<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K

    X     Annual Report under Section 13 or 15(d) of the Securities
--------  Exchange Act of 1934

                   For the fiscal year end December 31, 1999.

--------  Transition report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 for the transition period


                       Commission File Number: 000-21605

                       ADELPHIA BUSINESS SOLUTIONS, INC.

             (Exact name of registrant as specified in its charter)

           Delaware                                   25-1669404
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                   Identification No.)

    One North Main Street
        Coudersport, PA                                   16915
(Address of principal executive offices)               (Zip code)

                                  814-274-9830
              (Registrant's telephone number including area code)

       Securities registered pursuant to Section 12(b) of the Act: None.
          Securities registered pursuant to Section 12(g) of the Act:
                     Class A Common Stock, $0.01 par value


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

Aggregate market value of outstanding Class A Common Stock, par value $0.01 and
Class B Common Stock, par value $0.01, held by non-affiliates of the Registrant
at March 24, 2000 was $1,603.8 million based on the closing sale price of the
Class A Common Stock as computed by the NASDAQ National Market system as of that
date.  For purposes of this calculation only, affiliates are deemed to be
Adelphia Communications Corporation and the directors and executive officers of
the Registrant.

At March 24, 2000, 34,266,591 shares of Class A Common Stock, par value $0.01,
and 35,172,364 shares of Class B Common Stock, par value $0.01, of the
registrant were outstanding.

Documents Incorporated by Reference:  Portions of the Proxy Statement for the
2000 Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to the
Form 10-K.  ___
<PAGE>

                       ADELPHIA BUSINESS SOLUTIONS, INC.

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                          <C>
PART I

 ITEM 1.  BUSINESS.........................................................   2

 ITEM 2.  PROPERTIES.......................................................  18

 ITEM 3.  LEGAL PROCEEDINGS................................................  19

 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............  20

PART II

 ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS..........................................................  23

 ITEM 6.  SELECTED FINANCIAL DATA..........................................  24

 ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS............................................  25

 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........  34

 ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................  35

 ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL  DISCLOSURE............................................  61

PART III

 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............  61

 ITEM 11. EXECUTIVE COMPENSATION...........................................  61

 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...  61

 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................  61

PART IV

 ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.  61
</TABLE>

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PART I

ITEM 1.  BUSINESS

The Company

          Adelphia Business Solutions, Inc. ("Adelphia Business Solutions" or
the "Company"), a majority owned subsidiary of Adelphia Communications
Corporation ("Adelphia"), is a leading national provider of facilities-based
integrated communications services to customers that include businesses,
governmental and educational end users and other communications services
providers throughout the United States.  The Company currently offers a full
range of communications services in 53 markets and expects by the end of the
year 2000 to be offering services in approximately 115 markets nationwide,
including substantially all of the top 40 metropolitan statistical areas in the
United States.  To serve the Company's customers' broad and expanding
communications needs, the Company has assembled a diverse collection of high-
bandwidth, local and national network assets.  The Company intends to integrate
these assets with advanced communications technologies and services in order to
provide comprehensive end-to-end communications services over its national
network. The Company provides customers with communications services such as
local switch dial tone (also known as local phone service), long distance
service, high-speed data transmission, and Internet connectivity.  The customers
have a choice of receiving these services separately or as bundled packages,
which are typically priced at a discount when compared to the price of the
separate services.  The Company was founded in 1991.

          In order to take advantage of the improved economic returns and better
customer service from providing services "on-net," or over the Company's own
network, the Company is in the process of further expanding the reach of its
network system nationwide.  The Company's original 22 local markets (referred to
as the "Original Markets") are principally located in the eastern half of the
United States; however, due to the Company's success in operating and expanding
these markets, the Company is pursuing a nationwide growth plan.  The Company
intends to serve 200 total markets nationwide by the end of the year 2001,
leveraging the Company's existing and planned switching platforms and inter-city
fiber networks.  The Company believes that this nationwide footprint will
position it to address approximately 65% of the 60 million business access lines
nationwide, which currently represent approximately $75 billion in annual
revenues.  This network system expansion includes the purchase, lease or
construction of local fiber optic network facilities and the interconnection of
all of the Company's existing and new markets with its own fiber optic
facilities.  The Company will also implement various technologies including
dense wave division multiplexing, or DWDM, to provide greater bandwidth capacity
on its local and long-haul network system.  Once fully installed, the 33,000
route mile fiber optic backbone will connect each of the Company's local
markets.  This fully redundant network system will support the Company's full
line of communication service offerings.


  To further expand our local network system, in March 1998, the Company
purchased from the Federal Communications Commission ("FCC") 195 31-GHz licenses
for a fixed wireless technology known as local multipoint distribution service,
or LMDS.  These licenses cover over 83 million people throughout the eastern
half of the United States, or approximately 30% of the nation's population.  The
Company believes the ownership of this spectrum may permit the Company to employ
a wireless connection strategy to complement the Company's existing local fiber
assets as an alternative means of providing on-net connectivity to the Company's
fiber network where fiber may not be available or economically justified.

  In May 1999, the Company announced its intention to further complement its
high-bandwidth network assets through the deployment of Digital Subscriber Line,
or DSL, technology.  As of December 31, 1999, the Company had arrangements with
incumbent local exchange carriers with respect to co-locating its network
connection equipment in 167 of their local service offices.  During the year
2000, the Company plans to co-locate in over 500 local service offices, which
will all be equipped with DSL equipment.  The Company intends to use DSL to
deliver bundled voice and data product offerings where the Company has not yet
installed its own fiber, or where

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fiber network deployment is not economically justified. This technology, when
deployed, will represent another cost-effective, high-bandwidth option to
deliver communications services over the Company's own network.

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements.  Certain information included in this
Form 10-K, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, is forward-looking, such as information relating to
the effects of future regulation, future capital commitments and the effects of
competition.  Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statements made by, or on behalf of,
the Company.  These "forward looking statements" can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "intends" or  "intends" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties.  These risks and uncertainties
include, but are not limited to, uncertainties relating to economic conditions,
acquisitions and divestitures, the cost of availability of capital, government
and regulatory policies, the pricing and availability of equipment, materials,
inventories and programming, product acceptance, technological developments and
changes in the competitive environment in which the Company operates.  Persons
reading this Report on Form 10-K are cautioned that forward-looking statements
herein are only predictions, that no assurance can be given that the future
results will be achieved, and that actual events or results may differ
materially as a result of the risks and uncertainties facing the Company.  In
this regard, please see "Item 7.  Management's Discussion and Analysis of
Financial Condition and Results of Operations."

     Company Name Change.   On October 25, 1999, shareholders of the Company
elected to change the legal name of the Company from Hyperion
Telecommunications, Inc. to Adelphia Business Solutions, Inc.  With this
decision, management believes the strengths of Adelphia and the Company are
further aligned to develop a single brand in the communications marketplace.

Recent Developments

     Expansion of Long-haul and Local Fiber Network. On April 15, 1999, Adelphia
Business Solutions entered into an agreement with e.spire Communications, Inc.
("e.spire") to acquire an indefeasible right of use, or IRU, for approximately
576 miles of network fiber and construction services which allows the Company
access to 14 new markets.  In exchange, the Company granted e.spire an IRU to a
432-strand fiber optic cable in south Florida that is currently under
construction.

  On May 25, 1999, the Company entered into an IRU agreement with CapRock
Communications Corp. for approximately $16 million, which grants the Company a
long-term license to approximately 1,650 route miles of long haul fiber in the
southwestern United States.

     On August 31, 1999, the Company entered into an agreement with Digital
Teleport, Inc. for the purchase of dark fiber IRUs covering over 4,000 route
miles of long haul and local fiber in the central portion of the United States.
The cost of the IRUs is estimated to be between $27 million and $42 million
depending upon the exercise by the Company of a number of options for additional
routes and/or fiber strands.

     On October 11, 1999, the Company entered into an additional IRU agreement
with CapRock Communications Corp. for approximately $7 million, which grants the
Company a long-term license to approximately 1,208 route miles of long haul
fiber in the southwestern United States.

  On January 7, 2000, the Company entered into an agreement with Allegheny
Communications Connect, Inc. ("Allegheny") to purchase an IRU for a total of
approximately 600 long-haul and metro route miles from western Pennsylvania
through West Virginia, and in Maryland and Virginia.

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     On January 10, 2000, the Company entered into an agreement with Williams
Communications, Inc. ("Williams") to purchase an IRU for a total of 4,543 route
miles of fiber in the western United States at a cost of approximately $23
million.

     During January 2000, the Company entered into an IRU agreement with Level 3
Communications ("Level 3") for approximately 3,100 long-haul route miles
throughout much of the western United States.  In addition, the Company entered
into an agreement with Level 3 to acquire access to approximately 750 miles of
metro duct in the following central business districts: Chicago, Cincinnati,
Dallas, Denver, Detroit, Los Angeles, Orlando, Phoenix, San Diego, San
Francisco, San Jose and Seattle.  The total cost of the agreement is
approximately $54.6 million.

     During January 2000, the Company entered into an agreement with Metromedia
Fiber Network ("Metromedia") which allows the Company to acquire access to fiber
strand miles across any of Metromedia's North American markets.

     Partnership Rollups.  During March 1999, Adelphia Business Solutions
consummated purchase agreements with subsidiaries of Multimedia, Inc. and
MediaOne of Colorado Inc. to acquire their respective interests in jointly owned
networks located in the Wichita, KS, Jacksonville, FL and Richmond, VA markets
for an aggregate of approximately $89.8 million.  The agreements increased the
Company's ownership interest in each of these networks to 100%. The acquisitions
were accounted for under the purchase method of accounting.  Accordingly, the
financial results of the acquired networks are included in the consolidated
results of Adelphia Business Solutions effective from the date acquired.

     During June 1999, the Company consummated a purchase agreement with Entergy
Corporation ("Entergy"), the parent of its local partner in the Baton Rouge, LA,
Little Rock, AR, and Jackson, MS markets, whereby Entergy received approximately
$36.5 million for its ownership interests in these markets. The agreements
increased the Company's ownership interest in each of these networks to 100%.
The acquisitions were accounted for under the purchase method of accounting.
Accordingly, the financial results of the acquired networks are included in the
consolidated results of Adelphia Business Solutions effective from the date
acquired.

     On March 21, 2000, the Company entered into a purchase agreement with
Allegheny Communications Connect, Inc. ("Allegheny") to acquire Allegheny's 50%
interest in the jointly owned network in State College, Pennsylvania, and to
make certain changes to the fiber lease agreement with Allegheny for this
network.  The consideration to be paid to Allegheny under the purchase agreement
is 330,000 shares of the Company's Class A common stock.  The consummation of
this transaction is subject to certain regulatory approvals and customary
closing conditions.

     March 1999 Financing.  On March 2, 1999 Adelphia Business Solutions issued
$300 million of 12% Senior Subordinated Notes due 2007 (the "Subordinated
Notes").  An entity controlled by members of the Rigas family, controlling
stockholders of Adelphia, purchased $100 million of the Subordinated Notes
directly from Adelphia Business Solutions at a price equal to the aggregate
principal amount less the discount to the initial purchasers.  The net proceeds
of approximately $295 million were used to fund Adelphia Business Solutions'
acquisition of interests held by local partners in certain of its markets, and
were used to fund capital expenditures and investments in its networks and for
general corporate and working capital purposes.

     Secondary Public Stock Offering.  On November 30, 1999, Adelphia Business
Solutions issued and sold 8,750,000 shares of Class A common stock at a price to
the public of $30.00 per share.  Simultaneously, Adelphia purchased 5,181,350
shares of Class B common stock at a purchase price of $28.95 per share
representing a price equal to the public offering price less the underwriting
discount for the Class A common stock.  The net proceeds of approximately $403
million will be used to continue to fund the expansion of Adelphia Business
Solutions' existing markets and to build new markets.

                                       5
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     Commonwealth of Pennsylvania Contract.  On March 15, 2000, a consortium,
led by the Company was selected by the Commonwealth of Pennsylvania for the
winning porposal to build advanced information technology infrastructure and to
provide for the state government voice, video, Internet and data communications
services. Contract negotiations are currently underway.

Growth Strategy

     The key components of the Company's strategy as a leading national provider
of facilities-based integrated communications services are:

     Focus On Communications-Intensive Customers. Adelphia Business Solutions
provides its services to communications-intensive customers.  This includes
business, governmental and educational end users, as well as other
communications service providers.  Adelphia Business Solutions believes that its
target customers represent a large and under-served customer pool that generally
have limited choices in their communications services purchasing decisions.
These customers generally seek reliability, high quality, broad geographic
coverage, end-to-end service, solutions-oriented customer service and timely
introduction of new and innovative services. The Company offers dedicated access
services on a wholesale basis to interexchange or long distance carriers
("IXCs") and has entered into national service agreements with AT&T and
MCIWorldCom to be their preferred supplier.

     Expansion of Sales and Customer Care Efforts.  Adelphia Business Solutions'
goal is to create better customer retention and become the principal and
preferred cost-effective alternative to the incumbent communications services
provider.  To achieve this and to capitalize on the Company's expanding
addressable market, Adelphia Business Solutions has rapidly increased and
intends to continue to increase its direct sales and support team consisting of
sales professionals and engineers.  The Company has expanded its sales force
from 251 salespeople at December 31, 1998 to 616 salespeople at December 31,
1999 and expects to increase its sales force to approximately 1,200 salespeople
by December 31, 2000.

     In addition, Adelphia Business Solutions believes that the best way to care
for a customer is to provide local customer service after the sale.  Each of the
Company's markets has a dedicated team of trained customer care professionals
committed to ensuring that we meet or exceed our customers' expectations.  At
December 31, 1999, Adelphia Business Solutions had approximately 250
professionals committed to its customer care effort, which the Company expects
will increase to approximately 800 professionals by December 31, 2000.

     Focus on Providing Bundled Packages of Communications Services.  In
response to market demands and to maximize our selling efforts, the Company
offers a full suite of communications services to our customers. Adelphia
Business Solutions offers its services separately to suit specific customer
needs or bundled together to provide customers with a cost-effective and
comprehensive communications solution.  In addition to the pricing benefits
Adelphia Business Solutions' customers receive from purchasing bundled
communications services, the Company believes that bundled services provide it
with increased customer retention, higher operating margins and a reduced cost
of acquiring new customers.

     The Company's service offerings currently include a wide range of local
dial tone and long distance services in all of the Company's operating markets.
In addition, the Company has recognized the expanding demand for high-bandwidth
by its customers in order to support the growing number of data applications.
The Company's first data product to take advantage of these additional revenue
opportunities is high-speed Internet access, which has been introduced in most
of the Company's Original Markets and will be rolled out to all of the Company's
markets over the next several months.  Additionally, the Company plans to add to
its product capabilities by activating data centers and providing such products
as e-mail, directory services and web hosting, and by launching DSL, frame relay
and ATM services over the next six months.  To accelerate the Company's frame
relay and ATM service offerings, the Company entered into a wholesale provider
agreement with Intermedia Communications ("Intermedia"), whereby the Company
will use Intermedia's frame relay network and data switches to offer data
services to the Company's customers and then move the Company's customers'
traffic onto

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the Company's own network system as it becomes operational. The Company believes
this approach provides an efficient market-entry strategy under the Adelphia
Business Solutions trade name, while providing better long-term operating
margins through the use of the Company's own network system. The Company
believes that the introduction of high margin data products should drive revenue
growth and better leverage the Company's significant fiber assets.

     Drive On-Net Traffic Over High Capacity Fiber Optic Network System.  The
broad deployment of fiber optic cable in Adelphia Business Solutions' markets
typically enables connectivity among the Company, the incumbent local exchange
carrier ("LEC") central offices and the Company's customers. Adelphia Business
Solutions expects this strategy to result in a high proportion of traffic that
is both originated and terminated on its network system, which would provide the
Company with higher long-term operating margins.  As of December 31, 1999, the
Company has collocated in 167 incumbent LEC central offices, a figure which is
expected to increase to over 500 during 2000.  In addition, the Company had
approximately 331,000 installed access lines as of December 31, 1999, 55% of
which were on-switch.

     In addition to the broad deployment of fiber optic cable in its markets,
Adelphia Business Solutions has been aggressively adding an inter-city fiber
network system that connects its various markets.  Once fully deployed, this
approximately 33,000 mile fiber optic backbone will enhance the Company's
ability to originate and terminate the Company's customers' communications
traffic over its networks.  The Company believes long-term operating margins on
Adelphia Business Solutions' long distance, Internet and data transfer
businesses will increase significantly as a result of connecting these markets.
The Company also believes that its planned deployment of  LMDS and DSL
technologies will provide additional, alternative means to connect customers to
its networks.

     National Expansion.   Adelphia Business Solutions has announced that it is
extending its fiber optic network into the western half of the United States.
This expansion will increase the Company's addressable market from 35% to 65% of
the business access lines in the United States and will allow the Company to
offer services in approximately 200 markets by December 31, 2001.  These markets
will provide Adelphia Business Solutions with a market opportunity of more than
39 million addressable business access lines, which currently generate over $75
billion of annual communications services revenues.

     Adelphia Business Solutions plans to roll out service in these new markets
through the use of large regionally based Lucent 5ESS switches that will serve
several markets in geographic proximity to each switch.  Each of these markets
will be connected to the system network by inter-city fiber that has been or
will be purchased or leased from a number of fiber optic transmission providers.

Products and Services

     Adelphia Business Solutions' products and services are designed to appeal
to the sophisticated communications needs of its business, governmental and
educational customers.

     Local Services.  Adelphia Business Solutions provides local dial-tone
services to customers, which allows them to complete calls in its calling area
and to access a long distance calling area. Local services and long distance
services can be bundled together using the same transport facility. Adelphia
Business Solutions' networks are designed to allow a customer to easily increase
or decrease capacity and alter enhanced services as the communications
requirements of the business change. In addition to its core local services,
Adelphia Business Solutions also provides public payphone services and access to
third party directory assistance and operator services.

     Long Distance Services.  Adelphia Business Solutions provides domestic and
international long distance services for completing intrastate, interstate and
international calls.  Long distance service is offered as an additional service
to Adelphia Business Solutions' local exchange customers.  Long distance calls
that do not terminate on

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Adelphia Business Solutions' networks (which are currently the bulk of such
calls) are passed to long distance carriers which route the remaining portion of
the call.

     Enhanced Services.   In addition to providing typical enhanced services
such as voicemail, call transfer and conference calling, Adelphia Business
Solutions offers additional value-added enhanced services to complement its core
local and long distance services. These enhanced service offerings include:

     Access to Internet Services--Enables customers to use its available
     capacity for access to Internet Service Providers ("ISP"s).

     Data Networking Services--The Company can provide high-speed, broadband
     services to use for data and Internet access such as Integrated Services
     Digital Network (ISDN) and Primary Rate Interface (PRI).

     Specialized Application Services--The Company can create products and
     services that are tailored for target industries with special
     communications needs such as the hospitality industry. These services
     typically include non-measured rate local calling, expanded local calling
     area, discounted long distance rates and tailored trunking configurations.

     Internet Support Services--The Company can provide web hosting solutions
     for commercial and non-profit organizations.  These services may include
     co-location services, storage services, domain name registration, virtual
     hosting services, traffic statistics, and 24-hour access for web site
     changes.

Sales and Marketing

     The Company targets its network sales and marketing activities to medium
and large businesses, government and educational end users and resellers,
including IXCs. The Company services its customers through a dedicated sales
force of 616 professionals at December 31, 1999 focused on selling the Company's
portfolio of service offerings, and currently has over 250 technicians, customer
service representatives and administrative support staff at December 31, 1999,
enabling the Company to provide its customers with continuous support and
superior service. The Company expects to increase its marketing efforts by
increasing the size of its current sales force during 2000 to approximately 800
professionals as it increases the breadth of its product offerings to satisfy
the growing communications needs of its customers. In addition, the Company has
initiated direct marketing and sales of local telecommunications services on an
unbundled loop basis to or through total service resale to small business
customers in certain markets, generally offering such services under either the
Adelphia Business Solutions name or a co-branded name that includes the name of
the particular local partner. The Company's networks offer their services in
accordance with tariffs filed with the FCC for interstate services and State
PUCs for intrastate services. The Company networks are classified as non-
dominant carriers by the FCC and therefore have substantial pricing flexibility
and in many cases may enter into customer and product specific agreements.

End Users

     The Company targets end users which include medium and large businesses,
governmental and educational institutions and other communications service
providers. End users are currently marketed through Company direct sales
representatives in each market. The national sales organization also provides
support for the local sales groups and develops new product offerings and
customized communications applications and solutions which address the specific
requirements of particular customers.  In addition, the Company markets the
Company networks' products through advertisements, media relations, direct mail
and participation in trade conferences. End users typically commit to a service
agreement for a term of two to five years which is either renegotiated or
automatically converted to a month-to-month arrangement at the end of the
contract term.  The Company believes it will be able to continue to compete
effectively for end users by offering superior reliability, product diversity,
service and custom solutions to end user needs at competitive prices.  A
significant component of the Company's reliability will be its ability to offer
customers end-to-end SONET ring construction for many localized applications.
The

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Company's construction of SONET rings combined with the Company's large network
size will enable the Company to offer fiber optic coverage superior to the
incumbent LEC in its markets.

Resellers

  Resellers utilize the Company's services primarily as a local component of
their own service offerings to end-users. The Company has national supplier
agreements with all of the major IXCs. The Company believes it can effectively
provide IXCs with a full complement of traditional access services as well as
switched services. Factors that increase the value of the Company's networks to
IXCs include reliability, state-of-the-art technology, route diversity, and ease
of ordering and customer service. The Company also generally prices the services
of a network at a discount relative to the incumbent LEC. In order to further
complement the services provided to the IXCs, the Company integrates its
networks with IXC networks to enable the IXC to (i) access service, billing and
other data directly from the Company and (ii) electronically send automated
service requests to the Company. In pursuing this strategy, the Company has
entered into the National Service Agreement with AT&T pursuant to which the
Company through its networks is an AT&T preferred supplier of dedicated special
access and switched access transport services. The National Service Agreement
requires the Company to provide such services to AT&T at a discount from the
tariffed or published LEC rates. In addition, the Company has entered into the
MCIWorldCom Preferred Provider Agreement pursuant to which the Company is
designated MCIWorldCom's preferred provider of new end user dedicated access
circuits and of end user dedicated access circuits resulting from conversions
from the incumbent LEC in the Company's markets.

Special Purpose Networks

  The Company develops special purpose networks in order to meet specific
customer network requirements. To date, these special purpose networks have
included construction of IXC backbone networks, campus networks, private
carriage networks and other similar network applications. The terms and
conditions for these special purpose networks are generally specified in
agreements with three to five year terms which automatically renew on a month-
to-month basis. In addition, special customer networks are normally constructed
with excess fiber band width capacity, which allows the Company to make
additional capacity available to other end users.

Ownership of the Company and the Company's Networks

  As of December 31, 1999, Adelphia Business Solutions was an approximately 60%
owned subsidiary, on a fully diluted basis, of Adelphia.  Unless the context
otherwise requires, references to the "networks" or the "Company's networks"
mean the (i) 22 telecommunications networks (the "Original Markets") in
operation or under construction as of May 8, 1998, the date of the Company's
initial public offering, which are wholly and majority owned subsidiaries or are
joint venture partnerships or limited liability companies managed by the Company
and in which the Company holds a 50% interest with one or more other partners,
and (ii) additional networks operational or under development subsequent to May
8, 1998 (the "New Markets").  As of December 31, 1999, the Company's 22 Original
Markets were owned by 17 wholly-owned subsidiaries (through which the Company
has an interest in 18 networks) and three joint venture investments (through
which the Company has an interest in 4 networks) in which the Company has a 50%
interest. The Company is responsible for the network design, management, billing
and operation of the four joint ventures, for which it receives management fees.

Operating Agreements

  Generally, subsidiaries of the Company historically entered into partnership
agreements (or limited liability agreements) with local partners to take
advantage of the benefits of building networks in conjunction with local cable
television or utility operators.  Typically operating partnerships were formed
and operated pursuant to three key agreements: (i) a partnership or limited
liability company agreement between the Company or one of its wholly owned
subsidiaries and a cable operator or utility company (the "Local Partner
Agreement"); (ii) a fiber capacity lease agreement between the local partner
and the operating partnership (the "Fiber Lease Agreement"); and (iii) a

                                       9
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management agreement between the operating partnership and the Company or one of
its subsidiaries (the "Management Agreement").  In recent years the Company
has purchased the interests held by many of its local parners, and as of
December 31, 1999, only four of the Company's 22 Original Markets were not
wholly-owned by the Company.  Where we refer to the Company or the Company's
networks or similar terms in this Form 10-K, we are including the four joint
ventures as well as the networks that are wholly-owned by the Company.

Local Partner Agreements

  As part of its business development strategy, Adelphia Business Solutions has
purchased its local partners' interests in many of its Original Markets.  Upon
the completion of these acquisitions, the original Local Partner Agreements were
terminated.  For the remaining Local Partnership Agreements covering the four
joint ventures, the summary below provides a brief description of the general
terms and provisions.

  Each Local Partner Agreement establishes the structure of the applicable
operating partnership by determining, among other things, the partner's capital
contribution requirements, capital structure, purpose and scope of business
activities, transfer restrictions, dissolution procedures, duration and
competition restrictions, as well as the voting and buy/sell rights and rights
of first refusal of the partners of the operating partnership. This applies to
partnership and limited liability company agreements.

  The initial capital contributions of the operating partnerships vary.  Capital
contributions in excess of the initial capital contribution may be required, but
generally either must be initiated by the manager of the operating partnership
or approved by at least a majority vote of the management committee.  Absent an
agreement by the partners, generally, the only circumstances that result in the
dilution of such partner's ownership interest are a partner's failure to make a
capital contribution or its failure to exercise a right of first refusal.

  Most partner or management committee votes of an operating partnership require
only a majority vote; however, a unanimous or supermajority vote of the partners
or management committee is generally required for, among other things, expansion
of the scope of the business activities in the defined business area, admission
of additional partners and merger or consolidation with any other entity if the
operating partnership is not the surviving entity.

  Generally, the Local Partner Agreements allow for distributions to the
partners; however, these agreements vary with regard to the procedure for
determining if, when and how much of a distribution should be made. The partners
or the partnership's managing committee makes such determinations by either
majority approval or unanimous consent.

  The Local Partner Agreements generally prohibit the transfer of partnership
interests, including most changes in control, or impose restrictions that
significantly limit a partner's ability to transfer its partnership interest.
The partners of most of the operating partnerships also retain certain rights of
first refusal and buy/sell rights.  Generally, after a specified period of time,
either partner may transfer its interest to an unrelated third party if such
partner first offers its interest to the other partner at the same terms and the
other partner elects not to purchase the interest.  In addition, in most of the
operating partnerships, either partner can, after a specified period of time,
usually five to eight years after the inception of the partnership, make an
offer to the other partner to sell its own interest. The other partner must
respond to the offer indicating its election to either accept the offer to buy
or sell at the offered price.

  The operating partnerships were created in the last six years and have a
duration of 10 to 25 years unless earlier dissolved.  Generally, each partner
and certain of its affiliates are restricted from competing with the operating
partnership in the defined business area so long as the partner is a partner
plus two or three years thereafter.

                                       10
<PAGE>

Fiber Lease Agreements

  Generally, the Original Markets lease fiber optic capacity from their local
partners or former local partners. In some instances, the operating partnerships
lease existing fiber optic capacity and in other instances, the operating
partnerships request the local partners or former local partners to construct
new fiber optic capacity. In many cases, local partners or former local partners
upgrade the capacity of their cable or utility infrastructure, and as a result,
share construction costs with the operating partnership. Monthly lease payments
in both instances are based on the amortization of the operating partnership's
share of the local partner's cost of construction and material costs over the
term of the Fiber Lease Agreement. Because construction and material costs are
amortized over the then current term of the Fiber Lease Agreement, it is
possible for the amount of a monthly lease payment to be significantly lower
during a renewal term unless the construction of additional fiber optic cable is
scheduled for such renewal term. Typically, the amount of the lease payments in
a renewal period equals the amount of monthly maintenance costs for the leased
fiber optic cable.

  Substantially all of the Fiber Lease Agreements are in their initial terms of
five to 25 years in length with various renewal options.  Generally, either
party can terminate the Fiber Lease Agreement at the end of the then current
term upon prior written notice to the other party. Several of the Fiber Lease
Agreements contain termination rights which provide the lessor with the option
to terminate the lease if the lessor becomes subject to telecommunications
regulation, an action is brought against the lessor challenging or seeking to
adversely modify the lessor's continued validity or authority to operate, legal
or regulatory determination renders it unlawful or impossible for the lessor to
satisfy its obligations under the lease or in case of an imposition of public
utility or common carrier status on the lessor as a result of its performance of
the lease.

  Throughout the term of the Fiber Lease Agreements and thereafter, title to the
fiber optic cable remains with the local partner or former local partners.
Similarly, the operating partnerships retain title to all of their own
electronics and switches that become a part of the network. A local partner or
former local partner cannot sell the fiber subject to the Fiber Lease Agreement
to a third party unless its obligations under the Fiber Lease Agreement are
assumed by the third party.

  The amount of the lease payments could be affected by the costs the local
partners or former local partners incur for attachments to poles, or use of
conduit, owned by incumbent LECs or electric utilities. Various state public
utilities commissions ("State PUCs") and the FCC are reviewing whether use of
local partner or former local partners facilities for telecommunications
purposes (as occurs when the operating companies lease fiber optic capacity from
local partners or former local partners) should entitle incumbent LECs and
electric utilities to raise pole attachment or conduit occupancy fees. Such
increased fees could result in an increase in the amount of the lease payments
made by the operating companies to the local partners or former local partners.
In some cases, State PUCs attempt to directly regulate the fiber lease contracts
between the operating companies and their local partners or former local
partners.

  When the Company acquires 100% of the ownership interest of an operating
partnership by an acquisition of interests from a local partner, the Fiber Lease
Agreement typically is amended to provide for a 10 to 25 year lease of fiber
optic capacity to the Company from the former local partner.

  On February 20, 1997, the Company entered into several agreements with
Telergy, Inc. and certain of its affiliates regarding the lease of dark fiber in
New York State. Pursuant to these agreements and in consideration of a payment
of $20 million, the Company received (i) a $20 million senior secured note from
Telergy, Inc., and (ii) a fully prepaid lease from a Telergy affiliate for at
least 25 years (with two additional ten-year extensions) for 24 strands of dark
fiber installed or to be installed in a New York fiber optic telecommunications
backbone network. The fiber optic backbone network will cover approximately 500
miles from Buffalo to Syracuse to Albany to New York City, New York, and will
provide interconnection capability for the Company's operating networks in the
state of New York.  In May 1999, the Company received $32.3 million from Telergy
for the repayment of the Senior Secured Note.  The payment represented $20.0
million in principal and $12.3 million in interest.

                                       11
<PAGE>

IRU Agreements

  The Company has entered into several agreements that entitle the Company to a
long-term lease or an IRU to over 25,000 route miles of local and long-haul dark
fiber as of December 31, 1999.  Generally each agreement requires Adelphia
Business Solutions to pay an aggregate price consisting of an initial payment,
followed by installments during the construction period based upon achieving
certain milestones (e.g., commencement of construction, conduit installation and
fiber installation).  The final payment for each segment will be made at the
time of acceptance.

  Each agreement provides for the sharing of certain maintenance and operating
costs.  The agreements establish anticipated delivery dates for construction and
delivery of segments along the route of Adelphia Business Solutions' networks.
The agreements provide for penalties in the event of delay of segments and, in
certain circumstances, allow Adelphia Business Solutions to terminate non-
delivered segments of the contracts.

AT&T Lease Agreement

     On December 31, 1997 the Company consummated an agreement for a $24.5
million long term lease facility from AT&T Capital Corporation (the "AT&T Lease
Agreement"). The AT&T Lease Agreement provides financing for certain of the
networks' switching equipment. Included in the AT&T Lease Agreement is the sale
and leaseback of certain switching equipment for which the Company received
$14.9 million. The terms of the switching equipment leases under the AT&T Lease
Agreement are seven and one half years, commencing December 31, 1997. The AT&T
Lease Agreement requires the Company to maintain and insure the leased equipment
and prohibits the Company from subleasing the equipment, except to certain
designated Company subsidiaries.  Under the AT&T Lease Agreement, the Company is
required to indemnify AT&T Capital Corporation for certain claims with respect
to the leased equipment and for certain tax liabilities.

Management Agreements

  Generally, the Company or a wholly owned subsidiary of the Company provides
the operating joint venture partnerships with the following services pursuant to
the Management Agreement for a fee based on the Company's cost of providing such
services: general management, monitoring, marketing, regulatory processing,
accounting, engineering, designing, planning, construction, maintenance,
operations, service ordering and billing. The term of the typical Management
Agreement is three or five years and automatically renews for continuous one-
year periods unless one party provides the other with written notice that it
intends to terminate the agreement.

The Company's Networks

Network Development and Design

  Prior to any network construction in a particular market, the Company's
corporate development staff reviews the demographic, economic, competitive and
communications demand characteristics of the market. These characteristics
generally include market location, the size of the communications market, the
number and size of business, educational and government end users and the
economic prospects for the area. In addition, the Company also carefully
analyzes Local Exchange Carriers Central Office, or LEC-CO, access line
demographic data.  The Company also analyzes market size utilizing a variety of
data, including available estimates of the number of interstate access and
intrastate private lines in the region, which is available from the FCC.

  If a particular market targeted for development is deemed to have sufficiently
attractive demographic, economic, competitive and communications demand
characteristics, the Company's network planning and design personnel, generally
working in conjunction with the Company's local partner, Adelphia, or one of
Adelphia's affiliates, design a large regional network targeted to provide
access to the identified business, educational and

                                       12
<PAGE>

government end user revenue base and to the IXC POPs and the LEC-COs in the
geographic area covered by the proposed network. The actual network design is
influenced by a number of market, cost and technical factors including: (i)
availability and ease of fiber deployment; (ii) location of LEC-COs and IXC
POPs; (iii) the Company's market information; and (iv) cost of construction.

Network Construction

  The Company's networks are constructed to cost-effectively access areas of
significant end user communications traffic, as well as the majority of the LEC-
COs, POPs and most of the IXCs.  The Company establishes general requirements
for network design including engineering specifications, fiber type and amount,
construction timelines and quality control. The Company's engineering personnel
provide project management, including contract negotiation and overall
supervision of the construction, testing and certification of all facilities.
The construction period for a new network varies depending upon the number of
route miles to be installed, the initial number of buildings targeted for
connection to the network, the general deployment of the network and other
factors. Networks that the Company has installed to date have generally become
operational within ten to twelve months after the beginning of construction.

Network Operating Control Center

     In Coudersport, Pennsylvania, the Company has built the Network Operating
Control Center, or NOCC, which is equipped with state-of-the-art system
monitoring and control technology. The NOCC is a single point interface for
monitoring all of the Company's networks and provisioning all services and
systems necessary to operate the networks. The NOCC supports all of the
Company's networks including the management of 2,194 building connections, 22
switches or remote switching modules and 16,060 network route miles as of
December 31, 1999. The NOCC is designed to accommodate the Company's anticipated
growth.

  The NOCC is utilized for a variety of network management and control functions
including monitoring, managing and diagnosing the Company's SONET networks,
central office equipment, customer circuits and signals and the Company's
switches and associated equipment. The NOCC is also the location where the
Company provisions, coordinates, tests and accepts all orders for switched and
dedicated circuit orders. In addition, the NOCC maintains the database for the
Company's circuits and network availability. Network personnel at the NOCC also
develop and distribute a variety of software utilized to manage and maintain the
networks.

Equipment Supply

  The Company purchases fiber optic transmission and other electronic equipment
from Lucent, Fujitsu, Tellabs and other suppliers at negotiated prices. The
Company expects that fiber optic cable, equipment and supplies for the
construction and development of its networks will continue to be readily
available from Lucent, Fujitsu, Tellabs and other suppliers as required. The
Company has negotiated multi-year contracts for equipment with Lucent, Fujitsu
and Tellabs. The Company has deployed 19 Lucent switches and three Lucent remote
switching modules, which deliver full switching functionality, in all of the
Original Markets. The Company plans to deploy an additional nine regional super
switches during 2000.

Connections to Customer Locations

  Office buildings are connected by network backbone extensions to one of a
number of physical rings of fiber optic cable, which originate and terminate at
the operating company's central office. Signals are sent simultaneously on both
primary and alternate protection paths through a network backbone to the
Company's central office. Within each building, Company-owned internal wiring
connects the Company's fiber optic terminal equipment to the customer premises.
Customer equipment is connected to Company-provided electronic equipment
generally located where customer transmissions are digitized, combined and
converted to an optical signal. The

                                       13
<PAGE>

traffic is then transmitted through the network backbone to the Company's
central office where it can be reconfigured for routing to its ultimate
destination on the network.

  The Company locates its fiber optic equipment in space provided by the
building owner or, more typically, on a customer's premises.  IXCs often enter
into discussions with building owners to allow the Company to serve the IXCs'
customers. This network configuration enables the Company to share electronic
equipment among multiple customers, causes little interruption for customers
during installation and maintenance and allows the Company to introduce new
services rapidly and at low incremental cost.

Employees

  As of December 31, 1999, the Company employed 1,853 employees.  In support of
the Company's operations, the Company also regularly uses the services of its
local partners, employees and contract technicians for the installation and
maintenance of its networks. None of the Company's employees is represented by a
collective bargaining agreement. The Company believes that the Company's
relations with their respective employees are good.

Competition

  The Company faces competition from many competitors with significantly greater
financial resources, well-established brand names and large, existing installed
customer bases.  Moreover, we expect the level of competition to intensify in
the future.

  In each of the markets served by the Company's networks, the services offered
by the Company compete principally with the services offered by the incumbent
LEC serving that area.  Incumbent LECs have long-standing relationships with
their customers, have the potential to subsidize competitive services from
monopoly service revenues, and benefit from favorable state and federal
regulations. In light of the passage of the Telecommunications Act of 1996 (the
"Telecommunications Act"), federal and state regulatory initiatives will
provide increased business opportunities to competitive local exchange carriers
("CLECs") such as the Company, but regulators may provide incumbent LECs with
increased pricing flexibility for their services as competition increases.
Further, if a Regional Bell Operating Company ("RBOC") is authorized to provide
long distance service originating in one or more states by fulfilling the market
operating provisions of the Telecommunications Act, the RBOC may be able to
offer "one stop shopping" that would be competitive with the Company's
offerings. To date, the FCC has approved Bell Atlantic's application for such
authority in New York.  Any approval could result in decreased market share for
the major IXCs, which are among the operating companies' significant customers.
Any of these results could have an adverse effect on the Company.

  There has been significant merger activity among the RBOCs in anticipation of
entry into the long distance market, including the completed merger of Ameritech
and SBC, whose combined territory covers a substantial portion of the Company's
markets.  Other combinations have occurred in the industry, which may have an
effect on the Company, such as the combination of AT&T Corp. and MediaOne and
the proposed mergers between Bell Atlantic and GTE, Qwest and US West, and
MCIWorldCom and Sprint. The effects of these combinations are unknown at this
time. The Company believes that combinations of RBOCs and others will pose a
greater competitive threat to the Company's strategy of originating and
terminating a significant proportion of its customers' communications traffic
over its own networks, rather than relying on the network of the incumbent LEC.

  The Company also faces, and will continue to face, competition from other
current and potential market entrants, including other CLECs and data-centric
local providers, incumbent LECs which are not subject to RBOC restrictions on
long distance, AT&T, MCIWorldCom, Sprint and other IXCs, cable television
companies, electric utilities, microwave carriers, wireless telecommunications
providers and private networks built by large end users.  In addition, new
carriers, such as Global Crossing, Williams, Qwest and Level 3 are building and
managing nationwide networks which, in some cases, are designed to provide local
services.  Further, AT&T's acquisition of

                                       14
<PAGE>

various cable companies will exploit ubiquitous local cable infrastructure for
telecommunications and other services provided by the operating companies.
Finally, although the Company has generally good relationships with existing
IXCs, there are no assurances that any of these IXCs will not build their own
facilities, purchase other carriers or their facilities, or resell the services
of other carriers rather than use the Company's services when entering the
market for local exchange services.

Regulation

Government Overview

  A significant portion of the services provided by the Company and its networks
are subject to regulation by federal, state and local government agencies.
Future federal or state regulations and legislation may be less favorable to the
Company than current regulation and legislation and therefore may have a
material and adverse impact on its business and financial projects.  In
addition, the Company may expend significant financial and managerial resources
to participate in proceedings setting rules at either the federal or state
level, without achieving a favorable result.

Federal Legislation and Regulation

  The Telecommunications Act enacted in 1996 establishes local exchange
competition as a national policy.  This act removes state regulatory barriers to
competition, and imposes numerous requirements to facilitate the provision of
local telecommunications services by multiple providers.  For instance, carriers
must provide to each other services for resale, number portability, dialing
parity, access to rights of way, and compensation for traffic they exchange.
ILECs must also provide competitors with network interconnection, access to
unbundled network elements, and collocation at ILEC premises, among other
things.  Finally, the FCC is responsible for implementing and presiding over
rules relating to these requirements as well as universal service subsidies,
charges for access to long distance carriers, access to buildings, customer
privacy, and services for the disabled.

  The Telecommunications Act prohibits state and local governments from
enforcing any law, rule or legal requirement that prohibits or has the effect of
prohibiting any entity from providing interstate or intrastate
telecommunications services. States retain jurisdiction under the
Telecommunications Act to adopt laws necessary to preserve universal service,
protect public safety and welfare, ensure the continued quality of
telecommunications services and safeguard the rights of consumers.  The Company
has successfully challenged states' attempts to limit competition in certain
rural areas.  One state has requested a stay of the favorable FCC order.
Depending on the result, the Company's expansion plans may be adversely
affected.

  The FCC is charged with the broad responsibility of implementing the local
competition provisions of the Telecommunications Act.  It has done so by
promulgating rules which encourage increased local competition.  In 1997, a
federal appeals court for the Eighth Circuit vacated some of these rules.  In
January 1999, the United States Supreme Court reversed the majority of the
Eighth Circuit's ruling, finding that the FCC has broad authority to interpret
the Telecommunications Act and issue rules for its implementation. Specifically,
the Court stated that the FCC has authority to set pricing guidelines for
unbundled network elements, to prevent ILECs from dismantling existing
combinations of network elements, and to establish rules allowing competitors to
"pick and choose" among provisions of existing interconnection agreements.
However, the Court vacated the FCC's rules that identified the unbundled network
elements that ILECs must provide to CLECs, and the FCC has issued an order
explaining which unbundled network elements ILECs must provide.  In addition,
because the Eighth Circuit had only ruled on the FCC's jurisdiction to set a
pricing methodology, the ILECs have renewed their opposition to the actual
methodology, though most states have already adopted pricing rules, if not
interim prices, which are for the most part consistent with the FCC's related
pricing provisions.

  Many new carriers have experienced difficulties in working with the ILECs,
with respect to provisioning, interconnection, rights-of-way, collocation and
implementing the systems used by these new carriers to order and

                                       15
<PAGE>

receive unbundled network elements and wholesale service from the ILECs.
Coordination with ILECs is necessary for new carriers such as the Company to
provide local service to customers on a timely and competitive basis. The
Telecommunications Act created incentives for RBOCs to cooperate with new
carriers, allowing the RBOCs to offer long distance services originating in
their region, if the RBOC satisfies statutory conditions designed to open their
local markets to competition. The Company cannot be assured that RBOCs will be
accommodating to the Company's networks once they are permitted to offer long
distance service. If the Company's networks are unable to obtain the cooperation
of an RBOC in a region, whether or not such RBOC has been authorized to offer
long distance service, the Company's networks' ability to offer local services
in such region on a timely and cost effective basis would be adversely affected.

  The FCC recently adopted new rules designed to make it easier and less
expensive for CLECs to obtain collocation at ILEC central offices by, among
other things, restricting the ILECs' ability to prevent certain types of
equipment from being collocated and requiring ILECs to offer alternative
collocation arrangements to CLECs.  The FCC also issued a new order to address
line sharing which will allow CLECs to offer data services over the same line
that a consumer uses for voice services without the CLEC having to provide the
voice service.  While the Company expects that the FCC's new collocation and
line sharing rules will be beneficial to the Company's networks, ILECs continue
to resist the rules and it remains uncertain that these new rules will be
implemented in a favorable manner.

  A number of ILECs around the country have been contesting whether the
obligation to pay reciprocal compensation to CLECs should apply to local
telephone calls terminating to Internet service providers ("ISPs").  The ILECs
claim that this traffic is interstate in nature and therefore should be exempt
from compensation arrangements applicable to local, intrastate calls.  Most
states have required ILECs to pay ISPs reciprocal compensation.  In addition, on
March 24, 2000, the DC Circuit Court vacated the FCC's ruling in which the FCC
determined that calls to ISPs are interstate in nature.  The FCC ruling stated,
however, was not in any case intended to dislodge previous state decisions
interpreting interconnection agreements between ILECs and CLECs to require
reciprocal compensation between two local carriers jointly delivering dial-up
traffic to ISPs.  Although the FCC does not intend to require ISPs to pay access
charges or contribute to universal service funds, any FCC order or subsequent
state rulings could affect the costs incurred by ISPs and CLECs and the demand
for their offerings.  An unfavorable outcome could materially affect the
Company's potential future revenues.

  Several ILECs have filed petitions at the FCC and have initiated legislative
efforts to effect a waiver of certain obligations imposed in the
Telecommunications Act with respect to RBOC-provisioned high-speed data
services, including, among other things, the obligation to unbundle and offer
for resale such services.  In addition, the ILECs are seeking to provide high-
speed data services on an interLATA basis without complying with the market
opening provisions of the competitive checklist set forth in the
Telecommunications Act, which would be otherwise required of them.  The FCC has
subsequently approved that such services are subject to interstate jurisdiction
and to the resale and unbundling obligation of the Telecommunications Act.
However, the FCC has initiated a proceeding to determine whether ILECs can
create separate affiliates for their high-speed data services that would be free
from these obligations.  In addition, there are numerous bills being considered
by Congress which would deregulate advanced services. These outcomes could have
a material adverse effect on the Company.

  Any of the regulatory changes discussed above could require renegotiation
of relevant portions of existing interconnection agreements, or subject them to
additional court and regulatory proceedings. It remains to be seen whether the
networks can continue to obtain and maintain interconnection agreements on terms
acceptable to them in every state, though most states have already adopted
pricing rules, if not interim prices, which are for the most part consistent
with the FCC's related pricing provisions.

  The FCC also manages universal service subsidies for rural, high-cost, and
low-income markets, qualifying schools and libraries and services provided to
rural health care providers.  It currently assesses the Company's networks for
such payments and other subsidies on the basis of certain revenue for the
previous year.  Various states also implement their own universal service
programs to which the Company is subject.

                                       16
<PAGE>

  To the extent that the Company's networks provide interexchange
telecommunications service, access charges are required to be paid to ILECs when
the facilities of those companies are used to originate or terminate
interexchange calls.  Also, as CLECs, the Company's networks provide access
service to other interexchange service providers.  The interstate access charges
of ILECs are subject to extensive regulation by the FCC, while those of CLECs
are subject to a lesser degree of FCC regulation but remain subject to the
requirement that all charges be just, reasonable, and not unreasonably
discriminatory. Some of the interexchange providers to whom the Company's
networks provide access services, including AT&T and Sprint, have announced
plans to resist paying access charges that exceed the access charges of the ILEC
in any given geographic area.  While the Company's networks have not experienced
any such challenges to their rights to collect access charges, they could
experience them in the future.  The FCC has initiated a proceeding to
investigate whether CLEC access charges should be subjected to more stringent
regulation. The manner in which the FCC regulates or lowers access charge levels
could have a material effect on the ability of the Company's networks to compete
in providing interstate access services and terminating and originating long
distance traffic.

  In an exercise of its "forbearance authority," the FCC has ruled that
following a transition period non-dominant IXCs will no longer be able to file
tariffs with the FCC concerning their interexchange long distance services (the
"IXC Detariffing Order").  Tariffs set forth the terms and conditions under
which the operating companies provide services.  This would deprive the Company
of the advantages of being able to rely on terms and conditions contained in a
filed tariff, requiring instead reliance on individual contracts.  The IXC
Detariffing Order has been stayed pending review in the U.S. Court of Appeals
for the District of Columbia.

  The FCC also presides over ongoing proceedings addressing a variety of other
matters, including number portability, Internet, telephony, slamming, rights of
way, building access, numbering resources, pole attachments, customer privacy,
wire tapping, and services to the disabled.  The outcome of any such proceedings
may adversely affect the Company and its ability to offer service in competition
with LECs.

State Regulation

  Most State Public Utility Commissions ("PUCs") require companies that wish to
provide intrastate common carrier services to be certified to provide such
services. These certifications generally require a showing that the carrier has
adequate financial, managerial and technical resources to offer the proposed
services in a manner consistent with the public interest.  The certificates or
other authorizations held by the Company permit it to provide a full range of
local telecommunications services, including basic local exchange service.  In
certain states, each of the Company, its subsidiaries and the Company's networks
may be subject to additional state regulatory requirements, including tariff
filing requirements, to begin offering the telecommunications services for which
such entities have been certificated.  In some states, the Company network
tariff lists a rate range or sets prices on an individual case basis.  Many
states also may have additional regulatory requirements such as reporting and
customer service and quality requirements, Y2K compliance, unbundling and
universal service contributions all of which are subject to change and may
adversely affect the Company.  In addition, in virtually every state, the
Company's certificate or other authorization is subject to the outcome of
proceedings by the state commission that address regulation of LECs and CLECs,
competition, geographic build-out, mandatory detariffing, service requirements,
and universal service issues.

  In addition to obtaining certification, a Company network must negotiate terms
of interconnection with the ILEC before it can begin providing switched
services.  To date, the Company's networks have negotiated interconnection
agreements with one or more of the ILECs, in each state in which they have been
certificated.  Agreements are subject to State PUC approval.

  The Company is subject to requirements in some states to obtain prior approval
for, or notify the commission of any transfers of control, sales of assets,
corporate reorganizations, issuance of stock or debt instruments, name changes
and other transactions that may effect a change in the way that the Company does

                                       17
<PAGE>

business.  Although the Company believes such authorization can be obtained,
there can be no assurance that the state commissions would grant the Company
authority to complete any transactions

Local Government Authorizations

  A Company network may be required to obtain from municipal authorities street
opening and construction permits, or operating franchises, to install and expand
its fiber optic networks in certain cities. In some cities, the Local Partners
or subcontractors may already possess the requisite authorizations to construct
or expand the Company's networks. A Company network or its Local Partners also
may be required to obtain a license to attach facilities to utility poles in
order to build and expand facilities. Because utilities that are owned by a
cooperative or municipality are not subject to federal pole attachment
regulation, there are no assurances that a Company network or its Local Partners
will be able to obtain pole attachments from these utilities at reasonable
rates, terms and conditions.

  In some of the areas where the Company's networks provide service, their Local
Partners pay license or franchise fees based on a percent of fiber lease payment
revenues. In addition, in areas where the Company does not use its own
facilities or those constructed by a Local Partner, the Company's networks may
be required to pay such fees. There are no assurances that certain
municipalities that do not currently impose fees will not seek to impose fees in
the future, nor is there any assurance that, following the expiration of
existing franchises, fees will remain at their current levels.  In addition,
some municipalities may seek to impose requirements or fees on users of
transmission facilities, even though they do not own such facilities.

  In many markets, other companies providing local telecommunications
services, particularly the ILECs, currently are excused from paying license or
franchise fees or pay fees that are materially lower than those required to be
paid by the Company network or Local Partner. The Telecommunications Act
requires municipalities to charge nondiscriminatory fees to all
telecommunications providers, but it is uncertain how quickly this requirement
will be implemented by particular municipalities in which the Company operates
or plans to operate or whether it will be implemented without a legal challenge
initiated by the Company or another CLEC.

  If any of the existing local partner agreements or fiber lease agreements held
by a Local Partner or a Company network for a particular market were terminated
prior to its expiration date, such termination could have a material adverse
effect on the Company.

ITEM 2.  PROPERTIES

  The Company leases its principal executive offices from Adelphia in
Coudersport, Pennsylvania and leases its offices in Pittsburgh, Pennsylvania.
Additionally, the Company owns its NOCC facilities which are also located in
Coudersport, Pennsylvania.

  All of the fiber optic cable, fiber optic communications equipment and
other properties and equipment used in the networks, are owned or leased by the
Company and its subsidiaries or in certain circumstances, the joint ventures.
Fiber optic cable plant used in providing service is primarily on or under
public roads, highways or streets, with the remainder being on or under private
property.  As of December 31, 1999, the Company's total communications equipment
in service consists of fiber optic communications equipment, fiber optic cable,
switches and other electronic equipment, furniture and fixtures, leasehold
improvements and construction in progress.  Such properties do not lend
themselves to description by character and location of principal units.

  Substantially all of the fiber optic communications equipment used in the
Company's networks is housed in multiple leased facilities in various locations
throughout the metropolitan areas served by the Company. The Company believes
that its properties and those of its subsidiaries or joint ventures are adequate
and suitable for their intended purpose.

                                       18
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     In February 2000, the Company settled all disputes and claims arising out
of a summons and complaint filed in the United States District Court for the
Northern District of New York, Case Number 99-CV-268, against the Company by
Hyperion Solutions Corporation ("Solutions"), which is described in the
complaint as a company in the business of developing, marketing and supporting
comprehensive computer software tools, executive information systems and
applications that companies use to improve their business performance. The
complaint alleged, among other matters, that the Company's use of the name
"Hyperion" in its business infringed upon various trademarks and service marks
of Solutions in violation of federal trademark laws and violates various New
York business practices, advertising and business reputation laws. Management of
the Company believes that the Company had meritorious defenses to the complaint
and has vigorously defended this lawsuit including filing a counterclaim against
Solutions.  As part of the settlement, Solutions' complaint and the Company's
counterclaim were dismissed with prejudice and both the Company and Solutions
entered into mutual releases regarding the complaint and counterclaim.
Management believes that this matter will not have a material adverse effect
upon the Company.

                                       19
<PAGE>

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

  The annual meeting of the stockholders of the Company was held on October
25, 1999.  At such meeting, (a) eight directors were elected by vote of the
holders of Class A Common Stock, Class B Common Stock and 12-7/8% Preferred
Stock, voting together, (b) an amendment to Article IV of the Certificate of
Incorporation increasing authorized shares of capital stock from 455,000,000 to
1,250,000,000, authorized shares of Class A Common Stock from 300,000,000 to
800,000,000, authorized shares of Class B Common Stock from 150,000,000 to
400,000,000 and authorized shares of Preferred Stock from 5,000,000 to
50,000,000, was approved by the same classes voting together and (c) an
Amendment to Article I of the Certificate of Incorporation to change the name of
the Company from Hyperion Telecommunications, Inc. to Adelphia Business
Solutions, Inc. was approved by the same classes voting together.  The results
of voting at that meeting are as follows:

<TABLE>
<CAPTION>

                                                                Broker
                                                                ------
(a) Director Elected  Class of Stock    Votes for    Withheld  Non-Votes
    ----------------  --------------    ---------    --------  ---------
<S>                  <C>                <C>          <C>       <C>
 John  J. Rigas      Class A Common      18,862,015  18,510       --
                     Class B Common     291,293,960      --       --
                     12 7/8% Preferred           --      --       --

Michael J. Rigas     Class A Common      18,862,015  18,510       --
                     Class B Common     291,293,960      --       --
                     12 7/8% Preferred           --      --       --

Timothy J. Rigas     Class A Common      18,862,015  18,510       --
                     Class B Common     291,293,960      --       --
                     12 7/8% Preferred           --      --       --

James P. Rigas       Class A Common      18,862,015  18,510       --
                     Class B Common     291,293,960      --       --
                     12 7/8% Preferred           --      --       --

Pete J. Metros       Class A Common      18,862,015  18,510       --
                     Class B Common     291,293,960      --       --
                     12 7/8% Preferred           --      --       --

James L. Gray        Class A Common      18,862,015  18,510       --
                     Class B Common     291,293,960      --       --
                     12 7/8% Preferred           --      --       --

Peter L. Venetis     Class A Common      18,862,015  18,510       --
                     Class B Common     291,293,960      --       --
                     12 7/8% Preferred           --      --       --

Edward S. Mancini    Class A Common      18,862,015  18,510       --
                     Class B Common     291,293,960      --       --
                     12 7/8% Preferred           --      --       --
</TABLE>

                                       20
<PAGE>

(b)  Amendment to Change Name to Adelphia Businesss Solutions, Inc.

<TABLE>
<CAPTION>

                                                                      Broker
                                                                      ------
               Class of Stock       Votes for    Withheld  Abstain   Non-Votes
               --------------       ---------    --------  -------   ---------
               <S>                  <C>          <C>       <C>       <C>
               Class A Common        18,748,349   119,326  12,850       --
               Class B Common       291,293,960        --      --       --
               12 7/8% Preferred             --        --      --       --
</TABLE>

(c)  Amendment to Increase Authorized Capital Stock

<TABLE>
<CAPTION>
                                                                      Broker
                                                                      ------
               Class of Stock       Votes for    Withheld  Abstain   Non-Votes
               --------------       ---------    --------  -------   ---------
               <S>                  <C>          <C>       <C>       <C>
               Class A Common         9,751,026  4,267,832  22,200   4,839,447
               Class B Common       291,293,960         --      --          --
               12 7/8% Preferred             --         --      --          --
</TABLE>

                                       21
<PAGE>

Executive Officers of the Registrant

     The executive officers of the Company are:

<TABLE>
<CAPTION>
Name                                        Age      Position
----                                        ---      --------
<S>                                         <C>      <C>
Executive Officers
John J. Rigas.........................       75      Chairman and Director
James P. Rigas........................       42      Vice Chairman, Chief Executive Officer, President and
                                                     Director
Michael J. Rigas......................       46      Vice Chairman, Secretary and Director
Timothy J. Rigas......................       43      Vice Chairman, Chief Financial Officer, Treasurer and
                                                     Director
</TABLE>

Executive Officers

     John J. Rigas is the Chairman of the Board of the Company. He also is the
founder, Chairman, Chief Executive Officer and President of Adelphia. Mr. Rigas
has owned and operated cable television systems since 1952. Among his business
and community service activities, Mr. Rigas is Chairman of the Board of
Directors of Citizens Bank Corp., Inc., Coudersport, Pennsylvania and a member
of the Board of Directors of the Charles Cole Memorial Hospital. He is a
director of the National Cable Television Association and a member of its
Pioneer Association and a past President of the Pennsylvania Cable Television
Association. He is also a member of the Board of Directors of C-SPAN and the
Cable Advertising Bureau, and is a Trustee of St. Bonaventure University. He
graduated from Rensselaer Polytechnic Institute with a B.S. in Management
Engineering in 1950.

     John J. Rigas is the father of Michael J. Rigas, Timothy J. Rigas and James
P. Rigas, each of whom currently serves as a director and executive officer of
the Company.

     James P. Rigas is Vice Chairman, Chief Executive Officer, President and a
Director of the Company, Executive Vice President, Strategic Planning and a
Director of Adelphia and a Vice President and Director of Adelphia's other
subsidiaries.  Mr. Rigas currently spends substantially all of his time on
concerns of the Company.  He has been with Adelphia since 1986. Mr. Rigas
graduated from Harvard University (magna cum laude) in 1980 and received a Juris
Doctor degree and an M.A. degree in Economics from Stanford University in 1984.
From June 1984 to February 1986, he was a consultant with Bain & Co., a
management consulting firm.

     Michael J. Rigas is Vice Chairman, Secretary and a Director of the Company,
Executive Vice President, Operations and a Director of Adelphia and a Vice
President and Director of Adelphia's other subsidiaries. He has been with
Adelphia since 1981. From 1979 to 1981, he worked for Webster, Chamberlain &
Bean, a Washington, D.C. law firm. Mr. Rigas graduated from Harvard University
(magna cum laude) in 1976 and received his Juris Doctor degree from Harvard Law
School in 1979.

     Timothy J. Rigas is Vice Chairman, Chief Financial Officer, Treasurer and a
Director of the Company, Executive Vice President, Chief Accounting Officer,
Treasurer and a Director of Adelphia, and a Vice President and Director of
Adelphia's other subsidiaries. He has been with Adelphia since 1979. Mr. Rigas
graduated from the University of Pennsylvania, Wharton School, with a B.S.
degree in Economics (cum laude) in 1978.

                                       22
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market  Information

     The Company's Class A common stock is quoted on the National Association of
Securities Dealers Automated Quotations System National Market System (NASDAQ-
NMS).  Adelphia Business Solutions' NASDAQ-NMS symbol is "ABIZ".  Prior to
October 25, 1999, the Company's NASDAQ-NMS symbol was "HYPT".

     The following table sets forth the range of high and low closing bid prices
of the Class A common stock on NASDAQ/NMS.  Such bid prices represent inter-
dealer quotations, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.

                              CLASS A COMMON STOCK
                              --------------------

<TABLE>
<CAPTION>
                       QUARTER ENDED:                        HIGH               LOW
                                                             ----               ---
                       <S>                                  <C>              <C>
                       June 30, 1998                        $18 1/6          $14 1/4
                       September 30, 1998                   $16 5/8          $ 5 7/8
                       December 31, 1998                    $15 1/8          $ 4 1/2
                       March 31, 1999                       $16 3/8          $ 8 5/8
                       June 30, 1999                        $18 7/8          $11
                       September 30, 1999                   $25              $15 1/2
                       December 31, 1999                    $51 1/4          $24 11/16
                       </TABLE>

     As of March 24, 2000 there were 210 holders of record of the Company's
Class A common stock, par value $0.01 per share and 22 holders of record of the
Company's Class B common stock, par value $0.01 per share.

Dividends

     The Company has never declared any cash dividends on any of its respective
equity securities.  Covenants in the indenture pursuant to which the Company's
Senior Discount Notes, Senior Secured Notes and Senior Subordinated Notes were
issued restrict the ability of the Company to pay cash dividends on its capital
stock.

Sale of Unregistered Securities

     On November 30, 1999, Adelphia Business Solutions issued and sold 8,750,000
shares of Class A common stock at a price to the public of $30.00 per share.
Simultaneously, in a private placement in reliance on the exemption under
Section 4(2) of the Securities Act, Adelphia purchased 5,181,350 shares of Class
B common stock at a purchase price of $28.95 per share representing a price
equal to the public offering price less the underwriting discount for the Class
A common stock.  The net proceeds of approximately $403 million will be used to
continue to fund the expansion of Adelphia Business Solutions' existing markets
and to build new markets.

                                       23
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

  The following selected consolidated financial data as of and for each of the
three years in the period ended March 31, 1998, the nine months ended December
31, 1998 and the year ended December 31, 1999 have been derived from the audited
consolidated financial statements of the Company and the related notes thereto.
These data should be read in conjunction with the consolidated financial
statements and related notes thereto for the year ended March 31, 1998, the nine
months ended December 31, 1998, the year ended December 31, 1999 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K. The balance sheet data as of
March 31, 1996, 1997 and 1998 and the statement of operations data and the other
Company data with respect to the years ended March 31, 1996 and 1997 have been
derived from audited consolidated financial statements of the Company not
included herein.

<TABLE>
<CAPTION>

                                                                                                 Nine Months
                                                                         Year Ended                 Ended           Year Ended
                                                                         March 31,                December 31,     December 31,
                                                              --------------------------------  -----------------  --------------
                                                                1996       1997        1998           1998             1999
                                                              ---------  ---------  ----------  -----------------  --------------
Statement of Operations Data (a):                                      (Dollars in thousands, except per share amounts)
<S>                                                           <C>        <C>        <C>         <C>                <C>
 Revenues...................................................  $  3,322   $  5,088   $  13,510          $  34,776      $ 154,575
 Operating expenses:
  Network operations........................................     2,690      3,432       7,804             18,709         58,525
  Selling, general and administrative.......................     3,084      6,780      14,314             35,341        142,615
  Depreciation and amortization.............................     1,184      3,945      11,477             26,671         65,244
                                                              --------   --------   ---------          ---------      ---------
 Operating loss.............................................    (3,636)    (9,069)    (20,085)           (45,945)      (111,809)
 Gain on sale of investment.................................       ---      8,405         ---                ---            ---
 Interest income............................................       199      5,976      13,304             10,233         19,933
 Interest income - affiliate................................       ---        ---         ---              8,395          8,483
 Interest expense and fees..................................    (6,088)   (28,377)    (49,334)           (38,638)       (74,314)
 Other income...............................................       ---        ---         ---              1,113            ---
 Equity in net loss of joint ventures.......................    (4,292)    (7,223)    (12,967)            (9,580)        (7,758)
 Net loss...................................................   (13,620)   (30,547)    (69,082)           (74,185)      (165,466)
 Dividend requirements applicable to preferred stock........       ---        ---     (12,409)           (21,117)       (31,618)
 Net loss applicable to common stockholders.................   (13,620)   (30,547)    (81,491)           (95,302)      (197,084)
 Basic and diluted net loss per weighted average
    share of common stock...................................    $(0.42)    $(0.89)     $(2.33)            $(1.80)        $(3.47)
 Common stock dividends.....................................       ---        ---         ---                ---            ---

Other Company Data (a):
 EBITDA (b).................................................  $ (2,452)  $ (5,124)  $  (8,608)         $ (19,274)     $ (46,565)
 Capital expenditures and company investments (c)...........    18,899     79,396     132,889            215,770        477,755
 Cash (used in) provided by operating activities............      (833)    (4,823)     (6,333)            (8,810)        17,485
 Cash used in investing activities..........................   (18,899)   (72,818)   (266,604)          (200,458)      (556,247)
 Cash provided by financing activities......................    19,732    137,455     443,873            221,088        298,325
</TABLE>

<TABLE>
<CAPTION>
                                                                      As of March 31,                     As of December 31,
                                                              --------------------------------          ---------------------
                                                                1996       1997        1998              1998           1999
                                                              ---------  ---------  ----------         ---------     ----------
                                                                                    (Dollars in thousands)
<S>                                                           <C>        <C>        <C>                <C>           <C>
Balance Sheet Data (a):
 Cash and cash equivalents..................................  $    ---   $ 59,814   $ 230,750           $242,570     $    2,133
 Total assets...............................................    35,269    174,601     639,992            836,342      1,563,703
 Long term debt and exchangeable redeemable
  preferred stock...........................................    50,855    215,675     735,980            722,783      1,103,507
 Common stock and other stockholders' equity
  (deficiency)..............................................   (27,323)   (50,254)   (118,991)            74,031        279,931
</TABLE>
--------------
(a)  The data presented represents financial information for the Company and its
     consolidated subsidiaries. As of December 31, 1999, four of the Company's
     networks were owned by joint ventures in which it owned an interest of 50%,
     and for which the Company reports its interest pursuant to the equity
     method of accounting consistent with generally accepted accounting
     principles.
(b)  Earnings before interest expense, income taxes, depreciation and
     amortization, other non-cash charges, gain on sale of investment, interest
     income and equity in net loss of joint ventures ("EBITDA") and similar
     measurements of cash flow are commonly used in the telecommunications
     industry to analyze and compare telecommunications companies on the basis
     of operating performance, leverage, and liquidity. While EBITDA is not an
     alternative to operating income as an indicator of operating performance or
     an alternative to cash flows from operating activities as a measure of
     liquidity, all as defined by generally accepted accounting principles, and
     while EBITDA may not be comparable to other similarly titled measures of
     other companies, the Company's management believes EBITDA is a meaningful
     measure of performance.
(c)  For the fiscal years ended March 31, 1996, 1997 and 1998, the nine months
     ended December 31, 1998, and the year ended December 31, 1999, the
     Company's capital expenditures (including capital expenditures relating to
     its wholly owned operating companies) were $6.1, $24.6, $68.6, $146.8 and
     $453.2 million, respectively, and the Company's investments in its less
     than wholly owned operating companies were  $12.8, $34.8, $64.3, $69.0 and
     $24.5 million, respectively, for the same periods.

                                       24
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview

  The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements.  Certain information or statements included in
this Form 10-K, including Management's Discussion and Analysis of Financial
Condition and Results of Operations is forward-looking, such as information
relating to future growth, expansion of operations or the effect of future
regulation or competition.  These "forward-looking statements" include
statements regarding the intent, belief and current expectations of Adelphia
Business Solutions and its directors and officers, and can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "intends" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology or by discussions of strategy that involve
risks and uncertainties.  Any such forward-looking information involves
important risks and uncertainties that could significantly affect expected
results in the future from those expressed in any forward-looking statements
made by, or on behalf of, the Company.

  These risks and uncertainties include, but are not limited to, uncertainties
relating to our ability to successfully market our services to current and new
customers, access markets on a nondiscriminatory basis, identify, design and
construct fiber optic networks, install cable and facilities (including
switching electronics) and obtain rights of way, access rights to buildings and
any required governmental authorizations, franchises and permits, all in a
timely manner, at reasonable costs and on satisfactory terms and conditions, as
well as risks and uncertainties relating to general economic conditions, the
availability and cost of capital, acquisitions and divestitures, government and
regulatory policies, the pricing and availability of equipment, materials,
inventories and programming, technological developments, the costs and other
effects of rapid growth and changes in the competitive environment in which the
Company operates.  Readers of this Form 10-K are cautioned that such statements
are only predictions, that no assurance can be given that any particular future
results will be achieved, and that actual events or results may differ
materially.  In evaluating such statements, readers should specifically consider
the various factors which could cause actual events or results to differ
materially from those indicated by such forward looking statements.  Unless
otherwise stated, the information contained in this Form 10-K is as of and for
the twelve months ended December 31, 1999.  Additional information regarding
factors that may affect the business and financial results of Adelphia Business
Solutions can be found in the Company's filings with the Securities and Exchange
Commission, including the prospectus and most recent prospectus supplement under
Registration Statement No. 333-11142 (formerly No. 333-88927), under the caption
"Risk Factors."

  The "Company" or "Adelphia Business Solutions" means Adelphia Business
Solutions, Inc. together with its majority-owned subsidiaries, except where the
context otherwise requires.  Unless the context otherwise requires, references
herein to the networks mean (i) the 22 telecommunications networks in operation
or under construction as of May 8, 1998, the date of the Company's initial
public offering (the "Original Markets"), which are owned by wholly and majority
owned subsidiaries or by three joint venture partnerships or limited liability
companies managed by the Company and in which the Company holds a 50% equity
interest with one or more other partners, and (ii) the additional networks
operational or under development subsequent to May 8, 1998 (the "New Markets").

  Adelphia Business Solutions is a leading national provider of facilities-based
integrated communications services to customers that include businesses,
governmental and educational end users and other communications services
providers throughout the United States.  The Company currently offers a full
range of communications services in 53 markets and expects by the end of the
year 2000 to be offering services in approximately 115 markets nationwide,
including substantially all of the top 40 metropolitan statistical areas in the
United States.  To serve the Company's customers' broad and expanding
communications needs, the Company has assembled a diverse collection of high-
bandwidth, local and national network assets.  The Company intends to integrate
these assets with advanced communications technologies and services in order to
provide comprehensive end-to-end communications services over its national
network. The Company provides customers with communications services such as
local

                                       25
<PAGE>

switch dial tone (also known as local phone service), long distance service,
high-speed data transmission and Internet connectivity. The Company's customers
have a choice of receiving these services separately or as bundled packages
which are typically priced at a discount when compared to the price of the
separate services.

  In order to take advantage of the improved economic returns and better
customer service from providing services "on-net," or over the Company's own
network, the Company is in the process of further expanding the reach of its
network system nationwide.  The Company's Original Markets are principally
located in the eastern half of the United States; however, due to the Company's
success in operating and expanding these markets the Company is pursuing an
aggressive nationwide growth plan.  The Company intends to serve 200 total
markets nationwide by the end of the year 2001, leveraging the Company's
existing and planned switching platforms and inter-city fiber networks.  The
Company believes that this nationwide footprint will position it to address
approximately 65% of the 60 million business access lines nationwide, which
currently represent approximately $75 billion in annual revenues.  This network
system expansion includes the purchase, lease or construction of local fiber
optic network facilities and the interconnection of all of the Company's
existing and new markets with its own fiber optic facilities.  The Company will
also implement various technologies including dense wave division multiplexing,
or DWDM, to provide greater bandwidth capacity on its local and long-haul
network system.  Once fully installed, the 33,000 route mile fiber optic
backbone will connect each of the Company's local markets.  This fully redundant
network system will support the Company's full line of communication service
offerings.

  The Company has experienced success in the sale of business access lines--with
approximately 360,205 access lines sold as of December 31, 1999, of which
approximately 331,007 lines were installed at such date.  This represents an
addition of 87,570 access lines sold and 80,202 access lines installed during
the quarter ended December 31, 1999 and an addition of 229,856 access lines sold
and 224,339 access lines installed during the year ended December 31, 1999.  As
of December 31, 1999, approximately 55% of these access lines are provisioned on
Company owned switches.

Financing Transactions

  On March 2, 1999 Adelphia Business Solutions issued $300 million of 12%
Senior Subordinated Notes due 2007 (the "Subordinated Notes").  An entity
controlled by members of the Rigas family, controlling stockholders of Adelphia,
purchased $100 million of the Subordinated Notes directly from Adelphia Business
Solutions at a price equal to the aggregate principal amount less the discount
to the initial purchasers.  The net proceeds of approximately $295 million were
used to fund Adelphia Business Solutions' acquisition of interests held by local
partners in certain of its markets and were used to fund capital expenditures
and investments in its networks and for general corporate and working capital
purposes.


  On October 13, 1999, the Company filed a shelf registration statement with
the Securities and Exchange Commission to sell up to $1.5 billion in debt
securities, preferred and common stock, depository shares, and other equity
securities.  This registration statement became effective on October 22, 1999.
Proceeds of any sales under this registration statement are expected to be used
for general corporate purposes, including capital spending, acquisitions, debt
repayment, investments and other purposes, and to facilitate the national
expansion.

  On November 30, 1999, Adelphia Business Solutions issued and sold 8,750,000
shares of Class A Common Stock at a price to the public of $30.00 per share,
prior to the exercise of any underwriters' over-allotment option.
Simultaneously, Adelphia purchased 5,181,350 shares of Class B Common Stock at a
price equal to the public offering price less the underwriting discount for the
Class A Common Stock. The net proceeds of approximately $403 million will be
used to fund the expansion of Adelphia Business Solutions' existing markets and
to build new markets.  At December 31, 1999, Adelphia owned approximately 60% of
the Adelphia Business Solutions' outstanding common stock and approximately 90%
of the total voting power.

                                       26
<PAGE>

Acquisitions of Partner Interests

  During March 1999, Adelphia Business Solutions consummated purchase
agreements with subsidiaries of Multimedia, Inc. and MediaOne of Colorado Inc.
to acquire their respective interests in our jointly owned networks located in
the Wichita, KS, Jacksonville, FL and Richmond, VA markets for an aggregate of
approximately $89.8 million.  The agreements increased the Company's ownership
interest in each of these networks to 100%. The acquisitions were accounted for
under the purchase method of accounting.  Accordingly, the financial results of
the acquired networks are included in the consolidated results of Adelphia
Business Solutions effective from the date acquired.


  During June 1999, the Company consummated a purchase agreement with Entergy
Corporation ("Entergy"), the parent of its local partner in the Baton Rouge, LA,
Little Rock, AR, and Jackson, MS markets, whereby Entergy received approximately
$36.5 million for its ownership interests in these markets. The agreements
increased the Company's ownership interest in each of these networks to 100%.
The acquisitions were accounted for under the purchase method of accounting.
Accordingly, the financial results of the acquired networks are included in the
consolidated results of Adelphia Business Solutions effective from the date
acquired.

  On March 21, 2000, the Company entered into a purchase agreement with
Allegheny Communications Connect, Inc. ("Allegheny") to acquire Allegheny's 50%
interest in the jointly owned network in State College, Pennsylvania, and to
make certain changes to the fiber lease agreement with Allegheny for this
network.  The consideration to be paid to Allegheny under the purchase agreement
is 330,000 shares of the Company's Class A common stock.  The consummation of
this transaction is subject to certain regulatory approvals and customary
closing conditions.

Results of Operations

  Change of Year End.  On March 30, 1999, the Board of Directors of Adelphia
Business Solutions approved a change in the Company's fiscal year from March 31
to December 31.  The decision was made to conform to general industry practice
and for administrative purposes.  The change became effective for the nine
months ended December 31, 1998.

Twelve months ended December 31, 1999 in comparison with twelve months ended
December 31, 1998

  Revenues increased 290% to $154.6 million for the twelve months ended
December 31, 1999, from $39.6 million in the prior twelve-month period.

                                                         Amounts
The increase is attributable to the following:        (in thousands)
                                                      --------------
  Growth in Original Markets                               $75,978
  Acquisition of local partner interests                    27,955
  New Markets                                                9,798
  Management fees                                            1,247

                                       27
<PAGE>

     The primary sources of revenues, reflected as a percentage of total revenue
were as follows:

                                    Twelve Months
                                        Ended
                                    December 31,
                               1998           1999
                          ------------------------------
  Local Service                53.0%          69.1%
  Dedicated Access             37.5%          21.1%
  Management Fees               9.3%           3.2%
  Enhanced Services             ---            3.1%
  Long Distance                 0.1%           1.1%
  Other                         0.1%           2.3%

  Network operations expense increased 175% to $58.5 million for the twelve
months ended December 31, 1999, from $21.3 million in the prior twelve-month
period.

                                                             Amounts
      The increase is attributable to the following:     (in thousands)
                                                         --------------
      Growth in Original Markets                            $17,270
      Acquisition of local partner interests                  8,381
      New Markets                                            10,888
      Network Control Center                                    701

  The increased number and size of the operations of the networks resulted in
increased employee related costs, equipment maintenance costs and expansion
costs.

  Selling, general and administrative expense increased 251% to $142.6
million for the twelve months ended December 31, 1999, from $40.6 million in the
prior twelve-month period.

                                                             Amounts
      The increase is attributable to the following:     (in thousands)
                                                         --------------
      Growth in Original Markets                             $28,406
      Acquisition of local partner interests                  12,242
      New Markets                                             42,609
      Sales and marketing activities                           6,865
      Corporate overhead charges                              11,830

  Depreciation and amortization expense increased 110% to $65.2 million
during the twelve months ended December 31, 1999, from $31.1 million in the
prior twelve-month period primarily as a result of increased depreciation
resulting from the higher depreciable asset base at the NOCC and the networks,
amortization of deferred financing costs and the acquisition of local partner
interests.

  Interest income increased to $19.9 million from $15.6 million in the
prior twelve-month period as a result of the payment of interest due to the
Company from Telergy as discussed previously, offset by decreases in interest
income resulting from lower amounts of cash and cash equivalents and U.S.
Government securities.

  Interest income - affiliate remained relatively unchanged at $8.5 million
compared to $8.4 million in the prior twelve-month period.

  Interest expense increased 43% to $74.3 million for the twelve months ended
December 31, 1999, from $52.0 million in the prior twelve-month period as a
result of the issuance of the 12% Senior Subordinated Notes due

                                       28
<PAGE>

2007 discussed previously, partially offset by an increase in the amount of
interest capitalized on projects under construction in 1999.

  Equity in net loss of joint ventures decreased by 41% to $7.8 million for the
twelve months ended December 31, 1999, from $13.3 million in the prior twelve-
month period as a result of the consolidation of several joint ventures
resulting from the purchase of the local partners' interests, and the maturing
of the remaining joint venture networks. The decreased net losses of the joint
ventures were primarily the result of increased revenues only partially
offsetting startup and other costs and expenses associated with design,
construction, operation and management of the networks.

  The number of non-consolidated joint venture networks paying management
fees to the Company decreased from eight at December 31, 1998 to four at
December 31, 1999.  These networks paid management and monitoring fees to the
Company, which are included in revenues, aggregating approximately $4.9 million
for the twelve months ended December 31, 1999, an increase of approximately $1.2
million over the prior twelve-month period.  The non-consolidated networks' net
losses, including networks under construction, for the twelve months ended
December 31, 1998 and 1999 aggregated approximately $28.4 million and $15.2
million respectively.

  Preferred stock dividends increased 14% to $31.6 million during the twelve
months ended December 31, 1999 from $27.7 million during the prior twelve-month
period.  The increase was due to a higher outstanding preferred stock base
resulting from the payment of dividends in additional shares of preferred stock.


Nine months Ended December 31, 1998 in Comparison with Nine months Ended
December 31, 1997

  Revenues increased 300% to $34.8 million for the nine months ended December
31, 1998, from $8.7 million for the same period in the prior fiscal year.
Growth in revenues of $26.1 million resulted from an increase in revenues from
majority and wholly-owned networks of approximately $27.2 million as compared to
the same period in the prior fiscal year due to the continued expansion of the
Company's customer base, its success in the roll out of switched services and
the consolidation of the Buffalo, Syracuse, New Jersey, Louisville, Lexington
and Harrisburg networks. Management fees from non-consolidated subsidiaries
decreased $1.1 million as compared to the same period in the prior fiscal year
primarily due to the consolidation of the above mentioned networks.

  Network operations expense increased 255% to $18.7 million for the nine
months ended December 31, 1998 from $5.3 million for the same period in the
prior fiscal year.  The increase was attributable to the expansion of operations
at the NOCC, and the increased number and size of the operations of the networks
which resulted in increased employee related costs and equipment maintenance
costs and the consolidation of the Buffalo, Syracuse, New Jersey, Louisville,
Lexington and Harrisburg networks.

  Selling, general and administrative expense increased 288% to $35.3 million
for the nine months ended December 31, 1998 from $9.1 million for the same
period in the prior fiscal year.  The increase was due primarily to increased
expense associated with the network expansion plan, an increase in the sales
force in the Original Markets and an increase in corporate overhead costs to
accommodate the growth in the number, size and operations of the networks
managed and monitored by the Company, as well as the consolidation of the
Buffalo, Syracuse, New Jersey, Louisville, Lexington and Harrisburg networks.

  Depreciation and amortization expense increased 280% to $26.7 million
during the nine months ended December 31, 1998 from $7.1 million for the same
period in the prior fiscal year primarily as a result of increased amortization
of deferred financing costs and increased depreciation resulting from the higher
depreciable asset base at the NOCC and the majority and wholly owned networks
and the consolidation of the Buffalo, Syracuse, New Jersey, Louisville,
Lexington and Harrisburg networks.

  Interest income for the nine months ended December 31, 1998 increased
33% to $10.2 million from $7.7 million for the same period in the prior fiscal
year as a result of increased cash and cash equivalents and U.S.

                                       29
<PAGE>

Government securities due to the investment of the proceeds of the 12 1/4%
Senior Secured Notes, the 12 7/8% Senior Exchangeable Redeemable Preferred Stock
and the Company's initial public offering of Class A common stock, partially
offset by demand advances made to Adelphia.

  Interest income - affiliate for the nine months ended December 31, 1998
increased to $8.4 million from $0.3 million as a result of demand advances made
to Adelphia during the current period.

  Interest expense increased 8% to $38.6 million during the nine months ended
December 31, 1998 from $35.9 million for the same period in the prior fiscal
year. The increase was attributable to the interest on the 12 1/4% Senior
Secured Notes partially offset by the reduction of interest expense associated
with the reduced amounts payable to Adelphia and higher interest capitalized on
networks under construction.

  Equity in net loss of joint ventures increased to $9.6 million during the
nine months ended December 31, 1998 from $9.3 million for the same period in the
prior fiscal year.  The net losses of the nonconsolidated networks for the nine
months ended December 31, 1998 were primarily the result of increased revenues
only partially offsetting startup and other costs and expenses associated with
design, construction, operation and management of the networks, and the effect
of the typical lag time between the incurrence of such costs and expenses and
the subsequent generation of revenues by a network.  The increase was partially
offset by the consolidation of the Buffalo, Syracuse, New Jersey, Louisville,
Lexington and Harrisburg networks for the current period.

  The number of non-consolidated networks paying management fees to the
Company was eight at December 31, 1998.  These networks and networks under
construction paid management and monitoring fees to the Company, which are
included in revenues, aggregating approximately $2.7 million for the nine months
ended December 31, 1998, as compared with $3.8 million for the same period in
the prior fiscal year.  The non-consolidated networks' net losses, including
networks under construction, for the nine months ended December 31, 1997 and
1998 aggregated approximately $13.7 million and $22.3 million respectively.

  Preferred stock dividends increased by 264% to $21.1 million for the nine
months ended December 31, 1998 from $5.8 million for the same period in the
prior fiscal year.  The increase is due to the preferred stock which was issued
in October 1997.

Supplementary Network Financial Analysis

  The Company believes that historically, working with Local Partners to
develop markets has enabled the Company to build larger networks in a rapid and
more cost effective manner than it could have on its own.  The Company currently
has joint ventures covering four networks with Local Partners where the Company
owns 50% of each joint venture.  As a result of the Company's historic ownership
position in these and other joint ventures, a substantial portion of the
networks' historic results have been reported by the Company on the equity
method of accounting for investments which only reflects the Company's pro rata
share of net income or loss of the networks.  Because of the recently completed
partner roll-ups, management of the Company believes this historical
presentation of the assets, liabilities and results of operations of the Company
does not represent a complete measure of the financial position, growth or
operations of the Company.

     In order to provide an additional measure of the financial position, growth
and performance of the Company and its networks, management of the Company
analyzes financial information of the consolidated networks and the non-
consolidated joint venture networks on a combined basis.  This combined
financial presentation in the table below reflects Adelphia Business Solutions'
consolidated financial position and results of operations adjusted for the
inclusion of certain networks (Richmond, Jacksonville and Wichita) which were
purchased in March 1999 (the "Adjusted Operating Results") combined with the
non-consolidated joint ventures' results of operations.  All combined results of
operations in the table below are presented as if Adelphia Business Solutions
consolidated all networks which were involved in the partnership roll-ups during
the entire period presented. This financial information, however, is not
indicative of the Company's overall historical financial position or results of
operations.

                                       30
<PAGE>

<TABLE>
<CAPTION>

                                     Year ended December 31, 1999                    Year ended December 31, 1998
                            -------------------------------------------------------------------------------------------
                                        (dollars in thousands)                          (dollars in thousands)
                                 Adjusted        Adjusted                       Adjusted        Adjusted
                               Consolidated   Joint Venture    Combined       Consolidated    Joint Venture    Combined
                                Operating       Operating      Operating       Operating        Operating      Operating
                                 Results         Results        Results         Results          Results        Results
                            -------------------------------------------------------------------------------------------
<S>                           <C>             <C>             <C>            <C>             <C>              <C>
Revenues                          $159,803          $38,524    $198,327          $ 55,925          $11,231     $ 67,156
Direct Operating Expenses           60,346           11,764      72,110            26,664            6,634       33,298
                            -------------------------------------------------------------------------------------------
Gross Margin                        99,457           26,760     126,217            29,261            4,597       33,858
Gross Margin Percentage               62.2%            69.5%       63.6%             52.3%            40.9%        50.4%
Selling, General and
  Administrative Expenses          144,531           20,086     164,617            45,800           12,471       58,271
                            -------------------------------------------------------------------------------------------
EBITDA (a)                         (45,074)           6,674     (38,400)          (16,539)          (7,874)     (24,413)
                            -------------------------------------------------------------------------------------------
EBITDA Percentage of
  Revenues                           (28.2%)           17.3%      (19.4%)           (29.6%)          (70.1%)      (36.4%)

</TABLE>

<TABLE>
<CAPTION>
                                                                              December 1999 Year vs.
                                                                                December 1998 Year
                                                  --------------------------------------------------------------------------
% Change Comparison                                      Consolidated              Joint Venture               Combined
                                                           Operating                 Operating                 Operating
                                                            Results                   Results                   Results
                                                  --------------------------------------------------------------------------
<S>                                                 <C>                      <C>                         <C>
Revenues                                                           185.7%                      243.0%                  195.3%
Direct Operating Expenses                                          126.3%                       77.3%                  116.6%
                                                  --------------------------------------------------------------------------
Gross Margin                                                       239.9%                      482.1%                  272.8%
Selling, General and Administrative Expenses                       215.6%                       61.1%                  182.5%
                                                  --------------------------------------------------------------------------
EBITDA (a)                                                            NM(b)                       NM(b)                (57.3%)
                                                  --------------------------------------------------------------------------
</TABLE>

(a)  EBITDA and similar measurements of cash flow are commonly used in the
     telecommunications industry to analyze and compare telecommunications
     companies on the basis of operating performance, leverage, and liquidity.
     While EBITDA is not an alternative to operating income as an indicator of
     operating performance or an alternative to cash flows from operating
     activities as a measure of liquidity, all as defined by generally accepted
     accounting principles, and while EBITDA may not be comparable to other
     similarly titled measures of other companies, the Company's management
     believes EBITDA is a meaningful measure of performance.
(b)  Not meaningful

                                       31
<PAGE>

Liquidity and Capital Resources

  The development of the Company's business and the installation and
expansion of the networks, as well as the development of the markets, combined
with the construction and expansion of the Company's NOCC, have resulted in
substantial capital expenditures and investments during the past several years.
Capital expenditures by the Company were $146.8 million and $453.2 million for
the nine months ended December 31, 1998 and the twelve months ended December 31,
1999, respectively. Further, investments made by the Company in nonconsolidated
networks and in LMDS licenses were $69.0 million and $24.5 million for the nine
months ended December 31, 1998 and the year ended December 31, 1999,
respectively.  The significant increase in capital expenditures for the year
ended December 31, 1999 is largely attributable to capital expenditures
necessary to develop the Original Markets and the New Markets, as well as the
fiber purchases to interconnect the networks. The Company expects that it will
continue to incur substantial capital expenditures in this development effort.
The Company also expects to continue to fund operating losses as the Company
develops and grows its business.  For information regarding recent transactions
affecting the Company's liquidity and capital resources, see "Financing
Transactions" and "Acquisitions of Partners Interests" above.

  The Company has experienced negative operating and investing cash flow
since its inception.  A combination of operating losses, substantial capital
investments required to build the Company's networks and its state-of-the-art
NOCC, and incremental investments in the joint ventures has resulted in
substantial negative cash flow.

  Expansion of the Company's Original Markets and services and the
development of New Markets and additional networks and services requires
significant capital expenditures.  The Company's operations have required and
will continue to require substantial capital investment for (i) the installation
of electronics for switched services in the Company's networks, (ii) the
expansion and improvement of the Company's NOCC and Original Markets, (iii) the
design, construction and development of New Markets and (iv) the acquisition of
additional ownership interests in the Original Markets.  The Company has made
substantial capital investments and investments in joint ventures in connection
with the installation of 5ESS switches or remote switching modules in all of its
Original Markets and plans to install regional super switches in certain key New
Markets when such New Markets are operational.  To date, the Company has
installed switches in all of its Original Markets and plans to provide such
services in all of its New Markets on a standard switching platform based on
Lucent 5 switch technology.  In addition, the Company intends to increase
spending on marketing and sales significantly in the foreseeable future in
connection with the expansion of its sales force and marketing efforts
generally.  The Company also plans to purchase its partners' interest in the
joint ventures when it can do so at attractive economic terms. The Company
estimates that, in addition to the cash and cash equivalents on hand, demand
loans to Adelphia and the U.S. government securities pledged as of December 31,
1999, a total of approximately $500 million will be required to fund the
Company's capital expenditures, working capital requirements, operating losses
and pro rata investments in the joint ventures from January 1, 2000 through the
quarter ending December 31, 2000.

  In addition, there can be no assurance (i) that the Company's future cash
requirements will not vary significantly from those presently planned due to a
variety of factors including acquisition of additional networks, continued
acquisition of increased ownership in its networks, material variances from
expected capital expenditure requirements for Original Markets and New Markets
and development of the LMDS spectrum, or (ii) that anticipated financings, Local
Partner investments and other sources of capital will become available to the
Company on economically attractive terms or at all.  In addition, it is possible
that expansion of the Company's networks may include the geographic expansion of
the Company's existing clusters and the development or acquisition of other new
markets not currently planned.

  The Company will need substantial additional funds to fully fund its
business plan.  The Company expects to fund its capital requirements through
existing resources, credit facilities and vendor financings at the Company and
joint venture levels, internally generated funds, equity invested by Local
Partners in joint ventures and additional debt or equity financings, as
appropriate, and expects to fund any potential additional purchase of

                                       32
<PAGE>

partnership interests of Local Partners through existing resources, internally
generated funds and additional debt or equity financings, as appropriate.  There
can be no assurances, however, that the Company will be successful in generating
sufficient cash flow or in raising sufficient debt or equity capital on terms
that it will consider acceptable, or at all.

Recent Accounting Pronouncements

  Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments and for hedging activities.  It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value.  Management of the Company has not completed its evaluation of
the impact of the impact of SFAS No. 133 on the Company's financial statements.
In July 1999, SFAS No. 137 was issued to delay the effective date of SFAS No.
133 to fiscal quarters of fiscal years beginning after June 15, 2000.

Impact of Inflation

  The Company does not believe that inflation has had a significant impact on
the Company's consolidated operations or on the operations of the joint ventures
in the year ended March 31, 1998, the nine months ended December 31, 1998 and
the year ended December 31, 1999.

                                       33
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

  The Company uses fixed rate debt to fund its working capital requirements,
capital expenditures and acquisitions.  These debt arrangements expose the
Company to market risk related to changes in interest rates.  The table below
summarizes the fair values and contract terms of the Company's financial
instruments subject to interest rate risk as of December 31, 1999.

<TABLE>
<CAPTION>
                                         Expected Maturity
                           -------------------------------------------
                              2000    2001    2002      2003      2004   Thereafter     Total    Fair Value
                           --------------------------------------------------------------------------------
<S>                          <C>     <C>     <C>     <C>       <C>          <C>       <C>         <C>
Debt:                          ---     ---     ---   303,840   250,000      560,848   1,114,688   1,120,837
Fixed Rate
 Average Interest Rate       12.53%  12.53%  12.53%    12.42%    12.61%       12.61%
</TABLE>


                                       34
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and related notes thereto and independent
auditors' report follow.

               ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                <C>
Independent Auditors' Report.....................................................................      36
Consolidated Balance Sheets, December 31, 1998 and 1999..........................................      37
Consolidated Statements of Operations, Year Ended March 31, 1998, Nine Months
        Ended December 31, 1998 and Year Ended December 31, 1999.................................      38
Consolidated Statements of Common Stock and Other Stockholders' Equity (Deficiency),
        Year Ended March 31, 1998, Nine Months Ended December 31, 1998 and Year Ended
        December 31, 1999........................................................................      39
Consolidated Statements of Cash Flows, Year Ended March 31, 1998, Nine Months Ended
        December 31, 1998 and Year Ended December 31, 1999.......................................      40
Notes to Consolidated Financial Statements.......................................................      41
</TABLE>

                                       35
<PAGE>

INDEPENDENT AUDITORS' REPORT

Adelphia Business Solutions, Inc.:

  We have audited the accompanying consolidated balance sheets of Adelphia
Business Solutions, Inc. and subsidiaries as of December 31, 1998 and 1999, and
the related consolidated statements of operations, of common stock and other
stockholders' equity (deficiency) and of cash flows for the year ended March 31,
1998, the nine months ended December 31, 1998 and the year ended December 31,
1999.  Our audits also included the financial statement schedule listed in the
Index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

  In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Adelphia Business Solutions, Inc.
and subsidiaries at December 31, 1998 and 1999, and the results of their
operations and their cash flows for the year ended March 31, 1998, the nine
months ended December 31, 1998 and the year ended December 31, 1999 in
conformity with generally accepted accounting principles.  Also, in our opinion
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.



DELOITTE & TOUCHE LLP


Pittsburgh, Pennsylvania
March 1, 2000

                                       36
<PAGE>

               ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                   -----------------------------------
                                                                                         1998              1999
                                                                                   ----------------  -----------------
<S>                                                                                <C>               <C>
ASSETS:
-------
Current assets:
  Cash and cash equivalents......................................................        $ 242,570         $    2,133
  Due from parent - net..........................................................            4,950            392,629
  Due from affiliates - net......................................................            1,078              6,230
  Accounts receivable - net......................................................           14,221             68,075
  Other current assets...........................................................            1,362              9,852
                                                                                         ---------         ----------
     Total current assets........................................................          264,181            478,919

U.S. government securities - pledged.............................................           58,054             29,899
Investments......................................................................          112,328             44,066
Property, plant and equipment--net...............................................          374,702            943,756
Other assets--net................................................................           27,077             67,063
                                                                                         ---------         ----------
     Total.......................................................................        $ 836,342         $1,563,703
                                                                                         =========         ==========

LIABILITIES, PREFERRED STOCK, COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
 (DEFICIENCY):
-------------------------------------------------------------------------
Current liabilities:
  Accounts payable...............................................................        $  20,386         $  150,151
  Accrued interest and other liabilities.........................................           19,142             27,595
                                                                                         ---------         ----------
     Total current liabilities...................................................           39,528            177,746

13% Senior Discount Notes due 2003...............................................          220,784            253,860
12 1/4% Senior Secured Notes due 2004............................................          250,000            250,000
12% Senior Subordinated Notes due 2007...........................................              ---            300,000
Other debt.......................................................................           23,325             41,318
                                                                                         ---------         ----------
     Total liabilities...........................................................          533,637          1,022,924
                                                                                         ---------         ----------

12 7/8% Senior Exchangeable Redeemable Preferred Stock...........................          228,674            260,848
                                                                                         ---------         ----------
Commitments and contingencies (Note 7)

Common stock and other stockholders' equity (deficiency):
  Class A common stock, $0.01 par value, 800,000,000 shares authorized,
    22,376,071 and 34,066,587 shares outstanding, respectively...................              224                341
  Class B common stock, $0.01 par value, 400,000,000 shares authorized,
    32,314,761 and 35,371,458 shares outstanding, respectively...................              323                354
  Additional paid in capital.....................................................          286,782            666,021
  Class B common stock warrants..................................................            4,483              2,177
  Unearned stock compensation....................................................              ---             (5,715)
  Accumulated deficit............................................................         (217,781)          (383,247)
                                                                                         ---------         ----------
     Total common stock and other stockholders' equity (deficiency)..............           74,031            279,931
                                                                                         ---------         ----------
     Total.......................................................................        $ 836,342         $1,563,703
                                                                                         =========         ==========
</TABLE>

                See notes to consolidated financial statements.

                                       37
<PAGE>

               ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (Amounts in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                                                 Nine Months
                                                                                Year Ended           Ended         Year Ended
                                                                                 March 31,        December 31,    December 31,
                                                                                   1998               1998            1999
                                                                                ----------       -------------    ------------
<S>                                                                            <C>                 <C>              <C>
Revenues.....................................................................    $ 13,510          $ 34,776         $ 154,575
                                                                                 --------          --------         ---------
Operating expenses:
  Network operations.........................................................       7,804            18,709            58,525
  Selling, general and administrative........................................      14,314            35,341           142,615
  Depreciation and amortization..............................................      11,477            26,671            65,244
                                                                                 --------          --------         ---------
       Total.................................................................      33,595            80,721           266,384
                                                                                 --------          --------         ---------

Operating loss...............................................................     (20,085)          (45,945)         (111,809)

Other income (expense):
  Interest income............................................................      13,304            10,233            19,933
  Interest income - affiliate................................................         ---             8,395             8,483
  Interest expense...........................................................     (49,334)          (38,638)          (74,314)
  Other income...............................................................         ---             1,113               ---
                                                                                 --------          --------         ---------
Loss before income taxes, equity in net loss of joint ventures and
 extraordinary gain..........................................................     (56,115)          (64,842)         (157,707)
Income tax expense...........................................................         ---               ---                (1)
                                                                                 --------          --------         ---------
Loss before equity in net loss of joint ventures and extraordinary gain......     (56,115)          (64,842)         (157,708)
Equity in net loss of joint ventures.........................................     (12,967)           (9,580)           (7,758)
                                                                                 --------          --------         ---------
Loss before extraordinary gain...............................................     (69,082)          (74,422)         (165,466)
Extraordinary gain on repurchase of debt.....................................         ---               237               ---
                                                                                 --------          --------         ---------
Net loss.....................................................................     (69,082)          (74,185)         (165,466)
Dividend requirements applicable to preferred stock..........................     (12,409)          (21,117)          (31,618)
                                                                                 --------          --------         ---------
Net loss applicable to common stockholders...................................    $(81,491)         $(95,302)        $(197,084)
                                                                                 ========          ========         =========
Basic and diluted net loss per weighted average share of common stock
 before extraordinary gain...................................................    $  (2.33)         $  (1.81)        $   (3.47)
Basic and diluted extraordinary gain on repurchase of debt per weighted
 average share of common stock...............................................         ---              0.01               ---
                                                                                 --------          --------         ---------
Basic and diluted net loss per weighted average share of common stock........    $  (2.33)         $  (1.80)        $   (3.47)
                                                                                 ========          ========         =========
Weighted average shares of common stock outstanding..........................      34,986            53,035            56,739
                                                                                 ========          ========         =========
</TABLE>

                See notes to consolidated financial statements.

                                       38
<PAGE>

               ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
                                  (DEFICIENCY)
                (Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>

                                                                                             Class A           Class B
                                      Class A           Class B          Additional           Common            Common
                                      Common            Common             Paid-in             Stock             Stock
                                       Stock             Stock             Capital            Warrant           Warrants
                                      -------          --------          -----------         ---------          ---------
<S>                                   <C>              <C>               <C>                 <C>                <C>
Balance, March 31, 1997.............     $  3             $325             $    153           $    ---            $11,087
         Issuance of Class A
              common stock warrant..      ---              ---                  ---             13,000                ---
         Dividend requirements
             applicable to preferred
             stock..................      ---              ---                  ---                ---                ---
         Other......................      ---              ---                  ---                ---                ---
         Issuance of Class A
              common stock bonus....        1              ---                   26                ---                ---
         Net loss...................      ---              ---                  ---                ---                ---
                                         ----             ----             --------           --------           --------
Balance, March 31, 1998.............        4              325                  179             13,000             11,087
         Proceeds from issuance of
              Class A common stock..      129              ---              190,731                ---                ---
         Proceeds from issuance of
              Class A common stock
               to Adelphia..........       33              ---               49,827                ---                ---
         Exercise of Class A
              common stock warrant..        7              ---               12,993            (13,000)               ---
         Conversion of note and
              payables to Adelphia
               to Class A common
               stock................       36              ---               44,222                ---                ---
         Exercise of Class B
              common stock warrants.      ---                8                6,596                ---             (6,604)
         Conversion of Class B
              common stock to
              Class A common stock..       10              (10)                 ---                ---                ---
         Repayment of loan
               to stockholders......      ---              ---                  ---                ---                ---
         Dividend requirements
               applicable to
                preferred stock.....      ---              ---              (18,168)               ---                ---
         Other......................      ---              ---                 (353)               ---                ---
         Issuance of Class A                                                                                          ---
               common stock bonus...        5              ---                  755                ---                ---
         Net loss...................      ---              ---                  ---                ---                ---
                                         ----             ----             --------           --------           --------
Balance December 31, 1998...........      224              323              286,782                ---              4,483
         Proceeds from issuance of
              Class A common stock..       88              ---              252,766                ---                ---
         Proceeds from issuance of
              Class B common stock..      ---               52              149,948                ---                ---
         Exercise of Class B
              common stock warrants.      ---                3                2,303                ---             (2,306)
         Conversion of Class B
              common stock to
              Class A common stock..       24              (24)                 ---                ---                ---
         Unearned stock
              compensation..........        4              ---                6,396                ---                ---
         Dividend requirements
               applicable to
               preferred stock......      ---              ---              (31,618)               ---                ---
         Other......................        1              ---                 (556)               ---                ---
         Net loss...................      ---              ---                  ---                ---                ---
                                         ----             ----             --------           --------            -------
Balance December 31, 1999...........     $341             $354             $666,021           $    ---            $ 2,177
                                         ====             ====             ========           ========            =======
</TABLE>
<TABLE>
<CAPTION>

                                           Loans to             Unearned Stock        Accumulated
                                         Stockholders            Compensation           Deficit             Total
                                         ------------           --------------        -----------         ---------
<S>                                      <C>                    <C>                   <C>                 <C>
Balance, March 31, 1997.............       $(3,000)                 $   ---            $ (58,822)         $ (50,254)
         Issuance of Class A
              common stock warrant..           ---                      ---                  ---             13,000
         Dividend requirements
             applicable to preferred
             stock..................           ---                      ---              (12,409)           (12,409)
         Other......................           ---                      ---                 (273)              (273)
         Issuance of Class A
              common stock bonus....           ---                      ---                  ---                 27
         Net loss...................           ---                      ---              (69,082)           (69,082)
                                           -------                  -------            ---------          ---------
Balance, March 31, 1998.............        (3,000)                     ---             (140,586)          (118,991)
         Proceeds from issuance of
              Class A common stock..           ---                      ---                  ---            190,860
         Proceeds from issuance of
              Class A  common stock
              to Adelphia...........           ---                      ---                  ---             49,860
         Exercise of Class A
              common stock warrant..           ---                      ---                  ---                ---
         Conversion of note and
              payables to Adelphia
              to Class A common
              stock.................           ---                      ---                  ---             44,258
         Exercise of Class B
              common stock warrants.           ---                      ---                  ---                ---
         Conversion of Class B
              common stock to
              Class A common stock..           ---                      ---                  ---                ---
         Repayment of loan
               to stockholders......         3,000                      ---                  ---              3,000
         Dividend requirements
               applicable to
               preferred stock......           ---                      ---               (2,949)           (21,117)
         Other......................           ---                      ---                  (61)              (414)
         Issuance of Class A
               common stock bonus...           ---                      ---                  ---                760
         Net loss...................           ---                      ---              (74,185)           (74,185)
                                           -------                  -------            ---------          ---------
Balance December 31, 1998...........           ---                      ---             (217,781)            74,031
         Proceeds from issuance of
              Class A common stock..           ---                      ---                  ---            252,854
         Proceeds from issuance of
              Class B common stock..           ---                      ---                  ---            150,000
         Exercise of Class B
              common stock warrants.           ---                      ---                  ---                ---
         Conversion of Class B
              common stock to
              Class A common stock..           ---                      ---                  ---                ---
         Unearned stock
              compensation..........           ---                   (5,715)                 ---                685
         Dividend requirements
               applicable to
               preferred stock......           ---                      ---                  ---            (31,618)
         Other......................           ---                      ---                  ---               (555)
         Net loss...................           ---                      ---             (165,466)          (165,466)
                                           -------                  -------            ---------          ---------
Balance December 31, 1999...........       $   ---                  $(5,715)           $(383,247)         $ 279,931
                                           =======                  =======            =========          =========
</TABLE>

                See notes to consolidated financial statements.

                                       39
<PAGE>

               ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                  Nine Months
                                                                                 Year Ended          Ended         Year Ended
                                                                                   March 31,      December 31,    December 31,
                                                                                 --------------  --------------  --------------
                                                                                      1998            1998            1999
                                                                                 --------------  --------------  --------------
<S>                                                                              <C>             <C>             <C>
Cash flows from operating activities:
  Net loss.....................................................................      $ (69,082)      $ (74,185)      $(165,466)
  Adjustments to reconcile net loss to net cash (used in) provided by operating
    activities:
     Depreciation..............................................................          9,038          23,838          59,430
     Amortization..............................................................          2,439           2,833           5,814
     Equity in net loss of joint ventures......................................         12,967           9,580           7,758
     Non-cash interest expense.................................................         34,038          23,857          33,076
     Noncash stock compensation................................................             27             761             685
     Extraordinary gain on repurchase of debt..................................            ---            (237)            ---
     Changes in operating assets and liabilities, net of effects of
       acquisitions:
        Other assets--net......................................................         (5,302)        (15,533)        (62,580)
        Accounts payable.......................................................          6,023           9,862         127,697
        Accrued interest and other liabilities.................................          3,519          10,414          11,071
                                                                                     ---------       ---------       ---------
Net cash (used in) provided by operating activities............................         (6,333)         (8,810)         17,485
                                                                                     ---------       ---------       ---------
Cash flows from investing activities:
    Net cash used for acquisitions.............................................        (65,968)            ---        (129,118)
    Expenditures for property, plant and equipment.............................        (68,629)       (146,752)       (453,206)
    Repayment of senior secured note...........................................            ---             ---          20,000
    Investments in joint ventures..............................................        (64,260)        (69,018)        (24,496)
    Investments in U.S. government securities - pledged........................        (83,400)            ---             ---
    Sale of U.S. government securities - pledged...............................         15,653          15,312          30,626
                                                                                     ---------       ---------       ---------
Net cash used in investing activities..........................................       (266,604)       (200,458)       (556,194)
                                                                                     ---------       ---------       ---------
Cash flows from financing activities:
    Proceeds from issuance of preferred stock..................................        194,522             ---             ---
    Proceeds from issuance of Class A common stock.............................            ---         255,462         262,500
    Proceeds from issuance of Class B common stock.............................            ---             ---         150,000
    Proceeds from sale and leaseback of equipment..............................         14,876             ---             ---
    Proceeds from debt.........................................................        250,000             ---         300,000
    Repayments of debt.........................................................         (2,326)        (19,868)         (5,668)
    Costs associated with debt financing.......................................        (12,664)            ---          (6,180)
    Costs associated with issuance of common stock.............................            ---         (14,742)         (9,646)
    Repayment of loans from stockholders.......................................            ---           3,000             ---
    Advances to affiliates.....................................................           (535)         (2,764)       (392,734)
                                                                                     ---------       ---------       ---------
Net cash provided by financing activities......................................        443,873         221,088         298,272
                                                                                     ---------       ---------       ---------
Increase (decrease) in cash and cash equivalents...............................        170,936          11,820        (240,437)
Cash and cash equivalents, beginning of period.................................         59,814         230,750         242,570
                                                                                     ---------       ---------       ---------
Cash and cash equivalents, end of period.......................................      $ 230,750       $ 242,570       $   2,133
                                                                                     =========       =========       =========
</TABLE>
                See notes to consolidated financial statements.

                                       40
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

(1)  The Company and Summary of Significant Accounting Policies

Organization and Business

  The consolidated financial statements include the accounts of Adelphia
Business Solutions, Inc. and its more than 50% owned subsidiaries ("Adelphia
Business Solutions" or the "Company").  All significant intercompany accounts
and transactions have been eliminated in consolidation. The Company was formed
in 1991 and is a majority owned subsidiary of Adelphia Communications
Corporation ("Adelphia").  On October 25, 1999, the stockholders of the
Company elected to change the name of the Company from Hyperion
Telecommunications, Inc. to Adelphia Business Solutions, Inc.  With this
decision, management believes the strengths of Adelphia and the Company are
further aligned to develop a single brand in the communications marketplace.

  On March 30, 1999, Adelphia Business Solutions elected to change its fiscal
year from March 31 to December 31.  The decision was made to conform to general
industry practice and for administrative purposes.  The change became effective
for the nine months ended December 31, 1998.

  On May 8, 1998, the Company issued and sold 12,500,000 shares of Class A
common stock at a price to the public of $16.00 per share (the "IPO").
Simultaneously with the closing of the IPO, the Company issued and sold an
additional 3,324,001 shares of Class A common stock to Adelphia at a purchase
price of $15.00 per share (or an aggregate of approximately $49,900).  In
addition, at such closing, the Company issued 3,642,666 shares of Class A common
stock to Adelphia in exchange for certain of the Company's indebtedness and
payables with a carrying value of $44,258 owed to Adelphia at a purchase price
of $15.00 per share (or an aggregate of $54,600).  In a related transaction, on
June 5, 1998, the Company issued and sold 350,000 shares of Class A common stock
at the $16.00 IPO price pursuant to the underwriters' over-allotment option in
the IPO.

  On November 30, 1999, the Company issued and sold 8,750,000 shares of Class A
common stock at a price to the public of $30.00 per share.  Simultaneously with
the closing of this transaction, the Company issued and sold 5,181,350 shares of
Class B common stock to Adelphia at a purchase price of $28.95 per share.

  At December 31, 1999, Adelphia owned approximately 60% of Adelphia Business
Solutions' outstanding common stock and held approximately 90% of the total
voting rights.

  The Company is a leading national provider of facilities-based integrated
communications services to customers that include businesses, governmental and
educational end users and other communications services providers throughout the
United States.  The Company currently offers a full range of communications
services in 53 markets and expects by the end of the year 2000 to be offering
services in approximately 115 markets nationwide, including substantially all of
the top 40 metropolitan statistical areas in the United States.  To serve its
customers' broad and expanding communications needs, the Company has assembled a
diverse collection of high-bandwidth, local and national network assets.  The
Company intends to integrate these assets with advanced communications
technologies and services in order to provide comprehensive end-to-end
communications services over our own national network.  The Company provides
customers with communications services such as local switch dial tone (also
known as local phone service), long distance service, high-speed data
transmission and Internet connectivity.  The Company offers its customers a
choice of receiving these services separately or as a bundled packages which are
typically priced at a discount when compared to the price of the separate
services.

  To develop the original markets and the new markets, as well as the fiber
purchases to interconnect the networks, the Company expects that it will
continue to incur substantial capital expenditures.  A total of approximately
$500,000 will be required fund the Company's capital expenditures, working
capital requirements, operating losses and pro rata investments in the joint
ventures from January 1, 2000 through December 31, 2000. The Company will need
substantial additional funds to fully fund its business plan.  The Company
expects to fund its capital requirements through existing resources, credit
facilities and vendor financings at the Company and joint venture levels,
internally generated funds, equity invested by local partners in joint ventures
and additional debt or equity financings, as appropriate, and expects to fund
any potential additional purchase of partnership interest of local partners
through existing resources, internally generated funds and additional debt or
equity financings, as

                                       41
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

appropriate. There can be no assurances, however, that the Company will be
successful in generating sufficient cash flow or in raising sufficient debt or
equity capital on terms that it will consider acceptable, or at all.

     Joint ventures in which the Company does not have a majority interest are
accounted for under the equity method of accounting.

Acquisitions of Partner Interests

     On September 12, 1997, the Company consummated an agreement with Time
Warner Entertainment - Advance/Newhouse ("TWEAN") to exchange interests in four
New York CLEC networks.  As a result of the transaction, the Company paid TWEAN
$7,638 and increased its ownership in the networks serving Buffalo and Syracuse,
New York to 60% and 100%, respectively, and eliminated its interest in the
Albany and Binghamton networks, which became wholly owned by TWEAN.

     On February 12, 1998, the Company purchased additional partnership
interests in Louisville Lightwave (Louisville and Lexington), NHT Partnership
(Buffalo), New Jersey Fiber Technologies and Hyperion of Harrisburg. As a
result, the Company's ownership in these networks increased to 100%. The
aggregate purchase price was comprised of approximately $45,000 in cash and a
warrant for 731,624 shares of the Company's Class A common stock. (See Note 6.)
In addition, Hyperion paid certain amounts related to fiber lease financings
upon consummation of the purchase of the additional partnership interests.

     During March 1999, Adelphia Business Solutions consummated purchase
agreements with subsidiaries of Multimedia, Inc. and MediaOne of Colorado Inc.
to acquire their respective interests in jointly owned networks located in the
Wichita, KS, Jacksonville, FL and Richmond, VA markets for an aggregate of
approximately $89,750. The agreements increased the Company's ownership interest
in each of these networks to 100%.

     During June 1999, the Company consummated a purchase agreement with Entergy
Corporation ("Entergy"), the parent of its local partner in the Baton Rouge, LA,
Little Rock, AR, and Jackson, MS markets, whereby Entergy received approximately
$36,518 for its ownership interests in these markets. The agreements increased
the Company's ownership interest in each of these networks to 100%.

     All of the acquisitions described above were accounted for using the
purchase method. Accordingly, the financial results of each acquisition have
been included in the Company's consolidated financial statements from the date
acquired.

     The following unaudited financial information of the Company assumes that
each of the transactions described above had occurred on April 1, 1997.

<TABLE>
<CAPTION>
                                                                           Year Ended       Nine Months Ended     Year Ended
                                                                            March 31,         December 31,       December 31,
                                                                        ------------------  -----------------    ------------
                                                                               1998               1998               1999
                                                                        ------------------  -----------------    ------------
<S>                                                                     <C>                 <C>                <C>
Revenues..............................................................           $ 28,061           $ 49,156          $ 162,138
Net loss..............................................................            (80,293)           (79,745)          (169,282)
Net loss applicable to common stockholders............................            (92,179)           (98,572)          (198,924)
Basic and diluted net loss per weighted average share of common stock.           $  (2.63)          $  (1.86)         $   (3.51)
</TABLE>

Cash and cash equivalents

     Cash and cash equivalents consist of highly liquid instruments with an
initial maturity date of three months or less.

                                       42
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

U.S. Government Securities - Pledged

     U.S. Government Securities - Pledged consist of highly liquid investments
which will be used to pay the first six semi-annual interest payments of the
12 1/4% Senior Secured Notes.  Such investments are classified as held-to-
maturity and the carrying value approximates market value.

Accounts Receivable

  An allowance for doubtful accounts of $1,128 and $9,640 is recorded as a
reduction of accounts receivable at December 31, 1998 and 1999, respectively.

Property, Plant and Equipment

     Property, plant and equipment is stated at cost less accumulated
depreciation. Costs capitalized include amounts directly associated with network
engineering, design and construction.

     Provision for depreciation of property, plant and equipment is computed
using the straight-line method over the estimated useful lives of the assets
beginning in the month the asset is available for use or is acquired.

  The estimated useful lives of the Company's principal classes of property,
plant and equipment are as follows:

Telecommunications networks............................  10-20 years
Network monitoring and switching equipment.............   5-10 years
Fiber optic use rights.................................     15 years
Other..................................................   3-10 years

Revenue Recognition

  The Company recognizes revenue from communications services in the month the
related service is provided.  Revenues on billings to customers for services in
advance of providing such services are deferred and recognized when earned.  The
Company recognizes revenues related to management and network monitoring of the
joint ventures in the month that the related services are provided.  Reciprocal
compensation revenue is an element of switched service revenue, which represents
compensation from Local Exchange Carriers ("LECs") for local exchange traffic
originated by other LECs terminated on the Company's facilities.  Adelphia
Business Solutions recognizes revenue based upon established contracts with the
LECs and has established a reserve for a portion of those revenues that are
under dispute.

Significant Customers

  During the year ended March 31, 1998, Adelphia Business Solutions' sales to
AT&T and MCI WorldCom represented 18.3% and 14.5% of total revenues,
respectively.  During the nine months ended December 31, 1998, Adelphia Business
Solutions' sales to AT&T and Bell Atlantic represented 11.4% and 10.1% of total
revenues, respectively.  During the year ended December 31, 1999, Adelphia
Business Solutions' sales to AT&T and Bell Atlantic represented 8.8% and 14.7%
of total revenues, respectively.

Basic and Diluted Net Loss per Weighted Average Share of Common Stock

  Basic net loss per weighted average share of common stock is computed based
upon the weighted average number of common shares and warrants outstanding
during the period.  Diluted net loss per common share is equal to basic net loss
per common share because the Adelphia Warrant discussed in Note 6 had an
antidilutive effect for the periods presented; however, the Adelphia Warrant
could have a dilutive effect on earnings per share in future periods.  A warrant
to purchase 731,624 shares of Class A common stock and Class B common stock
warrants to purchase shares of Class B common stock have been included as shares
outstanding for purposes of the calculation of both basic and diluted net loss
per share for, the year ended March 31, 1998, the nine months ended December 31,
1998 and the year ended December 31, 1999.

                                       43
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

Other Assets - net

  Deferred debt financing costs, included in other assets, are amortized over
the term of the related debt.  The unamortized amounts of deferred debt
financing costs at December 31, 1998 and 1999 were $14,606 and $17,434,
respectively.  Included in other assets at December 31, 1998 is a Senior Secured
Note (See Note 3).  Included in other assets at December 31, 1999 is $44,605
relating to 195 31-Ghz licenses, which cover approximately 30% of the nation's
population.  These licenses are a spectrum for a fixed wireless technology known
as local multipoint distribution service ("LMDS").

Asset Impairments

  Adelphia Business Solutions periodically reviews the carrying value of its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying value of these assets may not be recoverable.
Measurement of any impairment would include a comparison of estimated future
operating cash flows anticipated to be generated during the remaining life of
the assets with their net carrying value. An impairment loss would be recognized
as the amount by which the carrying value of the assets exceeds their fair
value.

Financial Instruments

  Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of accounts receivable.  Concentration of
credit risk with respect to accounts receivable is limited due to the dispersion
of the Company's customer base among different customers and geographic areas.

  The Company's financial instruments include cash and cash equivalents, notes
payable and redeemable preferred stock.  The fair value of the notes payable
exceeded carrying value by approximately $12,016 and $52,058 at December 31,
1998 and 1999, respectively.  The carrying value of the redeemable preferred
stock exceeded the fair value by approximately $23,938 at December 31, 1998 and
was equal to the fair value at December 31, 1999.  The fair values of the
financial instruments were based upon quoted market prices.

Non-cash Financing and Investing Activities

     Capital leases entered into during the year ended March 31, 1998, the nine
months ended December 31, 1998 and the year ended December 31, 1999 totaled
$24,500, $1,155 and $5,772, respectively (See Note 5).  Dividend requirements
applicable to preferred stock were satisfied by the issuance of an additional
6,860, 20,624 and 30,733 shares of such preferred stock during the year ended
March 31, 1998, the nine months ended December 31, 1998 and the year ended
December 31, 1999, respectively (See Note 5). During the nine months ended
December 31, 1998, Adelphia Business Solutions converted the Note Payable -
Adelphia and certain accounts payable into Class A common stock (See Note 1).

Use of Estimates in the Preparation of Financial Statements

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

Recent Accounting Pronouncements

     Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments and for hedging activities.  It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value.  Management of the Company has not completed its evaluation

                                       44
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

of the impact of SFAS No. 133 on the Company's financial statements. In July
1999, SFAS No. 137 was issued to delay the effective date of SFAS No. 133 to
fiscal quarters of fiscal years beginning after June 15, 2000.

Reclassifications

  Certain March 31, 1998 and December 31, 1998 amounts have been reclassified to
conform with the presentation for the year ended December 31, 1999.

(2)  Property, Plant and Equipment

  Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                             -----------------------------------
                                                                                   1998              1999
                                                                             ----------------  -----------------
<S>                                                                          <C>               <C>
  Telecommunications networks..............................................         $ 59,764         $  139,248
  Network monitoring and switching equipment...............................          165,697            431,078
  Fiber asset under construction (Note 3)..................................           11,500                ---
  Fiber optic use rights...................................................           44,109            108,239
  Construction in process..................................................          123,439            344,439
  Other....................................................................            8,282             18,270
                                                                                    --------         ----------
                                                                                     412,791          1,041,274
  Less accumulated depreciation............................................          (38,089)           (97,518)
                                                                                    --------         ----------
  Total....................................................................         $374,702         $  943,756
                                                                                    ========         ==========
</TABLE>

  Additions to property, plant and equipment are recorded at cost which
includes amounts for material, applicable labor and overhead and interest.
Capitalized interest amounted to $4,271, $9,986 and $23,282 for the year ended
March 31, 1998, the nine months ended December 31, 1998 and the year ended
December 31, 1999, respectively.

(3)  Investment in Fiber Asset and Senior Secured Note

  On February 20, 1997, the Company entered into several agreements regarding
the leasing of dark fiber in New York state in furtherance of its strategy to
interconnect its networks in the northeastern United States.  Pursuant to these
agreements and in consideration of a payment of $20,000, the Company received a
$20,000 Senior Secured Note bearing interest at 22 1/2% (subject to reduction
upon early repayment of principal) due February 2002 (subject to early
redemption options), from Telergy, Inc. ("Telergy"), a right to receive 58,752
shares of Telergy Class A common stock ("Telergy Stock"), and a fully prepaid
lease from a Telergy affiliate for an initial lease term of 25 years (with two
additional ten-year extensions) for 24 strands of dark fiber installed or to be
installed in a New York fiber optic telecommunications backbone network. As of
December 31, 1998, the Company included $11,500 and $8,500 in Property, Plant
and Equipment and Other Assets, respectively, as the allocation of the $20,000
payment between the fiber asset and the Senior Secured Note.  No amounts were
allocated to the Telergy Stock.  The allocation reflected the Company's estimate
of the relative fair values of the assets acquired.

  On May 15, 1998, Telergy paid the Company $1,000 in exchange for the
Telergy Stock and a gain of $1,000 was recorded by the Company, which is
included in "other income" in the consolidated statement of operations.  On
November 10, 1998, the Senior Secured Note was amended to mature on January 20,
2000 in exchange for an indefeasible right to use ("IRU") or long term lease of
certain fiber segments in New York City and along Telergy's long haul fiber
segments in the northeastern United States and Southeastern Canada.

  During May, 1999, the Company received $32,329 from Telergy for the
repayment of the Senior Secured Note.  The payment represented $20,000 in
principal and $12,329 of interest, which is included in "Interest income" in the
consolidated statement of operations.

                                       45
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

(4)  Investments

     The equity method of accounting is used to account for investments in joint
ventures in which the Company owns less than a majority interest. Under this
method, the Company's initial investment is recorded at cost and subsequently
adjusted for the amount of its equity in the net income or loss of its joint
ventures. Dividends or other distributions are recorded as a reduction of the
Company's investment. Investments in joint ventures accounted for using the
equity method reflect the Company's equity in their underlying net assets.

The Company's nonconsolidated investments are as follows:

<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                        Ownership       --------------------------------
                                                                        Percentage           1998             1999
                                                                      --------------    ----------------  --------------
<S>                                                                   <C>             <C>               <C>
MediaOne Fiber Technologies (Jacksonville)..........................      100.0% (1)         $  8,150         $    ---
Multimedia Hyperion Telecommunications (Wichita)....................      100.0% (1)            5,863              ---
MediaOne of Virginia (Richmond).....................................      100.0% (1)            7,284              ---
Entergy Hyperion Telecommunications of Louisiana....................      100.0% (2)            6,714              ---
Entergy Hyperion Telecommunications of Mississippi..................      100.0% (2)            7,130              ---
Entergy Hyperion Telecommunications of Arkansas.....................      100.0% (2)            7,586              ---
PECO-Hyperion (Philadelphia)........................................       50.0%               33,936           42,475
PECO-Hyperion (Allentown, Bethlehem, Easton, Reading)...............       50.0%                7,227            7,425
Hyperion of York....................................................       50.0%                5,721            6,525
Allegheny Hyperion Telecommunications...............................       50.0%                3,043            4,975
Baker Creek Communications..........................................       49.9% (3)           44,637              ---
Other...............................................................    Various                 1,323              ---
                                                                                             --------         --------
                                                                                              138,614           61,400
Cumulative equity in net losses.....................................                          (26,286)         (17,334)
                                                                                             --------         --------
Total Investments...................................................                         $112,328         $ 44,066
                                                                                             ========         ========
</TABLE>

(1)  As discussed in Note 1, the Company has consummated agreements which
     increased its ownership to 100% in these networks during March 1999.
(2)  As discussed in Note 1, the Company has consummated an agreement which
     increased its ownership to 100% in these networks during June 1999.
(3)  On March 24, 1998, the Federal Communications Commission ("FCC") completed
     the auction of licenses for LMDS.  The Company, through Baker Creek
     Communications, was the successful bidder for 195 31-Ghz licenses, which
     cover approximately 30% of the nation's population - in excess of 83
     million people in the eastern half of the United States.  In connection
     with the FCC's full review of all bids and the granting of final licenses
     it was concluded that the Company, through Baker Creek Communications,
     would acquire the entire interest in the 195 licenses for a total cost of
     approximately $44,605, all of which was paid as of October 26, 1998.  On
     September 30, 1999, the FCC granted the Company's request to transfer, and
     the Company transferred the licenses from Baker Creek Communications to a
     wholly owned subsidiary of the Company.  The licenses are included in Other
     assets - net on the consolidated balance sheet at December 31, 1999 (See
     Note 1).

                                       46
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  Summarized unaudited combined financial information for the Company's
nonconsolidated investments listed above being accounted for using the equity
method of accounting as of the dates and for the periods ended, is as follows:

<TABLE>
<CAPTION>
                                                               December 31,
                                                       1998                    1999
                                               ---------------------  ----------------------
<S>                                            <C>                    <C>
   Current assets............................              $ 11,315                $ 21,645
   PP&E-net..................................               190,552                 112,210
   Non-current assets........................                47,522                      55
   Current liabilities.......................                18,599                  10,175
   Non-current liabilities...................                48,635                  45,278
</TABLE>

<TABLE>
<CAPTION>

                                                           Year Ended          Nine months ended         Year Ended
                                                             March 31,             December 31,           December 31,
                                                               1998                    1998                  1999
                                                           -----------         -----------------         -------------
<S>                                                        <C>                 <C>                       <C>
   Revenues..................................              $ 11,999                $ 24,986              $ 43,753
   Net loss..................................               (19,923)                (22,325)              (15,154)

</TABLE>

(5)  Financing Arrangements

Note payable - Adelphia

   The Company had an unsecured credit arrangement with Adelphia which had no
repayment terms prior to April 15, 1996.  On April 15, 1996, $25,000 of the
proceeds from the sale of the 13% Senior Discount Notes (the "Senior Discount
Notes") and Class B common stock warrants were used to repay a portion of this
obligation.  Interest expense and fees on this credit arrangement were based
upon the weighted average cost of unsecured borrowings of Adelphia during the
corresponding periods. Effective April 15, 1996, the remaining balance due on
the Note payable-Adelphia was evidenced by an unsecured subordinated note due
April 16, 2003. This obligation had an interest rate of 16.5% per annum.
Interest accrued through May 8, 1998 on the amount outstanding to Adelphia
totaled $10,645.  On May 8, 1998, the Note payable - Adelphia and all accrued
interest was converted into shares of Class A common stock simultaneously with
the closing of the IPO (See Note 1).

13% Senior Discount Notes and Class B Common Stock Warrants

  On April 15, 1996, the Company issued $329,000 of 13% Senior Discount Notes
due April 15, 2003 and 329,000 warrants to purchase an aggregate of 1,993,638
shares of its Class B common stock.  Prior to April 15, 2001, interest on the
Senior Discount Notes is not payable in cash, but is added to principal.
Thereafter, interest is payable semi-annually commencing October 15, 2001.  The
Senior Discount Notes are unsecured and are senior to all future subordinated
indebtedness.  On or after April 15, 2001, the Company may redeem, at its
option, all or a portion of the Senior Discount Notes at 106.5%, which declines
to par in 2002, plus accrued interest.

  The holders of the Senior Discount Notes may put the Senior Discount Notes to
the Company at any time at a price of 101% of accreted principal upon the
occurrence of a Change of Control (as defined in the Indenture). In addition,
the Company will be required to offer to purchase Senior Discount Notes at a
price of 100% with the proceeds of certain asset sales (as defined in the
Indenture). The Indenture stipulates, among other things, limitations on
additional borrowings, issuance of equity instruments, payment of dividends and
other distributions, repurchase of equity interests or subordinated debt, sale--
leaseback transactions, liens, transactions with affiliates, sales of Company
assets, mergers and consolidations.

                                       47
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  The Class B common stock warrants are exercisable at $0.00308 per share, upon
the earlier of May 1, 1997 or a Change of Control. Unless exercised, the Class B
common stock warrants expire on April 1, 2001. The number of shares and the
exercise price for which a warrant is exercisable are subject to adjustment
under certain circumstances.  Through December 31, 1999, 264,405 warrants were
exercised and converted into 1,602,294 shares of Class B common stock.  Of the
1,602,294 shares issued, 1,189,965 shares had been converted into Class A common
stock as of December 31, 1999.  The Company received $5 in consideration for the
exercise of the warrants.

  During the nine months ended December 31, 1998, the Company paid $17,313 to
repurchase a portion of the Senior Discount Notes which had a face value of
$25,160 and a carrying value of $17,750.  The notes were retired upon repurchase
which resulted in a $237 gain.

12 1/4% Senior Secured Notes

  On August 27, 1997, the Company issued $250,000 aggregate principal amount of
12 1/4% Senior Secured Notes due September 1, 2004 (the "Senior Secured Notes").
The Senior Secured Notes are collateralized through the pledge of the common
stock of certain of the Company's wholly owned subsidiaries.  A portion of the
proceeds was invested in U.S. government securities and placed in an escrow
account for payment in full when due of the first six scheduled semi-annual
interest payments on the Senior Secured Notes as required by the Indenture.

  Interest is payable semi-annually commencing March 1, 1998.  The Senior
Secured notes rank pari passu in right of payment with all existing and future
senior Indebtedness (as defined in the Indenture) of the Company and will rank
senior in right of payment to future subordinated Indebtedness of the Company.
On or before September 1, 2000 and subject to certain restrictions, the Company
may redeem, at its option, up to 25% of the aggregate principal amount of the
Senior Secured Notes at a price of 112.25% of principal with the net proceeds of
one or more Qualified Equity Offerings (as defined in the Indenture).  On or
after September 1, 2001, the Company may redeem, at its option, all or a portion
of the Senior Secured Notes at 106.125% of principal which declines to par in
2003, plus accrued interest.  The holders of the Senior Secured Notes may put
them to the Company at a price of 101% of principal upon the occurrence of a
Change of Control (as defined in the Indenture).  The Indenture stipulates,
among other things, limitations on additional borrowing, payment of dividends
and other distributions, repurchase of equity interests, transactions with
affiliates and the sale of assets.

12 7/8% Senior Exchangeable Redeemable Preferred Stock

  On October 9, 1997, the Company issued $200,000 aggregate liquidation
preference of 12 7/8% Senior Exchangeable Redeemable Preferred Stock due October
15, 2007 (the "Preferred Stock").  Proceeds to the Company, net of commissions
and other transaction costs, were approximately $194,500.

  Dividends are payable quarterly commencing January 15, 1998 at 12 7/8% of the
liquidation preference of outstanding Preferred Stock.  Through October 15,
2002, dividends are payable in cash or additional shares of Preferred Stock at
the Company's option.  Subsequent to October 15, 2002, dividends are payable in
cash.  The Preferred Stock ranks junior in right of payment to all indebtedness
and other obligations of the Company, its subsidiaries and joint ventures.  On
or before October 15, 2000, and subject to certain restrictions, the Company may
redeem, at its option, up to 35% of the initial aggregate liquidation preference
of the Preferred Stock originally issued with the net cash proceeds of one or
more Qualified Equity Offerings (as defined in the Certificate of Designation)
at a redemption price equal to 112.875% of the liquidation preference per share
of the Preferred Stock, plus, without duplication, accumulated and unpaid
dividends to the date of redemption; provided that, after any such redemption,
there are remaining outstanding shares of Preferred Stock having an aggregate
liquidation preference of at least 65% of the initial aggregate liquidation
preference of the Preferred Stock originally issued.  On or after October 15,
2002, the Company may redeem, at its option, all or a portion of the Preferred
Stock at 106.438% of the liquidation preference thereof declining to 100% of the
liquidation preference in 2005, plus accrued interest.  The Company is required
to redeem all of the shares of Preferred Stock outstanding on October 15, 2007
at a redemption

                                       48
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

price equal to 100% of the liquidation preference thereof, plus, without
duplication, accumulated and unpaid dividends to the date of redemption.

  The holders of the Preferred Stock may put the Preferred Stock to the
Company at any time at a price of 101% of the liquidation preference thereof
upon the occurrence of a Change of Control (as defined in the Certification of
Designation).  The Certificate of Designation stipulates, among other things,
limitations on additional borrowings, payment of dividends and other
distributions, transactions with affiliates and the sale of assets.  The Company
may, at its option, on any dividend payment date, exchange in whole, but not in
part, the then outstanding shares of Preferred Stock for 12 7/8% Senior
Subordinated Debentures due October 15, 2007 (the "Exchange Debentures").
Interest, redemption and registration rights provisions of the Exchange
Debentures are consistent with the provisions of the Preferred Stock.

12% Senior Subordinated Notes due 2007

  On March 2, 1999, Adelphia Business Solutions issued $300,000 aggregate
principal amount of 12% Senior Subordinated Notes due 2007 ("Subordinated
Notes").  An entity controlled by members of the Rigas Family, controlling
stockholders of Adelphia, purchased $100,000 aggregate principal amount of the
Subordinated Notes directly from the Company.  Proceeds to the Company, net of
discounts, commissions and other transaction costs were approximately $295,000.

  Interest is payable semi-annually commencing May 1, 1999.  The Subordinated
Notes rank behind all current and future indebtedness (other than trade
payables), except indebtedness that expressly provides that it is not senior to
the notes.  On or before November 1, 2003 and subject to certain restrictions,
the Company may redeem at its option, up to 25% of the aggregate principal
amount of the Subordinated Notes at a price of 112.00% of principal with the net
proceeds of one or more Qualified Equity Offerings (as defined in the
Indenture).  On or after November 1, 2003, the Company may redeem, at its
option, all or a portion of the Subordinated Notes at 106.00% of principal which
declines to par in 2005, plus accrued interest.  The holders of the Subordinated
Notes may put them to the Company at a price of 101.00% of principal upon the
occurrence of a Change in Control (as defined in the Indenture).  The Indenture
stipulates, among other things, limitations on additional borrowing, payment of
dividends, and other distributions, repurchase of equity, interests,
transactions with affiliates and the sale of assets.

Long Term Lease Facility

  On December 31, 1997, the Company consummated an agreement for a $24,500 long-
term lease facility with AT&T Capital Corporation.  The lease facility provides
financing for certain of the switching equipment.  Included in the lease
facility is the sale and leaseback of certain switch equipment for which the
Company received $14,876.

Vendor Financing

  The Company has arrangements with several equipment providers which provide
the Company with payment terms which range from 6 to 12 months with 0% interest.
The Company has purchased equipment from these vendors and the amounts due are
included in accounts payable on the consolidated balance sheet.

Other Debt

  Other debt consists primarily of capital leases entered into in connection
with the acquisition of fiber leases for use in the telecommunications networks
and the long-term lease facility described above.  The interest rate on such
debt ranges from 7.5% to 15.0%.

                                       49
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  Maturities of other debt for the five years after December 31, 1999 are as
follows:

   2000.............................................       $5,500
   2001.............................................        5,013
   2002.............................................        5,597
   2003.............................................        5,821
   2004.............................................        6,340

(6)  Common Stock and Other Stockholders' Equity (Deficiency)

  Adelphia Business Solutions' authorized capital stock consists of 800,000,000
shares of Class A common stock, par value $0.01 per share, 400,000,000 shares of
Class B common stock, par value $0.01 per share, and 50,000,000 shares of
preferred stock, par value $0.01 per share.

Common Stock

  Shares of Class A common stock and Class B common stock are substantially
identical, except that holders of Class A common stock are entitled to one vote
per share and holders of Class B common stock are entitled to 10 votes per share
on all matters submitted to a vote of stockholders.  Each share of Class B
common stock is convertible into one share of Class A common stock.  In the
event a cash dividend is paid, the holders of the Class A and the Class B common
stock will be paid an equal amount.

  Prior to the IPO in May 1998, certain former company officers (the "Officers")
were parties to a stockholder agreement, as amended (the "Stockholder
Agreement") with Adelphia.  The Stockholder Agreement provided, among other
things, (i) that upon the earlier of (a) the termination of employment of any of
the officers or (b) after October 7, 1998, such officers may put their shares to
Adelphia for fair market value, unless such put rights are terminated as a
result of the registration of the Company's common stock under the Securities
Act of 1933 (the "Securities Act") and (ii) for certain buy/sell and termination
rights and duties among Adelphia and the Officers.  The Stockholder Agreement
terminated automatically upon the date of the IPO.

  The Company also entered into Term Loan and Stock Pledge Agreements ("Loan
Agreements") with each of the Officers.  Pursuant to the Loan Agreements, each
Officer borrowed $1,000 from the Company.  Each of these loans accrued interest
at the average rate at which the Company could invest cash on a short-term
basis, was secured by a pledge of the borrower's common stock in the Company,
and would mature upon the earlier of (i) October 8, 1998 or (ii) the date of the
IPO and the Officers have the right to sell at least $1,000 worth of their
shares.  Each Loan Agreement also provided that any interest accruing on a loan
from the date six months after the date of such loan would be offset by a bonus
payment when principal and interest thereon are due and which would include
additional amounts to pay income taxes applicable to such bonus payment.

  Pursuant to agreements among the Company, Adelphia and the Officers,
simultaneous with the consummation of the IPO, (i) the Stockholder Agreement and
Loan Agreements terminated, (ii) the Officers each repaid the $1,000 borrowed
from the Company pursuant to the Loan Agreements plus accrued interest thereon
by each selling 66,667 shares of Class B common stock to Adelphia and using the
proceeds therefrom to repay such loans and (iii) the Company paid to the
management stockholders bonus payments in the amount of interest accruing on the
Loans from the date six months after the date of the Loan Agreements and any
additional amounts necessary to pay income taxes applicable to such bonus
payments.

  On April 8, 1998, the Board of Directors of the Company approved a 3.25-for-
one stock split of its Class A and Class B common stock payable to stockholders
of record on April 28, 1998.  The stock split was effected in the form of a
dividend of 2.25 shares for every outstanding share of common stock.  All
references in the accompanying consolidated financial statements to the number
of shares of common stock and the par value have been retroactively restated to
reflect the stock split on April 28, 1998.

                                       50
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  On October 25, 1999, the shareholders of the Company approved an amendment to
Article IV of the Amended and Restated Certificate of Incorporation increasing
the number of authorized shares of capital stock from 455,000,000 to
1,250,000,000, the authorized number of Class A common stock from 300,000,000 to
800,000,000, the authorized number of shares of Class B common stock from
150,000,000 to 400,000,000, and the authorized number of shares of Preferred
Stock from 5,000,000 to 50,000,000.

Warrants

Class A Common Stock Warrant

  On February 12, 1998, the Company consummated an agreement with Lenfest
Telephony, Inc. ("Lenfest") whereby Lenfest received a warrant to obtain 731,624
shares of Class A common stock of the Company (the "Lenfest Warrant") in
exchange for its partnership interest in the Harrisburg, Pennsylvania network.
The Lenfest Warrant was exercised during May 1998 for no additional
consideration.

Class B Common Stock Warrants

  The Class B common stock warrants were issued on April 15, 1996 in connection
with the issuance of the Senior Discount Notes (See Note 5).

Adelphia Warrant

  On June 13, 1997, the Company entered into agreements with MCI.  Pursuant to
these agreements the Company is designated MCI's preferred provider for new end
user dedicated access circuits and of conversions of end user dedicated access
circuits as a result of conversions from the incumbent LEC in the Company's
markets.  Adelphia Business Solutions also has certain rights of first refusal
to provide MCI with certain communications services.  Under this arrangement,
the Company issued a warrant to purchase 913,380 shares of Class A common stock
for $6.15 per share to MCI (the "MCI Warrant") representing 2 1/2% of the common
stock of the Company on a fully diluted basis.  MCI could receive additional
warrants to purchase up to an additional 6% of the shares of the Company's Class
A common stock, on a fully diluted basis, at fair value, if MCI met certain
purchase volume thresholds over the term of the agreement.

  In connection with the IPO and the related over-allotment option, the Company
and MCI entered into an agreement that provides as follows with respect to the
MCI Warrant and MCI's right to receive additional MCI warrants as a result of
the IPO (the "Additional MCI Warrants"):  (i) the Additional MCI Warrants issued
with respect to the shares sold to the public in the IPO, the over-allotment
option and with respect to the Adelphia shares purchased will have an exercise
price equal to the lower of $6.15 per share or the price per share to the public
in the IPO (the "IPO Price"), and (ii) Adelphia purchased from MCI the MCI
Warrant and the Additional MCI Warrants for a purchase price equal to the number
of Class A common stock shares issuable under the warrants being purchased times
the IPO Price minus the underwriting discount, less the aggregate exercise price
of such warrants. Furthermore, in consideration of the obligations undertaken by
Adelphia to facilitate the agreements between MCI and Adelphia Business
Solutions, the Company paid to Adelphia a fee of $500 and issued a warrant to
Adelphia, which expires three years after its issuance, to purchase 200,000
shares of Class A common stock at an exercise price equal to the IPO Price.

Long-Term Incentive Compensation Plan

  On October 3, 1996, the Board of Directors and stockholders of the Company
approved the Company's 1996 Long-Term Incentive Compensation Plan (the "1996
Plan").  The 1996 Plan provides for the grant of (i) options which qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, (ii) options which do not so qualify, (iii)
share awards (with or without restrictions on vesting), (iv) stock appreciation
rights and (v) stock equivalent or phantom units.  The number of shares of Class
A common stock available for issuance initially was 5,687,500.  Such number is
to increase each year by 1% of outstanding shares of all classes of the
Company's common stock, up to a maximum of 8,125,000 shares.  Options, awards
and units may be granted under the 1996 Plan to directors, officers, employees
and consultants.  The 1996 Plan provides the incentive stock options must be
granted with an exercise price of not less than the fair market

                                       51
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

value of the underlying common stock on the date of grant. Options outstanding
under the Plan may be exercised by paying the exercise price per share through
various alternative settlement methods.

  In August 1999, the Company issued under the 1996 Plan to each of John J.
Rigas, Michael J. Rigas, Timothy J. Rigas and James P. Rigas (i) stock options
(the "Rigas Options") covering 100,000 shares of Class A common stock, which
options will vest in equal one-third amounts on the third, fourth and fifth year
anniversaries of grant (vesting conditioned on continued service as an employee
or director) and which shall be exercisable at $16.00 per share and (ii) stock
awards (the "Rigas Grants") covering 100,000 shares of Class A common stock,
which stock awards will vest in equal one-third amounts on the third, fourth and
fifth year anniversaries of grant (vesting conditioned on continued service as
an employee or director).

  In addition to the Rigas Options, certain employees have been granted options
to purchase shares of Class A common stock at prices equal to the fair market
value of the shares on the date the option was granted.  Options are exercisable
beginning from immediately after granting and have a maximum term of ten years.

  The following table summarizes stock option activity under all plans:

<TABLE>
<CAPTION>
                                                               Number of shares     Weighted average
                                                                  subject to       exercise price per
                                                                     options             share
<S>                                                            <C>                 <C>
Outstanding, December 31, 1998                                           ---                  ---
Granted                                                              600,417                $15.13
                                                                     -------                ------
Outstanding, December 31, 1999                                       600,417                $15.13
                                                                     =======                ======
</TABLE>

  The following table summarizes information about stock options outstanding and
exercisable at December 31, 1999:

<TABLE>
<CAPTION>
                                 Options outstanding                                 Options exercisable
                                 -------------------                                 -------------------
                                   Weighted average                                    Weighted average        Weighted
                                      remaining         Weighted average                    remaining            average
Exercise price per   Number of     contractual life      exercise price    Number of     contractual life     exercise price
      share            shares          (years)             per share         shares          (years)            per share
-----------------------------------------------------------------------------------------------------------------------------
<S>                  <C>         <C>                   <C>                 <C>         <C>                   <C>
$ 12.13 - $ 16.00     600,417              5.2              $15.13          200,417             6.3               $13.38
</TABLE>

  SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") requires
the Company to disclose pro forma information regarding option grants made to
its employees.  SFAS 123 specifies certain valuation techniques that produce
estimated compensation charges that are included in the pro forma results below.
These amounts have not been reflected in the Company's statement of operations,
because the Company applies the provisions of APB 25, "Accounting for Stock
Issued to Employees," which specifies that no compensation charge arises when
the exercise price of the employees' stock options equals or exceeds the market
value of the underlying stock at the grant date, as in the case of options
granted to the Company's employees.

  SFAS 123 pro forma numbers are as follows:

<TABLE>
<CAPTION>

                                                                                        Year ended
                                                                                    December 31, 1999
                                                                                 ---------------------
  <S>                                                                              <C>
  Net loss-as reported                                                                       $(165,466)
  Net loss-Pro forma applying SFAS 123                                                        (167,800)
  Basic and diluted net loss per common share-as reported under ABP 25                           (3.47)
  Basic and diluted net loss per common share-pro forma under SFAS 123                           (3.51)
</TABLE>

                                       52
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  Under SFAS 123, the fair value of each option grant is estimated on the date
of the grant using the Black-Scholes option pricing model with the following
weighted average assumptions:

<TABLE>
<CAPTION>
                                                           Employee Stock Options
                                                          Year ended December 31,
                                                                    1999
                                                    ---------------------------------
<S>                                                   <C>
Expected dividend yield                                                  0%
Risk-free interest rate                                               6.93%
Expected volatility                                                     50%
Expected life (in years)                                               5.2
</TABLE>

  The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable.  In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.  Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of the Company's options.

  In addition to the stock options and Rigas Grants, the Company issued 58,500
shares of Class A common stock to certain employees for both the year ended
March 31,1998 and the nine months ended December 31,1998 resulting in the
recognition of $27 and $761 of compensation expense, respectively.

(7)  Commitments and Contingencies

  The Company rents office space, node space and fiber under leases with terms
which are generally less than one year or under agreements that are generally
cancelable on short notice. Total rental expense under all operating leases
aggregated  $1,236, $1,893 and $10,166 for the year ended March 31, 1998, the
nine months ended December 31, 1998 and the year ended December 31, 1999,
respectively.

  The minimum future lease obligations under the noncancelable operating leases
as of December 31, 1999 are approximately:

<TABLE>
<CAPTION>

Period ending December 31,
--------------------------
<S>                                                                                    <C>
   2000..............................................................................      $12,617
   2001..............................................................................       12,309
   2002..............................................................................       12,063
   2003..............................................................................       12,278
   2004..............................................................................       10,467
   Thereafter........................................................................       48,761
</TABLE>

   During July 1999, the Company purchased the naming rights to the NFL Football
Tennessee Titans stadium in Nashville, Tennessee.  The term of the naming rights
contract is for 15 years and requires the Company to pay $2,000 per year.

  The communications industry and Adelphia Business Solutions are subject to
extensive regulation at the federal, state and local levels.  On February 8,
1996, President Clinton signed the Telecommunications Act of 1996
("Telecommunications Act"), the most comprehensive reform of the nation's
telecommunications laws since the the Commununications Act of 1934.  Management
of the Company is unable to predict the effect that the Telecommunications Act,
related rulemaking proceedings or other future rulemaking proceedings will have
on its business and results of operations in future periods.

                                       53
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  Adelphia Business Solutions has entered into a series of agreements with
several local and long-haul fiber optic network providers that will allow the
Company to accelerate its national expansion. These agreements, totaling
approximately $288,867, provide the Company with ownership or an IRU to over
25,000 route miles of local and long-haul fiber optic cable.  Through December
31, 1999, the Company has paid $108,903 of the total due under the agreements,
which was included in property, plant and equipment. The Company believes this
will allow it to expand its business strategy to include on-net provisioning of
regional, local and long distance, internet and data communications and to cost-
effectively further interconnect most of its 53 existing markets and to enter
and interconnect approximately 150 new markets by the end of 2001.

The estimated obligations under these arrangements as of December 31, 1999 are
approximately:

<TABLE>
<CAPTION>
Period ending December 31,
--------------------------
<S>                                                                                    <C>
   2000..............................................................................     $149,911
   2001..............................................................................       16,039
   2002..............................................................................          453
   2003..............................................................................          453
   2004..............................................................................          453
   Thereafter........................................................................       12,655
</TABLE>

  In addition to the amounts due under the agreements for the fiber optic cable,
the Company is also required to pay certain fiber optic network providers for
pro-rated maintenance and rights of ways fees on a yearly basis.


(8)  Related Party Transactions

  The following table summarizes the Company's transactions with related
parties:

<TABLE>
<CAPTION>
                                                                                     Nine Months
                                                                   Year Ended           Ended          Year Ended
                                                                   March 31,         December 31,      December 31,
                                                               ------------------  ----------------  ----------------
                                                                      1998               1998              1999
                                                               ------------------  ----------------  ----------------
<S>                                                            <C>                 <C>               <C>
   Revenues:
      Management fees........................................              $3,809            $2,135            $4,948
      Telecommunications service revenue.....................                 173               363             1,840
      Network monitoring fees................................                 977               589               ---
      Special access fees....................................                 500               ---               ---
                                                                           ------            ------            ------
      Total..................................................              $5,459            $3,087            $6,788
                                                                           ======            ======            ======

   Interest Income...........................................              $  617            $8,395            $8,483
                                                                           ======            ======            ======

   Expenses:
      Interest expense.......................................              $5,997            $  737            $  ---
      Allocated corporate costs..............................               1,656             2,981             8,587
      Fiber leases...........................................                  47               139               236
                                                                           ------            ------            ------
      Total..................................................              $7,700            $3,857            $8,823
                                                                           ======            ======            ======
</TABLE>

  Management fees from related parties represent fees received by the Company
from its unconsolidated joint ventures for the performance of financial, legal,
regulatory, network design, construction and other administrative services.

  Telecommunications services revenue from related parties represent fees
received by the Company from Adelphia for providing switched services to various
Adelphia offices, including Coudersport, Pennsylvania.

                                       54
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  Network monitoring fees represent fees received by the Company for technical
support for the monitoring of each individual joint venture's telecommunications
system.

  Special access fees represent amounts charged to joint ventures for use of the
network of a wholly owned subsidiary of the Company.

  Interest income represents interest charged on certain affiliate receivable
balances with joint ventures and with Adelphia.

  Interest expense relate to the Note payable--Adelphia (See Note 5).

  Allocated corporate costs represent costs incurred by Adelphia on behalf of
the Company for the administration and operation of the Company. These costs
include charges for office space, corporate aircraft and shared services such as
finance activities, information systems, computer services, human resources, and
taxation. Such costs were estimated by Adelphia and do not necessarily represent
the actual costs that would be incurred if the Company was to secure such
services on its own.

  Fiber lease expense represents amounts paid to various subsidiaries of
Adelphia for the utilization of existing cable television plant for development
and operation of the consolidated operating networks.

  During the year ended March 31, 1998, the nine months ended December 31, 1998
and the year ended December 31, 1999, the Company paid $299, $1,044 and $7,577,
respectively, to entities owned by certain shareholders of Adelphia primarily
for property, plant and equipment and services at market rates.

  During the nine months ended December 31, 1998 and the year ended December 31,
1999, the Company made demand advances to Adelphia.  At December 31, 1998 and
1999, $4,950 and $392,629 respectively were outstanding under this agreement.
The Company received interest on such advances at a rate of 5.15%, which is
included in interest income - affiliate in the consolidated statement of
operations.  Demand advances represent cash held by Adelphia's centralized cash
management system immediately available to the Company for any corporate purpose
on demand.

(9)   Employee Benefits Plan

  The Company participates in the Adelphia 401(k) and stock value plan which
provides that eligible full-time employees may contribute from 2% to 16% of
their pre-tax compensation subject to certain limitations.  The Company matches
contributions up to 1.5% of each participant's pre-tax compensation.  During the
year ended March 31, 1998, the nine months ended December 31, 1998 and the year
ended December 31, 1999, no significant matching contributions were made by the
Company.  The 401(k) and stock value plan also provides for certain stock
incentive awards on an annual basis.

  In addition to the 401(k) and stock value plan, the Company participates in an
Adelphia stock incentive plan which provides certain management level employees
with compensation bonuses based on a weighted average of Adelphia Class A common
stock and Adelphia Business Solutions Class A common stock performance.  Costs
associated with this plan to the Company was approximately $1,746 for the year
ended December 31, 1999.

(10)  Income Taxes

  Adelphia and its corporate subsidiaries (including the Company) filed
consolidated federal income tax returns for the year ended March 31, 1998.  For
the nine months ended December 31, 1998 and the year ended December 31, 1999,
Adelphia Business Solutions will not be included within Adelphia's consolidated
federal income tax return. For financial reporting purposes, current and
deferred income tax assets and liabilities are

                                       55
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

computed on a separate company basis. At December 31, 1998 and 1999, the Company
had net operating loss carryforwards for federal income tax purposes of $178,503
and $351,539, respectively, expiring through 2019.

  Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and (b) operating loss
carryforwards.

                                       56
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  The Company's net deferred tax asset included in other assets - net is
comprised of the following:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                      --------------------------------
                                                                                           1998             1999
                                                                                      --------------  ----------------
<S>                                                                                   <C>             <C>
   Deferred tax assets:
    Differences between book and tax basis of intangible assets.....................       $    138         $   1,562
    Net operating loss carryforwards................................................         71,391           142,993
    Allowance for doubtful accounts and other.......................................             77             4,384
                                                                                           --------         ---------
      Total.........................................................................         71,606           148,939
    Valuation allowance.............................................................        (48,746)         (114,043)
                                                                                           --------         ---------
      Total.........................................................................         22,860            34,896
                                                                                           --------         ---------
   Deferred tax liabilities:
    Differences between book and tax basis of property, plant and
      equipment.....................................................................         19,015            34,626
    Investment in partnerships......................................................          3,808               233
                                                                                           --------         ---------
      Total.........................................................................         22,823            34,859
                                                                                           --------         ---------
    Net deferred tax asset..........................................................       $     37         $      37
                                                                                           ========         =========
</TABLE>

     The net change in the valuation allowance for the nine months ended
December 31, 1998 and the year ended December 31, 1999 was an increase of
$31,367 and $65,297, respectively.

  Income tax expense for the years ended March 31, 1998, the nine months ended
December 31, 1998 and the year ended December 31, 1999:

<TABLE>
<CAPTION>

                                                                       Year Ended    Nine Months Ended     Year Ended
                                                                        March 31,      December 31,       December 31,
                                                                      -------------  -----------------  ----------------
                                                                          1998             1998               1999
                                                                      -------------  -----------------  ----------------
<S>                                                                   <C>            <C>                <C>
   Current..........................................................      $ ---            $ ---              $   1
   Deferred.........................................................        ---              ---                ---
                                                                          -----            -----              -----
   Total............................................................      $ ---            $ ---              $   1
                                                                          =====            =====              =====
</TABLE>


                                       57
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

  A reconciliation of the statutory federal income tax rate and the Company's
effective income tax rate is as follows:

<TABLE>
<CAPTION>
                                                                           Year Ended      Nine Months Ended      Year Ended
                                                                            March 31,         December 31,        December 31,
                                                                              1998               1998                1999
                                                                        ----------------  ------------------  ------------------
<S>                                                                     <C>               <C>                 <C>
   Statutory federal income tax rate..................................             35.0%               35.0%               35.0%
   Change in valuation allowance......................................            (35.0)              (35.0)              (35.0)
   State taxes, net of federal benefit and other......................              ---                 ---                 ---
                                                                                  -----               -----               -----
   Income tax expense.................................................              ---%                ---%                ---%
                                                                                  =====               =====               =====
</TABLE>


                                       58
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

(11) Quarterly Financial Data (unaudited)

  The following tables summarize the financial results of the Company for each
of the quarters in the nine months ended December 31, 1998 and the year ended
December 31, 1999:

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                        ----------------------------------------------------
                                                            June 30,       September 30,      December 31,
                                                              1998              1998              1998
                                                        ----------------  ----------------  ----------------

<S>                                                     <C>               <C>               <C>
Revenues..............................................         $  7,635          $ 12,098          $ 15,043
                                                               --------          --------          --------
Operating expenses:
   Network operations.................................            4,989             7,056             6,664
   Selling, general and administrative................            8,432            10,391            16,518
   Depreciation and amortization......................            6,120             9,843            10,708
                                                               --------          --------          --------
   Total..............................................           19,541            27,290            33,890
                                                               --------          --------          --------
Operating loss........................................          (11,906)          (15,192)          (18,847)

Other income (expense):
   Interest income....................................            4,235             4,169             1,829
   Interest income - affiliate........................            1,824             2,995             3,576
   Interest expense...................................          (13,704)          (12,535)          (12,399)
   Other income.......................................            1,000               113               ---
                                                               --------          --------          --------
Loss before income taxes, equity in net loss
   of joint ventures and extraordinary gain...........          (18,551)          (20,450)          (25,841)

Income tax expense....................................              ---               ---               ---
                                                               --------          --------          --------
Loss before equity in net loss of joint ventures and
 extraordinary gain...................................          (18,551)          (20,450)          (25,841)

Equity in net loss of joint ventures..................           (3,190)           (2,614)           (3,776)
                                                               --------          --------          --------
Loss before extraordinary gain........................          (21,741)          (23,064)          (29,617)
Extraordinary gain on repurchase of debt..............              ---               237               ---
                                                               --------          --------          --------
Net loss..............................................          (21,741)          (22,827)          (29,617)

Dividend requirements applicable to preferred
    stock.............................................           (6,807)           (7,026)           (7,284)
                                                               --------          --------          --------
Net loss applicable to common stockholders............         $(28,548)         $(29,853)         $(36,901)
                                                               ========          ========          ========
Basic and diluted net loss per weighted average
    share of common stock.............................         $  (0.59)         $  (0.54)         $  (0.66)
                                                               ========          ========          ========
Weighted average shares of common stock
   outstanding (in thousands).........................           48,110            55,497            55,497
                                                               ========          ========          ========
</TABLE>


                                       59
<PAGE>

              ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands except per share amounts)

(11) Quarterly Financial Data (unaudited), continued

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                    ------------------------------------------------------------------------------
                                                        March 31,            June 30,         September 30,        December 31,
                                                           1999                1999                1999                1999
                                                    ------------------  ------------------  ------------------  ------------------

<S>                                                 <C>                 <C>                 <C>                 <C>
Revenues...........................................          $ 21,438            $ 34,215            $ 43,347            $ 55,575
                                                             --------            --------            --------            --------
Operating expenses:
 Network operations................................             8,504              11,671              15,862              22,488
 Selling, general and administrative...............            21,009              32,637              39,972              48,997
 Depreciation and amortization.....................            13,535              13,586              18,168              19,955
                                                             --------            --------            --------            --------
 Total.............................................            43,048              57,894              74,002              91,440
                                                             --------            --------            --------            --------
Operating loss.....................................           (21,610)            (23,679)            (30,655)            (35,865)

Other income (expense):
 Interest income...................................             1,998              14,780               2,867                 288
 Interest income - affiliate.......................             2,828               2,779               1,336               1,540
 Interest expense..................................           (15,533)            (21,805)            (19,045)            (17,931)
                                                             --------            --------            --------            --------
Loss before income taxes and equity in net loss
 of joint ventures.................................           (32,317)            (27,925)            (45,497)            (51,968)

Income tax expense.................................               ---                  (4)                ---                   3
                                                             --------            --------            --------            --------
Loss before equity in net loss of joint ventures...           (32,317)            (27,929)            (45,497)            (51,965)

Equity in net loss of joint ventures...............            (3,803)             (3,291)               (246)               (418)
                                                             --------            --------            --------            --------
Net loss...........................................           (36,120)            (31,220)            (45,743)            (52,383)

Dividend requirements applicable to preferred
    stock..........................................            (7,479)             (7,720)             (7,979)             (8,450)
                                                             --------            --------            --------            --------
Net loss applicable to common stockholders.........          $(43,599)           $(38,940)           $(53,712)           $(60,833)
                                                             ========            ========            ========            ========
Basic and diluted net loss per weighted average
    share of common stock..........................            $(0.79)             $(0.70)             $(0.97)             $(1.01)
                                                             ========            ========            ========            ========
Weighted average shares of common stock
    outstanding (in thousands).....................            55,497              55,497              55,497              60,453
                                                             ========            ========            ========            ========
</TABLE>

                                       60
<PAGE>

ITEM  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     Not applicable.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information set forth above in Part 1 under the caption "Executive
Officers of the Registrant" is incorporated herein by reference.  The other
information required by this item is incorporated herein by reference to the
information set forth under the caption "Election of Directors" and the
information, if any, under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance," in the Company's definitive proxy statement for the 2000
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, or by reference to a filing
amending this Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

  The information required by this item is incorporated herein by reference to
the information set forth under the caption "Executive Compensation" in the
Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934,
as amended, or by reference to a filing amending this Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated herein by reference
to the information set forth under the caption "Principal Stockholders" in the
Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934,
as amended, or by reference to a filing amending this Form 10-K.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information required by this item is incorporated herein by reference to
the information set forth under the caption "Certain Transactions" in the
Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934,
as amended, or by reference to a filing amending this Form 10-K.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     Financial Statements, schedules and exhibits not listed have been omitted
where the required information is included in the consolidated financial
statements or notes thereto, or is not applicable or required.

     (a)(1)  A listing of the consolidated financial statements, notes and
             independent auditors' report required by Item 8 are listed on in
             the index in Item 8 of this Form 10-K.

        (2)  Financial Statement Schedules: Schedule II - Valuation and
             Qualifying Accounts

        (3)  Exhibits

                                       61
<PAGE>

                                  SCHEDULE II
                                  -----------
               ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                Balance       Charged to
                                             at Beginning     Costs and       Deductions      Balance at
                                               of Period       Expenses       Write-Offs     End of Period
                                             ------------     ----------      ----------     -------------
<S>                                          <C>            <C>             <C>              <C>
Year Ended March 31, 1998:
--------------------------
Allowance for Doubtful Accounts                    $   ---         $   ---  $           ---       $    ---
                                                   -------         -------  ---------------       --------
Valuation allowance for deferred tax assets        $12,356         $ 5,023  $           ---       $ 17,379
                                                   -------         -------  ---------------       --------
Nine Months Ended December 31, 1998:
------------------------------------
Allowance for Doubtful Accounts                    $   ---         $ 1,128  $           ---       $  1,128
                                                   -------         -------  ---------------       --------
Valuation allowance for deferred tax assets        $17,379         $31,367  $           ---       $ 48,746
                                                   -------         -------  ---------------       --------
Year Ended December 31, 1999:
-----------------------------
Allowance for Doubtful Accounts                    $ 1,128         $ 8,512  $           ---       $  9,640
                                                   -------         -------  ---------------       --------
Valuation allowance for deferred tax assets        $48,746         $65,297  $           ---       $114,043
                                                   -------         -------  ---------------       --------
</TABLE>

                                       62
<PAGE>

<TABLE>
<CAPTION>

EXHIBIT NO.                                                    DESCRIPTION
-----------                                                    -----------
<C>                 <S>
    3.1             Certificate of Incorporation of Registrant, together with all amendments thereto. (Incorporated
                    herein by reference is Exhibit 3.01 to Registrant's Report on Form 10-Q for the Quarter Ended
                    September 30, 1999.)

    3.2             Bylaws of Registrant, as amended (Filed herewith.)

    4.1             Indenture, dated as of April 15, 1996, between the Registrant and Bank of Montreal Trust Company.
                    (Incorporated herein by reference is Exhibit 4.1 to Registration Statement No. 333-06957 on Form
                    S-4.)

    4.2             First Supplemental Indenture, dated as of September 11, 1996, between, the Registrant and Bank of
                    Montreal Trust Company.  (Incorporated herein by reference is Exhibit 4.2 to Statement No.
                    333-12619 on Form S-4.)

    4.3             Form of 13% Senior Discount Note. (Incorporated herein reference is Exhibit 4.3 to Registration
                    Statement No. 333-12619 on Form S-4.)

    4.4             Form of Class A Common Stock Certificate. (Incorporated herein by reference is Exhibit 4.1 to
                    Registrant's Registration Statement on Form 8-A, dated October 23, 1996.)

    4.5             Indenture, dated as of August 27, 1997, with respect to the Registrant's 12 1/4% Senior Secured
                    Notes due 2004, between the Registrant and the Bank of Montreal Trust Company. (Incorporated
                    herein by reference is Exhibit 4.01 to Form 8-K dated August 27, 1997.) (File No. 0-21605)

    4.6             Form of 12 1/4% Senior Secured Note due 2004 (contained in Exhibit 4.5.)

    4.7             Pledge Agreement between the Registrant and the Bank of Montreal Trust Company as Collateral
                    Agent, dated as of August 27, 1997.  (Incorporated herein by reference is Exhibit 4.03 to Form
                    8-K dated August 27, 1997.) (File No. 0-21605)

    4.8             Pledge, Escrow and Disbursement Agreement, between the Registrant and the Bank of Montreal Trust
                    Company, dated as of August 27, 1997. (Incorporated herein by reference is Exhibit 4.05 to Form
                    8-K dated August 27, 1997.) (File No. 0-21605)

    4.9             Second Supplemental Indenture, dated as of August 27, 1997, between the Registrant and the Bank
                    of Montreal Trust Company, regarding the Registrant's 13% Senior Discount Notes due 2003.
                    (Incorporated herein by reference is Exhibit 4.06 to Form 8-K dated August 27, 1997.) (File No.
                    0-21605)

   4.10             Certificate of Designation for 12 7/8% Series A and Series B Senior Exchangeable Redeemable
                    Preferred Stock due 2007.  (Contained in Exhibit 3.01 to Registrant's Current Report on Form 8-K
                    for the event dated October 9, 1997 which is incorporated herein by reference.) (File No. 0-21605)

   4.11             Form of Certificate for 12 7/8% Senior Exchangeable Redeemable Preferred Stock due 2007.
                    (Incorporated herein by reference is Exhibit 4.02 to the Registrant's Current Report on Form 8-K
                    the event dated October 9, 1997.) (File No. 0-21605)
</TABLE>

                                       63
<PAGE>

<TABLE>
<CAPTION>

EXHIBIT NO.                                                    DESCRIPTION
-----------                                                    -----------
<C>                 <S>
   4.12             Form of Indenture, with respect to the Registrant's 12 7/8% Senior Subordinated Exchange
                    Debentures due 2007. (Contained as Annex A in Exhibit 3.01 to Registrant's Current Report on Form
                    8-K for the event dated October 9, 1997 which is incorporated herein by reference.) (File No.
                    0-21605)

   4.13             Indenture dated as of March 2, 1999, with respect to Hyperion Telecommunications, Inc. 12% Senior
                    Subordinated Notes due 2007, between Hyperion and the Bank of Montreal Trust Company
                    (Incorporated by reference herein is Exhibit 4.01 to the Current Report on Form 8-K for Adelphia
                    Communications Corporation filed on March 10, 1999.) (File No. 0-16014)

   4.14             Form of 12% Senior Subordinated Notes due 2007 (Contained in Exhibit 4.13)

  10.1              Underwriting Agreement dated as of November 23, 1999 among Adelphia Business Solutions, Inc.,
                    Salomon Smith Barney Inc. and the several other Underwriters named therein (incorporated herein
                    by reference is Exhibit 1.01 to the Registrant's Form 8-K for the event dated November 23,
                    1999.)(File No. 0-21605)

  10.2              Stock Purchase Agreement dated November 23, 1999 between Adelphia Business Solutions, Inc. and
                    Adelphia Communications Corporation (incorporated herein by reference is Exhibit 10.01 to the
                    Registrant's Form 8-K for the event dated November 23, 1999.)(File No. 0-21605)

  10.3              Registration Rights Agreement between the Registrant and the Initial Purchasers, dated March 2,
                    1999, regarding the Registrant's 12% Senior Subordinated Notes due 2007 (Incorporated by
                    reference herein is Exhibit 10.05 to the Current Report of Adelphia Communications Corporation on
                    Form 8-K for the event dated February 22, 1999)(File No. 0-16104)

  10.4              Pre-Incorporation and Shareholder Restrictive Agreement between Adelphia, Paul D. Fajerski,
                    Charles R. Drenning and Randolph S. Fowler. (Incorporated herein by reference is Exhibit 10.5 to
                    Registration Statement No. 333-06957 on Form S-4.)

  10.5              Letter Agreement dated March 19, 1996 between the Registrant, Charles R. Drenning, Paul D.
                    Fajerski, Randolph S. Fowler and Adelphia. (Incorporated herein by reference is Exhibit 10.12 to
                    Registration Statement No. 333-06957 on Form S-4.)

  10.6              Warrant Agreement dated as of April 15, 1996, by and among Hyperion Telecommunications, Inc. and
                    Bank of Montreal Trust Company. (Incorporated herein by reference is Exhibit 10.13 to
                    Registration Statement No. 333-06957 on Form S-4.)

  10.7              Warrant Registration Rights Agreement dated as of April 15, 1996, by and among Hyperion
                    Telecommunications, Inc. and the Initial Purchasers. (Incorporated herein by reference is Exhibit
                    10.14 to Registration Statement No. 333-06957 on Form S-4.)

  10.8              Form of Management Agreement. (Incorporated herein by reference is Exhibit 10.15 to Registration
                    Statement No. 333-06957 on Form S-4.)

  10.9*             Employment Agreement between Hyperion Telecommunications, Inc. and Daniel R. Milliard dated as of
                    March 4, 1997. (Incorporated herein by reference is Exhibit 10.03 to Current Report on Form 8-K
                    of Adelphia Communications Corporation dated May 1, 1997.) (File Number 0-16014)

  10.10*            1996 Long-Term Incentive Compensation Plan. (Incorporated herein by reference is Exhibit 10.17 to
                    Registration Statement No. 333-13663 on Form S-1.)
</TABLE>

                                       64
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                                                    DESCRIPTION
-----------                                                    -----------
<C>                 <S>

 10.11              Registration Rights Agreement among Charles R. Drenning, Paul D. Fajerski, Randolph S. Fowler,
                    Adelphia Communications Corporation and the Company. (Incorporated herein by reference is Exhibit
                    10.18 to Registration Statement No. 333-13663 on Form S-1.)

 10.12              Registration Rights Agreement between Adelphia Communications Corporation and the Company.
                    (Incorporated herein by reference is Exhibit 10.19 to Registration Statement No. 333-13663 on
                    Form S-1.)

 10.13              Extension Agreement dated as of January 8, 1997, among Hyperion Telecommunications, Inc.,
                    Adelphia Communications Corporation, Charles R. Drenning, Paul D. Fajerski, Randolph S. Fowler,
                    and six Trusts named therein. (Incorporated herein by reference is Exhibit 10.04 to Current
                    Report on Form 8-K of Adelphia Communications Corporation dated May 1, 1997.) (File Number
                    0-16014)

 10.14*             Management Services Agreement dated as of April 10, 1998, between Adelphia Communications
                    Corporation and the Registrant (Incorporated herein by reference is Exhibit 10.23 to Registration
                    Statement No. 333-48209 on Form S-1.)

 10.15              Letter Agreement dated April 10, 1998, among the Registrant, Adelphia Communications Corporation
                    and MCImetro Access Transmission Services, Inc. (Incorporated herein by reference is Exhibit
                    10.24 to Registration Statement No. 333-48209 on Form S-1.)

 10.16              Amendment to Registration Rights Agreement dated as of April 15, 1998, between the Registrant and
                    Adelphia Communications Corporation (Incorporated herein by reference is Exhibit 10.25 to
                    Registration Statement No. 333-48209 on Form S-1.)

 10.17              Letter Agreement dated as of April 9, 1998, between the Registrant and Adelphia Communications
                    Corporation regarding the purchase of Class A Common Stock (Incorporated herein by reference is
                    Exhibit 10.26 to Registration Statement No. 333-48209 on Form S-1).

 10.18              U.S. Underwriting Agreement dated May 4, 1998 among the Company and the Representatives named
                    therein (Incorporated herein by reference is Exhibit 10.01 to the Registrant's Current Report on
                    Form 8-K dated June 24, 1998.) (File No. 0-21605)

 10.19              International Underwriting Agreement dated May 4, 1998 among the Company and the Representatives
                    named therein (Incorporated herein by reference is Exhibit 10.02 to the Registrant's Current
                    Report on Form 8-K dated June 24, 1998.) (File No. 0-21605)

 10.20              Warrant issued to MCI dated May 8, 1998 (Incorporated herein by reference is Exhibit 10.03 to the
                    Registrant's Current Report on Form 8-K dated June 24, 1998.) (File No. 0-21605)

 10.21              Warrant issued in favor of Adelphia Communications Corporation dated June 5, 1998 (Incorporated
                    herein by reference is Exhibit 10.04 to the Registrant's Current Report on Form 8-K dated June
                    24, 1998.) (File No. 0-21605)

 10.22              Purchase Agreement between Hyperion Telecommunications, Inc. and the Initial Purchasers named
                    therein, dated as of February 25, 1999, regarding Hyperion's 12% Senior Subordinated Notes due
                    2007 (Incorporated herein by reference is Exhibit 10.03 to Adelphia's Current Report on Form 8-K
                    for the event dated February 22, 1999.) (File No. 0-16104).
</TABLE>

                                       65
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                                                    DESCRIPTION
-----------                                                    -----------
<C>                <S>

 10.23             Purchase Agreement between Hyperion Telecommunications, Inc. and Highland Holdings, dated as of
                   February 25, 1999, regarding Hyperion's 12% Senior Subordinated Notes due 2007 (Incorporated
                   herein by reference is Exhibit 10.05 to Adelphia's Current Report on Form 8-K for the event dated
                   February 22, 1999.) (File No. 0-16104).

 21.1              Subsidiaries of the Registrant (Filed herewith)

 23.1              Consent of Deloitte & Touche LLP (Filed herewith)

 27.1              Financial Data Schedule (Filed herewith for the information of the Commission)

 99.1              "Schedule E - Form of Financial Information and Operating Data of the Subsidiaries and
                   the Joint Ventures Presented by Cluster". (Filed herewith)

 99.2              "Schedule F - Form of Financial Information and Operating Data of the Pledged Subsidiaries
                   and the Joint Ventures". (Filed herewith)

 99.3              Press Release Dated March 1, 2000 (Filed herewith)

 99.4              Press Release Dated March 15, 2000 (Filed herewith)
</TABLE>
______________________
* Denotes management contracts and compensatory plans and arrangements
  required to be identified by Item 14(a)(3).

                                       66
<PAGE>

     The Registrant will furnish to the Commission upon request copies of
instruments not filed herewith which authorize the issuance of long-term
obligations of Registrant not in excess of 10% of the Registrant's total assets
on a consolidated basis.

     (b) During the three months ended December 31, 1999, the Registrant filed
Form 8-K reports covering Items 5 and 7 on October 26, 1999, October 27, 1999
and December 1, 1999.  No financial statements were filed.

     (c) The Company hereby files as exhibits to this Form 10-K the exhibits set
forth in Item 14(a)(3) hereof which are not incorporated by reference.

     (d) The Company hereby files as financial statement schedules to this Form
10-K the financial statement schedules set forth in Item 14(a)(2) hereof.

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<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.

                                ADELPHIA BUSINESS SOLUTIONS, INC.

March 29, 2000                  By:    /s/ James P. Rigas
                                      -------------------
                                      James P. Rigas,
                                      President

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

March 29, 2000                  /s/ John J. Rigas
                                -----------------
                                John J. Rigas,
                                Chairman and Director

March 29, 2000                  /s/ Timothy J. Rigas
                                --------------------
                                Timothy J. Rigas,
                                Vice Chairman, Treasurer, Chief Financial
                                Officer and Director

March 29, 2000                  /s/ Michael J. Rigas
                                --------------------
                                Michael J. Rigas,
                                Vice Chairman, Secretary and Director

March 29, 2000                  /s/ James P. Rigas
                                ------------------
                                James P. Rigas,
                                Vice Chairman, Chief Executive Officer,
                                President and Director

March 29, 2000                  /s/ Pete J. Metros
                                ------------------
                                Pete J. Metros,
                                Director

March 29, 2000                  /s/ James L. Gray
                                -----------------
                                James L. Gray,
                                Director

March 29, 2000                  /s/ Edward S. Mancini
                                ---------------------
                                Edward S. Mancini,
                                Director

March 29, 2000                  /s/ Peter L. Venetis
                                --------------------
                                Peter L. Venetis,
                                Director

                                       68