PAGE 1


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)

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

        For the quarterly period ended June 30, 1997

                                       or

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

        For the transition period from           to

                          Commission File Number 0-6547

                         MCI COMMUNICATIONS CORPORATION

             (Exact name of registrant as specified in its charter)

            Delaware                                     52-0886267
   (State or other jurisdiction of                     (IRS Employer
    incorporation or organization)                    Identification No.)

             1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (202) 872-1600

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 June 30, 1997, the registrant had outstanding  135,998,932 shares of Class
A common stock and 555,852,045 shares of common stock.

<PAGE>

                                     PAGE 2

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                                    FORM 10-Q

                       For The Quarter Ended June 30, 1997



                                      INDEX


                                                                       Page No.
                                                                       --------

PART I:  FINANCIAL INFORMATION

        ITEM 1:  FINANCIAL STATEMENTS

            Income Statements for the three and six months ended
            June 30, 1997 and 1996                                           3

            Balance Sheets as of June 30, 1997 and December 31, 1996       4-5

            Statements of Cash Flows for the six months ended
            June 30, 1997 and 1996                                           6

            Statement of Stockholders' Equity for the six months
            ended June 30, 1997                                              7

            Notes to Interim Condensed Consolidated Financial
            Statements                                                    8-10

        ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS           11-24


PART II:  OTHER INFORMATION

        ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS     25-26

        ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K                           27


SIGNATURE                                                                   28

EXHIBIT INDEX                                                               29

<PAGE>

                                     PAGE 3
PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                                INCOME STATEMENTS
                     (In millions, except per share amounts)
                                   (unaudited)

                                      Three Months Ended     Six Months Ended
                                            June 30,              June 30,
                                      ------------------    ------------------
                                         1997       1996       1997       1996
                                      -------    -------    -------    -------
REVENUE                               $ 4,843    $ 4,565    $ 9,726    $ 9,056
                                      -------    -------    -------    -------
OPERATING EXPENSES
  Cost of services                      2,547      2,342      5,072      4,686
  Sales, operations and general         1,265      1,229      2,584      2,414
  Depreciation                            479        412        932        793
                                      -------    -------    -------    -------
TOTAL OPERATING EXPENSES                4,291      3,983      8,588      7,893
                                      -------    -------    -------    -------
INCOME FROM OPERATIONS                    552        582      1,138      1,163

Interest expense                          (58)       (52)      (116)      (102)
Interest income                             4          9         10         20
Equity in income (losses) of
  affiliated companies                    (24)       (45)       (61)      (100)
Other income (expense), net                (4)         3         (7)        (1)
                                      -------    -------    -------    -------
INCOME BEFORE INCOME TAXES AND
  TRUST DISTRIBUTIONS                     470        497        964        980

Income tax provision                      175        192        359        380

Distributions on subsidiary Trust
  mandatorily redeemable preferred
  securities                               15          5         30          5
                                      -------    -------    -------    -------
NET INCOME                            $   280    $   300    $   575    $   595
                                      =======    =======    =======    =======
EARNINGS PER COMMON AND
  COMMON EQUIVALENT SHARE             $   .40    $   .43    $   .82    $   .85

Weighted average number of shares
  of common stock and common stock
  equivalents outstanding                 708        698        705        698

Dividends declared per common share   $  .025    $  .025    $  .025    $  .025

See accompanying Notes to Interim Condensed Consolidated Financial Statements.

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                                     PAGE 4

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                                 BALANCE SHEETS
                                   (unaudited)

                                                   June 30,         December 31,
                                                     1997               1996
                                                 -----------        -----------
                                                          (In millions)
ASSETS

CURRENT ASSETS
  Cash and cash equivalents                        $    55             $   187
  Marketable securities                                 95                 161
  Receivables, net of allowance for
    uncollectibles of $306 and $273 million          3,670               3,480
  Other assets                                         845                 888
                                                   -------             -------
   TOTAL CURRENT ASSETS                              4,665               4,716
                                                   -------             -------

PROPERTY AND EQUIPMENT, net                         13,286              12,174

OTHER ASSETS
  Noncurrent marketable securities                      33                  58
  Other assets and deferred charges, net               884                 678
  Investment in affiliates                             662                 690
  Investment in News Corp.                           1,350               1,350
  Investment in DBS                                    980                 893
  Goodwill, net                                      2,391               2,419
                                                   -------             -------
   TOTAL OTHER ASSETS                                6,300               6,088
                                                   -------             -------
   TOTAL ASSETS                                    $24,251             $22,978
                                                   =======             =======









See accompanying Notes to Interim Condensed Consolidated Financial Statements.

<PAGE>

                                     PAGE 5

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                                 BALANCE SHEETS
                                   (unaudited)
                                                 June 30,           December 31,
                                                   1997                 1996
                                               -----------          -----------
                                                       (In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                $    975            $    992
  Accrued telecommunications expense                 2,134               2,045
  Other accrued liabilities                          1,807               1,806
  Long-term debt due within one year                 1,930                 203
                                                  --------            --------
   TOTAL CURRENT LIABILITIES                         6,846               5,046
                                                  --------            --------
NONCURRENT LIABILITIES
  Long-term debt                                     3,259               4,798
  Deferred taxes and other                           2,046               1,723
                                                  --------            --------
   TOTAL NONCURRENT LIABILITIES                      5,305               6,521
                                                  --------            --------

COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
   SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY
   JUNIOR SUBORDINATED DEFERRABLE INTEREST
   DEBENTURES OF THE COMPANY                           750                 750

STOCKHOLDERS' EQUITY
  Class A common stock, $.10 par value,
    authorized 500 million shares, issued
    136 million shares                                  14                  14
  Common stock, $.10 par value, authorized
    2 billion shares, issued
    593 million shares                                  60                  60
  Additional paid in capital                         6,373               6,410
  Retained earnings                                  5,789               5,231
  Treasury stock, at cost,
    37 and 44 million shares                          (886)             (1,054)
                                                  --------            --------
   TOTAL STOCKHOLDERS' EQUITY                       11,350              10,661
                                                  --------            --------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $ 24,251            $ 22,978
                                                  ========            ========



See accompanying Notes to Interim Condensed Consolidated Financial Statements.

<PAGE>

                                     PAGE 6

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                            STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                                           Six Months Ended
                                                               June 30,
                                                       ------------------------
                                                             1997       1996
                                                           ------     ------
                                                              (In millions)
OPERATING ACTIVITIES
  Receipts from customers                                 $ 9,311    $ 8,796
  Payments to suppliers and employees                      (7,499)    (6,926)
  Taxes paid                                                 (167)      (266)
  Interest paid                                              (145)       (86)
  Interest and dividends received                               5         37
                                                          -------    -------
       CASH FROM OPERATING ACTIVITIES                       1,505      1,555
                                                          -------    -------
INVESTING ACTIVITIES
  Capital expenditures for property and equipment          (1,710)    (1,607)
  Purchases, maturities and sales of
    marketable securities, net                                 91        168
  Investment in News Corp.                                      0       (350)
  Investment in DBS                                          (127)      (215)
  Investment in affiliates                                    (42)       (30)
  Acquisition of businesses                                     0        (24)
  Other, net                                                   35        (43)
                                                          -------    -------
       CASH USED FOR INVESTING ACTIVITIES                  (1,753)    (2,101)
                                                          -------    -------
       NET CASH FLOW BEFORE FINANCING ACTIVITIES             (248)      (546)
                                                          -------    -------
FINANCING ACTIVITIES
  Issuance (payment) of Debentures and other debt, net       (160)       234
  Commercial paper and bank credit facility
    activity, net                                             135       (352)
  Issuance of Trust preferred securities, net                   0        726
  Issuance of common stock for employee plans                 251        243
  Purchase of treasury stock                                  (93)      (344)
  Payment of dividends on common stock and
      Class A common stock                                    (17)       (17)
                                                          -------    -------
       CASH FROM FINANCING ACTIVITIES                         116        490
                                                          -------    -------
Net decrease in cash and cash equivalents                    (132)       (56)
Cash and cash equivalents - beginning balance                 187        471
                                                          -------    -------
Cash and cash equivalents - ending balance                $    55    $   415
                                                          =======    =======
Reconciliation of net income to cash from
  operating activities:
Net income                                                $   575    $   595
Adjustments to net income:
  Depreciation and amortization                               953        821
  Equity in (income) losses of affiliated companies            61        100
  Deferred income tax provision                                34        146
Net change in operating activity accounts
  other than cash and cash equivalents:
  Receivables                                                (190)      (226)
  Operating accounts payable                                 (204)       216
  Other operating activity accounts                           276        (97)
                                                          -------    -------
Cash from operating activities                            $ 1,505    $ 1,555
                                                          =======    =======
See accompanying Notes to Interim Condensed Consolidated Financial Statements

<PAGE>

                                     PAGE 7

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                        STATEMENT OF STOCKHOLDERS' EQUITY
                                   (unaudited)



                                                              Treas.     Total
                        Class A           Addit'l             Stock,     Stock-
                         Common  Common   Paid in  Retained     at      holders'
                          Stock   Stock   Capital  Earnings    Cost      Equity
                         ------  ------   -------  --------   -------   -------
                                       (In millions)
Balance at
  December 31, 1996       $ 14    $ 60    $ 6,410   $ 5,231   $(1,054)  $10,661

Common stock issued
  for employee stock
  and benefit plans and
  other activity
  (9 million shares)         -       -        (37)        -       255       218

Net income                   -       -          -       575         -       575

Common stock dividends       -       -          -       (17)        -       (17)

Treasury stock
  purchased
  (2 million shares)         -       -          -         -       (87)      (87)
                         -----    -----   -------    -------  --------  --------
Balance at
  June 30, 1997           $ 14     $ 60   $ 6,373    $ 5,789   $ (886)  $11,350
                         =====    =====   =======    =======  ========  ========









See accompanying Notes to Interim Condensed Consolidated Financial Statements.

<PAGE>

                                     PAGE 8

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 1. GENERAL

The accompanying  unaudited interim condensed  consolidated financial statements
have  been  prepared  in  accordance  with  the  rules  and  regulations  of the
Securities and Exchange  Commission  (SEC). The interim  condensed  consolidated
financial  statements  include the consolidated  accounts of MCI  Communications
Corporation and its majority-owned subsidiaries (collectively, the company) with
all  significant  intercompany   transactions  eliminated.  In  the  opinion  of
management,  all adjustments  (consisting only of normal recurring  adjustments)
necessary for a fair statement of the financial position,  results of operations
and cash flows for the interim periods presented have been made. The preparation
of the financial statements includes estimates that are used when accounting for
revenue,  allowances for uncollectible receivables,  telecommunications expense,
depreciation and amortization,  employee benefit plans and taxes. Actual results
could differ from those estimates.  Certain information and footnote disclosures
normally included in financial  statements prepared in accordance with generally
accepted accounting principles (GAAP) have been condensed or omitted pursuant to
such SEC rules and  regulations.  These financial  statements  should be read in
conjunction  with the  company's  Annual  Report on Form 10-K for the year ended
December 31, 1996.


NOTE 2. MERGER AGREEMENT WITH BRITISH TELECOMMUNICATIONS PLC

On November 3, 1996,  the company  entered into an Agreement  and Plan of Merger
(the  Merger  Agreement)  with  British  Telecommunications  plc (BT),  a public
limited  liability  company  organized under the laws of England and Wales. As a
result of the proposed merger (the Merger),  the stockholders of the company and
BT will  become  the  owners of a  combined  company,  to be named  Concert  plc
(Concert).  Under the terms of the Merger  Agreement,  each outstanding share of
the company's  common stock (other than treasury  shares and shares owned by BT,
including  shares of Class A common  stock,  all of which will be canceled  upon
consummation  of the Merger) will be converted into the right to receive (i) .54
American  Depository Share (ADS) of Concert,  each ADS representing ten ordinary
shares of 25 pence each of Concert,  with cash being paid in lieu of  fractional
ADSs, and (ii) $6.00 in cash.

<PAGE>

                                     PAGE 9

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

The Merger was approved by the  stockholders of the company and BT in April 1997
and the European  Commission on May 14, 1997. On July 7, 1997, the United States
(U.S.)  Department of Justice (DOJ) moved to modify the existing  consent decree
with the company  that was entered in  September  1994.  The company and BT have
agreed to the amendments to this consent decree. Completion of the Merger, which
is subject to approval by the U.S. Federal  Communications  Commission (FCC), is
expected by the fall 1997.  The Merger will be accounted  for under the purchase
method of accounting under both U.S. and United Kingdom (U.K.) GAAP.


NOTE 3. DEBT

On April 30, 1997,  the company  entered into a revolving  credit loan agreement
with several financial institutions, under which the company may borrow up to $4
billion.  Borrowings  under  this  agreement  mature  on April  28,  1998.  This
agreement replaces the company's September 1996 $2 billion revolving credit loan
agreement.


NOTE 4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Accounting Standards No. 130, Reporting Comprehensive Income, which is effective
for fiscal years  beginning  after December 15, 1997. The Statement  establishes
standards for reporting and displaying comprehensive income, as defined, and its
components.  The company plans to adopt the Statement's  disclosure standards in
1998.

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  131,  Disclosures  about  Segments  of an
Enterprise  and  Related  Information,  which  is  effective  for  fiscal  years
beginning after December 15, 1997. The Statement  establishes  standards for the
way companies report  information about operating segments in annual and interim
financial  statements.  The company  plans to adopt the  Statement's  disclosure
standards in 1998.

<PAGE>

                                     PAGE 10

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


NOTE 5. CONTINGENCIES

The  company,  in the  normal  course  of  business,  is a party to a number  of
lawsuits and regulatory and other proceedings. The company's management does not
expect that the results in these lawsuits and  proceedings  will have a material
adverse effect on the consolidated  financial  position or results of operations
of the company.

On  November  4, 1996 and  thereafter,  the  company  and all of its  directors,
including the two directors who are also  executive  officers of the company and
the three directors elected by BT, were named as defendants in twelve complaints
filed in the  Court of  Chancery  in the  State of  Delaware.  BT was named as a
defendant  in ten of the  complaints.  The  complaints  were  brought by alleged
stockholders  of the company,  individually  and purportedly as class actions on
behalf of all other stockholders of the company.  The complaints allege breaches
of fiduciary duty by the company's directors in connection with the Merger. Nine
of the complaints in which BT was named as a defendant  allege that BT aided and
abetted those breaches of duty. One of the complaints in which BT was named as a
defendant alleges that BT owes fiduciary duties to the other stockholders of the
company and that it breached  those duties in  connection  with the Merger.  The
complaints  seek  damages and other  relief.  The  defendants  believe  that the
complaints  are  without  merit and the  company  does not expect that the above
actions  will  have a  material  adverse  effect on the  consolidated  financial
position or results of operations of the company.

<PAGE>

                                     PAGE 11
PART I.
ITEM 2.
                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

GENERAL
-------
The following  discussion  and analysis  provides  information  that  management
believes is relevant to an  assessment  and  understanding  of the  consolidated
results of operations and financial condition of MCI Communications  Corporation
and its subsidiaries (collectively,  the company). The discussion should be read
in conjunction with the interim condensed  consolidated financial statements and
notes  thereto and the  company's  Annual Report on Form 10-K for the year ended
December 31, 1996.

GLOBAL MERGER AGREEMENT
-----------------------
On November 3, 1996,  the company  entered into an Agreement  and Plan of Merger
(the  Merger  Agreement)  with  British  Telecommunications  plc (BT),  a public
limited  liability  company  organized under the laws of England and Wales. As a
result of the proposed merger (the Merger),  the stockholders of the company and
BT will  become  the  owners of a  combined  company,  to be named  Concert  plc
(Concert).

-------------------------------------------------------------------------------
Forward-looking Statements May Prove Inaccurate
The  company  has  made  certain  forward-looking   statements  in  Management's
Discussion   and  Analysis   that  are  subject  to  risks  and   uncertainties.
Forward-looking  statements include  information  concerning the possible future
results  of  operations  of the  company,  its long  distance  telecommunication
services (core)  business,  its  investments in ventures and developing  markets
(VDM)  businesses,  the possible future results of operations of the company and
Concert after the Merger and statements preceded by, followed by or that include
the words "believes",  "expects",  "anticipates",  or similar  expressions.  For
those  statements,  the company  claims the  protection of the  safe-harbor  for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The reader is cautioned that the following  important factors among
others, in addition to those contained elsewhere in Management's  Discussion and
Analysis,  could  adversely  affect the future results of the company,  its long
distance  telecommunication  services  and VDM  businesses  and the  company and
Concert after the Merger and could cause those results to differ materially from
the  statements and  information  expressed in the  forward-looking  statements:
material adverse changes in the economic conditions in the markets served by the
company;  a  significant  delay in the  expected  closing of the Merger;  future
regulatory  actions and conditions in the company's  operating areas,  including
the ability of the company to  implement  its local  strategy  and obtain  local
facilities at competitive rates and resulting  changes in the  implementation of
its local strategy;  and competition  from others in the U.S. and  international
long  distance  markets,  including  the entry of the  regional  Bell  operating
companies (RBOCs) and other companies into the long distance markets in the U.S.
For  additional  information  about  other  important  factors  that  should  be
considered,  the reader should read the company's Annual Report on Form 10-K for
the year ended  December  31,  1996 and all of the  company's  filings  with the
Securities and Exchange Commission subsequent thereto.

<PAGE>

                                     PAGE 12

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

Under the terms of the Merger Agreement, each outstanding share of the company's
common  stock  (other than  treasury  shares and shares  owned by BT,  including
shares of Class A common stock, all of which will be canceled upon  consummation
of the Merger)  will be  converted  into the right to receive  (i) .54  American
Depository Share (ADS) of Concert,  each ADS representing ten ordinary shares of
25 pence each of Concert,  with cash being paid in lieu of fractional  ADSs, and
(ii) $6.00 in cash.

The Merger was approved by the  stockholders of the company and BT in April 1997
and the European  Commission on May 14, 1997. On July 7, 1997, the United States
(U.S.)  Department of Justice (DOJ) moved to modify the existing  consent decree
with the company  that was entered in  September  1994.  The company and BT have
agreed to the amendments to this consent decree. Completion of the Merger, which
is subject to approval by the U.S. Federal  Communications  Commission (FCC), is
expected by the fall 1997.  The Merger will be accounted  for under the purchase
method of accounting under both U.S. and United Kingdom (U.K.) GAAP. The company
believes  that  Concert,   operating  with  the  combined  networks,   financial
resources,  management, personnel and technical expertise of the company and BT,
will  be   better   able  to   capitalize   on  growth   opportunities   in  the
telecommunications industry, both domestically and internationally. In addition,
the company expects Concert will be able to derive  significant  advantages from
the  more  efficient  utilization  of  their  combined  assets,  management  and
personnel.  Under the terms of the Merger  Agreement,  the  company  and BT will
continue  to sell and  service  customers  using  their own brand names in their
respective home countries.

GLOBAL ALLIANCES
----------------
On April 14, 1997,  the  company,  BT and  Portugal  Telecom  formed a strategic
alliance to provide  communication  services in Portugal and Latin America.  The
voice products of Concert Communications  Services (CCS), the company's existing
joint venture with BT, will be exclusively  distributed  by Portugal  Telecom in
Portugal. The company will acquire a 0.5% equity stake in Portugal Telecom later
in 1997.

<PAGE>

                                     PAGE 13

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

On April 18, 1997, the company,  BT and Telefonica de Espana (Telefonica) formed
a strategic alliance to provide telecommunication services and to explore growth
opportunities  in the Americas and Europe.  Telefonica  Internacional SA (TISA),
Telefonica's  international  unit,  and the company will create an equally owned
Pan American joint venture, managed by TISA, called Telefonica Panamericana-MCI.
The  joint  venture  will  pursue  new   opportunities  in  the  Latin  American
telecommunications  market.  As part of the  alliance,  Telefonica  will have an
opportunity to invest in Avantel,  S.A. de C.V.  (Avantel) and will form a joint
venture with MCI Systemhouse (Systemhouse) to service the Latin American systems
integration market.

TELECOMMUNICATIONS REGULATORY ENVIRONMENT
-----------------------------------------
The  Telecommunications  Act of 1996 (the Act) was  enacted by  Congress to help
minimize  legal  barriers  to  local  telephone  market  entry  while  affording
residential  and  business  consumers  protection  from  unfair  competition  by
incumbent local exchange carriers  (ILECs).  A company is permitted to enter the
local market by constructing new facilities, leasing unbundled network elements,
reselling  local  network  capacity  or by  partnering  with  other  new  market
entrants.  The regional Bell operating companies' (RBOCs) are permitted to offer
long  distance  services  outside  their  regions but are barred  from  offering
in-region long distance services until they open their own markets and encounter
facilities-based  local  competition.  The Act establishes  criteria pursuant to
which RBOCs  applications  to provide  in-region  long  distance  service may be
approved by the FCC, in consultation with the relevant state regulatory agencies
as well as the DOJ.

In order to  implement  the Act,  the FCC  outlined  a  trilogy  of issues to be
resolved to ensure  competition in the local  market-interconnection,  universal
service and access charge reform.  On May 7, 1997,  the FCC completed  action on
the trilogy  when it rendered its access  charge and  universal  service  reform
decisions.  The FCC  adopted a plan in a price cap  order  that it stated  would
reduce interstate access charges  approximately $1.7 billion on an industry-wide
basis.  However,  only $1.6 billion of such access charge  reductions  went into
effect on July 1, 1997. As part of its effort to establish cost based  services,
the FCC, in its access charge order,  has  reclassified  certain  access charges
from  usage  based to line  based.  The  company  anticipates  that it will pass
through  to  consumers  the  realized   savings  from  switched   access  charge
reductions,  net of pre-subscribed  interconnect carrier costs and new universal
service  obligations,  which are discussed  below.  The company has appealed the
price cap and the access charge reform orders.

<PAGE>

                                     PAGE 14

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

The FCC's universal service order, which includes current subsidies paid by long
distance  carriers and new obligations to fund discounted  services for schools,
libraries,  rural health care  providers and low income  consumers,  will become
effective on January 1, 1998 and be funded by all  telecommunications  carriers.
This order is currently  being  appealed by several  parties.  These  challenges
could materially affect the size of the universal service fund and the company's
required contributions.

In July 1997, the U.S. Court of Appeals for the Eighth Circuit (Eighth  Circuit)
determined  that  the FCC had  exceeded  its  authority  when it  established  a
national pricing  structure for  interconnection  with the ILECs pursuant to the
Act. The Eighth Circuit also held that certain  portions of the FCC rules,  such
as the scope of its enforcement  activities,  are invalid.  Although the Act was
designed by Congress to deregulate the telephone  industry and spur  competition
in the  local  and long  distance  markets,  the  company  believes  the  Eighth
Circuit's ruling may delay local phone competition because potential competitors
to the  ILECs,  including  the  company,  will  have to  continue  to  negotiate
interconnection  agreements in individual  states without the benefit of uniform
pricing rules guided by a national policy.

EARNINGS HIGHLIGHTS
-------------------
Income from operations was $552 million and $1,138 million for the three and six
months ended June 30, 1997,  respectively,  decreasing  approximately  5% and 2%
from the  comparable  periods  in 1996.  Operating  margin for the three and six
months  ended June 30, 1997  decreased  to 11.4% and 11.7%,  respectively,  from
12.7% and 12.8%, in the comparable periods in 1996, respectively. These declines
were due  primarily to higher costs of services  and  depreciation  expense as a
percentage of revenue  partially  offset by a decrease in sales  operations  and
general  expenses as a percentage  of revenue.  Net income for the three and six
months ended June 30, 1997 decreased to $280 million and $575 million,  or $0.40
and $.82 per share,  respectively,  from $300 million and $595 million, or $0.43
and $0.85 per share, for the comparable periods in 1996, respectively.

<PAGE>

                                     PAGE 15

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

The company  believes that it may be prevented from executing its local strategy
as it had anticipated.  As a result, and as explained below, the company expects
that it will not generate the  anticipated  revenue and will incur  greater than
expected  operating  expenses  and  losses in its  local  business  through  the
remainder of 1997 and in 1998. In addition, the company is presently exploring a
series of steps to improve  financial  performance and to continue to respond to
the  increasingly  competitive  environment  in the core  business.  While these
decisions  have not been  finalized,  if taken,  they could  result in  material
charges to the company's  1997 results of operations.  The following  provides a
discussion of the company's  consolidated  operating  results,  comprised of its
core and VDM  businesses.  Refer to  "Enterprise  Reporting"  below for  further
discussion of these businesses.

CONSOLIDATED RESULTS OF OPERATIONS
----------------------------------
Consolidated  revenue for the three and six months ended June 30, 1997 increased
6.1%  and  7.4% to  $4.8  billion  and  $9.7  billion,  respectively,  from  the
comparable  periods in 1996.  For the three and six months  ended June 30, 1997,
core  business  revenue  increased  by $195 million and $529 million or 4.7% and
6.4%,  respectively,  from the prior year periods. VDM revenue increased by $136
million  and $239  million  for the three and six months  ended  June 30,  1997,
respectively,  over the  comparable  periods in 1996  primarily due to increased
Information Technology Services revenue.

Cost of  services  consists  of  telecommunications  expense  and costs of other
products   and  services   primarily   associated   with  the  VDM   businesses.
Telecommunications expense is primarily comprised of access facilities fees paid
to ILECs and other  domestic  service  providers,  and payments  made to foreign
telephone  companies  (international  settlements)  to  complete  calls  made to
foreign  countries  from  the  U.S.  by the  company's  customers.  In  the  VDM
businesses,  costs of other products and services  primarily include  equipment,
software and  technology  service costs.  Consolidated  cost of services for the
three and six months ended June 30, 1997 increased 8.8% and 8.2% to $2.5 billion
and $5.1 billion,  respectively,  from the comparable periods in 1996, primarily
as a result of  increased  revenue in each  period.  Telecommunications  expense
decreased  as a percent of core  business  revenue  for the three and six months
ended June 30, 1997 primarily due to lower international  settlement expense and
continued efficient network use.

<PAGE>

                                     PAGE 16

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

Sales,  operations and general expense increased 2.9% and 7% to $1.3 billion and
$2.6  billion for the three and six months  ended June 30,  1997,  respectively,
from the comparable periods in 1996. In the core business, sales, operations and
general expense for the three and six months ended June 30, 1997 as a percentage
of revenue decreased to 23.4% and 24.4%, respectively, from 26% and 25.7% in the
same  periods  in  1996,  respectively,  primarily  as  a  result  of  continued
redeployment  of certain  resources and  operations to local  services and other
cost containment efforts. In the VDM businesses,  sales,  operations and general
expense  as a  percentage  of revenue  for the three and six  months  ended 1997
increased  to 41.3% and  38.9%,  respectively,  from 31.2% and 32.2% in the same
periods  in  1996,  respectively,   which  was  attributable  to  the  continued
development in local services  markets and information  technology  services and
the related increases in marketing efforts and personnel expenditures.

Depreciation  expense  increased  16.3% and  17.5% for the three and six  months
ended June 30, 1997 to $479  million and $932  million,  respectively,  from the
comparable  periods in 1996.  The increase is  primarily  the result of 1996 and
1997  additions  to  the  communications  system  network  to  increase  network
capacity, redundancy and reliability, add product features and functionality and
support the company's local services business.

Interest expense  increased $6 million and $14 million,  respectively,  from the
comparable periods in 1996 due to increased 1997 debt balances.

Equity in income  (losses) of  affiliates  improved  as the  company  recognized
reductions  of $21 million and $39 million in net losses of its  affiliates  for
the three and six months  ended June 30,  1997,  respectively.  The  decrease in
losses for each period was primarily due to reduced net losses  associated  with
several of the company's investments and ventures,  including the former on-line
project,  which ceased  operations in 1996,  with The News  Corporation  Limited
(News Corp.),  partially  offset by increased  operating  losses of Avantel.  As
further  discussed in "Enterprise  Reporting"  below, due to the start-up nature
and current  operations  of several of these  affiliates,  the  company  expects
equity in losses of affiliated companies to continue for the remainder of 1997.

Distributions on subsidiary Trust mandatorily redeemable  securities,  issued in
May 1996, totaled $15 million and $30 million for the three and six months ended
June 30, 1997, respectively.

<PAGE>

                                     PAGE 17

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

ENTERPRISE REPORTING
--------------------
This section  segregates the performance of the company's core business from its
VDM businesses and investments.  Core business services comprise a wide spectrum
of domestic and international  voice and data services,  including long distance
telephone,  data  communication,   teleconferencing,   Internet  and  electronic
messaging  services.  The company has invested in VDM businesses  outside of its
core business through acquisitions, alliances and other strategic initiatives in
the  local,  information  technology,  wireless,  international  and  multimedia
markets.  Investments  in these VDM  businesses  are  included in the  company's
financial  statements  as  consolidated   subsidiaries,   unconsolidated  equity
investments, or cost investments such as News Corp.

The  following  information  was  prepared  using all  amounts  included  in the
company's  interim  condensed  consolidated  financial  statements  and reflects
estimates and allocations that management believes provide a reasonable basis on
which to present such information.

CORE BUSINESS RESULTS
---------------------
(In millions)                 Three Months Ended     Six Months Ended
                                   June 30,              June 30,
                              -----------------     -----------------
                                1997       1996       1997       1996
                              ------     ------     ------     ------
Revenue                       $4,353     $4,158     $8,737     $8,208
Income from operations           661        600      1,314      1,214
Equity in income (losses)
  of affiliated companies          -          -          -          -
Net income                       404        372        807        750
Depreciation                     433        384        845        732
Net interest, income taxes
  and other expense             (257)      (228)      (507)      (464)
EBITDA*                        1,094        984      2,159      1,946

* EBITDA,  as defined by management,  consists of earnings,  excluding equity in
income (losses) of affiliates, other income (expense), net, and distributions on
subsidiary Trust mandatorily  redeemable preferred securities,  before interest,
income taxes, depreciation and amortization.  EBITDA represents a measure of the
company's  ability to generate  cash flows and does not  represent net income or
cash flows from  operating,  investing  and  financing  activities as defined by
GAAP.  EBITDA should be considered in addition to, but not as a substitute  for,
or superior to,  measures of financial  performance  reported in accordance with
GAAP.  EBITDA is often used by analysts when  evaluating  the  performance  of a
company.  Readers are cautioned that the company's  definition of EBITDA may not
be comparable to similar titled measures used by other companies or analysts.

<PAGE>
                                
                                    PAGE 18

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

The  following  discussion  focuses on  significant  financial  and  operational
results of the company's core business.

Core business  revenue for the three months ended June 30, 1997  increased  4.7%
from the year ago period,  while  traffic  grew 5.5%,  resulting in a revenue to
traffic  variance  of (.8%).  This  negative  variance  reflects  the  company's
strategic  decision  to  de-emphasize  the  carrier  channel,  a  tough  pricing
environment and the industry-wide  moderation of residential revenue growth. The
variance  improved  from the  year ago  period  due to the  company's  proactive
transition away from  acquisition  promotions in the mass market.  Core business
revenue  for the six  months  ended  June  30,  1997  increased  6.4%  from  the
comparable  year ago period while  traffic grew 4.7%,  resulting in a revenue to
traffic  variance of 1.7%.  This variance  reflects the transition away from the
high level of customer acquisition  promotions in the first half of 1996 and the
strategic shift in the first half of 1997 in product and service offerings.

In the business  market,  revenue  continued to grow in the three and six months
ended June 30, 1997 from the comparable periods in 1996 with enhanced,  data and
virtual data products accounting for a majority of the revenue growth.  However,
revenue and volume growth slowed in the carrier channel as the company continued
to focus  efforts on  improving  its  margins on sales to and  collections  from
resellers.  Revenue in the mass  market for the three and six months  ended June
30, 1997 decreased from the comparable  periods in 1996. These declines were the
result of the company's  focus on value,  service and  integration  for customer
acquisition rather than price through  discounting or acquisition  promotions as
well as the industry-wide  moderation of residential revenue growth. The company
continued  selectively  to target high value  customers  through its  integrated
package  offering of inbound,  outbound,  wireless  and  Internet  services  and
programs  aimed at  customer  retention  while  curtailing  the use of  customer
acquisition  programs in the first half of 1997. As a result,  customer spending
and churn rates improved during the first half of 1997 from the year ago period.

While mass markets  operating  trends have improved in 1997, the company expects
that through the next few quarters,  revenue  trends on a  year-over-year  basis
will  continue to be adversely  affected as the company  continues its migration
from the  volatile  price-shopping  customer and builds and retains a more loyal
customer base. In addition,  the company  expects 1997  operating  income in the
core  business to be similar to last year due to lower than  expected  synergies
from the company's  local  efforts,  increased  Year 2000  efforts,  several new
product launches,  implementation of payphone compensation reform, renegotiation
of business customer  contracts,  tighter credit policies for sales to resellers
and higher  depreciation  resulting from increased  capital  projects  placed in
service over the remainder of 1997.

<PAGE>

                                     PAGE 19

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

VENTURES AND DEVELOPING MARKETS RESULTS
---------------------------------------
(In millions)                Three Months Ended     Six Months Ended
                                  June 30,                June 30,
                             ------------------    ------------------
                                1997       1996       1997       1996
                             -------    -------    -------    -------
Revenue                      $   613    $   477    $ 1,192    $   953
Loss from operations             (97)       (15)      (159)       (48)
Equity in income (losses)
  of affiliated companies        (24)       (45)       (61)      (100)
Net loss                        (116)       (69)      (219)      (152)
Depreciation                      46         28         87         61
Net interest, income taxes
  and other expense                5         (9)         1         (4)
EBITDA*                          (51)        13        (72)        13

During the second quarter of 1997, the company  continued to make investments in
its VDM businesses and strategic initiatives in an effort to expand its business
opportunities in these markets. The company invested  approximately $125 million
in local services,  $41 million in direct broadcast  satellite (DBS) development
costs and $26 million in affiliated companies during the second quarter of 1997.
Certain   information  about  the  company's  results  of  operations  in  these
businesses and strategic initiatives are provided below.

LOCAL
-----
The company  provides  facilities-based  switched and dedicated  local services,
local fiber-optic capacity and competitive access services to business customers
and the company's core business. The company also provides local resale services
to business and residential  customers in several states. The company intends to
become  a  single-source  provider  of  comprehensive  local   telecommunication
services and to compete in the local  services  market,  while also reducing the
company's access and interconnection costs. As of June 30, 1997, the company had
been  granted  authority to offer local  exchange  services in 35 states and had
applications for such services pending in 10 other states.

<PAGE>

                                     PAGE 20

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

Local service revenue,  substantially  all of which continues to be derived from
sales to and through the core business, increased by $36 million and $61 million
year-over-year  to $80  million  and $145  million  for the three and six months
ended June 30, 1997,  respectively.  Net loss for the three and six months ended
June 30, 1997  increased  by $46 million and $86 million  year-over-year  to $61
million  and $111  million,  respectively.  EBITDA  for the three and six months
ended June 30, 1997 decreased by $61 million and $111 million  year-over-year to
$(73) million and $(131) million,  respectively.  The increase in net losses and
the  decrease  in EBITDA  for the  three  and six  months  ended  June 30,  1997
primarily  reflect the increased  operating costs  associated with the continued
investment in the local market.  During the second  quarter of 1997, the company
added 2 local city networks, bringing the total number of operational local city
networks to 69 in 36 markets,  compared to 55 operational networks in 31 markets
at the end of the second quarter of 1996. In addition, route miles increased 23%
year-over-year  to 3,218  miles as of June 30,  1997.  At  present,  the company
provides  facilities-based  switched local services in 25 markets and intends to
have service operational in over 30 markets by the end of 1997.

The company's  expansion and traffic growth in the local market  continued to be
hampered by changes in Federal and state  regulations  governing  the opening of
local markets,  exacerbated by anti-competitive behavior and delaying tactics by
the  ILECS.  Due to this  anti-competitive  environment,  the  company  will not
generate  anticipated  revenue and will incur higher than  expected  costs as it
enhances its local market presence. The company believes that its local business
losses  in 1997  could  reach as much as $800  million,  including  interest  on
capital deployed,  and perhaps exceed this level in 1998 given its present plans
to expand its local market penetration,  increase residential resale efforts and
absorb excessive non-recurring costs levied by the ILECs. These projected losses
also reflect  increased  costs  associated  with operating  system  requirements
necessary to provide  local  service as well as legal,  regulatory  and lobbying
efforts to contest the ILEC actions.

<PAGE>

                                     PAGE 21

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

INFORMATION TECHNOLOGY SERVICES
-------------------------------
Information Technology Services include the results of operations of Systemhouse
and Call Center  Services.  Revenue for the three and six months  ended June 30,
1997  increased  by $113  million  and $205  million  to $444  million  and $877
million, respectively, from the comparable periods in 1996. These increases were
due to growth in  Systemhouse's  outsourcing,  desktop and  systems  integration
services,  and Call Center Services'  automation and outsourcing  services.  Net
loss for the three and six months  ended June 30, 1997  increased by $12 million
and $16  million,  respectively,  over  the  comparable  periods  in 1996 to $27
million and $42 million, respectively. EBITDA for the three and six months ended
June 30,  1997 was $22 million and $59  million,  respectively,  compared to $32
million and $66 million for the same periods in 1996, respectively. The increase
in net loss and the decrease in EBITDA for the periods was  primarily the result
of product mix and higher  sales,  operations  and general  expenses  related to
advanced  staffing for delivery of awarded  contracts and transition  support of
new large contracts.

Backlog, which includes amounts committed under executed contracts or letters of
intent, at June 30, 1997 was approximately  $1.8 billion,  the majority of which
was from  Systemhouse's  largest  customers,  of  which  20% is  expected  to be
delivered by the end of 1997.

WIRELESS
--------
Wireless services  primarily  include the operations of MCI Wireless,  Inc., the
company's cellular provider, and paging services.  Revenue for the three and six
months  ended  June  30,  1997   decreased  by  $13  million  and  $26  million,
respectively,  from  the year  ago  periods  to $83  million  and $158  million,
respectively. This decrease was primarily attributable to the decrease in paging
subscribers  from  474,000 at June 30,  1996 to 227,000 at June 30,  1997 as the
company  continued  to  concentrate  on  profitability  per customer in the mass
market,  to  de-emphasize  stand-alone  paging services and to revise its paging
service  offerings cost and  infrastructure.  As of June 30, 1997, the number of
cellular customers  increased by approximately 11% from June 30, 1996 to 434,000
due to the company's  focus on integrated  product  offerings and expansion into
new  markets  during the last half of 1996.  For the three and six months  ended
June 30,  1997,  net loss was $10 million  and $19  million,  respectively,  and
EBITDA was $(3) million and $(6) million, respectively.

<PAGE>

                                     PAGE 22

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

INTERNATIONAL SERVICES
----------------------
CCS is the company's  24.9% owned  international  services  venture with BT that
provides a broad portfolio of advanced global communication services,  including
virtual  network,  frame  relay,  managed  bandwidth  and  packet  services,  to
multinational business customers worldwide.  CCS' distributor revenues increased
30% and 42%  year-over-year  to $182  million and $347 million for the three and
six months ended June 30, 1997, respectively. The company's share of CCS' losses
reported in accordance  with U.S. GAAP was unchanged at $6 million for the three
months  ended June 30, 1997 and  decreased  by $4 million to $12 million for the
six months ended June 30, 1997 compared to the comparable periods in 1996.

Avantel is the  company's  44.5%  owned  Mexican  business  venture  which began
offering  a full  range  of  competitive  switched  long  distance  services  to
residential and business customers on January 1, 1997. During the second quarter
of 1997,  Avantel's  network  became almost fully  operational  as Avantel began
offering  services  throughout  most of Mexico.  In addition,  by the end of the
second quarter of 1997,  Avantel had obtained more than a 10% share in the total
Mexican long distance  market.  The company's share of Avantel's losses reported
in  accordance  with U.S.  GAAP for the three and six months ended June 30, 1997
increased  by $10  million  and $24  million  to $14  million  and $35  million,
respectively,  from the comparable periods in 1996. The company expects to incur
additional  losses on its investment  during 1997 as Avantel continues to expand
its service and customer bases in the Mexican telecommunications market.

MULTIMEDIA SERVICES
-------------------
The company's  investments in News Corp. and DBS comprise  Multimedia  Services.
Dividend income on the company's  investment in News Corp. for the three and six
months  ended June 30,  1997 was  approximately  $15  million  and $30  million,
respectively, compared to $13 million and $24 million for the comparable periods
in 1996,  respectively.  The company  invested an additional  $87 million in DBS
construction costs during the first half of 1997,  bringing its total investment
in the project to $980 million as of June 30, 1997.

<PAGE>

                                     PAGE 23

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

In May 1997, the company  renegotiated its investment  agreement with News Corp.
to terminate the company's remaining  investment  obligation of $650 million. In
addition, the company and News Corp. agreed to form a joint venture to engage in
the DBS business.  The company will own 19.9% of the joint venture.  The company
and News Corp.  will each  contribute to the joint venture two satellites  under
construction, as well as other assets relating to the DBS business. In addition,
the joint  venture  will  acquire the  company's  rights to the  spectrum of DBS
frequencies  (the DBS license) for an amount equal to the $682.5 million paid by
the company,  plus  interest (the fee).  Concurrently,  the company will make an
investment  in a subsidiary  of News Corp.  in an amount equal to the fee.  This
investment will be repaid on the sixth anniversary or upon certain circumstances
on the third anniversary of the agreement.

In June  1997,  the  company  and News  Corp.  entered  into an  agreement  with
Primestar Partners,  L.P. (Primestar) for the sale and transfer of substantially
all of their assets relating to the DBS business,  including the DBS license but
excluding two of the four satellites  under  construction.  This  transaction is
part of a larger  transaction  which involves the consolidation of Primestar and
TCI Satellite  Entertainment,  Inc. into a newly formed entity (New  Primestar).
The  company  will  receive  from  Primestar  consideration  for its 19.9% joint
venture  interest  in the  form of cash  and  interest  bearing  non-voting  New
Primestar  securities.  The  transaction  is  subject to  regulatory  approvals,
including  approval by the FCC of the  company's  transfer of the DBS license to
New Primestar.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
CASH FLOWS
----------
Cash from operating  activities decreased to $1,505 million in the first half of
1997 from  $1,555  million in the first half of 1996 due to an  increase in cash
paid to suppliers and employees.

Cash used for investing activities  decreased by $348 million  year-over-year to
$1,753  million  primarily due to a decrease in  investments  in News Corp.  and
affiliates in the first half of 1997 which was  partially  offset by an increase
in capital expenditures.

Cash from  financing  activities  decreased to $116 million in the first half of
1997 from $490 million in the first half of 1996. This decrease was due to a net
decrease  in debt  issuances  and the  issuance  of $750  million  of  preferred
securities  in May 1996,  as well as a decrease  in  treasury  stock  purchases.
During the first half of 1997,  the  company  issued  $3,518  million and repaid
$3,383 million of commercial  paper  borrowings,  leaving $1,557 million of such
borrowings outstanding at June 30, 1997.

<PAGE>

                                     PAGE 24

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996

CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
The company  believes  that it will be able to meet its current and  foreseeable
liquidity and capital requirements, including continued investments in its local
services  and  other VDM  businesses,  through  its cash  flows  from  operating
activities and existing debt facilities.  On April 30, 1997, the company entered
into a new $4 billion  credit  facility  expiring  on April 28,  1998.  This new
facility replaces a $2 billion credit facility.  In addition,  on July 23, 1997,
the company entered into a $500 million  notional amount  forward-starting  swap
agreement to hedge future debt issuances.

EBITDA
------
Consolidated  EBITDA increased 5.8% to $2,070 million for the first half of 1997
from $1,956 million for the year ago period due to increased revenue. EBITDA, as
defined by management, consists of earnings, excluding equity in income (losses)
of affiliates,  other income  (expense),  net, and  distributions  on subsidiary
Trust  mandatorily  redeemable  preferred  securities,  before interest,  income
taxes,  depreciation  and  amortization.  EBITDA  represents  a  measure  of the
company's  ability to generate  cash flows and does not  represent net income or
cash flows from  operating,  investing  and  financing  activities as defined by
GAAP.  EBITDA should be considered in addition to, but not as a substitute  for,
or superior to,  measures of financial  performance  reported in accordance with
GAAP.  EBITDA is often used by analysts when  evaluating the  performance of the
company.  Readers are cautioned that the company's  definition of EBITDA may not
be comparable to similar titled measures used by other companies or analysts.

<PAGE>

                                     PAGE 25

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q


PART II. OTHER INFORMATION

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

      (a)The company's annual meeting of stockholders was held on April 2, 1997.

      (b)The nominees for directors of the company set forth in full in the
           company's Proxy Statement dated March 3, 1997 (Proxy  Statement) were
           elected at the annual meeting.

      (c) Holders of common  stock and Class A common stock voted at the annual
           meeting  on  the  following  matters  which  were  set  forth  in the
           company's Proxy Statement.

          (1) Of the  683,736,032  shares  outstanding  as of the  Record  Date,
          526,804,108  shares were voted for,  and  1,598,946  shares were voted
          against,  the approval of the merger agreement between the company and
          British  Telecommunications  plc, with 977,263  abstaining from voting
          and 45,215,272 broker non-votes.

          (2) To elect four  directors by the holders of common  stock,  each to
          serve for a three-year term.

            VOTES (In millions):
            Nominee                      For   Abstain
            --------------------------   ---   -------
            Clifford L. Alexander, Jr    430      8
            Richard M. Jones             430      8
            K. Rupert Murdoch            430      8
            John R. Worthington          430      8
            Broker non-votes: None

          (3)To elect  three Class A directors  by the holders of Class A common
          stock, each to serve a one-year term.

            VOTES (In millions):
            Nominee                      For   Abstain
            --------------------------   ---   -------
            Sir Peter L. Bonfield        136      -
            Sir Colin Marshall           136      -
            J. Keith Oates               136      -
            Broker non-votes: None

<PAGE>

                                     PAGE 26

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q



          (4)To  approve  the  appointment  by the Board of  Directors  of Price
          Waterhouse LLP as independent accountants for the year ending December
          31, 1997 by the holders of common stock and Class A common stock.

                     VOTES (In millions):
                     For:                            573
                     Against:                          1
                     Abstain:                          -
                     Broker non-votes:              None

<PAGE>

                                     PAGE 27

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q



PART II.  OTHER INFORMATION (continued)

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K

a)Exhibits

Exhibit No.                Description
-----------                -----------

         11                Computation of Earnings per Common Share.

         12                Computation of Ratio of Earnings to Fixed Charges.

         27                Financial Data Schedule as of June 30, 1997.

         99(a)             Capitalization Schedule as of June 30, 1997.


b)Reports on Form 8-K

The  company  did not file any  Current  Reports on Form 8-K during the  quarter
ended June 30, 1997.

<PAGE>

                                     PAGE 28

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q



                                    SIGNATURE
                                    ---------



Pursuant to the requirements of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the

undersigned thereunto duly authorized.




                                         MCI COMMUNICATIONS CORPORATION




Date:  August 14, 1997                   Signed:  /s/ David M. Case
                                                  -----------------------
                                                  David M. Case
                                                  Vice President and Controller


<PAGE>

                                     PAGE 29

                 MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q
                                  EXHIBIT INDEX





 Exhibit No.               Description
 -----------               -----------

      11                   Computation of Earnings per Common Share.

      12                   Computation of Ratio of Earnings to Fixed Charges.

      27                   Financial Data Schedule as of June 30, 1997.

      99(a)                Capitalization Schedule as of June 30, 1997.