<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 SEPTEMBER 30, 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 Identification No.)
 incorporation or organization)

                          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 November 7, 2003:

   Common stock (par value $0.001 per share)....78,209,992 shares outstanding

<PAGE>

                           MPOWER HOLDING CORPORATION

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                               PAGE NO.
                                                                                                               --------
<S>                                                                                                            <C>
PART I--    FINANCIAL INFORMATION

Item 1.     Condensed Consolidated Financial Statements (Unaudited)

            Consolidated Balance Sheets - Reorganized Mpower Holding as of
                   September 30, 2003 and December 31, 2002..................................................     3

            Consolidated Statements of Operations

                   Reorganized Mpower Holding - for the three months ended September 30, 2003................     4

                   Reorganized Mpower Holding - for the period July 31, 2002 to September 30, 2002...........     4

                   Predecessor Mpower Holding - for the period July 1, 2002 to July 30, 2002.................     4

                   Reorganized Mpower Holding - for the nine months ended September 30, 2003.................     5

                   Reorganized Mpower Holding - for the period July 31, 2002 to September 30, 2002...........     5

                   Predecessor Mpower Holding - for the period January 1, 2002 to July 30, 2002..............     5

            Consolidated Statements of Cash Flows

                   Reorganized Mpower Holding - for the nine months ended September 30, 2003.................     6

                   Reorganized Mpower Holding - for the period July 31, 2002 to September 30, 2002...........     6

                   Predecessor Mpower Holding - for the period January 1, 2002 to July 30, 2002..............     6

            Condensed Notes to Unaudited Interim Consolidated Financial Statements...........................     7

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations............    14

Item 3.     Quantitative and Qualitative Disclosures about Market Risk.......................................    25

Item 4.     Controls and Procedures..........................................................................    25

PART II--   OTHER INFORMATION

Item 1.     Legal Proceedings................................................................................    26

Item 2.     Changes in Securities and Use of Proceeds........................................................    26

Item 5.     Other Information................................................................................    27

Item 6.     Exhibits and Reports on Form 8-K.................................................................    27

SIGNATURES  .................................................................................................    28
</TABLE>

2

<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1. Condensed 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
                                                                                              SEPTEMBER 30, 2003  DECEMBER 31, 2002
                                                                                              ------------------  -----------------
<S>                                                                                           <C>                 <C>
                                     ASSETS

Current assets:
   Cash and cash equivalents ...............................................................      $  36,629           $  10,773
   Restricted investments ..................................................................          9,765              13,631
   Accounts receivable, less allowance for doubtful accounts of $4,127 and $4,903 at
      September 30, 2003 and December 31, 2002, respectively ...............................         13,757              13,923
   Other receivables .......................................................................          8,335                  --
   Assets held for sale ....................................................................             --              20,471
   Prepaid expenses and other current assets ...............................................          5,286               6,683
                                                                                                  ---------           ---------
         Total current assets ..............................................................         73,772              65,481
Property and equipment, net ................................................................         35,597              38,497
Deferred financing costs, net of accumulated amortization of $98 and $32 at
         September 30, 2003 and  December 31, 2002, respectively ...........................             33                  16
Intangibles, net of accumulated amortization of $5,345 and $1,909 at
         September 30, 2003 and December 31, 2002, respectively ............................         10,094              13,530
Other assets ...............................................................................          3,744               9,899
                                                                                                  ---------           ---------
      Total assets .........................................................................      $ 123,240           $ 127,423
                                                                                                  =========           =========

                                   LIABILITIES
                            AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current maturities of long-term debt and capital lease obligations ......................      $   1,460           $   4,638
   Line of credit ..........................................................................          3,725                  --
   Accounts payable ........................................................................         18,467              23,462
   Accrued sales tax payable ...............................................................          5,745               5,753
   Accrued network optimization costs ......................................................            393               1,480
   Accrued property taxes payable ..........................................................          3,527               3,030
   Deferred revenue ........................................................................          6,763               4,680
   Accrued other expenses ..................................................................         16,832              12,872
                                                                                                  ---------           ---------
      Total current liabilities ............................................................         56,912              55,915
Capital lease obligations ..................................................................              2                 371
                                                                                                  ---------           ---------
         Total liabilities .................................................................         56,914              56,286
                                                                                                  ---------           ---------
Commitments and contingencies
Stockholders' equity:
   Preferred stock, 49,900,000 and 50,000,000 shares authorized but unissued at September
     30, 2003 and December 31, 2002, respectively ..........................................             --                  --
   Series A preferred stock, 100,000 shares authorized but unissued at September 30, 2003...             --                  --
   Common stock, $0.001 par value, 1,000,000,000 shares authorized, 78,198,919 and
      64,999,025 shares issued and outstanding at September 30, 2003 and
      December 31, 2002, respectively ......................................................             78                  65
Additional paid-in capital .................................................................        103,769              87,511
Accumulated deficit ........................................................................        (37,521)            (16,439)
                                                                                                  ---------           ---------
         Total stockholders' equity ........................................................         66,326              71,137
                                                                                                  ---------           ---------
         Total liabilities and stockholders' equity ........................................      $ 123,240           $ 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           REORGANIZED        PREDECESSOR
                                                           MPOWER HOLDING        MPOWER HOLDING     MPOWER HOLDING
                                                         THREE MONTHS ENDED     JULY 31, 2002 TO    JULY 1, 2002 TO
                                                          SEPTEMBER 30, 2003   SEPTEMBER 30, 2002    JULY 30, 2002
                                                         -------------------   ------------------   ---------------
<S>                                                      <C>                   <C>                  <C>
Operating revenues:
   Telecommunication services ........................      $     36,797          $     24,862       $     12,005
Operating expenses:
   Cost of operating revenues
          (excluding depreciation and amortization)               17,737                13,283              6,558
   Selling, general and administrative
          (excluding depreciation and amortization) ..            18,084                19,508              8,262
   Reorganization expense ............................                --                    --            245,681
   Stock-based compensation expense ..................                43                   219                100
   Network optimization cost .........................              (954)                   --                 --
   Depreciation and amortization .....................             4,121                 2,989              4,165
                                                            ------------          ------------       ------------
                                                                  39,031                35,999            264,766
                                                            ------------          ------------       ------------
      Loss from continuing operations ................            (2,234)              (11,137)          (252,761)
Other income (expense):
   Gain (loss) on sale of assets, net ................               185                    24                 (4)
   Gain on discharge of debt .........................                --                    --            315,310
   Interest income ...................................                40                   593                304
   Interest expense, net of amount capitalized
         (contractual interest was $4,681 from July 1,
         2002 to July 30, 2002) ......................              (102)               (1,225)              (559)
                                                            ------------          ------------       ------------
         (Loss) income before
           discontinued operations ...................            (2,111)              (11,745)            62,290
Discontinued operations:
   Income (loss) from discontinued operations ........               922                (5,076)            (4,617)
                                                            ------------          ------------       ------------
      Net (loss) income ..............................            (1,189)              (16,821)            57,673
Accrued preferred stock dividends (contractual
    dividend was $1,319 from July 1, 2002 to
    July 30, 2002) ...................................                --                    --                 --
                                                            ------------          ------------       ------------
Net (loss) income applicable to common
  stockholders .......................................      $     (1,189)         $    (16,821)      $     57,673
                                                            ============          ============       ============
Basic and diluted (loss) income per share
  applicable to common stockholders:
   (Loss) income before discontinued operations ......      $      (0.03)         $      (0.18)      $       1.05
                                                            ============          ============       ============
   Income (loss) from discontinued operations ........      $       0.01          $      (0.08)      $      (0.08)
                                                            ============          ============       ============
   Net (loss) income .................................      $      (0.02)         $      (0.26)      $       0.97
                                                            ============          ============       ============
Basic and diluted weighted average
   shares outstanding ................................        65,762,792            64,999,025         59,465,233
                                                            ============          ============       ============
</TABLE>

              See accompanying condensed notes to unaudited interim
                       consolidated financial statements.

4

<PAGE>

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

<TABLE>
<CAPTION>
                                                            REORGANIZED           REORGANIZED          PREDECESSOR
                                                          MPOWER HOLDING        MPOWER HOLDING        MPOWER HOLDING
                                                         NINE MONTHS ENDED     JULY 31, 2002 TO     JANUARY 1, 2002 TO
                                                         SEPTEMBER 30, 2003    SEPTEMBER 30, 2002     JULY 30, 2002
                                                         ------------------    ------------------   ------------------
<S>                                                      <C>                   <C>                  <C>
Operating revenues:
   Telecommunication services ........................      $    111,293          $     24,862         $     83,289
Operating expenses:
   Cost of operating revenues
         (excluding depreciation and amortization)                58,818                13,283               51,320
   Selling, general and administrative
         (excluding depreciation and amortization)                58,799                19,508               65,628
   Reorganization expense ............................                --                    --              266,383
   Stock-based compensation expense ..................               134                   219                  442
   Network optimization cost .........................              (954)                   --               19,000
   Depreciation and amortization .....................            12,408                 2,989               28,619
                                                            ------------          ------------         ------------
                                                                 129,205                35,999              431,392
                                                            ------------          ------------         ------------
      Loss from continuing operations ................           (17,912)              (11,137)            (348,103)
Other income (expense):
   Gain on sale of assets, net .......................               267                    24                4,417
   (Loss) gain on discharge of debt ..................              (102)                   --              315,310
   Interest income ...................................               136                   593                3,237
   Interest expense, net of amount capitalized
         (contractual interest was $33,470 from
         January 1, 2002 to July 30, 2002) ...........              (425)               (1,225)             (18,065)
                                                            ------------          ------------         ------------
      (Loss) before discontinued operations ..........           (18,036)              (11,745)             (43,204)
Discontinued operations:
   Loss from discontinued operations .................            (3,046)               (5,076)             (34,765)
                                                            ------------          ------------         ------------
      Net loss .......................................           (21,082)              (16,821)             (77,969)
Accrued preferred stock dividends (contractual
   dividend was $8,782 from January 1, 2002
   to July 30, 2002) .................................                --                    --               (3,974)
                                                            ------------          ------------         ------------
Net loss applicable to common stockholders ...........      $    (21,082)         $    (16,821)        $    (81,943)
                                                            ============          ============         ============
Basic and diluted loss per share
  applicable to common stockholders:
   Loss before discontinued operations ...............      $      (0.27)         $      (0.18)        $      (0.79)
                                                            ============          ============         ============
   Loss from discontinued operations .................      $      (0.05)         $      (0.08)        $      (0.59)
                                                            ============          ============         ============
   Net loss ..........................................      $      (0.32)         $      (0.26)        $      (1.38)
                                                            ============          ============         ============
Basic and diluted weighted average
   shares outstanding ................................        65,261,595            64,999,025           59,461,374
                                                            ============          ============         ============
</TABLE>

       See accompanying condensed notes to unaudited interim consolidated
                              financial statements.

5

<PAGE>

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

<TABLE>
<CAPTION>
                                                                               REORGANIZED        REORGANIZED        PREDECESSOR
                                                                             MPOWER HOLDING      MPOWER HOLDING     MPOWER HOLDING
                                                                            NINE MONTHS ENDED   JULY 31, 2002 TO  JANUARY 1, 2002 TO
                                                                            SEPTEMBER 30, 2003 SEPTEMBER 30, 2002   JULY 30, 2002
                                                                            ------------------ ------------------ ------------------
<S>                                                                         <C>                <C>                <C>
Cash flows from operating activities:
  Net loss ................................................................     $ (21,082)        $ (16,821)          $ (77,969)
  Adjustments to reconcile net loss to net cash used in operating
    activities:
    Depreciation and amortization .........................................        12,408             3,850              41,344
    Loss (gain) on discharge of debt ......................................           102                --            (315,310)
    Loss on disposal - discontinued operations ............................         1,147                --                  --
    Non-cash reorganization expense .......................................            --                --             244,669
    Network optimization cost .............................................          (954)               --              19,000
    Gain on sale of assets, net ...........................................          (267)              (24)             (4,417)
    Bad debt expense ......................................................         4,457             1,573               5,454
    Amortization of debt discount .........................................            --                31                 718
    Amortization of deferred financing costs ..............................            98                41                 608
    Stock-based compensation expense ......................................           134               219                 442
    Changes in assets and liabilities:
        Increase in accounts receivable ...................................        (4,841)           (2,530)             (2,334)
        Increase in other receivables .....................................        (5,063)               --                  --
        Decrease (increase) in prepaid expenses and other current assets ..         1,397               646              (3,271)
        Decrease (increase) in other assets ...............................         6,155               171              (5,724)
        (Decrease) increase in accounts payable ...........................        (3,513)            1,448               9,767
        Decrease in accrued sales tax payable .............................            (8)               (5)               (848)
        (Decrease) increase in accrued network optimization costs .........          (496)              151              (3,707)
        Increase (decrease) in accrued other expenses .....................         2,032            (2,850)             10,544
                                                                                ---------         ---------           ---------
          Net cash used in operating activities ...........................        (8,294)          (14,100)            (81,034)
                                                                                ---------         ---------           ---------
Cash flows from investing activities:
  Purchase of property and equipment, net of payables .....................        (4,746)           (1,976)            (11,298)
  Proceeds from asset sales ...............................................        17,761                --                  --
  Sale of investments available-for-sale ..................................            --            10,615             105,550
  Sale of restricted investments ..........................................         3,866               159               1,712
                                                                                ---------         ---------           ---------
          Net cash provided by investing activities .......................        16,881             8,798              95,964
                                                                                ---------         ---------           ---------
Cash flows from financing activities:
  Payments on capital lease obligations ...................................        (1,479)           (1,051)             (4,116)
  Payments on senior notes ................................................        (2,154)               --                  --
  Borrowings under line of credit, net ....................................         3,725                --                  --
  Costs associated with line of credit ....................................          (131)               --                  --
  Proceeds from stockholder's short swing profit ..........................            --                --                 588
  Proceeds from issuance of common stock ..................................        17,526                --                  --
  Costs associated with issuance of common stock ..........................          (218)               --                  --
                                                                                ---------         ---------           ---------
          Net cash provided by (used in) financing activities .............        17,269            (1,051)             (3,528)
                                                                                ---------         ---------           ---------
          Net increase (decrease) in cash and cash equivalents ............        25,856            (6,353)             11,402
Cash and cash equivalents at beginning of period ..........................        10,773            20,552               9,150
                                                                                ---------         ---------           ---------
Cash and cash equivalents at the end of period ............................     $  36,629         $  14,199           $  20,552
                                                                                =========         =========           =========
Supplemental schedule of non-cash investing and financing activities:
  Preferred stock converted to common stock ...............................     $      --         $      --           $   2,425
                                                                                =========         =========           =========
  Preferred stock dividends accrued .......................................     $      --         $      --           $   3,974
                                                                                =========         =========           =========
Other disclosures:
  Cash paid for interest, net of amounts capitalized ......................     $     465         $   3,125           $   2,150
                                                                                =========         =========           =========
</TABLE>

              See accompanying condensed notes to unaudited interim
                       consolidated financial statements.

6

<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.

         The Company operates in one segment and is 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. The Company's services are offered
primarily to small and medium-sized business customers through Communications in
Los Angeles, California, San Diego, California, Northern California, Las Vegas,
Nevada and Chicago, Illinois.

         As a result of the Chapter 11 reorganization occurring on July 30, 2002
(the "Effective Date"), the financial results for the periods July 1, 2002 to
July 30, 2002 and January 1, 2002 to July 30, 2002 have been presented under the
label "Predecessor Mpower Holding." In addition, the Company's consolidated
financial statements for the periods ended during the three and nine months
ended September 30, 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.

         The results of operations for the three and nine months ended September
30, 2003 are not necessarily indicative of the results to be expected for other
interim periods or for the year ended December 31, 2003.

         Certain reclassifications, which have no effect on net income, have
been made in the prior period financial statements to conform to the current
presentation.

(2) STOCK OPTION PLAN

         The Company measures the compensation cost of its stock option plan
under the provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," as permitted under Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS 148, "Accounting for Stock-Based Compensation
- Transition and Disclosure." Under the provisions of APB No. 25,

7

<PAGE>

compensation cost is measured based on the intrinsic value of the equity
instrument awarded. Under the provisions of SFAS No. 123, compensation cost is
measured based on the fair value of the equity instrument awarded.

         Had compensation cost for the employee stock options been determined
consistent with SFAS No. 123, the Company's results from operations would
approximate the following pro forma amounts for the periods ended during the
three and nine months ended September 30, 2003 and 2002 (in thousands, except
per share amounts):

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED                          NINE MONTHS ENDED
                                               ------------------------------------------  -----------------------------------------
                                                                REORGANIZED   PREDECESSOR                  REORGANIZED   PREDECESSOR
                                                                  MPOWER        MPOWER                        MPOWER       MPOWER
                                                REORGANIZED      HOLDING        HOLDING     REORGANIZED       HOLDING      HOLDING
                                                   MPOWER      JULY 31, 2002  JULY 1,2002      MPOWER     JULY 31,2002    JANUARY 1,
                                                  HOLDING           TO            TO          HOLDING          TO          2002 TO
                                               SEPTEMBER 30,   SEPTEMBER 30,   JULY 30,    SEPTEMBER 30,  SEPTEMBER 30,    JULY 30,
                                                   2003            2002          2002          2003           2002          2002
                                               -------------   -------------  -----------  -------------  -------------  -----------
<S>                                            <C>             <C>            <C>          <C>            <C>            <C>
Net (loss) income applicable to common
    stockholders, as reported................    $ (1,189)      $  (16,821)   $    57,673   $  (21,082)    $  (16,821)    $ (81,943)
Add: Stock-based compensation expense
    included in reported net (loss) income,
    net of related tax effects...............          43              219            100          134            219           442
Deduct: Total stock-based compensation
    expense determined under a
    fair value based method for all awards,
    net of related tax effects...............        (409)            (121)          (477)        (976)          (121)       (4,101)
                                                 --------       ----------    -----------   ----------     ----------     ---------
Pro forma net (loss) income applicable to
    common stockholders......................    $ (1,555)      $  (16,723)   $    57,296   $  (21,924)    $  (16,723)    $ (85,602)
                                                 ========       ==========    ===========   ==========     ==========     =========
Basic and diluted net (loss) income per share
    applicable to common stockholders, as
    reported.................................    $  (0.02)      $    (0.26)   $      0.97   $    (0.32)    $    (0.26)    $   (1.38)
                                                 ========       ==========    ===========   ==========     ==========     =========

Basic and diluted net (loss) income per
    share applicable to common stockholders,
    pro forma................................    $  (0.02)      $    (0.26)   $      0.96   $    (0.34)    $    (0.26)    $   (1.44)
                                                 ========       ==========    ===========   ==========     ==========     =========
</TABLE>

         As of August 28, 2003, an additional 500,000 shares of common stock
have been reserved for issuance under the Company's stock option plan I.

(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"), 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. As of September 30, 2003, $6.3 million of
the purchase price has been received. 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 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, the
Company contributed the assets in its Texas market to XE in

8

<PAGE>

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 $12.8 million. As of September 30,
2003, $9.5 million of the purchase price has been received and the remaining
$3.3 million is being held in escrow. The Company anticipates meeting all escrow
release conditions and expects to receive $2.1 million, which is net of
estimated selling expenses, in the fourth quarter of 2003. 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 the cost of
specific services provided on behalf of the buyer. For the three months ended
September 30, 2003, the Company recognized a $0.1 million loss on transition
services due to the early termination of certain transition service agreements.
For the nine months ended September 30, 2003, the Company recorded $3.7 million
of reimbursements for transition services and management agreement fees. The
amounts recognized from the transition services and management agreements have
been included within the operating expenses component of loss from discontinued
operations in the consolidated statements of operations.

         As of September 30, 2003, the Company has recorded $8.3 million of
receivables from the Asset Sales, transition services and management agreements.
These receivables have been included in other receivables in the consolidated
balance sheets. No allowance for doubtful accounts for these receivables has
been established as the Company expects to collect all Asset Sales receivables.

         The operating revenues and expenses 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 losses relating to these discontinued markets are as follows
for the periods ended during the three and nine months ended September 30, 2003
and 2002 (in thousands):

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED                          NINE MONTHS ENDED
                                               ------------------------------------------  -----------------------------------------
                                                                REORGANIZED   PREDECESSOR                  REORGANIZED   PREDECESSOR
                                                                  MPOWER        MPOWER                        MPOWER       MPOWER
                                                REORGANIZED      HOLDING        HOLDING     REORGANIZED      HOLDING       HOLDING
                                                   MPOWER      JULY 31, 2002  JULY 1,2002      MPOWER     JULY 31,2002    JANUARY 1,
                                                  HOLDING           TO            TO          HOLDING          TO          2002 TO
                                               SEPTEMBER 30,   SEPTEMBER 30,   JULY 30,    SEPTEMBER 30,  SEPTEMBER 30,    JULY 30,
                                                   2003            2002          2002          2003           2002          2002
                                               -------------   -------------  -----------  -------------  -------------  -----------
<S>                                            <C>             <C>            <C>          <C>            <C>            <C>
Operating revenues..........................      $   (7)        $  13,623      $  6,838     $  6,025       $  13,623     $ 45,282
Operating expenses (excluding depreciation
    and amortization).......................        (762)           17,838         9,582        7,924          17,838       67,322
Depreciation and amortization...............          --               861         1,873           --             861       12,725
(Gain) loss on disposal.....................        (167)               --            --        1,147              --           --
                                                  ------         ----------     ---------    ---------      ----------    ---------
Income (loss) from discontinued
    operations .............................      $  922         $  (5,076)     $ (4,617)    $ (3,046)      $  (5,076)    $(34,765)
                                                  ======         ==========     =========    =========      ==========    =========
</TABLE>

         The Company incurred exit costs associated with the Asset Sales. These
costs included contract termination costs and one-time termination benefits of
$1.7 million and $0.6 million, respectively, for the nine months ended September
30, 2003. In addition, the Company has recorded a gain of $0.8 million for the
three months ended September 30, 2003 primarily related to the final settlement
of certain network liabilities associated with its discontinued markets. These
costs and benefits are reflected in the operating expenses component of income
(loss) from discontinued operations in the consolidated statements of
operations.

         For the three and nine months ended September 30, 2003, the Company has
recorded an additional $0.2 million gain on disposal and $1.1 million loss on
disposal, respectively, to account for the resolution of purchase price
adjustments and additional costs to sell the assets. These costs are reflected
in the (gain) loss on disposal component of income (loss) from discontinued
operations in the consolidated statements of operations.

9

<PAGE>

(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 September 30, 2003, the Company had $36.6 million in cash and
cash equivalents available for operations. This balance includes $1.9 million
subsequently paid back to certain over-subscribers who attempted to acquire
Company common stock and warrants in the September 25, 2003 private placement
described in Note 6 and $1.1 million subsequently paid for fees incurred in the
same private placement.

         The Company incurred losses applicable to common stockholders of $1.2
million and $21.1 million during the three and nine months ended September 30,
2003, respectively. The Company's near-term source of liquidity is its
unrestricted cash accounts, management of accounts payable and collection of
receivables, including cash to be received from the Asset Sales. The Company's
accounts receivable financing arrangement, which allows it to receive advances
of up to $7.5 million against certain accounts receivable, is an available
source of near-term liquidity. The Company believes it could borrow on a
short-term or long-term basis to improve liquidity if needed. To date, no
borrowings other than under the accounts receivable financing arrangement have
taken place as none have been needed. The Company believes it has sufficient
resources to fund its planned operations.

(5) PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                    SEPTEMBER 30,  DECEMBER 31,
                                                        2003          2002
                                                    -------------  ------------
<S>                                                 <C>            <C>
Buildings and property ...........................    $  1,727       $  1,727
Telecommunication and switching equipment ........      25,857         20,894
Leasehold improvements ...........................       7,016          7,192
Computer hardware and software ...................       7,303          6,817
Office equipment and other .......................       3,142          3,320
Assets held for future use .......................       3,648          3,616
                                                      --------       --------
                                                        48,693         43,566
Less accumulated depreciation and amortization ...      14,866          5,993
                                                      --------       --------
                                                        33,827         37,573
Construction in progress .........................       1,770            924
                                                      --------       --------
Net property and equipment .......................    $ 35,597       $ 38,497
                                                      ========       ========
</TABLE>

         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 are expected to be re-deployed throughout the Company's remaining
operating markets.

(6) STOCKHOLDERS' EQUITY

COMMON STOCK

         During September 2003, the Company raised $16.1 million, net of
estimated selling costs, through the private placement of 12,940,741 shares of
common stock at $1.35 per share. As of September 30, 2003, $1.2 million of the
estimated selling costs have been recorded as accrued other expenses in the
consolidated balance sheet. The Company's cash and cash equivalents at September
30, 2003 include $1.9 million that was returned to certain potential investors
in October 2003 due to over-subscription of the private placement.

         The Company also issued warrants to the investors who participated in
the private placement to purchase 2,588,148 shares of common stock at a price of
$1.62 per share in connection with the transaction. In addition, pursuant to an
exclusive finders agreement between the Company and the Shemano Group, Inc.
("Shemano"), the Company issued warrants to Shemano and its affiliates to
purchase 349,400 shares of common stock at a price of $1.62 per share as partial
consideration for services rendered

10
<PAGE>

in connection with the private placement. These warrants are exercisable at any
time and expire five years from the issuance date. Additional warrants to
purchase up to 83,856 shares of common stock will be issued to Shemano and its
affiliates in the event the warrants held by the investors are exercised.

PREFERRED STOCK

        On July 10, 2003, the Company adopted a Stockholder Rights Plan (the
"Rights Plan"). The Rights Plan is designed to guard against partial tender
offers and other abusive tactics that might be used in an attempt to gain
control of the Company without paying all stockholders a fair price for their
shares.

        Pursuant to the Rights Plan, preferred stock purchase rights were
distributed as a dividend at the rate of one Right for each share of common
stock held at the close of business on July 11, 2003. Each right entitles
stockholders to buy one one-thousandth of a share of Series A Preferred Stock of
the Company at an exercise price of $6.00. The Rights will be exercisable only
if a person or group acquires beneficial ownership of 15% or more of the
Company's outstanding common stock or commences a tender or exchange offer
which, upon consummation, would result in such person or group being the
beneficial owner of 15% or more of the Company's outstanding common stock. A
description of the terms of the Rights are set forth in a Rights Agreement
between the Company and Continental Stock Transfer & Trust Company as Rights
Agent (the "Rights Agreement").

        If any person becomes the beneficial owner of 15% or more of the
Company's common stock, or if a holder of 15% or more of the Company's common
stock engages in certain self-dealing transactions or a merger transaction in
which the Company is the surviving corporation and its common stock remains
outstanding, then each Right not owned by such person (or certain related
parties) will entitle its holder to purchase, at the Right's then current
exercise price, units of the Company's Series A Preferred Stock (or in certain
circumstances, Company common stock, cash, property or other securities of the
Company) having a market value equal to twice the then current exercise price of
the Right. In addition, if the Company is involved in a merger or other business
combination transactions with another person after which its common stock does
not remain outstanding, or sells 50% or more of its assets or earning power to
another person, each Right will entitle its holder to purchase, at the Right's
then current exercise price, shares of common stock of the ultimate parent of
such other person having a market value equal to twice the then current exercise
price of the Right.

         The Company will generally be entitled to redeem the Rights at $0.0001
per Right at any time until the 10th business day following public announcement
that a person or group has acquired 15% or more of the Company's common stock.

(7) COMMITMENTS AND CONTINGENT LIABILITIES

         In the ordinary course of business, the Company enters into purchase
agreements with its vendors. As of September 30, 2003, the Company had total
unfulfilled commitments with vendors of $2.6 million. The Company also has
various agreements with certain carriers for transport, long distance and other
network services. At September 30, 2003, the Company's commitments under these
agreements are $13.3 million, which expire through July 2005.

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

         In September 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. 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 had been appealed to the United States Court of
Appeals for the Second Circuit. An Order was entered on October 1, 2003,
dismissing the suit with prejudice. There are no further claims that can be
asserted against the Company with respect to the class action suit.

(8) LOSS PER SHARE

        SFAS No. 128, "Earnings Per Share," requires the Company to calculate
its loss per share based on basic and diluted loss per share, as defined. Basic
and diluted income (loss) per share for the periods ended during the three and
nine months ended September 30, 2003 and 2002 were computed by dividing net loss
applicable to common stockholders by the weighted average number of shares of
common stock outstanding during the period. Potential common shares related to
stock options

11
<PAGE>

and warrants were not included in the computation of diluted weighted average
shares outstanding because their inclusion would be anti-dilutive.

(9) NETWORK OPTIMIZATION COST

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

<TABLE>
<CAPTION>
                                             ACCRUED           NETWORK                            ACCRUED
                                          LIABILITY AT       OPTIMIZATION                      LIABILITY AT
                                          DECEMBER 31,     COST RECOGNIZED     CASH PAID       SEPTEMBER 30,
                                              2002          DURING PERIOD    DURING PERIOD         2003
                                          ------------     ---------------   -------------     -------------
<S>                                       <C>              <C>               <C>               <C>
Other exit costs......................      $  1,480         $    (591)        $   (496)         $    393
</TABLE>

         With respect to the network optimization charges, the total actual
charges have been based on ultimate settlements with the incumbent local
exchange carriers, recovery of costs from subleases, the Company's ability to
sell or re-deploy network equipment for growth in its existing network and other
factors. During the three and nine months ended September 30, 2003, the Company
recognized a $1.0 million reduction to its network optimization costs primarily
resulting from a final settlement with one of its network carriers, $0.6 million
of which had been included as a component of accrued network optimization costs.

         At September 30, 2003, there is a remaining balance of $0.4 million of
Accrued Network Optimization Cost primarily representing remaining lease
commitments and final settlements to be paid to equipment vendors.

(10) 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.

         The maximum amount borrowed under the credit facility during the nine
months ended September 30, 2003 was $7.5 million, and the effective average
interest rate during the period was 7.6%. At September 30, 2003, the Company had
approximately $3.8 million in availability under this agreement. Interest
expense relating to the borrowings was $0.2 million and $0.4 million for the
three and nine months ended September 30, 2003, respectively.

(11) 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 the first quarter of 2003.

(12) INTANGIBLE ASSETS

         The Company accounts for its intangible assets in accordance with the
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142
provides that goodwill and other separately recognized intangible assets with
indefinite lives will no longer be amortized, but will be subject to at least an
annual assessment for impairment through the application of a fair-value-based
test. Intangible assets that do have finite lives will continue to be amortized
over their estimated useful lives.

         Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                      SEPTEMBER 30,     DECEMBER 31,
                                                                          2003              2002
                                                                      -------------     ------------
<S>                                                                   <C>                <C>
Customer relationships............................................    $      13,745     $     13,745
Less: accumulated amortization....................................            5,345            1,909
                                                                      -------------     ------------
                                                                              8,400           11,836
Tradename.........................................................            1,694            1,694
                                                                      -------------     ------------
Intangibles, net .................................................    $      10,094     $     13,530
                                                                      =============     ============
</TABLE>

12
<PAGE>

         Amortization expense for the three and nine months ended September 30,
2003 was $1.1 million and $3.4 million, respectively. Amortization expense for
the period July 31, 2002 to September 30, 2002 was $1.2 million. The tradename
was determined to have an indefinite life and is not being amortized.

         Estimated amortization expense for each of the next three years ending
December 31, consists of the following (in thousands):

<TABLE>
<S>                             <C>
2003................            $     4,582
2004................                  4,582
2005................                  2,672
                                -----------
                                $    11,836
                                ===========
</TABLE>

(13) RECENT ACCOUNTING PRONOUNCEMENTS

         In April 2003, the Financial Accounting Standards Board issued SFAS No.
149, "Amendment of FASB Statement No. 133 on Derivative Instruments and Hedging
Activities." This standard amends SFAS 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 adoption of SFAS No.
149 does not have a material effect on the Company's consolidated financial
statements as the Company does not have any freestanding or embedded derivatives
as of September 30, 2003.

         In May 2003, the Financial Accounting Standards Board issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. The provisions of this Statement are effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 does not have a material effect on the
Company's consolidated financial statements because the Company does not have
any such financial instruments as of September 30, 2003.

13
<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
completed 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 expansion, 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 or transactions, the cooperation
of incumbent local exchange carriers in provisioning lines and interconnecting
our equipment, regulatory approval processes, changes in technology, price
competition and other market conditions and risks detailed from time to time in
our Securities and Exchange Commission filings. We do not undertake any
obligation to update publicly any forward-looking statements, whether as a
result of future events, new information, or otherwise.

       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 unaudited condensed
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
Operations" included in our Form 10-K for the year ended December 31, 2002.

APPLICATION OF CRITICAL ACCOUNTING 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 Form 10-K for the year ended
December 31, 2002. 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 Form 10-K for the year ended December 31,
2002.

THE BUSINESS

        As a consequence of the Chapter 11 reorganization occurring as of July
30, 2002 (the "Effective Date"), the third quarter 2002 financial results have
been separately presented under the label "Predecessor Mpower Holding" for the
period July 1 to July 30, 2002 and "Reorganized Mpower Holding" for the period
July 31 to September 30, 2002. For discussion purposes, the operating results
for the periods July 1, 2002 to July 30, 2002 and July 31, 2002 to September 30,
2002 have been added together to compare to the three months ended September 30,
2003 and the operating results for the periods January 1, 2002 to July 30, 2002
and July 31, 2002 to September 30, 2002 have been added together to compare to
the nine months ended September 30, 2003.

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

14
<PAGE>

         As of September 30, 2003, we provided services to small and
medium-sized business customers in five markets: Los Angeles, California, San
Diego, California, Northern California, Las Vegas, Nevada and Chicago, Illinois.
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
280 central office collocation sites that are SDSL capable and 211 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). As of
September 30, 2003, we had over 260,000 lines in service and 755 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 ILEC from whom we rent standard telephone lines. Because we have
already built our network, we believe we can sustain service in our markets at a
comparatively low cost, while maintaining control of the access to our
customers.

         Our business strategy 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, including local
telephone service, long distance, broadband Internet via SDSL and T1, integrated
on one bill, with the convenience of a single source provider. We have
approximately 53,000 business customer relationships. 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 issue a single bill which we 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
issue a separate bill for each location which we count as multiple business
customer relationships.

         We are able to offer fully integrated and channelized voice and data
products over a T1 connection through our existing equipment, interconnection
agreements with ILECs and network. In order to serve the largest portion of our
target market, 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.

RECENT DEVELOPMENTS

Private Placement

       On September 25, 2003, we entered into a Securities Purchase Agreement
under which we raised $16.1 million , net of estimated selling costs, through
the private placement of 12,940,741 shares of common stock at $1.35 per share.
We also issued warrants to purchase 2,588,148 shares of common stock to the
investors who participated in the private placement at a price of $1.62 per
share in connection with the transaction. In addition, pursuant to an exclusive
finders agreement between us and the Shemano Group, Inc. ("Shemano"), we issued
warrants to Shemano and its affiliates to purchase 349,400 shares of common
stock at a price of $1.62 per share as partial consideration for services
rendered in connection with the private placement. These warrants are
exercisable at any time and expire five years from the issuance date. Additional
warrants to purchase up to 83,856 shares of common stock will be issued to
Shemano and its affiliates in the event the warrants held by the investors are
exercised.

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 our 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 our assets in our Michigan
and Ohio markets to LDMI Telecommunications, Inc. ("LDMI"), 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

15
<PAGE>

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. As of September 30, 2003, $6.3 million of the purchase price has
been received. 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 and Georgia was $12.8 million. As of September 30, 2003, $9.5
million of the purchase price has been received and the remaining $3.3 million
is being held in escrow. We anticipate meeting all escrow release conditions and
expect to receive $2.1 million, which is net of estimated selling expenses, in
the fourth quarter of 2003. 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 September
30, 2003, we recognized a $0.1 million loss on transition services due to the
early termination of certain transition service agreements. For the nine months
ended September 30, 2003, we recorded $3.7 million of reimbursements for
transition services and management agreement fees. The amounts recognized from
the transition services and management agreements have been included within the
operating expenses component of loss from discontinued operations in our
consolidated statements of operations.

         As of September 30, 2003, we have recorded $8.3 million of receivables
from the Asset Sales, transition services and management agreements. These
receivables have been included in other receivables in our consolidated balance
sheets. No allowance for doubtful accounts for these receivables has been
established as we expect to collect all of these receivables.

         The operating revenues and expenses 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 losses relating to these discontinued markets are as follows
for the periods ended during the three and nine months ended September 30, 2003
and 2002 (in thousands):

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED                         NINE MONTHS ENDED
                                            ------------------------------------------  -------------------------------------------
                                                            REORGANIZED    PREDECESSOR                   REORGANIZED    PREDECESSOR
                                                              MPOWER         MPOWER                        MPOWER         MPOWER
                                             REORGANIZED      HOLDING        HOLDING     REORGANIZED       HOLDING        HOLDING
                                                MPOWER     JULY 31, 2002  JULY 1, 2002     MPOWER       JULY 31, 2002    JANUARY 1,
                                               HOLDING          TO             TO          HOLDING           TO          2002 TO
                                            SEPTEMBER 30,  SEPTEMBER 30,    JULY 30,    SEPTEMBER 30,   SEPTEMBER 30,    JULY 30,
                                                2003           2002           2002          2003            2002           2002
                                            -------------  -------------  ------------  -------------   -------------   -----------
<S>                                         <C>            <C>             <C>          <C>             <C>             <C>
Operating revenues .......................    $     (7)      $ 13,623       $  6,838      $  6,025        $ 13,623       $ 45,282
Operating expenses (excluding depreciation
   and amortization) .....................        (762)        17,838          9,582         7,924          17,838         67,322
Depreciation and amortization ............          --            861          1,873            --             861         12,725
(Gain) loss on disposal ..................        (167)            --             --         1,147              --             --
                                              --------       --------       --------      --------        --------       --------
Income (loss) from discontinued operations    $    922       $ (5,076)      $ (4,617)     $ (3,046)       $ (5,076)      $(34,765)
                                              ========       ========       ========      ========        ========       ========
</TABLE>

         We incurred exit costs associated with the Asset Sales. These costs
included contract termination costs and one-time termination benefits of $1.7
million and $0.6 million, respectively, for the nine months ended September 30,
2003. In addition, we recorded a gain of $0.8 million for the three months ended
September 30, 2003 primarily related to the final settlement of certain network
liabilities associated with our discontinued markets. These costs and benefits
are reflected in the operating expenses component of income (loss) from
discontinued operations in our consolidated statements of operations.

16
<PAGE>

         For the three and nine months ended September 30, 2003, we have
recorded an additional $0.2 million gain on disposal and $1.1 million loss on
disposal, respectively, to account for the resolution of purchase price
adjustments and additional costs to sell the assets. These costs are reflected
in the (gain) loss on disposal component of income (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:

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

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

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

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

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

         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 such as us were 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 it was 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 our total revenue.

         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. Cost of
operating revenues and selling, general and administrative expenses do not
include an allocation of our depreciation or amortization expense.

         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 expenses 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.

17
<PAGE>

Quarterly Comparison - September 30, 2003 vs. September 30, 2002

         Results from discontinued operations have been excluded from this
comparison.

         Total operating revenues of $36.8 million for the quarter ended
September 30, 2003 remained relatively stable as compared to $36.9 million for
the quarter ended September 30, 2002. The slight decrease in revenue was
primarily the result of a reduction in switched access rates we negotiated with
our major carriers and the third step-down in FCC mandated switched access rate
rules. We also had an increase in payphone churn as a result of one of the local
exchange carriers with whom we compete, implementing a competitive effort
towards winning payphone customers from us. The decrease in switched access
revenue and payphone revenue was offset by higher revenue generating integrated
T1 services, a component of our core customer trade revenue. Our non-switched
access revenue from core trade customers increased from $30.5 million for the
quarter ended September 30, 2002 to $32.7 million for the quarter ended
September 30, 2003. Revenues from core trade customers increased from 83% to 89%
of total revenues quarter over quarter. Our switched access revenues decreased
$2.3 million or 36% from the quarter ended September 30, 2002 and decreased as a
percentage of our revenues to 11%. We expect switched access revenue to continue
to decline as a percentage of total revenue due to a step-down in rates in the
first quarter of 2004 for certain customers with the final FCC rate step-down to
go into effect in June 2004.

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

<TABLE>
<CAPTION>
                                                THREE MONTHS    THREE MONTHS
                                                    ENDED           ENDED
                                                SEPTEMBER 30,   SEPTEMBER 30,
                                                    2003           2002
                                                -------------   -------------
<S>                                             <C>     <C>     <C>     <C>
REVENUES FROM
CONTINUING OPERATIONS:

Switched access revenue.................        $ 4.1     11%   $ 6.4     17%
Core customer trade revenue.............         32.7     89%    30.5     83%
                                                -----   ----    -----   ----
Total...................................        $36.8    100%   $36.9    100%
                                                =====   ====    =====   ====
</TABLE>

         Cost of operating revenues for the quarter ended September 30, 2003 was
$17.7 million as compared to $19.8 million for the quarter ended September 30,
2002. The 11% decrease is primarily due to a reduction in the number of local
loops we leased from the local exchange carriers in the third quarter of 2003
versus the third quarter of 2002 as we have been shifting our revenue base from
lower revenue, lower gross margin per line, plain old telephone services
("POTS") to higher revenue, higher gross margin per line T-1 services which
require fewer local loops per line. In addition, we have had a reduction in
installation costs related to fewer gross new lines added in the three month
period ended September 30, 2003 versus the three month period ended September
30, 2002 as we focus on obtaining higher gross margin revenue. Cost declines
also resulted from our efforts to improve the cost effectiveness of our network
over these same time periods.

         For the quarter ended September 30, 2003, selling, general and
administrative expenses totaled $18.1 million, a 35% decrease from the $27.8
million for the quarter ended September 30, 2002. The decrease is primarily the
result of management initiatives that decreased administrative personnel and
related costs, initiatives to reduce the cost of acquiring new customers, and
the reduction of hardware and software maintenance costs. In addition, selling,
general and administrative expenses during the three months ended September 2002
included non-recurring Chapter 11 reorganization expenses of $3.7 million.

         To generate additional sales activity we will be hiring additional
direct sales personnel and expect this staff to be substantially in place during
the first quarter of 2004. This additional personnel will focus on selling our
higher revenue generating products. As a result of this hiring, we expect a
moderate increase in selling, general and administrative expense in the fourth
quarter of 2003 and the first quarter of 2004.

         In accordance with Statement of Position ("SOP") 90-7, expenses
resulting from the reorganization of the business in a bankruptcy proceeding are
to be reported separately as reorganization items. Reorganization items of
$245.7 million were recognized during the third quarter of 2002. The expenses
consisted of professional fees of $1.0 million and fresh-start fair market value
adjustments of $244.7 million.

         For the quarter ended September 30, 2003, we recorded a minimal amount
of stock-based compensation as compared to $0.3 million for the quarter ended
September 30, 2002. Outstanding options at September 30, 2003 were granted
subsequent to our emergence from bankruptcy and have been accounted for as fixed
awards. The expense for the quarter ended

18
<PAGE>

September 30, 2003 relates to options granted with an exercise price below the
market price of our common stock. The expense for the three months ended
September 30, 2002 relates to the establishment of a $0.1 million reserve
against a remaining employee note receivable from stockholder and a $0.2 million
expense relating to the new stock option plan and the application of fixed plan
accounting.

         For the quarter ended September 30, 2003, we recognized a $1.0 million
reduction to our previously recognized network optimization costs primarily
resulting from a final settlement with one of our network carriers.

         For the quarter ended September 30, 2003, depreciation and amortization
was $4.1 million as compared to $7.2 million for the quarter ended September 30,
2002. This decrease is primarily due to the reduced depreciable value of our
fixed assets resulting from the implementation of fresh-start accounting after
our reorganization became effective on July 30, 2002.

         For the three months ended September 30, 2003, we recorded a $0.2
million gain on sale of assets which primarily resulted from the sale of
equipment.

         In accordance with the terms of the recapitalization, our 2010 Senior
Notes were cancelled and the indenture governing the 2010 Notes was terminated.
Pursuant to the reorganization plan, holders of the 2010 Senior Notes prior to
the emergence received 55,250,000 shares of our common stock. The $389.5 million
carrying value of the debt settled, which includes the face value plus accrued
interest less unamortized discount, was exchanged for equity with a fair value
of $74.2 million. The exchange resulted in our recording a gain on discharge of
debt on July 30, 2002 of $315.3 million.

         Interest income was minimal for the quarter ended September 30, 2003
compared to $0.9 million for the quarter ended September 30, 2002. The decrease
is a result of a decline in our average cash and investments since the third
quarter of 2002. Cash and investments have been used to purchase capital
equipment, retire our remaining 2004 Senior Secured Notes and fund operating
losses. We have recently raised additional cash from the issuance of common
stock on September 25, 2003, which has increased our cash balance. Due to the
current reduced levels of interest rates, we do not expect a significant
increase to our interest income as a result of this new cash investment.

         Gross interest expense for the quarter ended September 30, 2003 totaled
$0.1 million compared to $1.9 million for the quarter ended September 30, 2002.
Interest capitalized for the quarter ended September 30, 2002 was $0.1 million.
As required by SOP 90-7, interest expense ceased to accrue on our 2010 Notes
upon filing our petition for relief under Chapter 11 of the Bankruptcy Code on
April 8, 2002. Contractual interest was $4.7 million for the period from July 1,
2002 to July 30, 2002. The decrease in interest expense during the third quarter
of 2003 is primarily due to the retirement or discharge 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 in January 2003.

         We reported a loss before discontinued operations of $2.1 million and
income before discontinued operations of $50.5 million for the quarters ended
September 30, 2003 and 2002, respectively. We reported a net loss of $1.2
million and net income of $40.9 million for the quarters ended September 30,
2003 and 2002, respectively. The income before discontinued operations and net
income for the quarter ended September 30, 2002, was attributable to the
discharge of our debt in the bankruptcy reorganization.

         For the quarter ended September 30, 2002, we did not accrue any
preferred stock dividends on our Series D convertible preferred stock. As
required by SOP 90-7, accrual of preferred stock dividends ceased upon filing of
our petition for relief under Chapter 11 of the Bankruptcy Code on April 8,
2002. Contractual dividends were $1.3 million for the period July 1, 2002 to
July 30, 2002. All our preferred stock was eliminated in our reorganization
effective July 30, 2002.

Nine Month Period Ended - September 30, 2003 vs. September 30, 2002

         Results from discontinued operations have been excluded from this
comparison.

         Total operating revenues increased to $111.3 million for the nine
months ended September 30, 2003 as compared to $108.2 million for the nine
months ended September 30, 2002. The 3% increase in revenue was primarily the
result of selling higher revenue generating integrated T1 services, a component
of our core customer trade revenue. These increases were offset by

19

<PAGE>

significant rate step-downs in our switched access rates and an increase in
payphone churn as a result of one of the local exchange carriers with whom we
compete, implementing a competitive effort towards winning payphone customers
from us.

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

<TABLE>
<CAPTION>
                                             NINE MONTHS ENDED   NINE MONTHS ENDED
                                                SEPTEMBER 30,      SEPTEMBER 30,
                                                   2003               2002
                                             -----------------   -----------------
<S>                                          <C>        <C>      <C>         <C>
REVENUES FROM
CONTINUING OPERATIONS:

Switched access revenue.................      $ 14.4      13%     $ 23.1       21%
Core customer trade revenue.............        96.9      87%       85.1       79%
                                              ------    ----      ------     ----
Total...................................      $111.3     100%     $108.2      100%
                                              ======    ====      ======     ====
</TABLE>

         Cost of operating revenues for the nine months ended September 30, 2003
was $58.8 million as compared to $64.6 million for the nine months ended
September 30, 2002. The 9% decrease is primarily due to a reduction in the
number of local loops we leased from the local exchange carriers for the nine
month period ended September 30, 2003 versus the nine month period ended
September 30, 2002. The number of loops leased has declined as we have been
shifting our revenue base from lower revenue, lower gross margin per line POTS
to higher revenue, higher gross margin per line T-1 services which require fewer
local loops per line. In addition, we have had a reduction in installation costs
related to fewer gross new lines added in the nine month period ended September
30, 2003 versus the nine month period ended September 30, 2002 as we focus on
obtaining higher gross margin revenue. Cost declines also resulted from our
efforts to improve the cost effectiveness of our network over these same time
periods.

         For the nine months ended September 30, 2003, selling, general and
administrative expenses totaled $58.8 million, a 31% decrease from the $85.1
million for the comparable 2002 period. The decrease is primarily the result of
management initiatives that decreased administrative personnel and related
costs, initiatives to reduce the cost of acquiring new customers, and the
reduction of hardware and software maintenance costs. In addition, selling,
general and administrative expenses during the nine months ended September 2002
included non-recurring Chapter 11 reorganization expenses of $6.2 million.

         To generate additional sales activity we will be hiring additional
direct sales personnel and expect this staff to be substantially in place during
the first quarter of 2004. This additional personnel will focus on selling our
higher revenue generating products. As a result of this hiring, we expect a
moderate increase in selling, general and administrative expense in the fourth
quarter of 2003 and the first quarter of 2004.

         In accordance with SOP 90-7, expenses resulting from the reorganization
of the business in a bankruptcy proceeding are to be reported separately as
reorganization items. Reorganization items of $266.4 million were recognized
during the first nine months of 2002. The expenses consisted primarily of the
$19.0 million consent fee payment to our bondholders, $244.7 million related to
fresh-start fair market value adjustments and $2.7 million of legal and
financial advisor fees.

         For the nine months ended September 30, 2003, we recorded $0.1 million
in stock-based compensation compared to $0.7 million for the comparable 2002
period. Outstanding options at September 30, 2003 were granted subsequent to our
emergence from bankruptcy and have been accounted for as fixed awards. The
expense for the nine months ended September 30, 2003 relates to options granted
with an exercise price below the market price of our stock. The expense for the
nine months ended September 30, 2002 relates to in-the-money stock options
granted in 1999, 2000, and 2001, the establishment of a $0.1 million reserve
against a remaining employee note receivable from stockholder and a $0.2 million
expense relating to the new stock option plan and the application of fixed plan
accounting.

         For the nine months ended September 30, 2003, we recognized a $1.0
million reduction to our previously recognized network optimization costs
primarily resulting from a final settlement with one of our network carriers.

         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. As a result, 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.

20
<PAGE>

         For the nine months ended September 30, 2003, depreciation and
amortization was $12.4 million as compared to $31.6 million for the nine months
ended September 30, 2002. This 61% decrease is primarily due to the reduced
depreciable value of our fixed assets resulting from the implementation of
fresh-start accounting.

         For the nine months ended September 30, 2003, we recorded a $0.3
million gain on sale of assets which primarily resulted from the sale of
equipment. For the nine months ended September 30, 2002 we had a gain on sale of
assets of $4.4 million which primarily resulted from the sales of our
investments available for sale.

         In January 2003, we repurchased the remaining $2.1 million in carrying
value of our 2004 Notes for $2.2 million in cash, and recognized a loss on
discharge of debt of $0.1 million.

         In accordance with the terms of the recapitalization, our 2010 Senior
Notes were cancelled and the indenture governing the 2010 Notes was terminated.
Pursuant to the reorganization plan, holders of the 2010 Senior Notes prior to
the emergence received 55,250,000 shares of our common stock. The $389.5 million
carrying value of the debt settled, which includes the face value plus accrued
interest less unamortized discount, was exchanged for equity with a fair value
of $74.2 million. The exchange resulted in our recording a gain on discharge of
debt on July 30, 2002 of $315.3 million.

         Interest income was $0.1 million during the nine months ended September
30, 2003 compared to $3.8 million for the nine months ended September 30, 2002.
The decrease is a result of a decline in our average cash and investments since
the third quarter of 2002. Cash and investments have been used to purchase
capital equipment, retire our remaining 2004 Senior Secured Notes and fund
operating losses. We have recently raised additional cash from the issuance of
common stock on September 25, 2003, which has increased our cash balance. Due to
the current reduced levels of interest rates, we do not expect a significant
increase to our interest income as a result of this new cash investment.

         Gross interest expense for the nine months ended September 30, 2003
totaled $0.4 million compared to $20.6 million for the nine months ended
September 30, 2002. Interest capitalized for the nine months ended September 30,
2002 was $1.3 million. As required by SOP 90-7, interest expense ceased to
accrue on our 2010 Senior Notes upon filing our petition for relief under
Chapter 11 of the Bankruptcy Code on April 8, 2002. Contractual interest was
$33.5 million for the period from January 1, 2002 until July 30, 2002. The
decrease in interest expense is primarily due to the retirement or discharge 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.

         For the nine months ended September 30, 2003 and 2002, we incurred
losses before discontinued operations of $18.0 million and $54.9 million,
respectively.

         Net loss was $21.1 million and $94.8 million for the nine months ended
September 30, 2003 and 2002, respectively.

         For the nine months ended September 30, 2002, we accrued dividends of
$4.0 million, payable to holders of our convertible preferred stock. As required
by SOP 90-7, accrual of preferred stock dividends ceased upon filing of our
petition for relief under Chapter 11 of the Bankruptcy Code on April 8, 2002.
Contractual dividends were $8.8 million for the period from January 1, 2002 to
July 30, 2002. 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 September 30, 2003, we had $36.6 million in cash and cash
equivalents available for operations. This balance includes $1.9 million
subsequently paid back to certain over-subscribers who attempted to acquire our
common stock and warrants in the September 25, 2003 private placement described
in "Recent Developments" and $1.1 million subsequently paid for fees incurred in
the same private placement.

         We incurred losses applicable to common stockholders of $1.2 million
and $21.1 million during the three and nine months ended September 30, 2003,
respectively. Our near-term source of liquidity is our unrestricted cash
accounts, management of accounts payable and collection of receivables,
including cash to be received from the Asset Sales. Our accounts receivable

21

<PAGE>

financing arrangement, which allows us to receive advances of up to $7.5 million
against certain accounts receivable, is an available source of near-term
liquidity. We believe that we could borrow on a short-term or long-term basis to
improve liquidity if needed. To date, no borrowings other than under the
accounts receivable financing arrangement have taken place as none have been
needed. We believe that we have sufficient resources to fund our planned
operations; however, we cannot assure investors that our estimate of funds
required is accurate or that we would be able to obtain financing if and when
needed.

         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 $1.1 million and $4.7 million for the
three and nine months ended September 30, 2003. We expect we will continue to
use 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. 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 vendors. As of September 30, 2003, we had total unfulfilled commitments
with vendors of $2.6 million. We also have various agreements with certain
carriers for transport, long distance and other network services. At September
30, 2003, our commitments under these agreements total $13.3 million, which
expire through July 2005.

CASH FLOW DISCUSSION

         In summary our cash flows were:

<TABLE>
<CAPTION>
                                                                      NINE
                                                                  MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                                      2003
                                                                  -------------
                        (IN THOUSANDS)
<S>                                                               <C>
Net Cash Used in Operating Activities.......................      $      (8,294)
Net Cash Provided by Investing Activities...................      $      16,881
Net Cash Provided by Financing Activities...................      $      17,269
</TABLE>

         Cash and Cash Equivalents and Restricted Investments: At September 30,
2003, cash and cash equivalents were $36.6 million. Restricted investments
amounted to $9.8 million as of September 30, 2003. The restricted investments
primarily represent commitments we made to pay 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 nine months
ended September 30, 2003, we paid out $2.0 million related to these commitments.

         Operating Activities: We used $8.3 million in cash for operations
during the nine months ended September 30, 2003. The use of cash in 2003 was
primarily the result of operating expenses paid in the on-going operation of our
business, offset by cash collected for revenues provided. 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, elimination of
expenses associated with the markets we exited and management of accounts
payable and accounts receivable.

         Investing Activities: For the nine months ended September 30, 2003, we
were provided with $16.9 million in cash from investing activities. The cash
provided in 2003 primarily represents the net effect of cash received from the
sale of assets, the sale of restricted investments upon final settlement of
disputed network charges and upon funding of incentive compensation bonuses and
severance payments, partially offset by the purchase of property and equipment.

         Financing Activities: For the nine months ended September 30, 2003, we
were provided with $17.3 million of cash from financing activities. The cash
provided in 2003 primarily represents the net effect of cash received from the
issuance of

22

<PAGE>

common stock in September 2003 and net borrowings under our line of credit,
partially 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 ("SFAS") No. 149, "Amendment of FASB
Statement No. 133 on Derivative Instruments and Hedging Activities." This
standard amends SFAS 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 adoption of SFAS No. 149 does not have a
material effect on our consolidated financial statements as we do not have any
freestanding or embedded derivatives as of September 30, 2003.

Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity

         In May 2003, the Financial Accounting Standards Board issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. The provisions of this Statement are effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003.The adoption of SFAS No. 150 does have a material effect on our
consolidated financial statements because we do not have any such financial
instruments as of September 30, 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.

         We have recently reorganized our sales organization and added new
products. We cannot assure you that these measures will grow our revenue or
improve our 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.
Likewise, we may be interested in acquiring the assets or business, in whole or
in part, of other companies. We intend to consider any desirable 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 or to
acquire another company. Such possible transactions, if any, involving cash
consideration could significantly and adversely affect our liquidity. To support
our business growth, we may consider additional equity or debt financing.

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 common
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

23

<PAGE>

the United States and international points.

         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, which is discussed below. 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 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.

         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.

         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.

         In August 2003, the FCC released its Triennial Review Order in
connection with the FCC's review of unbundled network elements (UNEs) the
incumbent carriers are required to sell to competitive carriers such as us at
forward looking Total Element Long Run Incremental Cost (TELRIC) rates, which
reflect efficient costs plus a reasonable profit. Competitive carriers such as
us depend upon their ability to obtain access to these UNEs in order to
provision services to their customers. The FCC ordered that it 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. Portions of the order are being challenged by both
incumbent carriers and competitive carriers. We have joined with other
competitive carriers to challenge the exemption of incumbent carriers from
broadband unbundling. While this does not presently impact us it could have a
future significant adverse negative impact. The "triennial review" decision is
complex and 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.

         In September 2003, the FCC initiated a review of the rules applicable
to the pricing of UNEs. After the passage of the Telecommunications Act of 1996,
the FCC adopted its current pricing rules based on the TELRIC rates of a UNE.
The FCC

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will review its rules to determine whether the rules foster competition and
investment. We cannot predict the outcome of this review.

         In May 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy program. 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

         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, recently enacted
legislation in Nevada will 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, which could have a significant
adverse competitive impact. In Illinois, recent passage of a bill would permit
SBC to raise the rates it charges competitors to use its local lines. A federal
court has issued a temporary restraining order barring implementation of this
law pending the outcome of litigation filed by us and other carriers to strike
down the law as violative of the Telecommunications Act and Supreme Court
precedent. If the law is ultimately passed, it could also have a significant
adverse competitive impact in that market.

         The FCC Triennial Review Order provides for state regulatory agencies
to determine whether competitive carriers would be impaired if certain unbundled
network elements - switching, transport, local loops - should be removed from
the list of UNEs that incumbent carriers must provide. Since we utilize our own
switches, a finding of non-impairment in connection with the switching UNE would
not adversely impact us. The Triennial Review Order concluded that competitive
carriers would be impaired without loops and transport UNEs. However, we cannot
predict the outcome of these state proceedings. A finding of non-impairment by
state regulatory agencies could have a significant adverse negative impact on
us.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

         Our long-term debt is less than $0.1 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. As of the end of the
         period covered by this report, under the supervision and with the
         participation of our management, including our chief executive officer
         (CEO) and chief financial officer (CFO), an evaluation of the
         effectiveness of our disclosure controls and procedures was performed.
         Based on this evaluation, the CEO and CFO have concluded that our
         disclosure controls and procedures are effective to ensure that
         material information is recorded, processed, summarized and reported by
         our management on a timely basis in order to comply with our disclosure
         obligations under the Securities Exchange Act of 1934 and the SEC rules
         thereunder.

(b)      Changes in internal control. There were no changes in our internal
         control over financial reporting that occurred during our quarter ended
         September 30, 2003, that have materially affected, or are reasonably
         likely to materially affect, our internal control over financial
         reporting.

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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:

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

         - the establishment of customer care and provisioning;

         - the allocation of subsidies; and

         - 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 10b-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 had been appealed to the United States Court of Appeals for
the Second Circuit. An Order was entered on October 1, 2003, dismissing the suit
with prejudice. There are no further claims that can be asserted against us with
respect to the class action suit.

         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

         On July 10, 2003, we adopted a Stockholder Rights Plan (the "Rights
Plan"). A summary of the Rights Plan was mailed to all stockholders of record on
July 11, 2003. The Rights Plan is designed to guard against partial tender
offers and other abusive tactics that might be used in an attempt to gain
control of our company without paying all stockholders a fair price for their
shares. A description of the Rights Plan is contained in a Current Report on
Form 8-K that we filed with the Commission on July 16, 2003.

         On September 29, 2003, we issued 12,940,741 shares of common stock at a
price of $1.35 per share resulting in aggregate proceeds of $17.5 million before
costs of the transaction. The shares of common stock were issued to 23
accredited investors in a private placement exempt from registration under
Section 4(2) of the Securities Act of 1933 and Rule 506 under Regulation D
thereunder. In addition to the shares of common stock received by the
purchasers, the purchasers received warrants to purchase an additional 2,588,148
shares of common stock at $1.62 per share. The warrants are exercisable for a
period of five years. In addition, pursuant to an exclusive finder's fee
agreement the Shemano Group, Inc. ("Shemano") and its affiliates will receive
commissions of $1.1 million and warrants to purchase 349,400 shares of common
stock at $1.62 per share. Shemano and its affiliates are also entitled to
additional fees of up to $0.3 million and 83,856 additional warrants in the
event the purchasers exercise their warrants. Pacific Alliance Limited, LLC also
received an advisory fee of $0.2 million in connection with the transaction.

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ITEM 5.  Other Information

         As of August 28, 2003, an additional 500,000 shares of common stock
have been reserved for issuance under our stock option plan I.

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.

                  3.1      Second Amended and Restated Certificate of
                           Incorporation filed with the Secretary of State of
                           the State of Delaware on July 30, 2002. (1)

                  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. (2)

                  3.3      Amended and Restated By-laws. (1)

                  3.4      Rights Agreement between Mpower Holding Corporation
                           and Continental Stock Transfer & Trust Company as
                           Rights Agent. (3)

                  3.5      Certificate of Designation for the Series A Preferred
                           Stock. (4)

                  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     Form of Stock Purchase Agreement. (5)

                  10.2     Form of Registration Rights Agreement. (5)

                  10.3     Form of Warrant. (5)

                  10.4     Release Agreement dated September 24, 2003 between
                           Mpower Holding Corporation and Pacific Alliance
                           Limited, LLC.

                  31.1     Rule 13a-14(a)/15d-14(a) Certification of Chief
                           Executive Officer

                  31.2     Rule 13a-14(a)/15d-14(a) Certification of Chief
                           Financial Officer

                  32       Section 1350 Certifications


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

(2)      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.

(3)      Incorporated by reference to the Company's Registration Statement on
         Form 8-K (file No. 000-32941) filed with the Commission on July 16,
         2003.

(4)      Incorporated by reference to the Company's Registration Statement on
         Form 8-A filed with the Commission on July 16, 2003.

(5)      Incorporated by reference to the Company's Current Report on Form 8-K
         (file No. 33339884-01) filed with the Commission on July 30, 2003.

         (b) The registrant filed the following reports on Form 8-K during the
         quarter ended September 30, 2003:

(1)      On August 6, 2003, the Company filed Form 8-K to report on the
         Company's results of operations for the fiscal quarter ended June 30,
         2003.

(2)      On September 29, 2003, the Company filed Form 8-K to report on the
         Company's private placement of common stock and issuance of warrants to
         purchase common stock in connection with the private placement.

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                                   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: November 13, 2003     /s/ ROLLA P. HUFF
                            ---------------------------------------------------
                            Rolla P. Huff
                            Chief Executive Officer and Chairman of the Board

Date: November 13, 2003     /s/ S. GREGORY CLEVENGER
                            ---------------------------------------------------
                            S. Gregory Clevenger
                            Executive Vice President - Chief Financial Officer

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