UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


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

                For the quarterly period ended June 30, 1997
                                       OR

          TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
                              EXCHANGE ACT OF 1934
                     
                      (Commission File Number 1-11965) 
                            ICG COMMUNICATIONS, INC.
                      (Commission File Number 1-11052) 
                          ICG HOLDINGS (CANADA), INC.
                      (Commission File Number 33-96540)
                               ICG HOLDINGS, INC.
           (Exact names of Registrants as Specified in their Charters)

--------------------------------------------------------------------------------
Delaware                                      84-1342022
Canada                                        Not Applicable
Colorado                                      84-1158866
(State or other jurisdiction of               (I.R.S. employer
incorporation)                                identification number)
--------------------------------------------------------------------------------
9605 East Maroon Circle                       Not applicable
Englewood, Colorado 80112

1710-1177 West Hastings Street                c/o ICG Communications, Inc.
Vancouver, BC V6E 2L3                         9605 East Maroon Circle
                                              P.O. Box 6742
                                              Englewood, Colorado 80155-6742

9605 East Maroon Circle                       Not applicable
Englewood, Colorado 80112
(Address of principal executive offices)     (Address of U.S.agent for service)
--------------------------------------------------------------------------------
Registrants'  telephone  numbers,  including area codes: (800) 650-5960 or (303)
572-5960

Indicate  by check mark  whether  the  Registrants  (1) have  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
Registrants  were required to file such  reports),  and (2) have been subject to
such filing requirements for the past 90 days.    Yes   X        No
                                                     
The number of Registrants'  outstanding common shares as of August 12, 1997 were
33,213,071, 31,822,756 and 1,918, respectively. ICG Holdings (Canada), Inc. owns
all of the issued and outstanding shares of ICG Holdings, Inc.
<PAGE>

                                TABLE OF CONTENTS


PART I   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
          ITEM 1. CONSOLIDATED  FINANCIAL STATEMENTS . . . . . . . . . . . .   3
               Consolidated  Balance Sheets as of December 31, 1996 and June 30,
                    1997(unaudited). . . . . . . . . . . . . . . . . . . . .   3
               Consolidated  Statements  of Operations  (unaudited)  for the Six
                    Months  Ended June 30, 1996 and 1997 . . . . . . . . . .   5
               Consolidated Statement of Stockholders'  Deficit  (unaudited) for
                    the Six Months Ended June 30, 1997 . . . . . . . . . . .   6
               Consolidated  Statements  of Cash Flows  (unaudited)  for the Six
                    Months  Ended June 30, 1996 and 1997 . . . . . . . . . .   7
               Notes to Consolidated Financial Statements (unaudited). . . .   9

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


PART  II   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
          ITEM 1. LEGAL  PROCEEDINGS . . . . . . . . . . . . . . . . . . . .  27
          ITEM 2. CHANGES IN  SECURITIES . . . . . . . . . . . . . . . . . .  27
          ITEM 3. DEFAULTS UPON SENIOR SECURITIES  . . . . . . . . . . . . .  27
          ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. . .  27
          ITEM 5. OTHER INFORMATION  . . . . . . . . . . . . . . . . . . . .  27
          ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . .  27
                  Exhibits . . . . . . . . . . . . . . . . . . . . . . . . .  27
                  Reports on Form 8-K .  . . . . . . . . . . . . . . . . . .  27

                                       2
<PAGE>
<TABLE>
                                     ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                                             Consolidated Balance Sheets
                                   December 31, 1996 and June 30, 1997 (unaudited)

<CAPTION>

     <S>                                                               <C>                   <C>     
                                                                          December 31,           June 30,
                                                                              1996                 1997
                                                                        ------------------    ----------------
      Assets                                                                       (in thousands)

      Current assets:
         Cash and cash equivalents                                       $    359,934               382,220
         Short-term investments                                                32,601                12,000
         Receivables:
            Trade, net of allowance of $2,515 and $4,086 at
               December 31, 1996 and June 30, 1997, respectively               41,131                40,616
            Revenue earned, but unbilled                                        6,053                 6,735
            Other                                                               1,440                 2,302
                                                                        ------------------    ----------------
                                                                               48,624                49,653

         Inventory                                                              2,845                 3,815
         Prepaid expenses and deposits                                          5,019                 7,827
         Notes receivable                                                         200                     -
                                                                        ------------------    ----------------

            Total current assets                                              449,223               455,515
                                                                        ------------------    ----------------

      Property and equipment                                                  460,477               593,553
         Less accumulated depreciation                                        (56,545)              (78,155)
                                                                        ------------------    ----------------
            Net property and equipment                                        403,932               515,398
                                                                        ------------------    ----------------

      Investments                                                               5,170                 5,170
      Long-term notes receivable, net                                             623                   480
      Restricted cash (note 4)                                                 13,333                12,700
      Other assets, net of accumulated amortization:
         Goodwill                                                              31,881                31,061
         Deferred financing costs                                              21,963                24,193
         Transmission and other licenses                                        8,526                 8,355
         Other                                                                  9,482                 7,855
                                                                        ------------------    ----------------
                                                                               71,852                71,464
                                                                        ==================    ================

                                                                        $     944,133             1,060,727
                                                                        ==================    ================
                                                                                                 (Continued)                     
</TABLE>
                                   
                                                     
                                       3
<PAGE>

<TABLE>


                                      ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
                                        Consolidated Balance Sheets, Continued

<CAPTION>
<S>                                                                     <C>                    <C>   
                                                                          December 31,              June 30,
                                                                              1996                    1997
                                                                        ------------------     -------------------
Liabilities and Stockholders' Deficit                                                (in thousands)

Current liabilities:
   Accounts payable                                                     $      24,813                 28,127
   Accrued liabilities                                                         37,309                 56,206
   Current portion of long-term debt (note 2)                                     817                  1,744
   Current portion of capital lease obligations                                24,683                  6,719
                                                                        ------------------     -------------------
      Total current liabilities                                                87,622                 92,796

Long-term debt, net of discount, less current portion (note 2)                690,358                836,994
Capital lease obligations, less current portion                                71,146                 67,620
                                                                        ------------------     -------------------

   Total liabilities                                                          849,126                997,410
                                                                        ------------------     -------------------

Minority interests                                                              1,967                    304

Redeemable  preferred  stock of subsidiary  ($164.8  million and 
     $281.0  million liquidation value at December 31, 1996 and
     June 30, 1997, respectively) (note 2)                                    159,120                271,652

Stockholders' deficit:
   Common stock (note 3)                                                        8,088                    555
   Additional paid-in capital                                                 294,472                303,797
   Accumulated deficit                                                       (368,640)              (512,991)
                                                                        ------------------     -------------------
      Total stockholders' deficit                                             (66,080)              (208,639)
                                                                        ------------------     -------------------

Commitments and contingencies (note 4)
                                                                        $     944,133              1,060,727
                                                                        ==================     ===================

                             See  accompanying  notes to consolidated financial statements.

</TABLE>




                                       4
<PAGE>
<TABLE>

                                      ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                                  Consolidated Statements of Operations (unaudited)
                                       Six Months Ended June 30, 1996 and 1997

<CAPTION>
<S>                                                         <C>                <C>                <C>             <C>               
                                                               Three months ended June 30,          Six months ended June 30,
                                                             ---------------------------------    -------------------------------
                                                                 1996               1997              1996             1997
                                                             --------------    ---------------    -------------    --------------
                                                                            (in thousands, except per share data)
Revenue:
   Telecom services                                          $   24,371             41,243          42,006             79,523
   Network services                                              14,679             15,640          28,652             33,627
   Satellite services                                             5,596              7,883           9,932             14,666
                                                             --------------    ---------------    -------------    -------------
      Total revenue                                              44,646             64,766          80,590            127,816

Operating costs and expenses:
   Operating costs                                               35,307             59,693          63,478            119,265
   Selling, general and administrative expenses                  20,546             38,864          36,700             72,243
   Depreciation and amortization                                  9,055             13,075          16,497             23,957
                                                             --------------    ---------------    -------------    -------------
      Total operating costs and expenses                         64,908            111,632         116,675            215,465

      Operating loss                                            (20,262)           (46,866)        (36,085)           (87,649)

Other income (expense):
   Interest expense                                             (32,940)           (28,341)        (47,157)           (53,481)
   Interest income                                                5,957              6,768           8,682             11,902
   Other, net                                                      (466)               (15)         (2,020)              (254)
                                                             --------------    ---------------    -------------    -------------
                                                                (27,449)           (21,588)        (40,495)           (41,833)
                                                             --------------    ---------------    -------------    -------------

Loss before income taxes, minority interest and
 share of losses                                                (47,711)           (68,454)        (76,580)          (129,482)
Income tax benefit                                                    -                  -           4,482                  -
                                                             --------------    ---------------    -------------    -------------
Loss before minority interest and shares of losses              (47,711)           (68,454)        (72,098)          (129,482)
Minority interest in share of losses, net of accretion and
     preferred dividends on subsidiary preferred stock          (16,561)            (9,116)        (18,531)           (14,869)
Share of losses of joint venture and investment                    (449)                 -          (1,031)                 -
                                                             --------------     -------------     -------------    -------------
    Net loss                                                     (64,721)           (77,570)        (91,660)          (144,351)
                                                             ==============    ===============    =============    =============

Loss per share (note 3):
   Loss per share                                            $    (2.43)            (2.42)          (3.50)             (4.51)
                                                             ==============    ===============    =============    =============
   Weighted average number of shares outstanding                 26,580             32,042          26,192             31,990
                                                             ==============    ===============    =============    =============

                             See  accompanying  notes to consolidated  financial statements.
</TABLE>

                                       5
<PAGE>
<TABLE> 
                                     ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                             Consolidated Statement of Stockholders' Deficit (unaudited)
                                            Six Months Ended June 30, 1997

<S>                 
                                             <C>              <C>               <C>             <C>               <C>              
                                                                                   Additional                          Total
                                                           Common stock             paid-in       Accumulated        stockholders'
                                                    Shares          Amount          capital         deficit           deficit
                                               -------------  ---------------   --------------  ----------------  -----------------
                                                                                      (in thousands)

Balances at January 1, 1997                       31,895        $   8,088          294,472          (368,640)          (66,080)
   Shares issued for cash in connection with 
    the exercise of options and warrants               87                1              668                 -               669
   Shares issued for cash in connection with 
     the employee stock purchase plan                 50                1              589                 -               590
   Shares issued as contribution to 401(k)plan        28                -              533                 -               533
   Exchange of Holdings-Canada common shares
     for ICG common stock                              -           (7,535)           7,535                 -                 -
   Net loss                                            -                -                -          (144,351)         (144,351)
                                               =============  ===============   ==============  ================  =================
Balances at June 30, 1997                         32,060      $        555         303,797          (512,991)         (208,639)
                                               =============  ===============   ==============  ================  =================


           
                                              See accompanying notes to consolidated financial statements.
</TABLE>     
                                       6
<PAGE>
<TABLE>

                                      ICG COMMUNICATIONS, INC. AND SUBISIDIARIES

                                  Consolidated Statements of Cash Flows (unaudited)
                                       Six Months Ended June 30, 1996 and 1997


<CAPTION>
<S>                                                                                <C>                     <C>                     
                                                                                          Six months ended June 30,
                                                                                    ---------------------------------------
                                                                                           1996                  1997
                                                                                    -------------------    -----------------
                                                                                                (in thousands)
Cash flows from operating activities:
      Net loss                                                                      $     (91,660)              (144,351)
      Adjustments to reconcile net loss to net cash used by operating activities:
         Share of losses of joint venture and investment                                    1,031                      -
         Minority interest in share of losses, net of accretion and non-cash
            preferred dividends on subsidiary preferred stock                              18,531                 14,869
         Depreciation and amortization                                                     16,497                 23,957
         Compensation expense related to issuance of stock options                             26                      -
         Interest expense deferred and included in long-term debt                          30,510                 48,532
         Amortization of deferred financing costs included in interest expense              1,759                  1,370
         Contribution to 401(k) plan through issuance of common shares                        451                    533
         Deferred income tax benefit                                                       (4,482)                     -
         Loss on sale of certain Satellite Services assets                                    891                      -
         Gain on sale of certain other assets                                                   -                   (319)
         Increase  in  operating  assets, excluding  the  effects  of  business
           acquisitions:
             Receivables                                                                   (2,502)                (1,029)
             Inventory                                                                       (827)                  (970)
             Prepaid expenses and deposits                                                 (2,600)                (2,808)
         Increase (decrease) in operating liabilities, excluding the effects of
           business acquisitions:
             Accounts payable and accrued liabilities                                         (58)                22,211
                                                                                    -------------------    -----------------
               Net cash used by operating activities                                      (32,433)               (38,005)
                                                                                    -------------------    -----------------
Cash flows from investing activities:
      Decrease in notes receivable                                                          1,546                    343
      Increase in advances to affiliates                                                     (359)                     -
      Investments in and advances to joint venture                                         (2,316)                     -
      Payments for business acquisitions, net of cash acquired                             (6,567)                     -
      Purchase of long-term investment                                                         40                      -
      Sale of short-term investments                                                        2,979                 20,601
      Decrease in restricted cash                                                               -                    633
      Acquisition of property, equipment and other assets, net                            (56,847)              (132,529)
      Proceeds from the sale of certain Satellite Services assets                             447                      -
                                                                                    -------------------    -----------------
               Net cash used by investing activities                                      (61,077)              (110,952)
                                                                                    -------------------    -----------------
Cash flows from financing activities:
      Proceeds from issuance of common stock                                                1,614                  1,259
      Proceeds from issuance of subsidiary preferred stock, net of issuance costs         144,000                 96,000
      Repurchase of redeemable preferred stock of subsidiary and payment of
          accrued dividend                                                                (32,629)                     -
      Repurchase of redeemable warrants                                                    (2,671)                     -
      Proceeds from issuance of long-term debt                                            300,034                 99,908
      Deferred long-term debt issuance costs                                               (9,265)                (3,554)
      Principal payments on short-term debt                                               (17,500)                     -
      Principal payments on long-term debt                                                 (1,429)                  (879)
      Principal payments on capital lease obligations                                      (5,643)               (21,491)
                                                                                    -------------------    -----------------
         Net cash provided by financing activities                                        376,511                171,243
                                                                                    -------------------    -----------------
         Net increase in cash and cash equivalents                                        283,001                 22,286
Cash and cash equivalents, beginning of period                                            231,163                359,934
                                                                                    ===================    =================
Cash and cash equivalents, end of period                                            $     514,164                382,220
                                                                                    ===================    =================
                                                                                                                (Continued)         
</TABLE>



                                       7
<PAGE>
<TABLE>

                   ICG COMMUNICATIONS, INC. AND SUBISIDIARIES

                Consolidated Statements of Cash Flows, Continued

<CAPTION>
<S>                                                                                 <S>                  <S>                  


                                                                                           Six months ended June 30,
                                                                                    ----------------------------------------
                                                                                           1996                  1997
                                                                                    -------------------    -----------------
                                                                                                (in thousands)

Supplemental disclosure of cash flow information:
      Cash paid for interest                                                        $      14,888                  3,579
                                                                                    ===================    =================

Supplemental schedule of non-cash financing and investing activities:
      Common shares issued in connection with business combinations and
         repayment of debt or conversion of liabilities to equity                   $      19,023                      -
                                                                                    ===================    =================

                    See accompanying notes to consolidated financial statements.
</TABLE>
                                       
                                       8
<PAGE>

                    ICG COMMUNICATIONS INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                 December 31, 1996 and June 30, 1997 (unaudited)


(1)  Nature of Business and Reference to Other Reports

               ICG  Communications,  Inc. ("ICG"), a Delaware  corporation,  was
               incorporated  on April 11, 1996,  for the purpose of becoming the
               new publicly-traded U.S. parent company of ICG Holdings (Canada),
               Inc.   ("Holdings-Canada"),   a  Canadian   federal   corporation
               (formerly  known as IntelCom  Group  Inc.),  ICG  Holdings,  Inc.
               ("Holdings"),  a Colorado corporation (formerly known as IntelCom
               Group (U.S.A),  Inc.),  and its subsidiaries  (collectively,  the
               "Company").   The  Company's   principal   business  activity  is
               telecommunications  services, including Telecom Services, Network
               Services and Satellite Services. Telecom Services consists of the
               Company's  competitive  local exchange  carrier  operations which
               provide services to long distance carriers and resellers, as well
               as business  end users.  Network  Services  supplies  information
               technology services and selected networking products, focusing on
               network  design,  installation,  maintenance  and  support  for a
               variety  of end  users,  including  Fortune  1000 firms and other
               large  businesses  and  telecommunications  companies.  Satellite
               Services  provides  satellite  voice and data  services  to major
               cruise ship lines, the commercial shipping industry,  yachts, the
               U.S. Navy and offshore oil  platforms.  Although the Company does
               not have a formal plan, it is considering  the disposition of its
               Satellite Services operations to better focus on its core Telecom
               Services unit.

         (a)   Reference to Annual and Transition Reports

               These financial statements should be read in conjunction with the
               Annual Report on Form 10-K for the year ended  September 30, 1996
               and the Transition Report on Form 10-K for the three months ended
               December 31, 1996, as certain  information  and note  disclosures
               normally included in financial  statements prepared in accordance
               with generally accepted accounting principles have been condensed
               or omitted  pursuant to the rules and  regulations  of the United
               States Securities and Exchange Commission.  The interim financial
               statements  reflect all adjustments  which are, in the opinion of
               management,  necessary  for  a  fair  presentation  of  financial
               position,  results of operations and cash flows as of and for the
               interim  periods  presented.  Such  adjustments  are of a  normal
               recurring nature. Operating results for the six months ended June
               30, 1997 are not  necessarily  indicative of the results that may
               be expected for the year ending December 31, 1997.

         (b)   Reclassifications

               Certain 1996 amounts have been  reclassified  to conform with the
               1997 presentation.
                                       9
<PAGE>


                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(2)  Long-term Debt and Redeemable Preferred Stock of Subsidiary

               Long-term  debt  at  December  31,  1996  and  June  30,  1997 is
               summarized as follows (in thousands):
<TABLE>
<CAPTION>

             <S>                                                           <C>                      <C>  

                                                                            December 31, 1996        June 30, 1997
                                                                           ---------------------    -----------------
             
             11 5/8% Senior discount notes, net of discount (a)            $              -                103,437
             12 1/2% Senior discount notes, net of discount                         325,530               345,875
             13 1/2% Senior discount notes, net of discount                         355,955               380,615
             Convertible subordinated notes                                              65                    65
             Note payable with interest at the 90-day commercial 
               paper rate plus 4 3/4% (10 3/10% at June 30, 1997), due 2001,
               secured by certain telecommunications equipment                        5,815                 5,300
             Note payable with interest at 11%, due monthly
               through fiscal 1999, secured by equipment                              2,625                 2,288
             Mortgage payable with interest at 8 1/2%, due
               monthly through 2009, secured by building                              1,177                 1,154
             Other                                                                        8                     4
                                                                           ---------------------    -----------------
                                                                                    691,175               838,738
                Less current portion                                                   (817)               (1,744)
                                                                           ---------------------    -----------------
                                                                           $        690,358               836,994
                                                                           =====================    =================
</TABLE>

             Redeemable  preferred  stock of subsidiary at December 31, 1996 and
             June 30, 1997 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                    <S>                                                       <C>                      <C>    
                                                                                December 31, 1996         June 30, 1997
                                                                              ---------------------    ------------------
                     14% Exchangeable preferred stock mandatorily
                         redeemable 2008 (a)                              $                  -               100,317
                     14 1/4% Exchangeable preferred stock mandatorily
                         redeemable 2007                                               159,120               171,335
                                                                              --------------------     ------------------
                                                                              $        159,120               271,652
                                                                              =====================    ==================
</TABLE>
         (a)    Private Placement

               On March 11, 1997,  Holdings  completed a private  placement (the
               "Private  Placement")  of 11 5/8% Senior  Discount Notes (the "11
               5/8%  Notes")  and 14%  Exchangeable  Preferred  Stock  (the "14%
               Preferred  Stock") for gross proceeds of $99.9 million and $100.0
               million,  respectively.  Net proceeds from the private placement,
               after costs of  approximately  $7.5 million,  were  approximately
               $192.4 million.

               The 11 5/8% Notes are unsecured  senior  obligations  of Holdings
               (guaranteed  by ICG) that mature on March 15, 2007, at a maturity
               value of  $176.0  million.  Interest  will  accrue at 11 5/8% per
               annum  beginning March 15, 2002, and is payable each March 15 and
               September 15,  commencing  September 15, 2002.  The 11 5/8% Notes
               were  originally  recorded at  approximately  $99.9 million.  The
               discount  on the 11 5/8%  Notes and the debt  issuance  costs are
               being accreted over ten years until maturity at March 15, 2007.
                                       10
<PAGE>



                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(2) Long-term Debt and Redeemable Preferred Stock of Subsidiary (continued)

               The accretion of the discount and debt issuance costs is included
               in interest  expense in the accompanying  consolidated  financial
               statements.  The indenture to the 11 5/8% Notes contains  certain
               covenants   which  provide  for   limitations  on   indebtedness,
               dividends,  asset  sales  and  certain  other  transactions,  and
               effectively prohibits the payment of interest and dividends.

               The 14% Preferred  Stock  consists of 100,000  shares of Holdings
               Preferred  Stock that bear a  cumulative  dividend at the rate of
               14% per annum. The dividend is payable  quarterly in arrears each
               March 15, June 15, September 15, and December 15, commencing June
               15, 1997.  Through March 15, 2002, the dividend is payable at the
               option of  Holdings  in cash or  additional  shares  of  Holdings
               Preferred  Stock.  Holdings may exchange the 14% Preferred  Stock
               into 14%  Senior  Subordinated  Exchange  Debentures  at any time
               after  the   exchange   is   permitted   by   certain   indenture
               restrictions.  The 14%  Preferred  Stock is subject to  mandatory
               redemption on March 15, 2008.

(3)  Stockholders' Deficit

         (a)    Common Stock

               Common stock  outstanding at June 30, 1997  represents the issued
               and outstanding  Common Stock of ICG and Class A common shares of
               Holdings-Canada  (not owned by ICG) which are exchangeable at any
               time, on a one-for-one basis, for ICG Common Stock. The following
               table  sets forth the  number of shares  outstanding  for ICG and
               Holdings-Canada on a separate company basis as of June 30, 1997:

<TABLE>
<CAPTION>

               <S>                                                               <C>                   <C>                
                                                                                                           Shares
                                                                                  Shares owned by         not owned
                                                                                        ICG                by ICG
                                                                                  -----------------    ----------------
                ICG Common Stock, $.01 par value, 100,000,000
                    shares authorized; 31,087,825 and 32,046,134 shares
                    issued and outstanding at December 31, 1996 and June 30,
                    1997, respectively                                                         -          32,046,134
                Holdings-Canada Class A common shares, no par value,
                    100,000,000 shares authorized;  31,795,270 and 31,822,756 shares
                    issued and  outstanding  at December 31, 1996 and June 30, 1997,
                    respectively:
                     Class A common shares, exchangeable on a one-for-one
                         basis for ICG Common Stock at any time                                -              13,986
                         Class A common shares owned by ICG                           31,808,770                   -
                                                                                                       ----------------
                     Total shares outstanding                                                             32,060,120
                                                                                                       ================
</TABLE>

         (b)    Stock Options

               In order to continue to provide  non-cash  incentives  and retain
               key employees,  all employee  stock options  outstanding on April
               16,  1997 with  exercise  prices at or in excess of $15.875  were
               repriced by the Stock Option  Committee of the Company's Board of
               Directors to $10.375,  the closing price of the Company's  Common
               Stock  on  the  Nasdaq   National   Market  on  April  16,  1997.
               Approximately  568,000  options,  with original  exercise  prices
               ranging from $15.875 to $26.25, have been repriced.  There was no
               effect on the Company's  consolidated  financial  statements as a
               result of the repricing of options.
                                       11
<PAGE>

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)  Stockholders' Deficit (continued)
         
          (c)    Loss Per Share

               Loss per  share is  calculated  by  dividing  the net loss by the
               weighted average number of shares  outstanding.  Weighted average
               number of shares outstanding  represents  Holdings-Canada  common
               shares outstanding for the three months and six months ended June
               30, 1996, and ICG Common Stock and Holdings-Canada Class A common
               shares (not owned by ICG)  outstanding  for the three  months and
               six months ended June 30, 1997. Common stock  equivalents,  which
               include options, warrants and convertible subordinated notes, are
               not included in the loss per share calculation as their effect is
               anti-dilutive.

(4)  Commitments and Contingencies

         (a)    Network Construction

               In November  1995,  the  Company  signed an  agreement  with City
               Public  Service of San Antonio  ("CPS") to license  excess  fiber
               optic  facilities on a new 300-mile  fiber network being built by
               the municipally-owned electric and gas utility to provide for its
               communications  needs in the greater  metropolitan area. Pursuant
               to  this  agreement,   the  Company   provided  a  $12.0  million
               irrevocable  letter of credit to secure  payment of the Company's
               portion  of the  construction  costs.  The  letter  of  credit is
               secured by cash  collateral of $12.7 million as of June 30, 1997.
               In July 1997,  the Company and CPS reached a verbal  agreement to
               cancel all terms of the November 1995 contract.  Final  documents
               to effect the cancellation are pending.

               The legal  ability of CPS,  as a  municipally-owned  utility,  to
               enter into the original  contract with the Company was challenged
               by SBC  Communications,  Inc. ("SBC") before the San Antonio City
               Council as being in  violation  of a May 1995 Texas state law. In
               response, the Company filed a petition with the FCC and requested
               a declaratory ruling that the federal  Telecommunications  Act of
               1996 (the "Telecommunications Act") preempted the Texas state law
               to  the  extent  that  the   Telecommunications   Act   precluded
               implementation of the agreement between CPS and the Company,  and
               also filed a declaratory ruling request with a Texas state court.
               All of these  actions  have been or will be withdrawn as a result
               of the verbal agreement to cancel the November 1995 contract. The
               Company also filed a civil suit  against SBC in federal  district
               court that was previously dismissed.

               In February  1996, the Company  entered into a 20-year  agreement
               with  WorldCom,  Inc.  ("WorldCom"),  for the  right to use fiber
               along  a  330-mile   fiber   optic   network  in  Ohio.   Network
               construction was completed by the Company and WorldCom as of June
               30,  1997.  The  Company's  total cost of  construction  was $8.8
               million.

               In March 1996, the Company and Southern California Edison Company
               (ASCE) jointly entered into a 25-year  agreement under which the
               Company will license 1,258 miles of fiber optic cable in Southern
               California,  and can install up to 500 additional  miles of fiber
               optic cable. This network,  which will be maintained and operated
               primarily by the Company,  stretches from Los Angeles to southern
               Orange County. Under the terms of this agreement, SCE is entitled
               to receive an annual fee for ten years,  certain fixed  quarterly
               payments,  a quarterly  payment  equal to a percentage of certain
               network  revenue,   and  certain  other  installation  and  fiber
               connection fees. The aggregate fixed payments remaining under the
               agreement totaled  approximately $145.4 million at June 30, 1997.
               The  agreement  has been  accounted for as a capital lease in the
               accompanying consolidated balance sheets at June 30, 1997.
                                       12
                                      
<PAGE>

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(4)  Commitments and Contingencies (continued)

               In March 1996,  the Company  entered  into a long-term  agreement
               with  a  subsidiary  of The  Southern  Company  ("Southern")  and
               Alabama Power Company  ("Alabama  Power") for the right to use 22
               miles of existing fiber and 122 miles of additional Alabama Power
               rights of way and  facilities  to reach the three major  business
               centers in Birmingham.  Southern  will, in  conjunction  with the
               Company,  construct the network and provide maintenance  services
               with respect to the fiber  installed.  Southern also will provide
               consulting  services to the Company  relating to the build-out of
               the network and potential  enhancements to the Company's products
               and services. Under the agreement, the Company is required to pay
               Southern a quarterly  fee based on specified  percentages  of the
               Company's revenue for services provided through this network. The
               Company's   estimated   costs  to   complete   the   network  are
               approximately $1.5 million.  Network  construction is expected to
               be completed in the third quarter of 1997.

               In  May  1997,  the  Company  entered  into  a  second  long-term
               agreement with Southern that will permit the Company to construct
               a 100-mile fiber optic network in the Atlanta  metropolitan area.
               The Company paid $5.5 million upon execution of the agreement and
               is responsible for reimbursement to Southern for costs of network
               design,  construction,   installation,  maintenance  and  repair.
               Additionally,  the  Company is also  required  to pay  Southern a
               quarterly  fee based on specified  percentages  of the  Company's
               revenue derived from services provided over this network. Network
               construction  on the  initial  build is  expected to begin in the
               third  quarter of 1997 and to be  completed  in the first half of
               1998. The Company  estimates  costs to complete the initial phase
               of this network to be approximately $9.0 million.

               In July 1996, the Company  entered into a 20-year  agreement with
               subsidiaries of American  Electric Power ("AEP") to jointly build
               a  45-mile  network  addition  in  metropolitan  Columbus  and  a
               138-mile long-haul link to Canton, Ohio. Network construction was
               completed in June 1997.

               In January 1997, the Company announced a strategic  alliance with
               Central  and  Southwest   Corporation   ("CSW"),   named  CSW/ICG
               ChoiceCom,  L.P. ("ChoiceCom"),  which is expected to develop and
               market  telecommunications  services in certain  cities in Texas.
               CSW holds 100% of the  partnership  interest in ChoiceCom and the
               Company  expects to receive an option to purchase a 50%  interest
               at any time prior to July 1, 2003. Subsequent to July 1, 1999, if
               the Company has not exercised its option, CSW will have the right
               to sell 51% or 100% of the  partnership  interest in ChoiceCom to
               the  Company.  Additionally,  the Company has  committed  to loan
               $15.0 million to ChoiceCom over the near term.

               In June 1997, the Company entered into an  indefeasible  right of
               use  ("IRU")  agreement  with  Qwest  Communications  Corporation
               ("Qwest")  for  approximately  1,800 miles of fiber optic network
               and additional broadband capacity in California,  Colorado,  Ohio
               and  the  Southeast.  Network  construction  is  ongoing  and  is
               expected  to  be  complete  by  December  1998.  The  Company  is
               responsible  for payment on the  construction  as segments of the
               network  are  completed,  with  total  costs  anticipated  to  be
               approximately  $45.0  million.   Additionally,  the  Company  has
               committed to purchase $6.0 million in network capacity from Qwest
               prior to the end of 1998.

         (b)    Company Headquarters

               The Company has acquired  property for its new  headquarters  and
               has commenced construction of an office building that the Company
               expects  will   accommodate   most  of  the  Company's   Colorado
               operations.  The total  cost of the  project  is  expected  to be
               approximately  $44.0  million,  of which  $19.6  million has been
               incurred as of June 30, 1997 and is included in  construction  in
               progress.  The  Company has signed a letter of intent to sell the
               completed  building  to a third  party and lease  back the office
               space under a long-term  operating  lease.  A final  agreement is
               expected to be reached in the near future. The
                                       13
<PAGE>

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(4)  Commitments and Contingencies (continued)

               Company  anticipates that the building will be completed near the
               end of 1997.

          (c) Purchase and Other Commitments

               The Company is obligated to purchase,  at fair market value,  all
               of  the  shares  of  Maritime  Telecommunications  Network,  Inc.
               ("MTN"), a 64% owned subsidiary of the Company, that are owned by
               the   minority   shareholders,   upon  demand  of  the   minority
               shareholders,  if a  transaction  has  not  been  effected  which
               converts the minority shares into publicly  traded  securities or
               cash by January 3, 1998.

               The  Company  has  entered   into  various   equipment   purchase
               agreements with certain of its vendors.  Under these  agreements,
               if the  Company  does not meet a  minimum  purchase  level in any
               given  year,  the vendor may  discontinue  for that year  certain
               discounts,  allowances and incentives  otherwise  provided to the
               Company. In addition,  the agreements may be terminated by either
               the Company or the vendor upon prior written notice.

               Additionally, the Company has entered into certain commitments to
               purchase  capital  assets  with an  aggregate  purchase  price of
               approximately $31.8 million at June 30, 1997.

         (d)   Litigation

               On April 4, 1997, certain  shareholders of the Company's majority
               owned subsidiary, Zycom Corporation ("Zycom"), an Alberta, Canada
               corporation, filed a shareholder derivative suit and class action
               complaint for unspecified  damages,  purportedly on behalf of all
               of the minority  shareholders  of Zycom, in the District Court of
               Harris County,  Texas (Cause No.  97-17777)  against the Company,
               Zycom and certain of their  subsidiaries.  This complaint alleges
               that the Company and certain of its subsidiaries breached certain
               duties  owed  to  the  plaintiffs.   The  Company  is  vigorously
               defending the claims.  Management believes these proceedings will
               not have a material  adverse  effect on the  Company's  financial
               condition, results of operations or cash flows.

               The  Company is a party to  certain  other  litigation  which has
               arisen in the  ordinary  course of  business.  In the  opinion of
               management  and legal counsel,  the ultimate  resolution of these
               matters  will  not have a  significant  effect  on the  Company's
               financial condition, results of operations or cash flows.

(5)  Summarized Financial Information of ICG Holdings, Inc.

         The 11 5/8% Notes issued by Holdings during 1997 are guaranteed by ICG.
         The 12 1/2% Senior Discount Notes (the "12 1/2% Notes") and the 13 1/2%
         Senior Discount Notes (the "13 1/2% Notes")  (collectively  with the 11
         5/8% Notes,  the  "Senior  Notes")  issued by Holdings  during 1996 and
         1995, respectively, are guaranteed by ICG and Holdings-Canada.

                                       14
<PAGE>

                    ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)  Summarized Financial Information of ICG Holdings, Inc. (continued)

         The separate  complete  financial  statements of Holdings have not been
         included  herein  because  such  disclosure  is  not  considered  to be
         material  to the  holders  of the  Senior  Notes.  However,  summarized
         combined  financial  information  for  Holdings  and  subsidiaries  and
         affiliates as of December 31, 1996 and June 30, 1997, and for the three
         months and six months  ended June 30,  1996 and 1997 is as follows  (in
         thousands):

                                           Condensed Balance Sheet Information
<TABLE>
<CAPTION>
            <S>                                         <C>                         <C>                

                                                           December 31, 1996           June 30, 1997
                                                        ------------------------    ---------------------

            Current assets                              $        449,059                   455,353
            Property and equipment, net                          403,932                    515,398
            Other non-current assets, net                         88,183                     87,115
            Current liabilities                                   87,423                     91,278
            Long-term debt, less current portion                 690,293                    836,929
            Due to parent                                         11,485                     14,461
            Other long-term liabilities                           73,113                     67,620
            Preferred stock                                      159,120                    271,652
            Stockholder's deficit                                (80,260)                   224,378
</TABLE>

                     Condensed Statement of Operations Information
<TABLE>
<CAPTION>


            <S>                                   <C>                                    <C> 
                                                      Three months ended June 30,           Six months ended June 30,
                                                   -----------------------------------   ---------------------------------
                                                         1996               1997              1996              1997
                                                   -----------------    --------------   ---------------   ---------------

            Total revenue                                 44,646              64,766         80,590           127,816
            Total operating costs and expenses            62,900             111,553        114,313           215,234
            Operating loss                               (18,254)            (46,787)       (33,723)          (87,418)
            Net loss                                     (64,207)            (77,490)       (89,298)         (144,119)


</TABLE>

                                       15
<PAGE>

                                   ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

                        Notes to Consolidated Financial Statements, Continued


(6)  Condensed Financial Information of ICG Holdings (Canada), Inc.

         Condensed financial information for Holdings-Canada only as of December
         31,  1996 and June 30,  1997,  and for the three  months and six months
         ended June 30, 1996 and 1997 is as follows (in thousands):

                                           Condensed Balance Sheet Information
<TABLE>
<CAPTION>

            <S>                                         <C>                         <C> 
                                                           December 31, 1996           June 30, 1997
                                                        ------------------------    ---------------------

            Current Assets                              $            165                        162
            Advances to subsidiaries                              11,485                     14,461
            Other non-current assets, net                          2,793                      2,699
            Current liabilities                                      199                      1,518
            Long-term debt, less current portion                      65                         65
            Due to parent                                          1,566                      3,228
            Share of losses of subsidiary                         80,260                    224,378
            Shareholders' deficit                                (67,647)                  (211,866)

</TABLE>
                               Condensed Statement of Operations Information

<TABLE>
                                                    Three months ended June 30,              Six months ended June 30,
                                                 ----------------------------------   -----------------------------------------
                                                       1996              1997                1996                   1997
                                                 ---------------  -----------------   ------------------    -------------------

            <S>                                  <C>                   <C>            <C>                   <C>                    
            Total revenue                        $         -               -                   -                     -
            Total operating costs and expenses          2,009             47               2,362                   100
            Operating loss                             (2,009)           (47)             (2,362)                 (100)
            Losses from subsidiaries                  (64,207)       (77,490)            (89,298)             (144,119)
            Net loss attributable to common
               shareholders                           (66,216)       (77,537)            (91,660)             (144,219)
</TABLE>

(7)  Condensed  Financial  Information  of  ICG  Communications,   Inc.  (Parent
     company)
        
         The sole asset of ICG is its  investment  in  Holdings-Canada.  Certain
         corporate  expenses  of  the  parent  company  are  included  in  ICG's
         statement of  operations  and were  approximately  $0.1 million for the
         three months and six months ended June 30, 1997.  ICG has no operations
         other than those of Holdings-Canada and its subsidiaries.

                                       16
<PAGE>


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

         The following  discussion includes certain  forward-looking  statements
which  are  affected  by  important  factors  including,  but  not  limited  to,
dependence on increased  traffic on the  Company's  facilities,  the  successful
implementation   of  the   Company's   strategy  of   offering   an   integrated
telecommunications  package  of  local,  long  distance,  data and  value  added
services,  continued  development of the Company's  network  infrastructure  and
actions of  competitors  and  regulatory  authorities  that could  cause  actual
results to differ  materially  from the  forward-looking  statements.  The terms
"fiscal" and "fiscal  year" refer to ICG's fiscal year ending  September 30. The
Company changed its fiscal year end to December 31 from September 30,  effective
January 1, 1997. All dollar amounts are in U.S. dollars.

Company Overview

         The Company provides Telecom  Services,  Network Services and Satellite
Services.  Telecom Services consist primarily of the Company's competitive local
exchange  carrier ("CLEC")  operations.  CLECs seek to provide an alternative to
the  incumbent   local  exchange   carriers   ("ILECs")  for  a  full  range  of
telecommunications  services.  The  Company is one of the largest  providers  of
competitive local telephone services in the United States, based on estimates of
the industry's 1996 revenue.  As a CLEC, the Company  operates  networks in four
regional clusters covering major  metropolitan  statistical areas in California,
Colorado,  the Ohio  Valley  and the  Southeast.  Network  Services  consist  of
information  technology services and selected networking  products,  focusing on
network  design,  installation,  maintenance  and  support.  Satellite  Services
consist of  maritime  and  international  satellite  transmission  services  and
provide  private data networks  utilizing  VSATs.  Although the Company does not
have a formal plan, it is considering the disposition of its Satellite  Services
operations to better focus its efforts on its core Telecom  Services  unit. As a
leading participant in the rapidly growing competitive local  telecommunications
industry,  the Company has experienced  significant  growth,  with total revenue
increasing from $59.1 million for fiscal 1994 to $237.9 million for the 12-month
period  ended June 30,  1997.  The  Company's  rapid growth is the result of the
initial  installation,  acquisition and subsequent  expansion of its fiber optic
networks and the expansion of its communication service offerings.

         Prior to fiscal 1996,  the majority of the  Company's  revenue had been
derived from Network Services.  However,  the Company's Network Services revenue
(as well as Satellite  Service revenue) will continue to represent a diminishing
percentage of the  Company's  consolidated  revenue as the Company  continues to
emphasize its core Telecom  Services.  In March 1996, the Company  completed the
sale  of four of its  teleports  which  were  used  in the  Company's  Satellite
Services operations.

         The Telecommunications Act and several pro-competitive state regulatory
initiatives  have  substantially  changed  the   telecommunications   regulatory
environment in the United States. Due to these regulatory  changes,  the Company
is now permitted to offer all  interstate  and  intrastate  telephone  services,
including  competitive  local dial tone.  The Company is  marketing  and selling
competitive  local  dial  tone  services  in  major  metropolitan  areas  in the
following  regions:  California,  which  began  service  in late  January  1997,
followed by Ohio in February  1997,  Colorado in March 1997 and the Southeast in
May  1997.  During  the six  months  ended  June  30,  1997,  the  Company  sold
approximately  60,300 local access lines, of which approximately  20,100 were in
service at that date.  The Company has 17 high capacity  digital voice  switches
and 15 data  communications  switches in operation to support its services,  and
plans to install additional switches as demand warrants.  As a complement to its
local exchange services, the Company has begun marketing bundled offerings which
include  long  distance,  data  and  enhanced  telecommunications  services.  To
facilitate  the  expansion  of these  services,  the Company  has  entered  into
agreements with Lucent  Technologies,  Inc., Northern Telecom,  Inc. and Cascade
Communications,  Inc. to purchase a full range of switching systems, fiber optic
cable, network electronics, software and services.

         The Company will continue to expand its network  through  construction,
leased   facilities,   strategic   joint   ventures  and   potentially   through
acquisitions.  The Company recently  announced an agreement with a subsidiary of
Southern  that will  permit the  Company to  construct  a 100-mile  fiber  optic
network in the Atlanta metropolitan area. In addition,  the Company is expanding
its  geographic  focus  to  include  Texas  (and may also  expand  to  Arkansas,
Louisiana  and  Oklahoma)  through  its  strategic  alliance  with CSW that will
develop and market  telecommunications  services,  including  local service,  in
these  markets.  In June 1997,  the Company  entered into an IRU agreement  with
Qwest for
                                       17
<PAGE>

approximately  1,800  miles of fiber  optic  network  and  additional  broadband
capacity in California,  Colorado, Ohio and the Southeast. The new capacity will
connect major  networks in California and will be used for the  transmission  of
local, long distance and data communications services in the Company's markets.

         Telecom  Services  revenue has increased  from $14.9 million for fiscal
1994 to $146.5 million for the 12-month  period ended June 30, 1997. The Company
has experienced declining prices and increasing price competition for access and
high capacity  services which, to date, have been more than offset by increasing
network usage.  The Company expects to continue to experience  declining  prices
and increasing price competition for the foreseeable future.

         In conjunction with the increase in its service offerings,  the Company
will need to spend significant  amounts on sales,  marketing,  customer service,
engineering  and corporate  personnel  prior to the  generation  of  appreciable
revenue.  This will have an adverse effect on operating  margins until such time
as sufficient volumes of customers'  telecommunications traffic are attained. As
the  Company's  customer  base grows,  the Company  anticipates  that  operating
margins will improve as incremental  revenue will exceed  incremental  operating
expenses.  The  preceding   forward-looking  statement  is  dependent  upon  the
successful  implementation  of the  Company's  local  dial  tone,  data and long
distance  services  strategy,  continued  development  of the Company's  network
infrastructure,  increased  traffic on the Company's  facilities,  any or all of
which may not occur, and upon actions of competitors and regulatory authorities.

         Currently,  the Company is experiencing negative operating margins from
its switched services while its networks are in the development and construction
phases and while the  Company  relies on ILEC  networks  to carry a  significant
portion  of  its  customers'  switched  traffic.  The  Company  expects  overall
operating  margins from switched  services to improve as local exchange services
become a relatively larger portion of its business mix. In addition, the Company
believes that the  unbundling of ILEC services and the  implementation  of local
telephone number portability,  which are mandated by the Telecommunications Act,
will reduce the Company's  costs of providing  switched  services and facilitate
the marketing of local and other services.

         The Company believes that the provisions of the Telecommunications Act,
including the opening of the local  telephone  services  market to  competition,
will  facilitate  the  Company's  plan to  provide a full  array of local,  long
distance  and data  communications  services.  In order to fully  implement  its
strategy,  the Company must make  significant  capital  expenditures  to provide
additional switching capacity, network infrastructure and electronic components.
The Company must also make significant  investments and expenditures to develop,
train and manage its  marketing  and sales  personnel.  The  Company has limited
experience  providing  such  services  and  there can be no  assurance  that the
Company will be successful.

         The continued development,  construction and expansion of the Company's
business  requires  significant  capital,  a large  portion of which is expended
before related revenue is generated. The Company has experienced, and expects to
continue to  experience,  negative  cash flow and  significant  losses  while it
expands its  operations to provide a wide range of  telecommunications  services
and establishes a sufficient  revenue-generating  customer base. There can be no
assurance  that the Company  will be able to establish or retain such a customer
base.
                                       18
<PAGE>


Results of Operations

         The following table provides a breakdown of revenue and operating costs
for Telecom Services, Network Services and Satellite Services, and certain other
financial data for the Company for the periods  indicated.  The table also shows
certain  revenue,  expenses,  operating  loss and EBITDA as a percentage  of the
Company's total revenue.
<TABLE>
<CAPTION>
<S>                            <C>             <C>        <C>            <C>        <C>         <C>      <C>         <C>            


                                           Three months ended June 30,                      Six months ended June 30,
                               ---------------------------------------------------- ----------------------------------------------
                                         1996                       1997                   1996                  1997
                               -------------------------- ------------------------- --------------------- -----------------------
                                     $             %            $            %           $          %         $          %
                               --------------  ---------- --------------- --------- ------------- ------- ----------- -----------
                                                                           (unaudited)
Statement of Operations Data:                                            (in thousands)
Revenue:
    Telecom services              24,371          55          41,243         64       42,006        52       79,523        62
    Network services              14,679          33          15,640         24       28,652        36       33,627        26
    Satellite services             5,596          12           7,883         12        9,932        12       14,666        12
                               -------------- ----------- --------------- --------- ------------- -------- ------------- --------
     Total revenue                44,646         100          64,766        100       80,590       100      127,816        100
 Operating costs:
    Telecom services              22,323                      42,444                  37,517                 83,894
    Network services              10,569                      12,883                  21,627                 27,418
    Satellite services             2,415                       4,366                   4,334                  7,953
                               -------------- ----------- --------------- --------- -------------- ------- ------------- --------
        Total operating costs     35,307          79          59,693         92       63,478        79      119,265        93
 Selling, general and            
     administrative               20,546          46          38,864         60       36,700        46       72,243        57
 Depreciation and amortization     9,055          20          13,075         20       16,497        20       23,957        19
                               -------------- ----------- --------------- -------- -------------- -------- ------------- --------
    Operating loss               (20,262)        (45)        (46,866)       (72)     (36,085)      (45)     (87,649)      (69)

 Other Data:
 EBITDA (1)                      (11,207)        (25)        (33,791)       (52)     (19,588)      (24)     (63,692)      (50)
 Net cash used by operating    
     activities                  (15,411)                    (22,236)                (32,433)               (38,005)
 Net cash used by investing      
     activities                  (10,377)                    (52,387)                (61,077)              (110,952)
 Net cash (used) provided by
     financing activities       (400,467)                     (1,445)                376,511                171,243
 Capital expenditures (2)         29,882                      70,984                 106,315                132,529

                                       June 30,         September 30,     December 31,       March 31,          June 30,
                                         1996             1996               1996             1997               1997
                                     -------------    --------------     -------------    --------------     --------------
                                                                          (unaudited)
Statistical Data (3):
Full time employees                        1,173          1,323                1,424            1,606            1,854
Telecom services:
     Access lines in service                   -              -                    -            5,371           20,108
     Buildings connected:
       On-net                                384            478                  522              545              560
       Hybrid (4)                          1,493          1,589                1,547            1,550            1,704
                                     -------------    --------------     -------------    --------------     --------------
          Total buildings connected        1,877          2,067                2,069            2,095            2,264
     Customer circuits in service        
          (VGEs)                         551,881        630,697              748,528          816,238          917,656
     Operational switches:
       Voice                                  13             14                   14               16               17
       Data                                    -              -                    1               10               15
                                     -------------    --------------     -------------    --------------     --------------
          Total operational                   
               switches                       13             14                   15               26               32
     Switched minutes of use                 
         (millions)                          475            563                  607              682              742
     Fiber route miles (5):
       Operational                           886          2,143                2,385            2,483            2,898
       Under construction                      -              -                    -                -            1,117
     Fiber strand miles (6):
       Operational                        45,098         70,067               75,490           83,334          101,788
       Under construction                      -              -                    -                -           19,159
     Wireless miles (7)                      483            491                  506              511              511
Satellite services:
     VSATs                                   659            835                  860              875              895
     C-Band installations (8)                 48             48                   54               57               57
     L-Band installations (9)                 53            109                  204              355              671
                                       19
<PAGE>
----------
<FN>

     (1)  EBITDA consists of operating loss plus  depreciation and amortization.
          EBITDA  is  provided  because  it is a  measure  commonly  used in the
          telecommunications   industry.   It  is   presented   to   enhance  an
          understanding of the Company's  operating  results and is not intended
          to represent  cash flow or results of operations  in  accordance  with
          generally  accepted  accounting  principles  ("GAAP")  for the periods
          indicated.  Net cash flows from  operating,  investing  and  financing
          activities as determined  using GAAP are also presented in Other Data.
          See  the  Company's   Consolidated   Financial   Statements  contained
          elsewhere  in this report.  

     (2)  Capital expenditures include assets acquired under capital leases.

     (3)  Amounts presented are for three-month  periods ended, or as of the end
          of the period presented.

     (4)  Hybrid buildings are buildings  connected to the Company's network via
          another carrier's facilities.

     (5)  Fiber route miles  refers to the number of miles of fiber optic cable,
          including  leased  fiber.  As of June 30, 1997,  the Company had 2,898
          fiber route  miles,  of which 406 fiber route miles were leased  under
          operating  leases.  Fiber route miles  under  construction  represents
          fiber under  construction  which is expected to be operational  within
          six months.

     (6)  Fiber  strand  miles  refers  to the  number  of  fiber  route  miles,
          including leased fiber, along a telecommunications  path multiplied by
          the number of fiber strands along that path. As of June 30, 1997,  the
          Company had 101,788 fiber strand  miles,  of which 15,165 fiber strand
          miles were leased  under  operating  leases.  Fiber strand miles under
          construction  represents fiber under construction which is expected to
          be operational within six months.
    
     (7)  Wireless miles represents the total distance of the digital  microwave
          paths  between  Company  transmitters  which are used in the Company's
          networks.

     (8)  C-Band  installations  service  cruise  ships,  U.S.  Navy vessels and
          offshore oil platform installations.

     (9)  L-Band installations service smaller maritime installations,  and both
          mobile and fixed land-based units.

Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996

         Revenue.  Revenue for the three  months  ended June 30, 1997  increased
$20.1  million,  or 45%,  from the three  months  ended June 30,  1996.  Telecom
Services  revenue  increased  69% to $41.2 million due to an increase in network
usage for both switched and special access services, offset in part by a decline
in average unit pricing.  Switched services revenue increased from $10.4 million
(43% of Telecom  Services  revenue)  for the three months ended June 30, 1996 to
$20.9 million (51% of Telecom Services  revenue) for the three months ended June
30, 1997. Switched access (terminating long distance) represented  approximately
95% of the Company's  switched  services revenue  component for the three months
ended June 30, 1997.  Special access revenue increased from $9.7 million (40% of
Telecom  Services  revenue)  for the three  months  ended June 30, 1996 to $13.5
million  (32% of Telecom  Services  revenue) for the three months ended June 30,
1997. Also included in Telecom  Services revenue for the three months ended June
30, 1997 is $6.8 million  generated  by Zycom,  compared to $4.3 million for the
same period in 1996.  Substantially all of the increase in Zycom revenue for the
three  months ended June 30, 1997 as compared to the same period in 1996 relates
to changes in the  classification  of certain operating costs as a result of the
Company entering into long-term contracts with its major customers.  These costs
were netted  against  revenue  during the 1996 period due to the  uncertainty of
renewal of  short-term  customer  contracts.  At June 30, 1997,  the Company had
20,108 access lines in service compared to zero at June 30, 1996. Special access
network usage reflected in voice grade equivalents  ("VGEs")  increased 66% from
552,000  VGEs at June 30, 1996,  to 918,000  VGEs at June 30, 1997.  At June 30,
1997 the Company had 2,264 buildings connected to its networks compared to 1,877
buildings  connected at June 30,  1996.  Additionally,  switched  minutes of use
increased  56% from 475 million  minutes  during the three months ended June 30,
1996 to 742 million minutes during the three months ended June 30, 1997. Revenue
from long  distance and data  services  did not  generate a material  portion of
total revenue during either period.  Network  Services  revenue  increased 7% to
$15.6  million  for the three  months  ended June 30,  1997 as compared to $14.7
million for the three months ended June 30, 1996 due to additional projects from
new and existing  customers.  Satellite  Services revenue  increased 41% to $7.9
million for the 
                                       20
<PAGE>

three  months  ended  June 30,  1997.  This  increase  is  primarily  due to the
operations  of Maritime  Cellular  Tele-Network,  Inc.  ("MCN"),  a wholly owned
subsidiary of the Company  acquired in March 1996,  which comprised $1.6 million
of total  Satellite  Services  revenue for the three  months ended June 30, 1997
compared to $0.7 million during the same period in 1996. The remaining  increase
can be attributed to the general growth of Maritime  Telecommunications Network,
Inc. ("MTN") and its increased sales of C-Band equipment to offshore oil and gas
customers.

         Operating costs.  Total operating costs for the three months ended June
30, 1997 increased  $24.4  million,  or 69% from the three months ended June 30,
1996.  Telecom Services operating costs consist of payments to ILECs for the use
of network  facilities to support hybrid and switched access  services,  network
operating costs,  right of way fees and other costs.  Telecom Services operating
costs increased from $22.3 million, or 92% of Telecom Services revenue,  for the
three months ended June 30, 1996, to $42.4 million,  or 103% of Telecom Services
revenue,  for the three months ended June 30, 1997.  Telecom Services  operating
costs consist of payments to ILECs for the use of network  facilities to support
hybrid and switched access services,  network operating costs, right of way fees
and other  costs.  The  increase  in  operating  costs in  absolute  dollars  is
attributable  to the  increase in switched  access  services and the addition of
engineering  and  operations  personnel  dedicated to the  development  of local
exchange  services.  The  increase in operating  costs as a percentage  of total
revenue is due primarily to the increase in switched  access  services  revenue,
which generates negative margins as a result of the higher costs associated with
utilizing  ILEC network  facilities,  and the  investment in the  development of
local exchange services without the benefit of corresponding revenue in the same
period.  The Company expects that its Telecom  Services ratio of operating costs
to revenue  will begin to improve as the  Company  provides a greater  volume of
higher  margin  services,  principally  local  exchange  services,  carries more
traffic on its own facilities  rather than the ILEC facilities,  and obtains the
right to use unbundled  ILEC  facilities on  satisfactory  terms,  any or all of
which may not occur.  Network  Services  operating  costs increased 22% to $12.9
million and increased as a percentage of Network  Services  revenue from 72% for
the three  months ended June 30, 1996 to 82% for the three months ended June 30,
1997.  The increase is due to a  substantially  lower margin earned on equipment
sales (which  constituted a larger  portion of 1997  revenue)  relative to other
services and certain  indirect  project costs included in operating costs during
the three months ended June 30, 1997 which were treated as selling,  general and
administrative  expenses during the comparable period in 1996.  Network Services
operating  costs  include the cost of equipment  sold,  direct  hourly labor and
other indirect project costs.  Satellite  Services  operating costs increased to
$4.4 million for the three months ended June 30, 1997, from $2.4 million for the
three  months  ended June 30,  1996.  Satellite  Services  operating  costs as a
percentage  of revenue also  increased  from 43% for the three months ended June
30, 1996 to 55% for the three months ended June 30, 1997.  This  increase is due
to an increase in MCN's sales in the current  three-month  period as well as the
increased  volume of equipment  sales,  both of which provide lower margins than
other maritime services. Satellite Services operating costs consist primarily of
transponder lease costs and the cost of equipment sold.

         Selling,  general and  administrative  expenses.  Selling,  general and
administrative  ("SG&A")  expenses  for the three  months  ended  June 30,  1997
increased  $18.3  million,  or 89%,  compared to the three months ended June 30,
1996.  This increase was principally due to the continued rapid expansion of the
Company's  Telecom Services  networks and related  significant  additions to the
Company's management information systems, customer service,  marketing and sales
staffs dedicated to the expansion of the Company's  networks and  implementation
of the Company's  expanded services  strategy,  primarily the development of the
Company's  CLEC  operations.  SG&A  expenses as a  percentage  of total  revenue
increased from 46% for the three months ended June 30, 1996 to 60% for the three
months ended June 30, 1997. There is typically a period of higher administrative
and marketing expense prior to the generation of appreciable  revenue from newly
developed  networks or services.  The Company  expects SG&A expenses for Telecom
Services  to  increase  over the near term as a result  of  hiring  new staff to
facilitate the marketing and  development of local dial tone,  long distance and
data transmission services.

         Depreciation and amortization.  Depreciation and amortization increased
$4.0 million,  or 44%, for the three months ended June 30, 1997, compared to the
three months ended June 30, 1996,  due to increased  investment  in  depreciable
assets  resulting  from the continued  expansion of the  Company's  networks and
services.  The Company reports high levels of depreciation  expense  relative to
revenue  during the early years of operation  of a new network  because the full
cost of a network is depreciated using the straight-line  method despite the low
rate of capacity utilization in the early stages of network operation.
                                       21
<PAGE>

         Interest expense.  Interest expense decreased $4.6 million,  from $32.9
million for the three months ended June 30, 1996, to $28.3 million for the three
months ended June 30, 1997,  which included $26.6 million of non-cash  interest.
This  decrease is  primarily  attributable  to a charge of  approximately  $11.5
million  recorded  during the three months ended June 30, 1996 for payments made
to noteholders  for consent to amend the indenture  governing the 13 1/2% Notes,
necessary to permit the offering of the 12 1/2% Notes and the 14 1/4%  Preferred
Stock in April  1996.  Partially  offsetting  this  decrease  is an  increase in
interest expense related to the issuance of the 11 5/8% Notes in March 1997.

         Interest  income.  Interest  income  increased $0.8 million,  from $6.0
million for the three months ended June 30, 1996,  to $6.8 million for the three
months ended June 30, 1997. The increase is attributable to the increase in cash
from the proceeds of the issuance of the 11 5/8% Notes and 14%  Preferred  Stock
in March 1997 and the 12 1/2%  Notes and 14 1/4%  Exchangeable  Preferred  Stock
Mandatorily  Redeemable 2007 (the "14 1/4% Preferred  Stock") in April 1996. The
Company  expects  interest  income  to  decrease  over  time  as cash  and  cash
equivalents decline.

         Other,  net. Other, net fluctuated from $0.5 million net expense in the
three  months  ended June 30, 1996 to  substantially  zero for the three  months
ended June 30, 1997.  Other expense  recorded in the  three-month  periods ended
June 30, 1996 and 1997 represents losses recognized on the disposal of assets.

         Minority  interest in share of losses,  net of accretion  and preferred
dividends on subsidiary  preferred stock.  Minority interest in share of losses,
net of accretion and preferred dividends on subsidiary preferred stock decreased
$7.4  million,  from $16.6  million for the three  months ended June 30, 1996 to
$9.1  million for the three  months  ended June 30,  1997.  The  decrease is due
primarily to a charge of $12.3  million  recorded  during the three months ended
June 30, 1996 for the excess of the redemption price over the carrying amount of
the 12%  redeemable  preferred  stock of  Holdings  ("12%  Redeemable  Preferred
Stock") redeemed in April 1996.  Offsetting this decrease is an increase related
to the issuance of the 14% Preferred Stock in March 1997.  Minority  interest in
share  of  losses,  net of  accretion  and  preferred  dividends  on  subsidiary
preferred stock recorded during the current  three-month  period consists of the
accretion of issue costs ($0.3  million) and the accrual of the preferred  stock
dividends ($9.5 million) associated with the 14% Preferred Stock and the 14 1/4%
Preferred Stock,  offset by minority  interest in losses of subsidiaries of $0.7
million.

         Share of losses in joint venture and investment.  Effective  October 1,
1996, the Company sold its 50% interest in the Phoenix network joint venture. As
a result, no share of losses in joint venture was recorded during the six months
ended June 30, 1997,  as compared to the $0.4 million loss  recorded  during the
comparable period in 1996.

         Net  loss.  Net  loss  increased  $12.8  million,  or  20%,  due to the
increases in operating costs, SG&A expenses, depreciation and amortization noted
above.

Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996

         Revenue. Revenue for the six months ended June 30, 1997 increased $47.2
million,  or 59%,  from the six months  ended June 30,  1996.  Telecom  Services
revenue  increased  89% to $79.5 million due to an increase in network usage for
both  switched  and  special  access  services,  offset in part by a decline  in
average unit pricing.  Switched  services  revenue  increased from $18.4 million
(44% of Telecom  Services  revenue)  for the six months  ended June 30,  1996 to
$39.5  million (50% of Telecom  Services  revenue) for the six months ended June
30, 1997.  Switched  access  (terminating  long  distance)  revenue  represented
approximately  97% of the Company's  switched services revenue component for the
six months ended June 30, 1997.  Special  access  revenue  increased  from $18.2
million (43% of Telecom Services revenue) for the six months ended June 30, 1996
to $25.6 million (32% of Telecom Services revenue) for the six months ended June
30, 1997.  Also  included in Telecom  Services  revenue for the six months ended
June 30, 1997 is $14.4 million generated by Zycom,  compared to $5.4 million for
the same period in 1996.  Substantially all of the increase in Zycom revenue for
the six  months  ended  June 30,  1997 as  compared  to the same  period in 1996
relates to changes in the  classification of certain operating costs as a result
of the Company entering into long-term contracts with its major customers. These
costs were netted against  revenue during the 1996 period due to the uncertainty
of renewal of short-term customer  contracts.  At June 30, 1997, the Company had
20,108 access lines in service compared to zero at June 30, 1996. Special access
network usage reflected in voice grade equivalents  ("VGEs")  increased 66% from
approximately  552,000 VGEs at June 30, 1996, to  approximately  918,000 VGEs at
June 30, 1997. At June 30, 1997,  the Company had 2,264  buildings  connected to
its  networks   compared  to  1,877  buildings   connected 
                                       22
<PAGE>

at June 30, 1996.  Additionally,  switched minutes of use increased 70% from 837
million  minutes  during the six months  ended  June 30,  1996 to 1,424  million
minutes  during the six months ended June 30, 1997.  Revenue from long  distance
and data services did not generate a material  portion of total  revenue  during
either period.  Network Services revenue  increased 17% to $33.6 million for the
six months  ended June 30, 1997 as compared to $28.7  million for the six months
ended June 30, 1996. The increase is partly attributable to an equipment sale to
a single  customer  for  approximately  $1.5 million in excess of a similar sale
during the comparable period in 1996. The remaining increase in Network Services
revenue is due to additional projects from new and existing customers. Satellite
Services  revenue  increased  48% to $14.7 million for the six months ended June
30,  1997.  This  increase is  primarily  due to the  operations  of MCN,  which
comprised $2.8 million of total  Satellite  Services  revenue for the six months
ended June 30, 1997 compared to $0.7 million during the same period in 1996. The
remaining  increase  can be  attributed  to the  general  growth  of MTN and its
increased sales of C-Band equipment to offshore oil and gas customers.

         Operating  costs.  Total  operating costs for the six months ended June
30, 1997  increased  $55.8  million,  or 88% from the six months  ended June 30,
1996. Telecom Services  operating costs increased from $37.5 million,  or 89% of
Telecom  Services  revenue,  for the six months  ended June 30,  1996,  to $83.9
million, or 106% of Telecom Services revenue,  for the six months ended June 30,
1997. The increase in operating costs in absolute dollars is attributable to the
increase  in switched  access  services  and the  addition  of  engineering  and
operations  personnel  dedicated to the development of local exchange  services.
The  increase  in  operating  costs  as a  percentage  of total  revenue  is due
primarily  to  the  increase  in  switched  access  services  revenue,  and  the
investment in the development of local exchange  services without the benefit of
substantial corresponding revenue in the same period. Network Services operating
costs  increased  27% to $27.4  million and increased as a percentage of revenue
from 76% for the six months  ended June 30, 1996 to 82% for the six months ended
June 30, 1997.  The increase is due to a  substantially  lower margin  earned on
equipment sales (which constituted a larger portion of 1997 revenue) relative to
other services and certain  indirect  project costs included in operating  costs
during the six months  ended June 30, 1997 which were  treated as SG&A  expenses
during  the  comparable  period  in 1996.  Satellite  Services  operating  costs
increased  to $8.0  million for the six months  ended June 30,  1997,  from $4.3
million for the six months ended June 30,  1996.  Satellite  Services  operating
costs as a  percentage  of revenue  also  increased  from 44% for the six months
ended June 30, 1996 to 54% for the six months ended June 30, 1997. This increase
is due to an increase in MCN's sales in the current  six-month period as well as
the  increased  volume of equipment  sales,  both of which provide lower margins
than other maritime services.

         Selling,  general and  administrative  expenses.  Selling,  general and
administrative  ("SG&A")  expenses  for the  six  months  ended  June  30,  1997
increased $35.5 million, or 97%, compared to the six months ended June 30, 1996.
This  increase  was  principally  due to the  continued  rapid  expansion of the
Company's  Telecom Services  networks and related  significant  additions to the
Company's management information systems, customer service,  marketing and sales
staffs dedicated to the expansion of the Company's  networks and  implementation
of the Company's  expanded services  strategy,  primarily the development of the
Company's  CLEC  operations.  SG&A  expenses as a  percentage  of total  revenue
increased  from 46% for the six months  ended  June 30,  1996 to 57% for the six
months ended June 30, 1997.

         Depreciation and amortization.  Depreciation and amortization increased
$7.5  million,  or 45%, for the six months ended June 30, 1997,  compared to the
six months  ended June 30,  1996,  due to increased  investment  in  depreciable
assets  resulting  from the continued  expansion of the  Company's  networks and
services.

         Interest expense.  Interest expense increased $6.3 million,  from $47.2
million for the six months  ended June 30,  1996,  to $53.5  million for the six
months ended June 30, 1997,  which included $49.9 million of non-cash  interest.
This  increase was  primarily  attributable  to an increase in  long-term  debt,
primarily the 11 5/8% Notes and the 12 1/2% Senior  Discount Notes due 2006 ("12
1/2% Notes") issued in March 1997 and April 1996, respectively. In addition, the
Company's interest expense increased, and will continue to increase, because the
principal   amount  of  its   indebtedness   increases  until  Holdings'  senior
indebtedness begins to pay interest in cash.

         Interest  income.  Interest  income  increased $3.2 million,  from $8.7
million for the six months  ended June 30,  1996,  to $11.9  million for the six
months ended June 30, 1997. The increase is attributable to the increase in cash
from the proceeds of the issuances of the 11 5/8% Notes and 14% Preferred  Stock
in March 1997 and the 12 1/2%  Notes and 14 1/4%  Exchangeable  Preferred  Stock
Mandatorily Redeemable 2007 (the "14 1/4" Preferred Stock") in April 1996.
                                       23
<PAGE>

         Other,  net. Other, net fluctuated from $2.0 million net expense in the
six months  ended June 30,  1996 to $0.3  million  net expense in the six months
ended June 30, 1997. Other expense recorded in the six-month  periods ended June
30, 1996 and 1997 includes net losses  recognized on the disposal of assets.  In
addition,  for the six-month  period ending June 30, 1997, the Company  recorded
$0.3  million  in  litigation   settlement   costs  associated  with  its  Zycom
subsidiary.

         Minority  interest in share of losses,  net of accretion  and preferred
dividends on subsidiary  preferred stock.  Minority interest in share of losses,
net of accretion and preferred dividends on subsidiary preferred stock decreased
$3.6 million, from $18.5 million for the six months ended June 30, 1996 to $14.9
million for the six months ended June 30, 1997. The decrease is due primarily to
a charge of $12.3 million recorded during the six months ended June 30, 1996 for
the  excess  of the  redemption  price  over  the  carrying  amount  of the  12%
redeemable  preferred  stock of  Holdings  ("12%  Redeemable  Preferred  Stock")
redeemed in April 1996.  Offsetting this decrease is an increase  related to the
issuance  of the 14 1/4%  Preferred  Stock in April  1996 and the 14%  Preferred
Stock in March 1997.  Minority interest in share of losses, net of accretion and
preferred  dividends on subsidiary  preferred  stock recorded during the current
six-month period consists of the accretion of issue costs ($0.5 million) and the
accrual of the preferred stock dividends ($16.1 million) associated with the 14%
Preferred Stock and the 14 1/4% Preferred Stock,  offset by minority interest in
losses of subsidiaries of $1.7 million.

         Share of losses in joint venture and investment.  Effective  October 1,
1996, the Company sold its 50% interest in the Phoenix network joint venture. As
a result, no share of losses in joint venture was recorded during the six months
ended June 30, 1997,  as compared to the $1.0 million loss  recorded  during the
comparable period in 1996.

         Net  loss.  Net  loss  increased  $52.7  million,  or  57%,  due to the
increases in operating costs,  SG&A expenses,  depreciation and amortization and
interest expense noted above.

Liquidity and Capital Resources

         The Company's  growth has been funded  through a combination of equity,
debt and lease financing. As of June 30, 1997, the Company had current assets of
$455.5  million,   including  $394.2  million  of  cash,  cash  equivalents  and
short-term  investments,  which exceeded  current  liabilities of $92.8 million,
providing working capital of $362.7 million. The Company invests excess funds in
short-term,  interest-bearing  investment-grade  securities until such funds are
used to fund the  capital  investments  and  operating  needs  of the  Company's
business.  The Company's investment objectives are safety,  liquidity and yield,
in that order.

Cash Used By Operating Activities

         The Company's operating activities used $32.4 million and $38.0 million
for the six months  ended  June 30,  1996 and 1997,  respectively.  Cash used by
operations  is  primarily  due to net  losses,  which  are  partially  offset by
non-cash  expenses,  such as depreciation  expense,  deferred  interest expense,
preferred dividends on subsidiary preferred stock and changes in working capital
items.

         The Company  expects to continue  to generate  negative  cash flow from
operating activities while it emphasizes development, construction and expansion
of its Telecom Services business. Consequently, it does not anticipate that cash
provided by  operations  will be sufficient to fund  operating  activities,  the
future expansion of existing networks or the construction and acquisition of new
networks in the near term.

Cash Used By Investing Activities

         Cash used by investing  activities was $61.1 million and $111.0 million
for the six months  ended  June 30,  1996 and 1997,  respectively.  Cash used by
investing  activities  includes cash expended for the  acquisition  of property,
equipment  and other  assets,  of $56.8  million and $132.5  million for the six
months ended June 30, 1996 and 1997, respectively.  The Company will continue to
use  cash  in  investing  activities  in 1997  and  subsequent  periods  for the
construction of new networks and the expansion of existing networks. The Company
acquired  assets under capital  leases of $49.5 million for the six months ended
June 30, 1996, which consisted primarily of fiber optic networks included in the
Company's agreement with SCE.
                                       24
<PAGE>

Cash Provided By Financing Activities

         Financing  activities provided $376.5 million and $171.2 million in the
six  months  ended  June 30,  1996 and  1997,  respectively.  Cash  provided  by
financing  activities  primarily  includes cash received in connection  with the
offering of the 12 1/2% Notes and the 14 1/4% Preferred  Stock in April 1996 and
the 11 5/8% Notes and the 14% Preferred Stock in March 1997.  Historically,  the
funds to finance the  Company's  business  acquisitions,  capital  expenditures,
working capital  requirements  and operating  losses have been obtained  through
public and private offerings of Holdings-Canada common shares, the Senior Notes,
the 14% Preferred  Stock and the 14/14%  Preferred  Stock,  units  consisting of
senior notes and warrants,  redeemable preferred stock, convertible subordinated
notes, convertible preferred shares of Holdings-Canada, capital lease financings
and various working capital sources, including credit facilities.

         On March 11, 1997,  Holdings completed the Private Placement of 11 5/8%
Notes  and  100,000   shares  of  14%  Preferred   Stock  for  net  proceeds  of
approximately  $192.4  million.  The net proceeds of the Private  Placement will
improve the Company's  operating and financial  flexibility  over the near term.
The Company believes its liquidity improved because (a) the 11 5/8% Notes do not
require the payment of cash interest  until 2002 and (b) Holdings has the option
to pay  dividends  on the  14%  Preferred  Stock  in  additional  shares  of 14%
Preferred  Stock  prior  to 2002  and the  Preferred  Stock  is not  mandatorily
redeemable until 2008.

         The  11  5/8%  Notes  are  unsecured  senior  obligations  of  Holdings
(guaranteed  by ICG) that mature on March 15, 2007.  Interest  will accrue at 11
5/8% per annum  beginning  March 15,  2002,  and is  payable  each  March 15 and
September  15,  commencing  September  15, 2002.  Dividends on the 14% Preferred
Stock are  cumulative  at a rate of 14% per annum and are payable  quarterly  in
arrears each March 15, June 15,  September 15 and December 15,  commencing  June
15, 1997.  The 14% Preferred  Stock has a  liquidation  preference of $1,000 per
share, plus accrued and unpaid dividends, and is mandatorily redeemable in 2008.
The Preferred Stock is exchangeable,  at the option of Holdings, into 14% senior
subordinated  exchange  debentures  of Holdings due 2008,  at any time after the
exchange is permitted under certain indenture restrictions.

         As of June 30, 1997,  an aggregate of  approximately  $74.3  million of
capitalized lease  obligations and an aggregate  accreted value of approximately
$833.7 million were  outstanding  under the 11 5/8% Notes, 12 1/2% Notes and the
13 1/2% Notes. The 11 5/8% Notes require payments of interest to be made in cash
commencing  on March 15,  2002 and mature on March 15,  2007.  The 12 1/2% Notes
require  payments of interest to be made in cash  commencing on November 1, 2001
and mature on May 1, 2006. The 13 1/2% Notes require  payments of interest to be
made in cash  commencing  on March 15, 2001 and mature on September 15, 2005. In
addition, the 14% Preferred Stock and 14 1/4% Preferred Stock require payment of
dividends  to be made in cash  commencing  June 15,  2002 and  August  1,  2001,
respectively.  As of June  30,  1997,  the  Company  had $8.8  million  of other
indebtedness   outstanding.   The  Company  may  also  have  additional  payment
obligations  prior to such  time,  the  amount  of  which  cannot  presently  be
determined.  The  Company's  cash on hand and amounts  expected to be  available
through vendor financing  arrangements  will provide  sufficient funds necessary
for the Company to expand its Telecom Services business as currently planned and
to fund its  operating  deficits  through  1997 and into 1998.  With  respect to
indebtedness currently outstanding, the Company has interest payment obligations
of  approximately  $113.3  million  in 2001,  $158.0  million in 2002 and $168.1
million in 2003.  With respect to preferred  stock  currently  outstanding,  the
Company has cash dividend  obligations of  approximately  $21.5 million in 2001,
$57.0  million in 2002 and $70.9 million in 2003.  Accordingly,  the Company may
have to refinance a substantial  amount of indebtedness  and obtain  substantial
additional funds prior to March 2001. The Company's ability to do so will depend
on, among other things, its financial condition at the time, restrictions in the
instruments  governing its  indebtedness,  and other factors,  including  market
conditions,  beyond the control of the Company.  There can be no assurance  that
the  Company  will  be able  to  refinance  such  indebtedness,  including  such
capitalized  leases,  or obtain  such  additional  funds,  and if the Company is
unable to effect such  refinancings or obtain  additional  funds,  the Company's
ability to make  principal  and interest  payments on its  indebtedness  or make
payments of cash  dividends  on, or the mandatory  redemption  of, its preferred
stock, would be adversely affected.

Capital Expenditures

         The Company  expects to continue  to generate  negative  cash flow from
operating activities while it emphasizes 
                                       25
<PAGE>
development,  construction  and  expansion of its business and until the Company
establishes a sufficient revenue-generating customer base. The Company's capital
expenditures (including assets acquired under capital leases) were $29.9 million
and  $71.0  million  for  the  three  months  ended  June  30,  1996  and  1997,
respectively,  and $106.3  million and $132.5  million for the six months  ended
June 30, 1996 and 1997, respectively. The Company anticipates that the expansion
of existing  networks,  construction of new networks and further  development of
the  Company's  products  and  services  will require  capital  expenditures  of
approximately  $120.0 million  during the second half of 1997 and  approximately
$250.0  million  during 1998.  To  facilitate  the expansion of its services and
networks,  the Company has  entered  into  equipment  purchase  agreements  with
various  vendors under which the Company must  purchase a substantial  amount of
equipment and other assets,  including a full range of switching systems,  fiber
optic  cable,  network  electronics,   software  and  services.  Actual  capital
expenditures will depend on numerous  factors,  including certain factors beyond
the Company's control.  These factors include the nature of future expansion and
acquisition   opportunities,   economic  conditions,   competition,   regulatory
developments and the availability of equity, debt and lease financing.

General

         The  Company's  operations  have  required and will continue to require
significant capital  expenditures for development,  construction,  expansion and
acquisition of  telecommunications  assets.  Significant  amounts of capital are
required to be invested  before  revenue is generated,  which results in initial
negative cash flow. Additionally,  the Company anticipates the continued funding
of operating losses until such time when positive cash flows from operations are
achieved.

         In  view  of  the   anticipated   negative  cash  flow  from  operating
activities,  the continuing  development of the Company's products and services,
the expansion of existing networks and the  construction,  leasing and licensing
of new  networks,  the Company  will require  additional  amounts of cash in the
future from outside sources. Management believes that the Company's cash on hand
and amounts expected to be available through vendor financing  arrangements will
provide  sufficient  funds  necessary  for the  Company  to expand  its  Telecom
Services  business  as  currently  planned  and to fund its  operating  deficits
through 1997 and into 1998.  Additional  sources of cash may include  public and
private equity and debt financings,  sales of non-strategic assets,  capitalized
leases and other  financing  arrangements.  The Company  may require  additional
amounts of equity  capital in the near term.  In the past,  the Company has been
able to secure sufficient  amounts of financing to meet its capital  expenditure
needs. There can be no assurance that additional  financing will be available to
the Company or, if available, that it can be obtained on terms acceptable to the
Company.

         The failure to obtain  sufficient  amounts of financing could result in
the  delay  or  abandonment  of some  or all of the  Company's  development  and
expansion  plans,  which could have a material  adverse  effect on the Company's
business.  In  addition,  the  inability  to fund  operating  deficits  with the
proceeds  of  financings  until the Company  establishes  a  sufficient  revenue
generating  customer base could have a material  adverse effect on the Company's
liquidity.

New Accounting Standard

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement  No.  128,  "Earnings  Per  Share"  ("SFAS  128")  which  revises  the
calculation and presentation  provisions of Accounting  Principles Board Opinion
15 and related  interpretations.  SFAS 128 is effective for the Company's fiscal
year ending  December 31, 1997 and  retroactive  application  is  required.  The
Company  believes  the  adoption of SFAS 128 will have no effect on its reported
loss per share.

                                       26
<PAGE>


                                     PART II


ITEM 1.  LEGAL PROCEEDINGS

            See Note 4 (d) to the Company's  Consolidated  Financial  Statements
            for the six months ended June 30, 1997  contained  elsewhere in this
            Quarterly Report.

ITEM 2.  CHANGES IN SECURITIES

            None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

            None.

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

             The Annual Meeting of Stockholders of ICG Communications,  Inc. was
             held on June 17, 1997 (the "Meeting").  At the Meeting, two matters
             were  considered  and acted upon: (1) the election of two directors
             to serve until the 2000 Annual  Meeting of  Stockholders  and until
             their successors have been duly elected and qualified;  and (2) the
             ratification  of  the  appointment  of  KPMG  Peat  Marwick  LLP as
             independent   auditors  of  ICG   Communications,   Inc.   and  its
             subsidiaries for the fiscal year ending December 31, 1997.

             Indicated  below  are  the  total  votes  cast in  favor  of each
             director nominee and the total votes withheld:

                                                            Votes
                                                      ---------------------------
                                                         For          Withheld
                                                      ---------  ---------------

                    Kathryn Proffitt Haycock        24,827,151          106,879
                    Harry R. Herbst                 24,829,551          104,479

             In connection with the vote on the  ratification of the appointment
             of the independent auditors, 24,895,986 votes were cast in favor of
             the appointment, and 24,398 votes were cast in opposition thereto.

ITEM 5.  OTHER INFORMATION

            None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (A)      Exhibits.

                    (10.1)  Consulting  Agreement,  dated  as of May  12,  1997,
                            between ICG Communications, Inc. and Jay E. Ricks.

                    (10.2)  Employment  Agreement,  dated as of April 22,  1997,
                            between ICG Communications, Inc. and Don Teague.

                    (27.1)  Financial Data Schedule.

         (B)      Reports on Form 8-K.

                  None.

                                       27
<PAGE>


                                INDEX TO EXHIBITS
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549











































<PAGE>

                                  EXHIBIT 10.1

             Consulting Agreement, dated as of May 12, 1997, between
                   ICG Communications, Inc. and Jay E. Ricks.
<PAGE>



                                  EXHIBIT 10.2

           Employment Agreement, dated as of April 22, 1997, between
                    ICG Communications, Inc. and Don Teague.

<PAGE>

                                  EXHIBIT 27.1

                            Financial Data Schedule.

<PAGE>

                                     SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on August 13, 1997.



                                        ICG COMMUNICATIONS, INC.





Date:  August 13, 1997                  By:/s/ James D. Grenfell
                                           -------------------------------------
                                           James D. Grenfell, Executive Vice 
                                           President and Chief Financial Officer






Date:  August 13, 1997                  By:/s/ Richard Bambach
                                           -------------------------------------
                                           Richard Bambach, Vice President and
                                           Corporate Controller






<PAGE>

                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on August 13, 1997.


                                       ICG HOLDINGS (CANADA), INC.





Date:  August 13, 1997                  By:/s/ James D. Grenfell
                                           -------------------------------------
                                           James D. Grenfell, Executive Vice
                                           President and Chief Financial Officer






Date:  August 13, 1997                 By:/s/ Richard Bambach
                                          --------------------------------------
                                          Richard Bambach, Vice President and
                                          Corporate Controller







<PAGE>

                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on August 13, 1997.



                                        ICG HOLDINGS, INC.





Date:  August 13, 1997                  By:/s/ James D. Grenfell
                                           -------------------------------------
                                           James D. Grenfell, Executive Vice
                                           President, Chief Financial Officer
                                           and Director






Date:  August 13, 1997                  By:/s/ Richard Bambach
                                           -------------------------------------
                                          Richard Bambach, Vice President and
                                          Corporate Controller









</TABLE>