<PAGE>


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

                                    FORM 1O-Q

(Mark One)


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

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                                       OR

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

         FOR THE TRANSITION PERIOD FROM _____________ TO _____________

                          COMMISSION FILE NO. 1-15343

                      WILLIAMS COMMUNICATIONS GROUP, INC.
             (Exact name of registrant as specified in its charter)


                  DELAWARE                          73-1462856
         (State of Incorporation)                  (IRS Employer
                                                Identification Number)


          ONE TECHNOLOGY CENTER                         74103
            TULSA, OKLAHOMA                           (Zip Code)
(Address of principal executive offices)

                  Registrant's Telephone Number: (918) 547-6000

                                    NO CHANGE
              (Former name, former address and former fiscal year,
                         if changed since last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ]       No [  ]

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

               CLASS                         OUTSTANDING AT OCTOBER 31, 2001
    Common Stock, $0.01 par value                  490,708,937 Shares






<PAGE>


                                      INDEX

PART I.  FINANCIAL INFORMATION

<TABLE>
<CAPTION>
   ITEM 1.  FINANCIAL STATEMENTS                                                                                       PAGE
                                                                                                                       ----
<S>                                                                                                                    <C>
     Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001
         and 2000..................................................................................................      2
     Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000....................................      3
     Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000...................      4
     Notes to Consolidated Financial Statements....................................................................      5
   ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
     OPERATIONS....................................................................................................     19
   ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................      36

PART II. OTHER INFORMATION

   ITEM 1.  LEGAL PROCEEDINGS......................................................................................     37
   ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS..............................................................     37
   ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.......................................................................     38
</TABLE>


                                       1



<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED             NINE MONTHS ENDED
                                                            SEPTEMBER 30,                 SEPTEMBER 30,
                                                     ------------------------      ------------------------
                                                          2001         2000            2001         2000
                                                     -----------  -----------      -----------  -----------
                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                  <C>          <C>              <C>          <C>
Revenues                                             $   297,776  $   209,314      $   855,178  $   552,041
Operating expenses:
   Cost of sales                                         244,173      214,325          745,770      579,137
   Selling, general and administrative                    71,535       65,682          222,721      185,792
   Provision for doubtful accounts                        12,541        2,800           20,977        3,782
   Depreciation and amortization                         146,608       47,064          339,239      117,506
   Other                                                 191,291          572          183,269         (759)
                                                     -----------  -----------      -----------  -----------
     Total operating expenses                            666,148      330,443        1,511,976      885,458
                                                     -----------  -----------      -----------  -----------
Loss from operations                                    (368,372)    (121,129)        (656,798)    (333,417)
Interest accrued                                        (139,296)    (103,574)        (396,031)    (263,942)
Interest capitalized                                      11,694       51,431           67,356      116,172
Investing income (loss):
   Interest and other                                     14,796       10,416           36,008       49,973
   Equity losses                                         (20,677)      (2,593)         (29,885)      (9,748)
   Income (loss) from investments                          3,113       20,210          (28,292)     323,258
Minority interest in loss of consolidated
    subsidiaries                                           6,787        4,418           19,978        9,420
Other income (loss), net                                    (364)         131             (221)         178
                                                     -----------  -----------      -----------  -----------
Loss before income taxes                                (492,319)    (140,690)        (987,885)    (108,106)
Benefit (provision) for income taxes                         324       (9,593)         (52,024)    (113,873)
                                                     -----------  -----------      -----------  -----------
Loss from continuing operations                         (491,995)    (150,283)      (1,039,909)    (221,979)
Income (loss) from discontinued operations                    --          340               --      (53,491)
                                                     -----------  -----------      -----------  -----------
Loss before extraordinary gain                          (491,995)    (149,943)      (1,039,909)    (275,470)
Extraordinary gain                                       223,664           --          223,664           --
                                                     -----------  -----------      -----------  -----------
Net loss                                                (268,331)    (149,943)        (816,245)    (275,470)
Preferred stock dividends and amortization of
   preferred stock issuance costs                         (4,403)        (540)         (13,168)        (540)
                                                     -----------  -----------      -----------  -----------
Net loss attributable to common stockholders         $  (272,734) $  (150,483)     $  (829,413) $  (276,010)
                                                     ===========  ===========      ===========  ===========
Basic and diluted earnings (loss) per share:
   Loss from continuing operations attributable to
     common stockholders                             $    (1.01)  $     (.32)      $    (2.17)  $     (.47)
   Income (loss) from discontinued operations                 --           --               --        (.12)
                                                     -----------  -----------      -----------  -----------
   Loss before extraordinary gain                         (1.01)        (.32)           (2.17)        (.59)
   Extraordinary gain                                       .46            --              .46           --
                                                     -----------  -----------      -----------  -----------
   Net loss attributable to common stockholders      $     (.55)  $     (.32)      $    (1.71)  $     (.59)
                                                     ===========  ===========      ===========  ===========
   Weighted average shares outstanding                   491,979      464,135          485,336      464,058
</TABLE>


                             See accompanying notes.




                                       2
<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                    SEPTEMBER 30,     DECEMBER 31,
                                                                                        2001              2000
                                                                                     -----------      -----------
                                                                                           (IN THOUSANDS)
<S>                                                                                  <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                         $   390,901      $   213,888
   Short-term investments                                                              1,043,492          395,184
   Receivables less allowance of $34,387,000 ($21,501,000 in 2000)                       386,465          291,706
   Net assets of discontinued operations                                                  65,973          288,384
   Net assets held for sale                                                              142,897               --
   Other                                                                                  21,232           17,252
                                                                                     -----------      -----------
Total current assets                                                                   2,050,960        1,206,414
Investments                                                                               82,295          619,852
Property, plant and equipment, net                                                     5,752,363        5,138,984
Goodwill and other intangibles, net                                                       75,591          103,231
Other assets and deferred charges                                                        436,962          340,804
                                                                                     -----------      -----------
Total assets                                                                         $ 8,398,171      $ 7,409,285
                                                                                     ===========      ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                  $   400,769      $   419,863
   Deferred income                                                                       121,524          107,931
   Accrued liabilities                                                                   380,743          401,858
   Long-term debt due within one year                                                     31,274               --
                                                                                     -----------      -----------
Total current liabilities                                                                934,310          929,652
Long-term debt                                                                         5,245,378        4,526,706
Other liabilities and deferred income                                                    408,357          453,905
Minority interest in consolidated subsidiaries                                            47,922           45,028
Commitments and contingencies
   6.75% redeemable cumulative convertible preferred stock, $0.01 par value,
   500.0 million shares authorized, 5.0 million shares outstanding in 2001
   and 2000, respectively; aggregate liquidation preference of $250,000,000              242,159          240,722
Stockholders' equity:
   Class A common stock, $0.01 par value, 1 billion shares authorized,
     490.7 million shares and 68.2 million shares outstanding in 2001
     and 2000, respectively                                                                4,907              682
   Class B common stock, $0.01 par value, 500 million shares
     authorized, 395.4 million shares outstanding in 2000                                     --            3,954
   Capital in excess of par value                                                      3,848,239        2,659,136
   Accumulated deficit                                                                (2,310,794)      (1,494,549)
   Accumulated other comprehensive income (loss)                                         (22,307)          44,049
                                                                                     -----------      -----------
Total stockholders' equity                                                             1,520,045        1,213,272
                                                                                     -----------      -----------
Total liabilities and stockholders' equity                                           $ 8,398,171      $ 7,409,285
                                                                                     ===========      ===========
</TABLE>


                             See accompanying notes.


                                       3

<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                                                      2001             2000
                                                                   -----------      -----------
                                                                          (IN THOUSANDS)
<S>                                                                <C>              <C>
OPERATING ACTIVITIES
Loss from continuing operations                                    $(1,039,909)     $  (221,979)
Adjustments to reconcile net loss to net cash provided by
   (used in) operating activities:
   Depreciation and amortization                                       339,239          117,506
   Provision for deferred income taxes                                  51,937          113,020
   Provision for loss on assets held for sale                          150,000               --
   Provision for loss on property, plant and equipment and
     other assets                                                       25,994               --
   Provision for loss on investments                                   135,734           20,025
   Provision for doubtful accounts                                      20,977            3,782
   Equity losses                                                        29,885            9,748
   Gain on sale of investments                                        (107,442)        (124,852)
   Gain on conversion of common stock investment                            --         (214,732)
   Minority interest in loss of consolidated subsidiaries              (19,978)          (9,420)
   Cash provided by (used in) changes in:
     Receivables                                                      (165,258)        (116,448)
     Other current assets                                              (11,921)          (1,995)
     Accounts payable                                                  (75,343)         166,046
     Current deferred income                                             8,474           51,096
     Accrued liabilities                                               106,623          (24,761)
     Long-term deferred income                                         164,312          190,771
     Other                                                               5,370          (13,586)
                                                                   -----------      -----------
Net cash used in operating activities                                 (381,306)         (55,779)

FINANCING ACTIVITIES
Proceeds from notes payable                                                 --           38,185
Proceeds from long-term debt                                         2,433,910        1,631,983
Payments on and repurchase of long-term debt                          (467,843)        (110,524)
Proceeds from issuance of common stock, net of
   expenses                                                              3,671            3,157
Proceeds from issuance of preferred stock, net of
   expenses                                                                 --          240,500
Debt issue costs                                                       (40,129)         (28,664)
Contribution to subsidiary from minority interest
   shareholders                                                         31,694               --
Changes in due to The Williams Companies, Inc.                              --           (6,250)
                                                                   -----------      -----------
Net cash provided by financing activities                            1,961,303        1,768,387

INVESTING ACTIVITIES
Property, plant and equipment:
   Capital expenditures                                             (1,182,013)      (2,483,221)
   Proceeds from sales                                                  20,852           19,048
Purchase of investments                                             (2,189,613)      (1,437,505)
Proceeds from sales of investments                                   1,738,072        1,891,962
Acquisition of business (primarily property, plant and
   equipment)                                                          (13,019)              --
Other                                                                      326            7,882
                                                                   -----------      -----------
Net cash used in investing activities                               (1,625,395)      (2,001,834)

DISCONTINUED OPERATIONS
Net cash provided by (used in) operating activities                     17,424           (7,479)
Net cash provided by (used in) investing activities                    204,987          (24,644)
                                                                   -----------      -----------
Net cash provided by (used in) discontinued operations                 222,411          (32,123)
                                                                   -----------      -----------
Increase (decrease) in cash and cash equivalents                       177,013         (321,349)
Cash and cash equivalents at beginning of period                       213,888          483,853
                                                                   -----------      -----------
Cash and cash equivalents at end of period                         $   390,901      $   162,504
                                                                   ===========      ===========
</TABLE>

                             See accompanying notes.


                                       4

<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

     The accompanying interim consolidated financial statements of Williams
Communications Group, Inc. (WCG) do not include all notes in annual financial
statements and therefore should be read in conjunction with the consolidated
financial statements and notes thereto in WCG's Annual Report on Form 10-K/A.
The accompanying financial statements have not been audited by independent
auditors but include all normal recurring adjustments, which, in the opinion of
WCG's management, are necessary to present fairly its financial position as of
September 30, 2001, results of operations for the three and nine months ended
September 30, 2001 and 2000 and cash flows for the nine months ended September
30, 2001 and 2000.

2.   DISCONTINUED OPERATIONS

     On January 25, 2001, WCG's board of directors authorized a plan for its
management to divest the Solutions segment. Accordingly, the Solutions segment
has been accounted for as a disposal of a business segment with the associated
operating results segregated and reported as discontinued operations. On January
29, 2001, WCG signed an agreement to sell the domestic, Mexican and Canadian
professional services operations of the Solutions segment to Platinum Equity
LLC. This sale closed on March 31, 2001 for approximately $100 million in cash
and an interest-bearing $75 million promissory note payable over 18 months. WCG
has also entered into a collection agreement as of March 31, 2001 in which
Platinum Equity LLC will pursue the collection of certain identified retained
accounts receivables totaling approximately $200 million. Subject to a
collection fee, Platinum Equity LLC will remit the proceeds collected to WCG
while WCG retains the collection risk.

     On March 27, 2001, WCG signed an agreement to sell its remaining Canadian
operations of the Solutions segment to Telus Corporation. The sale closed in
second quarter 2001 for approximately $38 million in cash.

     The net assets of discontinued operations as of September 30, 2001 consist
primarily of certain identified retained accounts receivables, net of allowance
for doubtful accounts, and the promissory note partially offset by accruals for
costs of disposal of discontinued operations.

3.   SEGMENT REVENUES AND PROFIT (LOSS)

     WCG evaluates performance based upon segment profit or loss from operations
which includes revenues from external and internal customers, equity earnings or
losses, operating costs and expenses, depreciation and amortization, and income
or loss from investments and excludes allocated charges from The Williams
Companies, Inc. (TWC). Intercompany sales are generally made on terms similar to
sales to unaffiliated third parties, that is, at current market prices.


                                       5

<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 BROADBAND     STRATEGIC
                                                   NETWORK         MEDIA      INVESTMENTS    ELIMINATIONS      TOTAL
                                                 -----------   ------------   ------------   ------------   -----------
                                                                             (IN THOUSANDS)
<S>                                              <C>           <C>            <C>            <C>            <C>
THREE MONTHS ENDED SEPTEMBER 30, 2001
Revenues:
   External customers:
     Capacity and other                          $   254,651   $     43,125   $         --   $         --   $   297,776
                                                 -----------   ------------   ------------   ------------   -----------
   Total external customers                          254,651         43,125             --             --       297,776
   Intercompany                                       16,449            115             --        (16,564)           --
                                                 -----------   ------------   ------------   ------------   -----------
Total segment revenues                           $   271,100   $     43,240   $         --   $    (16,564)  $   297,776
                                                 ===========   ============   ============   ============   ===========
Costs of sales:
   Capacity and other                            $   221,491   $     22,682   $         --   $         --   $   244,173
   Intercompany                                          115         16,449             --        (16,564)           --
                                                 -----------   ------------   ------------   ------------   -----------
Total cost of sales                              $   221,606   $     39,131   $         --   $    (16,564)  $   244,173
                                                 ===========   ============   ============   ============   ===========
Segment profit (loss):
   Loss from operations                          $  (340,186)  $    (27,318)  $       (868)  $         --   $  (368,372)
   Equity earnings (losses)                            2,659        (20,067)        (3,269)            --       (20,677)
   Income (loss) from investments                    (12,927)        (4,065)        20,105             --         3,113
                                                 -----------   ------------   ------------   ------------   -----------
Total segment profit (loss)                      $  (350,454)  $    (51,450)  $     15,968   $         --   $  (385,936)
                                                 ===========   ============   ============   ============   ===========
Depreciation and amortization                    $   137,232   $      9,220   $        156   $         --   $   146,608
</TABLE>








                                       6








<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                BROADBAND    STRATEGIC
                                                  NETWORK         MEDIA     INVESTMENTS   ELIMINATIONS       TOTAL
                                                ------------  ------------  ------------  ------------    -----------
                                                                             (IN THOUSANDS)
<S>                                              <C>           <C>            <C>            <C>            <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenues:
   External customers:
     Dark fiber                                 $      2,542  $         --  $         --  $         --    $     2,542
     Capacity and other                              166,901        39,871            --            --        206,772
                                                ------------  ------------  ------------  ------------    -----------
   Total external customers                          169,443        39,871            --            --        209,314
   Intercompany                                        8,780           137            --        (8,917)            --
                                                ------------  ------------  ------------  ------------    -----------
Total segment revenues                          $    178,223  $     40,008  $         --  $     (8,917)   $   209,314
                                                ============  ============  ============  ============    ===========
Costs of sales:
   Dark fiber                                   $      2,736  $         --  $         --  $         --    $     2,736
   Capacity and other                                187,931        23,651             7            --        211,589
   Intercompany                                          137         8,780            --        (8,917)            --
                                                ------------  ------------  ------------  ------------    -----------
Total cost of sales                             $    190,804  $     32,431  $          7  $     (8,917)   $   214,325
                                                ============  ============  ============  ============    ===========
Segment loss:
   Loss from operations                         $   (109,460) $    (10,232) $     (1,437) $         --    $  (121,129)
   Equity earnings (losses)                            2,475        (1,093)       (3,975)           --         (2,593)
   Income from investments                            20,210            --            --            --         20,210
   Add back - allocated charges from
     TWC                                               1,723           401           144            --          2,268
                                                ------------  ------------  ------------  ------------    -----------
Total segment loss                              $    (85,052) $    (10,924) $     (5,268) $         --    $  (101,244)
                                                ============  ============  ============  ============    ===========
Depreciation and amortization                   $     39,924  $      7,071  $         69  $         --    $    47,064
</TABLE>











                                       7







<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                BROADBAND    STRATEGIC
                                                  NETWORK         MEDIA     INVESTMENTS    ELIMINATIONS       TOTAL
                                               -----------    -----------   ------------   ------------    ------------
                                                                             (IN THOUSANDS)
<S>                                            <C>           <C>            <C>            <C>            <C>
NINE MONTHS ENDED SEPTEMBER 30, 2001
Revenues:
   External customers:
     Dark fiber                                $     9,101    $        --   $         --   $         --    $      9,101
     Capacity and other                            722,834        123,243             --             --         846,077
                                               -----------    -----------   ------------   ------------    ------------
   Total external customers                        731,935        123,243             --             --         855,178
   Intercompany                                     43,083            314             --        (43,397)             --
                                               -----------    -----------   ------------   ------------    ------------
Total segment revenues                         $   775,018    $   123,557   $         --   $    (43,397)   $    855,178
                                               ===========    ===========   ============   ============    ============
Costs of sales:
   Dark fiber                                  $     3,177    $        --  $          --   $         --    $      3,177
   Capacity and other                              671,546         71,047             --             --         742,593
   Intercompany                                        314         43,083             --        (43,397)             --
                                               -----------    -----------   ------------   ------------    ------------
Total cost of sales                            $   675,037    $   114,130   $         --   $    (43,397)   $    745,770
                                               ===========    ===========   ============   ============    ============
Segment profit (loss):
   Loss from operations                        $  (594,584)   $   (58,905)  $     (3,309)  $         --    $   (656,798)
   Equity earnings (losses)                          3,780        (20,197)       (13,468)            --         (29,885)
   Income (loss) from investments                  (44,332)        (4,065)        20,105             --         (28,292)
   Add back - allocated charges from
     TWC                                             3,786            330             83             --           4,199
                                               -----------    -----------   ------------   ------------    ------------
Total segment profit (loss)                    $  (631,350)   $   (82,837)  $      3,411   $         --    $   (710,776)
                                               ===========    ===========   ============   ============    ============
Depreciation and amortization                  $   314,234    $    24,626   $        379   $         --    $    339,239
</TABLE>



                                       8

<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                                BROADBAND     STRATEGIC
                                                  NETWORK         MEDIA      INVESTMENTS  ELIMINATIONS     TOTAL
                                               ------------   ------------  ------------  ------------   -----------
                                                                           (IN THOUSANDS)
<S>                                            <C>            <C>           <C>           <C>            <C>
NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenues:
   External customers:
     Dark fiber                                $     33,967   $         --  $         --  $         --   $    33,967
     Capacity and other                             395,627        122,447            --            --       518,074
                                               ------------   ------------  ------------  ------------   -----------
   Total external customers                         429,594        122,447            --            --       552,041
   Intercompany                                      24,538            239            --       (24,777)           --
                                               ------------   ------------  ------------  ------------   -----------
Total segment revenues                         $    454,132   $    122,686  $         --  $    (24,777)  $   552,041
                                               ============   ============  ============  ============   ===========
Costs of sales:
   Dark fiber                                  $     20,767   $         --  $         --  $         --   $    20,767
   Capacity and other                               486,699         71,653            18            --       558,370
   Intercompany                                         239         24,538            --       (24,777)           --
                                               ------------   ------------  ------------  ------------   -----------
Total cost of sales                            $    507,705   $     96,191  $         18  $    (24,777)  $   579,137
                                               ============   ============  ============  ============   ===========
Segment profit (loss):
   Loss from operations                        $   (304,215)  $    (24,050) $     (5,152) $         --   $  (333,417)
   Equity earnings (losses)                           3,510         (4,640)       (8,618)           --        (9,748)
   Income from investments                          303,025             --        20,233            --       323,258
   Add back - allocated charges from
     TWC                                              5,034          1,173           418            --         6,625
                                               ------------   ------------  ------------  ------------   -----------
Total segment profit (loss)                    $      7,354   $    (27,517) $      6,881  $         --   $   (13,282)
                                               ============   ============  ============  ============   ===========
Depreciation and amortization                  $     95,887   $     21,313  $        306  $         --   $   117,506
</TABLE>


<TABLE>
<CAPTION>
                                     TOTAL ASSETS
                           -------------------------------
                           SEPTEMBER 30,      DECEMBER 31,
                               2001                2000
                           -----------        ------------
                                     (IN THOUSANDS)
<S>                        <C>                <C>
Network                    $ 6,402,419        $  6,025,728
Broadband Media                236,226             210,840
Strategic Investments          127,187             506,813
Corporate                    1,566,366             377,520
Discontinued Operations         65,973             288,384
                           -----------        ------------
  Total                    $ 8,398,171        $  7,409,285
                           ===========        ============
</TABLE>



                                       9



<PAGE>

                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)



4.   OTHER EXPENSES

     In third quarter 2001, WCG completed an analysis of previously purchased
equipment not utilized in its network build. Based on this analysis, WCG
reclassified $142.9 million from property, plant and equipment to assets held
for sale, net of valuation adjustments recorded to other expense of $150.0
million.

     In third quarter 2001, WCG completed a company-wide effort to analyze its
operating costs and capital spending to ensure these costs are consistent with
its business plan goals. As part of this analysis, WCG reviewed its workforce
requirements and identified approximately 400 positions that were eliminated in
July 2001. In addition, WCG prioritized its capital expenditures program and
suspended certain capital projects which resulted in expensing any amounts
previously capitalized. WCG recognized expenses of $30.0 million related to
suspended capital projects and severance in third quarter 2001.

     In third quarter 2001, WCG recorded an expense of $11.3 million related to
the impairment of goodwill associated with satellite operations within the
Broadband Media segment.

     WCG recorded other operating income of $8 million in second quarter 2001
relating to a settlement of a claim.

5.   INVESTING INCOME (LOSS)

     Equity losses

     In third quarter 2001, WCG incurred equity losses of $20.0 million related
to an investment entered into in third quarter 2001 with iBEAM Broadcasting
Corp. (iBEAM). Under the terms of the agreement, WCG invested $20 million in
cash and agreed to provide $10 million of future services to iBEAM in exchange
for convertible preferred stock of iBEAM representing approximately a 49%
ownership of the company. In October 2001, WCG entered into an agreement to
purchase substantially all assets and assume certain liabilities of iBEAM,
including substantially all of iBEAM's customer contracts and facility and
equipment leases, for $25 million. The transaction includes a loan of operating
funds from WCG to ensure uninterrupted operations of iBEAM until consummation of
the assets sale, at which time the loan will be repaid from the proceeds of the
sale. Concurrently, iBEAM announced that it had filed for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code. WCG's agreement to purchase the iBEAM
assets and the related loan are subject to bankruptcy court approval, and the
purchase of assets is further subject to an auction to be conducted under the
auspices of the bankruptcy court. On November 1, 2001, the bankruptcy court
approved the WCG loan and established procedures for the auction. In third
quarter 2001 and until approval of the purchase is obtained from the bankruptcy
court, WCG is accounting for its investment in iBEAM under the equity method of
accounting.

     Income (loss) from investments

     WCG entered into an agreement with America Movil, S.A. de C.V. in second
quarter 2001 to sell its remaining economic interest in Algar Telecom Leste,
S.A. (ATL). The agreement closed in third quarter 2001 and WCG received $309.6
million in cash with an additional $90.0 million due from America Movil, S.A. de
C.V. on May 15, 2002. WCG recognized a gain from the sale of $45.1 million.

     WCG sold portions of its investments in certain marketable equity
securities for gross realized gains of $61.9 million and gross realized losses
of $40.5 million for the nine months ended September 30, 2001. Gross realized



                                       10

<PAGE>

                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


gains were $40.2 million and $108.3 million for the three and nine months ended
September 30, 2000, respectively.

     WCG recognized a loss of $42.0 million and $135.7 million for the three and
nine months ended September 30, 2001, respectively, and $20.0 million for both
the three and nine months ended September 30, 2000 related to write-downs of
certain investments resulting from management's determination that the decline
in the value of these investments was other than temporary.

     WCG also recorded income of $40.9 million for the nine months ended
September 30, 2001 from the change in the market value of cashless collars on
certain marketable equity securities in accordance with Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended since the cashless collars did not qualify as a
hedge. Cashless collars were terminated during the first half of 2001 yielding
proceeds of $40.9 million. WCG has no cashless collars in place as of September
30, 2001.

     In second quarter 2000, WCG recognized a gain of $214.7 million (before a
deferred tax provision impact of $82.1 million) from the conversion of WCG's
shares of common stock of Concentric Network Corporation into shares of common
stock of XO Communications, Inc. pursuant to a merger of those companies
completed in June 2000.

     In a series of transactions in first quarter 2000, WCG recognized a $16.5
million gain related to the partial sale of WCG's interest in ATL to an entity
jointly owned by SBC Communications, Inc. (SBC) and Telefonos de Mexico S.A. de
C.V. The sale of the investment in ATL, which had a carrying value of $30
million, yielded proceeds of approximately $168 million. WCG recognized a gain
on the sale of $16.5 million and deferred a gain of approximately $121 million
associated with $150 million of the proceeds which were subsequently advanced to
ATL.

     WCG recognized a $3.7 million gain for the three months ended March 31,
2000 related to dividends received from certain cost-based investments.

6.   BENEFIT (PROVISION) FOR INCOME TAXES

     The benefit (provision) for income taxes includes:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                NINE MONTHS ENDED
                                                            SEPTEMBER 30,                    SEPTEMBER 30,
                                                    ------------------------------   ------------------------------
                                                        2001            2000             2001             2000
                                                    -----------     -----------      -----------      -----------
                                                                            (IN THOUSANDS)
<S>                                                 <C>             <C>              <C>              <C>
Current:
   Federal                                          $        --     $        --      $        --      $      (758)
   State                                                    (61)            (23)             (87)             (95)
   Foreign                                                   --              --               --               --
                                                    -----------     -----------      -----------      -----------
                                                            (61)            (23)             (87)            (853)
Deferred:
   Federal                                                  325          (7,864)         (43,507)        (101,522)
   State                                                     60          (3,455)          (8,434)         (20,142)
   Foreign                                                   --           1,749                4            8,644
                                                    -----------     -----------      -----------      -----------
                                                            385          (9,570)         (51,937)        (113,020)
                                                    -----------     -----------      -----------      -----------
     Total benefit (provision)                      $       324     $    (9,593)     $   (52,024)     $  (113,873)
                                                    ===========     ===========      ===========      ===========
</TABLE>


                                       11


<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)



     The tax benefit (provision) for the three and nine months ended September
30, 2001 is significantly less than the benefit expected from applying the
federal statutory rate to pre-tax losses primarily due to a valuation allowance
established for WCG's net deferred tax assets. The valuation allowance fully
reserves WCG's net deferred tax assets, primarily resulting from net operating
loss carryforwards, as WCG does not believe it is more likely than not that the
net deferred tax assets will be realized. During the nine months ended September
30, 2001, reductions to the fair value of marketable equity securities reduced
the associated deferred tax liabilities creating additional net deferred tax
assets for which the utilization has not yet been demonstrated. The deferred tax
provision for this period results from a valuation allowance created to fully
reserve these additional net deferred tax assets.

     The tax provisions for the three and nine months ended September 30, 2000
are significantly less than the benefit expected from applying the federal
statutory rate to the pre-tax loss primarily due to a valuation allowance
established for uncertainties arising from application of the tax sharing
agreement with TWC that may affect the utilization of loss carryforwards as well
as state income taxes and the impact of net foreign losses not deductible for
U.S. tax purposes. In addition, for the nine months ended September 30, 2000,
the tax provision is partially offset by a tax benefit from the permanent basis
differences on certain assets sold during first quarter 2000.

     Effective with the spin-off of WCG from TWC, the existing tax sharing
agreement with TWC was amended to address pre spin-off tax attributes. Under the
amendment, TWC retains all rights and obligations with respect to tax attributes
of WCG for all periods prior to WCG's initial public offering. In the event of
any final determination with respect to a WCG tax attribute that arose from the
time of WCG's initial public offering to the date of the spin-off of WCG from
TWC, WCG will pay TWC for any determination resulting in a detriment as compared
to previous amounts filed and TWC shall pay WCG for any determination resulting
in favorable tax consequences as compared to amounts filed. Tax attributes of
WCG arising subsequent to the spin-off date are rights and obligations of WCG.

7.   EARNINGS (LOSS) PER SHARE

     For the periods presented, diluted loss per common share is the same as the
basic calculation as the inclusion of any stock options and convertible
preferred stock would be antidilutive since WCG reported a loss from continuing
operations for these periods. Stock options and convertible preferred stock of
9.2 million shares and 11.2 million shares for the three and nine months ended
September 30, 2001, respectively, and 2.0 million shares for both the three and
nine months ended September 30, 2000 have been excluded from the computation of
diluted loss per common share.


                                       12

<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


8.   DEBT AND OTHER FINANCING ARRANGEMENTS

     Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                  SEPTEMBER 30,     DECEMBER 31,
                                                       2001             2000
                                                   -----------      -----------
                                                          (IN THOUSANDS)
<S>                                                <C>              <C>
Senior redeemable notes, 10.70% - 11.875%, due
   2007 - 2010                                     $ 2,569,525      $ 2,986,598
8.25% senior secured notes due 2004                  1,400,000               --
Credit facility                                        975,000          525,000
TWC note                                                    --          975,610
Other                                                  332,127           39,498
                                                   -----------      -----------
                                                     5,276,652        4,526,706
Less current maturities                                (31,274)              --
                                                   -----------      -----------
Long-term debt                                     $ 5,245,378      $ 4,526,706
                                                   ===========      ===========
</TABLE>

     Senior redeemable notes

     In third quarter 2001, WCG began repurchasing a portion of its senior
redeemable notes in the open market. As of September 30, 2001, WCG had purchased
$419.3 million of its senior redeemable notes at an average price of 44% of face
value which resulted in an extraordinary gain of $223.7 million (net of a zero
provision for income taxes) including the recognition of deferred costs and debt
discounts related to the repurchased senior redeemable notes.

     Subsequent to September 30, 2001, WCG has purchased an additional $131.7
million of its senior redeemable notes. This brings the total senior redeemable
notes repurchased to $551.0 million at a total average price of 43% of face
value.

     8.25% senior secured notes

     In March 2001, WCG Note Trust, which is wholly-owned by Williams
Communications, LLC (WCL), a wholly-owned subsidiary of WCG, issued
approximately $1.4 billion of 8.25% senior secured notes in a private placement.
The notes are due March 15, 2004 with the principal payment due in full at
maturity and interest payments due semi-annually in arrears on March 15 and
September 15 of each year beginning September 15, 2001. The notes may be repaid
at varying redemption premiums or make-whole prices, as defined.

     The senior secured notes are backed by a $1.5 billion note issued by WCG to
WCG Note Trust which is eliminated in consolidation. The note issued by WCG
ranks equal to all of WCG's existing and future senior unsecured debt, will be
senior to all of WCG's subordinated debt and junior to any secured debt WCG may
incur as to the assets securing such debt. The note issued by WCG will mature on
March 31, 2008, and will bear interest at an annual rate of 8.25% until
September 15, 2003, at which time the interest rate will be reset in accordance
with the terms of such note. Interest on this note is payable semiannually one
business day prior to the interest payment dates with respect to the senior
secured notes. Under the terms of the note issued by WCG to WCG Note Trust,
principal payments under the senior secured notes will be met by remarketing to
the public the note issued by WCG to WCG Note Trust to enable a sale at a price
which will generate proceeds sufficient to redeem the senior secured notes.


                                       13

<PAGE>

                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


     TWC provided indirect credit support for the senior secured notes through a
commitment to issue its preferred stock in the event of a default under the
senior secured notes.

     Long-term credit facility

     WCG's long-term credit facility consists of a $525 million senior
amortizing term loan facility maturing September 2006 and a $525 million senior
reducing revolving credit facility maturing September 2005. WCG borrowed $525
million under the term loan facility in September 2000. In April 2001, WCG
closed an add-on of $450 million to its senior amortizing term loan facility
maturing 2006. In April 2001, WCG borrowed $450 million under the add-on
facility. Outstanding borrowings under the credit facility bear interest based
on WCG's credit ratings, currently a variable rate of LIBOR plus 3.00%. As of
September 30, 2001, the interest rate payable under the $525 million facility
was 7.25%, which on November 9, 2001 changed to 5.00% locked in until May 9,
2002 and under the $450 million add-on facility was 7.31%, which on October 29,
2001 changed to 5.31% locked in until January 29, 2002.

     In connection with the add-on to the credit facility, WCG was required to
grant to the lenders a security interest in substantially all of the domestic
assets of WCG except for certain assets such as any land or interest in land and
any Broadband Media related assets. However, due to the downgrade of WCG's
credit rating discussed below, the credit facility lenders were entitled to and
requested liens on substantially all of WCG's assets that were not previously
secured under the credit facility. WCG also received a commitment, subject to
various conditions, to further increase its credit facility by $300 million
which would bring the total size of the credit facility to $1.8 billion.
However, it is not likely that WCG can, or will, access this $300 million
commitment unless market conditions improve.

     On July 19, 2001, Moody's Investor Service announced that it lowered
various credit ratings of WCG. The announcement stated that contributing to this
change is the tax-free spin-off from TWC and the potential impact the current
economic slowdown could have on both the telecommunications industry and WCG's
operating results. This downgrade increased the borrowing rate on WCG's credit
facility from LIBOR plus 2.75% to LIBOR plus 3.00% and could potentially limit
or increase the cost of public or private financings.

     WCG has various debt covenants relating to its credit facility, all of
which have been complied with through September 30, 2001. One of the covenants
requires WCG to consummate transactions resulting in net cash proceeds in the
aggregate amount of at least $500 million by December 31, 2001. Of that amount,
at least $150 million must be in the form of equity. As discussed below, $276
million of the obligation was received in third quarter 2001 through the sale
and subsequent leaseback of WCG's Technology Center and other ancillary assets.
In October 2001, the credit facility was amended to extend the date by which WCG
is required to raise the additional $224 million from December 31, 2001 to July
1, 2003. In connection with the amendment, WCG agreed to work jointly with its
bank group and the bank group's financial advisor to perform a more
comprehensive review of the credit agreement. The review is expected to result
in an additional amendment that would address WCG's current capital structure,
reduced capital expenditure requirements and the overall market environment.
This review and the resulting amendment are expected to be completed in January
2002. WCG agreed to continue to operate under its current budget and not to
purchase any of its senior redeemable notes or other indebtedness for cash
pending completion of this review.

     TWC note

     In February 2001, TWC and WCG entered into an agreement that, among other
things, resulted in the exchange of the TWC note for WCG's equity (see Note 9).


                                       14

<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


     Other

     In September 2001, WCG sold its new Technology Center building and other
ancillary assets to TWC for approximately $276 million in cash. Concurrent with
the sale, WCG leased the Technology Center building and other ancillary assets
back for a period of ten years with varying payment terms. WCG has an option to
repurchase and TWC has the right to sell the Technology Center building to WCG
at the expiration date of the lease for approximately $92 million. WCG also has
the option to repurchase and TWC has the right to sell certain ancillary assets
to WCG at the expiration date of the lease at their stated fair market value per
the lease. In the event neither WCG nor TWC exercise these options, the property
would transfer to TWC. The current portion of the obligation is $28.9 million as
of September 30, 2001.

     In first quarter 2001, PowerTel paid off its 70 million Australian dollar
bridge financing facility agreement with a portion of the proceeds received from
the completion of a 110 million Australian dollar equity rights offering. In
first quarter 2001, PowerTel also entered into a 150 million Australian dollar
bank facility agreement due March 2006 with a variable interest rate as defined
in the agreement. As of September 30, 2001, PowerTel borrowed 45 million
Australian dollars (or approximately $22.2 million) under the bank facility
agreement at an interest rate of 7.7%.

     Other financing arrangements

     As of September 30, 2001, WCG owes TWC approximately $100 million for
various normal course services which is included in accounts payable. WCG
elected to defer payment of these payables until March 15, 2002 at an interest
rate of 8.25%.

9.   STOCKHOLDERS' EQUITY

     In February 2001, TWC and WCG entered into an agreement that, among other
things, resulted in the transfer of ownership of a building under construction
and other assets from TWC to WCG, the conversion of the TWC note into paid in
capital and the issuance of 24.3 million shares of WCG Class A common stock.
WCG's total equity increased by approximately $1.1 billion as a result of this
transaction.

     In March 2001, TWC's board of directors approved a tax-free spin-off of WCG
to TWC's shareholders. TWC owned 24,265,892 of WCG Class A common stock shares
outstanding and 395,434,965 of Class B common stock shares outstanding which it
converted to Class A shares prior to the spin-off. After the close of the market
on April 23, 2001, TWC distributed 398,500,000 shares, or approximately 95% of
the WCG common stock it currently owned, to holders of TWC common shares on a
pro rata basis by distributing approximately 0.822399 of a share of WCG Class A
common stock as a dividend on each share of TWC common stock outstanding on the
record date. Following the distribution, TWC retained 21,200,857 shares of WCG
Class A common stock which TWC has committed to the Internal Revenue Service
(IRS) to sell within five years of the tax-free spin-off. However, under a
separation agreement between TWC and WCG, subject to the receipt of a favorable
letter ruling from the IRS which has been requested, TWC has agreed not to sell
any shares before April 23, 2004.


                                       15

<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


10.  COMPREHENSIVE LOSS

     Comprehensive loss is as follows:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED            NINE MONTHS ENDED
                                                            SEPTEMBER 30,                SEPTEMBER 30,
                                                      ------------------------      ------------------------
                                                         2001          2000          2001             2000
                                                      ---------      ---------      ---------      ---------
                                                                          (IN THOUSANDS)
<S>                                                   <C>            <C>            <C>            <C>
Net loss                                              $(268,331)     $(149,943)     $(816,245)     $(275,470)
   Other comprehensive income (loss):
       Unrealized gain (loss) on securities             (10,807)       275,031       (209,777)       614,895
       Less:  reclassification adjustment for net
        (gains) losses realized in net loss              12,325        (40,235)        64,648       (323,050)
                                                      ---------      ---------      ---------      ---------
        Net unrealized gain (loss)                        1,518        234,796       (145,129)       291,845
        Foreign currency translation adjustments         58,396        (14,158)        23,855        (29,057)
                                                      ---------      ---------      ---------      ---------
   Other comprehensive income (loss) before
        taxes                                            59,914        220,638       (121,274)       262,788
   Income tax benefit (provision) on other
        comprehensive income (loss)                        (386)       (91,336)        54,918       (113,571)
                                                      ---------      ---------      ---------      ---------
Comprehensive loss                                    $(208,803)     $ (20,641)     $(882,601)     $(126,253)
                                                      =========      =========      =========      =========
</TABLE>

11.  COMMITMENTS AND CONTINGENCIES

     Commitments

     In April 2001, Winstar announced it filed for protection under Chapter 11
of the U.S. Bankruptcy Code. This announcement followed a series of
announcements by Winstar including that it would reduce its workforce by
approximately 44% and halt the expansion of its network.

     In September 2001, WCG reached a bankruptcy settlement agreement with
Winstar. Under the bankruptcy settlement agreement, WCG and Winstar have amended
their 1998 agreement for WCG's 25-year indefeasible right to use a percentage of
the wireless local capacity of Winstar. The amendment limits WCG's total capital
expenditures for capacity on 200 of 270 hubs, or antenna sites, to the amount
which was paid before March 31, 2001 of approximately $300 million, increases
the amount of capacity WCG can utilize on the 200 hubs and cancels WCG's
remaining payments for the undelivered hubs. The amendment also shortens the
term of the original agreement to a 20-year term ending July 2021 from the
original termination in December 2023. As noted in WCG's Form 8-K filed April
23, 2001, continued development in the bankruptcy proceedings could still impair
WCG's ability to realize or recover its investment in the wireless hub capacity.

     Under the bankruptcy settlement agreement, WCG and Winstar entered into a
mutual release of claims against each other for services and payments provided
or made to each other prior to June 30, 2001. WCG agreed to provide services to
Winstar while Winstar is under bankruptcy protection. Payment for on-network
services will be deferred and secured on an equal and pro-rata basis with
Winstar's post-bankruptcy lenders. Any off-network services must be paid for in
cash on a monthly basis. Winstar also released any claims over two fibers in
which it had a right to use and two fibers in which it had an option to purchase
a right to use.

     Although a number of uncertainties exist in any bankruptcy and the rights
and obligations of Winstar and its creditors will be determined over time in the
bankruptcy court, WCG does not expect that the bankruptcy filing by


                                       16

<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)

Winstar will have a significant impact on its operating results other than the
potential write-down of the wireless hubs as discussed above.

     Litigation

     WCG and WCL are named as defendants in putative class actions purporting to
cover landowners in a state and, in some cases, in the nation, on whose property
WCG installed fiber-optic cable without the permission of the adjacent
landowner. It is likely that additional actions will be filed. WCG believes that
the installation of fiber-optic cable along pipeline, highway and railroad
rights-of-way and other routes it utilizes, does not infringe on the property
rights of adjacent landowners. WCG also believes that class actions are not the
proper legal means to resolve the disputes. While WCG cannot quantify the
financial impact of such claims at this time, if these claims are allowed by the
courts to proceed as class actions and class members prevail on some or all of
their claims, the result could have a material adverse impact upon WCG's
financial position, results of operations and cash flows.

     On July 24, 2001, Thoroughbred Technology and Telecommunications, Inc.
(TTTI) filed suit against WCL for claims which include breach of contract with
respect to a fiber-optic fiber installation project that TTTI was constructing
for itself and others including WCL. TTTI seeks damages in excess of $37
million. WCL alleges various defenses, including significant warranty and breach
of contract claims on the part of TTTI.

     WCG is a party to various other claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of all claims, legal actions and complaints after
consideration of amounts accrued, insurance coverage, or other indemnification
arrangements is not expected to have a materially adverse effect upon WCG's
future financial position, results of operations or cash flows.

12.  RECENT ACCOUNTING STANDARDS

     SFAS No. 133 as amended establishes accounting and reporting standards for
derivative financial instruments. The standard requires that all derivative
financial instruments be recorded on the balance sheet at their fair value.
Changes in fair value of derivatives will be recorded each period in earnings if
the derivative is not a hedge. If a derivative is a hedge, changes in the fair
value of the derivative will either be recognized in earnings offset against the
change in fair value of the hedged asset, liability or firm commitment also
recognized in earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be recognized immediately in earnings. WCG completed
its implementation efforts and adopted these standards effective January 1,
2001. The derivatives identified in the implementation process consisted of a
cashless collar on certain marketable equity securities as well as an interest
rate swap and foreign currency hedge held by an equity investee. The cashless
collar did not qualify as a hedge under SFAS No. 133 as amended. Therefore,
changes in the market value of the cashless collar are realized in the income
statement while changes in the market value of the underlying security are
reflected in accumulated other comprehensive income. The initial impact of these
standards on WCG's results of operations and financial position was not
material.

     In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." These Statements change the accounting for business
combinations, goodwill, and intangible assets. SFAS No. 141 eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001. SFAS
No. 141 further clarifies the criteria to recognize intangible assets separately
from goodwill. The requirements of SFAS No. 141 are effective for any business
combination accounted for by the purchase method that is completed after June
30, 2001.


                                       17


<PAGE>

                       WILLIAMS COMMUNICATIONS GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


     Under SFAS No. 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives (but with no maximum life). The amortization provisions of SFAS No.
142 applies to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001,
adoption of SFAS No. 142 is required in fiscal years beginning after December
15, 2001. During the nine months ended September 30, 2001, WCG recorded
amortization of goodwill and other intangible assets of approximately $6
million. The effect of adoption of SFAS 141 and 142 on WCG's results of
operations and financial position is being evaluated.

     In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The Statement, effective for fiscal years beginning
after June 15, 2002, requires companies to record a liability for asset
retirement obligations in the period in which they are incurred, which typically
could be upon completion of construction or shortly thereafter. The FASB decided
to limit the scope to legal obligations and the liability will be recorded at
fair value. The effect of adoption of this standard on WCG's results of
operations and financial position is being evaluated.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Statement, effective for
fiscal years beginning after December 15, 2001, provides a single accounting
model for long-lived assets to be disposed of and replaces SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The effect of adoption of this standard on WCG's results of
operations and financial position is being evaluated.



                                       18
<PAGE>



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

FORWARD-LOOKING INFORMATION

     Certain matters discussed in this report, excluding historical information,
include forward-looking statements - statements that discuss WCG's expected
future results based on current and pending business operations. WCG makes these
forward-looking statements in reliance on the safe harbor protections provided
under the Private Securities Litigation Reform Act of 1995.

     Forward-looking statements can be identified by words such as
"anticipates," "believes," "expects," "planned," "scheduled" or similar
expressions. Although WCG believes these forward-looking statements are based on
reasonable assumptions, statements made regarding future results are subject to
a number of risks, assumptions, and uncertainties that could cause WCG's actual
results to differ materially from those projected. In addition to risk factors
set forth in WCG's filings with the Securities and Exchange Commission, the
following important factors could cause actual results to differ materially from
any results projected, forecasted, estimated, or budgeted:

     -    The effects of and changes in political and/or economic conditions,
          including inflation, interest rates and monetary conditions, and in
          communications, trade, monetary, fiscal and tax policies in the United
          States and in foreign markets, including Asia, Australia, Europe and
          South America.

     -    The effects of and changes in political and/or economic conditions
          resulting from acts of war and/or terrorism.

     -    Conditions of the capital markets that WCG utilizes to access capital
          to finance operations.

     -    The ability in a cost-effective way to raise capital and manage cash
          to sustain operating cash flow, make capital expenditures, and meet
          debt obligations.

     -    The ability of WCG to adapt to further deterioration in the capital
          markets and the telecommunications industry, particularly as a result
          of the perceived oversupply of bandwidth.

     -    The ability of WCG to meet its debt covenant requirements under its
          debt obligations.

     -    The availability of credit terms more acceptable to WCG than those in
          its existing credit agreements.

     -    The successful collection of the proceeds from the assets retained in
          connection with the sale of the Solutions segment.

     -    The successful collection of the note received from the sale of WCG's
          remaining economic interest in ATL.

     -    The ability to manage operating costs and capital spending without
          limiting revenue growth.

     -    The financial health of WCG's customers and the ability to collect
          revenues from customers.

     -    Changes in the technological, regulatory or business environment
          applicable to WCG or the telecommunications industry generally.

     -    Termination of the SBC strategic alliance or SBC's inability to obtain
          regulatory approval to provide long-distance telecommunications
          services within markets in which it currently provides local services.


                                       19

<PAGE>



     -    Loss of a high volume Network customer.

     -    Technological developments, high levels of competition, lack of
          customer diversification, and general uncertainties of government
          regulation in the telecommunications industry.

     -    The ability to deploy sophisticated technologies on a local-to-global
          basis.

     -    The ability to expand and enhance the network in response to customer
          demands and industry changes.

     -    The ability of Network to timely turn up service requests and minimize
          service interruptions.

     -    The ability to obtain additional capacity for the WCG network from
          other providers.

     -    The ability to expand the WCG network and to deploy the MediaXtranet
          strategy as needed to remain competitive and to maintain leading-edge
          technology.

     -    The ability to successfully market capacity on the WCG network.

     -    The ability of each operating segment to implement successfully key
          systems, such as order entry systems and service delivery systems,
          within currently estimated time frames and budgets.

     -    The ability to develop the "Williams Communications" brand.

     -    The ability, in a cost-effective way, to obtain and maintain necessary
          rights of way for the WCG network.

     -    The realization of revenues from products and services in the early
          stages of development or operation.

     -    Significant competition on pricing and product offerings for Network.

     -    Changes in external competitive market factors that might affect
          results of operations.

     -    The effect of changes in accounting policies.

     -    The ability to attract and retain qualified employees.

     -    The cost and effects of legal and administrative claims and
          proceedings against WCG or its subsidiaries.

     -    The ability to develop financial, management, and operating controls
          to manage costs and rapid growth.

     -    The completion of the purchase and successful integration of the
          assets of iBEAM Broadcasting Corp.

     -    The completion of the purchase and successful integration of the
          assets of CoreExpress, Inc.

     -    The ability to successfully integrate any newly acquired businesses.

                                       20


<PAGE>



RECENT DEVELOPMENTS

     Discontinued operations

     On January 25, 2001, WCG's board of directors authorized a plan for its
management to divest the Solutions segment which provides professional
communications services and sells and installs communications equipment.
Accordingly, the Solutions segment has been accounted for as a disposal of a
business segment with the associated operating results segregated and reported
as discontinued operations. On January 29, 2001, WCG signed an agreement to sell
the domestic, Mexican and Canadian professional services operations of the
Solutions segment to Platinum Equity LLC. This sale closed on March 31, 2001 for
approximately $100 million in cash and an interest-bearing $75 million
promissory note payable over 18 months. WCG has also entered into a collection
agreement as of March 31, 2001 in which Platinum Equity LLC will pursue the
collection of certain identified retained accounts receivables totaling
approximately $200 million. Subject to a collection fee, Platinum Equity LLC
will remit the proceeds collected to WCG while WCG retains the collection risk.

     On March 27, 2001, WCG signed an agreement to sell its remaining Canadian
operations of the Solutions segment to Telus Corporation. The sale closed in
second quarter 2001 for approximately $38 million in cash.

     Tax-free spin-off from Williams

     On March 30, 2001, TWC's board of directors approved a tax-free spin-off of
WCG to TWC's shareholders. On April 23, 2001, TWC distributed approximately 95%
of the WCG common stock held by TWC, to holders of TWC common shares on a pro
rata basis as a dividend distribution. Following the distribution, TWC retained
approximately 5% of WCG's Class A common stock which TWC has committed to the
IRS to sell within five years of the tax-free spin-off. However, under a
separation agreement between TWC and WCG, subject to the receipt of a favorable
letter ruling from the IRS which has been requested, TWC has agreed not to sell
any shares before April 23, 2004.

     Prior to the spin-off of WCG from TWC, WCG received charges from TWC for
certain corporate administrative expenses which were either directly
identifiable or allocable under various methodologies. In conjunction with the
spin-off, WCG has either hired employees to perform these functions or has
entered into service level agreements with TWC for the continuation of services
with initial terms primarily through December 31, 2001. The combined costs of
the additional employees and the costs incurred under the service level
agreements have been approximately the same or less than the amounts incurred
prior to the spin-off. For the nine months ended September 30, 2001, WCG
incurred charges related to the spin-off of $6.8 million.

     Effective with the spin-off of WCG from TWC, the existing tax sharing
agreement with TWC was amended to address pre spin-off tax attributes. Under the
amendment, TWC retains all rights and obligations with respect to tax attributes
of WCG for all periods prior to WCG's initial public offering. In the event of
any final determination with respect to a WCG tax attribute that arose from the
time of WCG's initial public offering to the date of the spin-off of WCG from
TWC, WCG will pay TWC for any determination resulting in a detriment as compared
to previous amounts filed and TWC shall pay WCG for any determination resulting
in favorable tax consequences as compared to amounts filed. Tax attributes of
WCG arising subsequent to the spin-off date are rights and obligations of WCG.

     Credit ratings

     On July 19, 2001, Moody's Investor Service announced that it lowered
various credit ratings of WCG. The announcement stated that contributing to this
change is the tax-free spin-off from TWC and the potential impact the current
economic slowdown could have on both the telecommunications industry and WCG's
operating results. This downgrade increased the borrowing rate on WCG's credit
facility from LIBOR plus 2.75% to LIBOR plus 3.00% and could potentially limit
or increase the cost of public or private financings. In addition,


                                       21

<PAGE>


due to the downgrade the credit facility lenders requested liens on WCG's assets
that were not previously secured under the credit facility.

     Extraordinary gain

     In third quarter 2001, WCG began repurchasing a portion of its senior
redeemable notes in the open market. As of September 30, 2001, WCG had purchased
$419.3 million of its senior redeemable notes at an average price of 44% of face
value which resulted in an extraordinary gain of $223.7 million (net of a zero
provision for income taxes) including the recognition of deferred costs and debt
discounts related to the repurchased senior redeemable notes.

    Subsequent to September 30, 2001, WCG has purchased an additional $131.7
million of its senior redeemable notes. This brings the total senior redeemable
notes repurchased to $551.0 million at a total average price of 43% of face
value.

     Credit facility covenant amendment

     Because of WCG's liquidity and current market conditions, in October 2001,
the credit facility was amended to extend the date by which WCG is required to
raise an additional $224 million of cash from December 31, 2001 to July 1,
2003. In connection with the amendment, WCG agreed to work jointly with its bank
group and the bank group's financial advisor to perform a more comprehensive
review of the credit agreement. The review is expected to result in an
additional amendment that would address WCG's current capital structure, reduced
capital expenditure requirements and the overall market environment. This review
and the resulting amendment are expected to be completed in January 2002. WCG
agreed to continue to operate under its current budget and not to purchase any
of its senior redeemable notes or other indebtedness for cash pending completion
of this review.

     Operating segments

     WCG evaluates performance based upon segment profit or loss from operations
which includes revenues from external and internal customers, equity earnings or
losses, operating costs and expenses, depreciation and amortization, and income
or loss from investments and excludes allocated charges from TWC. WCG is
considering changes to its segment profit or loss from operations definition as
well as a redefinition of its segments.

NETWORK

     Winstar Communications, Inc.

     In April 2001, Winstar announced it filed for protection under Chapter 11
of the U.S. Bankruptcy Code. This announcement followed a series of
announcements by Winstar including that it would reduce its workforce by
approximately 44% and halt the expansion of its network.

     In September 2001, WCG reached a bankruptcy settlement agreement with
Winstar. Under the bankruptcy settlement agreement, WCG and Winstar have amended
their 1998 agreement for WCG's 25-year indefeasible right to use a percentage of
the wireless local capacity of Winstar. The amendment limits WCG's total capital
expenditures for capacity on 200 of 270 hubs, or antenna sites, to the amount
which was paid before March 31, 2001 of approximately $300 million, increases
the amount of capacity WCG can utilize on the 200 hubs and cancels WCG's
remaining payments for the undelivered hubs. The amendment also shortens the
term of the original agreement to a 20-year term ending July 2021 from the
original termination in December 2023. As noted in WCG's Form 8-K filed April
23, 2001, continued development in the bankruptcy proceedings could still impair
WCG's ability to realize or recover its investment in the wireless hub capacity.

     Under the bankruptcy settlement agreement, WCG and Winstar entered into a
mutual release of claims against each other for services and payments provided
or made to each other prior to June 30, 2001. WCG agreed



                                       22
<PAGE>



to provide services to Winstar while Winstar is under bankruptcy protection.
Payment for on-network services will be deferred and secured on an equal and
pro-rata basis with Winstar's post-bankruptcy lenders. Any off-network services
must be paid for in cash on a monthly basis. Winstar also released any claims
over two fibers in which it had a right to use and two fibers in which it had an
option to purchase a right to use.

     Although a number of uncertainties exist in any bankruptcy and the rights
and obligations of Winstar and its creditors will be determined over time in the
bankruptcy court, WCG does not expect that the bankruptcy filing by Winstar will
have a significant impact on its operating results other than the potential
write-down of the wireless hubs as discussed above.

     Reduction of operating costs and capital expenditures program

     In third quarter 2001, WCG completed a company-wide effort to analyze its
operating costs and capital spending to ensure these costs are consistent with
its business plan goals. As part of this analysis, WCG reviewed its workforce
requirements and identified approximately 400 positions that were eliminated in
July 2001. In addition, WCG prioritized its capital expenditures program and
suspended certain capital projects which resulted in expensing amounts
previously capitalized. WCG recognized expenses of $30.0 million related to
suspended capital projects and severance in third quarter 2001.

    These actions led to a review and analysis of previously purchased equipment
not utilized in WCG's network build. Based on this analysis, WCG reclassified
$142.9 million from property, plant and equipment to assets held for sale, net
of valuation adjustments recorded to other expense of $150.0 million.

     Alliance with SBC

     In third quarter 2001, WCG signed a preferred provider status agreement
with the long-distance telephone affiliate of SBC, SBC Long Distance (SBC-LD).
Under the terms of the agreement, WCG is the preferred provider of SBC-LD's
U.S.-originated international long-distance traffic. As part of the transaction,
WCG also acquired two gateway switches from another SBC subsidiary, Ameritech
Global Gateway Services (AGGS), and in turn, WCG assumed the wholesale
international long-distance business currently conducted by AGGS. The gateways
will allow WCG to offer outbound foreign termination and inbound domestic
termination to other carrier customers. In addition, WCG signed an agreement
with SBC to provide long-distance service to Cingular Wireless, a joint venture
between SBC and BellSouth, in the traditional SBC 13-state region.

     WorldCom agreement

     In October 2001, WCG completed a reciprocal, three-year cooperative
agreement with WorldCom to purchase network capacity. Under the agreement, WCG
also sold to WorldCom its single strand of lit fiber (sometimes known as the
SUSA fiber) that WCG's predecessor retained when it sold the remainder of its
network to WorldCom in 1995. Additionally, WCG purchased from WorldCom a 20-year
indefeasible right of use of capacity on WorldCom's network. WCG expects to
record a gain in fourth quarter 2001, which will be quantified once all relevant
factors are finalized.

     Purchase of CoreExpress business

     In November 2001, WCG signed an asset purchase agreement to obtain the
fiber-optic network, intellectual property, and Internet protocol capabilities
of CoreExpress. CoreExpress offers value-added services that complement the
traditional services offered by Internet Service Providers. Closing on the
agreement is subject to satisfaction of final terms and certain conditions.



                                       23
<PAGE>



     Products and services

     WCG implemented a new service referred to as Williams Network Managed
Services (NMS), which offers a comprehensive array of systems integration
solutions encompassing every major aspect of program management, design,
engineering, implementation, and network operations for carrier based networks.

     Within the NMS service is Fiber and Construction Services (F&CS) and
Network Professional Services (NPS). F&CS provides for all aspects of long haul
and local loop construction including managing route selection, right of way
acquisition, permitting, environmental review, engineering, materials, points of
presence and other facilities construction, power HVAC and overall project
management. NPS provides design, engineering, rack set up, system lighting and
testing (SLAT), optronics procurement and installation, and network management.

BROADBAND MEDIA

     WCG is in the process of evaluating its options for maximizing the total
return from its investment in the Broadband Media segment. These options are
focused on, but not necessarily limited to, increasing revenues in areas
believed to be more profitable, reducing costs or eliminating unprofitable
product lines or markets, creating alliances or combinations with other
providers of communications products or services, or other alternatives
including a restructuring of certain lines of business within the Broadband
Media segment. During third quarter 2001, WCG recorded an expense of $11.3
million related to the impairment of goodwill associated with its satellite
operations.

     As part of this evaluation process, WCG announced the launch of services on
its broadband media platform called MediaXtranet(SM) that will provide services
to facilitate the transmission and storage of media content for
business-to-business and business-to-consumer applications, digital media
management, managed web hosting and streaming. WCG expects that MediaXtranet
would enable the collection, gathering, hosting, management, transacting and
edge distribution of media content, regardless of its format or source. WCG
intends to utilize MediaXtranet to capitalize on its broadband media experience,
connectivity, and existing customer relationships to expand its products and
services to include the following:

     -    media and entertainment content logging, storage and portal-type
          access and distribution

     -    media streaming for both audio and video services

     -    optical distribution of cinematic and television broadcast and
          advertisements

     -    media and entertainment eCommerce transactional activities

     -    Internet-based distribution of advertisements

     As part of the implementation of MediaXtranet, WCG entered into an
investment in third quarter 2001 with iBEAM, a provider of streaming
communications solutions. Under the terms of the agreement, WCG invested $20
million in cash and agreed to provide $10 million of future services to iBEAM in
exchange for convertible preferred stock of iBEAM representing approximately a
49% ownership of the company. In October 2001, WCG entered into an agreement to
purchase substantially all assets and assume certain liabilities of iBEAM,
including substantially all of iBEAM's customer contracts and facility and
equipment leases, for $25 million. The transaction includes a loan of operating
funds from WCG to ensure uninterrupted operations of iBEAM until consummation of
the assets sale, at which time the loan will be repaid from the proceeds of the
sale. Concurrently, iBEAM announced that it had filed for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code. WCG's agreement to purchase the iBEAM
assets and the related loan are subject to bankruptcy court approval, and the
purchase of assets is further subject to an auction to be conducted under the
auspices of the bankruptcy court. On November 1, 2001, the bankruptcy court
approved the WCG loan and established procedures for the auction. In third
quarter 2001 and until approval of the purchase is obtained from the bankruptcy
court, WCG is accounting for its investment in iBEAM under the equity method of
accounting. The investment will leverage



                                       24
<PAGE>



WCG's broadband media services infrastructure and customer relationships with
top-tier media and entertainment companies, and will expand Broadband Media's
addressable market by adding a strong enterprise-related capability.

STRATEGIC INVESTMENTS

     WCG entered into an agreement with America Movil, S.A. de C.V. in second
quarter 2001 to sell its remaining economic interest in ATL. The agreement
closed in third quarter 2001 and WCG received $309.6 million in cash with an
additional $90.0 million due from America Movil, S.A. de C.V. on May 15, 2002.
WCG recognized a gain from the sale of $45.1 million.



                                       25

<PAGE>



RESULTS OF OPERATIONS

     The table below summarizes WCG's consolidated results from operations:



<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                               SEPTEMBER 30,                     SEPTEMBER 30,
                                                       ----------------------------      -----------------------------
                                                           2001             2000             2001            2000
                                                       -----------      -----------      ------------      -----------
                                                                               (IN THOUSANDS)
<S>                                                    <C>              <C>              <C>               <C>
Revenues:
   Network                                             $   271,100      $   178,223      $    775,018      $   454,132
   Broadband Media                                          43,240           40,008           123,557          122,686
   Strategic Investments                                        --               --                --               --
   Eliminations                                            (16,564)          (8,917)          (43,397)         (24,777)
                                                       -----------      -----------      ------------      -----------
     Total revenues                                        297,776          209,314           855,178          552,041
Operating expenses:
   Cost of sales                                           244,173          214,325           745,770          579,137
   Selling, general and administrative                      71,535           65,682           222,721          185,792
   Provision for doubtful accounts                          12,541            2,800            20,977            3,782
   Depreciation and amortization                           146,608           47,064           339,239          117,506
   Other                                                   191,291              572           183,269             (759)
                                                       -----------      -----------      ------------      -----------
     Total operating expenses                              666,148          330,443         1,511,976          885,458
                                                       -----------      -----------      ------------      -----------
Loss from operations                                      (368,372)        (121,129)         (656,798)        (333,417)
Net interest expense                                      (127,602)         (52,143)         (328,675)        (147,770)
Investing income (loss):
   Interest and other                                       14,796           10,416            36,008           49,973
   Equity losses                                           (20,677)          (2,593)          (29,885)          (9,748)
   Income (loss) from investments                            3,113           20,210           (28,292)         323,258
Minority interest in loss of consolidated
   subsidiaries                                              6,787            4,418            19,978            9,420
Other income (loss), net                                      (364)             131              (221)             178
                                                       -----------      -----------      ------------      -----------
Loss before income taxes                                  (492,319)        (140,690)         (987,885)        (108,106)
Benefit (provision) for income taxes                           324           (9,593)          (52,024)        (113,873)
                                                       -----------      -----------      ------------      -----------
Loss from continuing operations                        $  (491,995)     $  (150,283)     $ (1,039,909)     $  (221,979)
                                                       ===========      ===========      ============      ===========
</TABLE>

THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000

CONSOLIDATED RESULTS

     WCG's loss from continuing operations increased $341.7 million primarily
due to an increase in loss from operations of $247.3 million, an increase in net
interest expense of $75.5 million and a decrease in investing income (loss) of
$30.8 million. These items were partially offset by a decrease of $9.9 million
related to the tax provision.

     Network and Broadband Media accounted for $230.7 million and $17.1 million
of the increase in loss from operations, respectively. Strategic Investments'
loss from operations decreased $0.5 million.



                                       26
<PAGE>


NETWORK

     The table below summarizes Network's results from operations:


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                               SEPTEMBER 30,                     SEPTEMBER 30,
                                                       ----------------------------      ---------------------------
                                                           2001             2000             2001            2000
                                                       -----------      -----------      -----------     -----------
                                                                               (IN THOUSANDS)
<S>                                                    <C>              <C>              <C>             <C>
Revenues:
   Dark fiber                                          $        --      $     2,542      $     9,101     $    33,967
   Capacity and other                                      254,651          166,901          722,834         395,627
   Intercompany                                             16,449            8,780           43,083          24,538
                                                       -----------      -----------      -----------     -----------
     Total revenues                                        271,100          178,223          775,018         454,132
Operating expenses:
   Cost of sales                                           221,606          190,804          675,037         507,705
   Selling, general and administrative                      60,130           54,074          188,463         152,385
   Provision for doubtful accounts                          12,342            2,299           19,914           3,080
   Depreciation and amortization                           137,232           39,924          314,234          95,887
   Other                                                   179,976              582          171,954            (710)
                                                       -----------      -----------      -----------     -----------
     Total operating expenses                              611,286          287,683        1,369,602         758,347
                                                       -----------      -----------      -----------     -----------
Loss from operations                                   $  (340,186)     $  (109,460)     $  (594,584)    $  (304,215)
                                                       ===========      ===========      ===========     ===========
Equity earnings                                        $     2,659      $     2,475      $     3,780     $     3,510
                                                       ===========      ===========      ===========     ===========
Income (loss) from investments                         $   (12,927)     $    20,210      $   (44,332)    $   303,025
                                                       ===========      ===========      ===========     ===========
</TABLE>

     Network revenues increased $92.9 million, or 52%, primarily attributable to
data and voice services provided to SBC of approximately $100 million for the
three months ended September 30, 2001 compared to approximately $40 million for
the three months ended September 30, 2000. The remaining increase is
attributable to sales to new customers as well as expanded sales to existing
customers, both domestic and international, partially offset by contractual
price re-rates and customer disconnects.

     Network had a gross profit of $49.5 million for the three months ended
September 30, 2001 while Network's costs of sales exceeded revenues by $12.6
million for the three months ended September 30, 2000. The continued improvement
in Network's gross profit is primarily a result of revenue growth described
above, greater on-net utilization and strong expense control.

     Network's selling, general and administrative expenses increased $6.0
million, or 11%, due primarily to an increase in payroll related and
professional services expenses. Network's provision for doubtful accounts
increased $10.0 million primarily due to the growth in its customer base and
general market conditions in the telecommunications industry. Network's selling,
general and administrative expenses and provision for doubtful accounts as a
percentage of revenues decreased to 27% for the three months ended September 30,
2001 from 32% for the three months ended September 30, 2000.

     Network's depreciation and amortization increased $97.3 million primarily
as a result of assets placed in service since September 30, 2000.

     Network's other expense increased $179.4 million primarily as a result of
expenses recorded in third quarter 2001 of $150.0 million related to valuation
adjustments associated with equipment held for sale and $30.0 million related to
suspended capital projects and severance.

     Network's loss from investments for the three months ended September 30,
2001 of $12.9 million represents write-downs of certain investments resulting
from management's determination that the decline in the value of these
investments was other than temporary.

     Network's income from investments for the three months ended September 30,
2000 of $20.2 million includes gains of $40.2 million related to the sale of
certain marketable equity securities partially offset by a loss of $20.0


                                       27

<PAGE>


million related to write-downs of certain investments resulting from
management's determination that the decline in the value of these investments
was other than temporary.

BROADBAND MEDIA

     The table below summarizes Broadband Media's results from operations:

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                               SEPTEMBER 30,                     SEPTEMBER 30,
                                                       ----------------------------      ----------------------------
                                                           2001             2000             2001            2000
                                                       -----------      -----------      -----------      -----------
                                                                               (IN THOUSANDS)
<S>                                                    <C>              <C>              <C>              <C>
Revenues                                               $    43,240      $    40,008      $   123,557      $   122,686
Operating expenses:
   Cost of sales                                            39,131           32,431          114,130           96,191
   Selling, general and administrative                      10,693           10,249           31,328           28,578
   Provision for doubtful accounts                             199              501            1,063              702
   Depreciation and amortization                             9,220            7,071           24,626           21,313
   Other                                                    11,315              (12)          11,315              (48)
                                                       -----------      -----------      -----------      -----------
     Total operating expenses                               70,558           50,240          182,462          146,736
                                                       -----------      -----------      -----------      -----------
Loss from operations                                   $   (27,318)     $   (10,232)     $   (58,905)     $   (24,050)
                                                       ===========      ===========      ===========      ===========
Equity losses                                          $   (20,067)     $    (1,093)     $   (20,197)     $    (4,640)
                                                       ===========      ===========      ===========      ===========
Loss from investments                                  $    (4,065)     $        --      $    (4,065)     $        --
                                                       ===========      ===========      ===========      ===========
</TABLE>

     Broadband Media's revenues increased $3.2 million, or 8%, primarily due to
an increase in transmission of broadcast news events partially offset by lower
satellite and advertising business.

     Broadband Media's gross profit decreased to $4.1 million for the three
months ended September 30, 2001 from $7.6 million for the three months ended
September 30, 2000. Gross margin decreased to 9% for the three months ended
September 30, 2001 from 19% for the three months ended September 30, 2000. Cost
of sales increased $6.7 million, or 21%, primarily due to costs associated with
the development of MediaXtranet.

     Broadband Media's other expense for the three months ended September 30,
2001 of $11.3 million represents an impairment of goodwill associated with its
satellite operations.

     Broadband Media's equity losses increased $19.0 million due primarily to
WCG recording $20.0 million of equity losses related to an investment entered
into with iBEAM in third quarter 2001. Under the terms of the agreement, WCG
invested $20 million in cash and agreed to provide $10 million of future
services to iBEAM in exchange for convertible preferred stock of iBEAM
representing approximately a 49% ownership of the company.

     In October 2001, WCG entered into an agreement to purchase substantially
all assets and assume certain liabilities of iBEAM, including substantially all
of iBEAM's customer contracts and facility and equipment leases, for $25
million. The transaction includes a loan of operating funds from WCG to ensure
uninterrupted operations of iBEAM until consummation of the assets sale, at
which time the loan will be repaid from the proceeds of the sale. Concurrently,
iBEAM announced that it had filed for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. WCG's agreement to purchase the iBEAM assets and the related
loan are subject to bankruptcy court approval, and the purchase of assets is
further subject to an auction to be conducted under the auspices of the
bankruptcy court. On November 1, 2001, the bankruptcy court approved the WCG
loan and established procedures for the auction.

     Broadband Media's loss from investments for the three months ended
September 30, 2001 of $4.1 million primarily represents an impairment of its
remaining investment in iBEAM.



                                       28
<PAGE>


STRATEGIC INVESTMENTS

     The table below summarizes Strategic Investments' results from operations:

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                               SEPTEMBER 30,                     SEPTEMBER 30,
                                                       ----------------------------      ----------------------------
                                                           2001             2000             2001             2000
                                                       -----------      -----------      -----------      -----------
                                                                               (IN THOUSANDS)
<S>                                                    <C>              <C>              <C>              <C>
Revenues                                               $        --      $        --      $        --      $        --
Operating expenses:
   Cost of sales                                                --                7               --               18
   Selling, general and administrative                         712            1,359            2,930            4,829
   Provision for doubtful accounts                              --               --               --               --
   Depreciation and amortization                               156               69              379              306
   Other                                                        --                2               --               (1)
                                                       -----------      -----------      -----------      -----------
     Total operating expenses                                  868            1,437            3,309            5,152
                                                       -----------      -----------      -----------      -----------
Loss from operations                                   $      (868)     $    (1,437)     $    (3,309)     $    (5,152)
                                                       ===========      ===========      ===========      ===========
ATL and other equity losses                            $    (3,269)     $    (3,975)     $   (13,468)     $    (8,618)
                                                       ===========      ===========      ===========      ===========
Income from investments                                $    20,105      $        --      $    20,105      $    20,233
                                                       ===========      ===========      ===========      ===========
</TABLE>

     Strategic Investments' results represent costs associated with managing
WCG's equity and cost-based investments in this business segment.

     Strategic Investments' income from investments for the three months ended
September 30, 2001 of $20.1 million includes a gain of $45.1 million from the
sale of its remaining economic interest in ATL to America Movil, S.A. de C.V.
partially offset by a loss of $25.0 million related to a write-down associated
with an equity method investment resulting from management's determination that
the decline in the value of this investment was other than temporary.

CONSOLIDATED NON-OPERATING ITEMS

     WCG's net interest expense increased $75.5 million as a result of increased
borrowings including some at higher interest rates to finance operations and
capital expenditures and decreased interest capitalized primarily due to fewer
assets under construction. WCG's total debt has increased $775.2 million from
September 30, 2000 to September 30, 2001, which primarily reflects the $1.4
billion principal amount of senior secured notes issued in March 2001, borrowing
of the $450.0 million add-on to its credit facility in April 2001 and the sale
and subsequent leaseback of its Technology Center and other ancillary assets for
$276.0 million in September 2001. These items are partially offset by the
exchange of the $975.6 million TWC note for WCG's equity in February 2001 and
the repurchase of $419.3 million of its senior redeemable notes in third quarter
2001.

     WCG's interest and other investing income increased $4.4 million primarily
due to an increase in average short-term investments for the three months ended
September 30, 2001 partially offset by a reduction in short-term interest rates.

     WCG's tax provision decreased $9.9 million primarily due to the spin-off
from TWC in first quarter 2001. During the three months ended September 30,
2000, WCG was subject to a tax sharing agreement with TWC under which TWC
utilized all of WCG's current tax losses without immediate compensation. With
the agreement in place, no benefit was recorded by WCG for its current tax
losses, yet a tax provision was recorded to reflect a deferred tax liability for
the turnaround of timing items generated during the current period. Tax periods
after the spin-off are not subject to the tax sharing agreement, therefore,
timing items do not create a tax provision and current losses are fully reserved
with a valuation allowance. The valuation allowance represents a reserve against
WCG's net deferred tax assets, primarily resulting from net operating loss
carryforwards which cannot be assumed to be utilized.



                                       29
<PAGE>


NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000

CONSOLIDATED RESULTS

     WCG's loss from continuing operations increased $817.9 million primarily
due to a decrease in investing income (loss) of $385.7 million, an increase in
loss from operations of $323.4 million and an increase in net interest expense
of $180.9 million partially offset by a decrease of $61.9 million related to the
tax provision.

     Network and Broadband Media accounted for $290.4 million and $34.8 million
of the increase in loss from operations, respectively. Strategic Investments'
loss from operations decreased $1.8 million.

NETWORK

     Network revenues increased $320.9 million, or 71%, primarily attributable
to data and voice services provided to SBC of approximately $280 million for the
nine months ended September 30, 2001 compared to approximately $80 million for
the nine months ended September 30, 2000. The remaining increase is attributable
to sales to new customers as well as expanded sales to existing customers, both
domestic and international, partially offset by contractual price re-rates,
customer disconnects and $24.9 million lower revenues from dark fiber
transactions entered into prior to June 30, 1999 and accordingly accounted for
as sales type leases.

     Network had a gross profit of $100.0 million for the nine months ended
September 30, 2001 while Network's costs of sales exceeded revenues by $53.6
million for the nine months ended September 30, 2000. The continued improvement
in Network's gross profit is primarily a result of revenue growth described
above, greater on-net utilization and strong expense control.

     Network's selling, general and administrative expenses increased $36.1
million, or 24%, due primarily to adding resources and infrastructure to support
the growth in its customer base. Network's provision for doubtful accounts
increased $16.8 million primarily due to the growth in its customer base and
general market conditions in the telecommunications industry. Network's selling,
general and administrative expenses and provision for doubtful accounts as a
percentage of revenues decreased to 27% for the nine months ended September 30,
2001 from 34% for the nine months ended September 30, 2000.

     Network's depreciation and amortization increased $218.3 million primarily
as a result of assets placed in service since September 30, 2000.

     Network's other expense increased $172.7 million primarily as a result of
expenses recorded in third quarter 2001 of $150.0 million related to valuation
adjustments associated with equipment held for sale and $30.0 million related to
suspended capital projects and severance.

     Network's loss from investments for the nine months ended September 30,
2001 of $44.3 million includes a loss of $106.6 million related to write-downs
of certain investments resulting from management's determination that the
decline in the value of these investments was other than temporary. This loss
was partially offset by net gains of $21.4 million from sales of certain
marketable equity securities and gains of $40.9 million from the change in
market value of cashless collars on certain marketable equity securities in
accordance with SFAS No. 133 as amended since the cashless collars did not
qualify as a hedge.

     Network's income from investments for the nine months ended September 30,
2000 of $303.0 million includes a gain of $214.7 million from the conversion of
WCG's shares of common stock of Concentric Network Corporation into shares of
common stock of XO Communications, Inc. pursuant to a merger of those companies
completed in June 2000 and gains of $108.3 million related to the sale of
certain marketable equity securities partially offset by a loss of $20.0 million
related to write-downs of certain investments resulting from management's
determination that the decline in the value of these investments was other than
temporary.


                                       30

<PAGE>


BROADBAND MEDIA

     Broadband Media's gross profit decreased to $9.5 million for the nine
months ended September 30, 2001 from $26.5 million for the nine months ended
September 30, 2000. Gross margin decreased to 8% for the nine months ended
September 30, 2001 from 22% for the nine months ended September 30, 2000. Cost
of sales increased $17.9 million, or 19%, primarily due to costs associated with
the development of MediaXtranet.

     Broadband Media's other expense for the nine months ended September 30,
2001 of $11.3 million represents an impairment of goodwill associated with its
satellite operations.

     Broadband Media's equity losses increased $15.6 million due primarily to
WCG recording $20.0 million of equity losses related to an investment entered
into with iBEAM in third quarter 2001. Under the terms of the agreement, WCG
invested $20 million in cash and agreed to provide $10 million of future
services to iBEAM in exchange for convertible preferred stock of iBEAM
representing approximately a 49% ownership of the company.

     In October 2001, WCG entered into an agreement to purchase substantially
all assets and assume certain liabilities of iBEAM, including substantially all
of iBEAM's customer contracts and facility and equipment leases, for $25
million. The transaction includes a loan of operating funds from WCG to ensure
uninterrupted operations of iBEAM until consummation of the assets sale, at
which time the loan will be repaid from the proceeds of the sale. Concurrently,
iBEAM announced that it had filed for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. WCG's agreement to purchase the iBEAM assets and the related
loan are subject to bankruptcy court approval, and the purchase of assets is
further subject to an auction to be conducted under the auspices of the
bankruptcy court. On November 1, 2001, the bankruptcy court approved the WCG
loan and established procedures for the auction.

     Broadband Media's loss from investments for the nine months ended September
30, 2001 of $4.1 million primarily represents an impairment of its remaining
investment in iBEAM.

STRATEGIC INVESTMENTS

     Strategic Investments' results represent costs associated with managing
WCG's equity and cost-based investments in this business segment.

     Strategic Investments' equity losses increased $4.9 million, or 56%,
primarily due to $2.8 million losses associated with two equity investments made
in second quarter 2000 and higher losses from ATL's operations.

     Strategic Investments' income from investments for the nine months ended
September 30, 2001 of $20.1 million includes a gain of $45.1 million from the
sale of its remaining economic interest in ATL to America Movil, S.A. de C.V.
partially offset by a loss of $25.0 million related to a write-down associated
with an equity method investment resulting from management's determination that
the decline in the value of this investment was other than temporary.

     Income from investments for the nine months ended September 30, 2000
represents a $16.5 million gain related to the partial sale of WCG's interest in
ATL and receipt of a $3.7 million dividend from a cost-based investment. The ATL
gain resulted from a series of transactions in first quarter 2000 in which WCG
sold a portion of its investment in ATL, which had a carrying value of $30
million, for approximately $168 million in cash. WCG recognized a gain on the
sale of $16.5 million and deferred a gain of approximately $121 million
associated with $150 million of the proceeds which were subsequently advanced to
ATL.


                                       31

<PAGE>



CONSOLIDATED NON-OPERATING ITEMS

     WCG's net interest expense increased $180.9 million as a result of
increased borrowings including some at higher interest rates to finance
operations and capital expenditures and decreased interest capitalized primarily
due to fewer assets under construction. WCG's total debt has increased $775.2
million from September 30, 2000 to September 30, 2001, which primarily reflects
the $1.4 billion principal amount of senior secured notes issued in March 2001,
borrowing of the $450.0 million add-on to its credit facility in April 2001 and
the sale and subsequent leaseback of its Technology Center and other ancillary
assets for $276.0 million in September 2001. These items are partially offset by
the exchange of the $975.6 million TWC note for WCG's equity in February 2001
and the repurchase of $419.3 million of its senior redeemable notes in third
quarter 2001.

     WCG's interest and other investing income decreased $14.0 million primarily
due to a reduction in average short-term investments and short-term interest
rates for the nine months ended September 30, 2001.

     WCG's tax provision for the nine months ended September 30, 2001 reflects
fully reserving, through a valuation allowance, WCG's net deferred tax assets.
Reductions to the fair value of marketable equity securities reduced the
associated deferred tax liabilities creating net deferred tax assets for which
the utilization has not yet been demonstrated. The valuation allowance
represents a reserve against WCG's net deferred tax assets, primarily resulting
from net operating loss carryforwards which cannot be assumed to be utilized.
WCG's tax provision for the nine months ended September 30, 2001 decreased $61.9
million primarily due to a deferred tax provision of $82.1 million for the nine
months ended September 30, 2000 relating to the gain recognized on the
conversion of WCG's shares of common stock of Concentric Network Corporation
into shares of common stock of XO Communications, Inc. pursuant to a merger of
those companies completed in June 2000, partially offset by a 2001 deferred tax
provision to eliminate the net deferred tax asset created when depreciating
marketable securities were marked-to market.


                                       32

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

2001 AND 2002

Financing plan

     As of December 31, 2000, WCG had liquidity of approximately $1.1 billion
consisting of cash and cash equivalents of approximately $214 million,
short-term investments of approximately $395 million and the revolver portion of
WCG's credit facility of approximately $525 million. Since the year ended
December 31, 2000, WCG has executed the following transactions to raise cash of
approximately $3.0 billion.

-    closed the private placement of $1.4 billion senior secured notes in first
     quarter 2001;

-    upsized its credit facility by $450 million in second quarter 2001;

-    closed the sale of the domestic, Mexican and Canadian professional services
     operations of the Solutions segment to Platinum Equity LLC and the sale of
     its remaining Canadian operations of the Solutions segment to Telus
     Corporation in first and second quarter 2001, respectively;

-    closed the sale of ATL to America Movil, S.A. de C.V. in third quarter
     2001;

-    closed the sale and subsequent leaseback of its Technology Center and other
     ancillary assets in third quarter 2001 of $276.0 million;

Cash requirements

     WCG's expected cash requirements for 2001 and 2002 total approximately $2.8
billion consisting of the following:

-    capital expenditures of approximately $2.0 billion;

-    debt service obligations of approximately $1.1 billion;

-    repurchase of a portion of its senior redeemable notes of approximately
     $240 million;

-    partially offset by cash expected to be generated from its operations of
     approximately $500 million including cash from dark fiber transactions and
     other capacity sales. Cash from operations of approximately $500 million is
     currently being reviewed as WCG completes its annual operating plan
     process.

     WCG has various debt covenants relating to its credit facility, all of
which have been complied with through September 30, 2001. One of the covenants
requires WCG to consummate transactions resulting in net cash proceeds in the
aggregate amount of at least $500 million by December 31, 2001. Of that amount,
at least $150 million must be in the form of equity. As discussed below, $276
million of the obligation was received in third quarter 2001 through the sale
and subsequent leaseback of WCG's Technology Center and other ancillary assets.
Because of WCG's liquidity and current market conditions, in October 2001, the
credit facility was amended to extend the date by which WCG is required to raise
the additional $224 million from December 31, 2001 to July 1, 2003. In
connection with the amendment, WCG agreed to work jointly with its bank group
and the bank group's financial advisor to perform a more comprehensive review of
the credit agreement. The review is expected to result in an additional
amendment that would address WCG's current capital structure, reduced capital
expenditure requirements and the overall market environment. This review and the
resulting amendment are expected to be completed in January 2002. WCG agreed to
continue to operate under its current budget and not to purchase any of its
senior redeemable notes or other indebtedness for cash pending completion of
this review.

2001

Cash sources

     As of September 30, 2001, WCG has $1.4 billion of cash and short-term
investments. Included in the short-term investments portfolio are marketable
equity securities classified as available for sale with a market value of $4.9
million as of September 30, 2001.


                                       33

<PAGE>


     In March 2001, a note trust, wholly-owned by WCL, issued approximately $1.4
billion of 8.25% senior secured notes in a private placement. The notes are due
March 15, 2004 with the principal payment due in full at maturity and interest
payments due semi-annually in arrears on March 15 and September 15 of each year
beginning September 15, 2001.

     In first quarter 2001, WCG announced that it had reduced the previously
announced commitment to increase its credit facility from $950 million to $750
million which would bring the total size of its credit facility to $1.8 billion.
In April 2001, WCG has borrowed $450 million of the credit facility add-on. The
remaining $300 million commitment can be accessed through the end of first
quarter 2002. However, it is not likely that WCG can, or will, access this
commitment unless market conditions improve. WCG also has available as of
September 30, 2001, the $525 million revolving portion of its credit facility
which it may borrow throughout its six-year term.

     In first quarter 2001, PowerTel completed a 1 for 4,110 million Australian
dollar equity rights offering which allowed each PowerTel shareholder to
purchase one new share at 0.54 Australian dollars per share for each four shares
held. PowerTel paid off its existing 70 million Australian dollar bridge
financing facility with the proceeds received from the equity rights offering.
In first quarter 2001, PowerTel also entered into a 150 million Australian
dollar bank facility agreement due March 2006. In second quarter 2001, 45
million Australian dollars have been borrowed under the bank facility agreement
(or approximately $22 million as of September 30, 2001). The bank facility and
equity rights offering are expected to fully fund PowerTel for the foreseeable
future.

     In first quarter 2001, TWC and WCG entered into an agreement that, among
other things, resulted in the transfer of ownership of a building under
construction and other assets from TWC to WCG, the conversion of the $975.6
million TWC note into paid in capital and the issuance of 24.3 million shares of
WCG common stock. After the transaction was completed, WCG's total equity
increased by approximately $1.1 billion.

     WCG completed the sale of its interest in the domestic, Mexican and
Canadian professional services operations of the Solutions segment to Platinum
Equity LLC on March 31, 2001. In April 2001, WCG received proceeds of $100
million from the sale in addition to an interest-bearing $75 million promissory
note payable over 18 months. WCG has also entered into a collection agreement as
of March 31, 2001 in which Platinum Equity LLC will pursue the collection of
certain identified retained accounts receivables totaling approximately $200
million. Subject to a collection fee, Platinum Equity LLC will remit the
proceeds collected to WCG while WCG retains the collection risk. On March 27,
2001, WCG signed an agreement to sell its remaining Canadian operations of the
Solutions segment to Telus Corporation. The sale closed in second quarter 2001.

     In first quarter 2001, WCG granted an option to Telecom Americas, Ltd., a
joint venture between SBC, America Movil S.A. de C.V. and Bell Canada
International, Inc., to purchase WCG's interest in ATL for an agreed to price.
The option was granted in exchange for Telecom Americas, Ltd. funding WCG's
share of capital contributions to ATL. The option expired at the end of first
quarter 2001. WCG entered into an agreement with America Movil, S.A. de C.V. in
second quarter 2001 to sell its remaining economic interest in ATL. The
agreement closed in third quarter 2001 and WCG received $309.6 million in cash
with an additional $90.0 million due from America Movil, S.A. de C.V. on May 15,
2002. WCG recognized a gain from the sale of $45.1 million.

     In September 2001, WCG sold its Technology Center and other ancillary
assets to TWC for approximately $276 million in cash. Concurrent with the sale,
WCG leased the Technology Center and other ancillary assets back for a period of
ten years with varying payment terms. WCG has an option to repurchase and TWC
has the right to sell the Technology Center building to WCG at the expiration
date of the lease for approximately $92 million. WCG also has the option to
repurchase and TWC has the right to sell certain ancillary assets to WCG at the
expiration date of the lease at their stated fair market value per the lease. In
the event neither WCG nor TWC exercise these options, the property would
transfer to TWC.


                                       34

<PAGE>



Cash uses

     Cash used in operating activities was $381.3 million for the nine months
ended September 30, 2001 which includes cash received from dark fiber
transactions of $164.3 million. WCG anticipates its operating activities will
result in negative cash flow at least through the end of 2001.

     WCG currently estimates to spend approximately $1.5 billion for capital
expenditures in 2001 primarily to enhance the capacity and functionality of the
intercity network, provide local access services, expand its domestic network
and provide connectivity for overseas customers to its domestic network. For the
nine months ended September 30, 2001, WCG has spent $1.2 billion on capital
expenditures.

     In third quarter 2001, WCG began repurchasing a portion of its senior
redeemable notes in the open market. As of September 30, 2001, WCG had purchased
$419.3 million of its senior redeemable notes at an average price of 44% of face
value. Subsequent to September 30, 2001, WCG has purchased an additional $131.7
million of its senior redeemable notes. This brings the total senior redeemable
notes repurchased to $551.0 million at a total average price of 43% of face
value, or approximately $240 million in cash.

     As of September 30, 2001, WCG's outstanding long-term debt consisted
primarily of $2.6 billion principal amount of its senior redeemable notes, $1.4
billion principal amount under the senior secured notes, $975 million term loan
under its credit facility, capital leases and the $276 million leaseback of its
Technology Center and other ancillary assets. As discussed above, in first
quarter 2001, the TWC note was exchanged for WCG's equity.

     Scheduled interest payment obligations total approximately $450 million in
2001 of which $328.5 million has been paid for the nine months ended September
30, 2001. Principal payment obligations of $8.3 million are scheduled to occur
in 2001 for capital leases and the leaseback of WCG's property, of which $1.8
million was paid as of September 30, 2001. No other principal payment
obligations are scheduled to occur in 2001.

     In February 2001, TWC and WCG entered into an agreement in which WCG owes
TWC approximately $100 million for various normal course services which is
included in accounts payable. WCG elected to defer payment of these payables
until March 15, 2002 at an interest rate of 8.25%.

     Under its asset defeasance program, WCG is obligated to make annual lease
payments of approximately $40 million during 2001, of which approximately $32.2
million has been paid as of September 30, 2001.

     As discussed further in the Recent Developments section, Winstar, a
customer of WCG, announced in April 2001 that it has filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. Although a number of uncertainties exist
in any bankruptcy and the rights and obligations of Winstar and its creditors
will be determined over time in the bankruptcy court, WCG currently believes
that its transactions with Winstar as outlined in the Recent Developments
section, when taken as a whole, will not have a significant cash impact in 2001.

     The cost of expanding and enhancing WCG's fiber-optic network, as well as
operating its business, is subject to a variety of factors. Actual costs may
vary from expected amounts, and variances could be material. Factors which could
cause a variance include WCG's ability to generate sufficient sales to
customers, changes in the competitive environment of the markets that it serves
and changes in technology. Any variation could impact WCG's future cash
requirements. In addition, WCG will look for opportunities to increase cash
through the addition of new business and the development of revenue generating
activities such as the recently announced Williams Network Managed Services and
MediaXtranet businesses. WCG will continue to analyze means to conserve cash,
reduce future interest obligations, and enhance its balance sheet within the
context of its debt covenants.


                                       35

<PAGE>



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

     WCG's interest rate exposure associated with short-term investments
increased since December 31, 2000 as short-term investments excluding marketable
equity securities total $1.0 billion as of September 30, 2001 compared to $83.4
million as of December 31, 2000. The increase is a result of the $1.4 billion
net proceeds received from the sale of senior secured notes in March 2001 and
the proceeds received from the $450 million credit facility add-on in April
2001, which were primarily invested in money market instruments and commercial
paper.

     Interest rate risk exposure, as it relates to the debt portfolio, was
impacted since December 31, 2000 by the exchange of the $975.6 million TWC note
for WCG's equity, the sale of $1.4 billion senior secured notes, the borrowing
of the $450 million credit facility add-on in April 2001, the increase of WCG's
credit facility borrowing rate from 2.75% to LIBOR plus 3.00% as a result of the
downgrade by Moody's Investor Service in July 2001, the sale and subsequent
leaseback of its Technology Center and other ancillary assets of $276.0 million
in September 2001 and the repurchase of $419.3 million of its senior redeemable
notes in third quarter 2001.

     The interest on the TWC note was based upon LIBOR plus 2.25%, the senior
secured notes bear a fixed-rate of 8.25%, the credit facility add-on and sale
and subsequent leaseback has a variable rate of LIBOR plus 3.00% and the portion
of its senior redeemable notes of $419.3 million being repurchased bear fixed
rates of 10.70% to 11.875%. Subsequent to September 30, 2001, WCG has purchased
an additional $131.7 million of its senior redeemable notes. This brings the
total senior redeemable notes repurchased to $551.0 million.

EQUITY PRICE RISK

     WCG's equity price risk primarily arises from investments in publicly
traded telecommunications-related companies. WCG recognized a loss of $86.1
million in 2001 related to write-downs of certain marketable equity securities
resulting from management's determination that the decline in the value of these
investments was other than temporary. In addition, WCG's equity price risk has
decreased from December 31, 2000 due to the further monetization of its
marketable equity securities portfolio. The carrying value of marketable equity
securities is less than 1% of WCG's total assets as of September 30, 2001
compared to approximately 4% of its total assets as of December 31, 2000. In
addition, WCG terminated its derivative instruments on its marketable equity
securities in second quarter 2001 due to the further monetization of its
marketable equity securities portfolio.

     Subsequent to third quarter 2001, WCG has entered into a derivative
instrument which will expire by December 31, 2001 and provides protection to the
exposure of changes in the prices of certain marketable equity securities.

FOREIGN CURRENCY RISK

     WCG's foreign currency risk decreased from December 31, 2000 due to the
sale of its investment in ATL, a Brazilian telecommunications venture, in third
quarter 2001. As of December 31, 2000, WCG's total investment in ATL was $448.3
million.


                                       36

<PAGE>



                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     WCG is subject to various types of litigation in connection with its
business and operations. However, with the possible exception of the landowner
lawsuits described below, WCG does not believe that any pending litigation is
material to its business or operations.

     WCG and WCL, a wholly owned subsidiary of WCG, are named as defendants in
putative class actions purporting to cover landowners in a state and, in some
cases, in the nation, on whose property WCG installed fiber-optic cable without
the permission of the adjacent landowner. It is likely that additional actions
will be filed. WCG believes that the installation of fiber-optic cable along
pipeline, highway and railroad rights-of-way and other routes it utilizes, does
not infringe on the property rights of adjacent landowners. WCG also believes
that class actions are not the proper legal means to resolve the disputes. While
WCG cannot quantify the financial impact of such claims at this time, if these
claims are allowed by the courts to proceed as class actions and class members
prevail on some or all of their claims, the result could have a material adverse
impact upon WCG's financial position, results of operations and cash flows.

     On December 20, 2000, the Women's Cooperative Trust Union filed a
derivative shareholder action in the U.S. District Court in Oklahoma City
against TWC, WCG and certain directors and officers alleging that a former
director of the Company, an officer and a former officer purchased at a reduced
price stock of corporations which sold telecommunication equipment to WCG. The
allegations include breach of fiduciary duty, waste of corporate assets and
usurpation of corporate opportunities as well as negligence by the directors.
Plaintiff seeks compensatory damages, rescission of all transactions between the
named individual officers and directors and the two corporations, including
disgorgement of any profits, punitive damages, and attorneys' fees and costs.
Subsequently, the plaintiff amended its complaint to recharacterize the stock
purchases as kickbacks.

     The defendants, including the Company, have denied that the transactions
were kickbacks or that they violated company policies or fiduciary duties . The
Company and the directors filed motions to dismiss the action based upon the
failure of the plaintiff to comply with applicable legal standards in its
complaint. The decision by the court on the motion is pending. A motion
requesting a transfer from the Oklahoma City to the federal court in Tulsa is
also pending.

     On July 24, 2001, Thoroughbred Technology and Telecommunications, Inc.
(TTTI) filed suit against WCL for claims which include breach of contract with
respect to a fiber-optic fiber installation project that TTTI was constructing
for itself and others including WCL. TTTI seeks damages in excess of $37
million. WCL alleges various defenses, including significant warranty and breach
of contract claims on the part of TTTI.

     On August 28, 2001, Platinum Equity LLC sent formal notice that it believes
it is owed approximately $48 million arising from a recalculation of the net
working capital of the domestic, Mexican and Canadian professional services
operations of the Solutions segment sold to Platinum. Pursuant to the provisions
of the sale agreement, the parties will submit the dispute to an independent
public accounting firm for binding resolution if they are unable to resolve the
dispute by agreement.

     For information regarding other legal proceedings, see WCG's Annual Report
on Form 10-K/A for the year ended December 31, 2000.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     In a transaction not involving any public offering and exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, WCG issued
3,196,023 shares of its Class A Common Stock to its transfer agent, The Bank of
New York, on October 12, 2001. The issuance was in payment of a dividend on
shares of WCG's 6.75%


                                       37

<PAGE>


Redeemable Cumulative Convertible Preferred Stock. On October 15, 2001, The Bank
of New York sold the 3,196,023 unregistered shares of Class A Common Stock at a
price equal to the closing market price on October 12, 2001, realizing proceeds
totaling $4,218,750, to CG Investment Company, LLC, a wholly-owned subsidiary of
WCG. CG Investment Company is designated as an unrestricted subsidiary in
accordance with the credit agreement dated as of September 8, 1999 among WCG,
WCL, and the lenders party to the agreement.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

       (a)    The exhibits listed below are filed as part of this report

               3.3   By-Laws of Williams Communications Group, Inc.


              10.83  Agreement of Purchase and Sale among Williams Technology
                     Center, LLC, as Seller, Williams Headquarters Building
                     Company, as Purchaser, and Williams Communications, LLC, as
                     Guarantor executed effective as of September 13, 2001.

              10.84  Amendment and Consent dated as of August 24, 2001 with
                     respect to Williams Communications, LLC Securitized Asset
                     Defeasance Program.

              10.85  Amendment No. 1 to Security Agreement dated September 17,
                     2001 among Williams Communications, LLC, Williams
                     Communications Group, Inc., the Subsidiary Loan Parties
                     party thereto, and Bank of America, N.A. as Administrative
                     Agent.

              10.86  Interim Agreement by and among Winstar Wireless, Inc.,
                     Winstar Communications, Inc. and Williams Communications,
                     LLC (f/k/a Williams Communications, Inc.) as of the
                     Effective Date of June 30, 2001.

              10.87  Amendment Number One to Wireless Fiber(SM) IRU Agreement by
                     and between Winstar Wireless, Inc. and Williams
                     Communications, Inc. created on August 15, 2001.

              10.88  Option Agreement made and entered into as of the August 27,
                     2001 by and among Williams Communications, LLC, and Winstar
                     Wireless, Inc. including the IRU Agreement between Winstar
                     Wireless, Inc. and Williams Communications, LLC.

              10.89  Master Lease entered into by and among Williams
                     Headquarters Building Company, Williams Technology Center,
                     and Williams Communications, LLC effective September 13,
                     2001.

              10.90  Security Agreement among Williams Communications, LLC,
                     Williams Communications Group, Inc., The Subsidiary Loan
                     Parties and Bank of America, N.A., dated April 23, 2001.

              12     Computations of Ratio of Earnings to Fixed Charges and
                     Ratio of Earnings to Combined Fixed Charges and Preferred
                     Stock Dividend Requirements.

       (b)    During third quarter 2001, WCG filed a Form 8-K on July 25, 2001;
              August 3, 2001; August 28, 2001; September 11, 2001; September 20,
              2001; and September 21, 2001 which reported significant events
              under Item 5 of the Form and included the exhibits required by
              Item 7 of the Form.


                                       38

<PAGE>



                                    SIGNATURE

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

                                       WILLIAMS COMMUNICATIONS GROUP, INC.
                                       -----------------------------------------
                                       (Registrant)




                                       /s/  Ken Kinnear
                                       -----------------------------------------
                                       Ken Kinnear
                                       Controller
                                       (Duly Authorized Officer and
                                       Principal Accounting Officer)


November 14, 2001


<PAGE>


                               INDEX TO EXHIBITS

EXHIBIT
NO.            DESCRIPTION
-------        -----------

 3.3           By-Laws of Williams Communications Group, Inc.

10.83          Agreement of Purchase and Sale among Williams Technology Center,
               LLC, as Seller, Williams Headquarters Building Company, as
               Purchaser, and Williams Communications, LLC, as Guarantor
               executed effective as of September 13, 2001.

10.84          Amendment and Consent dated as of August 24, 2001 with respect to
               Williams Communications, LLC Securitized Asset Defeasance
               Program.

10.85          Amendment No. 1 to Security Agreement dated September 17, 2001
               among Williams Communications, LLC, Williams Communications
               Group, Inc., the Subsidiary Loan Parties party thereto, and Bank
               of America, N.A. as Administrative Agent.

10.86          Interim Agreement by and among Winstar Wireless, Inc., Winstar
               Communications, Inc. and Williams Communications, LLC (f/k/a
               Williams Communications, Inc.) as of the Effective Date of June
               30, 2001.

10.87          Amendment Number One to Wireless Fiber(SM) IRU Agreement by and
               between Winstar Wireless, Inc. and Williams Communications, Inc.
               created on August 15, 2001.

10.88          Option Agreement made and entered into as of the August 27, 2001
               by and among Williams Communications, LLC, and Winstar Wireless,
               Inc. including the IRU Agreement between Winstar Wireless, Inc.
               and Williams Communications, LLC.

10.89          Master Lease entered into by and among Williams Headquarters
               Building Company, Williams Technology Center, and Williams
               Communications, LLC effective September 13, 2001.

10.90          Security Agreement among Williams Communications, LLC, Williams
               Communications Group, Inc., The Subsidiary Loan Parties and Bank
               of America, N.A., dated April 23, 2001.

12             Computations of Ratio of Earnings to Fixed Charges and Ratio of
               Earnings to Combined Fixed Charges and Preferred Stock Dividend
               Requirements.