ELECTRIC LIGHTWAVE, INC.

                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


                     OF THE SECURITIES EXCHANGE ACT OF 1934


                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998




<PAGE>




                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
    ACT OF 1934
                For the quarterly period ended September 30, 1998

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
              For the transition period from _________to__________

                         Commission file number 0-23393


                               ELECTRIC LIGHTWAVE,INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                         93-1035711
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)



       4400 NE 77th Avenue
       Vancouver, Washington                              98662
----------------------------------------     -----------------------------------
(Address of principal executive offices)                (Zip Code)



Registrant's telephone number, including area code (360)816-3000




--------------------------------------------------------------------------------
   (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  twelve 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 ninety days.

                               Yes __X__  No ___


The number of shares outstanding of the registrant's class of common stock as of
October 23, 1998 were:

                         Common Stock Class A  8,547,011
                         Common Stock Class B 41,165,000




<PAGE>



                                                        
                                             ELECTRIC LIGHTWAVE, INC.

                                           Index to Financial Statements

<TABLE>
<CAPTION>



                                                                                                     Page No.
<S>                                                                                                  <C>

Part I.  Financial Information

    Item 1.  Financial Statements

       Balance Sheets at September 30, 1998 and December 31, 1997 (unaudited)                             2

       Statements of Operations for the Three Months Ended September 30, 1998 and 1997 (unaudited)        3

       Statements of Operations for the Nine Months Ended September 30, 1998 and 1997 (unaudited)         4

       Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997 (unaudited)         5

       Notes to Financial Statements                                                                      6

    Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations       10

    Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  16

Part II.  Other Information

    Item 1.  Legal Proceedings                                                                           17

    Item 2.  Changes in Securities and Use of Proceeds                                                   17

    Item 3.  Defaults Upon Senior Securities                                                             17

    Item 4.  Submission of Matters to a Vote of Security Holders                                         17

    Item 5.  Other Information                                                                           17

    Item 6.  Exhibits and Reports on Form 8-K                                                            17

Signature                                                                                                18

</TABLE>











                                                      -1-
<PAGE>

<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                                             ELECTRIC LIGHTWAVE, INC.
                                                  BALANCE SHEETS
                                                  (In thousands)
                                                    (Unaudited)

                                                                              September 30, 1998      December 31, 1997

ASSETS

Current assets:
<S>                                                                           <C>                       <C>         
     Cash                                                                     $       11,898            $     26,531
     Trade receivables, net                                                           14,554                  12,569
     Other receivables                                                                 1,156                   7,688
     Other current assets                                                                746                     844
                                                                                 ---------------          --------------
       Total current assets                                                           28,354                  47,632
                                                                                 ---------------          --------------

Property, plant and equipment                                                        462,844                 328,664
Less accumulated depreciation and amortization                                       (35,905)                (25,791)
                                                                                 ---------------          --------------
     Property, plant and equipment, net                                              426,939                 302,873
                                                                                 ---------------          --------------

Other assets                                                                           6,528                   9,457
                                                                                 ---------------          --------------

        Total assets                                                          $      461,821            $    359,962
                                                                                 ===============          ==============



LIABILITIES AND EQUITY

Current liabilities:
      Accounts payable and accrued liabilities                                $       38,311           $      50,237
      Taxes other than income taxes                                                    5,923                   3,136
      Due to Citizens Utilities Company                                                3,552                     944
      Current portion of capital lease obligation                                     14,688                     452
      Other current liabilities                                                        5,722                   2,650
                                                                                 --------------           --------------
       Total current liabilities                                                      68,196                  57,419
                                                                                 --------------           --------------
Deferred credits and other                                                             1,727                   1,800
Deferred income taxes payable                                                          7,239                  16,918
Capital lease obligation                                                              21,849                  10,511
Long-term debt                                                                       194,000                  60,000
                                                                                 --------------           --------------
            Total liabilities                                                        293,011                 146,648
                                                                                 --------------           --------------

Shareholders' Equity:
      Common stock issued, $.01 par value
           Class A                                                                         85                      85
           Class B                                                                        412                     412
      Additional paid-in-capital                                                      320,162                 316,731
      Deficit                                                                        (151,849)               (103,914)
                                                                                  --------------           --------------
       Total shareholders' equity                                                     168,810                 213,314
                                                                                  --------------           --------------

         Total liabilities and shareholders' equity                            $      461,821           $     359,962
                                                                                  ==============           ==============



</TABLE>
    

The accompanying Notes are an integral part of these Financial Statements.

                                                      -2-
<PAGE>


PART I.  FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>

                                             ELECTRIC LIGHTWAVE, INC.
                                             STATEMENTS OF OPERATIONS
                             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 
                                  (In thousands, except per-share amounts)
                                                    (Unaudited)


                                                                                            1998                 1997
                                                                                          -----------         -----------

<S>                                                                                    <C>                 <C>        
Revenues                                                                               $    25,664         $    17,078
                                                                                          -----------         -----------

Operating expenses:
     Network access                                                                         12,317               7,341
     Operating expenses                                                                      7,308               3,467
     Depreciation and amortization                                                           4,090               1,998
     Selling, general and administrative                                                    21,243               9,980
                                                                                          -----------         -----------
     Total operating expenses                                                               44,958              22,786
                                                                                          -----------         -----------

     Loss from operations                                                                  (19,294)             (5,708)

Interest expense, net                                                                        2,899                 211
Interest income                                                                               (157)                  -
                                                                                          -----------         -----------

     Net loss before income taxes                                                          (22,036)              (5,919)

Income tax benefit                                                                          (3,631)                  -
                                                                                          -----------         -----------

     Net loss                                                                          $   (18,405)        $    (5,919)
                                                                                          ===========         ===========

Net loss per common share:
         Basic                                                                         $      (.37)        $      (.14)
         Diluted                                                                       $      (.37)        $      (.14)

Weighted average shares outstanding                                                         49,711              41,685



</TABLE>












The accompanying Notes are an integral part of these Financial Statements.







                                                      -3-

<PAGE>


PART I.  FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>


                                             ELECTRIC LIGHTWAVE, INC.
                                             STATEMENTS OF OPERATIONS
                               FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 
                                   (In thousands, except per-share amounts)
                                                    (Unaudited)


                                                                                             1998                1997
                                                                                          -----------         -----------

<S>                                                                                    <C>                 <C>         
Revenues                                                                               $    67,164         $     41,843
                                                                                          -----------         -----------

Operating expenses:                                                                          
     Network access                                                                         31,389               19,287
     Operating expenses                                                                     19,082               11,990
     Depreciation and amortization                                                          11,754                7,601
     Selling, general and administrative                                                    54,206               28,487
                                                                                          -----------         -----------
         Total operating expenses                                                          116,431               67,365
                                                                                          -----------         -----------

     Loss from operations                                                                  (49,267)              (25,522)

Interest expense, net                                                                        5,500                  513
Interest income                                                                               (547)                   -
                                                                                          -----------         -----------

     Net loss before income taxes and cumulative effect of change in accounting principle  (54,220)             (26,035)


Income tax benefit                                                                          (9,102)                   -
                                                                                          -----------         -----------

     Net loss before cumulative effect of change in accounting principle                   (45,118)             (26,035)


Cumulative effect of change in accounting principle (net of $577 income tax benefit)         2,817                    -
                                                                                          -----------         -----------

     Net loss                                                                          $   (47,935)        $    (26,035)
                                                                                          ===========         ===========

Net loss before cumulative  effect of change in accounting  principle per common share:
         Basic                                                                         $      (.91)        $       (.62)
         Diluted                                                                       $      (.91)        $       (.62)

Net loss per common share:
         Basic                                                                         $      (.96)        $       (.62)
         Diluted                                                                       $      (.96)        $       (.62)

Weighted average shares outstanding                                                         49,697               41,685


</TABLE>






The accompanying Notes are an integral part of these Financial Statements.





                                                      -4-

<PAGE>


PART I. FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>

                                             ELECTRIC LIGHTWAVE, INC.
                                             STATEMENTS OF CASH FLOWS
                               FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                                  (In thousands)
                                                    (Unaudited)


                                                                                           1998                  1997
                                                                                     --------------       ------------

<S>                                                                               <C>                  <C>            
Net cash used for operating activities                                            $      (29,507)      $      (18,040)
                                                                                     --------------       ------------

Cash flows used for investing activities:
     Capital expenditures                                                               (119,154)             (48,717)
                                                                                     --------------       ------------

Cash flows from financing activities:
     Debt borrowings                                                                     134,000                    -
     Citizens fundings                                                                         -               67,293
     Other, net                                                                               28                    -
                                                                                     --------------       ------------
         Net cash provided by financing activities                                       134,028               67,293
                                                                                     --------------       ------------

Net increase (decrease) in cash                                                          (14,633)                 536


Cash at January 1,                                                                        26,531                  611
                                                                                     --------------       ------------
Cash at September 30,                                                             $       11,898       $        1,147
                                                                                     ==============       ============




Supplemental cash flow information:
     Cash paid for interest, net of capitalized portion                           $        4,784       $            -
     Non-cash increase in capital lease asset and obligation                              25,830                    -
     Other non-cash transactions with Citizens:
         Deferred income taxes                                                                 -                8,696
         Capitalized interest                                                     $            -       $        2,234



</TABLE>















The accompanying Notes are an integral part of these Financial Statements.






                                                      -5-

<PAGE>


PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.
                          NOTES TO FINANCIAL STATEMENTS

(1)   Summary of Significant Accounting Policies

     (a)  Basis of Presentation and Use of Estimates 
          These unaudited financial statements of Electric Lightwave,  Inc. (the
          Company)  have been  prepared in accordance  with  generally  accepted
          accounting  principles  (GAAP) for interim  financial  information and
          with the  instructions  to Form 10-Q and Article 10 of Regulation S-X.
          Accordingly,  certain  information and footnote  disclosures have been
          condensed  or  omitted.   In  management's   opinion,  these financial
          statements include all adjustments and recurring accruals necessary to
          present  fairly  the  results  for  the  interim  periods  shown.  The
          preparation of financial  statements in conformity  with GAAP requires
          management to make estimates and assumptions which affect the reported
          amounts of assets and liabilities and disclosure of contingent  assets
          and  liabilities  at the  date  of the  financial  statements  and the
          reported  amounts  of  revenues  and  expenses  during  the  reporting
          periods.  The  results  of the  interim  periods  are not  necessarily
          indicative of the results for the full year. Certain reclassifications
          of  balances  previously  reported  have been made to  conform  to the
          current  presentation.  These financial  statements  should be read in
          conjunction  with the  audited  financial  statements  and the related
          notes  included in the  Company's  Annual  Report on Form 10-K for the
          year ended December 31, 1997.

     (b)  Capitalized  Interest
          Property,  plant and  equipment  include  interest  costs  capitalized
          during the  installation  and  expansion of  communications  networks.
          Approximately   $2,079,000  and  $1,408,000  of  interest  costs  were
          capitalized  in the three  months ended  September  30, 1998 and 1997,
          respectively, with approximately $5,917,000 and $2,234,000 of interest
          costs  capitalized  in the nine months  ended  September  30, 1998 and
          1997, respectively.

     (c)  Recently Issued Accounting Standards
          In June 1997, the Financial  Accounting  Standards Board (FASB) issued
          Statement of Financial  Accounting Standards (SFAS) No. 130 "Reporting
          Comprehensive  Income".  This  statement  requires that changes in the
          amounts of items such as foreign currency translation and gains/losses
          on certain securities are to be displayed in a financial  statement as
          prominently as other financial statements. This statement is effective
          for financial  statements  issued for periods beginning after December
          15, 1997 and requires reclassification of earlier financial statements
          for comparative purposes. The Company currently has no items of "other
          comprehensive income" as defined in SFAS 130.

          In June 1997, the FASB issued  Statement No. 131,  "Disclosures  About
          Segments of an  Enterprise  and Related  Information". This  statement
          establishes   additional   standards  for  segment  reporting  in  the
          financial statements and is effective for fiscal years beginning after
          December  15,  1997,  but is not  required  to be  applied  to interim
          financial  statements  in the  initial  year of  application.  As this
          statement relates to disclosure only, the Company expects no effect on
          its financial position, results of operations, or cash flows.

          In March 1998, the American  Institute of Certified Public Accountants
          issued Statement of Position (SOP) 98-1,  "Accounting for the Costs of
          Computer  Software  Developed or Obtained for Internal Use".  This SOP
          establishes  standards for  capitalization of certain costs related to
          internal use  software,  and is effective  for fiscal years  beginning
          after  December 15, 1998.  Management  does not expect the adoption of
          this  SOP to  have  a  material  impact  on  the  Company's  financial
          position, results of operations or cash flows.



                                      -6-
<PAGE>



PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.
                          NOTES TO FINANCIAL STATEMENTS

     (d)  Reciprocal   Compensation  
          The Company  has various  interconnection  agreements  with  incumbent
          local  exchange  carriers  (ILECs) in the states in which the  Company
          operates,  which are currently  scheduled to expire  throughout  1999.
          These  agreements  govern  reciprocal  compensation  relating  to  the
          transport  and  termination  of traffic  between  the  Company and the
          ILECs.  Reciprocal compensation revenues are recognized by the Company
          as earned,  net of an  allowance  for disputed  amounts,  based on the
          terms  of  the  interconnection   agreements.   Total  net  reciprocal
          compensation  revenues  recognized  by the  Company  amounted  to $4.3
          million and $10.2 million, respectively, for the three and nine months
          ended September 30, 1998.

          ILECs  have  historically  disputed  certain  reciprocal  compensation
          charges related to Internet Service  Providers  (ISPs) on the position
          that  these   charges  are  not  local   traffic  as  defined  by  the
          interconnection  agreements.  The resolution of these disputes will be
          based on rulings by state  public  utility  commissions  and/or by the
          Federal Communications  Commission (FCC). To date, all 23 state public
          utility  commissions  that have ruled on the issue  found that   ILECs
          must pay compensation to competitive carriers for local calls to  ISPs
          located on  competitive  carriers'  networks,  including the states in
          which  the  Company   recognizes   the  majority  of  its   reciprocal
          compensation revenue.


     (e)  Net Loss Per Share
          The Company  follows the provisions of SFAS 128,  "Earnings Per Share"
          which  requires  presentation  of both basic and diluted  earnings per
          share (EPS) on the face of the income statement. Basic EPS is computed
          using the weighted average number of common shares  outstanding during
          the period.  Diluted EPS reflects the  potential  dilution  that could
          occur if  securities  or other  contracts  to issue  common stock were
          exercised  or  converted  into common  stock at the  beginning  of the
          period.  Certain common stock  equivalents  arising from stock options
          outstanding  during the three and nine months ended September 30, 1998
          have  been   omitted   from   diluted  EPS  as  the  effect  would  be
          anti-dilutive.

          Weighted average shares outstanding have been adjusted for the effects
          of application of Securities and Exchange  Commission Staff Accounting
          Bulletin  (SAB) No.  98.  Pursuant  to SAB 98,  all stock  issued  for
          nominal consideration should be treated as outstanding for all periods
          presented  even though the effect is to reduce the net loss per share.
          The  application  of SAB 98 had the effect of  increasing  outstanding
          shares by 520,000 for the three and nine months  ended  September  30,
          1997.

(2)   Change in Accounting Principle

      On April 3, 1998,  the  Accounting  Standards  Executive  Committee of the
      AICPA released SOP 98-5,  "Reporting on the Costs of Start-Up Activities".
      The SOP requires that at the beginning of the fiscal year of adoption, the
      unamortized portion of deferred start up costs be written off and reported
      as a change in accounting  principle.  Future costs of start-up activities
      should then be expensed as incurred.

      The Company  adopted SOP 98-5,  effective  January 1, 1998.  Certain third
      party direct costs incurred in connection  with  negotiating  and securing
      initial  rights-of-way  and  developing  network  design  for  new  market
      clusters  or  locations  had been  capitalized  by the Company in previous
      years,  and were being  amortized  over five years.  The net book value of
      these  deferred  amounts  was  $3,394,000  which  has been  reported  as a
      cumulative effect of a change in accounting  principle in the statement of
      operations for the nine months ended September 30, 1998, net of income tax
      benefit of $577,000.



                                      -7-
<PAGE>


PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.
                          NOTES TO FINANCIAL STATEMENTS

(3)   Commitments and Contingencies

      Effective  March 20, 1998, the Company  amended two previous  fifteen-year
      lease  agreements  for exclusive use of long-haul  routes  interconnecting
      Portland, Oregon and Seattle and Spokane, Washington. The previous capital
      lease  agreement,  which became  operational in February 1997 provided for
      rental  payments  based on a percentage  of the Company's  monthly  leased
      traffic  over  such  route  with a minimum  required  monthly  payment  of
      $105,000.  The previous  operating  lease  agreements  provided for rental
      payments based on a percentage of the Company's  leased traffic and was to
      become  operational in the second quarter of 1998.  Under an amended lease
      agreement, a third route from Seattle to Spokane, Washington was added and
      both previous lease agreements were combined into one capital lease with a
      20 year  term.  The  amended  lease calls for rental  payments  based on a
      percentage of the Company's leased traffic over such routes with a minimum
      required  monthly payment of $105,000.  In order to maintain the exclusive
      rights to use the  long-haul  routes,  the  Company  is  required  to meet
      minimum annual revenue commitments. The effect of the amended lease was to
      increase  the book value of the  capital  lease  asset and  obligation  by
      $2,174,000.

      In May 1998, the Company  entered into a 20 year operating lease agreement
      with a third  party in order to develop a  long-haul  route from Oregon to
      Southern  California.  Rental  payments are based on a  percentage  of the
      Company's  leased traffic and the route is expected to become  operational
      in the second quarter of 1999.

      In June 1998, the Company  entered into a private line services  agreement
      with a third party,  which allows the Company to utilize the third party's
      national fiber optic network for a period of nine years. The Company has a
      total minimum  commitment of $122 million over the term of the  agreement,
      including $8.9 million over the twelve months  subsequent to September 30,
      1998.  A portion of the  network  was  operational  as of June 1998,  with
      construction  on the remainder of the network  scheduled for completion in
      the second quarter of 1999.

      The capital lease  obligation at September 30, 1998 includes $23.7 million
      of an accrued  obligation  to  reflect  construction  activity  on capital
      leases for long-haul routes under development.

(4)   Related Party Transactions

      The Company is 83% owned by Citizens Utilities Company (Citizens).  On May
      18, 1998, Citizens announced its intent to separate its telecommunications
      businesses and public service  businesses into two  stand-alone,  publicly
      traded companies, subject to regulatory approval.

      A summary  of the  activity  in the amount  due to  Citizens  for the nine
      months ended September 30, 1998 is as follows:

           ($ in thousands)
           Balance beginning of period                             $    944
           Guarantee fees                                             5,759
           Administrative services and other items                    7,540
           Payments to Citizens                                     (10,691)
                                                                 ---------------
           Balance end of period                                    $ 3,552
                                                                 ===============

(5)   Significant Customer

      During the three and nine months ended  September 30, 1998,  one customer,
      the ILEC operating in the majority of the Company's markets, accounted for
      18% and 17%, respectively, of the Company's total revenue. The majority of
      this revenue was generated from  reciprocal  compensation  as discussed in
      Note 1d. No customers  accounted  for 10% or more of the  Company's  total
      revenue  during the three and nine months ended  September  30,  1997.  At
      September 30, 1998, the customer  described above accounted for 22% of the
      Company's net trade accounts receivable.



                                      -8-
<PAGE>


      PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.
                          NOTES TO FINANCIAL STATEMENTS


(6)   Employee Stock Purchase Plan

      The Company has an Employee  Stock  Purchase Plan (ESPP).  Under the ESPP,
      eligible  employees  of the Company may  subscribe  to purchase  shares of
      Class A Common Stock at the lesser of 85% of the mean between the high and
      low  market  prices on the first or last day of the  purchase  period.  An
      employee  may elect to have up to 20% of annual base pay withheld in equal
      installments  throughout the designated  payroll-deduction  period for the
      purchase of shares. The value of an employee's subscription may not exceed
      $25,000 in any one calendar  year. An employee may not  participate in the
      ESPP if the  employee  owns  stock  possessing  5% or  more  of the  total
      combined  voting  power or value of all  classes of  capital  stock of the
      Company.  As of September 30, 1998,  there were 175,460  shares of Class A
      Common Stock reserved for issuance under the ESPP,  which will be adjusted
      for any future stock  dividends or stock splits.  The ESPP will  terminate
      when all  175,460  shares  of  Class A Common  Stock  reserved  have  been
      subscribed for, unless terminated  earlier by the Board of Directors.  The
      ESPP  is  administered  by the  Compensation  Committee  of the  Board  of
      Directors. As of September 30, 1998, the number of employees participating
      in the ESPP was 331 and the total  number of shares  subscribed  for under
      the ESPP was 44,952. No stock-based  compensation  expense was recorded in
      the  financial  statements  pursuant  to the ESPP in  accordance  with APB
      Opinion No. 25.

(7)  Income Taxes

      The income tax benefit of $3,631,000 and $9,679,000 for the three and nine
      months ended September 30, 1998,  respectively,  primarily  represents the
      recognition of operating  losses. A full valuation  allowance  against the
      benefit of the Company's losses was necessary in the three and nine months
      ended  September  30, 1997 due to Citizens'  policy not to  reimburse  the
      Company for the tax benefits that were contributed to the consolidated tax
      return  of  Citizens  for any  operating  losses  prior  to the IPO  date,
      November 24, 1997.  For the post IPO period,  which includes the three and
      nine months ended  September  30, 1998,  the tax benefit of the  Company's
      operating losses are being recognized to the extent of net deferred income
      tax  liabilities,  since Citizens has agreed to reimburse the Company when
      losses  can be  utilized  by the  Company  on a  stand  alone  basis.  The
      existence of net deferred income tax liabilities  gives assurance that the
      income tax benefit  related to the net  operating  losses will be realized
      through  future  turnaround of the temporary  differences  that have given
      rise to the deferred income tax liabilities.










                                      -9-

<PAGE>


PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.


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

       -------------------------------------------------------------------------

       This quarterly  report on Form 10-Q contains  forward-looking  statements
       that are subject to risks and  uncertainties  which  could  cause  actual
       results  to differ  materially  from  those  expressed  or implied in the
       statements.  Forward-looking  statements are statements  (including  oral
       representations)  about  future  performance  or results,  including  any
       statements using the words "believe",  "expect",  "anticipate" or similar
       words. All forward-looking  statements are only predictions or statements
       of current plans,  which are constantly under review by the Company.  All
       forward-looking  statements may differ from actual future results due to,
       but not limited to, changes in the local and overall economy,  the nature
       and pace of  technological  changes,  the  number  and  effectiveness  of
       competitors  in the  Company's  markets,  success  in  overall  strategy,
       changes in legal and regulatory  policy,  relations with Incumbent  Local
       Exchange  Carriers  (ILECs)  and  their  ability to provide  delivery  of
       services including  interoffice  trunking,  implementation of back office
       service  delivery  systems,  the  Company's  ability to  identify  future
       markets and successfully expand existing ones and the mix of products and
       services offered in the Company's target markets. Readers should consider
       these  important  factors in evaluating  any statement  contained  herein
       and/or  made  by  the  Company  or on  its  behalf.  The  Company  has no
       obligation to update or revise forward-looking  statements to reflect the
       occurrence of future events or circumstances.

       -------------------------------------------------------------------------

     The following  information  is unaudited and should be read in  conjunction
     with the  condensed  financial  statements  and related  notes to financial
     statements  included  in this  report,  and with the  Company's  Management
     Discussion  and Analysis of Financial  Condition  and Results of Operations
     and  audited  financial  statements  and  related  notes  included  in  the
     Company's Annual Report on Form 10-K for the year ended December 31, 1997.

     The Company is a facilities-based  integrated communications provider (ICP)
     providing a broad  range of  communications  services  in six major  market
     clusters in the western United States including: Portland, Oregon; Seattle,
     Washington; Salt Lake City, Utah; Sacramento, California; Boise, Idaho; and
     Phoenix,  Arizona and their respective  surrounding areas. The Company also
     provides data services in Los Angeles and San Francisco, California and Las
     Vegas,  Nevada.  The  Company  provides  state-of-the-art  voice  and  data
     communications   services  to  retail   customers,   primarily  large-  and
     medium-sized  communications-intensive businesses, and wholesale customers.
     The  Company  was  incorporated  in 1990 and is a  subsidiary  of  Citizens
     Utilities Company (Citizens).

     During the third quarter of 1998, the Company  announced that it expects to
     complete  in the  fall  of 1999  what it  believes  is the  largest  ringed
     Synchronous  Optical  Network  (SONET) in the western  United  States.  The
     3,000-mile  SONET  ring will  connect  Portland,  Oregon;  Sacramento,  San
     Francisco, and Los Angeles,  California; Las Vegas, Nevada; Salt Lake City,
     Utah and  Boise,  Idaho.  This  network  will  connect  to other  broadband
     long-haul  routes owned or leased by the Company,  as well as another SONET
     ring owned or leased by the Company  interconnecting  Portland,  Oregon and
     Seattle and Spokane, Washington, and will interconnect all of the Company's
     six major  market  clusters.  Once  completed,  the  network  will  feature
     Nortel's 32 wavelength dense wave division multiplexing equipment and S/DMS
     Transport Node OC-192, a four fiber bi-directional line-switched ring SONET
     platform,  and will  support  voice and data  traffic  at OC-12,  OC-48 and
     OC-192 SONET speeds on a single fiber.

     During 1998,  the Company  migrated  from a frame relay based network to an
     Asynchronous   Transfer   Mode  (ATM)   network   backbone.   ATM  provides
     high-bandwidth, low-delay packet switching and multiplexing, and is used to
     transfer voice, video, images and character-based data, unlike frame relay,
     which was not designed for voice and video applications. Management expects
     the ATM network  upgrade will position the Company to offer one network for
     all data, voice and video transmission needs. Management also believes that
     the ATM  network  upgrade  will  provide  scalability,  greater  speed  and
     improved quality of service for its network backbone.



                                      -10-
<PAGE>


PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.

     Management  believes that the Company's  extensive,  advanced  network will
     provide  improved  margins  in  an  increasingly  competitive  industry  by
     allowing  the  Company  to carry most of its  traffic  on its own  network,
     avoiding leased facility  charges and certain  interconnection  costs.  The
     technologically  advanced  network  should also help the  Company  maintain
     higher quality service, as the SONET rings will be completely redundant and
     scaleable.

     The Company has  embarked on a national  data  expansion in order to expand
     its data footprint across the United States. In the second quarter of 1998,
     the Company  signed a nine year  agreement with a third party for bandwidth
     on a high-speed national fiber optic route.

     The Company expects to initially offer high-speed point-to-point bandwidth,
     Internet,  frame relay, ATM and Transparent LAN Services in various markets
     across the United  States along this fiber optic  route.  During the second
     quarter  1998,  the Company  deployed  data  services in Las Vegas and also
     expects to deploy services in Denver,  Chicago,  Washington D.C.,  Atlanta,
     Dallas, Houston, San Diego,  Cleveland,  New York City,  Philadelphia,  and
     Boston by the end of 1998, with further cities added in 1999.

     (a) Liquidity and Capital Resources

     For the  nine  months  ended  September  30,  1998,  the  Company  used the
     remaining  proceeds  from its initial  public  offering and proceeds from a
     bank credit facility to fund operating and capital  expenditures.  The bank
     credit facility is a five-year $400 million revolving credit facility under
     which Citizens has guaranteed all of the Company's obligations. The Company
     drew $134  million on its line of credit  during  the first nine  months of
     1998, and as of September 30, 1998, $194 million was outstanding under this
     facility,  leaving  $206 million  available to draw for future  capital and
     operating needs.

     Based on current  projections,  management  believes  that the bank  credit
     facility   will  be  fully  drawn  during  the  second   quarter  of  1999.
     Accordingly, the Company intends to obtain additional financing to continue
     to fund operating losses,  capital  expenditures,  and to service debt. The
     Company  is  currently  assessing  financing  alternatives.   Citizens  has
     indicated  its   willingness  to  assist  the  Company  in  arranging  this
     financing,  as  mentioned  in Form 8-K filed by the  Company on October 15,
     1998.  The Company  believes that the equity and debt markets for companies
     in the CLEC industry are currently restrictive,  but that Citizens' support
     will allow the Company to obtain  adequate  financing at reasonable  terms.
     However, there can be no assurance that Citizens will be able to assist the
     Company in arranging financing,  or that the Company will be able to obtain
     such  financing at reasonable  terms,  which could have a material  adverse
     effect on its business, results of operations and financial condition.

     The capital  expenditures of the Company  associated with the installation,
     development and expansion of its existing and new  communications  networks
     are substantial,  and a significant portion of these expenditures generally
     are  incurred  before  any  revenues  are  realized.  The  Company's  gross
     property,  plant and  equipment  has grown to $463 million at September 30,
     1998 from $329 million at December  31, 1997,  including an increase of $26
     million due to capital  lease  additions.  Total cash  expended for capital
     expenditures  during 1998 was $119 million.  These  expenditures,  together
     with  associated  initial  operating  expenses,  have resulted in operating
     losses and negative operating cash flow and will continue to do so until an
     adequate  customer  base and revenue  stream for these  networks  have been
     established.  In  addition,  the Company  continues  to evaluate  potential
     acquisitions  that are  consistent  with its  business  plan of  generating
     revenue  growth through the expansion of its network and customer base. The
     Company  expects  to incur  net  losses  for the  foreseeable  future as it
     continues   to   install,   develop   and  expand  its  new  and   existing
     communications networks. There can be no assurance that an adequate revenue
     base will be  established  or that the  Company  will  achieve  or  sustain
     profitability  or  generate  sufficient  positive  cash  flow to  fund  its
     operating and capital requirements and/or service debt.





                                      -11-
<PAGE>



PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.

     In June 1998,  the Company  entered into a private line services  agreement
     with a third party,  which allows the Company to utilize the third  party's
     national  fiber optic  network  for a period of nine years.  The Company is
     obligated  for a  minimum  commitment  of  $122  million  in a  take-or-pay
     arrangement,  including  $8.9 million over the twelve months  subsequent to
     September 30, 1998.

     Other Matters

     Reciprocal Compensation 
     The Company has various  interconnection  agreements ILECs in the states in
     which the Company operates. These agreements govern reciprocal compensation
     relating to the transport and  termination  of traffic  between the Company
     and the ILECs.  Reciprocal  compensation  revenues  are  recognized  by the
     Company as earned,  net of an allowance for disputed amounts,  based on the
     terms of the interconnection agreements.  Total net reciprocal compensation
     revenues  recognized by the Company totaled $4.3 million and $10.2 million,
     respectively, for the three and nine months ended September 30, 1998.

     ILECs have historically  disputed certain reciprocal  compensation  charges
     related to Internet  Service  Providers  (ISPs) on the position  that these
     charges are not local traffic as defined by the interconnection agreements.
     The  resolution of these  disputes will be based on rulings by state public
     utility commissions and/or by the Federal Communications  Commission (FCC).
     To date,  all 23 state public  utility  commissions  that have ruled on the
     issue found that ILECs must pay  compensation  to competitive  carriers for
     local calls to ISPs located on competitive  carriers'  networks,  including
     the states in which the Company  recognizes  the majority of its reciprocal
     compensation revenue.

     Most of the Company's interconnection  agreements expire in the second half
     of 1999. While  management  believes that these agreements will be replaced
     by agreements offering the Company some form of compensation  regarding ISP
     traffic,  there is no assurance that the level of compensation  will remain
     consistent with current levels,  which could have a material adverse effect
     on the Company's revenue, income and cash flows.

     New Accounting Pronouncements
     Refer to Notes 1c and 2 in Part I, Item 1, of this  report for an  analysis
     of the impact of recent accounting pronouncements on the Company.

     Year 2000
     Countless  computer  programs  worldwide use a two-digit  code for calendar
     dates.  For  instance,  many  computers on January 1, 2000 will assume that
     01-01-00 is the first day of the year 1900 rather than 2000. Massive system
     failures may occur  globally due to this Year 2000 (Y2K) "bug",  which acts
     much like a computer  virus,  if not  properly  addressed.  The Company has
     developed a Y2K Initiative  (the  Initiative) to mitigate the impact of the
     Y2K  issue  for its  internal  systems  and the  systems  that it relies on
     directly and indirectly from third parties.

     Under the Initiative, the Company has formed a Y2K Oversight Committee with
     the full authority to establish methodologies, approve expenditures, and to
     marshal additional  resources as necessary.  A full-time consultant project
     manager, who answers regularly to the Y2K Oversight Committee,  manages the
     Initiative and oversees the project team.  The Committee  commands the full
     support of Senior Management and includes  high-level  representation  from
     each of the major internal business functions. The Committee is responsible
     for  researching,  planning,  executing,  implementing  and  completing the
     Initiative for the Company.

     The  systems   evaluated   in  the   Initiative   include   the   Company's
     Communications   Network   (Network),   which   processes  voice  and  data
     information  relating  to  its  communications   operations,   as  well  as
     Information Technology (IT) internal business systems which include certain
     operational,  financial and  administrative  functions.  The  Initiative is
     composed of three  primary  phases:  (I)  inventory  and  assessment,  (II)
     remediation and (III) testing, contingency planning and certification.  For
     all systems, Phase I is nearly finished, and should be completed during the
     fourth  quarter 1998,  Phase II is underway and should be completed  during
     the first quarter of 1999,  and Phase III should be completed in the second
     quarter of 1999.


                                      -12-
<PAGE>


PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.

     A component of assessing the network  includes an assessment  and survey of
     Y2K readiness of key business partners. The network relies significantly on
     the provisioning  and switching  capabilities of the ILECs in those markets
     in which the  Company  provides  services.  The  Company  has not  received
     certification from those ILECs and other key suppliers indicating that they
     are Y2K  compliant,  but has been  notified  that the ILECs have  initiated
     programs to  mitigate  their Y2K issues in 1999.  However,  there can be no
     assurance  that  the  systems  of ILECs or  other  companies  on which  the
     Company's  systems rely will become Y2K compliant  before 2000.  Failure of
     such  systems  to become  Y2K  compliant  before  2000  could  disrupt  the
     Company's  operations,  and have a material adverse impact on the Company's
     financial condition and results of operations.

     The Company currently  anticipates that total costs of Y2K remediation will
     be  approximately  $.5  million,   which  includes  costs  related  to  the
     consultant  Y2K  project  manager  and the  replacement/upgrade  of certain
     equipment.  When Phase I is  completed,  this cost  estimate may  increase.
     Management  believes that several factors limit the Company's cost exposure
     to Y2K  issues.  These  factors  include  that  over  90% of the  Company's
     equipment  has been  installed  in the last  three  years,  and  management
     believes that the majority of its systems are already compliant.  Moreover,
     its IT team has no internally developed legacy code to remediate.  Further,
     management  expects most  material  cost  exposures  will be covered  under
     routine maintenance agreements. The costs of employees devoting time to the
     Initiative  will  be  absorbed  by the  Company's  IT  budget  and  are not
     anticipated to be material.

     Management  cannot  provide  assurance that the result of the Initiative or
     that the remediation costs will not be materially different from estimates.
     Accordingly,  contingency  plans are currently  being  developed to address
     high-risk systems. The contingency plans are expected to be in place during
     the second quarter of 1999.

     Within its Network, the Company is dependent on telecommunications  network
     vendors to provide  compliant  hardware  and  software in a timely  manner.
     Within IT, the  Company is  dependent  on the  development  of  software by
     internal and external experts,  and the availability of critical  resources
     with the requisite skill sets. At worst case,  failure by the Company or by
     certain of its vendors to remediate Y2K  compliance  issues could result in
     disruption of the Company's operations,  possibly impacting the Network and
     the  Company's  ability to bill or collect  revenues.  However,  management
     believes that this worst case scenario is unlikely, and that its efforts to
     mitigate Y2K issues will be successful.

     (b)  Results of Operations

                                    Revenues

     Revenues for the three and nine months ended  September 30, 1998  increased
     $8.6 million,  or 50%, and $25.3 million,  or 61%,  respectively,  over the
     three  and nine  months  ended  September  30,  1997  due to the  continued
     expansion of the Company's  network and customer base. In 1998, the Company
     added Boise, Idaho as a new market cluster and began offering data services
     in a number of other  cities,  including  Los  Angeles  and San  Francisco,
     California  and Las Vegas,  Nevada.  The Company  added 390  customers  and
     38,113  access  line  equivalents  over  September  30,  1997 (36% and 155%
     increases, respectively).
<TABLE>
<CAPTION>

                                              For the three months                                For the nine months
                                               ended September 30,                                ended September 30,
                                     ----------------------------------------        ----------------------------------------------
                                                 ($ in thousands)                                  ($ in thousands)
                                                                      %
                                                                   Increase/                                             %
                                          1998          1997      (Decrease)                1998           1997       Increase
                                     ----------     ---------    --------------       -----------     ----------     --------------
<S>                               <C>           <C>                   <C>        <C>                <C>              <C>
Dedicated services                $     9,009   $     9,184           (2)%       $        26,487    $    23,300       14%
Local dial tone services                9,987         2,893           245%                23,780          6,136      288%
Long distance services                  2,512         2,655           (5)%                 6,233          6,098        2%
Enhanced services                       4,156         2,346            77%                10,664          6,309       69%
                                     ----------     ---------                        ------------     ----------
          Total                   $    25,664        17,078           50%                 67,164         41,843       61%
                                     ==========     =========                        ============     ==========
          $                                                         
</TABLE>

                                      -13-
<PAGE>


PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.

     Dedicated  Services  
     Dedicated  services  revenues for the three and nine months ended September
     30, 1998 decreased $.2 million,  or 2%, and increased $3.2 million, or 14%,
     respectively,  over the three and nine months  ended  September  30,  1997.
     Revenues  increased  $.9 million and $2.7  million  over the three and nine
     months ended  September 30, 1997,  respectively,  due to increased sales in
     existing markets. Revenues also increased $.4 million and $1.6 million over
     the three and nine months ended  September 30, 1997,  respectively,  due to
     revenues  generated in markets  entered  subsequent  to September 30, 1997.
     These  increases  were offset by decreases in revenues  from a  significant
     customer of $1.5  million and $1.1  million  over the three and nine months
     ended September 30, 1997, respectively,  primarily due to the expiration of
     a short-term contract in the first quarter 1998.

     Local Dial Tone Services  
     Local  dial tone  services  revenues  for the three and nine  months  ended
     September 30, 1998 increased $7.1 million,  or 245%, and $17.6 million,  or
     288%,  respectively,  over the three and nine months  ended  September  30,
     1997. Access line equivalents increased 38,113, or 155%, from September 30,
     1997 to September 30, 1998.  Net  reciprocal  compensation  revenue for the
     three and nine months ended  September 30, 1998 increased $4.0 million,  or
     1,487%, and $9.9 million, or 3,682%, respectively,  over the three and nine
     months ended September 30, 1997. In addition,  the growth of the Integrated
     Service Digital Network (ISDN) product also generated $2.1 million and $5.0
     million,  respectively, of increased revenue over the three and nine months
     ended September 30, 1997.

     Long Distance Services 
     Long distance  services  revenues for the three months ended  September 30,
     1998  decreased $.1 million,  or 5%, from the three months ended  September
     30,  1997,  primarily  due to a $.8  million  decrease  in  wholesale  long
     distance  revenues  coupled  with a $.3  million  decrease  in retail  long
     distance  revenues.  These decreases were primarily the result of less long
     distance  traffic,  offset by an increase in revenues from prepaid services
     of $1.0 million.  Prepaid services increased  primarily due to an increased
     prepaid  sales  force,  as well as the  addition  of several  large  volume
     customers in the third quarter 1998.

     Long  distance  services  revenues for the nine months ended  September 30,
     1998 increased $.1 million, or 2%, over the nine months ended September 30,
     1997,  primarily  due to $.7  million  increases  in retail  long  distance
     revenues and revenues from prepaid services. Retail long distance increased
     primarily due to the overall expansion of the Company's sales force and the
     Company's product bundling strategy.  Prepaid services increased  primarily
     due to an increased prepaid services sales force as well as the addition of
     several large volume  customers in the third quarter 1998.  These increases
     were largely  offset by a decrease in wholesale  long distance  revenues of
     $1.2 million.  Wholesale long distance declined  primarily due to less long
     distance traffic.

     Enhanced  Services 
     Enhanced  services  revenues for the three and nine months ended  September
     30,  1998  increased  $1.8  million,  or 77%,  and  $4.4  million,  or 69%,
     respectively,  over the three and nine  months  ended  September  30,  1997
     primarily due to increased  sales of the frame relay and Internet  products
     in new and existing markets as a result of strong customer demand for these
     services.  For the three and nine months ended  September  30, 1998,  frame
     relay and  Internet  product  revenues  of $.4  million  and $1.2  million,
     respectively,  were  recognized  in  markets  entered  into  subsequent  to
     September 30, 1997, including Los Angeles and San Francisco, California.




                                      -14-
<PAGE>


PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.

                               Operating Expenses

     Operating expenses increased $22.2 million,  or 97%, and $49.1 million,  or
     73%, respectively,  over the three and nine months ended September 30, 1997
     due to the  Company's  rapid  network and  customer  growth as reflected in
     revenues, as well as additional costs incurred to develop an infrastructure
     to support the Company's national data expansion.
<TABLE>
<CAPTION>

                                                      For the three months                        For the nine months
                                                       ended September 30,                        ended September 30,
                                           -------------------------------------------- -----------------------------------------
                                                        ($ in thousands)                            ($ in thousands)
                                                                            %                                           %
                                                    1998          1997  Increase               1998           1997   Increase
                                           -------------- ------------- --------------- ------------ -------------- -------------
<S>                                              <C>           <C>         <C>             <C>             <C>           <C>
     Network access                              $12,317       $ 7,341      68%            $ 31,389        $19,287       63%
     Operating expenses                            7,308         3,467     111%              19,082         11,990       59%
     Depreciation and amortization                 4,090         1,998     105%              11,754          7,601       55%
     Selling, general and administrative          21,243         9,980     113%              54,206         28,487       90%
                                              -----------    ----------                   ----------     ----------
                                                 $44,958       $22,786      97%            $116,431        $67,365       73%
                                              ===========    ==========                   ==========     ==========
</TABLE>

     Network Access 
     Network access  expenses for the three and nine months ended  September 30,
     1998   increased   $5.0   million,   or  68%,   and   $12.1   million,   or
     63%,respectively,  over the three and nine months ended September 30, 1997,
     primarily due to the Company's revenue growth,  including  expansion of its
     frame relay and Internet  products,  and its customer base.  Network access
     expenses were higher, as a percentage of revenues,  in the three months and
     nine months ended September 30, 1998 than in the respective periods in 1997
     as a result of increased  expenses  related to the Company's  national data
     expansion  effort which utilizes leased circuits outside the Company's west
     coast SONET ring and owned network facilities.

     Operating Expenses
     Operating  expenses consist of costs related to providing  facilities based
     network and enhanced  communications  services  other than  network  access
     costs.  The  primary  components  of these  expenses  are  right-of-way and
     telecommunications  equipment  leases as well as operations and engineering
     personnel costs.

     Operating  expenses for the three and nine months ended  September 30, 1998
     increased $3.8 million,  or 111%, and $7.1 million,  or 59%,  respectively,
     over the three and nine months ended  September  30, 1997, primarily due to
     increases in salaries and related expenses to support the expanded delivery
     of  services,  and an expanded  customer  service  organization.  Operating
     employee head count increased by 235 employees,  to 466 employees, or 100%,
     over September 30, 1997, primarily due to the Company's  effort to increase
     customer  service and  technical  resources  available in each  market.  In
     addition,  operations  maintenance  costs have risen $.6  million  and $1.5
     million  over  the  three  and  nine  months  ended   September  30,  1997,
     respectively, due to the expansion of the Company's network.

     Depreciation and Amortization
     Depreciation and  amortization  expense for the three and nine months ended
     September 30, 1998  increased $2.1 million,  or 105%, and $4.2 million,  or
     55%, respectively, over the three and nine months ended September 30, 1997,
     primarily  due to higher  plant in  service  balances  for newly  completed
     communications network facilities and electronics.

     Selling, General and Administrative
     Selling,  general and administrative expenses for the three and nine months
     ended  September  30, 1998  increased  $11.3  million,  or 113%,  and $25.7
     million,  or 90%,  respectively,  over  the  three  and nine  months  ended
     September  30, 1997, primarily  due to  increases  in salaries  and related
     expenses to support the infrastructure  needed for the delivery of services
     in  existing  and new  markets  such as Boise,  Idaho;  Los Angeles and San
     Francisco,  California; Las Vegas, Nevada  and Spokane, Washington, as well
     as the Company's  national data expansion.  The Company increased its sales
     force by 93 employees,  to 146 employees,  a 175% increase,  from September
     30, 1997 to  September  30,  1998.  In  addition,  the Company has expanded
     advertising,  direct marketing, and public relations efforts in key markets
     to increase name recognition and product information in 1998.


                                      -15-

<PAGE>


PART I. FINANCIAL INFORMATION (Continued)

                            ELECTRIC LIGHTWAVE, INC.

<TABLE>
<CAPTION>

                                       Interest Expense and Interest Income

                                              For the three months                               For the nine months
                                               ended September 30,                               ended September 30,
                                     ----------------------------------------        ---------------------------------------------
                                                 ($ in thousands)                                  ($ in thousands)
                                                                      %                                                  %
                                          1998          1997      Increase                 1998            1997      Increase
                                     ----------     ---------    ------------         ----------      ----------    --------------

<S>                               <C>            <C>              <C>             <C>             <C>                  <C> 
     Interest expense, net        $      2,899   $       211      1,274%          $       5,500   $         513        972%
     Interest income                       157             -        n/a                     547               -        n/a
</TABLE>

     Interest  expense for the three and nine months  ended  September  30, 1998
     increased $2.7 million, or 1,274%, and $5.0 million, or 972%, respectively,
     over the three and nine months ended  September 30, 1997,  primarily due to
     interest  and  guarantee  fees  associated  with the  Company's  borrowings
     against its bank credit  facility and guarantee  fees  associated  with the
     Company's  construction  agency  agreement.  Interest  expense  is  net  of
     capitalized  interest of $2.1  million  and $5.9  million for the three and
     nine months ended  September 30, 1998,  respectively,  and $1.4 million and
     $2.2  million  for the three and nine  months  ended  September  30,  1997,
     respectively.

     Interest  income for the three and nine  months  ended  September  30, 1998
     increased $.2 million,  and $.5 million,  respectively,  over the three and
     nine months ended  September 30, 1997, primarily due to interest  earned on
     cash balances.

<TABLE>
<CAPTION>

                                                Income Tax Benefit

                                                 For the three months                             For the nine months
                                                  ended September 30,                              ended September 30,
                                        ----------------------------------------       ---------------------------------------------
                                                    ($ in thousands)                                ($ in thousands)
                                                                         %                                                 %
                                                                     Increase/                                         Increase/
                                            1998           1997     (Decrease)                1998           1997     (Decrease)
                                        ---------     ----------    ------------        -----------     ----------    --------------

<S>                                  <C>          <C>                               <C>              <C>                     
     Income tax benefit              $     3,631  $           -        n/a          $        9,679   $          -         n/a
</TABLE>

     Income tax benefit for the three and nine months ended  September  30, 1998
     increased  $3.6  million and $9.7  million  (including  $.6 million  netted
     against cumulative effect of change in accounting principle), respectively,
     over the three and nine months ended  September 30, 1997,  primarily due to
     the recognition of the tax benefit of net operating losses.


     Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Not applicable.




                                      -16-

<PAGE>


PART II. OTHER INFORMATION

                            ELECTRIC LIGHTWAVE, INC.


Item 1.  Legal Proceedings

The Company is party to various legal  proceedings  arising in the normal course
of  business.  The  outcome  of  these  matters  is  not  predictable.  However,
management  believes that the ultimate  resolution  of all such  matters,  after
considering its level of insurance  coverage,  will not have a material  adverse
effect on the Company's financial position,  results of operations,  or its cash
flows.

Item 2.  Changes in Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Submission of Matters to a Vote of Security Holders

None.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K

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

Exhibit No. Description

27.1       Financial Data Schedule for the nine months ended September 30, 1998.
27.2       Restated Financial Data Schedule  for the nine months ended September
           30, 1997.

b) Reports on Form 8-K

The Company  filed the  following  reports on Form 8-K during the quarter  ended
September 30, 1998:

*       July 13, 1998, under Item 5, "Other Events",  a press release discussing
        how the Company's  independence and strategic options are not limited by
        Citizens Utilities' separation announcement.

*       July 24, 1998, under Item 5, "Other Events",  a press release announcing
        the naming of Guenther E. Greiner to the Board of Directors.

*       August 7,  1998,  under Item 7,  "Financial  Statements  and  Exhibits",
        financial data schedule for the nine months ended September 30, 1997.

*       August  12,  1998,  under  Item  5,  "Other  Events",  a  press  release
        discussing the Company's second quarter 1998 financial results.






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<PAGE>


                            ELECTRIC LIGHTWAVE, INC.




                                    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.


                            ELECTRIC LIGHTWAVE, INC.
                                  (Registrant)

                              By: /s/ Kerry D. Rea
                        ________________________________
                                  Kerry D. Rea
                          Vice President and Controller





October 29, 1998






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