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, 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 September 30, 2001

                                       or

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

For the transition period from         to

                         Commission file 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
October 31, 2001 were:

                         Common Stock Class A 35,375,345
                         Common Stock Class B 15,881,312

________________________________________________________________________________


<PAGE>


Electric Lightwave, Inc.

INDEX

<TABLE>
<CAPTION>
<S>                                                                                                   <C>
                                                                                                       Page No.
                                                                                                       --------

PART I.  FINANCIAL INFORMATION

     ITEM 1.      FINANCIAL STATEMENTS

                  Balance Sheets at September 30, 2001 (unaudited) and December 31, 2000                  2

                  Statements of Operations for the Three and Nine Months Ended
                           September 30, 2001 and 2000 (unaudited)                                        3

                  Condensed Statements of Cash Flows for the Nine Months Ended
                           September 30, 2001 and 2000 (unaudited)                                        4

                  Statements of Shareholders' Equity (Deficiency) for the Nine Months Ended
                           September 30, 2001 (unaudited) and the Year Ended December 31, 2000            5

                  Notes to Financial Statements                                                           6

     ITEM 2.      MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS                                                     11

     ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISK                                                                             19

PART II.  OTHER INFORMATION                                                                               20

SIGNATURE                                                                                                 22

</TABLE>
                                       1
<PAGE>


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


ITEM 1.  FINANCIAL STATEMENTS
BALANCE SHEETS
(In thousands)
 ------------
(Unaudited)
<TABLE>
<CAPTION>

                                                                    September 30,      December 31,
Assets                                                                 2001                2000
                                                                  ---------------    ----------------
Current assets:
<S>                                                                      <C>                <C>
     Cash                                                             $    6,876          $   10,318
     Trade receivables, net                                               17,848              35,491
     Other receivables                                                     6,403               6,001
     Other current assets                                                  4,582               5,080
                                                                  ---------------    ----------------
        Total current assets                                              35,709              56,890

Property, plant and equipment, net                                       844,249             846,716
Goodwill, net                                                             40,509              42,601
Other assets                                                               3,009               3,567
                                                                  ---------------    ----------------

        Total assets                                                  $  923,476          $  949,774
                                                                  ===============    ================

Liabilities and Shareholders' Deficiency
Current liabilities:
     Accounts payable and accrued liabilities                         $   33,268          $   60,851
     Current portion of capital lease obligations                          7,286              28,798
     Due to Citizens Communications Company                                7,939               7,684
     Other accrued taxes                                                  21,535              16,377
     Interest payable                                                     16,156              13,244
     Other current liabilities                                             6,313               5,718
                                                                  ---------------    ----------------
        Total current liabilities                                         92,497             132,672

Deferred revenue                                                          15,706              14,847
Other long-term liabilities                                                1,336               3,295
Deferred income taxes payable                                              3,507               3,058
Capital lease obligations                                                130,664             103,404
Long-term debt                                                           875,000             763,000
                                                                  ---------------    ----------------
        Total liabilities                                              1,118,710           1,020,276

        Shareholders' deficiency                                        (195,234)            (70,502)
                                                                  ---------------    ----------------

        Total liabilities and shareholders' deficiency                $  923,476          $  949,774
                                                                  ===============    ================
</TABLE>



                                       2
<PAGE>



STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
 --------------------------------------
(Unaudited)
<TABLE>
<CAPTION>

                                            For the three months ended Sept. 30,   For the nine months ended Sept. 30,
                                                 2001                2000                2001                2000
                                           -----------------   -----------------   -----------------   -----------------

<S>                                                <C>                 <C>                <C>                 <C>
Revenue                                           $  53,330           $  63,610          $  176,321          $  181,008
                                           -----------------   -----------------   -----------------   -----------------

Operating expenses:
   Network access                                    17,232              17,821              51,014              56,811
   Operations                                        14,442              13,473              40,820              38,494
   Selling, general and administrative               22,361              27,430              76,112              88,875
   Severance expense                                  1,418                 110               3,141                 152
   Depreciation and amortization                     19,919              16,306              58,647              43,782
                                           -----------------   -----------------   -----------------   -----------------
      Total operating expenses                       75,372              75,140             229,734             228,114
                                           -----------------   -----------------   -----------------   -----------------

   Loss from operations                             (22,042)            (11,530)            (53,413)            (47,106)

Interest expense, net                                25,424              20,745              71,788              54,603
Loss (gain) on disposal of assets                       (94)                117                 (61)                893
Interest income and other                               (99)               (259)               (326)               (853)
                                           -----------------   -----------------   -----------------   -----------------

   Net loss before income taxes                     (47,273)            (32,133)           (124,814)           (101,749)

Income tax expense                                       22                 459                 449                 940
                                           -----------------   -----------------   -----------------   -----------------

   Net loss                                       $ (47,295)          $ (32,592)         $ (125,263)         $ (102,689)
                                           =================   =================   =================   =================

Net loss per common share:
   Basic                                          $   (0.92)          $   (0.64)         $    (2.46)         $    (2.04)
   Diluted                                        $   (0.92)          $   (0.64)         $    (2.46)         $    (2.04)

Weighted average shares outstanding                  51,168              50,606              50,995              50,404

</TABLE>



                                       3
<PAGE>



CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
 ------------
(Unaudited)

<TABLE>
<CAPTION>
                                                                    For the nine months ended Sept. 30,
                                                                           2001              2000
                                                                    ---------------    ---------------

<S>                                                                      <C>                <C>
Net cash used in operating activities                                     $(44,307)         $ (38,983)
                                                                    ---------------    ---------------

Cash flows used in investing activities:
     Capital expenditures                                                  (43,906)           (90,864)
     Cash proceeds from sale of fixed assets                                   547                  -
                                                                    ---------------    ---------------
        Net cash used in investing activities                              (43,359)           (90,864)
                                                                    ---------------    ---------------

Cash flows from financing activities:
     Revolving bank credit facility proceeds                                     -            150,000
     Revolving bank credit facility repayments                                   -            (10,000)
     Long term funding from Citizens                                       112,000                  -
     Payments of capital lease obligation                                  (28,239)           (23,676)
     Stock issuances                                                           485              5,884
     Other                                                                     (22)              (100)
                                                                    ---------------    ---------------
        Net cash provided by financing activities                           84,224            122,108
                                                                    ---------------    ---------------

Net decrease in cash                                                        (3,442)            (7,739)

Cash at January 1,                                                          10,318             21,378
                                                                    ---------------    ---------------
Cash at September 30,                                                     $  6,876          $  13,639
                                                                    ===============    ===============

Supplemental cash flow information:
     Non-cash increase in capital lease asset                             $ 33,985          $  98,555

</TABLE>



                                       4
<PAGE>



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


                                                Common Stock
                                       ------------------------------   Additional                      Shareholders'
                                          Class A         Class B        Paid-in-                          Equity
                                         $.01 par        $.01 par         Capital      Deficiency       (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 minority
      interest by Citizens                      -               -          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
    Conversion of common stock                253            (253)              -              -                  -
    Issuance of restricted stock                1               -              (1)             -                  -
    Forfeiture of restricted stock              -               -            (346)             -               (346)
    Amortization of restricted stock            -               -             368              -                368
    Stock units payable to non-
      employee director                         -               -              24              -                 24
    Net loss                                    -               -               -       (125,263)          (125,263)
                                       -----------  --------------  -------------- --------------  -----------------
Balance, September 30, 2001                 $ 353           $ 159        $373,457     $ (569,203)        $ (195,234)
                                       ===========  ==============  ============== ==============  =================
</TABLE>



                                       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 the 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  $1,236,000  and  $1,628,000 of interest costs
          were  capitalized  in the three  months ended  September  30, 2001 and
          2000,  respectively,  and approximately $3,464,000 and $4,898,000 were
          capitalized  in the nine  months  ended  September  30, 2001 and 2000,
          respectively.

          c. REVENUE RECOGNITION

          We recognize  revenue 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.  At September 30, 2001, we have  3,970,707  potentially
          dilutive  stock  options  at a range of $22.81 to $2.86 per share that
          are not included in the calculation as they are antidilutive.


                                       6
<PAGE>



      2.  PROPERTY, PLANT AND EQUIPMENT

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

          ($ In thousands)                               September 30, 2001  December 31, 2000
                                                         ------------------  -----------------
<S>                                                        <C>                  <C>
          Property, plant and equipment                    $ 1,029,724          $ 978,327
          Accumulated depreciation and amortization           (185,475)          (131,611)
                                                         -----------------   -----------------
          Property, plant and equipment, net               $   844,249          $ 846,716
                                                         =================   =================
</TABLE>

          Depreciation  expense was  $19,090,000  and  $16,115,000 for the three
          months  ended   September  30,  2001  and  2000,   respectively,   and
          $56,153,000  and  $43,263,000  for the nine months ended September 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 27,571,332 shares of
          our  Class A Common  Stock,  in  total  representing  an 85%  economic
          interest and a 96% voting 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
          December 31, 2002. The remaining available balance may be drawn to pay
          interest   expense  due  under  the  Citizens  Credit  Facility  until
          maturity. As of September 30, 2001, there was $150 million outstanding
          under the Citizens Credit Facility, of which $8.6 million was drawn to
          pay  interest  expense  and  $141.4  million  was  drawn  for  general
          corporate  purposes.   Under  this  facility,   $300  million  remains
          available  to be drawn,  of which  $181.4  million is available to pay
          interest expense and $118.6 million is available for general corporate
          purposes.


                                       7
<PAGE>

          This table  summarizes the activity in the current  liability  account
          due to Citizens for the nine months ended  September 30 and year ended
          December 31, 2000.
<TABLE>
<CAPTION>

                                                                 Nine Months
                                                                    Ended           Year Ended
                                                                 September 30,      December 31,
                ($ In thousands)                                     2001               2000
                                                                ----------------   ----------------
<S>                                                                     <C>               <C>
                Balance beginning of period                           $   7,684          $  14,650
                Guarantee fees                                           22,121             27,790
                Interest expense on Citizens Credit Facility              9,812                663
                Administrative services:
                Services provided by Citizens                             5,384              7,413
                ELI expenses paid by Citizens                             5,568              6,759
                Payments to Citizens                                    (42,630)           (49,591)
                                                                ----------------   ----------------
                Balance end of period                                 $   7,939          $   7,684
                                                                ================   ================
</TABLE>

      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
          $22,000 and $459,000 for the three months ended September 30, 2001 and
          2000,  respectively,  and  $449,000  and  $940,000 for the nine months
          ended  September  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.

                                       8
<PAGE>


          PRODUCT 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
          nine months ended September 30 were:
<TABLE>
<CAPTION>

                                   For the three months ended Sept. 30,   For the nine months ended Sept. 30,
                                   ------------------------------------   -----------------------------------
<S>                                  <C>                 <C>                <C>                <C>
        ($ In thousands)                 2001                2000               2001               2000
                                   ----------------   -----------------   ---------------   -----------------
        Network services                   $ 26,077       $     21,627         $   77,966         $   54,804
        Local telephone services             14,450             25,187             58,114             75,412
        Long distance services                3,131              3,728              9,314             12,590
        Data services                         9,672             13,068             30,927             38,202
                                   ----------------   ----------------   ----------------   -----------------
         Total                             $ 53,330       $     63,610         $  176,321          $ 181,008
                                   ================   ================   ================   =================
</TABLE>

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

          MAJOR CUSTOMERS

          Qwest Communications (Qwest) accounted for 6.4% and 16.4% of our total
          revenue  for the  three  months  ended  September  30,  2001 and 2000,
          respectively,  and 10.6% and 19.3% of our total  revenue  for the nine
          months ended September 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 nine  months  ended  September  30, 2001 or
          2000.

          Included in revenue for the three and nine months ended  September 30,
          2001 is approximately $0.2 million and $4.0 million,  respectively, 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 $0.4 million of revenue monthly.


                                       9


<PAGE>


      6.  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  would have provided us with fiber
          from Salt Lake City to  Denver,  continuing  on to  Dallas.  Under the
          agreement,  we were  to pay  the  other  carrier  approximately  $96.9
          million over 20 years. Accordingly,  we reported a capital lease asset
          and related  obligation of approximately  $34.0 million in our balance
          sheet on June 30, 2001,  of which $4.6 million is presented in current
          portion of long-term debt.  Multiple disputes  regarding the agreement
          have  arisen.  In  September  2001,  both  ELI and the  other  carrier
          notified  each other of potential  breaches of the  agreement.  If the
          breaches are valid and not cured, the agreement could terminate by its
          terms.

          In September  2001,  we entered into a 20-year  fiber lease  agreement
          with Sierra Pacific Communications, in which we will lease from them a
          specified  number of optical fibers.  The leased fiber will consist of
          five  continuous  segments  located  throughout the city of Las Vegas,
          Nevada. Estimated completion dates for all segments are scheduled from
          November 2001 to March 2002.  We will pay a specified  amount for each
          completed  segment,  totaling  $1.5  million  when  all  segments  are
          completed.

          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.

                                       10
<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  the
          following possibilities:

          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;

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

          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.


                                       11
<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
          December 31, 2002. The remaining available balance may be drawn to pay
          interest   expense  due  under  the  Citizens  Credit  Facility  until
          maturity.

          We drew  $112  million  from  the  Citizens  Credit  Facility  to fund
          operating  and  capital  expenditures  during  the nine  months  ended
          September 30, 2001.  As of September 30, 2001,  there was $150 million
          outstanding under the Citizens Credit Facility,  of which $8.6 million
          was drawn to pay  interest  expense  and $141.4  million was drawn for
          general corporate purposes.  Under this facility, $300 million remains
          available  to be drawn,  of which  $181.4  million is available to pay
          interest expense and $118.6 million is available for general corporate
          purposes.  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.

          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 2002.  Citizens has committed to continue to
          finance our cash requirements,  at market terms and conditions,  until
          December 31, 2002. Absent the Citizens  commitment,  we do not believe
          there is  currently  a market to  further  finance  or  refinance  our
          existing indebtedness.

                                       12
<PAGE>

          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  $8.6 million and
          $43.9 million for the three and nine months ended  September 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.

          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 $2.0 million from
          October 1, 2001 through April 30, 2002 and,  assuming  exercise of the
          purchase  option,  a final  payment of  approximately  $110 million in
          April 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 purchase,  sell or
          re-lease the assets under the lease.

     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.  The adoption of SFAS
          No.  141 is not  anticipated  to  have  any  impact  on our  financial
          position or results of operations.

          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. For
          the nine months ended  September 30, 2001, we recognized  $2.1 million
          in goodwill  amortization.  We will be required to test for impairment
          of goodwill annually starting January 1, 2002 and annually thereafter.
          The amount of any future  impairment,  if any,  cannot be estimated at
          this time.

                                       13
<PAGE>

          In August 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset
          Retirement   Obligations."  This  statement  addresses  the  financial
          accounting  and  reporting  for   obligations   associated   with  the
          retirement  of tangible  long-lived  assets and the  associated  asset
          retirement  costs.  SFAS No.  143  requires  that the fair  value of a
          liability  for an asset  retirement  obligation  be  recognized in the
          period in which it is incurred if a reasonable  estimate of fair value
          can be made. The associated  asset retirement costs are capitalized as
          part of the carrying amount of the long-lived  asset and reported as a
          liability.  This  statement  is effective  for fiscal years  beginning
          after June 15, 2002.  The adoption of SFAS No. 143 is not  anticipated
          to have a  material  impact on our  financial  position  or results of
          operations.

          In October  2001,  the FASB issued SFAS No. 144,  "Accounting  for the
          Impairment   or  Disposal  of  Long-lived   Assets."  This   statement
          establishes  a  single  accounting  model,   based  on  the  framework
          established in SFAS No. 121, for  long-lived  assets to be disposed of
          by sale,  whether  previously  held and  used or newly  acquired,  and
          broadens the  presentation of discontinued  operations to include more
          disposal  transactions.  This  statement is effective for fiscal years
          beginning  after  December 15, 2001. We are currently  evaluating  the
          impact of the adoption of SFAS No. 144.

     OTHER MATTERS

     RECIPROCAL COMPENSATION

          We  have  various  interconnection   agreements  with  Qwest,  Verizon
          Communications  (Verizon),  Pacific Bell Telephone  Company (Pac Bell)
          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 $2.7 million and $9.2 million for
          the three months ended September 30, 2001 and 2000, respectively,  and
          $18.4  million and $29.2  million for the nine months ended  September
          30,  2001  and  2000,  respectively.  Net  trade  accounts  receivable
          relating to  reciprocal  compensation  totaled  $2.1  million and $7.7
          million at September  30, 2001 and  December  31, 2000,  respectively.
          These  agreements  are  scheduled to expire by December 31, 2001.  The
          Verizon  interconnection  agreements  expired in May and June 2001 for
          Washington and Oregon, respectively. 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.

          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 of inbound
          to outbound traffic. The rate for above ratio traffic is capped at .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.  The  effect  of  implementing  the  FCC
          transitional  rates  resulted in a reduction of the composite  rate of
          .088 cents per minute,  or 43%, from .203 cents per minute for the six
          months  ended  June 30,  2001 to .115  cents per  minute for the third
          quarter 2001.

          Currently pending before the 9th Circuit Court of Appeals is Verizon's
          appeal of the US District Court  decision  upholding the Oregon Public
          Utility  Commission  decision  requiring  Verizon  to  pay  reciprocal
          compensation  for  ISP  bound  traffic  terminating  to ELI  and  that
          reciprocal  compensation  payments to ELI should be made at the tandem
          rate as  opposed  to the end  office  rate.  Verizon  has  paid  ELI's
          invoices per the terms of the approved interconnection agreement since
          the agreement's effective date in June 1999.


                                       14
<PAGE>

     b.   RESULTS OF OPERATIONS

     REVENUE

          Revenue  for the  three  and nine  months  ended  September  30,  2001
          decreased   $10.3   million,   or  16%,  and  $4.7  million,   or  3%,
          respectively,  as compared with the prior year periods. The decline in
          revenue is  primarily  due to a net decline in the number of customers
          and a decrease in reciprocal compensation. Average number of customers
          declined 21%,  from 2,852 to 2,256 and 12%,  from 2,643 to 2,323,  for
          the three and nine months ended September 30, 2001,  respectively,  as
          compared with the prior year periods.

<TABLE>
<CAPTION>
                                   For the three months ended Sept. 30,         For the nine months ended Sept. 30,
                                  ----------------------------------------    ----------------------------------------
        ($ In thousands)              2001           2000         % Change        2001           2000       % Change
                                  -------------  -------------  ----------    -------------  -------------  ----------
<S>                                    <C>           <C>             <C>       <C>              <C>             <C>
        Network services               $ 26,077      $ 21,627        21%        $  77,966      $  54,804        42%
        Local telephone services         14,450        25,187       (43%)          58,114         75,412       (23%)
        Long distance services            3,131         3,728       (16%)           9,314         12,590       (26%)
        Data services                     9,672        13,068       (26%)          30,927         38,202       (19%)
                                  -------------  -------------                -------------  -------------
          Total                        $ 53,330      $ 63,610       (16%)       $ 176,321      $ 181,008        (3%)
                                  =============  =============                =============  =============
</TABLE>

     Major Customers

          Included in revenue for the three and nine months ended  September 30,
          2001 is approximately $0.2 million and $4.0 million,  respectively, 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 $0.4 million in revenue monthly.

     Network Services

          Network  services  include  Private  Line  Interstate  (Long Haul) and
          Private Line Intrastate (MAN).  Network services revenue for the three
          and nine months ended  September 30, 2001 increased  $4.4 million,  or
          21%, and $23.2  million,  or 42%,  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.

               Revenue for the three and nine months  ended  September  30, 2001
               from our Long Haul services  decreased $0.1 million,  or .4%, and
               increased $5.8 million,  or 21%,  respectively,  as compared with
               the prior year periods.

               Revenue for the three and nine months  ended  September  30, 2001
               from our MAN services  increased $4.5 million,  or 43%, and $17.4
               million,  or 63%,  respectively,  as compared with the prior year
               periods.


                                       15
<PAGE>

     Local Telephone Services

          Local telephone  services  revenue for the three and nine months ended
          September 30, 2001 decreased $10.7 million, or 43%, and $17.3 million,
          or 23%,  respectively,  as compared with the prior year periods. Local
          telephone  services  include  ISDN  PRI,  dial  tone,  Carrier  Access
          Billings and reciprocal compensation.
<TABLE>
<CAPTION>

                                 For the three months ended Sept. 30,         For the nine months ended Sept. 30,
                                 ----------------------------------------    ----------------------------------------
        ($ In thousands)            2001           2000         % Change        2001           2000        % Change
                                -------------  -------------  -----------    ------------  -------------  -----------
<S>                                  <C>            <C>           <C>         <C>             <C>            <C>
        ISDN PRI                    $  6,788        $  9,296      (27%)       $  21,572       $ 25,527       (15%)
        Dial tone                      3,614           5,509      (34%)          12,845         14,258       (10%)
        Carrier access billings        1,351           1,180       14%            5,275          6,399       (18%)
        Reciprocal compensation        2,697           9,202      (71%)          18,422         29,228       (37%)
                                 -------------  -------------                -------------  -------------
          Total                     $ 14,450        $ 25,187      (43%)       $  58,114       $ 75,412       (23%)
                                 =============  =============                =============  =============
</TABLE>

               ISDN PRI revenue for the three and nine  months  ended  September
               30, 2001  decreased  $2.5 million,  or 27%, and $3.9 million,  or
               15%,  respectively,  as  compared  with the  prior  year  periods
               primarily  due to a decrease in ISDN  revenue to three  customers
               resulting from less demand for ISDN PRI trunks servicing internet
               routers.

               Dial  tone  revenue  decreased  $1.9  million,  or 34%,  and $1.4
               million,  or 10%,  respectively,  as compared with the prior year
               periods,  primarily  due to the  bankruptcy  of a  customer,  and
               decreased installation fees resulting from fewer new customers.

               Reciprocal  compensation  revenue  for the three and nine  months
               ended  September 30, 2001  decreased  $6.5  million,  or 71%, and
               $10.8 million, or 37%,  respectively,  as compared with the prior
               year  periods.  The  decrease  is due to a  decrease  in  average
               monthly  minutes  processed  of 211.0  million,  or 18%, and 93.3
               million, or 8%, for the three and nine months ended September 30,
               2001,  respectively,  as compared with the prior year periods and
               lower weighted  average rates per minute.  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 nine months  ended
          September 30, 2001 decreased  $0.6 million,  or 16%, and $3.3 million,
          or 26%,  respectively,  as compared with the prior year  periods.  The
          decrease is due to a decrease in  wholesale  average  monthly  minutes
          processed  of 3.3  million,  or 20%,  and 4.5 million or 25%,  for the
          three and nine months ended  September  30, 2001, as compared to prior
          year periods. The decrease is also attributable to the discontinuation
          of the Voice Solutions portion of our business.

     Data Services

          Data services include Internet,  RSVP, Frame Relay and other services.
          Data  services  revenue for the three and nine months ended  September
          30, 2001  decreased  $3.4 million,  or 26%, and $7.3 million,  or 19%,
          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.


                                       16

<PAGE>


     OPERATING EXPENSES

          Operating  expenses for the three and nine months ended  September 30,
          2001   increased   $0.2  million,   0%,  and  $1.6  million,   or  1%,
          respectively, as compared with the prior year period.
<TABLE>
<CAPTION>

                                            For the three months ended Sept. 30,         For the nine months ended Sept. 30,
                                            ----------------------------------------    ----------------------------------------
        ($ In thousands)                        2001           2000        % Change         2001           2000       % Change
                                            -------------  -------------  ----------    -------------  -------------  ----------
<S>                                           <C>            <C>              <C>         <C>            <C>             <C>
        Network access                        $ 17,232       $ 17,821         (3%)        $ 51,014       $ 56,811        (10%)
        Operations                              14,442         13,473          7%           40,820         38,494          6%
        Selling, general and administrative     22,361         27,430        (18%)          76,112         88,875        (14%)
        Severance expense                        1,418            110      1,189%            3,141            152      1,966%
        Depreciation and amortization           19,919         16,306         22%           58,647         43,782         34%
                                            -------------  -------------                -------------  -------------
          Total                               $ 75,372       $ 75,140          0%         $229,734       $228,114          1%
                                            =============  =============                =============  =============
</TABLE>

     Network Access

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

          Network access  expenses for the three and nine months ended September
          30, 2001  decreased  $0.6 million,  or 3%, and $5.8  million,  or 10%,
          respectively,  as  compared  with the  prior  year  periods.  The $5.8
          million  decrease  for the nine  months  ended  September  30, 2001 is
          attributable to the completion of our coastal long haul network, which
          has allowed us to focus on  providing  on-net  services  resulting  in
          reduced variable 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.

          Operations  expense for the three and nine months ended  September 30,
          2001  increased  $1.0  million,  or  7%,  and  $2.3  million,  or  6%,
          respectively,  as compared with the prior year periods,  primarily due
          to increases in maintenance costs and related  expenses,  as well as a
          reduction in capitalized  overheads.  The increase is partially offset
          by lower personnel costs due to staffing reductions.

     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 nine
          months ended  September 30, 2001 decreased  $5.1 million,  or 18%, and
          $12.8 million, or 14%,  respectively,  as compared with the prior year
          periods.  The decrease is primarily  due to a reduction in  personnel,
          partially offset by an increase in bad debt expense.

     Severance Expense

          Severance costs for the three and nine months ended September 30, 2001
          increased  $1.3  million,  or  1,189%,  and $3.0  million,  or 1,966%,
          respectively, as compared with the prior year periods. These headcount
          reductions,  which were made as part of our on-going  effort to reduce
          costs  throughout  the  business,  resulted  in  a  reduction  of  233
          employees  throughout  2001,  from 1,161 employees at the beginning of
          the year to 928 at September 30, 2001.

                                       17
<PAGE>

     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 nine months
          ended  September 30, 2001  increased  $3.6 million,  or 22%, and $14.9
          million,  or 34%,  respectively,  as  compared  with  the  prior  year
          periods.  This was primarily  due to higher plant in service  balances
          for  newly  completed   telecommunications   network   facilities  and
          electronics and the amortization of goodwill.

     INTEREST EXPENSE, NET
<TABLE>
<CAPTION>

                                 For the three months ended Sept. 30,         For the nine months ended Sept. 30,
                                ----------------------------------------    ----------------------------------------
<S>                             <C>            <C>                          <C>            <C>
        ($ In thousands)            2001           2000         % Change        2001           2000       % Change
                                -------------  -------------  ----------    -------------  -------------  ----------
        Gross interest expense     $ 26,660       $ 22,373         19%         $ 75,252       $ 59,501         26%
        Capitalized interest         (1,236)        (1,628)       (24%)          (3,464)        (4,898)       (29%)
                                -------------  -------------                -------------  -------------
        Interest expense, net      $ 25,424       $ 20,745         23%         $ 71,788       $ 54,603         31%
                                =============  =============                =============  =============

</TABLE>

          Gross interest  expense for the three and nine months ended  September
          30, 2001  increased $4.3 million,  or 19%, and $15.8 million,  or 26%,
          respectively, as compared with the prior year periods primarily due to
          higher levels of outstanding  long-term debt and capital leases. As of
          September  30, 2001,  we had debt and capital  leases  outstanding  of
          $1,012.9  million  at a  composite  rate of 7.3%  compared  to  $862.0
          million at a composite  rate of 7.2% at September 30, 2000,  exclusive
          of guarantee fees. The higher  balances led to increased  interest and
          guarantee fees.

          Capitalized interest for the three and nine months ended September 30,
          2001  decreased  $0.4  million,  or 24%,  and  $1.4  million,  or 29%,
          respectively,  as compared with the prior year periods.  The decreases
          are a result  of our  efforts  to  reduce  capital  expenditures.  Our
          average  Construction Work In Process was reduced by $30.4 million, or
          48%, and $53.6  million,  or 54%,  respectively,  as compared with the
          prior year periods, partially offset by higher interest rates.

     INCOME TAX EXPENSE
<TABLE>
<CAPTION>

                                 For the three months ended Sept. 30,         For the nine months ended Sept. 30,
                                ----------------------------------------    ----------------------------------------
<S>                               <C>            <C>                          <C>            <C>
        ($ In thousands)            2001           2000        % Change         2001           2000       % Change
                                -------------  -------------  ----------    -------------  -------------  ----------
        Income tax expense          $ 22          $ 459          (95%)         $ 449          $ 940         (52%)
</TABLE>

          Income tax expense for the three and nine months ended  September  30,
          2001  decreased  $0.4  million,  or 95%,  and  $0.5  million,  or 52%,
          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.

                                       18
<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 and  operating
          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 agreement.

          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 December 31, 2002 or the  completion
          of a public or  private  financing  which  would  satisfy  such  needs
          through that date.

          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 September 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  September  30,  2001,  the fair  value of our  long-term  debt and
          capital lease  obligations was estimated to be $999.4 million compared
          to $1,005.7  million  carrying  value,  based on our overall  weighted
          average rate of 7.3% 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
          decreased  by  approximately  11 basis  points  during  the nine month
          period. A hypothetical increase of 73 basis points (10% of our overall
          weighted average  borrowing rate) would result in an approximate $15.5
          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 September
          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.

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<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  1.,  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

              None

     ITEM 5.  OTHER INFORMATION

          On April 2, 2001,  we received a notice from the Nasdaq Stock  Market,
          Inc.  that our stock  would be  subject to  delisting  from the Nasdaq
          National  Market  after July 2, 2001  because our Class A Common Stock
          failed to maintain a minimum bid price.

          On June 29,  2001,  we  filed an  application  for our  listing  to be
          transferred to the Nasdaq SmallCap Market.  As part of the application
          process,  Citizens Communications converted approximately 25.3 million
          shares of its Class B Common  Stock into the same  number of shares of
          its Class A Common Stock on August 27, 2001.

          On August 31, 2001, we received a notice from Nasdaq  indicating  that
          we  had  failed  to  comply  with  the  shareholders'  equity,  market
          capitalization,  market value/total assets and revenue and minimum bid
          price  requirements  for  continued  listing,  and that our stock was,
          therefore,  subject to delisting from the Nasdaq National  Market.  We
          were granted a hearing before a Nasdaq Listing Qualifications Panel to
          review the delisting.

          On September 27, 2001, Nasdaq  implemented a moratorium on the minimum
          bid price and market value of public float  requirements for continued
          listing on the Nasdaq Stock Market until  January 2, 2002. We received
          a notice  from  Nasdaq on that date  stating  that as a result of that
          action the hearing scheduled  regarding the delisting of our stock had
          been canceled and our hearing file closed for now.

          As of January 2, 2002,  compliance with the minimum  requirements  for
          listing on the Nasdaq  National and SmallCap  Markets will start anew.
          If we do not meet these  requirements for 30 consecutive days, and are
          unable to regain  compliance  within 90 days of  January  2, our stock
          could be subject to delisting at that time. It is uncertain whether we
          will be  able to meet  the  applicable  listing  requirements.  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.  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.

                                       20
<PAGE>


     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 July 2, 2001,  we filed Form 8-K under Item 5,  "Other  Events" and
          Item  7,   "Financial   Statements  and  Exhibits,"  a  press  release
          announcing we filed an application with the Nasdaq Stock Market,  Inc.
          to trade our Class A Common Stock on the SmallCap Market.

          On August 10, 2001, we filed Form 8-K under Item 5, "Other Events" and
          Item  7,   "Financial   Statements  and  Exhibits,"  a  press  release
          announcing earnings for the three and six months ended June 30, 2001.

          On August 28, 2001, we filed Form 8-K under Item 5, "Other Events" and
          Item  7,   "Financial   Statements  and  Exhibits,"  a  press  release
          announcing Citizens Communications' conversion of 25,283,688 shares of
          our Class B Common  Stock into  Class A Common  Stock on a one for one
          basis.

          On September 10, 2001, we filed Form 8-K under Item 5, "Other  Events"
          and Item 7,  "Financial  Statements  and  Exhibits",  a press  release
          announcing that we had received a Nasdaq staff  determination  that we
          had  failed  to  comply   with  the   shareholders'   equity,   market
          capitalization,  market value/total assets and revenue and minimum bid
          price  requirements for continued listing and that our securities were
          subject to delisting from the Nasdaq national market,  and that we had
          requested a hearing  before a Nasdaq Listing  Qualifications  Panel to
          review the staff determination.

                                       21
<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


     November 13, 2001






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