<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-Q
 
                               ----------------
 
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
   EXCHANGE ACT OF 1934
 
                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
 
                                      OR
 
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
   1934
 
                   FOR THE TRANSITION PERIOD FROM     TO
                         COMMISSION FILE NUMBER 1-14322
 
                          EXCEL COMMUNICATIONS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
              DELAWARE                                 75-2624939
   (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                  IDENTIFICATION NO.)
 
 
   8750 NORTH CENTRAL EXPRESSWAY,                         75231
      DALLAS, TEXAS SUITE 2000                         (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE
              OFFICES)
 
                                (214) 863-8000
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                               ----------------
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.    Yes  [X]  No  [_]
 
  As of April 30, 1997, the registrant had outstanding 108,751,566 shares of
$.001 par value common stock.
 
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<PAGE>
 
                           EXCEL COMMUNICATIONS, INC.
 
                                   FORM 10-Q
 
                      FOR THE QUARTER ENDED MARCH 31, 1997
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                        PAGE NO.
                                                                        --------
<S>                                                                     <C>
PART I: FINANCIAL INFORMATION
  Item 1. Financial Statements
     Consolidated Balance Sheets......................................     1-2
     Consolidated Statements of Operations............................       3
     Consolidated Statements of Cash Flows............................       4
     Notes to Consolidated Financial Statements.......................     5-8
  Item 2. Management's Discussion and Analysis of Financial Condition
         and Results of Operations....................................    9-12
PART II: OTHER INFORMATION
  Item 1. Legal Proceedings...........................................      13
  Item 2. Changes in Securities.......................................      13
  Item 3. Defaults upon Senior Securities.............................      13
  Item 4. Submission of Matters to a Vote of Security Holders.........      13
  Item 5. Other Information...........................................      13
  Item 6. Exhibits and Reports on Form 8-K............................      13
Signature.............................................................      14
Exhibit Index.........................................................      15
</TABLE>
 
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                  EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                         MARCH 31,  DECEMBER 31,
                                                           1997         1996
                                                        ----------- ------------
                        ASSETS                          (UNAUDITED)
<S>                                                     <C>         <C>
Current assets:
  Cash and cash equivalents............................  $134,935     $ 61,990
  Short-term investments...............................    39,239      107,856
  Accounts receivable, net.............................   201,592      206,309
  Inventories..........................................    16,528       16,263
  Deferred income tax asset............................     2,273        1,897
  Other current assets.................................     2,660        2,517
                                                         --------     --------
                                                          397,227      396,832
                                                         --------     --------
Property and equipment, net............................    88,315       76,912
                                                         --------     --------
Deferred subscriber acquisition costs..................        --      104,765
                                                         --------     --------
Other assets...........................................       658          655
                                                         --------     --------
                                                         $486,200     $579,164
                                                         ========     ========
</TABLE>
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       1
<PAGE>
 
                  EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                        MARCH 31,  DECEMBER 31,
                                                          1997         1996
                                                       ----------- ------------
         LIABILITIES AND STOCKHOLDERS' EQUITY          (UNAUDITED)
<S>                                                    <C>         <C>
Current liabilities:
  Accounts payable....................................  $115,866     $132,770
  Commissions payable.................................    20,591       22,484
  Accrued liabilities.................................    28,367       32,112
  Income taxes payable................................     6,313           --
  Current maturities of long-term debt and capital
   lease obligations..................................       224          239
                                                        --------     --------
                                                         171,361      187,605
                                                        --------     --------
Long-term debt and capital lease obligations..........        85          100
                                                        --------     --------
Deferred management services fees.....................    16,711       25,279
                                                        --------     --------
Deferred income taxes payable.........................     5,880       43,899
                                                        --------     --------
Commitments and contingencies.........................        --           --
                                                        --------     --------
Stockholders' equity:
  Preferred stock, $0.001 par value, 10,000,000 shares
   authorized,
   none outstanding...................................        --           --
  Common stock, $0.001 par value, 500,000,000 shares
   authorized,
   108,800,000 issued and outstanding.................       109          109
  Additional paid-in capital..........................   139,880      139,880
  Retained earnings...................................   152,174      182,292
                                                        --------     --------
    Total stockholders' equity........................   292,163      322,281
                                                        --------     --------
                                                        $486,200     $579,164
                                                        ========     ========
</TABLE>
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       2
<PAGE>
 
                  EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                 MARCH 31,
                                                            --------------------
                                                              1997       1996
                                                            ---------  ---------
                                                                (UNAUDITED)
<S>                                                         <C>        <C>
Revenues:
  Communication services..................................  $ 303,673  $ 205,274
  Marketing services......................................     27,694     75,516
                                                            ---------  ---------
    Total revenues........................................    331,367    280,790
                                                            ---------  ---------
Operating expenses:
  Communication...........................................    165,246    113,514
  Marketing services......................................     60,552     76,940
  General and administrative..............................     51,799     36,941
                                                            ---------  ---------
    Total operating expenses..............................    277,597    227,395
                                                            ---------  ---------
    Operating income......................................     53,770     53,395
                                                            ---------  ---------
  Interest income, net....................................      2,165        379
  Other income (expense)..................................        (50)     1,113
                                                            ---------  ---------
Income before income taxes................................     55,885     54,887
                                                            ---------  ---------
  Provision for income taxes..............................     20,789     20,901
                                                            ---------  ---------
Income before cumulative effect of change in accounting
 principle................................................     35,096     33,986
Cumulative effect of change in accounting principle, net
 of income taxes..........................................     65,214         --
                                                            ---------  ---------
Net income (loss).........................................  $ (30,118) $  33,986
                                                            =========  =========
Net income (loss) per common and equivalent share:
Income before cumulative effect of change in accounting
 principle................................................  $    0.32  $    0.34
Cumulative effect of change in accounting principle, net
 of income taxes..........................................      (0.59)        --
                                                            ---------  ---------
Net income (loss) per share...............................  $   (0.27) $    0.34
                                                            =========  =========
Weighted average shares and share equivalents outstanding.    111,031    100,087
                                                            =========  =========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       3
<PAGE>
 
                  EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                               MARCH 31,
                                                           --------------------
                                                             1997       1996
                                                           ---------  ---------
                                                              (UNAUDITED)
<S>                                                        <C>        <C>
Operating activities:
  Net income (loss)....................................... $ (30,118) $ 33,986
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
    Cumulative effect of change in accounting principle...    65,214        --
    Depreciation and amortization.........................     3,561       607
    Employee stock plan compensation......................        --     1,434
    Loss on disposal of assets............................        96        --
    Income from joint venture.............................        --      (520)
    Deferred income taxes.................................     1,156    14,209
    Changes in assets and liabilities:
      Accounts receivable, net............................     4,717   (60,209)
      Deferred subscriber acquisition costs...............        --   (27,576)
      Accounts payable....................................   (16,904)   21,148
      Commissions payable.................................    (1,893)   11,569
      Deferred management services fees...................    (8,568)    8,290
      Accrued liabilities.................................    (3,745)    6,271
      Income taxes payable................................     6,313     1,479
      Inventories and other...............................      (411)   (1,737)
                                                           ---------  --------
    Net cash provided by operating activities.............    19,418     8,951
                                                           ---------  --------
Investing activities:
  Proceeds from sale of assets............................         7        --
  Purchase of property and equipment......................   (15,067)  (10,226)
  Purchase of short-term investments......................   (19,685)       --
  Proceeds from maturities of short-term investments......    88,302        --
                                                           ---------  --------
    Net cash provided by (used in) investing activities...    53,557   (10,226)
                                                           ---------  --------
Financing activities:
  Payments of debt and capital lease obligations..........       (30)     (108)
                                                           ---------  --------
    Net cash used in financing activities.................       (30)     (108)
                                                           ---------  --------
Net increase (decrease) in cash...........................    72,945    (1,383)
  Cash, beginning of period...............................    61,990    30,387
                                                           ---------  --------
  Cash, end of period..................................... $ 134,935  $ 29,004
                                                           =========  ========
Supplemental disclosure:
  Interest paid during the period......................... $      21  $     52
  Income taxes paid during the period.....................     2,325     5,928
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       4
<PAGE>
 
                  EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
  The Consolidated Financial Statements include the accounts of EXCEL
Communications, Inc. and its wholly-owned subsidiaries (collectively referred
to as the "Company" or "EXCEL"). All significant intercompany accounts and
transactions have been eliminated.
 
  These Consolidated Financial Statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These Consolidated Financial Statements should be read in
conjunction with the notes to the financial statements in the Company's Form
10-K for the fiscal year ended December 31, 1996.
 
  The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. The results of operations for the three month period ended March 31,
1997 are not necessarily indicative of the results to be expected for the full
year.
 
1. MARKETING ACTIVITIES
 
  Marketing services revenues are primarily comprised of receipts from
independent representatives ("IRs") and area coordinators, who train the IRs
("ACs"). Except in certain states, IRs are required to make an initial
refundable application deposit with EXCEL as an expression of commitment.
There is no additional cost to participate. IRs have an option to purchase a
start-up package, which includes a training class and training materials, a
starter kit of forms, promotional and presentation materials, ongoing
technical and administrative support services, and monthly reports. If the
start-up package is purchased, the deposit requirement is waived. In addition,
EXCEL offers training positions whereby trainers, certified by the Company,
may provide training to new representatives and training coordinators.
 
  Marketing services costs include commissions and the costs of providing
training, business forms, promotional and presentation materials, technical
and administrative support services, and monthly reports. Commissions are paid
to IRs based upon the acquisition of new long distance and paging subscribers
("subscriber acquisition costs") and for long distance telephone and paging
usage by subscribers. The Company also pays commissions for the training of
IRs and certain ACs. Effective January 1, 1997, the Company changed its method
of accounting for subscriber acquisition costs. Previously, the Company had
deferred the portions of commissions paid to IRs that directly relate to the
acquisition of long distance and paging subscribers. Beginning January 1,
1997, the Company began fully expensing subscriber acquisition costs in the
period incurred in order to present its operating results in a manner more
consistent with other telecommunications companies against which its results
are now compared. The Company recognized a one-time charge of $65.2 million,
net of income taxes, ($0.59 per share) in the first quarter to reflect the
change in accounting principle. On a pro forma basis, the Company's net income
for the three month period ended March 31, 1996 would have been $16.9 million
($0.17 per share) if this accounting change had been retroactively applied.
 
2. SHORT-TERM INVESTMENTS
 
  Short-term investments consist primarily of commercial paper with original
maturities at date of purchase beyond three months and less than 12 months.
Such short-term investments are carried at cost, which approximates fair
value, due to the short period of time to maturity.
 
3. NET INCOME PER SHARE
 
  Net income per share is based on the weighted average number of shares of
common stock outstanding. In 1996, the weighted average shares outstanding
exclude employee stock ownership plan shares that had not been
 
                                       5
<PAGE>
 
                  EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
released to employees at the end of the period. The weighted average shares
outstanding include common share equivalents which represent the effect, using
the treasury stock method, of options granted under the Company's stock option
plan.
 
4. INCOME TAXES
 
  The components of the provision for income taxes are as follows for the
three months ended March 31, 1997 and 1996 (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                 MARCH 31,
                                                            -------------------
                                                              1997      1996
                                                            --------- ---------
      <S>                                                   <C>       <C>
      Current tax expense:
        Federal............................................ $  18,463 $   6,169
        State..............................................     1,170       523
                                                            --------- ---------
                                                              $19,633 $   6,692
      Deferred tax expense:
        Federal............................................ $   1,112 $  13,823
        State..............................................        44       386
                                                            --------- ---------
                                                              $ 1,156 $  14,209
        Provision for income taxes......................... $  20,789 $  20,901
                                                            ========= =========
</TABLE>
 
5. COMMITMENTS AND CONTINGENCIES
 
 Litigation, Claims and Assessments
 
  On May 3, 1996, Linden Wood, Brad Campbell, Candy Campbell, Jerry
Szeszulski, and Team Excel of Independent Representatives ("Team Excel") filed
suit in state district court in Tulsa County, Oklahoma, jointly and severally,
against the Company, its indirect subsidiary, EXCEL Telecommunications, Inc.
("ETI"), Stephen R. Smith, a director and the Executive Vice President of
Marketing of the Company, and Kenny A. Troutt, a director and the Chief
Executive Officer, President, and Chairman of the Board of the Company. Each
of the individual plaintiffs was an IR and each was alleged to be a member of
Team Excel. Team Excel is alleged to be an unincorporated association of IRs
that was formed by Mr. Wood and others as an independent association of IRs.
Mr. Wood had been an IR for several years and was one of the top ten highest
earning IRs during the first half of 1996.
 
  The plaintiffs originally asserted claims against the Company and the
individual defendants for defamation, unfair competition, and interference
with contractual relations. The plaintiffs allege that the defendants have
threatened to terminate the IR agreement with each of the plaintiffs and that
the defendants have maliciously published an article containing false
statements about each plaintiff, engaged in actions that constitute unfair
competition and trade practices, and engaged in actions that constitute
interference with the alleged contractual relationships between each
individual plaintiff and his or her downline IRs.
 
  On May 6, 1996, the Company and the other defendants removed this action to
the United States District Court for the Northern District of Oklahoma. In May
1996, the Company terminated each of the plaintiffs as an IR for actions that
the Company believes constituted a material breach of his or her IR agreement
with the Company. On May 23, 1996, the Company and the other defendants filed
with the American Arbitration Association ("AAA") in Dallas, Texas a demand
for arbitration against each of the plaintiffs pursuant to the terms and
conditions of the IR agreements with the plaintiffs seeking a declaration that
they have not committed any of the acts alleged to have occurred in the
lawsuit. In addition, ETI has sought a declaration that Mr. Wood,
 
                                       6
<PAGE>
 
                  EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Mr. and Mrs. Campbell, and Mr. Szeszulski, by filing the lawsuit, have
materially breached the arbitration provision in their IR agreements with ETI,
which requires all disputes to be resolved through mandatory and binding
arbitration, and seeks to recover damages. The Company and ETI have also asked
for damages for Mr. Wood's claimed disparagement of the Company and ETI, as
well as Mr. Wood's tortious interference with the Company and ETI's actual and
prospective contractual relations.
 
  Also on May 23, 1996, the Company and the other defendants filed a Petition
to Compel Arbitration against the same parties in the United States District
Court for Northern District of Texas, Dallas Division. On May 23, 1996, the
Company and the other defendants in the Oklahoma federal district court filed
a Motion to Stay the Oklahoma litigation in favor of the arbitration in
Dallas, Texas, which motion was granted on August 13, 1996. In addition, on
November 22, 1996, the District Court in Texas granted the Company's Motion to
Compel Arbitration in total, sending all parties and all claims into
arbitration before the AAA in Dallas.
 
  On January 13, 1997, the Company amended its complaint before the AAA. In
this proceeding, the Company is the plaintiff and has added claims against all
parties for intentional interference with the Company's contractual
relationships with its subscribers and IRs. The Company also added claims
against Mr. Wood, Mr. and Mrs. Campbell, and Team Excel for fraud in
connection with the payment of training fees to individuals who were not
entitled to such fees. The Company has not yet pled a specific damages amount
other than to claim that the amount exceeds $1.0 million, together with
reasonable attorneys' fees and costs. Also on January 13, 1997, the defendants
in this AAA proceeding filed their counterclaims, alleging again the same
claims as they made in their May 3, 1996 lawsuit. The defendants also added
claims for fraud, breach of special relationship, unjust enrichment,
violations of the Texas Theft Liability Act, conversion, breach of contract,
intentional infliction of emotional distress, and have asked for an accounting
and a constructive trust. The defendants collectively have reduced their
actual damages claim from an original demand of $105 million to $31.5 million,
while increasing their punitive damages claim to in excess of $500 million.
The plaintiffs are also seeking pre- and post-judgment interest, attorneys'
fees and costs, and such other relief as the court deems just and appropriate.
 
  The Company denies the allegations made by Mr. Wood, Mr. Szeszulski, Mr. and
Mrs. Campbell, and Team Excel, is vigorously defending the litigation, and
believes the ultimate outcome thereof will not have a material adverse effect
upon the Company's results of operations or financial position. The Company
believes that its actions with respect to the IRs, including the plaintiffs,
have been reasonable and in compliance with the Company's contractual
agreements with the IRs. However, an unfavorable outcome in this matter could
have a material adverse effect upon the Company's results of operations or
financial position. Even if the Company and other defendants ultimately
prevail, the defense effort could involve considerable cost and a diversion of
management efforts. In the past, the Company has had IRs with significant
downlines reduce their efforts and in some cases quit the business completely,
and such actions have not had a material adverse impact upon the Company's
results of operations or financial position. However, regardless of the
outcome of the litigation, the mere existence of this dispute with these
plaintiffs could lead to a decline in revenues generated from or through the
efforts of these plaintiffs' respective downlines as well as an adverse impact
on the Company's relationship with IRs and the Company's ability to attract
potential IRs generally, all of which could have a material adverse effect on
the Company.
 
  On August 30, 1996, AT&T filed suit in the United States District Court for
the District of Delaware against the Company, its subsidiary, Excel
Communications Marketing, Inc., and ETI alleging past and continued
infringement of a single patent without specifying the amount of damages. The
Company denies the allegations and will vigorously defend the litigation. The
Company does not believe that it infringes any valid claim of the patent.
While this litigation is still in the discovery stage and the outcome is
uncertain, based upon the information available to the Company, the Company
does not believe that these claims will have a material
 
                                       7
<PAGE>
 
                  EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
adverse effect on the Company's results of operations or financial position;
however, should an unfavorable outcome result in this matter, it could have a
material adverse effect upon the Company's results of operations or financial
position.
 
 Legislative and Regulatory Matters
 
  On February 8, 1996, the 1996 Telecommunications Act was enacted into law.
This comprehensive federal legislation will affect every sector of the
telecommunications industry. Included in the new statutory provisions is the
opening up of local telephone markets to competition from facilities-based and
resale carriers and, subject to certain safeguards, the elimination of
restrictions on Bell Operating Companies ("BOC") and GTE Operating Companies
("GTOC") entrance into the long distance telecommunications market. The FCC
adopted rules to govern the introduction of these new forms of competition in
its August 8, 1996 Interconnection Orders, parts of which have been
temporarily stayed by the U.S. Eighth Circuit Court of Appeals. It is unknown
at this time what impact the 1996 Telecommunications Act or the
Interconnection Orders will have on the Company. Depending on the nature and
timing of BOC and GTOC entry into the long distance market, the Company will
face significant additional competition in the provision of long distance
services. However, the 1996 Telecommunications Act opens the local telephone
market to competition, which, depending on the nature of such opening, the
Company believes may provide opportunities to compete in the provision of
local services. The Company is currently seeking certification to provide
resold local exchange services in several states. As of March 31, 1997, the
Company has obtained certification to provide resold local exchange services
in 21 states.
 
  The Pennsylvania Public Utility Commission ("PPUC") and the utility
regulatory bodies in all other states approved the Company's Reorganization
that occurred on January 1, 1996. However, the review by the Pennsylvania
Attorney General's ("PAG") Office of the Company's marketing practices, which
originally had delayed the approval of the Reorganization by the PPUC, is
continuing. In addition to the continuing review by the PAG Office, similar
discussions and reviews relating to the Company's marketing practices are
ongoing in various other states. Various governmental agencies monitor direct
selling activities, and the Company has occasionally been requested to supply
information regarding its marketing plan to certain of such agencies. Although
the Company believes that its network marketing system is in substantial
compliance with laws and regulations of Pennsylvania and other states relating
to direct selling activities, there is no assurance that legislation and
regulations adopted in particular jurisdictions in the future will not
adversely affect the Company's operations.
 
  In September 1996, the governor of the State of California signed into law a
statute affecting the manner in which carriers such as the Company can effect
a change in a residential subscriber's local or long distance service. Under
this new law, which became effective on January 1, 1997, a residential
subscriber's decision to change his or her telephone service provider must be
confirmed by an independent third-party verification company. This law appears
to conflict with the FCC's rules governing changes in carriers, which allow
carriers to confirm a subscriber's choice through several different mechanisms
including obtaining the subscriber's written authorization, which is the
method currently employed by the Company. It is possible that this law will be
challenged as being inconsistent with the FCC's existing rules. The Company is
in the process of evaluating the effect of the California statute upon its
operations. There can be no assurance of how the statute will be implemented
or enforced or what effect the statute will have upon the Company or its
competitors. In addition, a number of states are considering adopting their
own third-party verification rules which, like California, may be inconsistent
with the FCC's rules.
 
                                       8
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
GENERAL
 
  EXCEL, which was formed in December 1988 and commenced operations in 1989,
operates as a provider of long distance service to residential and small
business subscribers. The Company believes that, based upon domestic
residential long distance revenues, it ranks fourth after AT&T Corporation,
MCI Telecommunications Corp. ("MCI"), and Sprint Corporation, and ranks fifth
overall based on the number of presubscribed lines. In October 1996, the
Company began offering nationwide paging services to its subscribers.
 
  In May 1996, a total of 11,500,000 shares of the Company's common stock were
sold in an initial public offering ("IPO") at $15 per share. Stockholders sold
1,700,000 shares, and 9,800,000 shares were sold by the Company which resulted
in net proceeds of approximately $133.9 million to the Company after deducting
the expenses of the offering.
 
  Historically, the Company's strategy has been to build a subscriber base by
innovative, cost-effective marketing techniques and high quality customer
care. The Company intends to leverage the success of its network marketing
system, its customer service capabilities, its bundled billing systems, and
its distribution operations to deliver additional communications products and
services to its subscribers. The Company's goal is to be a provider of a wide
range of communications products and services. The Company intends to increase
revenues from each subscriber, increase the retention of subscribers, and
provide additional revenue opportunities for its independent representative
("IR") network.
 
  The Company currently has agreements with Frontier Communications Services,
Inc. ("Frontier"), IXC Long Distance, Inc. ("IXC Long Distance"), MCI, and
WorldCom Network Services, Inc. ("WorldCom") to provide switching services and
network transmission of its long distance subscribers' traffic. The agreements
with IXC Long Distance, MCI, and WorldCom each contain minimum usage
commitments, while the agreement with Frontier provides that Frontier is to be
the exclusive carrier for certain calling card calls and personal 800 service.
 
  The Company's services are marketed nationwide exclusively through a network
of IRs. The Company encourages IRs to enroll subscribers with whom the IRs
have an ongoing relationship as a result of being a family member, friend,
business associate, neighbor, or other acquaintance. This network marketing
system has been selected by the Company because the Company believes it
reduces net marketing costs, subscriber acquisition costs, and subscriber
attrition. The Company believes that subscribers will be more likely to remain
with the Company because they have been enrolled with the Company by someone
with whom they have an ongoing relationship. The Company also believes that
its network marketing system will continue to build a base of potential
subscribers for additional services and products.
 
  The Company's revenues consist of revenues for communication services and
marketing services. Revenues for communication services, as reflected in the
Company's Consolidated Financial Statements, are net of the effect of certain
adjustments, including those for unbillable call records. The Company's long
distance subscribers are located throughout the United States, and the Company
completes subscriber calls to all directly dialable locations worldwide. The
Company bills its subscribers for long distance usage based on the type of
calls, time of calls, duration of calls, the terminating phone numbers, and
each subscriber's rate plan in effect at the time of the call.
 
  Marketing services revenues are primarily comprised of receipts from IRs and
area coordinators ("ACs"). Except in certain states, IRs are required to make
an initial refundable application deposit with EXCEL as an expression of
commitment. There is no additional cost to participate. IRs have an option to
purchase a start-up package, which includes training, business forms,
promotional and presentation materials, ongoing technical and administrative
support services, and monthly reports. If the start-up package is purchased,
the application deposit requirement is waived. In addition, EXCEL offers
training positions whereby ACs, certified by the Company,
 
                                       9
<PAGE>
 
provide training to new IRs. The portions of the marketing services revenues
received that relate to ongoing technical and administrative support services
are deferred and amortized over a period of 12 months in order to match those
revenues with the costs of providing the related support services.
 
  Operating expenses include communication charges, marketing services costs,
and general and administrative expenses. Communication charges are paid by the
Company based on the Company's subscribers' long distance and paging usage.
The Company pays its carriers based on the type of calls, time of certain
calls, duration of calls, the terminating phone numbers, and the terms of the
Company's contract in effect at the time of the calls.
 
  Marketing services costs are directly related to the Company's marketing
activities. Marketing services costs include commissions and the costs of
providing training, business forms, promotional and presentation materials,
technical and administrative support services, and monthly reports.
Commissions are paid to IRs based upon the acquisition of new long distance
and paging subscribers ("subscriber acquisition costs") and for long distance
telephone and paging usage by subscribers. The Company also pays commissions
for the training of IRs and ACs. Effective January 1, 1997, the Company
changed its method of accounting for subscriber acquisition costs. Previously,
the Company had deferred the portions of commissions paid to IRs that directly
relate to the acquisition of long distance and paging subscribers. Beginning
January 1, 1997, the Company began fully expensing subscriber acquisition
costs in the period incurred in order to present its operating results in a
manner more consistent with other telecommunications companies against which
its results are now compared.
 
  General and administrative expenses consist of the costs of providing
teleservices and other support services for subscribers, billing and
collecting long distance and paging revenues, and the costs of the information
systems and personnel required to support the Company's operations and growth.
 
RESULTS OF OPERATIONS
 
 Three Months Ended March 31, 1997 Compared to the Three Months Ended March
31, 1996
 
  Revenues. Total revenues increased 18% to $331.4 million for the three
months ended March 31, 1997 from $280.8 million for the three months ended
March 31, 1996. The increase in revenues was primarily due to an increase in
long distance minutes of usage by subscribers. Marketing services revenues as
a percentage of total revenues have decreased to 8.4% for the three months
ended March 31, 1997 from 26.9% for the three months ended March 31, 1996.
This change reflects, in part, the growth in the Company's core communications
revenue base.
 
  Communication services revenues increased 48% to $303.7 million for the
three months ended March 31, 1997 from $205.3 million for the three months
ended March 31, 1996. Long distance minutes of usage increased 40% to
1,718,485,000 minutes for the three months ended March 31, 1997 from
1,227,713,000 minutes for the three months ended March 31, 1996. Communication
services revenues per minute of usage increased by 6% to 17.7 cents per minute
for the three months ended March 31, 1997 from 16.7 cents per minute for the
three months ended March 31, 1996 primarily due to various rate changes which
took effect over the last three quarters.
 
  The Company experienced operational difficulties late in the second quarter
of 1996 due to the failure of Frontier to add the network capacity needed to
handle the Company's growth in its subscriber base and related long distance
traffic. The Company believes that the blockage experienced in several states
as a result of the network capacity problems resulted in a slowdown in
marketing activities, the loss of subscribers, and reduced calling activity
during late 1996. By the end of 1996, substantially all of the Company's 1-
plus traffic had been migrated to the networks of MCI, WorldCom and IXC Long
Distance. However, the magnitude of migrating more than 4 million subscribers
across approximately 900 LECs to three new networks created some disruption in
the flow of data between the LECs, the underlying carriers, and EXCEL. These
migration difficulties continued to impact subscriber attrition in the fourth
quarter of 1996 as well as call volume in the fourth quarter of 1996 and the
first quarter of 1997. Additionally, the amount of time and management
resources required to meet the
 
                                      10
<PAGE>
 
aggressive schedule for the network migration conflicted with programming
requirements related to new marketing positions which were introduced in
September 1996. This caused some delay in the processing of transactions
involving the IRs, which in turn negatively affected IR morale.
 
  Marketing services revenues decreased 63% to $27.7 million for the three
months ended March 31, 1997 from $75.5 million for the three months ended March
31, 1996. These revenues decreased primarily due to a decrease in applications
from new IRs.
 
  Operating Expenses. Communication charges increased 46% to $165.2 million for
the three months ended March 31, 1997 from $113.5 million for the three months
ended March 31, 1996. As a percentage of communication services revenues,
communication charges were 54.4% for the three months ended March 31, 1997
compared to 55.3% for the three months ended March 31, 1996. This decrease in
communication charges as a percentage of communication services revenues
primarily relates to the reduction in rates from the Company's long distance
carriers resulting from migrating long distance traffic to WorldCom, MCI and
IXC Long Distance.
 
  Total marketing services costs, which directly relate to the Company's
marketing activities and which include commissions and the costs of providing
training, business forms, promotional and presentation materials, technical and
administrative support services, and monthly reports, decreased 21% to $60.6
million for the three months ended March 31, 1997 from $76.9 million for the
three months ended March 31, 1996. Effective January 1, 1997, the Company
changed its method of accounting for subscriber acquisition costs which are
included in marketing services costs in the Consolidated Financial Statements.
Previously, the Company had deferred the portions of commissions paid to IRs
that directly relate to the acquisition of long distance and paging
subscribers. Beginning January 1, 1997, the Company began fully expensing
subscriber acquisition costs in the period incurred in order to present its
operating results in a manner more consistent with other telecommunications
companies against which its results are now compared. On a pro forma basis,
marketing services costs would have been $104.5 million for the three month
period ending March 31, 1996 if this accounting change had been retroactively
applied. The 42% decrease in marketing services costs, on a pro forma basis, is
primarily due to a decline in the number of new IRs.
 
  General and administrative expenses increased 40% to $51.8 million for the
three months ended March 31, 1997 from $36.9 million for the three months ended
March 31, 1996. As a percentage of communication services revenues, general and
administrative expenses were 17.1% for the three months ended March 31, 1997
compared to 18.0% for the three months ended March 31, 1996. Despite the
overall increase in expense, the March 31, 1997 decrease as a percentage of
communication services revenues is attributed to the gaining of economies of
scale relative to growth in the business.
 
  Total operating income increased 1% to $53.8 million for the three months
ended March 31, 1997 from $53.4 million for the three months ended March 31,
1996. On a pro forma basis, excluding the deferral of subscriber acquisition
costs, operating income was $25.8 million for the three month period ending
March 31, 1996. As a percentage of communication services revenues, operating
income (adjusted to exclude the deferral of subscriber acquisition costs in
1996) was 17.7% and 12.6% for the three months ended March 31, 1997 and 1996,
respectively.
 
  Included in other income (expense) for the three months ended March 31, 1996
is approximately $1.0 million of income related to the sale of the Company's
49% investment in a joint venture. In addition, the Company's net interest
income increased to $2.2 million for the three months ended March 31, 1997 from
$379,000 for the three months ended March 31, 1996. The increase in net
interest income was primarily due to additional interest income generated by
the investment of cash proceeds received from the sale of the Company's common
stock in the IPO in May 1996.
 
  Included in the Company's net loss of $30.1 million for the three month
period ended March 31, 1997 is a one-time charge of $65.2 million, net of
income taxes, ($0.59 per share) in the first quarter to reflect the change
 
                                       11
<PAGE>
 
in accounting for subscriber acquisition costs. The Company had net income of
$34.0 million for the three month period ended March 31, 1996. On a pro forma
basis, the Company's net income for the three month period ended March 31, 1996
would have been $16.9 million ($0.17 per share) if this accounting change had
been retroactively applied.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  As of March 31, 1997, the Company had cash and cash equivalents of $134.9
million, short-term investments of $39.2 million and working capital of $225.9
million. The Company's short-term investments consist primarily of investments
in commercial paper with various maturities of six months or less. The
Company's operating activities provided cash of approximately $19.4 million for
the three months ended March 31, 1997 and $9.0 million for the three months
ended March 31, 1996.
 
  The Company's investing activities consisted primarily of short-term
investment purchases of $19.7 million, maturities of short-term investments of
$88.3 million, and property and equipment purchases of $15.1 million for the
three months ended March 31, 1997. Investing activities during the three months
ended March 31, 1996 include purchases of property and equipment of $10.2
million.
 
  Total cash used for financing activities was $30,000 for the three months
ended March 31, 1997 and $108,000 for the three months ended March 31, 1996 and
consisted of payments of debt and capital lease obligations.
 
  The Company believes that its existing sources of liquidity and anticipated
funds from operations, will be sufficient to fund its capital expenditures,
working capital, and other cash requirements through the end of 1997.
 
LITIGATION, CLAIMS AND ASSESSMENTS
 
  Information pertaining to the Company's litigation is included in Note 5 to
the Company's Consolidated Financial Statements.
 
LEGISLATIVE AND REGULATORY MATTERS
 
  Information pertaining to legislative and regulatory matters is included in
Note 5 to the Company's Consolidated Financial Statements.
 
                                       12
<PAGE>
 
                          PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
  Information pertaining to this item is incorporated from Part I. Financial
Information (Item 1. Financial Statements--Note 5 to Consolidated Financial
Statements--Commitments and Contingencies--Litigation, Claims, and Assessments
and Legislative and Regulatory Matters).
 
ITEM 2. CHANGES IN SECURITIES
 
  None.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
  None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  None.
 
ITEM 5. OTHER INFORMATION
 
  None.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
  (a) Exhibits: The exhibits filed as part of this report are set forth in the
Index of Exhibits on page 15 of this report.
 
  (b) Reports on Form 8-K:
 
    (1) Current report on Form 8-K dated April 3, 1997 regarding the
  announcement of the change in accounting practice to fully expense customer
  acquisition costs.
 
                                      13
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
 
                                          EXCEL COMMUNICATIONS, INC.
 
Date: April 30, 1997                               /s/ John J. McLaine
                                          -------------------------------------
                                                     John J. McLaine
                                                Executive Vice President,
                                                 Chief Financial Officer
                                                      and Secretary
 
Date: April 30, 1997                               /s/ Craig E. Holmes
                                          -------------------------------------
                                                     Craig E. Holmes
                                                   Vice President and
                                                Chief Accounting Officer
 
                                      14
<PAGE>
 
                                 EXHIBIT INDEX
 
  The following exhibits are included in this Quarterly Report on Form 10-Q:
 
<TABLE>
<CAPTION>
 EXHIBIT NUMBER                       EXHIBIT DESCRIPTION
 --------------                       -------------------
 <C>            <S>
   3.1          Certificate of Incorporation of the Company dated December 19,
                1995, as amended January 11, 1996 (incorporated herein by
                reference to Exhibit 3.1 to the Company's Registration
                Statement on Form S-1 (File No. 333-1076))
   3.2          Bylaws of the Company (incorporated herein by reference to
                Exhibit 3.2 to the Company's Registration Statement on Form S-1
                (File No. 333-1076))
   4.1          Specimen Certificate for Common Stock of the Company
                (incorporated herein by reference to Exhibit 3.1 to the
                Company's Registration Statement on Form S-1 (File No. 333-
                1076))
  10.1          General Agreement between EXCEL Switch Facility, Inc. and
                Lucent Technologies Inc., dated January 27, 1997, including
                addenda, exhibits, and attachments.*
    11          Computation of Net Income (Loss) per Share
    27          Financial Data Schedule as of March 31, 1997
</TABLE>
--------
* Confidential treatment requested. A series of XXX's have been inserted in
 this exhibit to indicate redactions in such exhibit for which confidential
 treatment has been requested. The redacted portions of this agreement have
 been separately filed with the Secretary of the Commission.
 
                                      15