<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

                       COMMISSION FILE NUMBER 33339884-01

                           MPOWER HOLDING CORPORATION
             (Exact name of registrant as specified in its charter)

              DELAWARE                               52-2232143
    (State or other jurisdiction of               (I.R.S. Employer
    incorporation or organization)                Identification No.)

                          175 SULLY'S TRAIL, SUITE 300
                               PITTSFORD, NY 14534
                    (Address of principal executive offices)

                                 (585) 218-6550
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 YES |X| NO | |

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                                 YES | | NO |X|

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                                 YES |X| NO | |

         The number of shares outstanding of the issuer's common stock,
                               as of May 7, 2003:

  Common stock (par value $0.001 per share) .... 64,999,213 shares outstanding
<PAGE>

                           MPOWER HOLDING CORPORATION

                                      INDEX

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

Item 1.          Consolidated Financial Statements (Unaudited)                                                        PAGE NO.
                                                                                                                      --------

                 Consolidated Balance Sheets - Reorganized Mpower Holding as of
                        March 31, 2003 and December 31, 2002......................................................        3

                 Consolidated Statements of Operations

                        Reorganized Mpower Holding - for the three months ended March 31, 2003....................        4

                        Predecessor Mpower Holding - for the three months ended March 31, 2002....................        4

                 Consolidated Statements of Cash Flows

                        Reorganized Mpower Holding - for the three months ended March 31, 2003....................        5

                        Predecessor Mpower Holding - for the three months ended March 31, 2002....................        5

                 Condensed Notes to Unaudited Interim Consolidated Financial Statements...........................        6

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations............       11

Item 3.          Quantitative and Qualitative Disclosures about Market Risk.......................................       24

Item 4.          Controls and Procedures..........................................................................       24

PART II--        OTHER INFORMATION

Item 1.          Legal Proceedings................................................................................       25

Item 2.          Changes in Securities and Use of Proceeds........................................................       25

Item 5.          Other Information.............................................................................          26

Item 6.          Exhibits and Reports on Form 8-K.................................................................       26

SIGNATURES       .................................................................................................       28

CERTIFICATIONS   ...............................................................................................         29
</TABLE>


2
<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (Unaudited)

                           MPOWER HOLDING CORPORATION
                           CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                           REORGANIZED       REORGANIZED
                                                                                         MPOWER HOLDING    MPOWER HOLDING
                                                                                         MARCH 31, 2003   DECEMBER 31, 2002
                                                                                         --------------   -----------------
<S>                                                                                      <C>              <C>
                                         ASSETS
Current assets:
   Cash and cash equivalents ..........................................................      $  12,398       $  10,773
   Restricted investments .............................................................         10,733          13,631
   Accounts receivable, less allowance for doubtful accounts of $7,315 and $4,903 at
      March 31, 2003 and December 31, 2002, respectively ..............................         26,908          13,923
   Assets held for sale ...............................................................          9,819          20,471
   Prepaid expenses and other current assets ..........................................          4,988           6,683
                                                                                             ---------       ---------
         Total current assets .........................................................         64,846          65,481
Property and equipment, net ...........................................................         37,550          38,497
Deferred financing costs, net of accumulated amortization of $33 and $32 at
         March 31, 2003 and December 31, 2002, respectively ...........................             98              16
Intangibles, net of accumulated amortization of $3,054 and $1,909 at March 31, 2003 and
          December 31, 2002, respectively .............................................         12,385          13,530
Other assets ..........................................................................          3,834           9,899
                                                                                             ---------       ---------
      Total assets ....................................................................      $ 118,713       $ 127,423
                                                                                             =========       =========

                                      LIABILITIES
                                AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current maturities of long-term debt and capital lease obligations .................      $   1,626       $   4,638
   Line of credit .....................................................................          3,918              --
   Accounts payable ...................................................................         28,669          21,714
   Accrued interest ...................................................................             --              66
   Accrued sales tax payable ..........................................................          6,375           5,753
   Accrued network optimization costs .................................................          1,473           1,480
   Accrued property taxes payable .....................................................          3,160           3,030
   Deferred revenue ...................................................................          5,675           4,680
   Accrued other expenses .............................................................         11,029          12,806
                                                                                             ---------       ---------
      Total current liabilities not subject to compromise .............................         61,925          54,167
   Current liabilities subject to compromise ..........................................            517           1,748
                                                                                             ---------       ---------
      Total current liabilities .......................................................         62,442          55,915
Other long-term debt and capital lease obligations ....................................            237             371
                                                                                             ---------       ---------
         Total liabilities ............................................................         62,679          56,286
                                                                                             ---------       ---------
Commitments and contingencies
Stockholders' equity:
   Preferred stock, 50,000,000 shares authorized but unissued at March 31, 2003 and
         December 31, 2002, respectively ..............................................             --              --
   Common stock, $0.001 par value, 1,000,000,000 shares authorized, 64,999,025 shares
      issued and outstanding at March 31, 2003 and December 31, 2002, respectively ....             65              65
Additional paid-in capital ............................................................         87,558          87,511
Accumulated deficit ...................................................................        (31,589)        (16,439)
                                                                                             ---------       ---------
         Total stockholders' equity ...................................................         56,034          71,137
                                                                                             ---------       ---------
         Total liabilities and stockholders' equity ...................................      $ 118,713       $ 127,423
                                                                                             =========       =========
</TABLE>

             See accompanying condensed notes to unaudited interim
                       consolidated financial statements.


3
<PAGE>

                           MPOWER HOLDING CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                       REORGANIZED        PREDECESSOR
                                                     MPOWER HOLDING     MPOWER HOLDING
                                                   THREE MONTHS ENDED  THREE MONTHS ENDED
                                                     MARCH 31, 2003     MARCH 31, 2002
                                                   ------------------  ------------------
<S>                                                <C>                <C>
Operating revenues:
   Telecommunications services ..................      $     36,738       $     34,458
Operating expenses:
   Cost of operating revenues (excluding
           depreciation and amortization) .......            22,128             23,143
   Selling, general and administrative (excluding
           depreciation and amortization) .......            21,128             28,616
   Stock-based compensation expense .............                62                201
   Network optimization cost ....................                --             19,000
   Depreciation and amortization ...............              4,303             12,067
                                                       ------------       ------------
                                                             47,621             83,027
                                                       ------------       ------------
      Loss from continuing operations ...........           (10,883)           (48,569)
Other income (expense):
   (Loss) gain on sale of assets, net ...........               (95)             4,234
   Loss on discharge of debt ....................              (102)                --
   Interest income ..............................                50              1,770
   Interest expense (net of amount capitalized)                (139)           (14,195)
                                                       ------------       ------------
      Loss before discontinued operations .......           (11,169)           (56,760)
Discontinued operations:
   Loss from discontinued operations ............            (3,981)           (16,964)
                                                       ------------       ------------
      Net loss ..................................           (15,150)           (73,724)
Accrued preferred stock dividends ...............                --             (3,634)
                                                       ------------       ------------
Net loss applicable to common stockholders ......      $    (15,150)      $    (77,358)
                                                       ============       ============

Basic and diluted loss per share
  applicable to common stockholders:

      Loss before discontinued operations .......      $      (0.17)      $      (1.01)
                                                       ============       ============

      Loss from discontinued operations .........      $      (0.06)      $      (0.29)
                                                       ============       ============

      Net loss ..................................      $      (0.23)      $      (1.30)
                                                       ============       ============

Basic and diluted weighted average
   shares outstanding ...........................        64,999,025         59,453,529
                                                       ============       ============
</TABLE>

              See accompanying condensed notes to unaudited interim
                       consolidated financial statements.


4
<PAGE>

                           MPOWER HOLDING CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       REORGANIZED         PREDECESSOR
                                                                                     MPOWER HOLDING      MPOWER HOLDING
                                                                                   THREE MONTHS ENDED   THREE MONTHS ENDED
                                                                                     MARCH 31, 2003      MARCH 31, 2002
                                                                                   ------------------   ------------------
<S>                                                                                <C>                  <C>
Cash flows from operating activities:
    Net loss ..................................................................          $(15,150)          $(73,724)
    Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization ...........................................             4,303             17,448
      Network optimization cost ...............................................                --             19,000
      Bad debt expense ........................................................             2,858              2,407
      Loss (gain) on sale of assets, net ......................................                95             (4,234)
      Loss on discharge of debt ...............................................               102                 --
      Loss on disposal of assets from discontinued operations .................             1,117                 --
      Amortization of debt discount ...........................................                --                352
      Amortization of deferred debt financing costs ...........................                33                294
      Stock-based compensation expense ........................................                62                201
      Changes in assets and liabilities:
          (Increase) decrease in accounts receivable ..........................            (9,886)             2,796
          Decrease (increase) in prepaid expenses and other current assets ....             1,695             (1,087)
          Decrease (increase) in other assets .................................             6,065             (4,366)
          Increase (decrease) in accounts payable - trade .....................             6,160             (4,183)
          Increase (decrease) in accrued sales tax payable ....................               622               (623)
          Decrease in accrued network optimization costs ......................                (7)            (2,530)
          (Decrease) increase in accrued interest and other expenses ..........            (2,113)            10,030
                                                                                         --------           --------
Net cash used in operating activities .........................................            (4,044)           (38,219)
                                                                                         --------           --------
Cash flows from investing activities:
    Purchase of property and equipment, net of payables .......................            (1,928)            (6,133)
    Proceeds from asset sales .................................................             4,144                 --
    Sale of investments available-for-sale ....................................                --             95,022
    Sale of restricted investments ............................................             2,898              1,710
                                                                                         --------           --------
Net cash provided by investing activities .....................................             5,114             90,599
                                                                                         --------           --------
Cash flows from financing activities:
    Payments on other long-term debt and capital lease obligations ............            (1,078)            (1,827)
    Repurchase of senior notes ................................................            (2,154)                --
    Borrowings under line of credit, net ......................................             3,918                 --
    Costs associated with line of credit ......................................              (131)                --
    Proceeds from principal stockholder's short swing profit ..................                --                141
    Payment of bondholder consent fee .........................................                --            (19,025)
                                                                                         --------           --------
Net cash provided by (used in) financing activities ...........................               555            (20,711)
                                                                                         --------           --------
Net increase in cash and cash equivalents .....................................             1,625             31,669
Cash and cash equivalents at beginning of period ..............................            10,773              9,150
                                                                                         --------           --------
Cash and cash equivalents at the end of period ................................          $ 12,398           $ 40,819
                                                                                         ========           ========
Supplemental schedule of non-cash investing and financing activities:
    Preferred stock converted to common stock .................................          $     --           $  2,426
                                                                                         ========           ========
    Preferred stock dividends accrued .........................................          $     --           $  3,634
                                                                                         ========           ========
</TABLE>

              See accompanying condensed notes to unaudited interim
                       consolidated financial statements.


5
<PAGE>

                           MPOWER HOLDING CORPORATION
     CONDENSED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

(1) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

      The accompanying unaudited consolidated financial statements of Mpower
Holding Corporation (the "Company"), a Delaware corporation, include the
accounts of the Company and its wholly owned subsidiary, Mpower Communications
Corp. ("Communications") and other subsidiaries of Communications. All
significant inter-company balances and transactions have been eliminated.

      As a result of the Chapter 11 reorganization occurring as of July 30, 2002
(the "Effective Date"), the financial results for the three months ended March
31, 2002 have been presented under the label "Predecessor Mpower Holding." In
addition, the Company's consolidated financial statements for the three months
ended March 31, 2002 have been reclassified to reflect discontinued operations
as discussed in Note 3.

      As a result of the reorganization, the financial statements published for
periods following the Effective Date will not be comparable to those published
before the Effective Date.

      These consolidated financial statements reflect all normal recurring
adjustments, which management believes are necessary to present fairly the
financial position, results of operations, and cash flows for the Company for
the respective periods presented. Certain information and footnote disclosures
normally included in the annual consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission for Form 10-Q. These unaudited interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission.

      The consolidated balance sheet at December 31, 2002 was derived from the
audited consolidated financial statements of the Company.

      Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

(2) STOCK OPTION PLAN

      The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". In accordance with SFAS No. 123, the Company has elected not to
recognize compensation cost related to stock options with exercise prices equal
to the market price at date of issuance. Had the Company determined compensation
cost using the fair value based method defined in SFAS No. 123, the Company's
results from operations would have been as follows for the three months ended
March 31, 2003 and 2002, respectively (in thousands, except per share amounts):


6
<PAGE>
<TABLE>
<CAPTION>
                                                                         REORGANIZED      PREDECESSOR
                                                                            MPOWER           MPOWER
                                                                            HOLDING          HOLDING
                                                                           MARCH 31,        MARCH 31,
                                                                            2003               2002
                                                                          --------           --------
<S>                                                                      <C>               <C>
            Net loss applicable to common stockholders,
                as reported ....................................          $(15,150)          $(77,358)
            Add: Stock-based compensation expense
                included in reported net income, net of related
                tax effects ....................................                62                201
            Deduct: Total stock-based employee compensation
                expense to be determined under fair
                value based method for all awards, net of related
                tax effects ....................................              (270)            (1,873)
                                                                          --------           --------
            Pro forma net loss applicable to common stockholders          $(15,358)          $(79,030)
                                                                          ========           ========
            Basic and diluted loss per share of common
                stock, as reported .............................          $  (0.23)          $  (1.30)
                                                                          ========           ========
            Basic and diluted loss per share of common
                stock, pro forma ...............................          $  (0.24)          $  (1.33)
                                                                          ========           ========
</TABLE>

(3) DISCONTINUED OPERATIONS

      On January 8, 2003, the Company announced a series of strategic and
financial transactions to further strengthen the Company financially and focus
its operations on its California, Nevada and Illinois markets. The Company has
brought geographic concentration to its business by selling its customers and
assets in Florida, Georgia, Ohio, Michigan and Texas to other service providers
(the "Asset Sales").

      On March 18, 2003, the Company completed the sale of the assets in its
Michigan and Ohio markets to LDMI Telecommunications, Inc. ("LDMI"), a Michigan
corporation, pursuant to Asset Purchase Agreements dated as of January 8, 2003
and February 6, 2003, respectively. The purchase price for the assets in
Michigan was $1.7 million plus an estimated additional $1.9 million, equal to
the sum of (i) two times the total adjusted net revenues generated by the
customers of the Michigan business for the thirty day period ended February 28,
2003, plus (ii) total adjusted net revenues generated by the customers of the
Michigan business for the thirty day period ended April 30, 2003. The purchase
price for the Ohio Assets was $1.1 million plus an estimated additional $1.9
million, equal to the sum of (i) two times the total adjusted net revenues
generated by the customers of the Ohio business for the thirty day period ended
March 10, 2003, plus (ii) total adjusted net revenues generated by the customers
of the Ohio business for the thirty day period ended May 9, 2003. In addition,
LDMI agreed to assume certain liabilities of the Company with respect to the
Michigan and Ohio assets.

     On March 27, 2003, the Company completed a transaction with Xspedius
Equipment Leasing, LLC ("XE"), a Delaware limited liability company, a
subsidiary of Xspedius Communications, LLC ("Xspedius"), a Delaware limited
liability company, pursuant to an Asset Contribution Agreement effective as of
December 31, 2002. Under the terms of the Asset Contribution Agreement, the
Company contributed the assets in its Texas market to XE in exchange for a 14%
interest in XE. On April 23, 2003, the Company sold 92.85% of its interest in XE
(13% of XE) to a current member of XE for $0.5 million. In addition, XE agreed
to assume certain liabilities of the Company with respect to the Texas assets.

      In April 2003, the Company completed the sale of the assets in its Florida
and Georgia markets to Florida Digital Networks, Inc. ("FDN"), pursuant to an
Asset Purchase Agreement dated as of January 8, 2003. The purchase price for the
assets in Florida and Georgia was $13.3 million. $5.3 million of the purchase
price is being held in escrow. Assuming certain conditions are met, $4.0 million
is expected to be released in May 2003 with the balance released in October
2003. The Company anticipates meeting all such conditions. In addition, FDN
agreed to assume certain liabilities of the Company with respect to the Florida
and Georgia assets.

     Each of the transactions described above involves transition services
and/or management agreements whereby the Company is reimbursed for specific
services provided on behalf of the buyer. For the three months ended March 31,
2003, the Company has recorded $2.4 million of transition service and management
agreement fees as an offset to the operating expenses component of loss from
discontinued operations in the consolidated statements of operations.

     As of March 31, 2003, the Company has recorded $13.4 million of receivables
from the Asset Sales, transition services and management agreements. These
receivables have been included in accounts receivable in the consolidated
balance sheets.

      The operating revenue and expense of these markets have been classified as
discontinued operations under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, for all periods presented. Net sales and
operating loss relating to these markets are as follows for the three months
ended March 31, 2003 and 2002, respectively (in thousands):


7
<PAGE>

<TABLE>
<CAPTION>
                                                     REORGANIZED        PREDECESSOR
                                                        MPOWER            MPOWER
                                                       HOLDING            HOLDING
                                                      MARCH 31,          MARCH 31,
                                                        2003               2002
                                                     -----------        -----------
<S>                                                  <C>                <C>
            Operating revenues ..............          $ 5,766           $ 18,363
            Operating expenses (excluding
            depreciation and amortization)...            8,630             29,946
            Depreciation and amortization ...               --              5,381
            Loss on disposal ................            1,117                 --
                                                       -------           --------
            Loss from discontinued operations          $(3,981)          $(16,964)
                                                       =======           ========
</TABLE>

      The Company has recorded an additional $1.1 million loss on disposal to
account for the resolution of purchase price adjustments and additional costs to
sell the assets.

      The Company incurred exit costs associated with the sale of its customers
and assets as described above. These costs included one-time termination
benefits of $0.6 million and contract termination costs of $1.3 million for the
quarter ended March 31, 2003. These costs are reflected in the operating
expenses component of loss from discontinued operations in the consolidated
statements of operations.

(4) LIQUIDITY

      The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.

      As of March 31, 2003, the Company had $12.4 million in cash and cash
equivalents. The Company incurred losses applicable to common stockholders of
$15.2 million during the first three months of 2003 and $77.4 million during the
first three months of 2002, and although the rate in which the Company has been
using cash over the past twelve months has been significantly reduced, it
expects to continue to generate negative cash flows from operating and investing
activities into the second quarter of 2003. The Company's near-term source of
liquidity is its unrestricted cash accounts, management of accounts payable, and
the cash to be received in the finalization of its Asset Sales. The Company's
accounts receivable financing agreement, which allows it to receive advances of
up to $7.5 million against certain accounts receivable expected to be received
in the future, will also be a source of near-term liquidity. The Company
believes that it has sufficient resources to fund the Company's planned
operations.

(5) PROPERTY AND EQUIPMENT

      Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                        MARCH 31,         DECEMBER 31,
                                                          2003               2002
                                                        --------           --------
<S>                                                     <C>               <C>
Buildings and property .......................          $  1,727           $  1,727
Telecommunication and switching equipment ....            23,315             20,894
Leasehold improvements .......................             6,699              7,192
Computer hardware and software ...............             6,348              6,817
Office equipment and other ...................             3,041              3,320
                                                        --------           --------
                                                          41,130             39,950
Less accumulated depreciation and amortization            (8,912)            (5,993)
                                                        --------           --------
                                                          32,218             33,957
Assets held for future use ...................             3,932              3,616
Construction in progress .....................             1,400                924
                                                        --------           --------
Net property and equipment ...................          $ 37,550           $ 38,497
                                                        ========           ========
</TABLE>

      As further discussed in Note 7 "Network Optimization Cost", the assets
held for future use are directly related to the recovery of switch and
collocation equipment from markets cancelled or exited during 2001 and 2002
which will be re-deployed throughout the Company's remaining operating markets.


8
<PAGE>

(6) COMMITMENTS AND CONTINGENT LIABILITIES

      In the ordinary course of business, the Company enters into purchase
agreements with its equipment vendors and collocation site providers. As of
March 31, 2003, the Company had total unfulfilled commitments with equipment
vendors and collocation site providers of $1.7 million. The Company also has
various agreements with certain carriers for transport, long distance and other
network services. At March 31, 2003, the Company's commitments under these
agreements are $16.0 million, which expire through July 2005.

      The Company is party to various legal proceedings, most of which relate to
routine matters incidental to its business.

      On September 20, 2000, a class action lawsuit was commenced against the
Company, alleging violations of the Securities Exchange Act of 1934 and rule
10b-5 thereunder (the "Exchange Act") and Section 11 of the Securities Act of
1933. On February 11, 2002, the United States District Court for the Western
District of New York entered its Decision and Order dismissing the class action
lawsuit. That Decision and Order has been appealed to the United States Court of
Appeals for the Second Circuit. On April 8, 2002, the Company filed a petition
for a relief under Chapter 11 of the Bankruptcy Code, and as of the effective
date of the Company's First Amended Joint Plan of Reorganization (July 30,
2002), the Company was discharged and released from any "Claim, Debt and
Interest," except as otherwise stated in the Plan, as set forth in the final
Confirmation Order entered by the United States Bankruptcy Court for the
District of Delaware on July 17, 2002. Although the Company is no longer a
defendant in the class action lawsuit and can have no direct liability to the
plaintiffs, the Company nevertheless remains obligated to indemnify the
remaining individual defendants in the event of an adverse decision against them
in the lawsuit. The plaintiffs and the remaining individual defendants have
entered into a tentative settlement of the class action lawsuit, and have
submitted a Preliminary Approval Order to the Court, seeking approval of the
settlement in accordance with a Stipulation of Settlement dated February 6,
2003. If approved, the settlement would dismiss the action with prejudice. All
settlement payments and remaining attorneys fees and other legal expenses
incurred by the defendants are expected to be paid by the Company's insurance
carrier. A hearing is scheduled for October 1, 2003 to determine whether the
proposed settlement of the action on the terms and conditions provided for in
the Stipulation is fair, reasonable and adequate and should be approved by the
Court. The Company believes the remaining individual defendants anticipate that
the proposed Settlement will be approved and that they will continue to deny any
wrongdoing and will vigorously contest the suit if not settled. The Company
cannot predict the final outcome of this lawsuit.

(7) NETWORK OPTIMIZATION COST

      Accrued network optimization cost details for 2003 activity were as
follows (in thousands):

<TABLE>
<CAPTION>
                                               LIABILITY AT     NETWORK                    LIABILITY AT
                                               DECEMBER 31,   OPTIMIZATION                   MARCH 31,
                                                   2002           COST        CASH PAID         2003
                                               ------------   ------------    ---------    ------------
<S>                                            <C>             <C>            <C>          <C>
                     Other exit costs.......      $1,480         $   --         $  (7)      $    1,473
</TABLE>

      With respect to the network optimization charges, the total actual charges
will be based on ultimate settlements with the incumbent local exchange
carriers, recovery of costs from any subsequent subleases, the Company's ability
to sell or re-deploy network equipment for growth in its existing network and
other factors.

      At March 31, 2003, the Company has total switch and office lease, and
circuit commitments as a result of the actions taken in these network
optimization charges of $2.9 million related to these markets, expiring from
2004 through 2010. Of these remaining commitments, $1.5 million has been
included in Accrued Network Optimization Cost representing lease commitments and
circuit obligations through June 2003. The Company estimates that it will be
successful in entering into sublease agreements or terminating the remaining
lease commitments and circuit obligations within the period estimated.

(8) LINE OF CREDIT

      The Company's agreement with a lending institution provides the Company
with a three-year revolving line of credit facility of up to $7.5 million and is
secured by certain customer accounts receivable. This credit facility bears
interest at prime plus 2% and expires on January 24, 2006.


9
<PAGE>

      The maximum amounts borrowed under the credit facility during the quarter
ended March 31, 2003 was $7.5 million, and the average interest rate during the
period was 6.25%. At March 31, 2003, the Company had approximately $3.6 million
in availability under this agreement. Interest expense relating to the
borrowings was $0.1 million for the quarter ended March 31, 2003.

(9) DEBT

      In January 2003, the Company repurchased the remaining $2.1 million in
carrying value of its 2004 Notes for $2.2 million in cash, and recognized a loss
of $0.1 million on this transaction in 2003.

(10) RECENT ACCOUNTING PRONOUNCEMENTS

      In April 2003, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 149, "Amendment of FASB Statement No. 133
on Derivative Instruments and Hedging Activities" (SFAS 149). This standard
amends FASB No. 133 by clarifying under which circumstances a contract meets the
characteristic of a derivative, clarifies when a derivative contains a financing
component and also amends certain other existing pronouncements. The provisions
of this Statement are effective for contracts entered into or modified after
June 30, 2003. The Company does not expect that the adoption of SFAS No. 149
will have a material effect on its consolidated financial statements as the
Company does not have any freestanding or embedded derivatives as of March 31,
2003.


10
<PAGE>

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

FORWARD LOOKING STATEMENTS

      Under the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, we caution investors that certain statements contained in
this Report regarding our or management's intentions, hopes, beliefs,
expectations or predictions of the future are forward-looking statements. We
wish to caution the reader these forward-looking statements are not historical
facts and are only estimates or predictions. Actual results may differ
materially from those projected as a result of risks and uncertainties
including, but not limited to, receipt of all remaining payments from the
previously announced Asset Sales, future sales growth, market acceptance of our
product offerings, our ability to secure adequate financing or equity capital to
fund our operations and network augmentation, our ability to manage growth and
maintain a high level of customer service, the performance of our network and
equipment, our ability to enter into strategic alliances, the cooperation of
incumbent local exchange carriers in provisioning lines and interconnecting our
equipment, regulatory decisions, regulatory approval processes, changes in
technology, price competition and other market conditions and risks detailed
from time to time in our other Securities and Exchange Commission filings.

      The following discussion and analysis provides information that management
believes is useful in understanding our operating results, cash flows and
financial condition. The discussion should be read in conjunction with, and is
qualified in its entirety by reference to, our consolidated financial statements
and related notes to financial statements appearing elsewhere in this report. In
addition, reference should be made to our audited consolidated financial
statements and notes thereto and related "Management's Discussion and Analysis
of Financial Condition and Results of Operation" included in our 2002 Form 10-K.

APPLICATION OF CRITICAL ACCOUNT ESTIMATES

      Our consolidated financial statements and accompanying notes are prepared
in accordance with accounting principles generally accepted in the United
States. Preparing consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. These estimates and assumptions are affected
by the application of our accounting policies. Our significant accounting
policies are described in the "Significant Accounting Policies" footnote in our
notes to financial statements included in our 2002 Form 10-K. Critical
accounting estimates are those that require application of management's most
difficult, subjective or complex judgments, often as a result of matters that
are inherently uncertain and may change in subsequent periods. Critical
accounting estimates for us include: (i) revenue recognition on services, (ii)
allowance for doubtful accounts, (iii) network optimization accruals, (iv)
billing from network carriers, and (v) impairment of long-lived assets. For
additional discussion of our critical accounting estimates, see our
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our 2002 Form 10-K.

THE BUSINESS

      As a consequence of the Chapter 11 reorganization occurring as of July 30,
2002 (the "Effective Date"), the financial results for the three months ended
March 31, 2002 have been presented under the label "Predecessor Mpower Holding."
Also as a result of reorganization, the financial statements published for the
periods following the Effective Date will not be comparable to those published
before the Effective Date.

      We are a competitive local exchange carrier ("CLEC") offering local
dial-tone, long distance, high-speed Internet access via dedicated Symmetrical
Digital Subscriber Line ("SDSL") technology, voice over SDSL ("VoSDSL"), Trunk
Level 1 ("T1"), Integrated T1 and Data-only T1, as well as other voice and data
features. Our services are offered primarily to small


11
<PAGE>

and medium-sized business customers through our wholly owned subsidiary, Mpower
Communications Corp. ("Communications").

      As of March 31, 2003, we provided services to small and medium-sized
business customers in five markets throughout California (Los Angeles, San Diego
and Northern California), Nevada (Las Vegas only) and Illinois (Chicago only).
Our network consists of 294 incumbent carrier central office collocation sites
providing us access to more than 5.3 million addressable business lines. We have
279 central office collocation sites that are SDSL capable and 199 that are T1
capable. We have established working relationships with the following incumbent
local exchange carriers (ILEC's): Sprint, Verizon, and Southwestern Bell
Corporation (including its operating subsidiaries PacBell and Ameritech,
collectively referred to as "SBC"). We have over 265,000 lines in service. At
March 31, 2003, we have 869 employees.

      We were one of the first competitive communications carriers to implement
a facilities-based network strategy. As a result, we own the network switches
that control how voice and data communications originate and terminate, and
lease the telephone lines, or transport systems, over which the voice and data
traffic are transmitted. We install our network equipment at collocation sites
of the incumbent carrier from whom we rent standard telephone lines. As we have
already invested and built our network, we believe our strategy has allowed us
to establish and sustain service in our markets at a comparatively low cost,
while maintaining control of the access to our customers.

      Our business is to deliver integrated voice and broadband data solutions.
Specifically, we provide small and medium-sized business customers with a full
suite of communications services and features, integrated on one bill, with the
convenience of a single source provider. We have approximately 51,000 business
customer relationships, providing them local telephone service and broadband
Internet via SDSL and T1. A business customer relationship is defined by the
number of bills we provide to our customers every month. For example, we have
some business customers for whom we provide service at multiple locations and
for whom we bill such services on a single bill which we would define as a
single business customer relationship. Conversely, we have some business
customers for whom we provide service at multiple locations and for whom we bill
such services on a separate bill for each location which we would define as
multiple business customer relationships. By leveraging our existing equipment
and interconnection agreements with incumbent carriers and network capabilities,
we are able to offer fully integrated and channelized voice and data products
over a T1 connection. In order to serve the largest portion of our target
audience, our combined voice and data network allows us to deliver services in
several combinations over the most favorable technology: basic phone service on
the traditional phone network, SDSL service, integrated T1 voice and data
service, or data-only T1 connectivity.

DISCONTINUED OPERATIONS

      On January 8, 2003, we announced a series of strategic and financial
transactions to further strengthen us financially and focus our operations on
our California, Nevada and Illinois markets. We have brought geographic
concentration to the business by selling our customers and assets in Florida,
Georgia, Ohio, Michigan and Texas to other service providers (the "Asset
Sales").

      On March 18, 2003, we completed the sale of the assets in our Michigan and
Ohio markets to LDMI Telecommunications, Inc. ("LDMI"), a Michigan corporation,
pursuant to Asset Purchase Agreements dated as of January 8, 2003 and February
6, 2003, respectively. The purchase price for the assets in Michigan was $1.7
million plus an estimated additional $1.9 million, equal to the sum of (i) two
times the total adjusted net revenues generated by the customers of the Michigan
business for the thirty day period ended February 28, 2003, plus (ii) total
adjusted net revenues generated by the customers of the Michigan business for
the thirty day period ended April 30, 2003. The purchase price for the Ohio
Assets was $1.1 million plus an estimated additional $1.9 million, equal to the
sum of (i) two times the total adjusted net revenues generated by the customers
of the Ohio business for the thirty day period ended March 10, 2003, plus (ii)
total adjusted net revenues generated by the customers of the Ohio business for
the thirty day period ended May 9, 2003. In addition, LDMI agreed to assume
certain liabilities from us with respect to the Michigan and Ohio assets.

      On March 27, 2003, we completed a transaction with Xspedius Equipment
Leasing, LLC ("XE"), a subsidiary of Xspedius Communications, LLC ("Xspedius")
pursuant to an Asset Contribution Agreement effective as of December 31, 2002.
Under the terms of the Asset Contribution Agreement, we contributed the assets
in our Texas market to XE in exchange for a 14% interest in XE. On April 23,
2003, we sold 92.85% of our interest in XE (13% of XE) to a current member of XE
for $0.5 million. In addition, XE agreed to assume certain liabilities from us
with respect to the Texas assets.

      In April 2003, we completed the sale of our assets in our Florida and
Georgia markets to Florida Digital Networks, Inc. ("FDN"), pursuant to an Asset
Purchase Agreement dated as of January 8, 2003. The purchase price for the
assets in Florida


12
<PAGE>

and Georgia was $13.3 million. $5.3 million of the purchase price is being held
in escrow. Assuming certain conditions are met, $4.0 million is expected to be
released in May 2003 with the balance released in October 2003. We anticipate
meeting all such conditions. In addition, FDN agreed to assume certain of our
liabilities with respect to the Florida and Georgia assets.

      Each of the transactions described above involves transition services
and/or management agreements whereby we are reimbursed for the cost of specific
services provided on behalf of the buyer. For the three months ended March 31,
2003, we have recorded $2.4 million of transition service and management
agreement fees as an offset to the operating expenses component of loss from
discontinued operations in our consolidated statements of operations.

      As of March 31, 2003, we have recorded $13.4 million of receivables from
the Asset Sales, transition services and management agreements. These
receivables have been included in accounts receivable in our consolidated
balance sheets. During April 2003, we collected a significant portion of the
receivable with the remaining unpaid balance expected to be received in May
2003.

      The operating revenue and expense of these markets have been classified as
discontinued operations under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, for all periods presented. Net sales and
operating loss relating to these markets are as follows for the three months
ended March 31, 2003 and 2002, respectively (in thousands):

<TABLE>
<CAPTION>
                                                     REORGANIZED         PREDECESSOR
                                                       MPOWER              MPOWER
                                                       HOLDING             HOLDING
                                                      MARCH 31,           MARCH 31,
                                                        2003               2002
                                                     -----------         -----------
<S>                                                   <C>               <C>
            Operating revenues ..............          $ 5,766           $ 18,363
            Operating expenses (excluding
            depreciation and amortization)...            8,630             29,946
            Depreciation and amortization ...               --              5,381
            Loss on disposal ................            1,117                 --
                                                       -------           --------
            Loss from discontinued operations          $(3,981)          $(16,964)
                                                       =======           ========
</TABLE>

      We have recorded an additional $1.1 million loss on disposal to account
for the resolution of purchase price adjustments and additional costs to sell
the assets.

      We incurred exit costs associated with the sale of our customers and
assets as described above. These costs included one-time termination benefits of
$0.6 million and contract termination costs of $1.3 million for the quarter
ended March 31, 2003. These costs are reflected in the operating expenses
component of loss from discontinued operations in our consolidated statements of
operations.

RESULTS OF OPERATIONS

      Our revenues are generated from sales of communications services
consisting primarily of local phone services, data services, long-distance
services, switched access billings and non-recurring charges, such as
installation charges. Local, long distance and data services are generally
provided and billed as a bundled offering under which customers pay a fixed
amount for a package of combined local, long distance and data services. As a
result, the portion of our revenues attributable to each service is not
identifiable and, therefore, we do not record or report these amounts
separately. Our revenues consist of:

      o     the monthly recurring charge for basic local voice and data
            services;

      o     usage-based charges for local, toll and long distance calls in
            certain markets;

      o     charges for services and features such as call waiting and call
            forwarding;

      o     certain non-recurring charges, such as set-up charges for new
            customers or for additional lines for existing customers; and

      o     interconnection revenues from switched access charges to long
            distance carriers.


13
<PAGE>
      Our switched access revenues historically have been subject to
uncertainties such as various federal and state regulations and disputes with
our long distance carriers. In addition, the Federal Communications Commission
(the "FCC") in April 2001 adopted new rules that limit the rates we can charge
carriers for use of our facilities. Under these rules, which took effect on June
20, 2001, competitive carriers are required to reduce their tariffed interstate
access charges to agreed upon contractual rates or rates no higher than 2.5
cents per minute. After one year, the rate ceiling was reduced to 1.8 cents and
after two years will be reduced to 1.2 cents per minute. After three years, all
competitive carriers will be required to charge rates no higher than the
incumbent telephone company. As a result of our agreements and the reductions in
rates dictated by the FCC, we anticipate a continued decrease of switched access
revenues as a percentage of total revenue. Switched access revenue, as a
percentage of total revenue was 13% for the first quarter of 2003 compared to
25% in the first quarter of 2002. As a result, revenue from core trade customers
was 87% of total first quarter 2003 revenues as compared to 75% of total first
quarter 2002 revenues.

      Our principal recurring operating expenses consist of cost of operating
revenues, selling, general and administrative expenses, and depreciation and
amortization expense. Cost of operating revenues consists primarily of access
charges, line installation expenses, transport expenses, long distance expenses
and lease expenses for our switch sites and our collocation sites. Costs of
operating revenues and selling, general and administrative expenses do not
include an allocation of our depreciation or amortization expenses.

      Selling expenses consist primarily of salaries, commissions and related
personnel costs, marketing costs and facilities costs. General and
administrative expenses consist primarily of salaries and related personnel
costs, the cost of maintaining the hardware and software in our network and back
office systems, provision for bad debts, professional fees, insurance, property
taxes, customer care, billing expense and facilities expenses.

      Depreciation and amortization expense includes depreciation of switching
and collocation equipment, business application software as well as general
property and equipment and the amortization of intangible assets.

      Gross interest expense is primarily attributable to interest expense
accrued on our revolving line of credit and capital lease obligations.

      Interest income results from the investment of cash and cash equivalents.

Quarterly Comparison - March 31, 2003 vs. March 31, 2002

      Results from discontinued operations have been excluded from this
comparison.

      Total operating revenues increased to $36.7 million for the quarter ended
March 31, 2003 as compared to $34.5 million for the quarter ended March 31,
2002. The 7% increase in revenue was primarily the result of selling higher
revenue generating products as well as price increases we implemented in our
markets in the second quarter of 2002. We continue to focus on generating higher
and more profitable revenue per line. These factors increased our non-switched
access revenue from core trade customers from $25.7 million for the quarter
ended March 31, 2002 to $32.0 million for the quarter ended March 31, 2003.
Revenues from core trade customers increased from 75% to 87% of total revenues
quarter over quarter. Our switched access revenues decreased $4.1 million or 47%
from the quarter ended March 31, 2002 and decreased as a percentage of our
revenues to 13%. This decrease in switched access revenues was primarily a
result of the reduction in rates we negotiated with our major carriers and FCC
mandated rate rules. We expect switched access revenue to continue to decline as
a percentage of total revenue.

      The following table summarizes revenue from continuing operations (in
millions):

<TABLE>
<CAPTION>
                                                   QUARTER ENDED                       QUARTER ENDED
            REVENUE FROM                              MARCH 31,                           MARCH 31,
            CONTINUING OPERATIONS:                     2003                                2002
            ----------------------            ------------------------           ------------------------
<S>                                           <C>              <C>               <C>              <C>
            Switched access revenue           $   4.7             13%            $   8.8             25%
            End customer trade and
              other revenue ........             32.0             87%               25.7             75%
                                              -------          -------           -------          -------
            Total ..................          $  36.7            100.0%          $  34.5            100.0%
                                              =======          =======           =======          =======
</TABLE>


14
<PAGE>

      Cost of operating revenues for the quarter ended March 31, 2003 was $22.1
million as compared to $23.1 million for the quarter ended March 31, 2002. The
4% decrease is primarily due to a reduction in installation costs related to
fewer gross new lines added in the first quarter of 2003 versus the first
quarter of 2002 and efforts to improve the cost effectiveness of our network.

      For the quarter ended March 31, 2003, selling, general and administrative
expenses totaled $21.1 million, a 26% decrease from the $28.6 million for the
quarter ended March 31, 2002. The decrease is primarily a result of management
initiatives that resulted in a decrease in administrative personnel and related
costs, and initiatives to reduce customer acquisition costs.

      For the quarter ended March 31, 2003, we recorded $0.1 million in
stock-based compensation compared to $0.2 million recorded for the quarter ended
March 31, 2002. Outstanding options at March 31, 2003 were granted subsequent to
our emergence from bankruptcy and have been accounted for as fixed awards. The
expense for the quarter ended March 31, 2003 relates to options granted with an
exercise price below the market price of the stock.

      In February 2002, we closed our operations in Charlotte, North Carolina
and eliminated certain other non-performing sales offices. We also cancelled the
implementation of a new billing system in February 2002. We recognized a network
optimization charge of $19.0 million in the first quarter of 2002. Included in
the charge was $12.5 million for the write down of our investment in software
and assets for a new billing system, $3.7 million for property and equipment
including collocations and switch sites and $2.8 million for other costs
associated with exiting these markets.

      With respect to the network optimization charges, the total actual charges
will be based on ultimate settlements with the incumbent local exchange
carriers, recovery of costs from any subsequent subleases, our ability to sell
or re-deploy network equipment for growth in our existing network and other
factors.

      For the quarter ended March 31, 2003, depreciation and amortization was
$4.3 million as compared to $12.1 million for the quarter ended March 31, 2002.
This decrease is primarily due to the reduced depreciable value of our fixed
assets resulting from the implementation of fresh-start accounting.

      Interest income was $0.1 million for the quarter ended March 31, 2003
compared to $1.8 million for the quarter ended March 31, 2002. The decrease is a
result of decreases in cash and investments since the first quarter 2002. Cash
and investments have been used to purchase capital equipment, pay interest, fund
operating losses, fund the costs of our reorganization and retire our remaining
2004 Senior Secured Notes.

      Gross interest expense for the quarter ended March 31, 2003 totaled $0.1
million compared to $15.0 million for the quarter ended March 31, 2002. The
decrease in interest expense during the first quarter of 2003 is primarily due
to the retirement of substantially all of our debt. All of our 2010 Notes were
eliminated in our reorganization and all of our 2004 Senior Secured Notes were
repurchased by January 2003. Interest capitalized for the quarter ended March
31, 2002 was $0.8 million.

      We incurred net losses before discontinued operations of $11.2 million and
$56.8 million for the quarters ended March 31, 2003 and 2002, respectively.

      For the quarter ended March 31, 2002, we accrued preferred stock dividends
of $3.6 million, payable to holders of our Series D convertible preferred stock.
All our preferred stock was eliminated in our reorganization effective July 30,
2002.

LIQUIDITY AND CAPITAL RESOURCES

      To date, we continue to incur negative cash flows from operating
activities; however, we believe that we have sufficient resources to fund our
planned operations.

      As of March 31, 2003, we had $12.4 million in unrestricted cash and cash
equivalents. To date, our revenues have generated only a portion of the cash
necessary to fund our operations. We have incurred a loss in each year since
inception,


15
<PAGE>
and although the rate in which we have been using cash for operations over the
past twelve months has been significantly reduced, we expect to continue to
incur losses into the second quarter of 2003. Our near-term source of liquidity
is our unrestricted cash accounts, management of accounts payable, and the cash
to be received in the finalization of our Asset Sales. Our line of credit,
which allows us to receive advances of up to $7.5 million against certain
accounts receivables expected to be received in the future, will also be a
source of near-term liquidity. We believe we have adequate liquidity to fully
fund our business on a continuing basis; however, we cannot assure investors
that our estimate of funds required is accurate.

      Developing and maintaining our network and business has required and will
continue to require us to incur capital expenditures primarily consisting of the
costs of purchasing switching and customer premises equipment. Cash outlays for
capital expenditures were $1.9 million in the first quarter of 2003. We expect
we will continue to require capital to acquire customers, fund our operations,
augment our network in our existing markets and develop new products and
services.

      Our capital expenditures will focus on the augmentation of our network to
add new products and customers and to improve the cost efficiency of our
network, as we have completed the footprint build-out of our network in the
markets in which we operate.

      We continually evaluate our capital requirements plan in light of
developments in the telecommunications industry and market acceptance of our
service offerings. The actual amount and timing of future capital requirements
may differ materially from our estimates as a result of, among other things:

      o     the cost of the development and support of our networks in each of
            our markets

      o     the extent of price and service competition for telecommunication
            services in our markets

      o     the demand for our services

      o     regulatory and technological developments

      o     our ability to develop, acquire and integrate necessary operating
            support systems

      o     our ability to re-deploy assets held for future use

      As such, actual costs and revenues may vary from expected amounts,
possibly to a material degree, and such variations are likely to affect our
future capital requirements.

COMMITMENTS AND CONTINGENCIES

      In the ordinary course of business, we enter into purchase agreements with
our equipment vendors and collocation site providers. As of March 31, 2003, we
had total unfulfilled commitments with equipment vendors and collocation site
providers of $1.7 million. We also have various agreements with certain carriers
for transport, long distance and other network services. At March 31, 2003, our
commitment under these agreements is $16.0 million, which expire through July
2005.

CASH FLOW DISCUSSION

      In summary our cash flows for the first quarter of 2003 were:

<TABLE>
<CAPTION>
                                                            THREE
                                                            MONTHS
                                                            ENDING
                                                           MARCH 31,
                                                              2003
                                                           ---------
<S>                                                        <C>
            (IN THOUSANDS)
            Net Cash Used in Operating Activities          $(4,044)
            Net Cash Provided by Investing
            Activities ..........................          $ 5,114
            Net Cash Provided by Financing
            Activities ..........................          $   555
</TABLE>

      Cash and Cash Equivalents: At March 31, 2003, cash and cash equivalents
were $12.4 million. Restricted investments amounted to $10.7 million as of March
31, 2003. The restricted investments primarily represent commitments we made to
pay


16
<PAGE>

employee retention and incentive compensation bonuses and severance payments and
to fund the future purchase, if needed, of run-off directors and officers
insurance. During the quarter ended March 31, 2003 we paid out $1.0 million
relating to these commitments. In February 2003, we reached a final settlement
of disputed charges with SBC Telecommunications. $1.2 million out of $1.9
million of restricted investments was released and returned to us, while $0.7
million was released and paid to SBC Telecommunications.

      Operating Activities: We used $4.0 million in cash for operations for the
three months ended March 31, 2003. The use of cash in 2003 was primarily the
result of operating expenses incurred in the on-going operation of our business,
offset by cash revenues. The rate at which we have been using cash for
operations over the past twelve months has been significantly reduced. This
reduction in the use of cash is primarily a result of operational efficiencies,
the associated expense reductions and elimination of expenses associated with
the markets we exited and management of accounts payable.

      Investing Activities: For the three months ended March 31, 2003, we were
provided with $5.1 million in cash from investing activities. The cash provided
in 2003 primarily represents the proceeds from Asset Sales and the sale of
restricted investments upon final settlement of disputed charges with SBC
Telecommunications and to fund incentive compensation bonuses and severance
payments.

      Financing Activities: For the three months ended March 31, 2003, we were
provided with $0.6 million of cash for financing activities. The cash provided
in 2003 represents the net effect of cash received from the line of credit,
substantially offset by the repurchase of our remaining senior notes and
payments on capital lease obligations.

EFFECTS OF NEW ACCOUNTING STANDARDS

Amendment of FASB Statement No. 133 on Derivative Instruments and Hedging
Activities

      In April 2003, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 149, "Amendment of FASB Statement No. 133
on Derivative Instruments and Hedging Activities" (SFAS 149). This standard
amends FASB No. 133 by clarifying under which circumstances a contract meets the
characteristic of a derivative, clarifies when a derivative contains a financing
component and also amends certain other existing pronouncements. The provisions
of this Statement are effective for contracts entered into or modified after
June 30, 2003. We do not expect that the adoption of SFAS No. 149 will have a
material effect on our consolidated financial statements as we do not have any
freestanding or embedded derivatives as of March 31, 2003.

TRENDS/UNCERTAINTIES THAT MAY AFFECT OUR BUSINESS

      The sector in which our business operates has had many changes over the
past two years. As a result of the downturn of the economy and the dramatic
shrinking of the technology sector, many of our competitors have discontinued
doing business or have restructured in order to be able to continue to operate.
As a result of the downturn, competitive carriers may face over-capacity, large
amounts of debt and uncertain economic and regulatory conditions.

      We scaled back the markets we serve beginning in 2001, to focus our
resources on the markets we expect to be the most profitable. These efforts
culminated with the sale of our assets and customers in Michigan, Ohio, Texas,
Florida and Georgia this year. We do not currently have any plans to sell or
close any additional markets. We cannot assure you that additional market
closings or the sale of assets will not be required in the future or that such
closings or sales in the future, if any, will result in improved operating
results.

      From time to time, we have had preliminary discussions with companies who
may be interested in acquiring our assets or business, in whole or in part. We
intend to consider any desirable acquisition proposals that may be made in the
future. However, we cannot assure investors that we will agree, or that we will
not agree, to be acquired by another company.


17
<PAGE>
      In connection with our emergence from Chapter 11 proceedings, we have been
in the process of settling our pre-petition liabilities. While most of these
pre-petition obligations have been successfully resolved, there are several
on-going negotiations. If any of the open negotiations are settled at more than
management's estimate, our results may be materially affected.

FEDERAL REGULATION

      The FCC regulates interstate and international communications services,
including access to local telephone facilities to place and receive interstate
and international calls. We provide these services as a common carrier. The FCC
imposes more regulation on common carriers that have some degree of market
power, such as incumbent local exchange carriers. The FCC imposes less
regulation on common carriers without market power, including competitive
carriers like us. The FCC grants automatic authority to carriers to provide
interstate long distance service, but requires common carriers to receive an
authorization to construct and operate communications facilities, and to provide
or resell communications services, between the United States and international
points.

      The FCC has required competitive carriers like us to cancel their tariffs
for domestic interstate and international long distance services, which were
schedules listing the rates, terms and conditions of all these services offered.
Even without tariff filing, however, carriers offering interstate and
international services must charge just and reasonable rates and must not
discriminate among customers for like services. The FCC may adjudicate
complaints against carriers alleging violations of these requirements.

      Our charges for interstate access services, which includes the use of our
local facilities by other carriers to originate and terminate interstate calls,
remain governed by tariffs. In April 2001, the FCC adopted new rules that limit
our rates for these services. Under these rules, which took effect on June 20,
2001, competitive carriers were required to reduce their switched access charges
to rates no higher than 2.5 cents per minute. After one year (effective June
2002), the rate ceiling was reduced to 1.8 cents and after two years (effective
June 2003) to 1.2 cents per minute. After three years (effective June 2004), all
competitive carriers will be required to charge rates no higher than the
incumbent telephone company.

      The FCC imposes numerous other regulations on carriers subject to its
jurisdiction, some of the most important of which are discussed below. The FCC
also hears complaints against carriers filed by customers or other carriers and
levies various charges and fees.

      Except for certain restrictions placed on the Bell operating companies,
the Telecommunications Act permits virtually any entity, including cable
television companies and electric and gas utilities, to enter any communications
market. The Telecommunications Act takes precedence over inconsistent state
regulation. However, entities that enter communications markets must follow
state regulations relating to safety, quality, consumer protection and other
matters. Implementation of the Telecommunications Act continues to be affected
by numerous federal and state policy rulemaking proceedings and review by
courts. We are uncertain as to how our business may be affected by these
proceedings.

      The Telecommunications Act is intended to promote competition. The
Telecommunications Act opens the local services market to competition by
requiring incumbent carriers to permit interconnection to their networks and by
establishing incumbent carrier and competitive carrier obligations with respect
to:

            Reciprocal Compensation. All incumbent carriers and competitive
      carriers are currently required to complete local calls originated by each
      other under reciprocal arrangements at prices based on tariffs or
      negotiated prices.

            Resale. All incumbent carriers and competitive carriers are required
      to permit resale of their communications services without unreasonable
      restrictions or conditions. In addition, incumbent carriers are required
      to offer wholesale versions of all retail services to other common
      carriers for resale at discounted rates, based on the costs avoided by the
      incumbent carrier by offering these services on a wholesale basis.

            Interconnection. All incumbent carriers and competitive carriers are
      required to permit their competitors to interconnect with their
      facilities. All incumbent carriers are required to permit interconnection
      at any feasible point within their networks, on nondiscriminatory terms,
      at prices based on cost, which may include a reasonable profit. At the
      option of the carrier requesting interconnection, collocation of the
      requesting carrier's equipment in the incumbent carriers' premises must be
      offered.


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<PAGE>

            Unbundled Access. All incumbent carriers are required to provide
      access to specified individual components of their networks, which are
      sometimes referred to as unbundled network elements or UNE's, on
      nondiscriminatory terms and at prices based on cost, which may include a
      reasonable profit.

            Number Portability. All incumbent carriers and competitive carriers
      are required to permit users of communications services to retain their
      existing telephone numbers without impairing quality, reliability or
      convenience when switching from one common carrier to another.

            Dialing Parity. All incumbent carriers and competitive carriers are
      required to provide "1+" equal access dialing to competing providers of
      long distance service, and to provide nondiscriminatory access to
      telephone numbers, operator services, directory assistance and directory
      listing, with no unreasonable dialing delays.

            Access to Rights-of-Way. All incumbent carriers and competitive
      carriers are required to permit competing carriers access to their poles,
      ducts, conduits and rights-of-way at regulated prices.

      Incumbent carriers are required to negotiate in good faith with carriers
requesting any or all of the above arrangements. If the negotiating carriers
cannot reach agreement within a predetermined amount of time, either carrier may
request arbitration of the disputed issues by the state regulatory commission.

      Our business relies to a considerable degree on the use of incumbent
carrier network elements, which we access through collocation arrangements in
incumbent carrier offices. The terms and conditions, including prices, of these
network elements and collocation elements are largely dictated by regulatory
decisions, and changes in the availability or pricing of these facilities can
have significant effects on our business plan and operating results.

      The requirement that incumbent carriers unbundle their network elements
has been implemented through rules adopted by the FCC. In January 1999, the
United States Supreme Court confirmed the FCC's broad authority to issue these
rules, but vacated a particular rule that defined the network elements the
incumbent carriers must offer. In a November 1999 order, the FCC reaffirmed that
incumbent carriers must provide unbundled access to a minimum of six network
elements including local loop and transport facilities (the elements in primary
use by us). In December 2001, the FCC initiated a review of the network element
unbundling rules, and requested comments on whether to expand, reduce or change
the list of required elements. We anticipate that the proceeding will be
concluded during mid 2003. Also, in February 2002, the FCC requested comments on
a number of issues relating to regulation of broadband Internet access services
offered over telephone company facilities, including whether the incumbent
carriers should continue to be required to offer the elements of these services
on an unbundled basis. Any change in the existing rules that would reduce the
obligation of incumbent carriers to offer network elements to us on an unbundled
basis could adversely affect our business plan.

      In May 2002, the prices that incumbent carriers may charge for access to
these network elements was determined by the Supreme Court, which affirmed that
incumbent carriers are required to price these network elements based on the
efficient replacement cost of existing technology, as the FCC methodology now
requires, rather than on their historical costs. The Court also determined that
the FCC may require incumbent carriers to combine certain previously uncombined
elements at the request of a competitive carrier.

      In November 2001, the FCC initiated two rulemaking proceedings to
establish a core set of national performance measurements and standards for
evaluating an incumbent carrier's performance in provisioning wholesale
facilities and services to competitors. It sought comment on a set of specific
performance measurements and on related issues of implementation, reporting
requirements, and enforcement mechanisms. We cannot predict the ultimate outcome
of these proceedings.

      The Telecommunications Act also contains special provisions that replace
prior antitrust restrictions that prohibited the regional Bell operating
companies from providing long distance services and engaging in communications
equipment manufacturing. Before the passage of the Telecommunications Act, the
regional Bell operating companies were restricted to providing services within a
distinct geographical area known as a local access and transport area (LATA).
The Telecommunications Act permits the regional Bell operating companies to
provide interLATA long distance service immediately in areas outside of their
market regions and within their market regions once they have satisfied several


19
<PAGE>

procedural and substantive requirements, including:

      o     a showing that the regional Bell operating company is subject to
            meaningful local competition in the area in which it seeks to offer
            long distance service; and

      o     a determination by the FCC that the regional Bell operating
            company's entry into long distance markets is in the public
            interest.

      Verizon has obtained authority to provide interLATA long distance services
in substantially all of its operating areas and SBC has obtained authority to
provide interLATA long distance services in approximately half of its operating
areas. During 2003, the regional Bell operating companies are likely to complete
this process and be authorized to compete throughout their operating areas with
packages of bundled services, or "one stop shopping." With the completion of
this process, incentives for incumbent carriers to improve service to
competitive carriers like us in order to obtain interLATA long distance
authority will be virtually eliminated while at the same time, the regional Bell
operating companies will be in a position to become more efficient and
attractive competitors.

      In December 2001, the FCC initiated a review of the current regulatory
requirements for incumbent carriers' broadband telecommunications services.
Incumbent carriers are generally treated as dominant carriers, and hence are
subject to certain regulatory requirements, such as tariff filings and pricing
requirements. In this proceeding, the FCC seeks to determine what regulatory
safeguards and carrier obligations, if any, should apply when a carrier that is
dominant in the provision of traditional local exchange and exchange access
services provides broadband service. A decision by the FCC to exempt the
incumbent carriers' broadband services from traditional regulation could have a
significant adverse competitive impact.

      Also in December 2001, the FCC initiated its "triennial review" of which
unbundled network elements or UNEs the incumbent carriers are required to sell
to competitive carriers such as us at forward looking or TELRIC (total element
long run incremental cost) rates, which reflect efficient costs plus a
reasonable profit. Competitive carriers such as us may depend upon their ability
to obtain access to these UNEs in order to provision services to their
customers. On February 20, 2003, the FCC announced its decision on the
"triennial review" of UNEs. Although the Order has not yet been released, the
FCC announced that it generally would de-regulate access to the incumbent
carriers' fiber/broadband network but would continue to require that incumbents
provide access to their copper network and to DS-1 and DS-3 loops and transport.
We primarily buy access to the incumbents' copper network and to DS-1s/T-1s. The
"triennial review" decision is complex and when issued, it is likely to be
litigated. It will have a significant impact on telecommunications competition,
but it is not possible at this time to predict the full extent of its impact
upon us or our competition. A modification of the decision by the FCC or the
courts could result in an order that could have a significant adverse
competitive impact.

      In several orders adopted in recent years, the FCC has made major changes
in the structure of the access charges incumbent carriers impose for the use of
their facilities to originate or complete interstate and international calls.
Under the FCC's plan, per-minute access charges have been significantly reduced,
and replaced in part with higher monthly fees to end-users and in part with a
new interstate universal service support system. Under this plan, the largest
incumbent carriers are required to reduce their average access charge to $0.0055
per minute over a period of time, and some of these carriers have already
reduced their charges to the target level.

      In August 1999, the FCC adopted an order providing additional pricing
flexibility to incumbent carriers subject to price cap regulation in their
provision of interstate access services, particularly special access and
dedicated transport. The FCC eliminated rate scrutiny for "new services" and
permitted incumbent carriers to establish additional geographic zones within a
market that would have separate rates. Additional and more substantial pricing
flexibility will be given to incumbent carriers as specified levels of
competition in a market are reached through the collocation of competitive
carriers and their use of competitive transport. This flexibility includes,
among other items, customer specific pricing, volume and term discounts for some
services and streamlined tariffing.

      In May 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy program. This order established new
subsidies for telecommunications and information services provided to qualifying
schools, libraries and rural health providers. The FCC also expanded federal
subsidies for local dial-tone services provided to low-income consumers.
Providers of interstate telecommunications service, including us, must
contribute to these subsidies. In later years, the FCC created additional
subsidies that primarily benefit incumbent telephone companies. On a quarterly
basis,


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<PAGE>
the FCC announces the contribution factor proposed for the next quarter. For the
first quarter of the year 2003, the contribution factor is 0.072805 of a
provider's interstate and international revenue for the third quarter of 2002.
We intend to recover our share of these costs through charges assessed directly
to our customers and participation in federally subsidized programs. The FCC is
considering proposals to change the way contributions are assessed, but we
cannot predict when or whether the FCC will act on these proposals.


STATE REGULATION

      To provide services within a state, we generally must obtain a certificate
of public convenience and necessity from the state regulatory agency and comply
with state requirements for telecommunications utilities, including state
tariffing requirements. We have satisfied state requirements to provide local
and intrastate long distance services in the states in which we currently
operate.

      State regulatory agencies have jurisdiction over our intrastate services,
including our rates. State agencies require us to file periodic reports, pay
various fees and assessments and comply with rules governing quality of service,
consumer protection and similar issues. These agencies may also have to approve
the transfer of assets or customers located in the state, a change of control of
our company or our issuance of securities or assumption of debt. The specific
requirements vary from state to state. State regulatory agencies also must
approve our interconnection agreements with incumbent carriers. Price cap or
rate of return regulation for competitive carriers does not apply in any of our
current markets. However, we cannot assure you that the imposition of new
regulatory burdens in a particular state will not affect the profitability of
our services in that state. For example, SB400 in Nevada, if enacted, would
limit the state public utility commission regulation of the incumbent carrier's
broadband services and increase the incumbent carrier's flexibility in pricing
its services. Passage of this bill as currently written could have a significant
adverse competitive impact. In Illinois, recent passage of a bill permitting SBC
to raise the rates it charges competitors to use its local lines could also have
a significant adverse competitive impact in that market.

LOCAL REGULATION

      Our networks must comply with numerous local regulations such as building
codes, municipal franchise requirements and licensing. These regulations vary on
a city by city and county by county basis. In some of the areas where we provide
service, we may have to comply with municipal franchise requirements and may be
required to pay license or franchise fees based on a percentage of gross revenue
or other factors. Municipalities that do not currently impose fees may seek to
impose fees in the future. We cannot assure you that fees will remain at their
current levels following the expiration of existing franchises.

COMPETITION

      The communications industry is highly competitive. We believe the
principal competitive factors affecting our business will be:

      o     pricing levels and policies

      o     transmission speed

      o     customer service

      o     breadth of service availability

      o     network security


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<PAGE>

      o     ease of access and use

      o     bundled service offerings

      o     brand recognition

      o     operating experience

      o     capital availability

      o     exclusive contracts

      o     accurate billing

      o     variety of services.

      To maintain our competitive posture, we believe we must be in a position
to reduce our prices to meet any reductions in rates by our competitors. Any
reductions could adversely affect us. Many of our current and potential
competitors have financial, personnel and other resources, including brand name
recognition, substantially greater than ours, as well as other competitive
advantages over us. In addition, competitive alternatives may result in
substantial customer turnover in the future. Many providers of communications
and networking services experience high rates of customer turnover.

      A continuing trend toward consolidation of communications companies and
the formation of strategic alliances within the communications industry, as well
as the development of new technologies, could give rise to significant new
competitors which could put us at a competitive disadvantage.

LOCAL DIAL-TONE SERVICES

Incumbent Carriers

      In each of the markets we target, we will compete principally with the
incumbent carrier serving that area. We have not achieved and do not expect to
achieve a significant market share for any of our services. The incumbent
carriers have long-standing relationships with their customers, have financial,
technical and marketing resources substantially greater than ours and have the
potential to subsidize competitive services with revenues from a variety of
businesses.

      Incumbent carriers also have long-standing relationships with regulatory
authorities at the federal and state levels. While regulatory initiatives which
allow competitive carriers to interconnect with incumbent carrier facilities
provide increased business opportunities for us, interconnection opportunities
have been and likely will continue to be accompanied by increased pricing
flexibility for, and relaxation of regulatory oversight of, the incumbent
carriers. If the incumbent carriers are allowed by regulators to offer discounts
to large customers through contract tariffs, engage in aggressive volume and
term discount pricing practices for their customers, and/or seek to charge
competitors excessive fees for interconnection to their networks, our operating
margins could be materially adversely affected. Future regulatory decisions
which give the incumbent carriers increased pricing flexibility or other
regulatory relief could have a material adverse effect on us.

Competitive Carriers/Long Distance Carriers/Other Market Entrants

      We face, and expect to continue to face, competition from long distance
carriers, including AT&T, MCI WorldCom, and Sprint, seeking to enter, reenter or
expand entry into the local exchange market. We also compete with other
competitive carriers, resellers of local dial-tone services, cable television
companies, electric utilities, microwave carriers and wireless telephone system
operators.

      The Telecommunications Act includes provisions which impose regulatory
requirements on all incumbent carriers and competitive carriers but grants the
FCC expanded authority to reduce the level of regulation applicable to these
common carriers. The manner in which these provisions of the Telecommunications
Act are implemented and enforced could have a


22
<PAGE>

material adverse effect on our ability to successfully compete against incumbent
carriers and other communications service providers.

      The Telecommunications Act radically altered the market opportunity for
competitive carriers. Many existing competitive carriers which entered the
market before 1996 had to build a fiber infrastructure before offering services.
With the Telecommunications Act requiring unbundling of the incumbent carrier
networks, competitive carriers are now able to enter the market more rapidly by
installing switches and leasing standard telephone lines and cable or by means
of a type of resale known as an unbundled network element platform or UNE-P.

      A number of competitive carriers have entered or announced their intention
to enter one or more of our markets. We believe that not all competitive
carriers, however, are pursuing the same target customers we pursue. We intend
to keep our prices at competitive levels while providing, in our opinion, a
higher level of service and responsiveness to our customers. Innovative
packaging and pricing of basic telephone services are expected to provide
competitive differentiation for us in each of our markets.

LONG DISTANCE SERVICES

      The long distance services industry is very competitive and many long
distance providers experience a high average turnover rate as customers
frequently change long distance providers in response to offerings of lower
rates or promotional incentives by competitors. Prices in the long distance
market have declined significantly in recent years. We expect to face increasing
competition from companies offering long distance data and voice services over
the Internet. Companies offering these services over the Internet could enjoy a
significant cost advantage because they do not currently pay common carrier
access charges or universal service fees.

DATA AND INTERNET SERVICES

      We expect the level of competition with respect to data and Internet
services to intensify in the future. We expect significant competition from:

      o     Incumbent Carriers. Most incumbent carriers have announced
            deployment of commercial DSL services. Some incumbent carriers have
            announced they intend to aggressively market these services to their
            residential customers at attractive prices. In addition, most
            incumbent carriers are combining their DSL service with their own
            Internet service provider businesses. We believe incumbent carriers
            have the potential to quickly overcome many of the issues that have
            delayed widespread deployment of DSL services in the past. The
            incumbent carriers have an established brand name in their service
            areas, possess sufficient capital to deploy DSL services rapidly and
            are in a position to offer service from central offices where we may
            be unable to secure collocation space. When the regional Bell
            operating companies begin providing long distance service, they may
            be able to offer "one stop shopping" that would be competitive with
            our offerings.

      o     Traditional Long Distance Carriers. Many of the leading traditional
            long distance carriers, including AT&T, MCI WorldCom and Sprint, are
            expanding their capabilities to support high-speed, end-to-end
            networking services. We expect them to offer combined data, voice
            and video services over their networks. These carriers have
            extensive fiber networks in many metropolitan areas that primarily
            provide high-speed data and voice services to large companies. They
            could deploy DSL services in combination with their current fiber
            networks. They also have interconnection agreements with many
            incumbent carriers and have secured collocation space from which
            they could begin to offer competitive DSL services.

      o     Newer Long Distance Carriers. Numerous long distance carriers are
            managing high-speed networks nationwide, with direct sales forces,
            and are partnering with Internet service providers to offer services
            directly to business customers. They could extend their existing
            networks and offer high-speed services using DSL, either alone or in
            partnership with others.

      o     Cable Modem Service Providers. Cable modem service providers are
            offering, or are preparing to offer, high-speed Internet access over
            cable networks to consumers and businesses. These networks provide
            high-speed data services similar to our services, and in some cases
            at higher speeds. These companies use a variety of new and emerging


23
<PAGE>

            technologies, including point-to-point and point-to-multipoint
            wireless services, satellite-based networking and high-speed
            wireless digital communications.

      o     Internet Service Providers. Internet service providers offer
            Internet portal services which compete with our service. We offer
            basic web hosting and e-mail services and anticipate offering an
            enhanced set of Internet products in the future. The competitive
            Internet service providers generally provide more features and
            functions than our current Internet portal.

      o     Wholesale DSL Carriers. DSL carriers, including Covad Communications
            Group, Inc., offer DSL services and have significant strategic
            equity investors, marketing alliances and product development
            partners.

      Many of these competitors are offering, or may soon offer, DSL
technologies and services that will directly compete with us.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

      Our long-term debt is less than $0.3 million and consists primarily of
capital lease obligations with carrying amounts that approximate their fair
values. We do not use interest rate derivative instruments to manage our
exposure to interest rate changes. Since the interest rate under our line of
credit floats with the prime rate, we do not have exposure to interest rate
changes as a result of our line of credit agreement.

ITEM 4. Controls and Procedures

(a)   Evaluation of disclosure controls and procedures. Our principal executive
      officer and our principal financial officer, after evaluating the
      effectiveness of disclosure controls and procedures (as defined in
      Exchange Act Rules 13a-14(c) and 15d-14(c)) on May 5, 2003, have concluded
      that, as of such date, our disclosure controls and procedures were
      adequate and effective to ensure that material information relating to us
      and our consolidated subsidiaries would be made known to them by others
      within those entities.

(b)   Changes in internal controls. There were no significant changes in our
      internal controls or in other factors that could significantly affect our
      disclosure controls and procedures subsequent to the date of their
      evaluation, nor were there any significant deficiencies or material
      weaknesses in our internal controls. As a result, no corrective actions
      were required or undertaken.


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<PAGE>

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

      We are party to numerous state and federal administrative proceedings. In
these proceedings, we are seeking to define and/or enforce incumbent carrier
performance requirements related to:

      o     the cost and provisioning of those network elements we lease;

      o     the establishment of customer care and provisioning;

      o     the allocation of subsidies; and

      o     collocation costs and procedures.

      The outcome of these proceedings will establish the rates and procedures
by which we obtain and provide leased network elements and could have a material
effect on our operating costs.

      We have intervened on behalf of the FCC in an appeal filed by AT&T seeking
to overturn the FCC's declaratory ruling in CCB/CPD No. 01-02, in which the FCC
concluded that a long distance carrier may not refuse a call from/to an access
line served by a competitive local carrier with presumptively reasonable access
rates. We have appealed the FCC's order in CC Docket No. 96-262, in which the
FCC, among other things, established benchmark rates for competitive local
carrier switched access charges. We cannot predict the outcome of these appeals.

      In September 2000, a class action lawsuit was commenced against us,
alleging violations of the Securities Exchange Act of 1934 and rule 10(b)-5
thereunder (the "Exchange Act") and Section 11 of the Securities Act of 1933. In
February 2002, the United States District Court for the Western District of New
York entered its Decision and Order dismissing the class action lawsuit. That
Decision and Order have been appealed to the United States Court of Appeals for
the Second Circuit. On April 8, 2002, we filed a petition for relief under
Chapter 11 of the Bankruptcy Code, and as of the effective date of our First
Amended Joint Plan of Reorganization (July 30, 2002), we were discharged and
released from any "Claim, Debt and Interest," except as otherwise stated in the
Plan, as set forth in the final Confirmation Order entered by the United States
Bankruptcy Court for the District of Delaware on July 17, 2002. Although we are
no longer a defendant in the class action lawsuit and can have no direct
liability to the plaintiffs, we nevertheless remain obligated to indemnify the
remaining individual defendants in the event of an adverse decision against them
in the lawsuit. The plaintiffs and the remaining individual defendants have
entered into a tentative settlement of the class action lawsuit, and have
submitted a Preliminary Approval Order to the Court, seeking approval of the
settlement in accordance with a Stipulation of Settlement dated February 6,
2003. If approved, the settlement would dismiss the action with prejudice. All
settlement payments and remaining attorney's fees and other legal expenses
incurred by the defendants are expected to be paid by our insurance carrier. A
hearing is scheduled for October 1, 2003 to determine whether the proposed
settlement of the action on the terms and conditions provided for in the
Stipulation is fair, reasonable and adequate and should be approved by the
Court. We believe the remaining individual defendants anticipate that the
proposed Settlement will be approved, and that they will continue to deny any
wrongdoing and will vigorously contest the suit if not settled. We cannot
predict the final outcome of this lawsuit.

      From time to time, we engage in other litigation and governmental
proceedings in the ordinary course of our business. We do not believe any other
pending litigation or governmental proceeding will have a material adverse
effect on our results of operations or financial condition.

ITEM 2. Changes in Securities and Use of Proceeds

      In January 2003, we repurchased the remaining $2.1 million in face amount
of our 13% Senior Notes due 2004, thereby eliminating the balance of this
indebtedness that was incurred in 1997. The 2004 Notes were secured by certain
operating assets of Mpower Communications Corp. By eliminating this debt, these
assets have now been released from all liens.


25
<PAGE>

ITEM 5. Other Information

      As of March 19, 2003, an additional 1,500,000 shares of common stock have
been reserved for issuance under our stock option plan II. The additional shares
of stock options will be granted to certain key employees of ours in exchange
for a voluntary reduction in their salaries. Pursuant to this salary reduction
program, eligible employees will be entitled to receive a one-time grant of
three stock options for each dollar of annualized reduction in salary. The stock
options have an exercise price of $0.19, which is the closing price of our
common stock as of March 18, 2003. The stock options will vest in six equal
monthly installments commencing May 31, 2003 and outstanding options will expire
ten years from the grant date. The employees who participate in the salary
reduction program shall be required to waive their entitlement to assert that
their salary reduction pursuant to the salary reduction program triggers any
right to receive severance or other benefits or payments pursuant to any
existing severance or employment agreement.

      On May 6, 2003, Anthony J. Cassara was appointed to serve on our board of
directors. Concurrent with this appointment, two members of our management team,
Joe Wetzel, President and Chief Operating Officer and Gregg Clevenger, Executive
Vice President and Chief Financial Officer, are stepping down from our board of
directors, but will continue in their executive management roles. With the
exception of Rolla P. Huff, Chairman of the Board of Directors, each member of
our board of directors is now an outside director having no employment
relationships with us.

ITEM 6. Exhibits and Reports on Form 8-K

      (a)   The following exhibits are filed herewith or incorporated by
            reference as indicated. Exhibit numbers refer to Item 60l of
            Regulation S-K.

                  2.1   Asset Purchase Agreement, dated as of January 8, 2003,
                        between Mpower and LDMI Telecommunications, Inc. (1)

                  2.2   Amendment No. 1 to Asset Purchase Agreement, dated as of
                        February 6, 2003, between Mpower and LDMI
                        Telecommunications, Inc. (1)

                  2.3   Asset Contribution Agreement, effective as of December
                        31, 2002, between Mpower and Xspedius Equipment Leasing,
                        LLC. (1)

                  2.4   Asset Purchase Agreement, dated as of January 8, 2003,
                        between Mpower, Florida Digital Network, Inc. and
                        Southern Digital Network, Inc. (1)

                  2.5   Acknowledgement and Amendment No. 1 to Asset Purchase
                        Agreement, dated as of April 7, 2003, between Mpower,
                        Florida Digital Network, Inc. and Southern Digital
                        Network, Inc. (1)

                  2.6   Asset Purchase Agreement, dated as of February 6, 2003,
                        between Mpower and LDMI Telecommunications, Inc. (1)

                  3.1   Second Amended and Restated Certificate of Incorporation
                        filed with the Secretary of State of the State of
                        Delaware on July 30, 2002. (2)

                  3.2   Amended and Restated Articles of Incorporation of Mpower
                        Communications Corp. filed with the Secretary of State
                        of the State of Nevada on July 30, 2002. (3)

                  3.3   Amended and Restated By-laws. (2)

                  4.1   See the Second Amended and Restated Certificate of
                        Incorporation filed as Exhibit 3.1 and the Amended and
                        Restated By-laws filed as Exhibit 3.3.

                  10.1  Transition Services Agreement, entered into as of
                        January 8, 2003, between Mpower and Xspedius Equipment
                        Leasing, LLC. (1)

                  99.1  Certification of Principal Executive Officer pursuant to
                        18 U.S.C. Section 1350

                  99.2  Certification of Principal Financial Officer pursuant to
                        18 U.S.C. Section 1350

(1)   Incorporated by reference to the Company's Current Report on Form 8-K
      (file No. 33339884-01) filed with the Commission on April 22, 2003.

(2)   Incorporated by reference to the Company's Registration Statement on Form
      8-A filed with the Commission on July 30, 2002.

(3)   Incorporated by reference to the Company's Current Report on Form 8-K
      (file No. 33339884-01) filed with the Commission on July 30, 2002.

      (b)   The registrant filed the following reports on Form 8-K during the
            quarter ended March 31, 2003:


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<PAGE>

(1)   On January 17, 2003, the Company filed Form 8-K to report information
      required to be disclosed under Regulation FD of the Securities Act of
      1933.

(2)   On March 17, 2003, the Company filed Form 8-K to report information
      required to be disclosed under Regulation FD of the Securities Act of
      1933.

(3)   On March 28, 2003, the Company filed Form 8-K to report on the Company's
      results from continuing operations for the fiscal quarter and fiscal year
      ended December 31, 2002.


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<PAGE>

                                   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.

                             MPOWER HOLDING CORPORATION


Date:    May 14, 2003        /s/ ROLLA P. HUFF
                             ---------------------------------------------------
                             Rolla P. Huff
                             Chief Executive Officer and Chairman of the Board


Date:    May 14, 2003        /s/ S. GREGORY CLEVENGER
                             ---------------------------------------------------
                             S. Gregory Clevenger
                             Executive Vice President - Chief Financial Officer


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<PAGE>

                                 CERTIFICATIONS

I, Rolla P. Huff, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Mpower Holding
      Corporation;

2.    Based on my knowledge, this quarterly report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

      a.    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this
            quarterly report is being prepared;

      b.    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this quarterly report (the "Evaluation Date"); and

      c.    presented in this quarterly report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent function):

      a.    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b.    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.


Date: May 14, 2003                               By: /s/ Rolla P. Huff
                                                     -----------------
                                                     Rolla P. Huff
                                                     Principal Executive Officer


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<PAGE>

                                 CERTIFICATIONS

I, S. Gregory Clevenger, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Mpower Holding
      Corporation;

2.    Based on my knowledge, this quarterly report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

      a.    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this
            quarterly report is being prepared;

      b.    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this quarterly report (the "Evaluation Date"); and

      c.    presented in this quarterly report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent function):

      a.    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b.    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.


Date: May 14, 2003                              By:  /s/ S. Gregory Clevenger
                                                     ---------------------------
                                                     S. Gregory Clevenger
                                                     Principal Financial Officer


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