  |          |           |  |  |   |           | 

On November 17, 1999, the Company completed the sale of
$400.0 million of 10 1/2% Senior Notes and
$455.0 million in principal amount at stated maturity of
12  1/8% Senior Discount Notes, both due 2009. The Company
received proceeds, net of discounts, commissions, advisory fees
and expenses totaling approximately $639.6 million. Interest
 payments on the 10 1/2% Notes are due semi-annually
beginning June 1, 2000. The 12  1/8% Notes were issued
at a discount from their principal amount to generate aggregate
gross proceeds of approximately $251.4 million. The 12  1/8%
 Notes accrete at a rate of 12  1/8% compounded
semi-annually, to an aggregate principal amount of
$455 million by December 1, 2004. No cash interest will
 accrue on the 12  1/8% Notes until December 1, 2004.
Interest will become payable in cash semi-annually beginning June
 1 2005. The Company has the option to redeem the 10 1/2%
Notes and the 12  1/8% Notes, in whole or in part, beginning
 December 1, 2004 at established redemption prices that
decline to 100% of the stated principal amount thereof by
December 1, 2007.

On June 1, 1999, the Company completed the sale of
$675.0 million of 10 3/4% Senior Notes and
$588.9 million in principal amount at stated maturity of
12 1/4% Senior Discount Notes, both due June 1, 2009.
The Company received proceeds, net of discounts, underwriting
commissions, advisory fees and expenses, totaling approximately
$979.5 million. Interest payments on the 10 3/4% Notes
due 2009 are due semi-annually beginning December 1, 1999.
The 12 1/4% Notes were issued at a discount from their
principal amount to generate aggregate gross proceeds of
$325.0 million. The 12 1/4% Notes accrete at a rate of
12 1/4% compounded semi-annually, to an aggregate principal
amount of approximately $588.9 million by June 1, 2004.
 No cash interest will accrue on the 12 1/4% Notes until
June 1, 2004. Interest will become payable in cash
semi-annually beginning December 1, 2004. The Company has
the option to redeem the 10 3/4% Notes due 2009 and the
12 1/4% Notes, in whole or in part, beginning June 1,
2004 at established redemption prices that decline to 100% of the
 stated principal amount thereof by June 1, 2007.

On November 12, 1998, the Company completed the sale of
$500.0 million of 10 3/4% Senior Notes due
November 15, 2008. The Company received proceeds from the
sale, net of commissions, advisory fees and expenses, totaling
approximately $488.5 million. Interest payments on the notes
 are due semi-annually. The 10 3/4% Notes due 2008 are
redeemable at the option of the Company, in whole or in part,
beginning November 15, 2003 at established redemption
prices, that decline to 100% of the stated principal amount
thereof by November 12, 2006.

F-12



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

On April 1, 1998, the Company completed the sale of
$637.0 million in principal amount at stated maturity of
9.45% Senior Discount Notes due April 15, 2008. The 9.45% Notes
were issued at a discount from their principal amount to generate
 aggregate gross proceeds of approximately $400.0 million.
The Company received proceeds, net of discounts, commissions,
advisory fees and expenses, totaling approximately
$390.9 million. The 9.45% Notes accrete at a rate of 9.45%
compounded semi-annually, to an aggregate principal amount of
approximately $637.0 million by April 15, 2003. No cash
 interest will accrue on the 9.45% Notes until April 15,
2003. Interest will become payable in cash semi-annually
beginning on October 15, 2003. The 9.45% Notes are
redeemable at the option of the Company, in whole or in part,
beginning April 15, 2003 at established redemption prices,
that decline to 100% of the stated principal amount thereof by
April 1, 2006.

On March 3, 1998, the Company completed the sale of
$335.0 million of 9% Senior Notes due March 15, 2008.
The Company received proceeds from the sale, net of discounts,
commissions, advisory fees and expenses, of approximately
$326.5 million. Interest payments on the 9% Senior Notes are
 due semi-annually. The 9% Senior Notes are redeemable at the
option of the Company, in whole or in part, beginning
March 15, 2003 at established redemption prices that decline
 to 100% of the stated principal amount thereof by March 3,
2006.

On October 1, 1997, the Company completed the sale of
$400.0 million in principal amount of 9  5/8% Senior
Notes due October 1, 2007. The Company received proceeds
from the sale, net of underwriting commissions, advisory fees and
 expenses, totaling approximately $388.5 million. Interest
payments on the 9  5/8% Notes are due semi-annually. The
9  5/8% Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after October 1, 2002
 at established redemption prices, that decline to 100% of the
stated principal amount thereof by October 1, 2005.

On April 25, 1996, the Company completed the sale of
$350.0 million in principal amount of 12 1/2% Senior
Notes due April 15, 2006. The Company received proceeds from
 the sale, net of commissions, advisory fees and expenses
totaling approximately $340.2 million. The Company used
$117.7 million of the proceeds to purchase U.S. government
securities, representing funds sufficient to provide for payment
in full of interest on the 12 1/2% Senior Notes through
April 15, 1999 and $32.2 million to repay advances and
accrued interest from Eagle River. Interest payments on the
12 1/2% Senior Notes are due semi-annually. The 12 1/2%
 Senior Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after April 15, 2001 at
established redemption prices that decline to 100% of the stated
principal amount thereof by April 15, 2004.

The indentures pursuant to which all of the Companys Senior
 Notes and Senior Discount Notes have been issued contain
covenants that, among other things, limit the ability of the
Company and its subsidiaries to incur additional indebtedness,
issue stock in subsidiaries, pay dividends or make other
distributions, repurchase equity interests or subordinated
indebtedness, engage in sale and leaseback transactions, create
certain liens, enter into certain transactions with affiliates,
sell assets of the Company and its subsidiaries, and enter into
certain mergers and consolidations. In addition, the Company is
required to use the net proceeds from the sale of certain sales
of senior notes and senior discount notes to fund 80% of the
expenditures for the construction, improvement and acquisition of
 new and existing networks and services and direct and indirect
investments in certain joint ventures to fund similar
expenditures. Prior to the application of all such proceeds, the
Company may invest them in marketable securities.

In the event of a change in control of the Company as defined in
the indentures, holders of the Notes will have the right to
require the Company to purchase their Notes, in whole or in part,
 at a price equal to 101% of the stated principal amount thereof,
 plus accrued and unpaid interest, if any, thereon to the date of
 purchase. The Notes are senior unsecured obligations of the
Company, and are subordinated to all current and future
indebtedness of the Companys subsidiaries, including trade
payables.

F-13



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

9.  REDEEMABLE PREFERRED STOCK

On March 31, 1998, the Company completed the sale of
4,000,000 shares of 6 1/2% cumulative convertible preferred
stock (6 1/2% Preferred Stock) with a liquidation preference
 of $50 per share. The sale generated gross proceeds to the
Company of $200.0 million, and proceeds net of commissions,
advisory fees and expenses of approximately $193.8 million.
Each share of 6 1/2% Preferred Stock is convertible, at the
option of the holder, into 2.29 shares of the Companys
Class A common stock (subject to adjustments in certain
circumstances). The Company may cause such conversion rights to
expire if the closing price of the Class A common stock
exceeds 120% of an implied conversion price (as defined) for
20 days in a 30 consecutive day trading period after
April 15, 2001 and through April 15, 2006. Dividends on
 the 6 1/2% Preferred Stock accrue from March 31, 1998
and are payable in cash quarterly, at an annual rate of
6 1/2% of the liquidation preference thereof. The Company is
 required to redeem all of the 6 1/2% Preferred Stock
outstanding on March 31, 2010 at a redemption price equal to
 100% of the liquidation preference thereof, plus accumulated and
 unpaid dividends to the date of redemption. As of
December 31, 1999, the implied fair value of the
Companys 6 1/2% Preferred Stock is $777.0 million
 based on the market price of the Companys Class A
common stock into which the preferred stock converts. Terms,
including conversion features, vary based on market conditions at
 the time the security is issued. Accordingly, management
believes that this value may not reflect the proceeds the Company
 would obtain if it issued convertible preferred stock today.

On January 31, 1997, the Company completed the sale of
5.7 million units consisting of (i) 14% senior
exchangeable redeemable preferred shares (14% Preferred Shares),
liquidation preference $50 per share, and (ii) contingent
warrants to acquire in the aggregate 5% of each class of
outstanding junior shares (as defined) of the Company on a fully
diluted basis as of February 1, 1998. The sale generated
gross proceeds to the Company of $285.0 million, and
proceeds net of commissions, advisory fees and expenses of
approximately $274.0 million. The contingent warrants expired
unexercised as of the date of the Companys initial public
offering of Class A common stock. Dividends on the 14%
Preferred Shares accrue from January 31, 1997 and are
payable quarterly, at an annual rate of 14% of the liquidation
preference thereof. Dividends may be paid, at the Companys
option, on any dividend payment date occurring on or prior to
February 1, 2002, either in cash or by issuing additional
14% Preferred Shares with an aggregate liquidation preference
equal to the amount of such dividends. The Company is required to
 redeem all of the 14% Preferred Shares outstanding on
February 1, 2009 at a redemption price equal to 100% of the
liquidation preference thereof, plus accumulated and unpaid
dividends to the date of redemption. Management believes that, as
 of December 31, 1999, the carrying value of the 14%
Preferred Shares approximated its fair market value.

Subject to certain conditions, the 14% Preferred Shares are
exchangeable in whole, but not in part, at the option of the
Company, on any dividend payment date, for the 14% senior
subordinated notes (Senior Subordinated Notes) due
February 1, 2009 of the Company. All terms and conditions
(other than interest, ranking and maturity) of the Senior
Subordinated Notes would be substantially the same as those of
the Companys outstanding 12 1/2% Senior Notes.

The terms of the 14% Preferred Stock limit the ability of the
Company to incur additional indebtedness and issue additional
preferred stock. In the event of a change of control, as defined
by the terms of the 14% Preferred Stock, holders of the 14%
Preferred Stock will have the right to require the Company to
purchase their shares, in whole or in part, at a price equal to
101% of the $50 liquidation preference thereof, plus accumulated
and unpaid dividends, if any, thereon at the date of purchase.

F-14



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

10.  INCOME TAXES

Components of deferred tax assets and liabilities were as follows
 (in thousands):

|                               |                                                      |              |          |          |   |   |          |         |  
|------------------------------ | ---------------------------------------------------- | ------------ | -------- | -------- | - | - | -------- | ------- | -
|                               |                                                      |             
|                               |                                                      | December 31,
|                               |                                                      |             
|                               |                                                      | 1999         |          | 1998    
|                               |                                                      |              |          |         
|Deferred tax assets:           |                                                      |              |          |          |   |   |          |        
|                              
|                              
|                              
|                              
|                               | Provisions not currently deductible                  |              | $        | 3,482    |   |   | $        | 3,004   |  
|                              
|                              
|                              
|                              
|                               | Property, equipment and other long term assets (net) |              |          | 86,351   |   |   |          | 47,613  |  
|                              
|                              
|                              
|                              
|                               | Net operating loss carryforwards                     |              |          | 372,920  |   |   |          | 119,292 |  
|                               |                                                      |              |          |          |   |   |          |        
|Total deferred tax assets      |                                                      |              | 462,753  |          |   |   | 169,909  |        
|                              
|                              
|                              
|                              
|Valuation allowance            |                                                      |              | (277,690 | )        |   |   | (148,953 | )      
|                               |                                                      |              |          |          |   |   |          |        
|Net deferred tax assets        |                                                      |              | 185,063  |          |   |   | 20,956   |        
|                              
|                              
|                              
|                              
|Deferred tax liabilities:      |                                                      |              |          |          |   |   |          |        
|                              
|                              
|                              
|                              
|                               | Property, equipment and other long term assets (net) |              |          | (12,535  | ) |   |          | (3,068  | )
|                              
|                              
|                              
|                              
|                               | Purchase acquisitions                                |              |          | (171,050 | ) |   |          | (16,445 | )
|                              
|                              
|                              
|                              
|                               | Other                                                |              |          | (1,478   | ) |   |          | (1,443  | )
|                               |                                                      |              |          |          |   |   |          |        
|Total deferred tax liabilities |                                                      |              | (185,063 | )        |   |   | (20,956  | )      
|                               |                                                      |              |          |          |   |   |          |        
|Net deferred taxes             |                                                      | $            |         |          |   | $ |         |        
|                               |                                                      |              |          |          |   |   |          |        

The net change in the valuation allowance for the years ended
December 31, 1999, 1998 and 1997 was an increase of
$128.7 million, $114.9 million and $34.1 million,
respectively.

As of December 31, 1999, the Company had net operating loss
carryforwards of approximately $916.8 million, of which
$119.3 million, $178.9 million and $618.6 million
expire in 2012, 2018 and 2019 respectively.

A reconciliation of the Companys effective income tax rate
and the U.S. federal tax rate is as follows:

|                                            |  |      |       |      |  |  |       |   
|------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | --
|                                            |  | 1999 |       | 1998
|                                            |  |      |       |     
|Statutory rate                              |  |      | 35.0  | %    |  |  | 34.0  | % 
|                                           
|                                           
|                                           
|                                           
|State income taxes, net of federal benefit  |  |      | 6.0   | %    |  |  | 6.0   | % 
|                                           
|                                           
|                                           
|                                           
|Valuation allowance for deferred tax assets |  |      | (41.0 | )%   |  |  | (40.0 | )%
|                                            |  |      |       |      |  |  |       |   
|                                            |  |      |      | %    |  |  |      | % 
|                                            |  |      |       |      |  |  |       |   

11.  SHAREHOLDERS EQUITY (DEFICIT)

In August 1999, the Company effected a two-for-one stock
split of the issued and outstanding shares of Class A and
Class B common stock, in the form of a stock dividend. In
August 1997, the Company effected a 0.441336-for-1 reverse
stock split of the issued and outstanding shares of Class A
and Class B common stock. The accompanying consolidated
financial statements and the related notes herein have been
adjusted retroactively to reflect both the reverse stock split
and the two-for-one stock split.

In June 1999, the Company completed the sale of 15,200,000
shares of Class A common stock at $38.00 per share, 8,464,100 of
which were offered by the Company and 6,735,900 of which were
offered by certain shareholders that previously owned interests
in WNP. Gross proceeds from the offering totaled
$321.6 million, and proceeds to the Company, net of
underwriting discounts, advisory fees and expenses, totaled
approximately $310.5 million.

F-15



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

In October 1997, the Company completed an initial public
offering (IPO) of 24,000,000 shares of Class A common
stock at a price of $8.50 per share. In addition, the
underwriters of the IPO exercised an option to purchase 4,560,000
 additional shares of Class A common stock at the same price
 per share. Gross proceeds from the IPO totaled approximately
$242.8 million, and proceeds to the Company, net of
underwriting discounts, advisory fees and expenses, totaled
approximately $226.8 million.

Since January 31, 1997, the Company has had two classes of
common stock outstanding, Class A common stock and
Class B common stock. The Companys Class A common
stock and Class B common stock are identical in dividend and
 liquidation rights, and vote together as a single class on all
matters, except as otherwise required by applicable law, with the
 Class A shareholders entitled to cast one vote per share,
and the Class B shareholders entitled to cast 10 votes per
share.

12.  NET LOSS PER SHARE

Shares used in the computation of net loss per share amounts were
 calculated as follows:

|                                           |                                                                                                                                              |      |             |             |  |      |             |             |  |  |            |            | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ----------- | ----------- |  | ---- | ----------- | ----------- |  |  | ---------- | ---------- | 
|                                           |                                                                                                                                              | 1999 |             | 1998        |  | 1997
|                                           |                                                                                                                                              |      |             |             |  |     
|Weighted average common shares outstanding |                                                                                                                                              |      | 125,132,459 |             |  |      | 107,708,264 |             |  |  | 82,288,550 |           
|                                          
|                                          
|                                          
|                                          
|                                           | Nominal issuances during the 12 month period prior to the
	Companys filing of its IPO, treated as if outstanding for
	all periods presented |      |             |            |  |      |             |            |  |  |            | 3,823,220  | 
|                                           |                                                                                                                                              |      |             |             |  |      |             |             |  |  |            |           
|                                           | Shares used in computation of net loss per share                                                                                             |      |             | 125,132,459 |  |      |             | 107,708,264 |  |  |            | 86,111,770 | 
|                                           |                                                                                                                                              |      |             |             |  |      |             |             |  |  |            |           

13.  STOCK COMPENSATION ARRANGEMENTS

Effective July 1, 1998, the Company adopted the Employee
Stock Purchase Plan, or the Purchase Plan. Under the Purchase
Plan, the Company has authorized the issuance of 6,000,000
Class A common shares, which allows eligible employees of
the Company to purchase common shares of the Company at 85% of
the simple average of the fair value of the common stock on the
first and the last trading day of each month. Employees who own
5% or more of the voting rights of the Companys outstanding
 common shares may not participate in the Purchase Plan.
Employees purchased 124,716 and 111,934 shares of Class A
Common Stock under the Purchase Plan during 1999 and 1998,
respectively.

The Company also maintains the NEXTLINK Communications, Inc.
Stock Option Plan (the Plan) to provide a performance incentive
for certain officers, employees and individuals or companies who
provide services to the Company. The Plan provides for the
granting of qualified and non-qualified stock options. The
Company has reserved 41,000,000 shares of Class A common
stock for issuance under the Plan. The options become exercisable
 over vesting periods of up to four years and expire no later
than 10 years after the date of grant.

The exercise price of qualified stock options granted under the
Plan may not be less than the fair market value of the common
shares on the date of grant. The exercise price of non-qualified
stock options granted under the Plan may be greater or less than
the fair market value of the common stock on the date of grant,
as determined at the discretion of the Board of Directors. Stock
options granted at prices below fair market value at the date of
grant are considered compensatory, and compensation expense is
deferred and recognized ratably over the option vesting period
based on the excess of the fair market value of the stock at the
date of grant over the exercise price of the option.

The Company recorded approximately $12.9 million,
$4.9 million and $2.3 million of deferred compensation
expense related to the Plan for the years ended December 31,
 1999, 1998, and 1997, respectively. Additionally, $28.0 million
of the Companys 1999 restructuring charge associated with
the relocation of the

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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

Companys headquarters from Bellevue, Washington to Northern
 Virginia arose due to accelerated vesting of employee options in
 conjunction with severance arrangements for approximately 125
employees.

The Company has adopted the disclosure-only provisions of SFAS
123. Had compensation costs been recognized based on the fair
value at the date of grant for options awarded under the Plan and
 the Equity Option Plan, the pro forma amounts of the
Companys net loss and net loss per share for the years
ended December 31, 1999, 1998 and 1997 would have been as
follows (in thousands, except per share amounts):

|                                                   |  |      |          |      |  |      |          |   |  |   |          |  
|-------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                   |  | 1999 |          | 1998 |  | 1997
|                                                   |  |      |          |      |  |     
|Net loss applicable to common shares  as reported |  | $    | (627,881 | )    |  | $    | (337,113 | ) |  | $ | (168,324 | )
|                                                  
|                                                  
|                                                  
|                                                  
|Net loss applicable to common shares  pro forma   |  | $    | (679,046 | )    |  | $    | (353,466 | ) |  | $ | (182,571 | )
|                                                  
|                                                  
|                                                  
|                                                  
|Net loss per share  as reported                   |  | $    | (5.02    | )    |  | $    | (3.13    | ) |  | $ | (1.96    | )
|                                                  
|                                                  
|                                                  
|                                                  
|Net loss per share  pro forma                     |  | $    | (5.43    | )    |  | $    | (3.28    | ) |  | $ | (2.13    | )

The fair value of each option grant was estimated using the
Black-Scholes option-pricing model assuming no dividend yield and
 the following weighted average assumptions:

|                               |  |      |       |      |  |      |         |  |  |  |         | 
|------------------------------ |  | ---- | ----- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                               |  | 1999 |       | 1998 |  | 1997
|                               |  |      |       |      |  |     
|Expected volatility            |  |      | 70.3% |      |  |      | 70.0%   |  |  |  | 45.0%   | 
|                              
|                              
|                              
|                              
|Risk free interest rate        |  |      | 5.32% |      |  |      | 5.04%   |  |  |  | 6.11%   | 
|                              
|                              
|                              
|                              
|Expected life (range in years) |  |      | 4.0   |      |  |      | 2.04.0 |  |  |  | 3.05.0 | 

The weighted average fair value of options granted during 1999,
1998 and 1997 was $24.27, $15.71, and $5.94, respectively.

F-17



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

Information with respect to the Plan and the Equity Option Plan
is as follows:

|                                         |           |                |            |              |   |                  |              |              |  |   |       |       | 
|---------------------------------------- | --------- | -------------- | ---------- | ------------ | - | ---------------- | ------------ | ------------ |  | - | ----- | ----- | 
|                                         |           | Shares Subject |            | Option Price |   | Weighted Average
|                                         |           | to Option      |            | Range        |   | Exercise Price  
|                                         |           |                |            |              |   |                 
|Options outstanding at December 31, 1996 |           |                | 4,009,292  |              |   | $                | 0.01   3.97 |              |  | $ | 0.23  |      
|                                        
|                                        
|                                        
|                                        
|                                         | Granted   |                |            | 5,138,312    |   |                  | $            | 3.97  13.25 |  |   | $     | 4.62  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Canceled  |                |            | (410,796     | ) |                  | $            | 0.01  10.66 |  |   | $     | 0.60  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Exercised |                |            | (1,345,756   | ) |                  | $            | 0.01   3.97 |  |   | $     | 0.09  | 
|                                         |           |                |            |              |   |                  |              |              |  |   |       |      
|Options outstanding at December 31, 1997 |           |                | 7,391,052  |              |   | $                | 0.01  13.25 |              |  | $ | 3.23  |      
|                                        
|                                        
|                                        
|                                        
|                                         | Granted   |                |            | 15,428,860   |   |                  | $            | 3.97  20.25 |  |   | $     | 13.92 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Canceled  |                |            | (1,593,610   | ) |                  | $            | 0.01  18.94 |  |   | $     | 8.11  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Exercised |                |            | (1,593,710   | ) |                  | $            | 0.01  16.07 |  |   | $     | 1.49  | 
|                                         |           |                |            |              |   |                  |              |              |  |   |       |      
|Options outstanding at December 31, 1998 |           |                | 19,632,592 |              |   | $                | 0.01  20.25 |              |  | $ | 11.37 |      
|                                        
|                                        
|                                        
|                                        
|                                         | Granted   |                |            | 13,260,996   |   |                  | $            | 0.01  91.38 |  |   | $     | 31.26 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Canceled  |                |            | (2,148,568   | ) |                  | $            | 0.50  61.38 |  |   | $     | 16.12 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Exercised |                |            | (3,143,253   | ) |                  | $            | 0.01  56.06 |  |   | $     | 9.40  | 
|                                         |           |                |            |              |   |                  |              |              |  |   |       |      
|Options outstanding at December 31, 1999 |           |                | 27,601,767 |              |   | $                | 0.01  91.38 |              |  | $ | 19.72 |      
|                                         |           |                |            |              |   |                  |              |              |  |   |       |      

|                  |                |                     |  |                     |            |          |  |             |      |          |  |   |       |  |  |  |           |  |  |   |       | 
|----------------- | -------------- | ------------------- |  | ------------------- | ---------- | -------- |  | ----------- | ---- | -------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                  |                |                     |  |                     |            |         
|                  |                | Options Outstanding |  |                    
|                  |                |                     |  | Options Exercisable
|                  |                |                     |  | Weighted            |            |          |  |            
|                  |                |                     |  | Average             |            | Weighted |  |             |      | Weighted
|                  |                |                     |  | Remaining           |            | Average  |  |             |      | Average 
|Range of Exercise |                | Options             |  | Contractual         |            | Exercise |  | Options     |      | Exercise
|Prices            |                | Outstanding         |  | Life                |            | Price    |  | Exercisable |      | Price   
|                  |                |                     |  |                     |            |          |  |             |      |         
|$                 | 0.01  $ 9.38  |                     |  |                     | 4,915,136  |          |  |             | 8.46 |          |  | $ | 2.72  |  |  |  | 1,615,472 |  |  | $ | 3.58  | 
|$                 | 10.06  $22.50 |                     |  |                     | 15,331,443 |          |  |             | 8.59 |          |  |   | 7.18  |  |  |  | 2,847,561 |  |  |   | 8.27  | 
|$                 | 22.18  $51.88 |                     |  |                     | 4,503,858  |          |  |             | 9.39 |          |  |   | 35.92 |  |  |  | 96,249    |  |  |   | 38.43 | 
|$                 | 52.16  $91.38 |                     |  |                     | 2,851,330  |          |  |             | 9.72 |          |  |   | 58.27 |  |  |  | 269,375   |  |  |   | 79.09 | 
|                  |                |                     |  |                     |            |          |  |             |      |          |  |   |       |  |  |  |           |  |  |   |       | 
|                  |                |                     |  |                     | 27,601,767 |          |  |             |      |          |  |   |       |  |  |  |           |  |  |   |       | 
|                  |                |                     |  |                     |            |          |  |             |      |          |  |   |       |  |  |  |           |  |  |   |       | 

At December 31, 1999 there were approximately 7 million
 shares of Class A common stock shares available for future
issuances.

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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

14.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION

Supplemental disclosure of the Companys cash flow
information is as follows (in thousands):

|                                                            |                                                                                                                                                |                         |   |         |  |      |   |        |  |  |   |        | 
|----------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | - | ------- |  | ---- | - | ------ |  |  | - | ------ | 
|                                                            |                                                                                                                                                |                        
|                                                            |                                                                                                                                                | Year Ended December 31,
|                                                            |                                                                                                                                                |                        
|                                                            |                                                                                                                                                | 1999                    |   | 1998    |  | 1997
|                                                            |                                                                                                                                                |                         |   |         |  |     
|Noncash financing and investing activities were as follows: |                                                                                                                                                |                         |   |         |  |      |   |        |  |  |   |       
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Class A common stock issued in acquisitions and under lease
	arrangement                                                                       |                         | $ | 350,438 |  |      | $ |       |  |  | $ | 17,924 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Redeemable preferred stock dividends, paid in redeemable
	preferred shares                                                                     |                         |   | 53,504  |  |      |   | 46,632 |  |  |   | 31,102 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Accrued redeemable preferred stock dividends, payable in
	redeemable preferred shares, and accretion of preferred stock
	redemption obligation |                         |   | 2,680   |  |      |   | 2,391  |  |  |   | 8,218  | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Issuance of notes payable and assumption of liabilities in
	acquisitions                                                                       |                         |   |        |  |      |   |       |  |  |   | 21,280 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Issuance of Class B common stock for purchase of minority
	interest                                                                            |                         |   | 269     |  |      |   | 5,727  |  |  |   |       | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other long term obligations assumed                                                                                                            |                         |   |        |  |      |   | 10,139 |  |  |   | 4,725  | 

15.  LEASES

The Company is leasing premises under various operating leases
which, in addition to rental payments, require payments for
insurance, maintenance, property taxes and other executory costs
related to the leases. The lease agreements have various
expiration dates and renewal options through 2028.

Future minimum lease commitments required under operating leases
that have an initial or remaining noncancelable lease term in
excess of one year at December 31, 1999 were as follows (in
thousands):

|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|Year Ending December 31,        |  |   |         | 
|                               
|                               
|                               
|                               
|2000                            |  | $ | 28,482  | 
|                               
|                               
|                               
|                               
|2001                            |  |   | 28,386  | 
|                               
|                               
|                               
|                               
|2002                            |  |   | 28,195  | 
|                               
|                               
|                               
|                               
|2003                            |  |   | 26,202  | 
|                               
|                               
|                               
|                               
|2004                            |  |   | 23,236  | 
|                               
|                               
|                               
|                               
|Thereafter                      |  |   | 177,683 | 
|                                |  |   |         | 
|Total minimum lease commitments |  | $ | 312,184 | 
|                                |  |   |         | 

Rent expense totaled approximately $28.0 million,
$13.3 million and $6.4 million in 1999, 1998 and 1997,
respectively.

16.  OPERATING SEGMENTS

Reportable Segments

The Company has two reportable segments as defined by SFAS
No. 131, Disclosures about Segments of an Enterprise
and Related Information: a switched telecommunication
services segment and an Interactive Voice Response, or IVR
service segment. The switched telecommunications services segment
 is the Companys largest segment and includes operations
relating to the Companys bundled local and long distance
switched services, dedicated services, and long distance
services. These services have similar network operations and
technology requirements and are sold through identical sales
channels to a targeted customer

F-19



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

base. Therefore, the Company manages these services as a single
segment that is divided into geographic profit centers, or
markets, within the United States. The Companys IVR
services manages an IVR platform that allows a consumer to dial
into a computer-based system using a toll-free number and a
touch-tone phone and, by following a customized menu, access a
variety of information. Simultaneously, a profile of the caller
is left behind for either the Companys or its
customers use. The Company manages its IVR operations as a
separate segment due to differences in technology requirements,
sales and marketing strategy, and targeted customer base.

The accounting policies followed by these segments are consistent
 with those described in Note 2. There are no significant
inter-segment transactions. The Company does not allocate
overhead expenses generated by its headquarters to individual
segments.

The Companys IVR segment contributed the following
percentages to the Companys total:

|                                        |  |                         |      |      |  |      |       |  |  |  |       | 
|--------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                        |  |                        
|                                        |  | Year Ended December 31,
|                                        |  |                        
|                                        |  | 1999                    |      | 1998 |  | 1997
|                                        |  |                         |      |      |  |     
|Revenue                                 |  |                         | 8.1% |      |  |      | 15.4% |  |  |  | 27.3% | 
|                                       
|                                       
|                                       
|                                       
|Net loss (excluding corporate overhead) |  |                         | 0.4% |      |  |      | 0.7%  |  |  |  | 3.6%  | 
|                                       
|                                       
|                                       
|                                       
|Total assets                            |  |                         | 0.5% |      |  |      | 0.8%  |  |  |  | 1.8%  | 

Products and Services

The Company groups its products and services offered by its
switched telecommunications services segment into core services,
(comprised of bundled local and long distance as well as
dedicated services) shared tenant services, long distance
telephone services and enhanced services. Revenues from the IVR
services segment services are included in the enhanced services
product group. The revenues generated by the Companys
products and services were as follows (in thousands):

|                                 |  |                          |         |      |  |      |         |  |  |   |        | 
|-------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------ | 
|                                 |  |                         
|                                 |  | Year Ended December 31 ,
|                                 |  |                         
|                                 |  | 1999                     |         | 1998 |  | 1997
|                                 |  |                          |         |      |  |     
|Core services                    |  | $                        | 217,052 |      |  | $    | 76,654  |  |  | $ | 20,342 | 
|                                
|                                
|                                
|                                
|Shared tenant services           |  |                          | 13,805  |      |  |      | 12,781  |  |  |   | 2,018  | 
|                                
|                                
|                                
|                                
|Long distance telephone services |  |                          | 21,233  |      |  |      | 26,937  |  |  |   | 16,478 | 
|                                
|                                
|                                
|                                
|Enhanced services                |  |                          | 22,234  |      |  |      | 23,295  |  |  |   | 18,741 | 
|                                 |  |                          |         |      |  |      |         |  |  |   |        | 
|Total revenue                    |  | $                        | 274,324 |      |  | $    | 139,667 |  |  | $ | 57,579 | 
|                                 |  |                          |         |      |  |      |         |  |  |   |        | 

F-20



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##### Table of Contents



NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

17.  SELECTED QUARTERLY DATA (Unaudited)

Summarized quarterly financial information for the year was as
follows (in thousands, except per share amounts):

|                                     |  |         |          |         |  |         |          |         |  |   |          |   |  |   |          |  
|------------------------------------ |  | ------- | -------- | ------- |  | ------- | -------- | ------- |  | - | -------- | - |  | - | -------- | -
|                                     |  |        
|                                     |  | 1999   
|                                     |  |        
|                                     |  | First   |          | Second  |  | Third   |          | Fourth 
|                                     |  | Quarter |          | Quarter |  | Quarter |          | Quarter
|                                     |  |         |          |         |  |         |          |        
|Revenue                              |  | $       | 48,586   |         |  | $       | 60,657   |         |  | $ | 75,059   |   |  | $ | 90,022   |  
|                                    
|                                    
|                                    
|                                    
|Loss from operations                 |  |         | (71,359  | )       |  |         | (80,224  | )       |  |   | (86,582  | ) |  |   | (128,365 | )
|                                    
|                                    
|                                    
|                                    
|Net loss                             |  |         | (102,286 | )       |  |         | (122,765 | )       |  |   | (141,573 | ) |  |   | (192,068 | )
|                                    
|                                    
|                                    
|                                    
|Net loss applicable to common shares |  |         | (118,886 | )       |  |         | (139,819 | )       |  |   | (159,098 | ) |  |   | (210,078 | )
|                                    
|                                    
|                                    
|                                    
|Net loss per share                   |  |         | (1.09    | )       |  |         | (1.12    | )       |  |   | (1.27    | ) |  |   | (1.57    | )

|                                     |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|------------------------------------ |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | -------- | -
|                                     |  |        
|                                     |  | 1998   
|                                     |  |        
|                                     |  | First   |         | Second  |  | Third   |         | Fourth 
|                                     |  | Quarter |         | Quarter |  | Quarter |         | Quarter
|                                     |  |         |         |         |  |         |         |        
|Revenue                              |  | $       | 26,545  |         |  | $       | 32,030  |         |  | $ | 37,817  |   |  | $ | 43,275   |  
|                                    
|                                    
|                                    
|                                    
|Loss from operations                 |  |         | (40,769 | )       |  |         | (45,057 | )       |  |   | (53,074 | ) |  |   | (67,284  | )
|                                    
|                                    
|                                    
|                                    
|Net loss                             |  |         | (52,312 | )       |  |         | (60,573 | )       |  |   | (68,949 | ) |  |   | (96,506  | )
|                                    
|                                    
|                                    
|                                    
|Net loss applicable to common shares |  |         | (63,863 | )       |  |         | (75,901 | )       |  |   | (84,683 | ) |  |   | (112,666 | )
|                                    
|                                    
|                                    
|                                    
|Net loss per share                   |  |         | (0.60   | )       |  |         | (0.71   | )       |  |   | (0.79   | ) |  |   | (1.04    | )

Since there are changes in the weighted average number of shares
outstanding each quarter, the sum of net loss per share by
quarter may not equal the total net loss per share for the
applicable year.

18.  RELATED PARTY TRANSACTIONS

In June 1999, the Company acquired the assets of NEXTLINK,
Inc., a company owned by Craig O. McCaw, the Companys
largest and controlling shareholder, through a merger
transaction. NEXTLINK, Inc., owned approximately 1% minority
interests in 10 of the Companys subsidiaries. The Company
issued 537,806 shares of Class B common stock in exchange
for the minority interests. As part of this transaction,
Mr. McCaw also received 532,932 shares of the Companys
 Class B common stock, the number of shares of Class B
common stock previously owned by NEXTLINK, Inc. The transaction
was accounted for as a purchase of minority interests between
entities under common control and, as such, the minority
interests were recorded at NEXTLINK, Inc.s historical cost.

19.  SUBSEQUENT EVENTS

Senior Secured Credit Facility

In February 2000, the Company entered into a
$1.0 billion secured credit facility. The facility is
comprised of a $387.5 million senior secured multi-draw term
 loan A, a $225.0 million senior secured term loan B, and a
$387.5 million revolving credit facility. At closing, the
Company borrowed $150.0 million and $225.0 million of
the term loan A and term loan B, respectively.

The security for the Senior Secured Credit Facility consists of
all of the assets purchased with the proceeds of the Senior
Secured Credit Facility, the stock of certain of the
Companys direct subsidiaries, all assets of the Company and
 up to $125.0 million of guaranteed debt, all assets of
certain of the Companys subsidiaries.

Amounts drawn under the Senior Secured Credit Facility will bear
interest, at the option of the Company, at an alternate base rate
 or reserve-adjusted LIBOR plus, in each case, applicable
margins.

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NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

Initially, the applicable margins for the term loan A and the
revolving credit facility are 175 basis points over the alternate
 base rate and 275 basis points over LIBOR. After June 30,
2003, the applicable margins for the term loan A and the
revolving credit facility range from 62 1/2 to 150 basis
points over the alternate base rate and from 162 1/2 to 250
basis points over LIBOR, based on the ratio of the Companys
 consolidated total debt to annualized consolidated EBITDA. The
applicable margin for the term loan B is fixed at 250 basis
points over the alternate base rate and 350 basis points over
LIBOR. Specific rates are determined by actual borrowings under
each facility. Interest on the term loans A and the revolving
credit facility is payable on the earlier of the last day of each
 interest period, or each successive date three months after the
first day of such interest period.

The term loan A and the revolving credit facility mature on
December 31, 2006, and the term loan B matures on
June 30, 2007. In each case, the maturity dates are subject
to acceleration to October 31, 2005 if the Company has not
refinanced its 12 1/2% Senior Notes due 2006 by
April 15, 2005. The term loans A and B and the revolving
credit facility provide for automatic and permanent quarterly
reductions of the amount available for borrowing under those
facilities, beginning on March 31, 2004. The term loan B
contains nominal amortization provisions beginning March 31,
 2004 until maturity.

The Senior Secured Credit Facility contains certain covenants,
which, among other things, limit additional indebtedness, certain
 investments and other transactions, and dividend payments.

Preferred Stock

In December 1999, several Forstmann Little & Co.
investment funds agreed to invest $850.0 million in
NEXTLINK, to be used to expand its networks and services,
introduce new technologies and fund its business plan. The
investment closed in January 2000. In the transaction, the
investors acquired shares of two series of convertible preferred
stock that together are convertible into the Companys
Class A common stock at a conversion price of $63.25 per
share and provide for a 3.75% dividend payable quarterly. The
holders may convert the preferred stock into Class A common
stock at any time after January 20, 2001, and the Company
may redeem the preferred stock at any time after later of
January 20, 2005 and the date when the Company has redeemed
its 12 1/2% Notes in full. Holders of the preferred stock
will also have the option of requiring redemption of the
preferred stock during the 180-day period commencing January 20,
2010.

Concentric Acquisition

In January 2000, the Company agreed to acquire Concentric
Network Corporation, a provider of high-speed digital subscriber
lines (DSL), web hosting, e-commerce and other Internet services.
 In this transaction, both the Company and Concentric will merge
into a newly-formed company, to be renamed NEXTLINK
Communications, Inc., which will succeed to both companies assets
 and businesses and will assume all their outstanding debt
obligations and other liabilities. In the transaction, each
outstanding share of the Companys Class A common stock and
Class B common stock would be converted into one share of
Class A common stock or Class B common stock, as
applicable, of the corporation surviving this merger, which stock
 will be substantially identical to the Companys
Class A and Class B common stock. In addition, each
share of Concentric common stock would be converted into 0.495 of
 a share of Class A common stock of the surviving
corporation, unless the trading price of the Companys
common stock at the effective time is less than or equal to
$90.91, in which case each outstanding share would be converted
into $45.00 in Class A common stock of the surviving
corporation (based on the trading price of our Class A
common stock prior to the effective time). If the Companys
average stock price is less than $69.23, each outstanding share
of Concentric common stock would convert into 0.650 of a share of
 the Class A common stock of the surviving corporation.

This transaction is intended to be tax-free to the Companys
 and Concentrics shareholders and has been unanimously
approved by both the Companys and Concentrics boards
of directors, but remains subject to

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NEXTLINK Communications, Inc.


Notes to Consolidated Financial
Statements  (Continued)

approval by Concentrics stockholders. Eagle River, the
holder of the majority of the Companys voting power, has
agreed to approve the transaction. The parties have obtained the
consent of Concentrics bond and preferred stock holders to
certain amendments to those securities that are necessary to
complete this transaction. The transaction is subject to
customary closing conditions and is expected to close during the
second quarter of 2000. The merger will be accounted under the
purchase method of accounting.

INTERNEXT Acquisition

In January 2000, the Company agreed to acquire Eagle Rivers
 50% interest in INTERNEXT, L.L.C. in exchange for approximately
3.4 million shares of Class A common stock of the
corporation surviving the reorganization. The acquisition, which
is expected to close in the second quarter of 2000, will give the
 Company exclusive rights to dark fiber and empty
conduits in the 16,000 mile, 50 city national broadband network
that Level 3 is currently constructing. As this is a
reorganization of entities under common control, Eagle
Rivers 50% interest in INTERNEXT will be recorded by the
Company at Eagle Rivers historical cost. Although this
acquisition part of the reorganization in connection with the
Concentric acquisition, closing is not conditioned on the closing
 of the Concentric acquisition.

2000 Stock Split

In February 2000, the Company announced a two-for-one stock
split, to be effected in the form of a stock dividend, effective
for stockholders of record on June 1, 2000, and payable on
June 15, 2000. The split is subject to stockholder approval
of a proposed increase in the number of shares of the
Companys common stock authorized for issuance. This
proposal will be considered and voted on at the Companys
May 24, 2000 annual meeting of stockholders.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To NEXTLINK Capital, Inc.:

We have audited the accompanying balance sheets of NEXTLINK
Capital, Inc. (a Washington Corporation) as of December 31,
1999 and 1998. These balance sheets are the responsibility of the
 Companys management. Our responsibility is to express an
opinion on these balance sheets based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
 about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance
sheets. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the balance sheets referred to above present
fairly, in all material respects, the financial position of
NEXTLINK Capital, Inc. as of December 31, 1999 and 1998, in
conformity with accounting principles generally accepted in the
United States.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Seattle, Washington



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NEXTLINK Capital, Inc.

Balance Sheets

|                                                                             |  |              |     |      |  |   |     | 
|---------------------------------------------------------------------------- |  | ------------ | --- | ---- |  | - | --- | 
|                                                                             |  |             
|                                                                             |  | December 31,
|                                                                             |  |             
|                                                                             |  | 1999         |     | 1998
|                                                                             |  |              |     |     
|Assets                                                                       |  |              |     |      |  |   |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Cash in bank                                                                 |  | $            | 100 |      |  | $ | 100 | 
|                                                                             |  |              |     |      |  |   |     | 
|Shareholders Equity                                                         |  |              |     |      |  |   |     | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Common stock, no par value, 1,000 shares authorized, issued and
	outstanding |  | $            | 100 |      |  | $ | 100 | 
|                                                                             |  |              |     |      |  |   |     | 

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NEXTLINK Capital, Inc.

Note to Balance Sheets

December 31, 1999 and 1998


1.  Description

NEXTLINK Capital, Inc. (NEXTLINK Capital) is a Washington
corporation and a wholly owned subsidiary of NEXTLINK
Communications, Inc. (NEXTLINK). NEXTLINK Capital was formed for
the sole purpose of obtaining financing from external sources and
 is a joint obligor on the 12 1/2% Senior Notes due
April 15, 2006 of NEXTLINK. NEXTLINK Capital was initially
funded with a $100 contribution from NEXTLINK and has had no
operations to date. NEXTLINK Capitals sole source and
repayment for the 12 1/2% Senior Notes will be from the
operations of NEXTLINK. Therefore, these balance sheets should be
 read in conjunction with the consolidated financial statements
of NEXTLINK.

F-26