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 June 30, 2001



<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 June 30, 2001

                                       OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from         to

                         Commission file 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
      Incorporation or organization)                  Identification No.)


                                3 High Ridge Park
                                 P. O. Box 3801
                               Stamford, CT 06905
               (Address, zip code of principal executive offices)

        Registrant's telephone number, including area code (203) 614-5600

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
July 31, 2001 were:


                         Common Stock Class A 10,091,657
                         Common Stock Class B 41,165,000


<PAGE>

INDEX
<TABLE>
<CAPTION>

                                                                                               Page No.
                                                                                               --------
PART I.  FINANCIAL INFORMATION

     ITEM 1.  FINANCIAL STATEMENTS

<S>                                                                                              <C>
                  Balance Sheets at June 30, 2001 and December 31, 2000 (unaudited)                2

                  Statements of Operations for the Three and Six Months Ended                      3
                      June 30, 2001 and 2000 (unaudited)
                  Condensed Statements of Cash Flows for the Six Months Ended                      4
                      June 30, 2001 and 2000 (unaudited)
                  Statements of Shareholders' Equity (Deficiency) for the Six
                        Months Ended 5 June 30, 2001 and the Year Ended December
                        31, 2000 (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                          17

PART II.      OTHER INFORMATION                                                                   18

SIGNATURE                                                                                         20
</TABLE>
                                       1

<PAGE>


Electric Lightwave, Inc.


                          PART I. FINANCIAL INFORMATION
                          -----------------------------

ITEM 1. FINANCIAL STATEMENTS BALANCE SHEETS

BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
                                                             June 30,          December 31,
Assets                                                         2001                2000
                                                          ---------------    ----------------
Current assets:
<S>                                                              <C>                <C>
     Cash                                                    $     7,504         $    10,318
     Trade receivables, net                                       27,129              35,491
     Other receivables                                             9,282               6,001
     Other current assets                                          4,609               5,080
                                                          ---------------    ----------------
        Total current assets                                      48,524              56,890

Property, plant and equipment, net                               856,923             846,716
Goodwill, net                                                     41,207              42,601
Other assets                                                       3,142               3,567
                                                          ---------------    ----------------
        Total assets                                         $   949,796         $   949,774
                                                          ===============    ================

Liabilities and Shareholders' Deficiency
Current liabilities:
     Accounts payable and accrued liabilities                $    29,262         $    60,851
     Current portion of capital lease obligations                 27,110              28,798
     Due to Citizens Communications Company                       16,571               7,684
     Other accrued taxes                                          18,531              16,377
     Interest payable                                             10,012              13,244
     Other current liabilities                                     7,028               5,718
                                                          ---------------    ----------------
        Total current liabilities                                108,514             132,672

Deferred revenue                                                  16,029              14,847
Other long-term liabilities                                        2,055               3,295
Deferred income taxes payable                                      3,485               3,058
Capital lease obligations                                        130,690             103,404
Long-term debt                                                   837,000             763,000
                                                          ---------------    ----------------
        Total liabilities                                      1,097,773           1,020,276

        Shareholders' deficiency                                (147,977)            (70,502)
                                                          ---------------    ----------------
        Total liabilities and shareholders' deficiency       $   949,796         $   949,774
                                                          ===============    ================
</TABLE>

                             See accompanying notes
                                       2


<PAGE>


STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
                                                For the three months ended June 30,        For the six months ended June 30,
                                                  2001                  2000                  2001                  2000
                                            ------------------    ------------------    ------------------    ------------------

<S>                                                  <C>                   <C>                  <C>                   <C>
Revenue                                            $   60,429             $  60,620             $ 122,991             $ 117,398
                                            ------------------    ------------------    ------------------    ------------------

Operating expenses:
   Network access                                      17,051                18,294                33,782                38,990
   Operations                                          13,759                13,446                26,735                25,021
   Selling, general and administrative                 25,555                30,315                55,117                61,487
   Depreciation and amortization                       19,834                14,721                38,728                27,476
                                            ------------------    ------------------    ------------------    ------------------
      Total operating expenses                         76,199                76,776               154,362               152,974
                                            ------------------    ------------------    ------------------    ------------------

   Loss from operations                               (15,770)              (16,156)              (31,371)              (35,576)

Interest expense, net                                  24,315                18,662                46,365                33,858
Loss on disposal of assets                                 45                   209                    33                   775
Interest income and other                                (119)                 (315)                 (227)                 (593)
                                            ------------------    ------------------    ------------------    ------------------

   Net loss before income taxes                       (40,011)              (34,712)              (77,542)              (69,616)

Income tax expense                                        264                   246                   427                   481
                                            ------------------    ------------------    ------------------    ------------------

   Net loss                                        $  (40,275)            $ (34,958)            $ (77,969)            $ (70,097)
                                            ==================    ==================    ==================    ==================

Net loss per common share:
   Basic                                           $    (0.79)            $   (0.69)            $   (1.53)            $   (1.39)
   Diluted                                         $    (0.79)            $   (0.69)            $   (1.53)            $   (1.39)

Weighted average shares outstanding                    50,969                50,418                50,906                50,289


</TABLE>
                             See accompanying notes
                                       3


<PAGE>


CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
                                                                For the six months ended June 30,
                                                                   2001              2000
                                                              ---------------   ----------------

<S>                                                                <C>                <C>
Net cash used in operating activities                              $ (33,744)         $ (18,349)
                                                              ---------------   ----------------

Cash flows used in investing activities:
     Capital expenditures                                            (35,304)           (70,215)
     Cash proceeds from sale of fixed assets                             157                331
                                                              ---------------   ----------------
       Net cash used in investing activities                         (35,147)           (69,884)
                                                              ---------------   ----------------

Cash flows from financing activities:
     Revolving bank credit facility proceeds                               -            104,000
     Revolving bank credit facility repayments                             -            (10,000)
     Long term funding from Citizens                                  74,000                  -
     Payments of capital lease obligation                             (8,386)            (9,576)
     Stock issuance                                                      485              3,558
     Other                                                               (22)              (100)
                                                              ---------------   ----------------
        Net cash provided by financing activities                     66,077             87,882
                                                              ---------------   ----------------

Net decrease in cash                                                  (2,814)              (351)

Cash at January 1,                                                    10,318             21,378
                                                              ---------------   ----------------
Cash at June 30,                                                   $   7,504          $  21,027
                                                              ===============   ================



Supplemental cash flow information:
     Non-cash increase in capital lease asset                      $  33,985          $  96,510

</TABLE>

                             See accompanying notes
                                       4

<PAGE>

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>


                                             Common Stock
                                     ------------------------------    Additional
                                        Class A         Class B         Paid-in-                         Shareholders'
                                        $.01 par       $.01 par          Capital        Deficiency     Equity (Deficiency)
                                     --------------- --------------  ---------------- ---------------- -------------------
<S>                                      <C>            <C>           <C>             <C>                 <C>
Balance, January 1, 2000                  $  90          $ 412         $ 326,477       $ (307,478)         $   19,501
    Issuance of common stock                  7              -             7,008                -               7,015
    Issuance of restricted stock              1              -                (1)               -                   -
    Forfeiture of restricted stock           (1)             -               (75)               -                 (76)
    Purchase of common stock                 (1)             -              (704)               -                (705)
    Amortization of restricted stock          -              -             1,422                -               1,422
    Stock units payable to non-
      employee director                       -              -                56                -                  56
    Acquisition of Citizens
      minority interest                       -              -            38,747                -              38,747
    Net loss                                  -              -                 -         (136,462)           (136,462)
                                     --------------- --------------  ---------------- ---------------- -------------------
Balance, December 31, 2000                $  96          $ 412         $ 372,930       $ (443,940)         $  (70,502)

    Issuance of common stock                  3              -               482                -                 485
    Issuance of restricted stock              1              -                (1)               -                   -
    Forfeiture of restricted stock            -              -              (346)               -                (346)
    Amortization of restricted stock          -              -               337                -                 337
    Stock units payable to non-
      employee director                       -              -                18                -                  18
    Net loss                                  -              -                 -          (77,969)            (77,969)
                                     --------------- --------------  ---------------- ---------------- -------------------
Balance, June 30, 2001                    $ 100          $ 412         $ 373,420       $ (521,909)         $ (147,977)
                                     =============== ==============  ================ ================ ===================

</TABLE>


                             See accompanying notes
                                        5

<PAGE>


                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

1.   SUMMARY OF  SIGNIFICANT ACCOUNTING POLICIES

     a.  BASIS OF PRESENTATION AND USE OF ESTIMATES

     Electric  Lightwave,  Inc. is  referred  to as "we",  "us" or "our" in this
     report. We have prepared these unaudited financial statements 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,   we  have  condensed  or  omitted  certain
     information  and  footnote  disclosures.  In our opinion,  these  financial
     statements  include all  adjustments  and recurring  accruals  necessary to
     present fairly the results for the interim periods shown.

     Preparing financial  statements in conformity with GAAP requires us to make
     estimates and assumptions which affect the amounts of assets,  liabilities,
     revenue and expenses we have  reported  and our  disclosure  of  contingent
     assets and liabilities at the date of the financial statements. The results
     of the interim  periods are not  necessarily  indicative of the results for
     the  full  year.  We  have  made  certain   reclassifications  of  balances
     previously   reported  to  conform  to  the  current  financial   statement
     presentation.  You should read these  financial  statements in  conjunction
     with the audited financial statements and the related notes included in our
     Annual Report on Form 10-K for the year ended December 31, 2000.

     b.  CAPITALIZED INTEREST

     Property, plant and equipment include interest costs capitalized during the
     installation and expansion of our telecommunications network. Approximately
     $1,271,000 and  $1,237,000 of interest costs were  capitalized in the three
     months  ended  June 30,  2001 and  2000,  respectively,  and  approximately
     $2,229,000 and $3,270,000 were capitalized in the six months ended June 30,
     2001 and 2000, respectively.

     c.  REVENUE  RECOGNITION

     We recognize  revenues from  communications  services when the services are
     provided.   Long-term  prepaid  network  services  revenue  agreements  are
     deferred  and  recognized  on a  straight-line  basis over the terms of the
     related  agreements.  Installation fees and related costs (up to the amount
     of  installation  revenue)  are deferred  and  recognized  over the average
     customer life.  Installation  related costs in excess of installation  fees
     are expensed when incurred.

     d.  NET LOSS PER SHARE

     We follow the  provisions  of SFAS No.  128,  "Earnings  Per  Share"  which
     requires presentation of both basic and diluted earnings per share (EPS) on
     the face of the statements of operations.  Basic EPS excludes  dilution and
     is computed using the weighted average number of common shares  outstanding
     during the period.  The diluted EPS  calculation  assumes that all dilutive
     stock  options  or  contracts  to issue  common  stock  were  exercised  or
     converted  into  common  stock  at the  beginning  of the  period.  We have
     excluded certain common stock  equivalents from our diluted EPS calculation
     during the quarters ended June 30, 2001 and 2000 as their effect would have
     reduced our net loss per share.

                                       6
<PAGE>


 2.  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are as follows:
<TABLE>
<CAPTION>

        ($ In thousands)                                      June 30, 2001        December 31, 2000
                                                            -----------------    --------------------
<S>                                                               <C>                    <C>
        Property, plant and equipment                             $ 1,023,783            $ 978,327
        Accumulated depreciation and amortization                    (166,860)            (131,611)
                                                            -----------------    --------------------
           Property, plant and equipment, net                     $   856,923            $ 846,716
                                                            =================    ====================

</TABLE>

     Depreciation  expense was  $19,006,000 and $14,592,000 for the three months
     ended June 30, 2001 and 2000, respectively, and $37,062,000 and $27,148,000
     for the six months ended June 30, 2001 and 2000, respectively.

 3.  RELATED PARTY TRANSACTIONS

     On December 1, 1997, we entered into an Administrative  Services  Agreement
     (Agreement) under which Citizens Communications Company (Citizens) provides
     us with  certain  administrative  services  including,  but not limited to,
     financial management  services,  information  services,  legal and contract
     services,  planning and human  resources  services.  Under the terms of the
     Agreement, Citizens bills us for direct costs and an allocation of indirect
     costs,  plus an administrative  charge.  The current practice of allocating
     indirect  costs is based  on four  factors:  our  plant  assets,  operating
     expenses,  number of customers and payroll  expenses.  We believe that this
     allocation  method and the resultant amounts are reasonable as contemplated
     by the Agreement.  In addition,  we reimburse third party costs incurred by
     Citizens on our behalf.  We believe that the amounts charged by Citizens do
     not exceed  comparable  amounts  that  would be charged by an  unaffiliated
     third party and that the accompanying  financial  statements include all of
     our costs of doing business.

     Citizens owns all of our Class B Common Stock and  2,287,644  shares of our
     Class A Common Stock, in total representing an 85% economic interest in us.

     We have entered into a revolving  credit  facility  with  Citizens for $450
     million  with an interest  rate of 15% and a final  maturity of October 30,
     2005 (Citizens  Credit  Facility).  Funds of $260 million are available for
     general  corporate  purposes  and may be drawn  until  June 30,  2002.  The
     remaining  available balance may be drawn to pay interest expense due under
     the Citizens Credit Facility until maturity. As of June 30, 2001, there was
     $112  million  outstanding  under the  Citizens  Credit  Facility  and $338
     million available to be drawn upon.

     This table summarizes the activity in the current  liability account due to
     Citizens for the six months ended June 30,
<TABLE>
<CAPTION>

        ($ In thousands)                                        2001                 2000
                                                         -----------------    -----------------
<S>                                                             <C>                  <C>
        Balance beginning of period                             $  7,684             $ 14,650
        Guarantee                                                 14,666               13,072
        Interest expense on Citizens Credit Facility               4,829                    -
        Administrative services:
           Services provided by Citizens                           4,245                2,929
           ELI expenses paid by Citizens                           3,652                4,183
        Payments to Citizens                                     (18,505)             (28,011)
                                                         -----------------    -----------------
        Balance end of period                                   $ 16,571             $  6,823
                                                         =================    =================
</TABLE>


                                       7
<PAGE>


 4.  INCOME TAXES

     Citizens includes us in their consolidated federal income tax return, which
     uses a calendar year reporting period. We record income taxes as if we were
     a  stand-alone  company.  We recorded  income tax  expense of $264,000  and
     $246,000 for the three  months ended June 30, 2001 and 2000,  respectively,
     and  $427,000 and $481,000 for the six months ended June 30, 2001 and 2000,
     respectively.  This  expense  represents  the  deferred  tax  effect of the
     increase in temporary differences between our GAAP financial statements and
     our tax  return  that  may not be  fully  offset  with  the use of tax loss
     carryforwards when the temporary differences reverse in future periods.

     The income taxes payable by Citizens'  consolidated group have been reduced
     as a  consequence  of our losses for tax  purposes in past years.  We would
     have been able to carry-forward  our tax losses to future periods to offset
     taxable income in these future  periods had we been a stand-alone  company.
     In  accordance  with our tax  sharing  agreement,  Citizens  has  agreed to
     reimburse us for the taxes we would be required to pay in the future, if we
     have taxable income, to the extent that these loss carryforwards would have
     otherwise remained available on a stand-alone basis.

 5.  SEGMENT DISCLOSURES

     We  operate  in a single  industry  segment,  communications  services.  We
     provide services  utilizing our centrally  planned,  monitored and operated
     telecommunications   network.   Operations   are  managed   and   financial
     performance  is  evaluated  based on the  delivery of multiple  services to
     customers over our single fiber-optic  network. As a result, there are many
     shared  expenses  generated by the various  revenue  streams and geographic
     locations. Management believes that any allocation of the expenses incurred
     on a single  network to  multiple  revenue  streams  would be  impractical,
     arbitrary and inconsistent with the way the business is currently evaluated
     by management.  As a result, we do not presently have systems or procedures
     in place to derive  all the  operating  costs and  expenses  relating  to a
     particular product group or service area.

     PRODUCTS AND SERVICES

     We group our products and services into Network  Services,  Local Telephone
     Services,  Long Distance Services and Data Services.  The revenue generated
     by these  products  and services for the three and six months ended June 30
     were:
<TABLE>
<CAPTION>

                                            For the three months ended June 30,      For the six months ended June 30,
                                          --------------------------------------    --------------------------------------
        ($ In thousands)                          2001                 2000                 2001                 2000
                                          -----------------    -----------------    -----------------    -----------------
<S>                                             <C>                  <C>                <C>                   <C>
        Network services                        $ 26,121             $ 17,173           $   51,889            $  33,177
        Local telephone services                  21,868               25,951               43,664               50,225
        Long distance services                     3,098                4,265                6,183                8,862
        Data services                              9,342               13,231               21,255               25,134
                                          -----------------    -----------------    -----------------    -----------------
         Total                                  $ 60,429             $ 60,620            $ 122,991            $ 117,398
                                          =================    =================    =================    =================

</TABLE>

     We do not currently provide products or services outside the United States.

     MAJOR CUSTOMERS

     Qwest Communications (Qwest) accounted for 14% and 21% of our total revenue
     for the three  months ended June 30, 2001 and 2000,  respectively,  and 13%
     and 21% of our total  revenue  for the six months  ended June 30,  2001 and
     2000,  respectively.  In 2001, most of the Qwest revenue was generated from
     reciprocal compensation agreements.  No other customer accounted for 10% or
     more of our total  revenue for the three and six months ended June 30, 2001
     or 2000.

                                       8
<PAGE>

     Included  in  revenue  for  the  three   months  ended  June  30,  2001  is
     approximately  $3.8 million of revenue  representing a "net  settlement" of
     past billing disputes between ELI and Qwest. Additionally, we are currently
     providing service to customers that have filed for protection under Chapter
     11 of the bankruptcy code. Of our largest  twenty-five  customers,  two are
     under Chapter 11 protection.  These two customers contribute  approximately
     $1.1  million of  revenue  monthly;  amounts  due from such  customers  are
     current.

 6.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
     No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities."
     This  statement   establishes   accounting  and  reporting   standards  for
     derivative instruments and hedging activities and, as amended, is effective
     for all fiscal  quarters of fiscal years beginning after June 15, 2000. The
     statement  requires  balance sheet  recognition of derivatives as assets or
     liabilities  measured  at fair  value.  Accounting  for  gains  and  losses
     resulting from changes in the values of derivatives is dependent on the use
     of the  derivative  and  whether it  qualifies  for hedge  accounting.  The
     adoption of SFAS 133 could increase the volatility of reported earnings and
     other  comprehensive  income  in the  future.  In  general,  the  amount of
     volatility  will vary with the level of  derivative  activities  during any
     period. We adopted SFAS 133 on January 1, 2001. As of June 30, 2001 we have
     not identified any derivative instruments subject to the provisions of SFAS
     133.  Therefore,  SFAS 133 did not have any  impact on our first and second
     quarter 2001 financial statements.

 7.  COMMITMENTS AND CONTINGENCIES

     We have entered into various  capital and operating  leases for fiber optic
     cable to interconnect our local networks with long-haul fiber optic routes.
     The terms of the various agreements range from 20 to 25 years, with varying
     optional renewal periods.

     In addition to the long-haul  agreements  above,  we have also entered into
     certain  operating and capital  leases to develop our local  networks.  The
     terms of the various  agreements  range from 15 to 30 years,  with  varying
     optional  renewal  periods.  One of  these  contracts  provides  us with an
     exclusive   right  to  use  the  facilities  as  long  as  certain  minimum
     requirements are satisfied.

     In March 1999, we entered into a 20-year fiber agreement,  in which we will
     exchange unused fiber on our network for unused fiber on another  carrier's
     network.  This  exchange  will provide us with fiber from Salt Lake City to
     Denver,  continuing on to Dallas. We incorporated the other carrier's fiber
     into  our  network  during  April of 2001.  We will pay the  other  carrier
     approximately $97.3 million over the next 20 years based on estimated route
     miles.  Accordingly,   we  reported  a  capital  lease  asset  and  related
     obligation of  approximately  $34.0 million in our balance sheet,  of which
     $4.6 million is presented in current portion of long-term debt.

     We are involved in various claims and legal actions arising in the ordinary
     course of business. In the opinion of management,  the ultimate disposition
     of these matters will not have a material  adverse effect on our results of
     operations, financial position or liquidity.

                                       9
<PAGE>


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

     Statements  contained  in this  quarterly  report on Form 10-Q that are not
     historical facts are  forward-looking  statements made pursuant to the safe
     harbor  provisions  of  the  Private  Securities  Reform  Act of  1995.  In
     addition,  words such as "believes,"  "anticipates,"  "expects" and similar
     expressions  are  intended to identify  forward-looking  statements.  These
     forward-looking statements are subject to:

     o    if there are changes in the nature and pace of technological  advances
          in our industry;

     o    if competitive pressure in the  telecommunications  industry increases
          in any of our markets because of the entrance of new competitors,  the
          combination  of  existing   competitors   and/or  the  more  effective
          provision  of products and services  from our  competitors,  including
          incumbent local exchange carriers (ILECs), or other public utilities;

     o    if  our  business  strategy  or  its  execution,  including  financial
          performance goals, is not as successful as we anticipate;

     o    if state or federal regulatory changes are implemented that assist our
          competitors,  impair our competitive  position,  threaten our costs or
          impact our rate structures,  including the ability to bill and collect
          reciprocal  compensation  for calls  terminated  to  internet  service
          providers (ISPs);

     o    if we do not receive the  services  and support  which we require from
          the ILECs  operating  in our  markets or cannot  maintain  our current
          relationships with ILECs;

     o    if a significant  number or volume of our clients,  particularly ISPs,
          experience  financial  difficulty and are unable to continue operating
          in the  manner  which  they have in the past,  are unable to pay their
          bills  when  they  become  due,  cease  operating  or seek  bankruptcy
          protection;

     o    if we are not  able to  effectively  manage  rapid  growth,  including
          integrating any businesses acquired;

     o    if we are not able to correctly identify future markets,  successfully
          expand existing ones, or successfully expand through acquisitions;

     o    if the mix of products and services we are able to offer in our target
          markets is not appropriate to the demands of our customers;

     o    if we are not able to obtain additional financing or obtain additional
          financing on favorable terms;

     o    if our stock price is volatile; or

     o    the effects of more  general  factors  including,  but not limited to,
          changes in economic  conditions,  changes in industry  conditions  and
          changes in accounting policies and practices adopted voluntarily or as
          required by generally accepted accounting principles.

     You should consider these important  factors in evaluating any statement in
     this  Form  10-Q  or  otherwise  made  by  us  or  on  our  behalf.   These
     forward-looking  statements  are made as of the date of this  report  based
     upon current  expectations,  and we undertake no  obligation to update this
     information.  The following  information is unaudited and should be read in
     conjunction  with the consolidated  financial  statements and related notes
     included in this report and as presented in our 2000 Annual  Report on Form
     10-K.

                                       10
<PAGE>

OVERVIEW

     We have  built an  extensive  fiber-optic  network  in the  western  United
     States,  which includes  expansive local networks in seven major cities and
     their surrounding areas, connected by our long-haul routes. In addition, we
     provide data services in certain strategic  markets across the nation.  Our
     product offerings include:

     o    Network  services  -  dedicated  service  between  two  points  for  a
          customer's  exclusive  use.  We offer this in both local and long haul
          applications  and  collocation  facilities  to meet us directly in our
          hub.

     o    Local telephone services - the delivery of local dial tone and related
          services,  and related  carrier and local access  revenue,  as well as
          Integrated Services Digital Network Primary Rate Interface (ISDN PRI).
          ISDN PRI provides customers with a high-speed access connection to the
          public  switched   telephone   network  for  voice,   video  and  data
          applications.

     o    Long  distance  services - retail and wholesale  long  distance  phone
          services.

     o    Data services - a wide range of products to deliver  large  quantities
          of data from one  location to another  through  Asynchronous  Transfer
          Mode  (ATM),   Frame   Relay  and   Internet   Protocol   (IP)  packet
          technologies.  These technologies group data (voice, video, images and
          character-based  data) into small packets of information  and transmit
          the packets over a network.

     Refer  to  Note 3 in  Part  I,  Item 1,  for a  discussion  concerning  our
     relationship  with  Citizens,  which owns  approximately  85% of our common
     stock.

a.   LIQUIDITY AND CAPITAL RESOURCES

     We have entered into a revolving  credit  facility  with  Citizens for $450
     million  with an interest  rate of 15% and a final  maturity of October 30,
     2005 (Citizens  Credit  Facility).  Funds of $260 million are available for
     general  corporate  purposes  and may be drawn  until  June 30,  2002.  The
     remaining  available balance may be drawn to pay interest expense due under
     the Citizens Credit Facility until maturity.

     We drew $74 million from the Citizens Credit Facility to fund operating and
     capital  expenditures during the six months ended June 30, 2001. As of June
     30,  2001,  we have  outstanding  $112 million  under the  Citizens  Credit
     Facility   and  have  $338  million   remaining   available  to  be  drawn.
     Additionally,  we have  outstanding  $325 million of 6.05% senior unsecured
     notes that mature on May 14, 2004 and a $400 million  revolving bank credit
     facility (Bank Credit  Facility).  No principal  payment on the Bank Credit
     Facility is due until its expiration  date in November  2002.  Citizens has
     guaranteed both the Bank Credit Facility and our senior unsecured notes for
     fees of 3.25% and 4.0%,  respectively,  based on the respective outstanding
     balances.

     We anticipate that our existing cash balances and cash to be generated from
     operations will not be adequate to fund operating  leases,  working capital
     deficiencies,  capital  expenditures,  capital lease  obligations  and debt
     service  through  2001.  Citizens has  committed to continue to finance our
     cash  requirements,  at market terms and  conditions,  until June 30, 2002.
     Absent the  Citizens  commitment,  we do not believe  there is  currently a
     market to further finance or refinance our existing indebtedness.

     In order to continue the growth of our customer base and revenue stream, we
     must continue to invest in the  installation,  development and expansion of
     our existing  telecommunications  network.  A significant  portion of these
     expenditures is incurred  before any revenue is realized.  Our cash capital
     expenditures  were  approximately  $15.0  million and $35.3 million for the
     three and six months ended June 30, 2001, respectively. These expenditures,
     combined with our operating expenses, have resulted in operating losses and
     negative cash flows. We expect to continue  incurring  operating losses and
     negative  cash flows  until we can  establish  an  adequate  customer  base
     necessary  to  generate  a  revenue   stream   sufficient  to  support  our
     operations,  capital  requirements and debt service. We cannot be sure that
     we  will  achieve  or  sustain  profitability  or  that  we  will  generate
     sufficient  positive cash flow to fund our operating,  capital  expenditure
     and debt service requirements.

                                       11
<PAGE>

     During 1995, we entered into a $110 million  construction  agency agreement
     and an operating  lease  agreement in connection  with the  construction of
     certain network  facilities.  We have the option to purchase the facilities
     at the end of the lease term.  Payments  under the lease  depend on current
     interest rates.  Assuming  continuation of current interest rates, payments
     would  approximate  $6.7  million  annually  through  April  30,  2002 and,
     assuming  exercise of the purchase option, a final payment of approximately
     $110 million in 2002. If we choose not to exercise the purchase option,  we
     are  obligated  to arrange for the sale of the  facilities  to an unrelated
     party and are  required  to pay the lessor any  difference  between the net
     sales proceeds and the lessor's investment in the facilities.  However, any
     amount required to be paid to the lessor is subject  generally to a maximum
     of  approximately   $88  million.   Citizens  has  guaranteed  all  of  our
     obligations under this operating lease. We have agreed to pay to Citizens a
     guarantee  fee at the rate of 3.25%  per annum  based on the  amount of the
     lessor's  investment in the leased assets. We are currently  evaluating our
     options to refinance this obligation.

NEW ACCOUNTING PRONOUNCEMENTS

     In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement  of  Financial  Accounting  Standard  (SFAS) No.  141,  "Business
     Combinations."  This statement  requires that all business  combinations be
     accounted  for  under  the  purchase  method of  accounting.  SFAS No.  141
     requires  that the  purchase  method  of  accounting  be used for  business
     combinations  initiated  after June 30, 2001 and  prohibits  the use of the
     pooling-of-interests method of accounting.

     In July 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
     Assets."  This  statement  requires that goodwill no longer be amortized to
     earnings,  but instead be reviewed  for  impairment.  Impairment  tests are
     required to be performed at least  annually.  The  amortization of goodwill
     ceases upon  adoption of the  statement.  The  statement is  effective  for
     fiscal years  beginning  after December 15, 2001 for companies whose annual
     reporting  period ends on December 31, 2001 and applies to all goodwill and
     other intangible assets  recognized in the statement of financial  position
     at that date, regardless of when the assets were initially  recognized.  We
     will cease to recognize  amortization of goodwill starting January 1, 2002.
     We will be required to test for impairment of goodwill annually starting in
     2002. The amount of any future  impairment,  if any, cannot be estimated at
     this time.

      OTHER MATTERS

RECIPROCAL COMPENSATION

     We  have   various   interconnection   agreements   with   Qwest,   Verizon
     Communications  (Verizon),  Pacific Bell  Telephone  Company  (PacBell) and
     Roseville  Telephone,  the  ILECs in the areas in which we  operate.  These
     agreements  govern  reciprocal  compensation  relating to the transport and
     termination  of traffic  between the ILECs'  networks and our  network.  We
     recognize reciprocal compensation revenues as earned, based on the terms of
     the  interconnection  agreements.  We  recognized  reciprocal  compensation
     revenues of $8.0 million and $10.4  million for the three months ended June
     30,  2001  and  2000,  respectively.   Reciprocal  compensation  recognized
     revenues were $15.7 million and $20.0 million for the six months ended June
     30, 2001 and 2000, respectively.  Net trade accounts receivable relating to
     reciprocal  compensation  totaled $8.6 million and $7.7 million at June 30,
     2001 and December 31, 2000, respectively. These agreements are scheduled to
     expire between June 30 and December 31, 2001.  The Verizon  interconnection
     agreements  expired  in May  and  June  2001  for  Washington  and  Oregon,
     respecitvely.  The  existing  terms  will  remain in effect for 180 days or
     until a new agreement is reached.  We cannot provide assurance that renewal
     of the  interconnection  agreements  will be in the same form,  or at rates
     comparable to the current interconnection agreements.


                                       12
<PAGE>

     The  FCC  adopted  new  rules  concerning  intercarrier   compensation  for
     ISP-bound traffic  effective June 14, 2001. The FCC set transitional  rates
     for reciprocal  compensation  that exceeds a 3:1 ratio.  The rate for above
     ratio  traffic is .15 cents per  minute for the first six months  after the
     effective date of the commission  order,  .10 cents per minute for the next
     18 months and .07 cents per minute  after that,  through  June 2004.  Below
     ratio traffic remains at the state  established rate level.  Implementation
     of the FCC's  transitional  rates for ISP-bound traffic is expected to take
     place over the next few months via  amendments to existing  interconnection
     agreements.  Based on our  preliminary  analysis,  we do not anticipate the
     FCC's action to cause any material  deviations  in  anticipated  reciprocal
     compensation revenue for 2001.

b.   RESULTS OF OPERATIONS

REVENUE

     Revenue  for the three and six months  ended June 30, 2001  decreased  $0.2
     million,  or 0%,  and  increased  $5.6  million,  or 5%,  respectively,  as
     compared with the prior year periods.
<TABLE>
<CAPTION>

                                      For the three months ended June 30,               For the six months ended June 30,
                                    -------------------------------------------    --------------------------------------------
        ($ In thousands)                2001           2000         % Change          2001           2000          % Change
                                    -------------  -------------  --------------   ------------  -------------  ---------------
<S>                                    <C>            <C>             <C>            <C>           <C>                 <C>
        Network services               $ 26,121       $ 17,173        52%            $ 51,889      $  33,177           56%
        Local telephone services         21,868         25,951       (16%)             43,664         50,225          (13%)
        Long distance services            3,098          4,265       (27%)              6,183          8,862          (30%)
        Data services                     9,342         13,231       (29%)             21,255         25,134          (15%)
                                    -------------  -------------                   ------------  -------------
         Total                         $ 60,429       $ 60,620        (0%)           $122,991      $ 117,398            5%
                                    =============  =============                   ============  =============

</TABLE>

Major Customers

     Included  in  revenue  for  the  three   months  ended  June  30,  2001  is
     approximately  $3.8 million of revenue  representing a "net  settlement" of
     past billing disputes between ELI and Qwest. Additionally, we are currently
     providing service to customers that have filed for protection under Chapter
     11 of the bankruptcy code. Of our largest  twenty-five  customers,  two are
     under Chapter 11 protection.  These two customers contribute  approximately
     $1.1  million of  revenue  monthly;  amounts  due from such  customers  are
     current.

Network Services

     Network  services  revenue for the three and six months ended June 30, 2001
     increased $8.9 million, or 52%, and $18.7 million, or 56%, respectively, as
     compared  with the prior year  periods.  The  increase is due to  continued
     growth in our network and sales of additional  circuits to new and existing
     customers.

Local Telephone Services

     Local  telephone  services  revenue for the three and six months ended June
     30,  2001  decreased  $4.1  million,  or 16%,  and  $6.6  million,  or 13%,
     respectively,  as compared  with the prior year  periods.  Local  telephone
     services  include  ISDN  PRI,  dial  tone,   Carrier  Access  Billings  and
     reciprocal compensation.

                                       13
<PAGE>
<TABLE>
<CAPTION>


                                    For the three months ended June 30,            For the six months ended June 30,
                                  ----------------------------------------    ------------------------------------------
        ($ In thousands)              2001           2000        % Change        2001           2000          % Change
                                  -------------  -------------  ----------    ------------  -------------  -------------
<S>                                  <C>           <C>              <C>        <C>            <C>               <C>
        ISDN PRI                     $ 6,755       $  8,402         (20%)      $ 14,785       $ 16,231          (9%)
        Dial tone                      4,528          4,201           8%          9,231          8,749           6%
        Carrier access billings        2,574          2,948         (13%)         3,923          5,219         (25%)
        Reciprocal compensation        8,011         10,400         (23%)        15,725         20,026         (21%)
                                  -------------  -------------                -------------  ------------
         Total                      $ 21,868       $ 25,951         (16%)      $ 43,664       $ 50,225         (13%)
                                  =============  =============                =============  ============
</TABLE>

     ISDN PRI revenue for the three and six months ended June 30, 2001 decreased
     $1.6 million,  or 20%, and $1.4 million, or 9%,  respectively,  as compared
     with the prior year  periods  primarily  due to the decline in the consumer
     dial-up market.

     Dial tone revenue increased $0.3 million,  or 8%, and $0.5 million,  or 6%,
     respectively, as compared with the prior year periods. Increases in revenue
     for dial tone are the result of an  increase  in the  average  access  line
     equivalents  of  14,747,  or 16%,  and  5,379,  or 5% for the three and six
     months ended June 30, 2001, respectively.

     Carrier Access Billings revenue for the three and six months ended June 30,
     2001   decreased  $0.4  million,   or  13%,  and  $1.3  million,   or  25%,
     respectively,  as compared with the prior year periods. The decrease is the
     result of lower  average rates per minute due to  competitive  pressures in
     the markets in which we operate,  offset by an increase in average  monthly
     minutes processed of 1.7 million,  or 5%, and 8.7 million,  or 31%, for the
     three and six months ended June 30, 2001,  respectively,  as compared  with
     the prior year periods.

     Reciprocal compensation revenue for the three and six months ended June 30,
     2001   decreased  $2.4  million,   or  23%,  and  $4.3  million,   or  21%,
     respectively,  as compared with the prior year periods. The decrease is due
     to a decrease in average monthly minutes  processed of 110 million,  or 9%,
     and 35 million,  or 3%, for the three and six months  ended June 30,  2001,
     respectively,  as compared  with the prior year  periods and lower  average
     rates per minute due to  competitive  pressures  in the markets in which we
     operate.  See "Part I., Item 2.,  Management's  Discussion  and Analysis of
     Financial  Condition  and Results of  Operations  -  Liquidity  and Capital
     Resources - Other Matters - Reciprocal Compensation" for further discussion
     of reciprocal compensation.

Long Distance Services

Long distance  services revenue for the three and six months ended June 30, 2001
decreased  $1.2 million,  or 27%, and $2.7  million,  or 30%,  respectively,  as
compared with the prior year periods.  Long distance services include retail and
wholesale long distance.

     Retail long  distance  revenue for the three and six months  ended June 30,
     2001 decreased $0.2 million, or 9%, and $0.5 million, or 10%, respectively,
     as compared with the prior year periods.  The decrease is due to a decrease
     in  average  monthly  minutes  processed  of 0.3  million,  or 3%,  and 0.2
     million,  or 2%, for the three and six months ended June 30, 2001 and lower
     average rates per minute.

     Wholesale long distance revenue for the three and six months ended June 30,
     2001   decreased  $0.5  million,   or  34%,  and  $1.5  million,   or  43%,
     respectively,  as compared with the prior year periods. The decrease is due
     to a decrease in average monthly minutes processed of 4.3 million,  or 25%,
     and 5 million or 28%,  for the three and six months ended June 30, 2001 and
     lower average rates per minute.

                                       14
<PAGE>

Data Services

     Data  services  revenue  for the three and six months  ended June 30,  2001
     decreased $3.9 million, or 29%, and $3.9 million, or 15%, respectively,  as
     compared with the prior year periods. Data services include Internet, RSVP,
     Frame Relay and other services.

          Revenue  for the three and six  months  ended  June 30,  2001 from our
          Internet services product decreased $0.4 million, or 9%, and increased
          $0.2 million, or 2.9%,  respectively,  as compared with the prior year
          periods.

          Revenue for the three and six months ended June 30, 2001 from our RSVP
          products  increased  $0.4 million,  or 52%, and $1.1 million,  or 76%,
          respectively, as compared with the prior year periods.

          Revenue  for the three and six  months  ended  June 30,  2001 from our
          Frame Relay product decreased $0.1 million,  or 7%, and increased $0.1
          million, or 3%, respectively, as compared with the prior year periods.

          Revenue  for the three and six months  ended June 30,  2001 from other
          services revenue decreased $3.8 million,  or 70%, and $5.4 million, or
          51%, respectively,  as compared with the prior year periods, primarily
          due to the expiration on February 28, 2001 of an 18-month  take-or-pay
          contract with a significant  customer.  This take-or-pay  contract was
          not renewed.

OPERATING EXPENSES

     Operating expenses for the three and six months ended June 30, 2001
     decreased $0.6 million, or 1%, and increased $1.4 million, or 1%,
     respectively, as compared with the prior year period.


<TABLE>
<CAPTION>
                                                 For the three months ended June 30,       For the six months ended June 30,
                                              ---------------------------------------   ----------------------------------------

        ($ In thousands)                          2001           2000       % Change         2001           2000       % Change
                                              ------------   -----------  -----------   ------------   ------------  ------------
<S>                                            <C>            <C>              <C>         <C>            <C>             <C>
        Network access                         $ 17,051       $ 18,294         (7%)        $ 33,782       $ 38,990        (13%)
        Operations                               13,759         13,446          2%           26,735         25,021          7%
        Selling, general and administrative      25,555         30,315        (16%)          55,117         61,487        (10%)
        Depreciation and amortization            19,834         14,721         35%           38,728         27,476         41%
                                              ------------   -----------                ------------   ------------
        Total                                  $ 76,199       $ 76,776         (1%)       $ 154,362      $ 152,974          1%
                                              ============   ===========                ============   ============

</TABLE>

Network Access

     Network  access  expenses  include  circuit  and  usage-based  charges  for
     carrying and terminating traffic on another carrier's network.

     Network  access  expenses  for the three and six months ended June 30, 2001
     decreased $1.2 million, or 7%, and $5.2 million, or 13%,  respectively,  as
     compared  with the prior  year  periods.  The  decrease  is a result of the
     completion of our inland and coastal long-haul  network,  which has allowed
     us to focus on providing  on-net  services  resulting  in reduced  variable
     costs. The decrease is also attributable to decreased long distance revenue
     and decreased long distance per minute costs.

Operations

     Operations 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.

                                       15
<PAGE>

     Operations expenses for the three and six months ended June 30, 2001
     increased $0.3 million, or 2%, and $1.7 million, or 7%, respectively, as
     compared with the prior year period, primarily due to increases in
     maintenance, operating rents and related expenses to support the expanded
     delivery of services.

Selling, General and Administrative

     Selling,  general  and  administrative  expenses  include  all  direct  and
     indirect sales channel expenses and commissions, as well as all general and
     administrative expenses.

     Selling,  general and administrative  expenses for the three and six months
     ended June 30, 2001  decreased $4.8 million,  or 16%, and $6.4 million,  or
     10%, respectively,  as compared with the prior year period. The decrease is
     primarily due to a reduction in personnel, partially offset by increases in
     property taxes.

Depreciation and Amortization

     Depreciation   and   amortization    expenses   include   depreciation   of
     telecommunications  network assets  including  fiber-optic  cable,  network
     electronics,  network switching and network data equipment and amortization
     of goodwill.

     Depreciation  and  amortization  expense for the three and six months ended
     June 30, 2001  increased $5.1 million,  or 35%, and $11.3 million,  or 41%,
     respectively,  as compared  with the prior year period.  This was primarily
     due  to   higher   plant  in   service   balances   for   newly   completed
     telecommunications network facilities and electronics.

INTEREST EXPENSE, NET
<TABLE>
<CAPTION>

                                   For the three months ended June 30,              For the six months ended June 30,
                                ----------------------------------------    ----------------------------------------------
($ In thousands)                    2001           2000         % Change        2001           2000             % Change
                                -------------  -------------  ----------    ----------------  -------------  -------------
<S>                                 <C>            <C>              <C>         <C>            <C>              <C>
Gross interest expense              $ 25,586       $ 19,899         29%         $ 48,594       $ 37,128         31%
Capitalized interest                  (1,271)        (1,237)         3%           (2,229)        (3,270)       (32%)
                                -------------  -------------                -------------  -------------
Interest expense, net               $ 24,315       $ 18,662         30%         $ 46,365       $ 33,858         37%
                                =============  =============                =============  =============
</TABLE>

     Gross  interest  expense  for the three and six months  ended June 30, 2001
     increased $5.7 million, or 29%, and $11.5 million, or 31%, respectively, as
     compared  with the prior year  periods,  primarily  due to higher levels of
     outstanding  long-term debt and higher average  interest  rates. As of June
     30, 2001, we had debt and capital leases outstanding of $994.8 million at a
     composite  rate of 7.5% compared to $828.1  million at a composite  rate of
     7.1% at June 30, 2000.  The higher  balance led to  increased  interest and
     guarantee fees.

     Capitalized  interest for the three  months  ended June 30, 2001  increased
     $0.03 million,  or 3%, as compared with the prior year period. The increase
     is due to higher interest rates, partially offset by a reduction in average
     Construction  Work In Process of $18.2 million,  or 34.9%, as compared with
     the prior year period.  Capitalized  interest for the six months ended June
     30, 2001  decreased  $1.0 million,  or 32%, as compared with the prior year
     period. The decrease is due to a reduction in average  Construction Work In
     Process of $38.9 million, or 56.7%, as compared with the prior year period,
     partially offset by higher interest rates.

INCOME TAX EXPENSE
<TABLE>
<CAPTION>

                                    For the three months ended June 30,          For the six months ended June 30,
                                 ----------------------------------------    ------------------------------------------
        ($ In thousands)             2001           2000         % Change        2001           2000         % Change
                                 -------------  -------------  ----------    -------------  -------------  ------------
<S>                                 <C>            <C>              <C>         <C>            <C>             <C>
        Income tax expense          $ 264          $ 246            7%          $ 427          $ 481           (11%)

</TABLE>

     Income  tax  expense  for the  three and six  months  ended  June 30,  2001
     increased  $0.02  million,  or 7%, and  decreased  $0.05  million,  or 11%,
     respectively,  as compared  with the prior year  periods.  In both 2001 and
     2000, the benefit of our tax loss carryforwards is not able to fully offset
     the  deferred   tax  expense   associated   with  current  year   temporary
     differences.

                                       16
<PAGE>


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DISCLOSURE OF PRIMARY MARKET RISK AND HOW IT IS MANAGED

     We are  exposed  to  market  risk  in the  normal  course  of our  business
     operations  due to ongoing  funding  activities.  Market risk refers to the
     potential  change in fair value of a  financial  instrument  as a result of
     fluctuations in interest rates and equity and commodity prices. Our primary
     market risk exposure is interest rate risk, which relates  primarily to our
     long-term  debt  and  capital  lease  obligations.  We do not hold or issue
     derivative instruments or other financial instruments for trading purposes.
     Financial  instruments that are held for other than trading purposes do not
     impose a  material  market  risk.  As a  result,  we do not  undertake  any
     specific actions to cover our exposure to interest rate risk and we are not
     party to any interest rate risk management agreements.

     We are exposed to interest rate risk since debt financing is needed to fund
     the operating losses and capital expenditures  associated with establishing
     and expanding our  telecommunications  network.  The interest rates that we
     will be able to obtain on debt financing  will depend on market  conditions
     at that time,  and may differ from the rates we have secured on our current
     debt.  Citizens has committed to continue to finance our cash requirements,
     at market terms and conditions, until the earlier of completion of a public
     or private financing or June 30, 2002.

     We have no material  future earnings or cash flow exposures from changes in
     interest  rates on our long-term debt and capital lease  obligations,  as a
     majority  of our  obligations  are  fixed and most of our  obligations  are
     guaranteed by Citizens. A hypothetical 10% adverse change in interest rates
     would increase the amount that we pay on our variable obligations and could
     result in fluctuations in the fair value of our fixed rate obligations.

     Based upon our overall interest rate exposure at June 30, 2001, a near-term
     change in  interest  rates  would not  materially  affect our  consolidated
     financial position, results of operations or cash flows.

SENSITIVITY ANALYSIS

     At June 30, 2001,  the fair value of our  long-term  debt and capital lease
     obligations  was estimated to be $938.5 million  compared to $967.7 million
     carrying  value,  based  on our  overall  weighted  average  rate  of  7.5%
     excluding  guarantee  fees and our  overall  weighted  maturity of 4 years.
     There  has  been  no  material  change  in the  weighted  average  maturity
     applicable to our obligations since December 31, 2000. However, the overall
     weighted  average  interest  rate has  increased by  approximately  3 basis
     points during the six month  period.  A  hypothetical  increase of 75 basis
     points (10% of our overall weighted average borrowing rate) would result in
     an approximate  $14.7 million  decrease in the fair value of our fixed rate
     obligations.

DISCLOSURE OF LIMITATIONS OF SENSITIVITY ANALYSIS

     Certain  shortcomings  are inherent in the method of analysis  presented in
     the computation of fair value of financial  instruments.  Actual values may
     differ from those presented should market  conditions vary from assumptions
     used in the calculation of the fair value. This analysis  incorporates only
     those  exposures that exist as of June 30, 2001. It does not consider those
     exposures or positions  that could arise after that date. As a result,  our
     ultimate exposure with respect to our interest rate risk will depend on the
     exposures that arise during the period, the ratio of variable to fixed debt
     outstanding and the fluctuation of interest rates.

                                       17
<PAGE>


                           PART II: OTHER INFORMATION
                           --------------------------

ITEM 1.  LEGAL PROCEEDINGS

     We are  party  to  routine  litigation  arising  in the  normal  course  of
     business. We do not expect these matters, individually or in the aggregate,
     to have a material  adverse  effect on our financial  position,  results of
     operations or cash flows. We are also party to various  proceedings  before
     state Public Utilities  Commissions.  These proceedings typically relate to
     authority  to operate  in a state and  regulatory  arbitration  proceedings
     concerning  our  interconnection   agreements.   See  "Part  I.,  Item  2.,
     Management's  Discussion and Analysis of Financial Condition and Results of
     Operations - Liquidity  and Capital  Resources - Other Matters - Reciprocal
     Compensation".

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

     (a)  We held our 2001 Annual Meeting of the Stockholders on May 17, 2001.

     (b)  Proxies for the Annual Meeting were  solicited  pursuant to Regulation
          14A; there was no solicitation in opposition to management's  nominees
          for directors as listed in the Proxy Statement. All such nominees were
          elected pursuant to the following votes:


                                              Number of Votes
                                              ---------------

             Directors                  For (*)             Abstain
             ---------                 ---------            -------

          R. Braden                    419,789,651           328,346
          R.J. Graf                    419,790,356           327,641
          G.E. Greiner                 419,979,019           138,978
          S. Harfenist                 419,791,535           326,462
          W.M. Krauss                  419,977,019           140,978
          S.N. Schneider               419,791,480           326,517
          R.A. Stanger                 419,793,626           324,371
          L. Tow                       419,780,389           337,608
          M. Wilderotter               419,985,003           132,994

          (*) Includes votes from the 41,165,000 shares of Class B common stock.
          Citizens  owns all Class B Common  Stock and each share is entitled to
          10 votes on each  matter to be voted  upon by  holders  of the  Common
          Stock.

     (c)  At the 2001  Annual  Meeting  of the  Stockholders,  the  shareholders
          approved  an  amendment  to our 1997 Equity  Incentive  Plan solely to
          increase  the number of shares of common  stock  reserved for issuance
          thereunder.  The  following  sets  forth  the  number of votes on this
          proposal.

                       For              Against           Abstain
                       ---              -------           -------
                   415,738,556          657,217            18,968

                                       18
<PAGE>

ITEM 5.  OTHER INFORMATION

     On April 2, 2001, we received a notice from The Nasdaq Stock  Market,  Inc.
     that our common stock would be subject to delisting after July 2, 2001 from
     The Nasdaq  National  Market  because  our Class A common  stock  failed to
     maintain a $5 minimum  bid price.  Nasdaq  suggested  that we may  consider
     filing an application to have our Class A common stock listed on The Nasdaq
     SmallCap  Market.  On June 29, 2001,  we filed an  application  to have our
     Class A common stock listed on The Nasdaq SmallCap Market. We are currently
     in discussions  with Nasdaq as to the  application  and our ability to meet
     the  applicable  listing   requirements.   In  order  to  meet  a  separate
     requirement  concerning market  capitalization of our Class A common stock,
     Citizens may convert  sufficient  shares of Class B common stock to Class A
     common stock to provide a market capitalization of the Class A common stock
     of $35  million.  It is  uncertain  whether  we will  be  able to meet  the
     applicable  listing  requirements  including the requirement that a minimum
     bid price of $1.00 per share be  maintained.  If the  requirements  are not
     met, our Class A common stock may not be eligible for trading on Nasdaq and
     we expect we would  trade in the  over-the-counter  market.  We continue to
     have  discussions  with  Nasdaq  and do have  the  ability  to  appeal  any
     determination  of Nasdaq.  In addition,  we continue to review  alternative
     resolutions  to this  matter.  There can be no  assurance of the outcome of
     these  discussions  or of any appeal if we  determine  to seek one.  If our
     Class A common stock fails to remain included on Nasdaq,  the delisting may
     have a material  adverse  impact on the market  value of our Class A common
     stock.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a)   The exhibits below are filed as part of this report:
                  None.

b)   Reports on Form 8-K

     On May 9, 2001, we filed on Form 8-K under Item 5, "Other Events",  a press
     release announcing earnings for the quarter ended March 31, 2001.

                                       19

<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.



ELECTRIC LIGHTWAVE, INC.
(Registrant)


By:      /s/ Robert J. Larson
         -------------------------------
         Robert J. Larson
         Vice President and Chief Accounting Officer


August 10, 2001


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