<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 MARCH 31, 2002

                                       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 or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                      Identification No.)


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

               Registrant's Telephone Number, Including Area Code:
                                 (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 APRIL 30, 2002
  Common Stock, $0.01 par value                     493,151,291 Shares



<PAGE>

                                      INDEX

<Table>
<Caption>

PART I. FINANCIAL INFORMATION

   ITEM 1. FINANCIAL STATEMENTS                                                                                       PAGE
                                                                                                                       ----
<S>                                                                                                                    <C>
     Forward-Looking Statements....................................................................................      2
     Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001..............................      4
     Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and
       2001........................................................................................................      5
     Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and
       2001........................................................................................................      6
     Notes to Condensed Consolidated Financial Statements..........................................................      7
   ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................     22
   ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................     31

PART II. OTHER INFORMATION

   ITEM 1.  LEGAL PROCEEDINGS......................................................................................     31
   ITEM 3.  DEFAULTS UPON SENIOR SECURITIES........................................................................     32
   ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.......................................................................     33
</Table>


                                       1
<PAGE>



                       WILLIAMS COMMUNICATIONS GROUP, INC.
                           FORWARD-LOOKING STATEMENTS

    Certain matters discussed in this report, excluding historical information,
include forward-looking statements, which are statements that discuss the
expected future results of Williams Communications Group, Inc. ("WCG" and,
together with its direct and indirect subsidiaries, the "Company") based on
current and pending business operations. The Company 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
the Company 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 the Company's actual
results to differ materially from those projected. In addition to risk factors
set forth in the Company's other 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:

    o   The Company might fail to meet the various deadlines set forth in the
        Restructuring Agreement discussed in Note 1 to the condensed
        consolidated financial statements, causing a termination of such
        agreement and an event of default under the Company's Credit Agreement.

    o   The Company might default in its obligations under the Credit Agreement,
        which could lead to a termination of the Restructuring Agreement.

    o   The Company might be unable to raise the $150 million New Investment
        discussed in Note 1 to the condensed consolidated financial statements
        on the terms set forth in the Restructuring Agreement.

    o   The Plan as contemplated by the Restructuring Agreement might not
        receive the requisite creditor votes to enable it to be confirmed.

    o   The Bankruptcy Court might not confirm the Plan as contemplated by the
        Restructuring Agreement.

    o   The Williams Companies, Inc. ("TWC") might exercise remedies against the
        Company, thereby causing a cross default under the Company's Credit
        Agreement.

    o   The Company might have difficulty in maintaining existing or creating
        new relationships with suppliers or vendors as a result of the Company's
        chapter 11 case; suppliers to the Company might stop providing supplies
        or services to the Company or provide such supplies or services only on
        "cash on delivery," "cash on order" or other terms that could have an
        adverse impact on the Company's cash flow.

    o   The possibility of further deterioration in the health of capital
        markets and the telecommunications industry and the ability of the
        Company to adapt to such conditions, particularly as a result of the
        perceived oversupply of bandwidth.

    o   The risk of competitors gaining competitive advantages by successfully
        completing a restructuring or bankruptcy reorganization process.

    o   The possibility that uncertainty or adverse publicity concerning the
        Company's efforts to restructure its balance sheet will hinder its
        ability to obtain new customers or undermine its commercial relationship
        with existing customers.

    o   The possibility that capital market and regulatory constraints may
        further hinder "last mile" development and slow the growth in demand for
        bandwidth at the retail level.

    o   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.






                                       2
<PAGE>



                       WILLIAMS COMMUNICATIONS GROUP, INC.
                    FORWARD-LOOKING STATEMENTS - (CONTINUED)


    o   The Company's ability to raise capital in a cost-effective way, manage
        cash, make capital expenditures, generate operating cash flow and meet
        debt obligations, as well as the Company's ability to manage operating
        costs and capital spending without limiting revenue growth.

    o   The Company's ability to collect proceeds from the sale of the Solutions
        business.

    o   The financial health of the Company's customers and the ability to
        collect revenues from customers.

    o   The Company's success in integrating the assets of iBEAM Broadcasting
        Corp. ("iBEAM") and Core Express, Inc., or any other newly acquired
        business.

    o   Changes in the technological, regulatory, or business environment
        applicable to the Company or the telecommunications industry generally.

    o   Termination of the SBC Communications, Inc. ("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.

    o   The potential loss of a high-volume Network customer.

    o   High levels of competition, lack of customer diversification, and
        general uncertainties of government regulation in the telecommunications
        industry.

    o   The Company's ability to deploy sophisticated technologies on a
        local-to-global basis.

    o   The Company's ability to expand and enhance the network in response to
        customer demands and industry changes.

    o   Network's ability to timely turn up service requests and minimize
        service interruptions.

    o   The Company's ability to obtain additional capacity for its network from
        other providers.

    o   The risk that current capacity providers will no longer provide capacity
        at economically justifiable rates.

    o   The possibility of adverse effects from rapid and significant
        developments or changes in the technology used by the Company or its
        customers.

    o   The Company's ability to successfully market capacity on its network.

    o   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.

    o   The Company's ability to develop the "Williams Communications" brand.

    o   The Company's ability, in a cost-effective way, to maintain necessary
        rights-of-way for its network.

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

    o   Significant competition on pricing and product offerings for Network.

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

    o   The effect of changes in accounting policies.

    o   The need to record additional impairment charges.

    o   The Company's ability to attract and retain essential employees.

    o   The cost and effects of current and future legal and administrative
        claims and proceedings against the Company.





                                       3
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<Table>
<Caption>

                                                                         MARCH 31,       DECEMBER 31,
                                                                           2002             2001
                                                                       ------------      ------------
                                                                               (IN THOUSANDS)
<S>                                                                    <C>               <C>
ASSETS
Current assets:
   Cash and cash equivalents                                           $    192,525      $    116,038
   Short-term investments                                                   708,933           904,813
   Receivables less allowance of $43,679,000 ($41,362,000 in
     2001)                                                                  223,359           243,075

   Notes receivable less allowance of $4,881,000 ($12,000,000
     in 2001)                                                                75,385           178,601
   Net assets held for sale                                                  18,963            20,659
   Other                                                                     42,053            21,768
                                                                       ------------      ------------
Total current assets                                                      1,261,218         1,484,954
Investments                                                                  10,547            11,555
Property, plant and equipment, net                                        4,242,507         4,353,213
Other assets and deferred charges, net                                      150,626           142,304
                                                                       ------------      ------------
Total assets                                                           $  5,664,898      $  5,992,026
                                                                       ============      ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Accounts payable                                                    $    305,202      $    363,670
   Deferred income                                                           89,903            75,286
   Accrued liabilities                                                      375,357           373,119
   Long-term debt due within one year                                     1,240,818            72,488
                                                                       ------------      ------------
Total current liabilities                                                 2,011,280           884,563
Long-term debt                                                            4,668,314         5,838,779
Long-term deferred income                                                   372,670           401,546
Other liabilities                                                            31,915            28,935
Minority interest in consolidated subsidiary                                 42,528            44,907
Contingent liabilities and commitments
6.75% redeemable cumulative convertible preferred stock, $0.01
   par value per share, 500.0 million preferred shares authorized,
   5.0 million 6.75% redeemable cumulative convertible shares
   outstanding in 2002 and 2001; aggregate liquidation
   preference of $250,000,000                                               242,514           242,338
Stockholders' deficit:
   Class A common stock, $0.01 par value, 1 billion shares
     authorized, 493.1 million shares and 491.0 million shares
     outstanding in 2002 and 2001, respectively                               4,931             4,910
   Capital in excess of par value                                         3,892,630         3,862,465
   Accumulated deficit                                                   (5,588,207)       (5,304,906)
   Accumulated other comprehensive loss                                     (13,677)          (11,511)
                                                                       ------------      ------------
Total stockholders' deficit                                              (1,704,323)       (1,449,042)
                                                                       ------------      ------------
Total liabilities and stockholders' deficit                            $  5,664,898      $  5,992,026
                                                                       ============      ============
</Table>

                             See accompanying notes.


                                       4
<PAGE>



                       WILLIAMS COMMUNICATIONS GROUP, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<Table>
<Caption>

                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                         ------------------------------
                                                            2002               2001
                                                         ------------      ------------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                      <C>               <C>
Revenues                                                 $    298,593      $    276,064

Operating expenses:
   Cost of sales                                              259,401           254,858
   Selling, general and administrative                         68,261            75,015
   Provision for doubtful accounts                              7,547             2,662
   Depreciation and amortization                              140,146            85,213
   Asset impairments and restructuring charges                 11,161                --
   Other income, net                                          (21,910)              (53)
                                                         ------------      ------------
     Total operating expenses                                 464,606           417,695
                                                         ------------      ------------
Loss from operations                                         (166,013)         (141,631)
Interest accrued                                             (133,584)         (116,502)
Interest capitalized                                            2,498            34,019
Investing income (loss):
   Interest and other                                           9,208             2,722
   Equity losses                                               (1,169)           (5,901)
   Income (loss) from investments                                 960           (38,537)
Minority interest in loss of consolidated subsidiary            4,684             6,608
Other income, net                                                  56               118
                                                         ------------      ------------
Loss before income taxes                                     (283,360)         (259,104)
Benefit (provision) from income taxes                              59           (43,070)
                                                         ------------      ------------
Net loss                                                     (283,301)         (302,174)
Preferred stock dividends and amortization of
   preferred stock issuance costs                              (4,398)           (4,416)
                                                         ------------      ------------
Net loss attributable to common stockholders             $   (287,699)     $   (306,590)
                                                         ============      ============

Basic and diluted loss per share:
   Net loss attributable to common stockholders          $       (.58)     $       (.65)
                                                         ============      ============

   Weighted average shares outstanding                        496,155           473,692
</Table>


                             See accompanying notes.




                                       5
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<Table>
<Caption>

                                                                       THREE MONTHS ENDED
                                                                            MARCH 31,
                                                                   ----------------------------
                                                                      2002              2001
                                                                   -----------      -----------
                                                                          (IN THOUSANDS)
<S>                                                                <C>              <C>
OPERATING ACTIVITIES
Net loss                                                           $  (283,301)     $  (302,174)
Adjustments to reconcile net loss to net cash provided by
   (used in) operating activities:
   Depreciation and amortization                                       140,146           85,213
   Provision (benefit) from deferred income taxes                          (64)          43,041
   Asset impairments and restructuring charges                          11,161               --
   Provision for loss on investments                                        --           59,167
   Provision for doubtful accounts                                       7,547            2,662
   Equity losses                                                         1,169            5,901
   Gain on sale of  assets                                              (3,912)              --
   Gain on sales of investments                                            (51)         (20,630)
   Minority interest in loss of consolidated subsidiary                 (4,684)          (6,608)
   Cash provided by (used in) changes in:
     Receivables                                                       131,843          (14,195)
     Other current assets                                              (20,285)          (5,586)
     Accounts payable                                                  (46,809)         (54,806)
     Current deferred income                                             9,190           51,573
     Accrued liabilities                                                14,443           71,385
     Long-term deferred income                                         (13,730)          17,006
     Other                                                               5,212          (14,230)
                                                                   -----------      -----------
Net cash used in operating activities                                  (52,125)         (82,281)
FINANCING ACTIVITIES
Proceeds from long-term debt                                             4,194        1,685,000
Payments on long-term debt                                              (8,587)        (324,293)
Proceeds from issuance of common stock, net of expenses                  9,220            7,293
Debt issue costs                                                          (531)         (18,480)
Preferred stock dividends paid                                          (4,161)          (5,789)
Contribution to subsidiary from minority interest shareholders              --           31,258
                                                                   -----------      -----------
Net cash provided by financing activities                                  135        1,374,989
INVESTING ACTIVITIES
Property, plant and equipment:
   Capital expenditures                                                (31,560)        (415,369)
   Proceeds from sales                                                     841            2,943
   Changes in accrued liabilities                                      (38,630)         (84,491)
Purchase of investments                                               (159,026)      (1,058,300)
Proceeds from sales of investments                                     357,759          108,518
Other                                                                     (907)             344
                                                                   -----------      -----------
Net cash provided by (used in) investing activities                    128,477       (1,446,355)
DISCONTINUED OPERATIONS
Net cash provided by operating activities                                   --           29,720
Net cash provided by investing activities                                   --            6,529
                                                                   -----------      -----------
Net cash provided by discontinued operations                                --           36,249

Increase (decrease) in cash and cash equivalents                        76,487         (117,398)
Cash and cash equivalents at beginning of period                       116,038          213,888
                                                                   -----------      -----------
Cash and cash equivalents at end of period                         $   192,525      $    96,490
                                                                   ===========      ===========
</Table>

                             See accompanying notes.




                                       6
<PAGE>

                       WILLIAMS COMMUNICATIONS GROUP, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1. GENERAL

Basis of presentation

    The interim condensed consolidated financial statements of the Company 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 the Company's Annual Report on Form 10-K. The financial statements have not
been audited by independent auditors but include all adjustments, which, in the
opinion of the Company's management, are necessary to present fairly its
financial position as of March 31, 2002 and its results of operations and cash
flows for the three months ended March 31, 2002 and 2001.

    The interim condensed consolidated financial statements have been prepared
on a going concern basis of accounting, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
ability of the Company to continue as a going concern is dependent upon, among
other things, the outcome of WCG's pending chapter 11 case (see discussion below
in "Chapter 11 case"), future profitable operations and the ability to generate
sufficient cash from its operations and financing arrangements to meet its
obligations. Management believes that the restructuring plan that it is
developing, if successfully implemented, will provide sufficient liquidity to
allow the Company to operate as a going concern. However, there can be no
assurance that the sources of liquidity will be available or sufficient to meet
the Company's needs, and accordingly, there is substantial doubt about the
Company's ability to continue as a going concern. Substantial doubt about the
Company's ability to continue as a going concern was expressed in an explanatory
paragraph in the Company's report from its independent public accountants which
accompanied the Company's Annual Report on Form 10-K. The condensed consolidated
interim financial statements do not include any adjustments relating to
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

    As a result of the pending chapter 11 case (see discussion below in "Chapter
11 case"), for the period beginning April 22, 2002 and thereafter, the Company
will prepare its consolidated financial statements in accordance with Statement
of Position ("SOP") 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code." SOP 90-7 requires, among other things, that
pre-petition liabilities that are subject to compromise be segregated in the
consolidated balance sheet as liabilities subject to compromise and that
revenues, expenses, realized gains and losses and provisions for losses
resulting from the reorganization and restructuring of the company be reported
separately as reorganization items in the consolidated statement of operations.

Chapter 11 case

    WCG is a non-operating holding company whose principal asset is 100% of the
membership interest in Williams Communications, LLC ("WCL"). WCL is an operating
company whose business comprises the Network and Emerging Markets segments. In
addition, WCL is the direct or indirect parent of all the remaining subsidiaries
of the Company, including CG Austria, Inc. (formerly known as Williams
Communications Global Holdings, Inc) ("CG Austria"), a non-operating holding
company with direct and indirect interests in certain foreign subsidiaries of
the Company.

    On April 22, 2002, WCG and CG Austria (collectively, the "Debtors")
commenced cases (collectively, the "Chapter 11 Case") under chapter 11 of title
11 of the United States Code (the "Bankruptcy Code"). No chapter 11 case has
been commenced for WCL and its remaining subsidiaries, and those entities
continue to operate in the ordinary course of business outside of bankruptcy.



                                       7
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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



    Prior to the commencement of the Chapter 11 Case, the Company entered into
an agreement dated as of April 19, 2002 (the "Restructuring Agreement") with (i)
certain of the Lenders (the "Consenting Lenders") under the Company's Amended
and Restated Credit Agreement dated as of September 8, 1999, as amended (the
"Credit Agreement") and (ii) holders of approximately $875 million of WCG's
senior redeemable notes (the "Consenting Noteholders"). The following is a
summary of the material terms of the Restructuring Agreement:

    o   Prepayment of Amounts Outstanding Under the Credit Agreement. WCL agreed
        to prepay a total of $450 million in upcoming scheduled amortization
        payments under the Credit Agreement. Of that amount, $200 million was
        prepaid upon execution of the Restructuring Agreement and the remaining
        $250 million will be payable by WCL upon consummation of a chapter 11
        plan for the Debtors that reflects the provisions set forth in the
        Restructuring Agreement (the "Plan"). These prepayments will be applied
        to reduce scheduled amortization payments under the Credit Agreement, in
        the direct chronological order of maturity, thus obviating the need for
        further principal payments by WCL under the Credit Agreement until
        December 31, 2004.

    o   New Investment. The Restructuring Agreement requires the Company to
        obtain new debt or equity funding in the amount of $150 million (the
        "New Investment") from sources outside the Company. The proceeds of the
        New Investment will be used to fund, in part, the $250 million in
        prepayments due under the Credit Agreement upon consummation of the
        Plan.

    o   Amendments to the Credit Agreement. As a condition to the Restructuring
        Agreement, the Lenders have agreed to an interim amendment of the Credit
        Agreement (executed simultaneously with the Restructuring Agreement) and
        to the material terms of a permanent amendment and restatement of the
        Credit Agreement (to be executed upon consummation of the Plan). These
        modifications to the Credit Agreement (i) provide that the commencement
        of the Chapter 11 Case will not create an event of default and
        acceleration of the Company's obligations under the Credit Agreement;
        (ii) modify certain financial covenants to eliminate potential events of
        default and align the covenants to the Company's current business plan
        and cash forecasts; (iii) provide that the $450 million in prepayments
        will be applied to future maturities in direct chronological order of
        maturity; and (iv) otherwise reflect the provisions of the Restructuring
        Agreement.

    o   Use of Cash Collateral. As a condition to the Restructuring Agreement,
        the Consenting Lenders have agreed to allow the Debtors to use $25
        million of the Lenders' cash collateral upon the terms of a proposed
        order (the "Cash Collateral Order") to fund the expenses of the Chapter
        11 Cases.

    o   Treatment of Claims Under a Chapter 11 Plan. The Debtors have agreed to
        use their reasonable best efforts to propose, solicit acceptances to,
        and obtain confirmation of the Plan, containing the following treatment
        for claims against the Debtors: (i) holders of allowed unsecured claims
        against the Debtors (consisting of the allowed unsecured claims arising
        under the senior redeemable notes and any allowed unsecured claims of
        TWC) will receive their pro rata share of 100% of the new common stock
        of reorganized WCG; (ii) the secured claims of the Lenders' arising from
        the Debtors' Guarantees will be unimpaired; and (iii) claims arising
        from rescission of a purchase or sale of WCG's securities, or for
        reimbursement or contribution on account of such claims, will receive no
        distribution under the Plan and such claims will be discharged.

    o   Governance of Reorganized WCG. The Debtors have agreed that the Plan
        will provide for a nine-person board of directors of reorganized WCG, to
        be initially comprised of the CEO, at least two current directors
        selected by WCG's current board of directors, and six directors selected
        by the official committee of unsecured creditors appointed in the
        Chapter 11 Case.

    o   Agreement to Vote for the Debtors' Chapter 11 Plan. Subject to the
        receipt of a disclosure statement that has been approved by the
        Bankruptcy Court as containing "adequate information" pursuant to
        section 1125 of the Bankruptcy Code (the "Disclosure Statement"), and
        provided that such information is not materially different from
        information already provided by the Company to the Consenting Lenders
        and Consenting Noteholders (collectively, the "Holders"), each Holder
        has agreed to vote to accept a chapter 11 plan proposed by the Debtors
        that provides for and is consistent with the terms of the Plan set forth
        in the Restructuring Agreement.



                                       8
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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



    o   Right To Participate/Right of First Offer. The Restructuring Agreement
        gives certain Holders of senior redeemable notes who were parties to the
        Restructuring Agreement when it was initially executed the right to
        participate in an additional $150 million investment in the Company, on
        substantially similar terms as the New Investment, as well as a right of
        first offer to participate in future public or qualifying private
        issuance of debt or equity securities by WCG for two years following
        consummation of the Plan.

    o   Termination Events. If the Restructuring Agreement is assumed by the
        Debtors, it will terminate upon written notice from the terminating
        party or parties if any of the conditions set forth below occurs,
        provided, however, that such termination requires a vote of such of the
        Lenders party to the Restructuring Agreement as constitute the "Required
        Lenders" under the Credit Agreement, or a vote by Noteholders that are
        parties to the Restructuring Agreement who hold not less than 51% of
        such group's Note holdings:

        o   the Plan is not consummated by July 15, 2002, provided, however,
            that such deadline can be extended to October 15, 2002 on the
            following conditions (i) the prepayment of $50 million of the $250
            million prepayment due under the Credit Agreement upon consummation
            of the Plan; (ii) the satisfaction by the Company of certain EBITDA
            tests under the Credit Agreement (as modified by the interim
            amendment described above); (iii) the Debtors shall have filed
            the Plan and proposed Disclosure Statement with the Court; (iv) a
            date shall have been set for a hearing on the proposed Disclosure
            Statement; and (v) the Debtors shall be prosecuting the Plan in
            good faith; or

        o   the Plan contains terms materially inconsistent with or less
            favorable than those described in the Restructuring Agreement, or
            the Plan is modified in any way that makes it materially
            inconsistent with or less favorable than the terms set forth in the
            Restructuring Agreement; or

        o   WCG shall have failed to procure a commitment from a qualified
            investor for the New Investment by the date of the voting deadline
            set forth the Plan; or

        o   the Debtors shall have failed to file the Plan and Disclosure
            Statement on or before May 20, 2002; or

        o   the Cash Collateral Order shall not have been entered on before
            May 20, 2002, or the Debtors' authorization to use the Cash
            Collateral shall have been terminated without the consent of the
            Agent for the Lenders, acting at the direction of the Consenting
            Lenders which constitute the Required Lenders as such term is
            defined under the Credit Agreement; or

        o   an Event of Default occurs under the Credit Agreement (as amended
            by the interim amendment) and is continuing without waiver by the
            Required Lenders; or

        o   the Company shall seek or another person shall obtain a judicial
            order or judgment that affects adversely or alters in any respect
            the rights and remedies of the Lenders with respect to WCL or its
            property; or

        o   the Debtors shall have failed to propose in the Plan the separate
            classification of the claims arising under the senior redeemable
            notes (other than those subordinated pursuant to section 510(b) of
            the Bankruptcy Code).

    On April 30, 2002, the Debtors filed a motion to assume the Restructuring
Agreement. The motion is pending before the Bankruptcy Court. There can be no
assurances that the Bankruptcy Court will authorize the assumption of the
Restructuring Agreement by the Debtors.

    Previously, WCG entered into an agreement dated as of February 23, 2002,
with its former parent, TWC providing that TWC would support and vote to accept
a chapter 11 plan for the Company that provides certain treatment of the claims
of TWC, subject to certain conditions (the "TWC Plan Support Agreement"). These
conditions include providing for the treatment of certain of TWC's unsecured
claims in a manner substantially identical to the claims of the holders of WCG's
senior redeemable notes, and not impairing the claims of TWC arising from
certain service agreements and sale and subsequent leaseback agreements.

    The Restructuring Agreement and the TWC Plan Support Agreement represent a
framework for a comprehensive restructuring of the Company's balance sheet.
However, the success of that restructuring is



                                       9
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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



dependent, among other things, upon whether the Debtors (i) prepare and file a
chapter 11 plan and related proposed disclosure statement embodying the
provisions of the Restructuring Agreement and TWC Plan Support Agreement; (ii)
obtain a ruling from the Bankruptcy Court that the disclosure statement contains
"adequate information" as that term is used in section 1125 of the Bankruptcy
Code; (iii) obtain the requisite votes to confirm the chapter 11 plan; (iv)
satisfy all the conditions to consummation of the chapter 11 plan, including
obtaining outside funding of $150 million; and (v) satisfy all these conditions
within the timeframes set forth in the Restructuring Agreement.

    In order to obtain the requisite votes to confirm a chapter 11 plan under
section 1129 of the Bankruptcy Code, the plan must be accepted by at least one
impaired class of creditors. Within that class, the plan must be accepted by
creditors holding at least two-thirds in amount and more than one-half in number
of the allowed claims held by creditors voting. Consequently, the Company cannot
assure that a chapter 11 plan will be approved by creditors or by the Bankruptcy
Court on the terms described herein.

2. SEGMENT REVENUES AND PROFIT (LOSS)

    The Company evaluates performance based upon segment profit or loss from
operations which is operating EBITDA. Operating EBITDA as defined by the
Company, represents earnings before interest, income taxes, depreciation and
amortization and other unusual, non-recurring or non-cash items, such as asset
impairments and restructuring charges, equity earnings or losses and minority
interest. Operating EBITDA for 2001 also excludes lease costs attributable to
the Company's operating lease agreement covering a portion of the Company's
fiber-optic network (operating lease costs). A reconciliation of operating
EBITDA to loss from operations is provided below. Intercompany sales are
generally accounted for as if the sales were to unaffiliated third parties.


<Table>
<Caption>

                                                          EMERGING
                                          NETWORK         MARKETS           OTHER       ELIMINATIONS        TOTAL
                                        ------------    ------------    ------------    ------------    ------------
                                                                       (IN THOUSANDS)
<S>                                     <C>             <C>             <C>             <C>             <C>
THREE MONTHS ENDED MARCH 31, 2002
Revenues:
   Capacity and other                   $    259,748    $     38,845    $         --    $         --    $    298,593
   Intercompany                               11,091              64              --         (11,155)             --
                                        ------------    ------------    ------------    ------------    ------------
Total segment revenues                  $    270,839    $     38,909    $         --    $    (11,155)   $    298,593
                                        ============    ============    ============    ============    ============
Costs of sales:
   Capacity and other                   $    231,861    $     27,540    $         --    $         --    $    259,401
   Intercompany                                   64          11,091              --         (11,155)             --
                                        ------------    ------------    ------------    ------------    ------------
Total cost of sales                     $    231,925    $     38,631    $         --    $    (11,155)   $    259,401
                                        ============    ============    ============    ============    ============

Operating EBITDA:
   Loss from operations                 $   (136,453)   $    (29,205)   $       (355)   $         --    $   (166,013)
   Adjustments to reconcile loss from
     operations to operating EBITDA:
     Depreciation                            127,866          12,280              --                         140,146
     Other:
       Asset impairments and                                                                      --
       restructuring charges                   8,580           2,204             377                          11,161
       Gain on sale of assets                 (3,912)             --              --              --          (3,912)
                                        ------------    ------------    ------------    ------------    ------------
Operating EBITDA                        $     (3,919)   $    (14,721)   $         22    $         --    $    (18,618)
                                        ============    ============    ============    ============    ============
</Table>






                                       10
<PAGE>





                       WILLIAMS COMMUNICATIONS GROUP, INC.

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


<Table>
<Caption>


                                                     EMERGING
                                         NETWORK      MARKETS      OTHER     ELIMINATIONS    TOTAL
                                        ---------    ---------    ---------  ------------   ---------
                                                               (IN THOUSANDS)
<S>                                     <C>          <C>          <C>          <C>          <C>
THREE MONTHS ENDED MARCH 31, 2001
Revenues:
   External customers:
     Dark fiber                         $   7,851    $      --    $      --    $      --    $   7,851
     Capacity and other                   227,885       40,328           --           --      268,213
                                        ---------    ---------    ---------    ---------    ---------
   Total external customers               235,736       40,328           --           --      276,064
   Intercompany                            13,087           95           --      (13,182)          --
                                        ---------    ---------    ---------    ---------    ---------
Total segment revenues                  $ 248,823    $  40,423    $      --    $ (13,182)   $ 276,064
                                        =========    =========    =========    =========    =========
Costs of sales:
   Dark fiber                           $   2,954    $      --    $      --    $      --    $   2,954
   Capacity and other                     226,941       24,963           --           --      251,904
   Intercompany                                95       13,087           --      (13,182)          --
                                        ---------    ---------    ---------    ---------    ---------
Total cost of sales                     $ 229,990    $  38,050    $      --    $ (13,182)   $ 254,858
                                        =========    =========    =========    =========    =========

Operating EBITDA:
   Loss from operations                 $(125,151)   $ (15,491)   $    (989)   $      --    $(141,631)
   Adjustments to reconcile loss from
     operations to operating EBITDA:
     Depreciation and amortization         77,785        7,330           98           --       85,213
     Operating lease costs                 11,847           --           --           --       11,847
                                        ---------    ---------    ---------    ---------    ---------
Operating EBTIDA                        $ (35,519)   $  (8,161)   $    (891)   $      --    $ (44,571)
                                        =========    =========    =========    =========    =========
</Table>


<Table>
<Caption>

                          TOTAL ASSETS
                   ---------------------------
                     MARCH 31,    DECEMBER 31,
                       2002          2001
                   ------------   ------------
                         (IN THOUSANDS)

<S>                <C>            <C>
Network            $  4,317,395   $  4,446,479
Emerging Markets        239,626        230,155
Other                 1,107,877      1,315,392
                   ------------   ------------

  Total            $  5,664,898   $  5,992,026
                   ============   ============
</Table>


3. ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES

    Asset impairments and restructuring charges for the three months ended March
31, 2002 represent restructuring charges incurred in first quarter 2002 due to
workforce reductions of approximately 750 employees as part of the Company's
efforts to reduce 2002 planned controllable costs in conjunction with the
restructuring of its balance sheet.

    During first quarter 2002, the Company prepared impairment tests on a going
concern basis, and its remaining basis at the end of the period in its
long-lived assets was determined to be recoverable through future cash flows. As
noted above, WCG and CG Austria commenced the Chapter 11 Case during second
quarter 2002. Further adjustments to the carrying value may be necessary because
of changes to estimates of future cash flows or differences between accounting
for impairments of long-lived assets under Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," and accounting for such assets under "Fresh Start
Accounting" as described in SOP 90-7. These differences between SFAS 144 and SOP
90-7 include, but may not be limited to, the revaluation of all assets to fair
value, further



                                       11
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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



revisions of the underlying cash flow assumptions, revised assumptions
underlying assets to be held for use versus assets to be sold, or estimates or
appraisals for the purpose of determining and/or establishing a new enterprise
value.

    As of March 31, 2002, the Company had unamortized debt issuance costs of
$98.6 million included in other assets and deferred charges and debt discount of
$10.1 million included in long-term debt. These amounts are amortized as
additional interest expense over the estimated life of the associated debt with
maturity dates ranging from 2004 to 2010. In addition, as of March 31, 2002, the
Company had unamortized preferred stock issuance costs of $7.5 million included
as a reduction to the carrying value of the Company's redeemable cumulative
convertible preferred stock. The preferred stock issuance costs are amortized
over the life of the preferred stock. As a result of the commencement of the
Chapter 11 Case in second quarter 2002, the Company will reassess the remaining
useful life of the unamortized issuance costs and debt discount. Although the
assessment is not yet complete, the Company anticipates that it may record a
charge of approximately $103 million in second quarter 2002.

4. OTHER OPERATING INCOME, NET

    Transactions included in segment profit (loss)

    For the three months ended March 31, 2002, the Company recorded other
operating income of $18.0 million including settlement gains of $17.6 million
related to various agreements.

    Transactions excluded from segment profit (loss)

    The Company recorded other operating income of $3.9 million for the three
months ended March 31, 2002 related to revisions of estimated costs associated
with the sale of SUSA fiber in fourth quarter 2001.

5. INCOME FROM INVESTMENTS

    Income from investments for the three months ended March 31, 2002 was not
significant.

    The Company sold portions of its investments in certain marketable equity
securities for gross realized gains and losses of $24.4 million and $28.0
million, respectively, for the three months ended March 31, 2001.

    The Company recognized a loss of $59.2 million for the three months ended
March 31, 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.

    The Company also recorded income of $24.3 million for the three months ended
March 31, 2001 from the change in market value of cashless collars on certain
marketable equity securities in accordance with SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended since the cashless
collars did not qualify as a hedge. The cashless collar was terminated in first
quarter 2001 yielding proceeds of $24.3 million.





                                       12
<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

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




6. BENEFIT (PROVISION) FROM INCOME TAXES

    The benefit (provision) from income taxes includes:

<Table>
<Caption>

                                          THREE MONTHS ENDED
                                               MARCH 31,
                                         2002             2001
                                      ------------    ------------
                                            (IN THOUSANDS)
<S>                                   <C>             <C>
Current:
   Federal                            $         --    $         --
   State                                        (5)            (29)
   Foreign                                      --              --
                                      ------------    ------------
                                                (5)            (29)
Deferred:
   Federal                                      54         (36,301)
   State                                        10          (6,740)
   Foreign                                      --              --
                                      ------------    ------------
                                                64         (43,041)
                                      ------------    ------------
     Total benefit (provision)        $         59    $    (43,070)
                                      ============    ============
</Table>

    The tax benefit for the three months ended March 31, 2002 reflects fully
reserving, through a valuation allowance, the Company's net deferred tax assets
for which utilization has not been demonstrated.

    The tax provision for the three months ended March 31, 2001 reflects fully
reserving, through a valuation allowance, the Company's net deferred tax assets.
Reductions to the fair value of marketable equity securities reduced the
associated deferred tax liabilities creating deferred tax assets for which the
utilization has not yet been demonstrated. The valuation allowance represents a
reserve against the Company's net deferred tax assets, primarily resulting from
net operating loss carryforwards, which may not be utilized.

    Effective with the spin-off of WCG from TWC in April 2001, 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. Applying the amendment in first quarter 2001 would not have
resulted in any change to the tax provision for the three months ended March 31,
2001.

7. 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 the Company reported a net loss for
these periods. Stock options and convertible preferred stock of 8.8 million
shares for both the three months ended March 31, 2002 and 2001, respectively,
have been excluded from the computation of diluted loss per common share.

8. NOTES RECEIVABLE

    In February 2002, America Movil, S.A. de C.V. prepaid its non-interest
bearing note of $90.0 million from the sale of Algar Telecom Leste, S.A. ("ATL")
by paying a discounted amount of $88.8 million.



                                       13
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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



    In March 2002, the Company settled a note receivable for proceeds of $19.3
million of which $6.1 million was recorded as other operating income.

    In April 2002, Platinum Equity LLC paid $30 million ($21 million in
principal and $9 million in interest) on its $75 million promissory note from
the sale of Solutions in 2001.

9. DEBT AND OTHER FINANCING ARRANGEMENTS

    Debt consisted of the following:

<Table>
<Caption>

                                                                            WEIGHTED-
                                                                            AVERAGE
                                                                            INTEREST       MARCH 31,        DECEMBER 31,
                                                                              RATE           2002                2001
                                                                           ----------     ------------      ------------
                                                                                                 (IN THOUSANDS)

<S>                                                                         <C>           <C>               <C>
Senior redeemable notes, 10.70% - 11.875%, due 2007 - 2010                     11.1%      $  2,438,895      $  2,438,692
Senior secured notes due 2004                                                   8.3%         1,400,000         1,400,000
Credit agreement                                                                5.8%           975,000           975,000
Asset defeasance program                                                         --                 --           750,000
Unsecured note to TWC associated with termination of the asset
    defeasance program                                                         12.0%           753,867                --
Other                                                                           5.6%           341,370           347,575
                                                                                          ------------      ------------
                                                                                             5,909,132         5,911,267
Less current maturities                                                                     (1,240,818)          (72,488)
                                                                                          ------------      ------------
Long-term debt                                                                            $  4,668,314      $  5,838,779
                                                                                          ============      ============
</Table>

----------

*  As of March 31, 2002

Existing debt

    The senior redeemable notes are unsecured obligations of WCG. Approximately
$2.4 billion of such notes are currently outstanding. On April 1, 2002, WCG did
not make interest payments totaling approximately $91 million due under the
terms of one of the senior redeemable notes indentures. The failure to make that
payment resulted in a default under that indenture. In addition, the filing of
WCG's voluntary petition under chapter 11 resulted in a default under each of
the indentures governing the senior redeemable notes.

    The $1.4 billion senior secured notes mature in 2004 and were issued by WCG
Note Trust, a wholly-owned subsidiary of WCL, and were guaranteed by TWC. In
March 2002, TWC secured the consents of holders of the senior secured notes to
amend certain provisions of the related indenture that would have caused the
acceleration of the notes in the event of a WCG bankruptcy filing or certain
other events. The amendment also affirmed TWC's obligation to make all payments
under the notes in the event WCG Note Trust fails to do so and allows TWC to
fund these payments from any available sources. On April 5, 2002, TWC filed a
Registration Statement on Form S-4 with the Securities and Exchange Commission
proposing to exchange all of the $1.4 billion senior secured notes issued by WCG
Note Trust for new unsecured notes of TWC. WCG Note Trust is obligated to
reimburse TWC for the payments discussed above with the exception of the March
and September 2002 interest payments totaling approximately $115 million. The
forgiveness of the March and September 2002 interest payments is being accounted
for as a prospective adjustment to the effective interest rate of the senior
secured notes over the remaining life of the notes. However, as a result of the
commencement of the Chapter 11 Case, the Company will apply SOP 90-7 effective
April 22, 2002. The effect of adopting SOP 90-7 is being evaluated by the
Company but could result in a gain in second quarter 2002 related to interest
accrued on its senior secured notes which was forgiven pursuant to the agreement
with TWC. WCG Note Trust's obligation to reimburse TWC



                                       14
<PAGE>


                       WILLIAMS COMMUNICATIONS GROUP, INC.

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



is secured by a $1.5 billion note issued by WCG to WCG Note Trust. Consequently,
to the extent TWC makes payments under these notes for which it is entitled to
reimbursement, TWC will have an unsecured claim against WCG as a result of its
security interest in the $1.5 billion note issued by WCG to WCG Note Trust.

    WCL is the obligor under the Credit Agreement and has pledged substantially
all of its assets (other than those associated with the asset defeasance
program, the sale and subsequent leaseback agreements and PowerTel) to secure
its obligations under that agreement. In addition, WCL's obligations are
guaranteed by WCG and secured by substantially all of the assets of WCG. In
connection with the Restructuring Agreement, WCL and the Consenting Lenders
entered into an amendment of the Credit Agreement (the "Interim Amendment"). The
Interim Amendment will be effective until the Debtors consummate the Plan
provided for in the Restructuring Agreement, at which time the lenders will
execute a permanent amendment and restatement of the Credit Agreement according
to the terms set forth in the Restructuring Agreement. Among other things, the
Interim Amendment provides for:

    o   A principal prepayment of $200 million under the outstanding Credit
        Agreement to be made by WCL upon the effectiveness of the amendment. WCL
        made this payment on April 22, 2002.

    o   An additional principal prepayment of $250 million to be made by WCL
        upon the effective date of the Plan.

    o   A waiver under the Credit Agreement of all defaults and events of
        default occurring prior to April 22, 2002, so long as there is no
        occurrence of a subsequent default, as well as the amendment of certain
        other provisions of the Credit Agreement to avoid the occurrence of
        events of default as a result of the commencement of the Chapter 11
        Case.

    o   The removal of the lenders' obligations under the Credit Agrement to
        make any revolving loans, although WCL may still request the limited
        issuance of cash-collateralized letters of credit.

    o   The addition of certain reporting requirements on WCG and WCL and the
        requirement that WCL fund its operations in accordance with certain
        rolling 13 week cash forecasts as well as its business plan provided to
        the lenders under the Credit Agreement in March 2002.

    o   The repayment by WCL of $25 million of certain intercompany debt owed to
        WCG, which will be used to fund WCG's expenses during the Chapter 11
        Case, so long as such expenses are funded in accordance with the Cash
        Collateral Order approved by the Bankruptcy Court, including a budget
        for WCG described in the Cash Collateral Order.

    o   The elimination of substantially all financial covenants except for the
        requirement that WCL maintain a minimum cash balance in accounts
        controlled by the lenders of $350 million until June 30, 2002 and $200
        million thereafter and the requirement to meet EBITDA results, as
        defined, for second quarter 2002.

    o   An increase in the interest rate by 1.5%.

    o   The addition of certain additional restrictions on new investments by
        WCG and WCL in unrestricted subsidiaries and foreign subsidiaries as
        well as restrictions on other types of investments and the incurrence of
        additional debt.

    o   The addition of new events of default under the Credit Agreement,
        including but not limited to:

        o   the dismissal of the Chapter 11 Case, the conversion of such case to
            a chapter 7 proceeding under the Bankruptcy Code, or the appointment
            of a chapter 11 trustee;

        o   the granting of relief from the automatic stay in the Chapter 11
            Case to anyone other than the lenders;

        o   the failure of the Plan set forth in the Restructuring Agreement
            to become effective by July 15, 2002, provided that such date may
            automatically be extended to October 15, 2002 if (i) WCL makes an
            additional principal prepayment of $50 million on the outstanding
            credit agreement on July 15, 2002 (which prepayment will reduce the
            $250 million prepayment that is required to be made by WCL on the
            effective date of WCG's plan of reorganization), (ii) EBITDA, as
            defined, for second quarter 2002, is within certain permitted
            parameters, (iii) WCG has filed and is diligently prosecuting the
            Plan, and (iv) a hearing has been scheduled to consider the
            disclosure statement,

        o   the Cash Collateral Order has not been entered by the Bankruptcy
            Court by May 20, 2002,

        o   the Restructuring Agreement is breached by WCG or WCL or a
            termination event (as defined in the Restructuring Agreement)
            occurs.



                                       15
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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



    o  not reaching an agreement with the administrative agent of the bank group
       by July 15, 2002 with respect to the ultimate amount, timing, conditions
       precedent and covered individuals for any amounts to be paid pursuant to
       a retention program.

    The unsecured note issued by WCG to TWC of approximately $754 million is
associated with the termination of WCL's asset defeasance program. As previously
disclosed, the asset defeasance program related to the obligations of WCL as
lessee on a lease agreement covering a portion of its fiber-optic network. The
total cost of the network assets covered by the lease agreement was
approximately $750 million. TWC guaranteed WCL's obligations under the lease. In
March 2002, as one of the steps to achieve a comprehensive restructuring, WCL
exercised its right under the lease to acquire ownership of these assets.
Pursuant to an intercreditor agreement among the Company, WCL, TWC and WCL's
bank group, TWC was obligated to fund the purchase price of the network assets
covered by the asset defeasance program. In exchange for making that payment,
TWC was entitled to receive debt from WCG in the amount of approximately $754
million that is subordinate to, and neither matures nor requires any payments to
be made earlier than one year after the maturity of, WCL's Credit Agreement. On
March 29, 2002, TWC funded the purchase price and network assets were
transferred to WCL. WCG tendered an unsecured note to TWC for approximately $754
million and otherwise complied with the requirements specified above. TWC has
not yet accepted the note and has sent WCG a letter reserving all of its rights
with respect to the transaction and the unsecured note delivered by WCG.

    Included in the "other" category of debt is approximately $259 million owed
to TWC. In September 2001, the Company sold its Technology Center building and
other ancillary assets to TWC for approximately $276 million in cash. Concurrent
with the sale, the Company leased the Technology Center building for a period of
ten years and other ancillary assets for a period of three to ten years with
varying payment terms. The Company has an option to repurchase and TWC has the
right to sell the Technology Center building to the Company at the expiration
date of the lease for approximately $92 million. The Company also has the option
to repurchase and TWC has the right to sell certain ancillary assets to the
Company at the expiration date of the lease at their stated fair market value
per the lease. In the event neither the Company nor TWC exercises these options,
the property will remain owned by TWC.

    On April 25, 2002, TWC notified the Company that the commencement of the
Chapter 11 Case is an event of default under certain agreements with TWC
including the sale and subsequent leaseback agreements. TWC has informed the
Company that TWC is studying the default situation very carefully; that TWC has
not yet determined its course of action but reserves its rights to enforce the
terms of the agreements with respect to the event of default and seek all
applicable remedies at law and equity.

    In February 2002, the Company advanced PowerTel 16 million Australian
dollars (or $8.3 million) in the form of a subordinated loan in order to satisfy
certain conditions of the restructuring plan with its bank group due to
PowerTel's violation of two covenant requirements for the three months ending
December 31, 2001. In March 2002, as part of an approved restructuring plan with
its bank group, PowerTel received waivers from its bank group related to the
covenant violations. Under the approved restructuring plan, PowerTel will have
access to its remaining bank facility beginning September 1, 2002, which has
been reduced by 50 million Australian dollars leaving a remaining balance of
approximately 29 million Australian dollars.

Proposed debt restructuring

    As set forth in greater detail in Note 1, on April 22, 2002, WCG and CG
Austria commenced the Chapter 11 Case. Prior to the commencement of the Chapter
11 Case, the Company entered into the Restructuring Agreement with the
Consenting Lenders and the Consenting Noteholders and the TWC Plan Support
Agreement with TWC. Pursuant to these agreements, the parties thereto agreed to
support the Plan on the terms described therein, subject to certain conditions.
If that Plan is confirmed and consummated, the Company's long-term debt will be
restructured in the following manner:



                                       16
<PAGE>

    o   All allowed claims arising under the senior redeemable notes would be
        extinguished, and the holders thereof would be given their pro rata
        share of 100% of the new common stock of reorganized WCG .

    o   All allowed unsecured claims of TWC against WCG (including WCG's
        obligations related to the $1.4 billion senior secured notes that are
        guaranteed by TWC and the approximately $754 million unsecured note held
        by TWC with respect to the termination of the asset defeasance program
        on March 29, 2002) would be extinguished, and TWC would be given its pro
        rata share of 100% of the new common stock of reorganized WCG.

    o   The Company will obtain additional funding of $150 million from the
        issuance of debt or equity and will use that cash, together with
        cash on hand of $300 million, to prepay $450 million (which includes
        $200 million paid on April 22, 2002) of upcoming maturities under the
        Credit Agreement, thus reducing amounts outstanding to $525 million. The
        Debtors' guarantees of amounts outstanding under the Credit Agreement
        will be reinstated and unimpaired.

    o   The claims of TWC arising from the sale and subsequent leaseback
        transaction with WCL and its subsidiaries will remain unimpaired.

    o   All other long-term debt obligations of WCL and its subsidiaries will be
        unimpaired.

    As further set forth in the "General" section to these notes, there can be
no assurances that the Plan will be confirmed, or that the Company will
accomplish its goal of a comprehensive debt restructuring. If TWC was to
exercise its remedies under the sale and subsequent leaseback agreements and
demand payment of amounts owed, or if the Company was unable to meet the
conditions of the Restructuring Agreement, there would be a termination event
under the terms of the Restructuring Agreement. A termination event would allow
the Company's creditors to declare all amounts outstanding, including accrued
interest or other obligations, to be immediately due and payable and allow them
to proceed against the collateral granted to them, if any, to secure the debt.
The Company does not have existing liquidity sufficient to pay all amounts that
would become due as a result of defaults under its debt agreements and, thus,
would have to find other means of liquidity, enter into separate agreements to
restructure its debt agreements, commence a chapter 11 case at the operating
company level in order to avoid the material adverse effects associated with
creditors foreclosing or exercising other remedies.

    Because there can be no assurances that the Company can remain in compliance
with all of its covenants, the Company has classified the entire balance of
amounts owed under the sale and subsequent leaseback agreements and under the
Credit Agreement as current, even though TWC has not exercised any remedies,
there are no existing events of default under the Credit Agreement and the
Company's plan of reorganization does not assume having to repay either debt on
accelerated terms. The amounts owed under the Company's debt agreements which
are subject to the pending Chapter 11 Case have been classified as non-current.

10. REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK

    The Company has paid its preferred stock dividends through January 2002. The
Company has discretion to defer the payments of its preferred stock dividends
for up to six quarters without triggering certain rights of holders of the
preferred stock. In February 2002, the Company adopted a policy such that it
will not declare or pay dividends on the preferred stock until such time as the
market price of the common stock equals or exceeds $5.00 per share. As of March
31, 2002, the Company's accrued and unpaid dividends on its preferred stock were
$3.5 million.

    As discussed in Note 1, WCG has commenced a Chapter 11 Case. Because of the
priority requirements of the Bankruptcy Code, if the Plan as contemplated by the
Restructuring Agreement is consummated, the holders of the preferred stock will
receive no distribution under the Plan and the preferred stock will be
cancelled.





                                       17
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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


11. COMPREHENSIVE LOSS

<Table>
<Caption>


    Comprehensive loss is as follows:
                                                                        THREE MONTHS ENDED
                                                                             MARCH 31,
                                                                    ---------------------------
                                                                        2002            2001
                                                                    ------------   ------------
                                                                           (IN THOUSANDS)

<S>                                                                 <C>            <C>
Net loss                                                            $   (283,301)  $   (302,174)
   Other comprehensive income (loss):
       Unrealized loss on securities                                      (4,012)      (173,469)
       Less: reclassification adjustment for net losses (gains)
         realized in net loss                                                (48)        62,776
                                                                    ------------   ------------
        Net unrealized loss                                               (4,060)      (110,693)
        Foreign currency translation adjustments                           1,957        (19,361)
                                                                    ------------   ------------
   Other comprehensive loss before taxes                                  (2,103)      (130,054)
   Income tax benefit (provision) on other comprehensive income
      (loss)                                                                 (63)        42,921
                                                                    ------------   ------------

Comprehensive loss                                                  $   (285,467)  $   (389,307)
                                                                    ============   ============
</Table>

12. CONTINGENCIES

     Litigation

    The Company is subject to various types of litigation in connection with its
business and operations.

    On January 29, 2002, the first of numerous putative federal securities class
actions was filed in the U.S. District Court for the Northern District of
Oklahoma, against WCG, TWC, Keith Bailey, the Chairman of TWC, Howard Janzen,
and Scott Schubert, respectively, the CEO and CFO of WCG. The putative class
members in all of the cases are purchasers of the securities of TWC and/or the
securities of WCG between July 24, 2000, and January 29, 2002. The complaints
allege that the defendants violated federal securities acts by issuing a series
of alleged misrepresentations to the market between July 24, 2000, and January
29, 2002. The actions have been consolidated into one case styled In re:
Williams Securities Litigation. The Company believes that the allegations are
without merit.

    A number of suits attempting to achieve class action status seek damages and
other relief from the Company based on allegations that the Company installed
portions of its fiber-optic cable without all necessary landowner consents.
These allegations relate to use of rights-of-way licensed by railroads, state
departments of transportation, and others controlling pre-existing right-of-way
corridors. The putative members of the class in each suit are those owning the
land underlying or adjoining the right-of-way corridors. Similar actions have
been filed against all major carriers with fiber-optic networks. It is likely
that additional actions will be filed. The Company believes it obtained
sufficient rights to install its cable and that the attempts to include these
landowners in a class action suit are subject to challenge on procedural
grounds.

    The Company and other major carriers are seeking to settle the class action
claims referenced above relating to the railroad rights-of-way through an agreed
class action filed in the U.S. District Court for the District of Oregon on
January 31, 2002. On that same day, the plaintiffs and defendants jointly asked
the Court to approve a settlement. The settlement, if approved by the Court,
should settle the majority of the claims in the putative nationwide and
statewide class actions referenced above. The Company expects the settlement not
to exceed $14 million.



                                       18
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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


    On August 28, 2001, Platinum Equity LLC sent formal notice that it believes
the Company owes it approximately $47 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 Equity LLC.
Pursuant to the provisions of the sale agreement, the parties have submitted the
dispute to an independent public accounting firm for binding resolution.

    On July 24, 2001, Thoroughbred Technology and Telecommunications, Inc.
("TTTI") filed suit against WCL in the U.S. District Court for the Northern
District of Georgia for claims that 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 May 9, 2002, the Court granted TTTI's motion for partial
summary judgment on the issue of WCL's liability for breach of contract finding
that WCL did not have the right to terminate the contract. WCL's warranty and
breach of contract claims remain pending. The amount of damages will not be
established until a ruling is made regarding the claims of both parties.

    On December 20, 2000, the Women's Cooperative Trust Union filed a derivative
shareholder action in the U.S. District Court for the Western District of
Oklahoma against TWC, WCG, and certain directors and officers alleging that a
former director of WCG, an officer and a former officer purchased at a reduced
price stock of corporations that 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.
WCG 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. On
December 7, 2001, the Court dismissed the case without prejudice.

    The Company was notified by the Oklahoma Department of Securities (the
"Department") that an Order of Investigation was issued on April 26, 2002, to
the Company and TWC. In that order, the Department expressed its intention to
investigate unspecified allegations that the Company and TWC may have violated
the Oklahoma Securities Act. The Company is cooperating fully with the
Department. At this time, neither the scope of the Department's investigation
nor the likely outcome of any such investigation can be determined. The Company
believes that all of its actions and disclosures have been in full compliance
with the Oklahoma Securities Act.

    The Company is a party to various other claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management upon
advice from legal counsel, 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 the Company's future financial position, results of operations or
cash flows.

     Other

    SBC, the Company's largest customer, may terminate its provider agreements
with the Company if any of the following occurs:

    o   The Company begins to offer retail long distance voice transport or
        local exchange services on its network except in limited circumstances;

    o   The Company materially breaches its agreements with SBC causing a
        material adverse effect on the commercial value of the relationship to
        SBC; or

    o   The Company has a change of control without SBC's consent (regarding
        which, SBC has notified the Company that it reserves its right to claim
        that the spin-off of the Company from TWC constituted a change of
        control).

    The Company may terminate the provider agreements if any of the following
occurs:

    o   SBC has a change of control

    o   There is a material breach by SBC of the agreements, causing a material
        adverse effect on the commercial value of the relationship to the
        Company.



                                       19
<PAGE>

                       WILLIAMS COMMUNICATIONS GROUP, INC.

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


    Either party may terminate a particular provider agreement if the action or
failure to act of any regulatory authority materially frustrates or hinders the
purpose of that agreement. There is no monetary remedy for such a termination.
In the event of termination due to its actions, the Company could be required to
pay SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay the Company's
transition costs of up to $200 million, even though the Company's costs may be
higher.

13.  RECENT ACCOUNTING STANDARDS

    Under SFAS No. 142, "Goodwill and Other Intangible Assets," 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. As of December 31, 2001, the
Company has fully impaired its goodwill and other intangible assets. There was
no impact on the Company's results of operations and financial position upon
adopting SFAS No. 142.

    In August 2001, the Financial Accounting Standards Board ("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 adopting this
standard on the Company's results of operations and financial position is
currently 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 or Disposal of Long-Lived Assets." The Company's
approach for impairment under SFAS No. 121 is consistent with the provisions
under SFAS No. 144. Accordingly, the effect of adopting this standard on the
Company's results of operations and financial position was not different than
had the Company continued to operate under SFAS No. 121.

    In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." Statement 145 rescinds Statement 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As a result, the
criteria in Accounting Principles Board Opinion 30 will now be used to classify
those gains and losses. Statement 64 amended Statement 4, and is no longer
necessary because Statement 4 has been rescinded. Statement 44 was issued to
establish accounting requirements for the effects of transition to the
provisions of the Motor Carrier Act of 1980. Because the transition has been
completed, Statement 44 is no longer necessary. Statement 145 amends Statement
13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This amendment is consistent with the FASB's goal
of requiring similar accounting treatment for transactions that have similar
economic effects. Statement 145 also makes technical corrections to other
existing pronouncements. The provisions of this Statement are generally
applicable for fiscal years beginning or transactions occurring after May 15,
2002. However, early application of the provision of this Statement is
encouraged and may be applied as of the beginning of the fiscal year or as of
the



                                       20
<PAGE>
                       WILLIAMS COMMUNICATIONS GROUP, INC.

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



beginning of the interim period in which this Statement was issued. The effect
of adopting this standard on the Company's results of operations and financial
position is currently being evaluated.

14. RELATED PARTY TRANSACTIONS

     As disclosed in the Company's Form 10-K for the year 2001, the Compensation
Committee of the board of directors of WCG established a program to award annual
retention bonuses over a period of five years in the aggregate amount of $13
million to certain executives to be applied, after deduction of applicable
withholding taxes, solely against their respective outstanding principal loan
balances. Under the program, the affected executives are responsible for any
other taxes associated with their respective benefits. Pursuant to the terms of
the respective retention bonus agreements, each of the executives elected to
defer the first two payments, which means that the executives will not receive
any benefits under the program until the year 2003. On April 15, 2002, the
Company, acting on approval of the Compensation Committee entered into an
amendment to the retention bonus agreement entered into with Scott Schubert,
Chief Financial and Corporate Services Officer of the Company, providing that
program benefits earned by Mr. Schubert will be increased to include the amount
necessary to pay all associated taxes.

    Under existing compensation policies, each director has received $1,000 per
meeting of the board and between $500 and $750 per committee meeting, depending
on the committee. On April 18, 2002, following consultation with an outside
compensation consultant, the board of directors altered the form and amount of
director compensation to be $1,000 per meeting, regardless of whether it is a
meeting of the board or any given committee, effective January 1, 2002.






                                       21
<PAGE>

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

    The following discussion contains forward-looking statements that reflect
WCG's plans, estimates and beliefs. WCG's actual results could materially differ
from those discussed in these forward-looking statements. Factors that could
cause or contribute to those differences include, but are not limited to, those
discussed below and elsewhere in this Quarterly Report on Form 10-Q,
particularly in "Forward-Looking Statements."

BALANCE SHEET RESTRUCTURING

    See Notes 1 and 9 to the condensed consolidated financial statements
discussing the Company's efforts to undertake a comprehensive balance sheet
restructuring, including the use of chapter 11 cases under the Bankruptcy Code
for WCG and CG Austria, entering into the Restructuring Agreement and the TWC
Plan Support Agreement, and the status of the Company's debt obligations. That
discussion is incorporated herein by reference.

CRITICAL ACCOUNTING POLICIES

    Accounting standards require information in financial statements about the
accounting principles and methods used and the risks and uncertainties inherent
in significant estimates. The Company believes that its financial statements and
footnote disclosures present fairly, in all material respects, an accurate
application of generally accepted accounting principles ("GAAP"). In an effort
to reconcile the technical application of GAAP to the communication and
disclosure of important information to facilitate and enhance an investor's
understanding of a company's financial status, and the possibility and
implication of changes in the financial and operating status of a company, the
SEC issued Financial Reporting Release No. 60 (FR-60) in which it stated that it
is considering new rules during 2002 to elicit more precise disclosures about
the accounting policies that management believes are the most critical; that is,
they are both most important to the portrayal of the company's financial
condition and results, and they require management's most difficult, subjective
or complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. In addition, the SEC issued
FR-61 to remind public companies of existing disclosure requirements and to
suggest steps for meeting those requirements. In response to FR-60 and FR-61,
and in anticipation of new rules, the Company is making the following comments,
all of which should be read in conjunction with the financial statements
including the accompanying footnotes:

    Impairments of long-lived assets

    Accounting standards require the Company to evaluate and test recoverability
of long-lived assets or asset groups including goodwill and other intangibles
whenever events or changes in circumstances indicate that its carrying value
amount may not be recoverable. Whenever these "impairment indicators" are
present, the company must estimate the future cash flows attributable to the
assets and determine whether or not future cash flows, net of direct cash flows
attributable to the generation of those revenues, result in recovery of the
company's basis in those assets. If so, there is no impairment. If not, then the
company must record an impairment charge equal to the difference between its
basis in the assets and the fair value of the assets. The rules further require
the company to determine whether it plans to use the assets or hold the assets
for sale.

    During first quarter 2002, the Company prepared impairment tests on a going
concern basis, and its remaining basis at the end of the period in its
long-lived assets was determined to be recoverable through future cash flows. As
discussed in the notes to the condensed consolidated financial statements, WCG
and CG Austria commenced the Chapter 11 Case during second quarter 2002. Further
adjustments to the carrying value may be necessary because of changes to
estimates of future cash flows or differences between accounting for impairments
of long-lived assets under SFAS No. 144 and accounting for such assets under
"Fresh Start Accounting" as described in SOP 90-7. These differences between
SFAS No. 144 and SOP 90-7 include, but may not be limited to, the revaluation of
all assets to fair value, further revisions of the underlying cash flow
assumptions, revised



                                       22
<PAGE>

assumptions underlying assets to be held for use versus assets to be sold, or
estimates or appraisals for the purpose of determining and/or establishing a new
enterprise value.

    As of March 31, 2002, the Company had unamortized debt issuance costs of
$98.6 million included in other assets and deferred charges and debt discount of
$10.1 million included in long-term debt. These amounts are amortized as
additional interest expense over the estimated life of the associated debt with
maturity dates ranging from 2004 to 2010. As of March 31, 2002, the Company had
unamortized preferred stock issuance costs of $7.5 million included as a
reduction to the carrying value of the Company's redeemable cumulative
convertible preferred stock. The preferred stock issuance costs are amortized
over the life of the preferred stock. As a result of the commencement of the
Chapter 11 Case in second quarter 2002, the Company will reassess the remaining
useful life of the unamortized issuance costs and debt discount. Although the
assessment is not yet complete, the Company anticipates that it may record a
charge of approximately $103 million in second quarter 2002.

    Debt, preferred stock obligations and covenant compliance

    Despite the commencement of the Chapter 11 Case, the Company has agreements
with the lenders under the Credit Agreement that are not directly affected by
the Chapter 11 Case because no chapter 11 case has been commenced for WCL. These
agreements contain various terms and calculations (collectively referred to as
covenants) that require subjective and legal interpretations. The Company's
ability to continue to classify the non-current portion of these obligations as
long-term is dependent on its ability to continue to meet the covenant
requirements listed in these debt agreements or obtain waivers or amendments in
the event the Company cannot comply with its covenants or cure any instances of
noncompliance. As discussed in Note 9 to the condensed consolidated financial
statements, the Company has secured agreements and waivers for events of default
occurring on, before or associated with its Chapter 11 Case with respect to its
obligations under the Credit Agreement.

    Events of default occurring subsequent to the Company's commencement of the
Chapter 11 Case are not covered by the waivers under the Credit Agreement. On
April 25, 2002, TWC notified the Company that the commencement of the Chapter 11
Case is an event of default under certain agreements with TWC including the sale
and subsequent leaseback agreements. TWC has informed the Company that TWC is
studying the default situation very carefully; that TWC has not yet determined
its course of action but reserves its rights to enforce the terms of the
agreements with respect to the event of default and seek all applicable remedies
of law and equity.

    If TWC was to exercise its remedies under the sale and subsequent leaseback
agreements and demand payment of amounts owed, or if the Company was unable to
meet the conditions of the Restructuring Agreement, there would be a termination
event under the terms of the Restructuring Agreement. A termination event would
allow the Company's creditors to declare all amounts outstanding, including
accrued interest or other obligations, to be immediately due and payable and
allow them to proceed against the collateral granted to them, if any, to secure
the debt. The Company does not have existing liquidity sufficient to pay all
amounts that would become due as a result of defaults under its debt agreements
and, thus, would have to find other means of liquidity, enter into separate
agreements to restructure its debt agreements, commence a chapter 11 case at the
operating company level in order to avoid the material adverse effects
associated with creditors foreclosing or exercising other remedies.

    Because there can be no assurances that the Company can remain in compliance
with all of its covenants, the Company has classified the entire balance of
amounts owed under the sale and subsequent leaseback agreements and under the
Credit Agreement as current, even though TWC has not exercised any remedies,
there are no existing events of default under the Credit Agreement and the
Company's plan of reorganization does not assume having to repay either debt on
accelerated terms. The amounts owed under the Company's debt agreements, which
are subject to the pending Chapter 11 Case have been classified as non-current.

    On April 1, 2002, WCG did not make interest payments totaling approximately
$91 million due under the terms of one of the senior redeemable notes
indentures. The failure to make that payment resulted in a default under that
indenture. In addition, the filing of WCG's voluntary petition under chapter 11
resulted in a default




                                       23
<PAGE>

under each of the indentures governing the senior redeemable notes. All actions
with respect to enforcement of rights under the senior redeemable notes are
stayed by virtue of the commencement of the Chapter 11 Case.

    As of March 31, 2002, PowerTel has 71 million Australian dollars (or $37.9
million) outstanding under its bank facility. As of December 31, 2001, PowerTel
was in violation of two covenant requirements and was in the process of
negotiating a restructuring plan with its bank group. In February 2002, the
Company advanced PowerTel 16 million Australian dollars (or $8.3 million) in the
form of a subordinated loan in order to satisfy certain conditions of the
restructuring plan. In March 2002, as part of the approved restructuring plan
with its bank group, PowerTel received waivers from its bank group related to
the covenant violations for the three months ending December 31, 2001. Under the
approved restructuring plan, PowerTel will have access to its remaining bank
facility beginning September 1, 2002. PowerTel's violation of covenant
requirements does not cause any cross-defaults to the Company's other debt
obligations.

    The Company has redeemable cumulative convertible preferred stock
outstanding as of March 31, 2002 of approximately $243 million. The Company has
paid its preferred stock dividends through January 2002. The Company has
discretion to defer the payments of its preferred stock dividends for up to six
quarters without triggering certain rights of holders of the preferred stock. In
February 2002, the Company adopted a policy that it will not declare or pay
dividends on the preferred stock until such time as the market price of the
common stock equals or exceeds $5.00 per share. As of March 31, 2002, the
Company's accrued and unpaid dividends on its preferred stock were $3.5 million.
In accordance with existing GAAP, the preferred stock is classified on its
balance sheet as mezzanine financing, meaning it is neither debt nor equity.
Pending rules before the FASB would require classifying this security as debt,
due in 2012. Because of the priority requirements of the Bankruptcy Code, if the
Plan as contemplated by the Restructuring Agreement is consummated, the holders
of the preferred stock will receive no distribution under the Plan and the
preferred stock will be cancelled.

    Collections on notes receivable

    As of March 31, 2002, the Company has notes receivable outstanding of
approximately $75 million primarily related to the sale of its Solutions
business. In April 2002, Platinum Equity LLC paid $30 million ($21 million in
principal and $9 million in interest) on its $75 million promissory note from
the sale of Solutions in 2001. The Company is involved in a dispute with the
purchaser of its Solutions business regarding the calculation of net working
capital as defined in the agreement in which the purchaser claims that the
Company owes approximately $47 million. The Company denies that a working
capital adjustment of this magnitude is required. The matter has been submitted
to an independent public accounting firm for binding resolution.

    Revenue Recognition

    The Company recognizes capacity revenues monthly as services are provided or
as revenues are earned. As a result of accounting rules that became effective in
June 1999, revenues from the Company's dark fiber IRU transactions are accounted
for as operating leases and recognized over the life of the agreement. The
Company has recognized one-time dark fiber IRU revenues only to the extent that
title was transferred or to the extent that the fulfillment of the order was
pursuant to an obligation that existed prior to June 1999.

    As part of the Company's strategy to be the low cost provider, the Company
has entered into transactions such as buying, selling, swapping and/or
exchanging capacity, conduit and fiber to complete and compliment its network.
The Company has not recognized or recorded any one-time capacity or service
revenues from these transactions. Depending upon the terms of the agreement,
certain transactions are accounted for as pure asset swaps with no revenue and
no cost recognition while certain transactions are accounted for as both revenue
and cost over the corresponding length of time for each agreement.




                                       24
<PAGE>


TRANSACTIONS WITH SBC

    SBC is the Company's largest customer and was a related party due to the
membership of an officer of SBC on the Company's board of directors. In first
quarter 2002, the officer of SBC resigned his membership on the Company's board
of directors. SBC purchases domestic voice and data long-distance and local
transport services from the Company. Revenues from SBC for the three months
ended March 31, 2002 and 2001 were approximately $122 million and $89 million,
respectively. The Company purchases local transport services, platform services
such as toll-free, operator, calling card and directory assistance services
and international services such as transport and switched-voice services from
SBC. These purchases from SBC were $36.2 million and $34.1 million for the three
months ended March 31, 2002 and 2001, respectively.

    SBC may terminate the provider agreements if any of the following occurs:

    o   The Company begins to offer retail long distance voice transport or
        local exchange services on its network except in limited circumstances;

    o   The Company materially breaches its agreements with SBC causing a
        material adverse effect on the commercial value of the relationship to
        SBC; or

    o   The Company has a change of control without SBC's consent (regarding
        which, SBC has notified the Company that it reserves its right to claim
        that the spin-off of the Company from TWC constituted a change of
        control).

    The Company may terminate the provider agreements if any of the following
occurs:

    o   SBC has a change of control

    o   There is a material breach by SBC of the agreements, causing a material
        adverse effect on the commercial value of the relationship to the
        Company.

    Either party may terminate a particular provider agreement if the action or
failure to act of any regulatory authority materially frustrates or hinders the
purpose of that agreement. There is no monetary remedy for such a termination.
In the event of termination due to its actions, the Company could be required to
pay SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay the Company's
transition costs of up to $200 million, even though the Company's costs may be
higher.




                                       25
<PAGE>






RESULTS OF OPERATIONS

    The table below summarizes the Company's consolidated results of operations:


<Table>
<Caption>

                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                         ------------------------------
                                                             2002               2001
                                                         ------------      ------------
                                                               (IN THOUSANDS)
<S>                                                      <C>               <C>
Revenues:
   Network                                               $    270,839      $    248,823
   Emerging Markets                                            38,909            40,423
   Other                                                           --                --
   Eliminations                                               (11,155)          (13,182)
                                                         ------------      ------------
     Total revenues                                           298,593           276,064
Operating expenses:
   Cost of sales                                              259,401           254,858
   Selling, general and administrative                         68,261            75,015
   Provision for doubtful accounts                              7,547             2,662
   Depreciation and amortization                              140,146            85,213
   Asset impairments and restructuring charges                 11,161                --
   Other income, net                                          (21,910)              (53)
                                                         ------------      ------------
     Total operating expenses                                 464,606           417,695
                                                         ------------      ------------
Loss from operations                                         (166,013)         (141,631)
Net interest expense                                         (131,086)          (82,483)
Investing income (loss):
   Interest and other                                           9,208             2,722
   Equity losses                                               (1,169)           (5,901)
   Income (loss) from investments                                 960           (38,537)
Minority interest in loss of consolidated subsidiary            4,684             6,608
Other income, net                                                  56               118
                                                         ------------      ------------
Loss before income taxes                                     (283,360)         (259,104)
Benefit (provision) from income taxes                              59           (43,070)
                                                         ------------      ------------
Net loss                                                 $   (283,301)     $   (302,174)
                                                         ============      ============
</Table>


THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001

CONSOLIDATED RESULTS

    The Company's net loss decreased $18.9 million due to an increase in
investing income (loss) of $50.7 million and a decrease of $43.2 million related
to the tax provision, partially offset by an increase in net interest expense of
$48.6 million and an increase in loss from operations of $24.4 million.

    Emerging Markets and Network accounted for $13.7 million and $11.3 million
of the increase in loss from operations, respectively. Other loss from
operations decreased $0.6 million.




                                       26
<PAGE>






NETWORK

    The table below summarizes Network's results from operations:

<Table>
<Caption>

                                                         THREE MONTHS ENDED
                                                             MARCH 31,
                                                   ------------------------------
                                                       2002              2001
                                                   ------------      ------------
                                                           (IN THOUSANDS)
<S>                                                <C>               <C>
Revenues:
   Dark fiber                                      $         --      $      7,851
   Capacity and other                                   259,748           227,885
   Intercompany                                          11,091            13,087
                                                   ------------      ------------
     Total revenues                                     270,839           248,823
Operating expenses:
   Cost of sales                                        231,925           229,990
   Selling, general and administrative                   53,695            64,247
   Provision for doubtful accounts                        7,108             2,005
   Depreciation and amortization                        127,866            77,785
   Asset impairments and restructuring charges            8,580                --
   Other income, net                                    (21,882)              (53)
                                                   ------------      ------------
     Total operating expenses                           407,292           373,974
                                                   ------------      ------------
Loss from operations                               $   (136,453)     $   (125,151)
                                                   ============      ============
</Table>

    Network's revenues increased $22.0 million, or 9%, primarily attributable to
data and voice services provided to SBC of approximately $122 million for the
three months ended March 31, 2002 compared to approximately $89 million for the
three months ended March 31, 2001 and an increase of $43.5 million attributable
to the acquisition of Ameritech Global Gateway Services ("AGGS") on September
28, 2001, of which $14.4 million relates to SBC and is included in the SBC
revenues amount above. The increase in revenues is partially offset by
contractual price re-rates, customer disconnects and $7.9 million lower revenues
from dark fiber transactions entered into prior to June 30, 1999 and accordingly
accounted for as sales type leases.

    Network's gross profit increased to $38.9 million for the three months ended
March 31, 2002 from $18.8 million for the three months ended March 31, 2001.
Gross margin increased to 14% for the three months ended March 31, 2002 from 8%
for the three months ended March 31, 2001. The improvement in Network's gross
profit is primarily a result of $11.8 million lower lease expense from the
absence of lease costs associated with the Company's asset defeasance program
(see Note 9 to the condensed consolidated financial statements) which have been
replaced with interest expense in 2002, $5.3 million lower ad valorem taxes as a
result of changes in fair values of the associated assets and $3.4 million of
the increase is attributable to the acquisition of AGGS.

    Network's selling, general and administrative expenses decreased $10.5
million, or 16%, due primarily to lower payroll related expenses and the absence
of costs associated with the spin-off from TWC in April 2001 in addition to
certain corporate costs from TWC. Network's selling, general and administrative
expenses decreased to 20% for the three months ended March 31, 2002 as a
percentage of revenues from 26% for the three months ended March 31, 2001.

    Network's provision for doubtful accounts increased $5.1 million primarily
due to general market conditions in the telecommunications industry.

    Network's depreciation and amortization increased $50.1 million, or 64%,
primarily as a result of assets placed in service since March 31, 2001 and the
addition of $750 million of assets associated with the Company's asset
defeasance program, partially offset by the impairment of long-lived assets
recorded in fourth quarter 2001.



                                       27
<PAGE>

    Network's asset impairments and restructuring charges for the three months
ended March 31, 2002 represent restructuring charges incurred in first quarter
2002 due to workforce reductions taken as part of the Company's efforts to
reduce 2002 planned controllable costs in conjunction with the restructuring of
its balance sheet.

    Network's other income for the three months ended March 31, 2002 primarily
represents settlement gains of $17.6 million related to various agreements and a
$3.9 million revision of estimated costs associated with the sale of SUSA fiber
in fourth quarter 2001.

EMERGING MARKETS

    The table below summarizes Emerging Markets results from operations:

<Table>
<Caption>
                                                        THREE MONTHS ENDED
                                                             MARCH 31,
                                                       2002              2001
                                                   ------------      ------------
                                                            (IN THOUSANDS)

<S>                                                <C>               <C>
Revenues                                           $     38,909      $     40,423
Operating expenses:
   Cost of sales                                         38,631            38,050
   Selling, general and administrative                   14,588             9,877
   Provision for doubtful accounts                          439               657
   Depreciation and amortization                         12,280             7,330
   Asset impairments and restructuring charges            2,204                --
   Other income                                             (28)               --
                                                   ------------      ------------
     Total operating expenses                            68,114            55,914
                                                   ------------      ------------
Loss from operations                               $    (29,205)     $    (15,491)
                                                   ============      ============
</Table>

    Emerging Markets' revenues decreased $1.5 million, or 4%, primarily due to a
decrease in satellite business and the transmission of broadcast sports and news
events, partially offset by higher revenues from media services as a result of
the iBEAM acquisition in December 2001.

    Emerging Markets' gross profit decreased to $0.3 million for the three
months ended March 31, 2002 from $2.4 million for the three months ended March
31, 2001. Gross margin decreased to 1% for the three months ended March 31, 2002
from 6% for the three months ended March 31, 2001. The decrease in gross profit
is primarily due to costs associated with the development and support of media
services.

    Emerging Markets' selling, general and administrative expenses increased
$4.7 million, or 47%, due primarily to payroll related and integration costs
associated with the acquisition of iBEAM.

    Emerging Markets' depreciation and amortization expense increased $5.0
million, or 68%, due primarily to assets placed in service since March 31, 2001
relating to media services, partially offset by $1.3 million lower amortization
expense as the Company fully impaired its goodwill and other intangibles as of
December 31, 2001.

    Emerging Markets' asset impairments and restructuring charges for the three
months ended March 31, 2002 represent restructuring charges incurred in first
quarter 2002 due to workforce reductions discussed above.

CONSOLIDATED NON-OPERATING ITEMS

    The Company's net interest expense increased $48.6 million as a result of
increased borrowings at higher interest rates to finance operations and capital
expenditures. The Company's total debt has increased $997.1 million from March
31, 2001 to March 31, 2002, which primarily reflects the borrowing of the $450.0
million add-on to its credit agreement in April 2001, the sale and subsequent
leaseback of its Technology Center and other ancillary assets for $276.0 million
in September 2001 and the $754 million obligation under the asset defeasance
program. In addition, for the three months ended March 31, 2002, there were $7.3
million of




                                       28
<PAGE>

professional fees related to the Company's balance sheet restructuring efforts.
These items are partially offset by the purchase of $551.0 million of its senior
redeemable notes in third and fourth quarter 2001.

    The Company's interest and other investing income increased $6.5 million due
to higher average short-term investment balances for the three months ended
March 31, 2002 compared to the three months ended March 31, 2001.

    The Company's equity losses decreased $4.7 million primarily due to the sale
of its remaining economic interest in ATL in July 2001.

    The Company's income from investments for the three months ended March 31,
2002 of $1.0 million included a $0.9 million gain related to dividends received
from a cost-based investment.

    The Company's loss from investments for the three months ended March 31,
2001 of $38.5 million included a loss of $59.2 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 and net losses of
$3.6 million from sales of certain marketable equity securities, partially
offset by a gain of $24.3 million realized from the termination of cashless
collars on certain marketable equity securities.

    The Company's tax provision decreased $43.2 million primarily due to changes
in the valuation allowance established for deferred tax assets and liabilities
created by changes in the value of marketable equity securities.

LIQUIDITY AND CAPITAL RESOURCES

2002 AND 2003

Financing plan

    For a discussion of the Company's current plans regarding a comprehensive
balance sheet restructuring, see Notes 1 and 9 to the condensed consolidated
financial statements.

Cash requirements

    The Company's expected cash requirements for 2002 and 2003 total
approximately $760 million consisting of the following:

o   capital expenditures of approximately $320 million;

o   debt service obligations (including interest) of approximately $705 million;

o   partially offset by $150 million of additional debt or equity; partially
    offset by

o   cash expected to be generated from its operating and investing activities of
    approximately $115 million including cash from asset sales, dark fiber
    transactions and other capacity sales.

    As part of its restructuring effort, the Company has taken steps to reduce
its 2002 planned controllable cost structure by approximately 25%. These steps
have included workforce reductions of approximately 750 employees in March 2002.
The Company incurred restructuring charges of $11.2 million in first quarter
2002 due to these workforce reductions.

Cash sources

    As of March 31, 2002, the Company had approximately $900 million of cash,
cash equivalents 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 $6.8 million.




                                       29
<PAGE>
    As of March 31, 2002, PowerTel had 71 million Australian dollars (or $37.9
million) outstanding under its bank facility agreement. As of December 31, 2001,
PowerTel was in violation of two covenant requirements and was in the process of
negotiating a restructuring plan with its bank group. In February 2002, the
Company advanced PowerTel 16 million Australian dollars (or $8.3 million) in the
form of a subordinated loan in order to satisfy certain conditions of the
restructuring plan. In March 2002, as part of the approved restructuring plan
with its bank group, PowerTel received waivers from its bank group related to
the covenant violations for the three months ending December 31, 2001. Under the
approved restructuring plan, PowerTel will have access to its remaining bank
facility, which has been reduced by 50 million Australian dollars, leaving a
remaining balance of approximately 29 million Australian dollars, [beginning
September 1, 2002,] if it is in covenant compliance with its lenders, a matter
that cannot be predicted at this time. PowerTel's violation of covenant
requirements does not cause any cross-defaults to the Company's other debt
obligations.

    In February 2002, America Movil, S.A. de C.V. prepaid its non-interest
bearing note of $90.0 million from the sale of ATL by paying a discounted amount
of $88.8 million.

    In April 2002, Platinum Equity LLC paid $30 million ($21 million in
principal and $9 million in interest) on its $75 million promissory note from
the sale of Solutions in 2001.

    Pursuant to the terms of the Restructuring Agreement and the Interim
Amendment to the Credit Agreement, the Company must raise additional debt or
equity in the amount of $150 million on or before the record date set for voting
on the Plan. For a detailed discussion of the Restructuring Agreement and the
Interim Amendment, see Notes 1 and 9 to the condensed consolidated financial
statements.

Cash uses

    Cash used in operating activities was $52.1 million for the three months
ended March 31, 2002 which includes interest payments of approximately $73
million. Cash to be used in operating activities is expected to be approximately
$190 million for 2002 including restructuring fees and payments of approximately
$90 million. Cash to be provided by operating activities is expected to be $150
million for 2003. Interest payments on the Credit Agreement, sale and subsequent
leaseback and other remaining obligations, excluding those expected to be
suspended as a result of the commencement of the Chapter 11 Case, are expected
to be approximately $125 million and $65 million for 2002 and 2003,
respectively. It does not include any interest associated with the additional
$150 million to be raised pursuant to the Restructuring Agreement or accelerated
payments in the event of a default. See Note 9 of the condensed consolidated
financial statements for a discussion of a default notification by TWC to the
Company under the sale and subsequent leaseback agreements. The Company has
classified the entire balance of amounts owed under the sale and subsequent
leaseback agreements and under the Credit Agreement as current, even though TWC
has not exercised any remedies, there are no existing events of default under
the Credit Agreement and the Company's plan of reorganization does not assume
having to repay either debt on accelerated terms.

    The Company currently estimates it will spend approximately $125 million and
$195 million for capital expenditures for 2002 and 2003, respectively, primarily
to enhance and expand products and service offerings for both carrier and media
services and continued extension of the network in major metro markets. Capital
expenditures were $31.6 million for the three months ended March 31, 2002.

    As of March 31, 2002, the Company had debt obligations of approximately $5.9
billion. The Company anticipates that approximately $4.6 billion in debt will be
discharged if the Plan contemplated by the Restructuring Agreement is
consummated, comprised of approximately $2.4 billion principal on its senior
redeemable notes, approximately $1.4 billion principal amount under the senior
secured notes, and approximately $754 million related to the unsecured note
issued to TWC in connection with the termination of the asset defeasance
program. The Company anticipates interest relief with these obligations, which
on an annual basis amounts to approximately $420 million. Pursuant to the terms
of the Interim Amendment to the Credit Agreement, the Company will prepay $450
million of upcoming maturities under the Credit Agreement prior to emergence
from Chapter 11, of which $200 million was paid in April 2002, leaving $525
million outstanding.




                                       30
<PAGE>
After making the $450 million principal reductions, scheduled principal
reductions begin in 2004. The Company anticipates continuing to make payments on
its approximately $259 million obligation related to the sale and subsequent
leaseback of its Technology Center and other ancillary assets and other
obligations totaling approximately $82 million. Debt service obligations,
excluding interest, on the sale and subsequent leaseback and the other remaining
debt obligations is expected to be approximately $30 million and $35 million for
both 2002 and 2003, respectively. The Company made principal payments of
approximately $9 million for the three months ended March 31, 2002.

    In April 2001, TWC and the Company entered into an agreement in which the
Company owes TWC approximately $100 million for various normal course services
which is included in accounts payable. By agreement with TWC, the Company
elected to defer payment of these payables and related interest at a rate of
8.25% until September 15, 2002. This item was included as a general unsecured
claim in the Chapter 11 Case. Accordingly, the Company anticipates not having to
pay this obligation.

    Factors which could impact the Company's ability to have sufficient
liquidity to execute on its business plan are the successful implementation of
its balance sheet restructuring efforts, its ability to generate sufficient
sales to customers during the restructuring efforts, changes in the competitive
environment of the markets that it serves and changes in technology. Any
variation could impact the Company's future cash requirements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

    The Company's interest rate exposure associated with short-term investments
decreased since December 31, 2001 as short-term investments excluding marketable
equity securities total $702.2 million as of March 31, 2002 compared to $893.9
million as of December 31, 2001.

    The Company's proposed balance sheet restructuring, if implemented, would
have a significant impact on reducing the Company's interest rate risk relating
to its debt portfolio.


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    The Company is subject to various types of litigation in connection with its
business and operations.

    On January 29, 2002, the first of numerous putative federal securities class
actions was filed in the U.S. District Court for the Northern District of
Oklahoma, against WCG, TWC, Keith Bailey, the Chairman of TWC, Howard Janzen,
the Chairman, President and CEO of WCG and Scott Schubert, the CFO of WCG. The
putative class members in all of the cases are purchasers of the securities of
TWC and/or the securities of WCG between July 24, 2000, and January 29, 2002.
The complaints allege that the defendants violated federal securities acts by
issuing a series of alleged misrepresentations to the market between July 24,
2000, and January 29, 2002. The actions have been consolidated into one case
styled In re: Williams Securities Litigation. WCG believes that the allegations
are without merit.

    A number of suits attempting to achieve class action status seek damages and
other relief from the Company based on allegations that the Company installed
portions of its fiber-optic cable without all necessary landowner consents.
These allegations relate to use of rights-of-way licensed by railroads, state
departments of transportation, and others controlling pre-existing right-of-way
corridors. The putative members of the class in each suit are those owning the
land underlying or adjoining the right-of-way corridors. Similar actions have
been filed against all major carriers with fiber-optic networks. It is likely
that additional actions will be filed. The Company believes it obtained
sufficient rights to install its cable and that the attempts to include these
landowners in a class action suit are subject to challenge on procedural
grounds.



                                       31
<PAGE>
    The Company and other major carriers are seeking to settle the class action
claims referenced above relating to the railroad rights-of-way through an agreed
class action filed in the U.S. District Court for the District of Oregon on
January 31, 2002. On that same day, the plaintiffs and defendants jointly asked
the Court to approve a settlement. The settlement, if approved by the Court,
should settle the majority of the claims in the putative nationwide and
statewide class actions referenced above. The Company expects the settlement not
to exceed $14 million.

    On August 28, 2001, Platinum Equity LLC sent formal notice that it believes
the Company owes it approximately $47 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 Equity LLC.
Pursuant to the provisions of the sale agreement, the parties submitted the
dispute to an independent public accounting firm for binding resolution.

    On July 24, 2001, Thoroughbred Technology and Telecommunications, Inc.
(TTTI) filed suit against WCL in the U.S. District Court for the Northern
District of Georgia for claims that 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 May 9, 2002, the Court granted TTTI's motion for partial
summary judgment on the issue of WCL's liability for breach of contract finding
that WCL did not have the right to terminate the contract. WCL's warranty and
breach of contract claims remain pending. The amount of damages will not be
established until a ruling is made regarding the claims of both parties.

    On December 20, 2000, the Women's Cooperative Trust Union filed a derivative
shareholder action in the U.S. District Court for the Western District of
Oklahoma against TWC, WCG, and certain directors and officers alleging that a
former director of WCG, an officer and a former officer purchased at a reduced
price stock of corporations that 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.
WCG 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. On
December 7, 2001, the Court dismissed the case without prejudice.

    The Company was notified by the Oklahoma Department of Securities (the
"Department") that an Order of Investigation was issued on April 26, 2002, to
the Company and TWC. In that order, the Department expressed its intention to
investigate unspecified allegations that the Company and TWC may have violated
the Oklahoma Securities Act. The Company is cooperating fully with the
Department. At this time, neither the scope of the Department's investigation
nor the likely outcome of any such investigation can be determined. The Company
believes that all of its actions and disclosures have been in full compliance
with the Oklahoma Securities Act.

    Summary

    The Company is a party to various other claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management upon
advice from legal counsel, 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 the Company's future financial position, results of operations or
cash flows.

    For information regarding other legal proceedings, see the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

    On April 1, 2002, WCG did not make interest payments totaling approximately
$91 million due under the terms of one of the senior redeemable notes
indentures. The failure to make that payment within the 30-day grace




                                       32
<PAGE>

period resulted in a default under that indenture. In addition, the filing of
WCG's voluntary petition under chapter 11 resulted in a default under each of
the indentures governing the senior redeemable notes. The senior redeemable
notes include:

<Table>
<Caption>

                                                                       Aggregate Principal Amount
         Issue                                                         (as of February 11, 2002)(1)
         -----------------------------------------------------         ----------------------------
<S>                                                                    <C>
         10.70% Senior Redeemable Notes due 2007                                   $500,000,000
         10.875% Senior Redeemable Notes due 2009                                $1,500,000,000
         11.70% Senior Redeemable Notes due 2008                                   $575,000,000
         11.875% Senior Redeemable Notes due 2010                                  $425,000,000
</Table>

(1) $551 million in face amount of the Senior Redeemable Notes are held by CG
    Investments, Inc., a wholly-owned subsidiary of WCG.

    All actions with respect to enforcement of rights under the senior
redeemable notes are stayed by virtue of the commencement of the Chapter 11
Case.

    See Note 9 to the condensed consolidated financial statements above and
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations" for additional information regarding these defaults. Such
information is incorporated herein by reference.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

              10.105 Copy of the Registrant's April 22, 2002 agreement with
                     principal creditor group (filed as Exhibit 10.1 to the
                     Current Report on Form 8-K dated April 22, 2002, (the
                     "April 22, 2002, 8-K"))

              10.106 Copy of the Registrant's February 23, 2002 agreement with
                     The Williams Companies, Inc. (filed as Exhibit 10.2 to the
                     April 22, 2002 8-K)

              10.107 Copy of Amendment No. 7 to the Registrant's Amended and
                     Restated Credit Agreement dated April 19, 2002.

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


        (b)   During the first quarter 2002, WCG filed a Form 8-K on January 10,
              2002; February 7, 2002; February 20, 2002; and March 1, 2002,
              which reported significant events under Item 5 of the Form and
              included the exhibits required by Item 7 of the Form.





                                       33
<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)

May 15, 2002


<PAGE>



                                INDEX TO EXHIBITS



<Table>
<Caption>
EXHIBIT
NUMBER                                 DESCRIPTION
------                                 -----------
<S>                  <C>
10.105               Copy of the Registrant's April 22, 2002 agreement with
                     principal creditor group (filed as Exhibit 10.1 to the
                     Current Report on Form 8-K dated April 22, 2002, (the
                     "April 22, 2002, 8-K"))

10.106               Copy of the Registrant's February 23, 2002 agreement with
                     The Williams Companies, Inc. (filed as Exhibit 10.2 to the
                     April 22, 2002 8-K)

10.107               Copy of Amendment No. 7 to the Registrant's Amended and
                     Restated Credit Agreement dated April 19, 2002.

12                   Computations of Ratio of Earnings to Fixed Charges and
                     Ratio of Earnings to Combined Fixed Charges and Preferred
                     Stock Dividend Requirements
</Table>