<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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 MARCH 31, 2001

                                       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 000-29667
                                               ---------

                        VOICESTREAM WIRELESS CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

               DELAWARE                                  91-1983600
---------------------------------------        ---------------------------------
    (State or other jurisdiction of            (IRS Employer Identification No.)
    incorporation or organization)

       12920 - 38TH STREET S.E.
         BELLEVUE, WASHINGTON                              98006
---------------------------------------        ---------------------------------
(Address of principal executive offices)                (Zip Code)

                                 (425) 378-4000
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
      (Former name, former address and former fiscal year, if changed since
                                 last report.)


     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 [ ]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

               Title                    Shares Outstanding as of May 1, 2001
--------------------------------------------------------------------------------
   Common Stock, $0.001 par value                     266,939,925
<PAGE>   2
                        VOICESTREAM WIRELESS CORPORATION
                                    FORM 10-Q
                      FOR THE QUARTER ENDED MARCH 31, 2001


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                               Page
<S>                                                                            <C>
   PART I - FINANCIAL INFORMATION

         ITEM 1.  FINANCIAL STATEMENTS

         Consolidated Balance Sheets.............................................3

         Consolidated Statements of Operations and Comprehensive Loss............4

         Consolidated Statements of Cash Flows...................................5

         Notes to Consolidated Financial Statements..............................6

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................17


   PART II - OTHER INFORMATION..................................................26

         ITEM 1.  LEGAL PROCEEDINGS.............................................26

         ITEM 2.  CHANGES IN SECURITIES.........................................26

         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES...............................26

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........26

         ITEM 5.  OTHER INFORMATION.............................................26

         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K..............................26
</TABLE>



                                        2
<PAGE>   3
                        VOICESTREAM WIRELESS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                (dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                 March 31,          December 31,
                                                                                   2001                 2000
                                                                               -------------         ------------
                                                                                (unaudited)
<S>                                                                            <C>                  <C>
                                      ASSETS

Current assets:
  Cash and cash equivalents ...........................................        $  1,077,226         $  1,154,896
  Short-term investments ..............................................             155,340            1,175,636
  Accounts receivable, net of allowance for doubtful
    accounts of $104,274 and $100,600, respectively ...................             437,277              469,475
  Inventory ...........................................................             275,366              340,284
  FCC license deposits and other current assets .......................             273,277              223,634
                                                                               ------------         ------------
        Total current assets ..........................................           2,218,486            3,363,925
Property and equipment, net of accumulated depreciation of
  $919,916 and $740,956, respectively .................................           3,764,548            3,467,550
Goodwill, net of accumulated amortization of $466,387 and
  $348,575, respectively ..............................................           8,957,794            9,075,605
Licensing costs and other intangible assets, net of
  accumulated amortization of $155,145 and $118,923, respectively .....           4,505,554            3,827,317
Investments in and advances to unconsolidated affiliates ..............             508,313              498,869
Other assets and investments ..........................................              35,744               44,477
                                                                               ------------         ------------
                                                                               $ 19,990,439         $ 20,277,743
                                                                               ============         ============

                          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable ....................................................        $     49,320         $    150,632
  Accrued liabilities .................................................             475,531              404,621
  Deferred revenue ....................................................              82,546               60,272
  Construction accounts payable .......................................              94,112              207,462
  Current portion of long-term debt ...................................                  --               32,113
                                                                               ------------         ------------
        Total current liabilities .....................................             701,509              855,100

Long-term debt ........................................................           5,733,425            5,719,886
Minority interest in equity of consolidated subsidiaries ..............              50,763               16,563
Preferred stock of consolidated subsidiary ............................              79,490              312,513
VoiceStream convertible voting preferred stock; $0.001 par value;
  100,000,000 shares authorized; 3,906,250 shares
  issued and outstanding ..............................................           5,000,000            5,000,000

Commitments and contingencies (Note 8)

Shareholders' equity:
  Common stock, $0.001 par value, and paid-in capital; 1.0 billion
    shares authorized, 264,619,901 and 250,791,145 shares issued
    and outstanding, respectively .....................................          12,413,978           11,572,083
  Deferred compensation ...............................................              (6,886)              (8,412)
  Accumulated other comprehensive loss ................................             (12,535)             (45,238)
  Deficit .............................................................          (3,969,305)          (3,144,752)
                                                                               ------------         ------------
      Total shareholders' equity ......................................           8,425,252            8,373,681
                                                                               ------------         ------------
                                                                               $ 19,990,439         $ 20,277,743
                                                                               ============         ============
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       3
<PAGE>   4
                        VOICESTREAM WIRELESS CORPORATION
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                  (dollars in thousands, except per share data)
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                                   Three months ended March 31,
                                                                               -----------------------------------
                                                                                    2001                 2000
                                                                               -------------         -------------
<S>                                                                            <C>                   <C>
Revenues:
    Subscriber revenues ...............................................        $     500,203         $     170,750
    Prepaid revenues ..................................................               93,909                25,202
    Roamer revenues ...................................................               44,015                10,184
    Equipment sales ...................................................               82,433                33,910
    Affiliate and other revenues ......................................               11,494                18,398
                                                                               -------------         -------------
          Total revenues ..............................................              732,054               258,444
                                                                               -------------         -------------

Operating expenses:
    Cost of service (excludes stock-based compensation of $366 and
         $689, respectively) ..........................................              164,487                63,763
    Cost of equipment sales ...........................................              158,494                58,902
    General and administrative (excludes stock-based
         compensation of $1,485 and $4,333, respectively) .............              275,273                79,627
    Sales and marketing (excludes stock-based compensation of
         $305 and $574, respectively) .................................              280,966                87,580
    Depreciation and amortization .....................................              331,171                82,092
    Stock-based compensation ..........................................                2,156                 5,596
                                                                               -------------         -------------
          Total operating expenses ....................................            1,212,547               377,560
                                                                               -------------         -------------

Operating loss ........................................................             (480,493)             (119,116)
                                                                               -------------         -------------

Other income (expense):
    Interest and financing expense ....................................             (135,645)              (81,231)
    Equity in net losses of unconsolidated affiliates .................              (42,916)              (16,284)
    Interest income and other, net ....................................               12,541                15,044
    Accretion of preferred stock of consolidated subsidiary ...........               (4,699)               (1,743)
                                                                               -------------         -------------
          Total other income (expense) ................................             (170,719)              (84,214)
                                                                               -------------         -------------

Net loss ..............................................................             (651,212)             (203,330)
2.5% junior preferred stock dividends .................................                   --                  (875)
                                                                               -------------         -------------
Net loss attributable to common shareholders ..........................             (651,212)             (204,205)
Other comprehensive income (loss):
    Foreign currency translation adjustment ...........................               (3,705)                   --
    Equity in net unrealized income on investment in securities
         held by unconsolidated affiliate .............................               20,936                    --
    Net unrealized income on available-for-sale securities ............               15,472                    --
                                                                               -------------         -------------
         Total other comprehensive income (loss) ......................               32,703                    --
                                                                               -------------         -------------
Comprehensive loss ....................................................        $    (618,509)        $    (204,205)
                                                                               =============         =============

Basic and diluted loss per common share ...............................        $       (2.54)        $       (1.66)
                                                                               =============         =============

Weighted average common shares used in computing
    basic and diluted loss per common share ...........................          256,650,000           123,166,000
                                                                               =============         =============
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       4

<PAGE>   5
                        VOICESTREAM WIRELESS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                            Three months ended March 31,
                                                                                          -------------------------------
                                                                                              2001               2000
                                                                                          -----------         -----------
<S>                                                                                  <C>                 <C>
        Operating activities:
           Net loss ..............................................................         $  (651,212)        $  (203,330)
           Adjustments to reconcile net loss to net cash used in
            operating activities:
               Depreciation and amortization .....................................             331,171              82,092
               Amortization of debt discount and premium .........................              13,538              12,010
               Equity in net losses of unconsolidated affiliates .................              42,916              16,284
               Stock-based compensation ..........................................               2,156               5,596
               Allowance for bad debts ...........................................               3,674              10,056
               Other, net ........................................................              (6,158)             (5,085)
               Changes in operating assets and liabilities, net of
                 effects from consolidating acquired interests:
                     Accounts receivable .........................................              28,524             (31,346)
                     Inventory ...................................................              64,918             (46,924)
                     Other current assets ........................................               2,043             (37,680)
                     Accounts payable ............................................            (101,640)             28,659
                     Accrued liabilities .........................................              92,450              73,355
                                                                                           -----------         -----------
               Net cash used in operating activities .............................            (177,620)            (96,313)
                                                                                           -----------         -----------

        Investing activities:
           Purchases of property and equipment ...................................            (563,617)           (182,475)
           Acquisitions of wireless properties, net of cash acquired .............            (297,170)           (418,205)
           Sales of short-term investments, net ..................................           1,020,296                  --
           Investments in and advances to unconsolidated affiliates ..............             (61,327)           (278,400)
           Refund of deposit held by FCC .........................................              49,589                  --
           Other .................................................................              34,205              (2,089)
                                                                                           -----------         -----------
               Net cash provided by (used in) investing activities ...............             181,976            (881,169)
                                                                                           -----------         -----------

        Financing activities:
           Net proceeds from issuance of common and preferred stock ..............              11,345           1,309,765
           Long-term debt borrowings .............................................                  --           1,900,000
           Long-term debt repayments .............................................             (32,113)         (2,234,583)
           Cash entitlements on conversion of preferred stock of
             consolidated subsidiary .............................................             (61,258)                 --
           Deferred financing costs ..............................................                  --             (56,875)
                                                                                           -----------         -----------
               Net cash provided by (used in) financing activities ...............             (82,026)            918,307
                                                                                           -----------         -----------

        Change in cash and cash equivalents ......................................             (77,670)            (59,175)
        Cash and cash equivalents, beginning of period ...........................           1,154,896             235,433
                                                                                           -----------         -----------
        Cash and cash equivalents, end of period .................................         $ 1,077,226         $   176,258
                                                                                           ===========         ===========


        Supplemental disclosure of cash flow information:
            Cash paid for interest (net of capitalized interest) .................         $   (73,600)        $    (8,700)

            Non-cash investing and financing activities:
              Capital contribution of license to unconsolidated affiliate ........         $     7,500         $        --
              Exchange rights granted to CIVS V from additional paid in capital ..         $    17,400         $        --
              Stock dividend issued from additional paid in capital ..............         $   173,300         $        --
              Conversion of preferred stock of consolidated subsidiary ...........         $   176,500         $        --
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>   6
                        VOICESTREAM WIRELESS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.  ORGANIZATION

   VoiceStream Wireless Corporation ("VoiceStream," or "we") provides personal
communication services ("PCS") in urban markets in the United States using the
Global System for Mobile Communications, or GSM, technology. VoiceStream was
incorporated in June 1999 as a Delaware corporation to act as the parent company
for business combinations involving our predecessor, now named VS Washington
Corporation ("VS Washington").

   On February 25, 2000, pursuant to a reorganization agreement approved by the
shareholders of VS Washington and Omnipoint Corporation ("Omnipoint"),
VoiceStream, as a holding company, became the parent of VS Washington and of
Omnipoint. On May 4, 2000, VoiceStream completed the acquisition by merger of
Aerial Communications, Inc. ("Aerial"). VoiceStream's current business
activities consist of the combined businesses of VS Washington, Omnipoint and
Aerial.

   On July 24, 2000, we announced a definitive merger agreement with Deutsche
Telekom AG, a German telecommunication provider ("Deutsche Telekom"). Pursuant
to the Deutsche Telekom merger agreement, each VoiceStream shareholder may elect
to receive 3.2 Deutsche Telekom shares and $30 in cash for each VoiceStream
common share, or either an all-share or all-cash option, subject to the
proration terms of the Deutsche Telekom merger agreement and to certain
adjustments necessary to qualify the merger as a tax-free reorganization. In
connection with the merger, Deutsche Telekom will assume all of our outstanding
debt, which at March 31, 2001 totaled $5.7 billion. On March 12, 2001, our Board
of Directors approved the declaration of a .0075 common share dividend which was
recorded on March 23, 2001 as $173.3 million and 1,969,152 shares and was
distributed on April 6, 2001 to shareholders of record on March 23, 2001.
Additionally, historical weighted average shares outstanding have been adjusted
to reflect the additional shares issued when the dividend was distributed. All
required approvals have been obtained and the merger is expected to be completed
on May 31, 2001, subject to customary closing conditions.

   On August 28, 2000, we announced a definitive merger agreement with Powertel,
Inc. ("Powertel"), a GSM service provider based in West Point, Georgia servicing
the Southeastern United States. The VoiceStream merger with Powertel is
contingent upon the termination of our proposed merger with Deutsche Telekom.
Should our merger with Deutsche Telekom be consummated, Powertel will also merge
with Deutsche Telekom. Pursuant to the Powertel merger agreement, Powertel
shareholders will receive VoiceStream common shares at a conversion ratio
ranging from .65, if the average closing price of VoiceStream common shares is
$130.77 or above, to .75 if the average closing price of VoiceStream common
shares is $113.33 or below. Between these two prices the conversion ratio,
subject to adjustment, will be the quotient determined by dividing $85 by the
average closing price of VoiceStream common shares. All required approvals have
been obtained.

   On December 14, 2000, we acquired controlling interests in the following
entities in exchange for approximately 7.9 million VoiceStream common shares and
$51 million in cash: VoiceStream PV/SS PCS, L.P. ("VS PCS"), formerly known as
Cook Inlet/VoiceStream PV/SS PCS L.P.; VoiceStream GSM I, LLC ("VS GSM"),
formerly known as Cook Inlet/VoiceStream PCS, LLC; VoiceStream GSM II Holdings,
LLC ("VS GSM II"), formerly known as Cook Inlet/VS GSM II PCS Holdings, LLC; and
VoiceStream GSM III Holdings, LLC ("VS GSM III"), formerly known as Cook
Inlet/VS GSM III PCS Holdings, LLC. On February 14, 2001 we acquired the
remaining minority interest in VS PCS and VS GSM in exchange for approximately
4.3 million VoiceStream common shares.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   The accompanying interim consolidated financial statements and the financial
information included herein are unaudited, but reflect all adjustments which
are, in our opinion, necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented. All
such adjustments are of a normal, recurring nature. Results of operations for
interim periods presented herein are not necessarily indicative of results of
operations for the entire year.

   Capitalized Interest

   Our PCS licenses and wireless communications systems represent qualified
assets pursuant to Statement of Financial Accounting Standards ("SFAS") No. 34,
"Capitalization of Interest Cost." Our policy is to capitalize interest in new
markets during the build-out phase until service is initiated for customers. We
capitalized interest of $11.7 million during the three months ended March 31,
2001 and $0.1 million during the same period in 2000.



                                       6
<PAGE>   7
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   Loss per common share

   Loss per common share is calculated using the weighted average number of
shares of outstanding common stock during the period pursuant to the
requirements of SFAS No. 128, "Earnings Per Share". Due to the net losses
incurred during the periods presented, all issuable shares related to
outstanding options, convertible preferred shares and exchange rights are
antidulitive, and totaled 6,669,373 shares at March 31, 2001. As a result, basic
and diluted loss per share are the same for each of the periods presented.

   Fair value of financial instruments

   At March 31, 2001 and December 31, 2000, the carrying values of cash, cash
equivalents, short-term investments, receivables and accounts payable
approximated fair value due to the short-term maturities of these instruments.
The estimated fair values of other financial instruments with a fair value
materially different from their carrying value are based on quoted market prices
or rates for the same or similar instruments, and the related carrying amounts
are as follows (dollars in thousands):

   <TABLE>
   <CAPTION>
                                                                  MARCH 31, 2001                    DECEMBER 31, 2000
                                                          ----------------------------        ----------------------------
                                                                  (unaudited)
                                                           CARRYING            FAIR            CARRYING            FAIR
                                                            AMOUNT             VALUE            AMOUNT             VALUE
                                                          ----------        ----------        ----------        ----------
   <S>                                                    <C>               <C>               <C>               <C>
   Long term debt, including current portion .....        $5,733,425        $5,930,000        $5,751,999        $5,894,000
   Preferred stock of consolidated subsidiary ....        $   79,490        $  203,525        $  312,513        $  848,000
   VoiceStream convertible preferred stock .......        $5,000,000        $2,900,000        $5,000,000        $3,200,000
   </TABLE>

   In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133", and
SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities". The statements establish accounting and reporting standards for
derivative instruments and hedging activities and require recognition of all
derivatives as either assets or liabilities measured at fair value. Changes to
the fair value of derivatives are recognized in earnings unless specific hedge
accounting criteria are met. We adopted the provisions of these accounting
standards as of January 1, 2001 with no material impact on our final position.

   Under the terms of our credit facility, we are required to mitigate the
interest rate risk associated with our long-term debt through interest rate cap,
collar and swap contracts. We have fixed or capped our exposure to interest rate
risk on variable lending totaling $990 million at both March 31, 2001 and
December 31, 2000. The fair value of these derivative instruments was a
liability of $9.3 million and an asset of $0.6 million at March 31, 2001, and
December 31, 2000, respectively. Our policy is to hold such contracts to
maturity and they are not accounted for as hedges. Prior to January 1, 2001,
interest rate swaps were accounted for on an accrual basis, the income or
expense of which is included in interest expense.

   Reclassifications

   Certain of the comparative figures in the prior period financial statements
have been reclassified to conform to the current period presentation.


                                       7
<PAGE>   8
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3.  MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS

   Designated Entity Exchanges

   On December 14, 2000, certain of our joint venture partners in VS PCS, VS
GSM, VS GSM II and VS GSM III exercised the exchange rights granted upon
formation of these entities (see Note 6). In exchange for 153,063 VoiceStream
common shares and approximately $51 million in cash, we increased our ownership
interest in VS PCS from 49.9% to 81.2%. In exchange for the issuance of
4,009,804 VoiceStream common shares we increased our ownership stake in VS GSM
from 49.9% to 75.0%. In exchange for 3,000,000 and 750,000 VoiceStream common
shares, we increased our respective ownership percentages in VS GSM II and VS
GSM III from 49.9% to 100%. Prior to acquiring controlling interests in these
entities we used the equity method to account for these investments.

   On February 14, 2001, the remaining minority interest holders in VS PCS and
VS GSM exercised their exchange rights in return for 321,334 and 4,000,000
VoiceStream common shares, respectively.

   Aerial and Omnipoint Mergers

   On May 4, 2000, we completed the merger with Aerial and accordingly,
subsequent to this date, Aerial results of operations are included in
VoiceStream's consolidated results. Aerial provided PCS service in urban markets
in the United States including Columbus, OH, Houston, TX, Kansas City, MO,
Minneapolis, MN, Pittsburgh, PA, and Tampa-St. Petersburg, FL. The merger was
accounted for using the purchase method. Pursuant to the merger agreement, we
exchanged 0.455 of a share of VoiceStream common stock for each outstanding
share of Aerial Series A common stock.

   On February 25, 2000, we completed the merger with Omnipoint and accordingly,
subsequent to this date, Omnipoint results of operations are included in
VoiceStream's consolidated results. Omnipoint, directly and through joint
ventures, provided PCS service in urban markets including New York, NY, Detroit,
MI, Boston, MA, Philadelphia, PA, Miami, FL, and Indianapolis, IN. The merger
was accounted for using the purchase method. Pursuant to the merger agreement,
we exchanged 0.825 of a share of VoiceStream common stock plus $8.00 in cash for
each outstanding Omnipoint common share. Total consideration paid for the
acquisition, including liabilities assumed, was $6.2 billion. In conjunction
with the merger agreement signed on June 23, 1999, VoiceStream invested a total
of $150.0 million in Omnipoint, of which $102.5 million was invested in
Omnipoint preferred stock upon signing of the merger agreement in June 1999. The
remaining $47.5 million was invested in Omnipoint preferred stock on October 1,
1999.

   In connection with the completion of the Omnipoint merger on February 25,
2000, Hutchison Telecommunications PCS (USA) Limited ("Hutchison"), a
subsidiary of Hutchison Whampoa Limited, a Hong Kong company, made an
investment of $957 million in VoiceStream for common and convertible preferred
securities at a purchase price of $29 per common share. A portion of this
investment was made upon the signing of the merger agreement on June 23, 1999
when Hutchison invested $102.5 million in Omnipoint preferred stock. An
additional $47.5 million was invested in Omnipoint preferred stock in October
1999. Upon closing of the merger, the Omnipoint preferred stock was exchanged
for VoiceStream common shares at a purchase price of $29 per common share and
Hutchison invested $196.4 million in exchange for VoiceStream common shares and
$610.6 million in exchange for VoiceStream 2.5% convertible preferred stock. The
convertible preferred stock was converted into VoiceStream common shares during
2000 at a conversion price of $29 per share. Additionally, Sonera invested $500
million in VoiceStream at the time of the Omnipoint merger in exchange for
8,771,930 VoiceStream common shares at $57 per share.

   On June 27, 2000, we sold a wholly owned subsidiary, Omnipoint Technologies,
Inc. ("OTI"), to Xircom, Inc. ("Xircom"). Pursuant to the terms of the sales
agreement, we exchanged all of the outstanding common shares of OTI for
approximately 1.2 million common shares of Xircom. The sale was accounted for as
a tax-free reorganization and VoiceStream did not recognize any gain or loss on
the transaction. The operations of OTI were immaterial to the consolidated
operations of VoiceStream. The Xircom shares were sold for $30.0 million in
March 2001.


                                       8
<PAGE>   9
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3.  MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS (CONTINUED)

   The business combinations described above were accounted for using the
purchase method. The components of the purchase price of these transactions and
the purchase price allocations are as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                AERIAL          OMNIPOINT              DESIGNATED ENTITIES(b)
                                                            ACQUIRED AS OF    ACQUIRED AS OF               ACQUIRED AS OF
                                                            --------------  -----------------  -------------------------------------
                                                             MAY 4, 2000    FEBRUARY 25, 2000  DECEMBER 14, 2000   FEBRUARY 14, 2001
                                                            --------------  -----------------  -----------------   -----------------
                                                                                                                      (unaudited)
<S>                                                         <C>             <C>                <C>                 <C>
Consideration and merger costs:
  Total value of shares issued in merger(a) .............    $5,703,500        $1,388,000          $  930,100           $447,000
  Cash payments .........................................            --           627,000(c)           45,900                 --
  Cash payments for debt ................................       113,900                --             227,100                 --
  Fair value of options and warrants converted ..........         6,100           859,000                  --                 --
  Liabilities assumed inclusive of minority interest ....       459,000         3,174,600             683,500                 --
  Hutchison preferred stock conversion ..................            --           150,000                  --                 --
  Merger related costs ..................................        20,500            19,000                 300                100
  Cook Inlet exchange rights (See Note 6) ...............            --            28,000                  --                 --
                                                             ----------        ----------          ----------           --------
        Total consideration .............................     6,303,000         6,245,600           1,886,900            447,100
Purchase price allocations:
  Current assets ........................................        94,700           212,800             100,300                 --
  Property, plant and equipment .........................       362,900           466,400             296,400                 --
  Investments in unconsolidated affiliates ..............         3,600           679,900                  --                 --
  Licenses and other intangibles ........................       551,200           931,400           1,490,200            447,100
                                                             ----------        ----------          ----------           --------
        Goodwill ........................................    $5,290,600        $3,955,100          $       --           $     --
                                                             ==========        ==========          ==========           ========
</TABLE>

(a)   VoiceStream issued 52,325,301 and 52,952,399 shares, respectively, in
      conjunction with the Aerial and Omnipoint mergers in 2000. VoiceStream
      also issued 7,912,887 and 4,321,334 shares in 2000 and 2001, respectively,
      in conjunction with the Designated Entities exchange rights exercises.

(b)   The Designated Entities referred to in this schedule include VS PCS,
      VS GSM, VS GSM II and VS GSM III.

(c)   Includes the $150 million invested in Omnipoint Series A preferred shares
      in June and October of 1999, pursuant to the terms of the merger
      agreement.

   The above allocations reflect the estimated fair value of assets and
liabilities acquired.

   Unaudited pro forma operating results, assuming the Aerial, Omnipoint and
Designated Entities business combinations occurred on January 1, 2001 were not
materially different than those on the accompanying operating statement for the
three months ended March 31, 2001. The unaudited pro forma operating results
assuming the business combinations occurred on January 1, 2000 are as follows
(dollars in thousands, except per share data):

<TABLE>
<S>                                                            <C>
         Total revenues .............................          $ 542,036
         Net loss ...................................          $(471,841)
         Basic and diluted loss per common share ....          $   (2.09)
</TABLE>

   Other Acquisitions and License Exchanges

   STPCS Asset and License Purchase

   On January 22, 2001, VoiceStream and CIVS IV (see Note 6) purchased certain D
and F Block licenses owned by two subsidiaries of STPCS Joint Venture, LLC
("STPCS") in Texas. A subsidiary of VoiceStream owned an 18% interest in STPCS.
Under the terms of the agreement, STPCS sold its D Block licenses in the
Brownsville, Laredo, Corpus Christi and McAllen BTAs and certain other owned
assets to VoiceStream for approximately $297 million. Additionally, STPCS sold
its F Block licenses in the McAllen, Brownsville, Eagle Pass, Victoria and
Laredo BTAs and certain other owned assets to CIVS IV, a Designated Entity (see
Note 6), for $9 million.


                                       9
<PAGE>   10
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3.  MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS (CONTINUED)

   License exchange between AT&T Wireless and Omnipoint Holdings, LLC

   On March 29, 2001, a VoiceStream subsidiary, Omnipoint Holdings, Inc.
("OHI"), exchanged certain D and E Block 10 MHz licenses held by OHI and other
VoiceStream subsidiaries in Detroit, MI and St. Louis, MO for portions of
certain A Block 10 MHz licenses held by AT&T Wireless PCS, LLC ("AT&T") in
Phoenix, AZ and Puerto Rico and $11.7 million in cash. The assets were recorded
at $200.5 million and a gain of $11.7 million was recorded in other income for
the three months ended March 31, 2001. Neither party assumed any liabilities
related to the licenses transferred.

   License Exchange Between AT&T and Omnipoint

   On March 29, 2001, two wholly-owned VoiceStream subsidiaries, Omnipoint
Holdings, Inc ("OHI") and Omnipoint Albany-Schenectady-Glens Falls E License,
LLC ("OASG"), exchanged the E Block license in Albany, NY held by OASG for 10
MHz of the A Block within Bloomington, IL and Little Rock, AR held by AT&T.
There was no gain or loss recorded in this transaction.

   License exchange between VoiceStream and Cingular Wireless

   On May 11, 2001, we completed the exchange of licenses covering approximately
35 million people with Cingular Wireless ("Cingular"). Cingular acquired from
VoiceStream 10 MHz of spectrum for the New York, NY Major Trading Area ("MTA"),
as well as 10 MHz in each of the St. Louis, MO and Detroit, MI Basic Trading
Areas ("BTAs"). VoiceStream acquired from Cingular 10 MHz of spectrum in the Los
Angeles and San Francisco MTA's, that cover most of California and Nevada. There
was no gain or loss recorded in this transaction.

   BCN Communications

   On January 24, 2001, CIVS IV purchased a 100% Class A membership interest in
BCN Communications LLC to acquire the Philadelphia, Atlantic City and Dover C2
15 MHz licenses for $70 million in cash.

   FCC Auction #35

   On January 26, 2001, on completion of FCC Auction # 35, we were the high
bidder on 19 licenses for $482.7 million. Additionally, through CIVS V (see Note
6), a Designated Entity in which we hold a non-controlling interest, we were the
high bidder on 22 PCS licenses for $506.4 million. These licenses have yet to be
issued by the FCC in light of pending administrative and judicial challenges
affecting certain of the licenses. The most significant litigation has been
brought by the original licensee, NextWave Communications, Inc., in the United
States Court of Appeals for the District of Columbia Circuit, challenging the
FCC's cancellation of NextWave's licenses and reclamation and reauctioning of
the spectrum. Should NextWave or any of the other challengers prevail, then the
FCC may be precluded from issuing any of the affected licenses to the high
bidders or may be required to revoke any licenses that have already been
granted.

   Pocket Communications and Leap Wireless

   On February 12, 2001, CIVS IV purchased 12 C Block licenses in Las Vegas, NV,
New Orleans, LA, Houma-Thibidaux, LA, Omaha, NE, Sandusky, OH, Adrian, MI,
Battle Creek, MI, Grand Rapids, MI, Jackson, MI, Muskegon, MI, Toledo, OH and
Pittsburgh-Parsons, KS from Pocket Communications for $195 million. In a
separate agreement, we sold 8 of these licenses to Leap Wireless, Inc. for $51
million in cash and 348,878 shares of Leap Wireless common stock on April 5,
2001.

   UbiquiTel

   On February 22, 2001, we signed a definitive agreement with UbiquiTel (a
Sprint PCS Affiliate) to purchase licenses in Bakersfield (10 MHz of A Block),
Fresno, Merced, Modesto, Stockton, and Visalia (F Blocks) for approximately $50
million. This transaction is anticipated to close in mid-2001.

   Verizon (Trustee)

   On February 8, 2001, we entered into an agreement with the Department of
Justice-appointed Trustee overseeing the operation and divestiture of the former
GTE Cincinnati-Dayton PCS properties to purchase licenses and operating assets
located primarily in Cincinnati and Dayton, OH (both 20 MHz of B Block) for
approximately $200 million. We have obtained preliminary regulatory approvals
and this transaction is anticipated to close in June 2001.


                                       10
<PAGE>   11
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

4.  PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                           MARCH 31,           DECEMBER 31,
     (dollars in thousands)                         USEFUL LIVES             2001                  2000
                                                    ------------          -----------            -----------
                                                                          (unaudited)
<S>                                                 <C>                   <C>                   <C>
     Land, buildings and improvements ....          5 -- 40 years         $   123,219           $  108,510
     Wireless communications systems .....          5 -- 10 years           2,864,070            2,444,112
     Furniture and equipment .............          3 -- 5 years              528,201              361,909
                                                                          -----------           ----------
                                                                            3,515,490            2,914,531
     Accumulated depreciation ............                                   (919,916)            (740,956)
                                                                          -----------           ----------
                                                                            2,595,574            2,173,575
     Construction in progress ............                                  1,168,974            1,293,975
                                                                          -----------           ----------
                                                                          $ 3,764,548           $3,467,550
                                                                          ===========           ==========
</TABLE>

   Depreciation expense was $179.2 million during the three months ended March
31, 2001 and $58.2 million for the same period in 2000.

5. LICENSING COSTS AND OTHER INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                                                                            MARCH 31,           DECEMBER 31,
     (dollars in thousands)                         USEFUL LIVES              2001                  2000
                                                    ------------          -----------           ------------
                                                                          (unaudited)
<S>                                                 <C>                   <C>                   <C>
     License costs .......................          40 years              $ 4,281,840           $3,714,051
     Lease rights ........................          15 years                   57,066               57,066
     Other intangible assets .............          3 -- 40 years             321,793              175,123
                                                                          -----------           ----------
                                                                            4,660,699            3,946,240
     Accumulated amortization ............                                   (155,145)            (118,923)
                                                                          -----------           ----------
                                                                          $ 4,505,554           $3,827,317
                                                                          ===========           ==========
</TABLE>

   Amortization expense, excluding goodwill amortization, was $33.8 million for
the three months ended March 31, 2001 and $6.7 million for the same period in
2000. Goodwill amortization was $118.2 million for the three months ended March
31, 2001 and $17.2 million for the same period in 2000.

6.  INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

<TABLE>
<CAPTION>
                                MARCH 31,       DECEMBER 31,
     (dollars in thousands)       2001             2000
                                --------        -----------
                               (unaudited)
<S>                             <C>               <C>
     CIVS IV .........          $287,222          $212,209
     CIVS V ..........                --            74,915
     Microcell .......           199,936           209,758
     Other ...........            21,155             1,987
                                --------          --------
                                $508,313          $498,869
                                ========          ========
</TABLE>

   Designated Entities

   In connection with its authority to regulate the sale and use of radio wave
spectrum used to provide PCS service in the United States, the FCC adopted rules
that granted a narrow category of entities ("Designated Entities") the exclusive
right to bid for and own C and F Block licenses for the initial five year period
following award of the licenses. VoiceStream does not qualify as a Designated
Entity. In order to continue expansion of service to our customers, we obtained
49.9% ownership interests in six Designated Entities controlled by Cook Inlet
Region, Inc. ("CIRI") directly and through its affiliates. In December 2000, we
acquired controlling interests in four of these Designated Entities: VS PCS, VS
GSM, VS GSM II and VS GSM III. At December 31, 2000 and March 31, 2001, we had
minority ownership interests in the two remaining Designated Entities controlled
by CIRI: Cook Inlet/VS GSM IV PCS Holdings, LLC ("CIVS IV") and Cook Inlet/VS
GSM V PCS Holdings LLC, ("CIVS V"). We consolidate our investment in CIVS V and
account for our investment in CIVS IV using the equity method. VoiceStream
customers are able to obtain service in the Designated Entities' territories
through reseller and other contractual arrangements between VoiceStream and
these Designated Entities or their affiliates.



                                       11
<PAGE>   12
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

6.  INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (CONTINUED)

   CIVS IV

   CIVS IV, a Delaware limited liability company, was formed in October 2000 for
the purpose of acquiring and operating licenses subject to the FCC's Designated
Entity rules. CIVS IV is managed by Cook Inlet Mobile Corporation ("Cook Inlet
Mobile"), a subsidiary of CIRI, which owns a 50.1% interest in CIVS IV. Through
a subsidiary, VoiceStream holds a 49.9% ownership interest in CIVS IV. In
October 2000, VoiceStream, through its subsidiary, and Cook Inlet Mobile made
capital investments in CIVS IV commensurate with their respective ownership
percentages.

   On entering into the agreement, VoiceStream granted Cook Inlet Mobile
exchange rights entitling Cook Inlet Mobile to certain rights, but no
obligation, to exchange its ownership interest for 382,657 VoiceStream common
shares. These rights are conditioned by the FCC's Designated Entity rules and
VoiceStream's legal ability to hold C and F block licenses at the time of the
exchange under such rules. The initial fair value of these exchange rights
totaled $14 million and was recorded as an increase to investments in and
advances to unconsolidated affiliates and additional paid-in capital. Beginning
in 2001, the exchange rights are amortized over the remaining FCC restricted
holding periods for the licenses. Additionally, VoiceStream loaned $195 million
to CIVS IV as evidenced by promissory notes, bearing interest at the higher of
10% or LIBOR plus 5%, to fund the purchase of certain C block licenses. Our
total investment in CIVS IV, including advances under such promissory notes, was
$287.2 million at March 31, 2001. VoiceStream is using the equity method to
account for its investment in CIVS IV.

   CIVS V

   CIVS V, a Delaware limited liability company, was formed in October 2000 for
the purposes of acquiring and operating licenses subject to the FCC's Designated
Entity rules. CIVS V is managed by Cook Inlet Wireless, Inc. ("Cook Wireless"),
a subsidiary of CIRI, which owns a 50.1% interest in CIVS V. Through a
subsidiary, VoiceStream holds a 49.9% ownership interest in CIVS V. In November
2000, VoiceStream, through its subsidiary, and Cook Wireless made capital
investments in CIVS V commensurate with their respective ownership percentages.

   On February 14, 2001, VoiceStream granted Cook Inlet Mobile exchange rights
entitling Cook Inlet Mobile to certain rights, but no obligation, to exchange
its ownership interest for VoiceStream common shares or cash, at VoiceStream's
option. These rights are conditioned by the FCC's Designated Entity rules and
VoiceStream's legal ability to hold C and F block licenses at the time of the
exchange under such rules. The fair value of these exchange rights totaled $17.4
million. The exchange rights are amortized over the remaining FCC restricted
holding periods for the licenses. VoiceStream used the equity method to account
for its investment in CIVS V through 2000, and began consolidating CIVS V in
2001 based on the terms of the exchange rights agreement.

   Microcell Investment

   On February 28, 2000, we invested $274.6 million in Class A shares of
Microcell Telecommunications Inc. ("Microcell"), a Canadian GSM service
provider. The per share transaction price was equal to the closing market price
of Microcell's publicly traded Class B Non-Voting shares on the Nasdaq National
Market System on January 6, 2000. We invested an additional $9.7 million in
Class B shares of Microcell in January 2000.

   The Class A shares constitute approximately 15% of the issued and outstanding
equity securities of Microcell. Class A shares are non-voting but are
convertible at any time into common shares, which are voting (subject to
Canadian foreign ownership restrictions). If fully converted, these common
shares would represent a 22.6% voting interest in Microcell. Additionally,
VoiceStream is entitled to designate two members of Microcell's Board of
Directors. The investment is being accounted for using the equity method.
Amortization of the purchase price paid in excess of net assets acquired was
$3.2 million for the three months ended March 31, 2001 and is included in our
equity in net losses of unconsolidated affiliates.

   Accumulated other comprehensive loss includes currency translation
adjustments arising from fluctuations in the Canadian to U.S. dollar exchange
rates of $11.2 million from the date of our investments in Microcell to March
31, 2001.



                                       12
<PAGE>   13
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

7. LONG TERM DEBT

<TABLE>
<CAPTION>
                                                                                    MARCH 31,             DECEMBER 31,
   (dollars in thousands)                                                             2001                   2000
                                                                                  ------------          -------------
                                                                                  (unaudited)
   <S>                                                                            <C>                   <C>
   Credit facilities:
     Term loans ...........................................................       $ 2,425,000           $ 2,425,000
     Vendor facility ......................................................           750,000               750,000
     Revolvers ............................................................           150,000               150,000
   Senior Notes:
     10 3/8% Senior Notes, due in 2009 ....................................         1,727,904             1,727,904
     11 7/8% Senior Discount Notes, due in 2009 ...........................           720,000               720,000
     11 5/8% Senior Discount Notes, due in 2006 ...........................             4,582                 4,582
     11 1/2% Senior Discount Notes, due in 2009 ...........................           205,000               205,000
   FCC license obligations ................................................                --                32,113
                                                                                  -----------           -----------
                                                                                    5,982,486             6,014,599
   Unamortized discount and premium, net...................................          (249,061)             (262,600)
   Current portion of long-term debt ......................................                --               (32,113)
                                                                                  -----------           -----------
                                                                                  $ 5,733,425           $ 5,719,886
                                                                                  ===========           ===========
</TABLE>

   VoiceStream has a credit facility which includes revolving credit loans and
term loans in an aggregate principal amount totaling $3.25 billion. The
revolving credit portion of the credit facility is a $1.35 billion reducing
revolving credit and was unutilized at March 31, 2001. The term loan portion of
the facility totals $1.9 billion and was fully utilized at March 31, 2001. The
credit facility permits up to $1.5 billion of additional indebtedness through a
vendor facility of $1.0 billion and an incremental facility of up to $500
million. At March 31, 2001, we had utilized $750 million of the vendor facility.
Total borrowing permitted under the credit facility including the additional
indebtedness is $4.75 billion. The repayment of the facility is secured by,
among other things, the grant of a security interest in certain assets of
VoiceStream and certain of its subsidiaries and in the capital stock of certain
of VoiceStream's subsidiaries. At March 31, 2001, we have utilized $2.65 billion
of the $4.25 billion in borrowings currently committed under this facility.

   VS GSM has a credit facility with an infrastructure equipment vendor which
provides for borrowings of up to $735 million, composed of a $485 million loan
facility (including a $160 million revolving loan and term loans aggregating
$325 million), $100 million of 13% Series A Senior Discount Notes, and up to
$150 million 13% Series A Subordinated Notes. The repayment of the $485 million
loan facility is secured by, among other things, the grant of a security
interest in the capital stock and assets of certain of VS GSM subsidiaries. At
March 31, 2001 we have utilized $325 million of the $735 million available
credit. The Series A Senior Discount Notes and Series A Subordinated Notes have
not been issued, but may be issued at any time before June 30, 2001.

   A wholly owned subsidiary of VS GSM II has a $350 million loan facility
collateralized by substantially all of the assets of such subsidiary and its
license subsidiaries, and a pledge of all capital stock of each subsidiary. As
of March 31, 2001 we had fully utilized the credit available under this
facility.

   Borrowings under the credit facilities bear interest, at our option, at
annual rates of interest ranging up to either (1) the greater of (a) the prime
rate, or (b) the Federal Funds rate plus 5/8%, or (2) a Eurodollar rate, in
each instance plus applicable margins. Such applicable margins will range to a
maximum of 2.75%, in the case of loans based on the prime rate or Federal Funds
rate, and to a maximum of 3.75%, in the case of loans based on a Eurodollar
rate, in each case based upon certain factors including the borrower's leverage
ratio, as defined in each of the credit facilities.


                                       13
<PAGE>   14
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

7.  LONG TERM DEBT (CONTINUED)

   Maturities

   The aggregate amounts of principal maturities of long-term debt at March 31,
2001 are as follows (dollars in thousands):

<TABLE>
<S>                                <C> <C>                  <C>
        Twelve months ending March 31, 2002.......        $       --
        Remainder of 2002.........................                --
        Year ending:
            2003..................................           100,000
            2004..................................           187,250
            2005..................................           247,125
        Thereafter................................         5,448,111
                                                          ----------
                                                          $5,982,486
                                                          ==========
</TABLE>

8.  COMMITMENTS AND CONTINGENCIES

   Commitments

   Future minimum payments required under operating leases and agreements that
have initial or remaining non-cancelable terms in excess of one year as of March
31, 2001, are summarized below (dollars in thousands):

<TABLE>
<S>                                                       <C>
        Twelve months ending March 31, 2002 ......        $  167,073
        Remainder of 2002 ........................           124,575
        Year ending:
           2003 ..................................           165,312
           2004 ..................................           167,025
           2005 ..................................           167,435
        Thereafter ...............................           308,738
                                                          ----------
                                                          $1,100,158
                                                          ==========
</TABLE>

   Aggregate rental expense for all operating leases was approximately $62.2
million for the three months ended March 31, 2001 and $27.5 million for the same
period in 2000.

   In order to ensure adequate supply and availability of certain infrastructure
equipment and services, VoiceStream has committed to purchase PCS equipment from
various suppliers. These commitments total approximately $962.0 million as of
March 31, 2001. At March 31, 2001, VoiceStream has ordered approximately $577.7
million under all of these agreements, of which approximately $31.4 million has
not been delivered.

   VoiceStream and its affiliates have various other purchase commitments for
materials, supplies and other items incidental to the ordinary course of
business which are neither significant individually nor in the aggregate. Such
commitments are not at prices in excess of current market value.

   Contingencies

   On May 3, 1999, Western Wireless distributed its entire 80.1% interest in
VoiceStream's common shares to its stockholders. Prior to this "spin-off,"
Western Wireless obtained a favorable ruling from the IRS indicating that the
spin-off would not result in the recognition of gain or taxable income to
Western Wireless or its stockholders. However, Western Wireless could still
recognize gain upon the spin-off, notwithstanding the favorable IRS ruling, if
it is determined that the spin-off was part of a "prohibitive plan," that is, a
plan or series of related transactions in which one or more persons acquire,
directly or indirectly 50% or more of VoiceStream's stock. Acquisitions of 50%
or more of VoiceStream's stock occurring during the four year period beginning
two years before the spin-off would give rise to a rebuttable presumption that
the spin-off was part of a prohibitive plan. Although it is not assured,
VoiceStream believes it should be able to establish that the spin-off, the
subsequent Omnipoint and Aerial mergers, certain investments by Hutchison and
Sonera and the potential VoiceStream/Powertel mergers are not pursuant to a
"prohibitive plan."



                                       14
<PAGE>   15
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

8.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

   VoiceStream has agreed to indemnify Western Wireless on an after-tax basis
for any taxes, penalties, interest and various other expenses incurred by
Western Wireless if it is required to recognize such a gain. The amount of such
gain that Western Wireless would recognize would be equal to the difference
between the fair market value of VoiceStream common shares at the time of the
spin-off and Western Wireless' adjusted tax basis in such shares at the time.
The estimated range of possible liability of VoiceStream, not including interest
and penalties, if any, is from zero to $400 million.

9.  PREFERRED STOCK

   Convertible voting preferred stock

   On September 6, 2000, VoiceStream issued and sold to Deutsche Telekom
3,906,250 shares of its Convertible Voting Preferred Stock, par value $0.001 per
share, for an aggregate purchase price of $5 billion. Each share of Convertible
Voting Preferred Stock has a liquidation preference of $1,280 per share. If the
Deutsche Telekom/VoiceStream merger agreement is terminated, each share of
Convertible Voting Preferred Stock will become convertible into the number of
shares of VoiceStream common stock equal to the liquidation preference divided
by $160. The liquidation preference and conversion price are adjustable for
splits of the Convertible Voting Preferred Stock or other comparable
transactions. Assuming no such adjustment, the total outstanding shares of
Convertible Voting Preferred Stock will become convertible into 31,250,000
shares of VoiceStream common stock in the event the Deutsche Telekom/VoiceStream
merger agreement is terminated.

   Each share of Convertible Voting Preferred Stock is entitled to one vote. The
Convertible Voting Preferred Stock votes together with the VoiceStream common
stock as a single class and is entitled to receive dividends and other
distributions made by VoiceStream on its common stock on an as-converted basis.
Until the Deutsche Telekom/VoiceStream merger agreement is terminated, the
Convertible Voting Preferred Stock may only be transferred by Deutsche Telekom
to a controlled subsidiary. The Convertible Voting Preferred Stock ranks senior
in rights upon liquidation or dissolution to VoiceStream's common stock, and
will rank junior to any other VoiceStream Preferred Stock. VoiceStream has the
option to redeem the Convertible Voting Preferred Stock at the liquidation
preference thereof after December 31, 2020. VoiceStream shall, upon the request
of the holder thereof, redeem the Convertible Voting Preferred Stock at the
liquidation preference thereof after December 31, 2030; provided, however, that
VoiceStream may not make such redemption if prohibited from doing so by law or
agreement or if doing so would make it insolvent.

   Preferred stock of consolidated subsidiary

   Preferred stock of consolidated subsidiary includes Omnipoint depositary
shares ("Depositary Shares"), each representing 1/20 of a share of 7% Cumulative
Convertible Preferred Stock ("Preferred Stock"). The holder of each Depositary
Share is entitled to a quarterly payment from the Deposit Account in an amount
equal to $0.268 per Depositary Share. These dividends are reflected in the
consolidated statements of operations and comprehensive loss as accretion of
preferred stock of consolidated subsidiary.

   Each Depositary Share may be converted at any time, at the option of the
holder, into 1.3256 VoiceStream common shares plus $12.86. A total of 4,763,419
Depositary Shares were converted to 6,314,857 VoiceStream common shares during
the three months ended March 31, 2001. At March 31, 2001, 1,590,041 Depositary
Shares were outstanding of which 1,589,896 were converted into 2,107,707
VoiceStream common shares on or prior to May 1, 2001. The remaining 145
Depositary Shares outstanding were redeemed in May 2001, for cash at the
redemption price of $52 per Depositary Share.



                                       15
<PAGE>   16
                        VOICESTREAM WIRELESS CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

10.  RELATED PARTY TRANSACTIONS

   VoiceStream and the Designated Entities are parties to technical services
agreements and reciprocal resale agreements which entitle each party to utilize
airtime on the other's spectrum, and/or utilize wireless system infrastructure,
in certain agreed upon markets. The agreements are structured such that each
party performs as a reseller for the other and related fees are charged and paid
between the parties. We earned revenues of $1.4 million and incurred immaterial
expenses related to these agreements for the three months ended March 31, 2001
as compared to revenues of $16.9 million and expenses of $19.5 million for the
three months ended March 31, 2000. The decrease is due to our acquisition of the
controlling interests in four of the Designated Entities in December 2000.

11.  SUBSEQUENT EVENTS

   Devon Mobile

   On April 20, 2001, we entered into an agreement to purchase an E Block
license in West Palm Beach, FL from Devon Mobile for approximately $36.5
million. The population covered by this license is approximately 1.1 million.
CIVS IV also entered into an agreement on April 20, 2001 to purchase an F Block
license in Ft. Pierce, FL from Devon Mobile for approximately $13.5 million in
cash and $2 million of assumed FCC debt. The population covered by this license
is approximately 415,000. These transactions are anticipated to close in the
second half of 2001.

   Carolina PCS

   On May 1, 2001, we entered into an agreement to purchase certain 10 MHz C
Block licenses in Anderson, Charleston, Columbia, Florence, Greenville,
Greenwood, Myrtle Beach, Orangeburg and Sumter, SC from Carolina PCS for
approximately $85 million. The population covered by these licenses is
approximately 3.4 million. This transaction is anticipated to close in the
second half of 2001.



                                       16
<PAGE>   17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995.

   Information contained or incorporated by reference herein that is not based
on historical fact, including without limitation, statements containing the
words "believes," "may," "will," "estimate," "continue," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, events or
developments to be materially different from any future results, events or
developments expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally and in the regions in which VoiceStream operates;
technology changes; competition; changes in business strategy or development
plans; the high leverage of VoiceStream; the ability to attract and retain
qualified personnel; existing governmental regulations and changes in, or the
failure to comply with, governmental regulations; liability and other claims
asserted against VoiceStream; and other factors referenced in VoiceStream's
filings with the Securities and Exchange Commission. GIVEN THESE UNCERTAINTIES,
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. VoiceStream disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future results, events or developments.

   Unless the context requires otherwise, "VoiceStream", "we", "our" and "us"
include us and our predecessors and subsidiaries.

   The following is a discussion and analysis of the consolidated financial
condition and results of operations of VoiceStream and should be read in
conjunction with our consolidated financial statements and notes thereto and
other financial information included herein and in our Form 10-K for the year
ended December 31, 2000. Due to the stage of development of our PCS operations
and the significance of mergers and other transactions, our operating results
for prior periods may not be indicative of future performance.

OVERVIEW

   We provide PCS service in urban markets in the United States through the
ownership and operation of PCS licenses and through our minority interests in
joint ventures that own and operate similar licenses. The following chronology
highlights the key events in the period covered by these financial statements:

   -  On February 25, 2000, we merged with Omnipoint, a PCS service provider in
      urban markets, including New York, NY, Detroit, MI, Boston, MA,
      Philadelphia, PA, Miami, FL, and Indianapolis, IN. Our reported results of
      operations began including Omnipoint's results in March 2000.

   -  On May 4, 2000, we merged with Aerial, a PCS service provider in urban
      markets including Columbus, OH, Houston, TX, Kansas City, MO, Minneapolis,
      MN, Pittsburgh, PA, and Tampa-St. Petersburg, FL. Our reported results of
      operations began including Aerial's results in May 2000.

   -  On July 24, 2000, we announced a definitive merger agreement with Deutsche
      Telekom. Pursuant to the merger agreement, each VoiceStream shareholder
      may elect to receive 3.2 Deutsche Telekom shares and $30 in cash for each
      VoiceStream common share, subject to certain adjustments, or they can
      elect either an all-share or all-cash option, subject to the proration
      terms of the merger agreement. In connection with the merger, Deutsche
      Telekom will assume all of our outstanding long-term debt, which at March
      31, 2001 totaled $5.7 billion. On March 12, 2001, our Board of Directors
      approved the declaration of a .0075 common share dividend which was
      distributed on April 6, 2001 to shareholders of record on March 23, 2001.
      All required approvals have been obtained and the merger is expected to
      be completed on May 31, 2001, subject to customary closing conditions.





                                       17
<PAGE>   18
   -  On August 28, 2000, we announced a definitive merger agreement with
      Powertel, a PCS service provider based in West Point, Georgia servicing
      the southeastern United States. The merger with Powertel is contingent
      upon the termination of VoiceStream's proposed merger with Deutsche
      Telekom. Should the VoiceStream merger with Deutsche Telekom be
      consummated, then we expect that Powertel will also merge with Deutsche
      Telekom. Pursuant to the VoiceStream/Powertel merger agreement, holders of
      Powertel common and preferred stock will receive VoiceStream common shares
      at a conversion ratio, subject to adjustment, ranging from .65, if the
      average closing price of VoiceStream common shares is $130.77 or above, to
      .75 if the average closing price of VoiceStream common shares is $113.33
      or below. Between these two prices the conversion ratio will be the
      quotient determined by dividing $85 by the average closing price of
      VoiceStream common shares. All required approvals have been obtained.

   -  On September 5, 2000, in connection with the merger agreement, Deutsche
      Telekom made an initial investment of $5.0 billion in VoiceStream
      preferred shares. The preferred shares are convertible into VoiceStream
      common shares at a price of $160 per common share.

   -  In connection with its authority to regulate the sale and use of radio
      wave spectrum used to provide PCS service in the United States, the FCC
      adopted rules that granted a narrow category of entities ("Designated
      Entities") the exclusive right to bid for and own C and F Block licenses
      for the initial five year period following award of the licenses.
      VoiceStream does not qualify as a Designated Entity. A subsection of the
      Department of Defense Appropriations Act of 2001, enacted on August 9,
      2000, created a specific exemption to the FCC's rules limiting transfer or
      assignment of C and F Block PCS licenses. The exemption permitted Cook
      Inlet to transfer control of, or assign, the C and F Block licenses that
      it held as of August 9, 2000 to non-Designated Entities, without penalty.
      In December 2000 and February 2001, our partners in VoiceStream PV/SS PCS,
      L.P. ("VS PCS"), formerly known as Cook Inlet/VoiceStream PV/SS PCS L.P.;
      VoiceStream GSM I, LLC ("VS GSM"), formerly known as Cook
      Inlet/VoiceStream PCS, LLC; VoiceStream GSM II Holdings, LLC ("VS GSM
      II"), formerly known as Cook Inlet/VS GSM II PCS Holdings, LLC; and
      VoiceStream GSM III Holdings, LLC ("VS GSM III"), formerly known as Cook
      Inlet/VS GSM III PCS Holdings, LLC, elected to exercise their respective
      exchange rights, whereby they exchanged their interests in these entities
      for VoiceStream common shares.

   Operating markets

   We did not commence operations in any of our markets until February 1996.
After that date, we launched service in the following markets in the years
indicated:

<TABLE>
<CAPTION>
        1996                          1997              1998                   1999                          2001
        ----                          ----              ----                   ----                          ----
<S>                                   <C>               <C>                    <C>                           <C>
        Albuquerque                   Boise             Phoenix/Tucson         San Antonio/Austin            Chicago
        Des Moines                    Denver                                   Seattle/Tacoma                Milwaukee
        Honolulu                      El Paso                                  Washington DC/Baltimore       St. Louis
        Oklahoma City
        Portland
        Salt Lake City
</TABLE>

   The following operational markets, which were initially launched in the years
indicated, were acquired in the Omnipoint merger in February 2000:

<TABLE>
<CAPTION>
       1997                         1998
       ----                         ----
<S>                                 <C>
       Albany                       Boston
       Hartford                     Detroit
       New Haven                    Indianapolis
       New York                     Miami/Ft. Lauderdale
</TABLE>

   The following operational markets, which were initially launched in 1997,
were acquired in the Aerial merger in May 2000:

<TABLE>
<CAPTION>
<S>  <C>
       Columbus
       Houston
       Kansas City
       Minneapolis
       Pittsburgh
       Tampa/St. Petersburg
</TABLE>


                                       18
<PAGE>   19
   The controlling interests in the following operational markets, which were
initially launched in the years indicated, were acquired from Designated
Entities in December 2000:

<TABLE>
<CAPTION>
      1997                  1999          2000
      ----                  ----          ----
<S>                         <C>           <C>
      Atlantic City         Spokane       Dallas
      Philadelphia/Dover
      Tulsa
</TABLE>

   Due to the varying dates at which each of the markets became operational or
were acquired, the revenues and expenses recognized during any period may not be
comparable to another period and may not be representative of future operations.
Additionally, during each period being discussed, a portion of the operating
expenses were start-up costs incurred before the commencement of operations in
each of the markets. Exclusive of depreciation and amortization expense, which
was not material, approximately $3.9 million and $0.8 million of start-up costs
were incurred for the three months ended March 31, 2001 and 2000, respectively.



                                       19
<PAGE>   20
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000

   The following table sets forth certain financial data as it relates to our
operations:

<TABLE>
<CAPTION>
(dollars in thousands)                                        THREE MONTHS ENDED MARCH 31,
                                              -----------------------------------------------------
                                                   2001                   2000               CHANGE
                                              -------------           ------------           ------
<S>                                           <C>                     <C>                    <C>
Revenues:
  Subscriber revenues ..............          $     500,203           $    170,750           192.9%
  Prepaid revenues .................                 93,909                 25,202           272.6%
  Roamer revenues ..................                 44,015                 10,184           332.2%
  Equipment sales ..................                 82,433                 33,910           143.1%
  Affiliate and other revenues .....                 11,494                 18,398           (37.5)%
                                              -------------           ------------
     Total revenues ................                732,054                258,444           183.3%
                                              -------------           ------------
Operating expenses:
  Cost of service ..................                164,487                 63,763           158.0%
  Cost of equipment sales ..........                158,494                 58,902           169.1%
  General and administrative .......                275,273                 79,627           245.7%
  Sales and marketing ..............                280,966                 87,580           220.8%
  Depreciation and amortization ....                331,171                 82,092           303.4%
  Stock-based compensation .........                  2,156                  5,596           (61.5)%
                                              -------------           ------------
     Total operating expenses ......              1,212,547                377,560           211.2%
                                              -------------           ------------
Operating Loss .....................               (480,493)              (119,116)          303.4%
Other income (expense) .............               (170,719)               (84,214)          102.7%
                                              -------------           ------------
Net loss ...........................          $    (651,212)          $   (203,330)          220.3%
                                              =============           ============
Other Data:
Licensed population (operating
  markets) .........................            137,598,000             93,088,000            47.8%
Covered population .................            111,500,000             71,607,000            55.7%
Subscribers/Users:
Subscribers ........................              3,343,500              1,267,900           163.7%
Prepaid Users ......................              1,046,600                543,700            92.5%
Adjusted EBITDA ....................          $    (147,166)          $    (31,428)          368.3%
                                              =============           ============
Cash flows provided by (used in):
  Operating activities .............          $    (177,620)          $    (96,313)           84.4%
                                              =============           ============
  Investing activities .............          $     181,976           $   (881,169)           120.7%
                                              =============           ============
  Financing activities .............          $     (82,026)          $    918,307           (108.9)%
                                              =============           ============
</TABLE>

REVENUES

   The overall increase in service revenues (subscriber, prepaid and roamer
revenues) for the three months ended March 31, 2001 as compared to the same
period in 2000 is primarily due to the acquisitions of Omnipoint on February 25,
2000, Aerial on May 4, 2000, and controlling interests in the four Designated
Entities formerly controlled by Cook Inlet Region, Inc. ("CIRI") on December 14,
2000. Service revenues have also grown due to the expansion of our wireless
network in the existing and acquired markets and the launch of our services in
new markets. We had 4,390,100 customers at March 31, 2001, representing an
increase of 2,578,500 or 142.3% from March 31, 2000, of which 744,600 were added
through the acquisitions. During the quarter ended March 31, 2001 we added
511,100 net customers of which 26,400 related to our acquisition of STPCS and
its operations in South Texas. We believe our "Get More" marketing strategy,
including our advertising campaign featuring Jamie Lee Curtis, and associated
pricing strategy that was initiated in the second quarter of 1998 have
contributed to the rapid customer growth throughout all of our markets. We
intend to continue the "Get More" marketing strategy and expect a continued
positive effect on customer growth.

   Total service revenue per average customer ("ARPU") was $51.39 for the three
months ended March 31, 2001 compared to $54.29 for the same period in 2000. The
decline in ARPU in the first quarter of 2001 as compared to the same period in
2000 is largely due to the increase in the prepaid component of our customer
base. At March 31, 2001, we had 1,046,600 prepaid customers, representing 23.8%
of our total customer base.  We had 543,700 prepaid customers at March 31, 2000,
however the 2000 quarter included only one month of revenue from this customer
base as it was acquired through the Omnipoint merger. We expect that prepaid
customers will decrease as a percentage of our total customer base in the future
as our primary focus for growth is post pay subscribers. We expect ARPU will
increase in 2001 as post pay subscribers adjust usage patterns and migrate to
higher priced rate plans and as the prepaid customer base declines relative to
the total customer base.



                                       20
<PAGE>   21
   Roamer revenues increased to $44.0 million for the three months ended March
31, 2001 from $10.2 million for the same period in 2000 primarily due to
subscriber growth and to our continuing effort to procure domestic and
international roaming agreements with other carriers.

   Equipment revenues increased in 2001 as a result of the growth in the number
of handsets sold. This volume increase is correlated to our customer base growth
as described above. We anticipate continued equipment sales growth in 2001 in
conjunction with our increasing customer base and as next generation products
are introduced.

   Other revenue decreased 37.5% in the three months ended March 31, 2001 as
compared to the same period in 2000 primarily due to a reduction in the revenue
earned as part of the technical services agreements and reciprocal resale
agreements with Designated Entities. The parties to these agreements are able to
utilize air time on each other's spectrum, and/or utilize wireless system
infrastructure, in certain agreed upon markets with each party acting as a
reseller for the other with related fees charged and paid between the parties.
The revenue reduction is due to the elimination of these revenues and expenses
in consolidation related to the four Designated Entities in which we acquired
controlling interests in December 2000.

OPERATING EXPENSES

   Cost of service expenses represent expenses incurred in operational markets.
The increase in the three months ended March 31, 2001 as compared to the same
period in 2000 is primarily due to the growth in our customer base. Cost of
service as a percentage of service revenue decreased to 25.8% for the three
months ended March 31, 2001, from 30.9% for the same period in 2000. The cost of
service expenses also includes fees related to the technical services agreements
and reciprocal resale agreements with certain Designated Entities. These amounts
were immaterial for the three months ended March 31, 2001, and $19.5 million for
the same period in 2000. In 2001, we consolidated the results of four of these
entities, and these expenses are eliminated from our consolidated results.
Excluding the technical services agreements and reciprocal resale agreements
described above, these percentages were 25.8% and 21.6% for the three months
ended March 31, 2001 and March 31, 2000, respectively. While cost of service
expenses are expected to increase due to continuing growth in customers and
their usage, we expect the cost of service as a percentage of service revenue to
continue to decline as greater economies of scale are realized.

   Cost of equipment sales increased primarily due to the increase in the number
of handsets sold. The volume increase is correlated to our customer base growth.
Although subscribers generally are responsible for purchasing or otherwise
obtaining their own handsets, we have historically sold handsets below cost to
respond to competition and general industry practice and expect to continue to
do so in the future.

   General and administrative cost per average customer was $22.17 for the three
months ended March 31, 2001, compared to $21.90 for the same period in 2000. The
increase is primarily attributable to the scaling of our back office and other
administrative functions to support our current and future anticipated growth.
While general and administrative expenses are expected to continue to grow due
to continuing growth in subscribers, we expect the cost per customer to decline
as greater economies of scale are realized.



                                       21

<PAGE>   22
   The increase in sales and marketing costs is associated with the continued
subscriber growth in VoiceStream's markets. The sales and marketing cost per
customer added, including the loss on equipment sales, of $335 and $340 for the
three months ended March 31, 2001 and 2000, respectively, has been on a downward
trend since 1998. Sales and marketing cost per net subscriber added, including
the loss on equipment sales, was $737 for the three months ended March 31, 2001
compared to $556 for the same period in 2000. The increase in 2001 is largely
due to higher customer turnover especially with respect to prepaid customers not
purchasing additional service.

   Depreciation and amortization expense increased due to the tangible and
intangible assets acquired in the Omnipoint, Aerial, VS PCS, VS GSM I, VS GSM II
and VS GSM III acquisitions and the continued expansion of our wireless network.

   Stock-based compensation expense was $2.2 million for the three months ended
March 31, 2001. In 1999, a non-cash accrual for stock-based compensation of
$60.7 million was recorded as a result of the restructuring of stock options in
connection with the spin-off from Western Wireless. The spin-off related
deferred compensation is being amortized over the vesting periods of the related
stock options. As of March 31, 2001, approximately $6.9 million remains
unamortized.

ADJUSTED EBITDA

   Adjusted EBITDA represents operating loss before depreciation, amortization
and non-cash stock-based compensation. We believe Adjusted EBITDA provides
meaningful additional information on our operating results and on our ability to
service our long-term debt and other fixed obligations, and to fund our
continued growth. Adjusted EBITDA is considered by many financial analysts to be
a meaningful indicator of an entity's ability to meet its future financial
obligations, and growth in Adjusted EBITDA is considered to be an indicator of
future profitability, especially in a capital-intensive industry such as
wireless telecommunications. Adjusted EBITDA should not be construed as an
alternative to operating income (loss) as determined in accordance with United
States generally accepted accounting principles ("GAAP"), as an alternate to
cash flows from operating activities (as determined in accordance with GAAP), or
as a measure of liquidity. Because Adjusted EBITDA is not calculated in the same
manner by all companies, our presentation may not be comparable to other
similarly titled measures reported by other companies.

   Adjusted EBITDA loss increased to $147.2 million for the three months ended
March 31, 2001 from $31.4 million for the same period in 2000. The increase in
2001 was primarily due to the incremental costs of customer growth together with
the related expenditures necessary to support this growth. Costs of customer
growth includes increased sales and marketing expenses, equipment losses and
general and administrative expenses.

OTHER INCOME (EXPENSE)

   Interest and financing expense, net of capitalized interest, increased to
$135.6 million for the three months ended March 31, 2001, from $81.2 million in
the same period in 2000, primarily due to the debt acquired through acquisitions
of $3.7 billion. The weighted average effective interest rate before capitalized
interest was 10.3% for the three months ended March 31, 2001, and 10.4% for the
same period in 2000.

   Also included in other income (expense) is equity in net losses of
unconsolidated affiliates of $42.9 million for the three months ended March 31,
2001 and $16.3 million for the same period in 2000. The increase in 2001 is due
primarily to the losses recorded by Microcell Telecommunications Inc.
("Microcell"), a Canadian GSM provider in which we own an approximate 15%
interest, which included a write down on equity investments of $21.0 million.

NET LOSS

   Our net loss was $651.2 million for the three months ended March 31, 2001
compared to $203.3 million for the same period in 2000. The increase in 2001 was
due primarily to the incremental costs of continued high customer growth
together with the related expenditures necessary to support this growth. The
operating costs associated with the integration of our acquisitions were greater
than the revenues generated. The acquisitions also drove dramatic increases in
depreciation and amortization expense for acquired property, goodwill and
licenses, and interest expense on debt assumed in the mergers.



                                       22

<PAGE>   23
LIQUIDITY AND CAPITAL RESOURCES

   Mergers, Acquisitions, Investments and Capital Expenditures

   On February 25, 2000, we completed our merger with Omnipoint. Pursuant to the
merger agreement, 0.825 of a VoiceStream common share plus $8.00 in cash were
exchanged for each outstanding Omnipoint common share. Total consideration for
the acquisition including liabilities assumed was $6.25 billion. In conjunction
with the merger agreement signed on June 23, 1999, we invested a total of $150
million in Omnipoint, of which $102.5 million was invested in Omnipoint
preferred shares upon signing of the merger agreement, and the remaining $47.5
million was invested in Omnipoint preferred shares on October 1, 1999.

   On February 28, 2000, we purchased approximately 9.6 million Class A shares
of Microcell for $274.6 million. Our holding represents approximately 15% of the
issued and outstanding equity securities of Microcell.

   On May 4, 2000, we completed our merger with Aerial. Pursuant to the merger
agreement, 0.455 of a VoiceStream common share was exchanged for each
outstanding Aerial Series A common share. Total consideration paid for the
acquisition, including liabilities assumed was $6.3 billion.

   On December 14, 2000, we issued approximately 7.9 million VoiceStream common
shares and $50 million in cash to CIRI and SSPCS Corporation in exchange for
their interests in VS PCS, VS GSM, VS GSM II and VS GSM III. On February 14,
2001, we issued a total of approximately 4.4 million VoiceStream common shares
to Providence Media Partners, L.P., Providence Equity Partners III, L.P. and
Providence Equity Operating Partners III, L.P. in exchange for their interests
in VS PCS and VS GSM, giving us 100% ownership of these entities. Total
consideration to acquire the 50.1% interests in these four entities was $2.3
billion, including liabilities assumed.

   On January 22, 2001, we purchased the assets of STPCS Joint Venture, LLC
("STPCS"). Through its operating company, SOL Communications Inc., STPCS held
licenses and assets in South Texas. Pursuant to the terms of the agreement, we
purchased STPCS's licenses and related assets for $297 million in cash. In
addition, STPCS's F block licenses were purchased by Cook Inlet/VS GSM IV PCS
Holdings, LLC ("CIVS IV") for $9 million.

   On February 12, 2001, CIVS IV purchased FCC PCS licenses formerly held by
Pocket Communications for $195 million.

   In January 2001, on completion of FCC Auction #35, we were the high bidder on
19 additional PCS licenses for $482.7 million. Additionally, through CIVS V, a
Designated Entity in which we hold a non-controlling 49.9% interest, we were the
high bidder on 22 PCS licenses for $506.4 million. These licenses have yet to be
issued by the FCC in light of pending administrative and judicial challenges
affecting certain of these licenses. The most significant litigation has been
brought by the original licensee, NextWave Communications, Inc., in the United
States Court of Appeals for the District of Columbia Circuit, challenging the
FCC's cancellation of NextWave's licenses and reclamation and reauctioning of
the spectrum. Should NextWave or any of the other challengers prevail, then the
FCC may be precluded from issuing any of the affected licenses to the high
bidders or may be required to revoke any licenses that have already been
granted.

   Capital expenditures totaled $563.6 million for the three months ended March
31, 2001, primarily for the continuing build out of our wireless network
including Chicago, which was launched on May 1, 2001. We expect to incur
significant further capital expenditures through 2001, directly and through CIVS
IV for license purchases, capacity expansion of operating markets and the
development and expansion of new markets. Actual capital expenditures could vary
considerably depending on opportunities that arise over the course of the year
and what capital resources we have available to fund expenditures.

   Financing Activities

   We have a credit facility with a consortium of lenders which includes
revolving credit loans and term loans in an aggregate principal amount totaling
$3.25 billion. The revolving credit portion of the credit facility is a $1.35
billion reducing revolving credit which was unutilized at March 31, 2001. The
term loan portion of the facility totals $1.9 billion and was fully utilized at
March 31, 2001. The credit facility permits up to $1.5 billion of additional
indebtedness, through a vendor facility of $1 billion and an incremental
facility of up to $500 million. At March 31, 2001 we had utilized $750 million
of the vendor facility. Total borrowing permitted under the credit facility,
including the additional indebtedness is $4.75 billion and is secured by, among
other things, the grant of a security interest in certain assets of VoiceStream
and certain of its subsidiaries and in the capital stock of certain of
VoiceStream's subsidiaries. As of March 31, 2001 we had utilized a total of
$2.65 billion of the $4.25 billion in borrowings currently committed under this
facility.

   VS GSM has a credit facility with an infrastructure equipment provider which
provides subsidiaries of VS GSM with credit facilities of up to $735 million,
composed of a $485 million loan facility (including a $160 million revolving
loan and term loans aggregating $325 million), $100 million of 13% Series A
Senior Discount Notes, and up to $150 million 13% Series A Subordinated Notes.
The repayment of the $485 million loan facility is secured by, among other
things, the grant of a security interest in the capital stock and assets of
certain of VS GSM's subsidiaries. The net proceeds are being used to finance
capital expenditures, permitted investments, and for working capital in
connection with our Chicago and Dallas systems. As of March 31, 2001, we had
$160 million available through the revolving credit portion of the facility.
The Series A Senior Discount Notes and Series A Subordinated Notes have not
been issued, but may be issued at any time before June 30, 2001.

                                       23
<PAGE>   24
   A wholly owned subsidiary of VS GSM II has a $350 million loan facility for
the purpose of financing the continued build-out of networks and the operations
of the Philadelphia, PA; Atlantic City, NJ; and Dover, DE markets and
refinancing of $145 million of prior indebtedness. The VS GSM II loan facility
is collateralized by substantially all of the assets of such subsidiary and its
license subsidiaries and a pledge of all capital stock of each subsidiary. As
of March 31, 2001, this facility is fully utilized.

   In the third quarter of 2000, we received $5.0 billion from the sale of
convertible preferred stock to Deutsche Telekom. We used $810 million of the
cash received from this sale to pay down the revolving credit portion of our
credit facilities. The remainder is being used to fund operating losses and
additional expenditures to build-out our wireless network and to acquire
additional spectrum. As of March 31, 2001, we had cash reserves and short term
investments of $1.2 billion dollars.

   Our senior secured facilities, senior notes and senior discount notes contain
change of control provisions. On consummation of our pending acquisition by
Deutsche Telekom, it is possible that certain of our borrowings could be called
or we may be required to make certain offers to purchase such indebtedness. We
have requested a consent from the applicable lenders that a change of control
will not present a default under the credit facilities and we do not believe
that a change of control is likely to result in the repayment of any of our
outstanding long-term debt.

   Cash Flow Information

   Net cash used in operating activities was $177.6 million for the three months
ended March 31, 2001. Adjustments to the $651.2 million net loss to reconcile
net cash used in operating activities included $331.2 million of non-cash
depreciation and amortization expenses related to our substantial investments in
network infrastructure, FCC licenses and goodwill associated with our various
mergers and acquisitions and $42.9 million of non-cash equity in net losses of
unconsolidated affiliates, primarily related to our investment in Microcell.
Other adjustments included changes in operating assets and liabilities including
decreases of $64.9 million in inventory and $101.6 million in accounts payable,
both of which relate primarily to reduced purchases of handsets during the
period and an increase of $92.5 million in accrued liabilities due primarily to
the timing of interest payments on long term debt. Net cash used in operating
activities was $96.3 million for the three months ended March 31, 2000.

   Net cash provided by investing activities was $182.0 million for the three
months ended March 31, 2001. Investing activities consisted primarily of
investments in property and equipment, of which $563.6 million were capital
expenditures and $297.2 million were through acquisitions. Additionally, $1.0
billion of short-term investments, net, were converted to cash and were
primarily used to fund the capital investments and the cash flow loss from
operations. Net cash used in investing activities was $881.2 million for the
three months ended March 31, 2000.

   Net cash used in financing activities was $82.0 million for the three months
ended March 31, 2001. Financing activities consisted primarily of scheduled
repayments of FCC debt which totaled $32.1 million and cash entitlements on
conversions of preferred stock of consolidated subsidiary which totaled $61.3
million. Net cash provided by financing activities was $918.3 million for the
three months ended March 31, 2000.

   We expect continued use of cash in operating activities due to operating
losses and increased working capital requirements together with continuing
investments in network infrastructure and FCC licenses to grow and support our
customer base. We plan to use cash on hand of $1.2 billion and the $2.0 billion
of unutilized borrowing capacity available under our credit facilities to fund
these activities and expenditures. However, the cost of completing the build-out
in any particular market, the magnitude of operating losses, debt service
requirements and the funding requirements of license or operating business
acquisitions could vary significantly from current estimates. If our available
capital resources prove inadequate to meet these needs, we may be required to
seek additional financing. Such financing may not be available on acceptable
terms which could force us to curtail our rate of growth or our service
operations.

   If the VoiceStream/Powertel merger does not close as a result of our failure
to comply with any of the covenants or agreements contained in the
VoiceStream/Powertel merger agreement, we may be obligated to pay Powertel $150
million plus expenses not to exceed $10 million. If the merger does not close as
a result of Powertel not complying with any of the covenants or agreements
contained in the VoiceStream/Powertel merger agreement, Powertel may be
obligated to pay VoiceStream and Deutsche Telekom $75 million each plus expenses
not to exceed $10 million in the aggregate.



                                       24
<PAGE>   25
RECENTLY ISSUED ACCOUNTING STANDARDS

   In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133", and SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". The statements establish
accounting and reporting standards for derivative instruments and hedging
activities and require recognition of all derivatives as either assets or
liabilities measured as fair value. Changes to the fair value of derivatives are
recognized in earnings unless specific hedge accounting criteria are met. We
adopted the provisions of these accounting standards as of January 1, 2001 with
no material impact on our financial position.

MARKET SENSITIVE FINANCIAL INSTRUMENT RISK MANAGEMENT

   During the three months ended March 31, 2001, there were no material
changes to the qualitative or quantitative disclosures about market risks
presented in the Annual Report on Form 10-K for the year ended December 31,
2000.





                                       25
<PAGE>   26

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

   Except as referenced in our Form 10-K for the year ended December 31, 2000
there are no material, pending legal proceedings to which we or any of our
subsidiaries or affiliates is a party or of which any of their property is
subject which, if adversely decided, would have a material adverse effect on
their financial position, results of operations or cash flows.

ITEM 2. CHANGES IN SECURITIES

   (a) None.

   (b) None.

   (c) 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) None.


   (b) Reports on Form 8-K:

   VoiceStream filed a Current Report on Form 8-K dated March 22, 2001, setting
forth for informational purposes under Item 7 Powertel Inc.'s financial
statements as of and for the years ended December 31, 2000, 1999 and 1998.

   VoiceStream filed a Current Report on Form 8-K dated February 8, 2001, in
which VoiceStream reported under Item 5 that on February 8, 2001, VoiceStream,
Deutsche Telekom AG and Bega, Inc. amended and restated their Agreement and Plan
of Merger and that VoiceStream, Powertel, Inc. and VoiceStream Subsidiary V
Corporation amended and restated their Agreement and Plan of Merger.

   VoiceStream filed a Current Report on Form 8-K dated February 2, 2001, in
which VoiceStream reported under Item 5 that it was the high bidder for 19
licenses in 18 markets and that Cook Inlet/VS GSM V PCS, L.L.C., of which
VoiceStream has a 49.9% ownership interest, was the high bidder for 22 licenses
in 22 markets in the Federal Communications Commission C and F block broadband
PCS spectrum auction that concluded on January 26, 2001.



                                       26
<PAGE>   27
                                   SIGNATURES

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


                        VoiceStream Wireless Corporation

By /s/ DONALD GUTHRIE                             By /s/ ALLYN P. HEBNER
   ---------------------------                      ----------------------------
Donald Guthrie                                    Allyn P. Hebner
Vice Chairman and Director                        Vice President and Controller
(Principal Financial Officer)                     (Principal Accounting Officer)



                               Dated: May 15, 2001