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 March 31, 2002



<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 March 31, 2002

                                       OR

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

For the transition period from     to

                         Commission file 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
                               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
April 30, 2002 were:

                         Common Stock Class A 35,414,784
                         Common Stock Class B 15,881,312


<PAGE>




<TABLE>
<CAPTION>

INDEX
                                                                                         Page No.
PART I.  FINANCIAL INFORMATION

  ITEM 1.  FINANCIAL STATEMENTS
<S>                                                                                       <C>
           Balance Sheets at March 31, 2002 (unaudited) and December 31, 2001                2

           Statements of Operations for the Three Months Ended
             March 31, 2002 and 2001 (unaudited)                                             3
           Condensed Statements of Cash Flows for the Three Months Ended
             March 31, 2002 and 2001 (unaudited)                                             4
           Statements of Shareholders' Deficiency for the Three Months Ended
             March 31, 2002 (unaudited) and the Year Ended December 31, 2001                 5

           Notes to Financial Statements                                                     6

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS                                                      12

  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                       19

PART II. OTHER INFORMATION                                                                  20

SIGNATURE                                                                                   21

</TABLE>


                                       1
<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

<TABLE>
<CAPTION>
                                                                                March 31,         December 31,
Assets                                                                             2002               2001
                                                                             ----------------    ---------------
Current assets:
<S>                                                                                <C>                <C>
     Cash                                                                          $   4,047          $   5,285
     Trade receivables, net                                                           16,150             13,152
     Other receivables                                                                 5,277              5,353
     Other current assets                                                              3,444              3,603
                                                                             ----------------    ---------------
        Total current assets                                                          28,918             27,393

Property, plant and equipment, net                                                   815,478            832,704
Goodwill, net                                                                              -             39,812
Other assets                                                                           2,034              2,439
                                                                             ----------------    ---------------

        Total assets                                                               $ 846,430          $ 902,348
                                                                             ================    ===============

Liabilities and Shareholders' Deficiency
Current liabilities:
     Current portion of Bank Credit Facility                                       $ 400,000          $ 400,000
     Accounts payable and accrued liabilities                                         19,993             24,153
     Current portion of capital lease obligations                                      7,453              7,404
     Due to Citizens Communications Company                                           12,981              9,586
     Accrued taxes, other than income taxes                                           19,147             15,129
     Interest payable                                                                 20,570             13,769
     Other current liabilities                                                         4,515              4,288
                                                                             ----------------    ---------------
        Total current liabilities                                                    484,659            474,329

Deferred revenue                                                                      15,055             15,427
Deferred income taxes payable                                                          4,264              4,212
Other long-term liabilities                                                              440                511
Capital lease obligations                                                            129,423            129,978
Long-term debt                                                                       325,000            325,000
Due to Citizens Communications Company                                               212,500            194,500
                                                                             ----------------    ---------------
        Total liabilities                                                          1,171,341          1,143,957
                                                                             ----------------    ---------------

Shareholders' deficiency:
     Common stock issued, $.01 par value
        Class A, authorized 110,000,000 shares, 35,414,784 and
           35,423,440 outstanding and 35,520,568 and 35,517,235 shares
            issued at March 31, 2002 and December 31, 2001, respectively                 354                354
        Class B, authorized 60,000,000 shares, 15,881,312 shares
            issued and outstanding at March 31, 2002 and
            December 31, 2001                                                            159                159
     Additional paid-in-capital                                                      373,591            373,510
     Accumulated deficiency                                                         (699,015)          (615,632)
                                                                             ----------------    ---------------
        Total shareholders' deficiency                                              (324,911)          (241,609)
                                                                             ----------------    ---------------

        Total liabilities and shareholders' deficiency                             $ 846,430          $ 902,348
                                                                             ================    ===============
</TABLE>



    The accompanying Notes are an integral part of these Financial Statements
                                        2

<PAGE>

STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
(Unaudited)

<TABLE>
<CAPTION>
                                                                                     For the three months ended March 31,
                                                                                           2002                2001
                                                                                      ----------------   ----------------

<S>                                                                                         <C>                <C>
Revenue                                                                                     $  48,150          $  62,562
                                                                                      ----------------   ----------------

Operating expenses:
     Network access                                                                            13,594             16,731
     Operations                                                                                11,846             12,142
     Selling, general and administrative                                                       20,195             29,161
     Severance expense                                                                             43              1,235
     Depreciation and amortization                                                             19,652             18,894
                                                                                      ----------------   ----------------
        Total operating expenses                                                               65,330             78,163
                                                                                      ----------------   ----------------

     Loss from operations                                                                     (17,180)           (15,601)

Interest expense, net                                                                          26,163             22,050
Loss (gain) on disposal of assets                                                                 187                (11)
Interest income and other                                                                         (11)              (109)
                                                                                      ----------------   ----------------

     Net loss before income taxes                                                             (43,519)           (37,531)

Income tax expense (See Note 4)                                                                    52                163
                                                                                      ----------------   ----------------

     Net loss before cumulative effect of change in accounting principle                      (43,571)           (37,694)

Cumulative effect of change in accounting principle                                           (39,812)                 -
                                                                                      ----------------   ----------------

     Net loss                                                                               $ (83,383)         $ (37,694)
                                                                                      ================   ================

Net loss per share before cumulative effect of change in accounting principle:
     Basic                                                                                  $   (0.85)         $   (0.74)
     Diluted                                                                                $   (0.85)         $   (0.74)

Net loss per common share:
     Basic                                                                                  $   (1.63)         $   (0.74)
     Diluted                                                                                $   (1.63)         $   (0.74)

Weighted average shares outstanding                                                            51,266             50,759

</TABLE>



    The accompanying Notes are an integral part of these Financial Statements
                                        3
<PAGE>


CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

(Unaudited)
<TABLE>
<CAPTION>
                                                          For the three months ended March 31,
                                                                  2002               2001
                                                             ---------------    ----------------

<S>                                                               <C>                 <C>
Net cash (used for) provided by operating activities              $ (14,570)          $   2,599
                                                             ---------------    ----------------
Cash flows used for investing activities:
     Capital expenditures                                            (4,247)            (20,430)
     Cash proceeds from sale of fixed assets                             85                  96
                                                             ---------------    ----------------
        Net cash used for investing activities                       (4,162)            (20,334)
                                                             ---------------    ----------------
Cash flows from financing activities:
     Long term funding from Citizens                                 18,000              20,000
     Payments of capital lease obligation                              (506)             (2,611)
     Other                                                                -                 (13)
                                                             ---------------    ----------------
        Net cash provided by financing activities                    17,494              17,376
                                                             ---------------    ----------------

Net decrease in cash                                                 (1,238)               (359)

Cash at January 1,                                                    5,285              10,318
                                                             ---------------    ----------------
Cash at March 31,                                                 $   4,047           $   9,959
                                                             ===============    ================




Supplemental cash flow information:
     Cash paid for interest, net of capitalized portion           $  19,668           $  16,156

</TABLE>





    The accompanying Notes are an integral part of these Financial Statements
                                        4
<PAGE>


STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(In thousands, except share data)

     (Unaudited)
<TABLE>
<CAPTION>

                                     Class A Common Stock, Class B Common Stock,
                                     --------------------- --------------------- Additional
                                         $.01 per share        $.01 per share     Paid-in-    Accumulated  Shareholders'
                                       Shares      Amount     Shares     Amount   Capital     Deficiency    Deficiency
                                     --------------------- --------------------- ----------- ------------  ------------
<S>              <C>                    <C>         <C>     <C>          <C>     <C>         <C>           <C>
Balance, January 1, 2001                9,658,437   $  96   41,165,000   $ 412   $ 372,930   $ (443,940)   $ (70,502)
    Issuance of common stock              505,628       5          -       -           536           -           541
    Conversion of common stock         25,283,688     253  (25,283,688)   (253)         -            -            -
    Issuance of restricted stock           50,000       1          -       -            (1)          -            -
    Forfeiture of restricted stock        (26,667)     -           -       -          (259)          -          (259)
    Common stock returned for taxes       (47,646)     (1)         -       -           (22)          -           (23)
    Amortization of restricted stock          -        -           -       -           281           -           281
    Stock units payable to non-
      employee director                       -        -           -       -            45           -            45
    Net loss                                  -        -           -       -            -      (171,692)    (171,692)
                                     --------------------- -------------------- ------------ ----------- ------------
Balance, December 31, 2001             35,423,440   $ 354   15,881,312   $ 159   $ 373,510   $ (615,632)   $(241,609)
    Common stock returned for taxes        (8,656)     -           -       -            (4)          -            (4)
    Amortization of restricted stock          -        -           -       -            85           -            85
    Net loss                                  -        -           -       -            -       (83,383)     (83,383)
                                     --------------------- -------------------- ------------ ----------- ------------
Balance, March 31, 2002                35,414,784   $ 354   15,881,312   $ 159   $ 373,591   $ (699,015)   $(324,911)
                                     ===================== ==================== ============ =========== ============


</TABLE>











    The accompanying Notes are an integral part of these Financial Statements
                                        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  accounting  principles  generally  accepted  in the United  States of
     America (GAAP) for interim financial  information and with the instructions
     to Form 10-Q and  Article  10 of  Regulation  S-X.  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, 2001.

     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  Communications  Company  ("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,  which  would  provide the funds  necessary  to support our cash
     requirements or March 31, 2003. Absent the Citizens commitments,  we do not
     believe  there is currently a market to further  finance or  refinance  our
     indebtedness.  Consequently,  without the financial support of Citizens, we
     could not fund our future capital requirements or service our debt and most
     likely would not remain a going concern.

     b.   CAPITALIZED INTEREST

     Property,  plant and equipment  includes interest costs capitalized  during
     the   installation  and  expansion  of  our   telecommunications   network.
     Approximately  $306,000 and $958,000 of interest costs were  capitalized in
     the three months ended March 31, 2002 and 2001, respectively.

     c.   REVENUE RECOGNITION

     We recognize  revenues from  communications  services when the services are
     provided.  Prepaid  network  services  revenue under  long-term  agreements
     including  Indefeasible  Right to Use (IRU) and Fiber Swap  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.

     We recognize reciprocal compensation revenues as earned, based on the terms
     of the  interconnection  agreements  and  make  subsequent  adjustments  to
     revenue based upon management judgments as to realizability.

                                       6
<PAGE>

     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 March 31,
     2002, we have  3,725,204  potentially  dilutive stock options at a range of
     $0.32 to $22.81 per share that are not included in the  calculation as they
     are  antidilutive.  At March 31, 2002 and 2001,  restricted stock awards of
     33,333 shares and 85,000 shares, respectively,  are excluded from our basic
     weighted  average  shares  outstanding  until  the  shares  are  no  longer
     contingent  upon  the  satisfaction  of  all  specified  conditions.  These
     restricted  stock  awards  are also  excluded  from our  dilutive  weighted
     average shares outstanding because their effect would be antidilutive.

2.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are as follows:

     ($ In thousands)                         March 31, 2002   December 31, 2001
                                              --------------   -----------------
     Property, plant and equipment             $ 1,038,946        $ 1,037,349
     Accumulated depreciation                     (223,468)          (204,645)
                                              --------------   ----------------
       Property, plant and equipment, net      $   815,478        $   832,704
                                              ==============   ================

     Depreciation  expense was  $19,521,000 and $18,056,000 for the three months
     ended March 31, 2002 and 2001, 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.  Also, we believe 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 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).  As of March 31, 2002,  there was $212.5
     million outstanding under the Citizens Credit Facility.  On April 30, 2002,
     we borrowed an  additional  $110 million from  Citizens  under the Citizens
     Credit  Facility to fund the  purchase of leased  facilities.  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,  which  would  provide the funds  necessary  to support our cash
     requirements or March 31, 2003. (See Note 8)

                                       7
<PAGE>

     This table summarizes the activity in the liability account Due to Citizens
     Communications Company for the three months ended March 31,

     ($ In thousands)                               2002               2001
                                              --------------    ----------------
     Balance beginning of period                $  9,586            $  7,684
     Guarantee fees                                7,292               7,292
     Interest expense on Credit Facility           7,624               1,695
     Administrative services:
       Services provided by Citizens               1,592               2,223
       ELI expenses paid by Citizens               5,364               1,692
     Payments to Citizens                        (18,477)            (11,156)
                                              --------------    ----------------
     Balance end of period                      $ 12,981            $  9,430
                                              ==============    ================

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 before  cumulative
     effect of a change in accounting  principle of $52,000 and $163,000 for the
     three  months  ended March 31, 2002 and 2001,  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
     otherwise remain 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 the following categories:

     *    Network Services - includes  point-to-point  dedicated service between
          two or more locations for our customers'  exclusive use. We offer this
          product in both local and long-haul applications.

                                       8
<PAGE>

     *    Local  Telephone  Services  -  includes  local  dial tone and  related
          services  that provide  incoming  and  outgoing  calls over the public
          switched  network.  This  category  includes  reciprocal  compensation
          revenues.

     *    Long Distance  Services - includes  retail and wholesale long distance
          phone services.

     *    Data  Services - includes 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  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.

     Revenue is generated from the following services for the three months ended
     March 31, 2002 and March 31, 2001.

          ($ In thousands)                     2002               2001
                                         --------------    ----------------
          Network services                  $ 23,787           $  25,768
          Local telephone services            12,933              21,797
          Long distance services               3,082               3,084
          Data services                        8,348              11,913
                                         --------------    ----------------
             Total                          $ 48,150           $  62,562
                                         ==============    ================

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

     MAJOR CUSTOMERS

     Qwest Communications  (Qwest) accounted for 6% and 12% of our total revenue
     for the three months ended March 31, 2002 and 2001,  respectively.  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
     months ended March 31, 2002 or 2001.

     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 customers are under Chapter 11 protection. These
     customers contributed approximately $0.3 million of revenue monthly.

6.   EXIT COSTS

     In the first half of 2002,  we intend to  redeploy  our  internet  routers,
     frame relay switches and ATM switches from the Atlanta, Cleveland,  Denver,
     Philadelphia  and New York markets to other  locations  in our network.  We
     intend to cease leasing the collocation facilities and off-net circuits for
     the  backbone  and local loops  supporting  the  service  delivery in these
     markets.  It was  anticipated  that  this  would  lead to $4.2  million  of
     termination  fees which were  accrued for but not paid and  included in our
     Network  Access  expense for the year ended December 31, 2001. In the first
     quarter 2002, we adjusted our original  accrual down by $2.1 million due to
     the favorable  settlement  of  termination  charges for an off-net  circuit
     agreement  paid in April 2002.  The  remaining  accrual of $2.1  million is
     included  in current  liabilities  at March 31,  2002 and the $2.1  million
     reduction is included as a reduction to network access expense.

<TABLE>
<CAPTION>
                                                    Beginning         Amount
                                                     Accrual           Paid                           Remaining
     ($ In thousands)                                 Amount          to Date        Adjustments       Accrual
                                                  ---------------  --------------   --------------  -------------
     2001 Exit Costs
<S>                                                   <C>               <C>            <C>             <C>
     For the year ended December 31, 2001             $ 4,179            -                 -           $ 4,179
     For the three months ended March 31, 2002        $ 4,179            -             (2,100)         $ 2,079

</TABLE>


                                       9
<PAGE>

7.   CHANGE IN ACCOUNTING PRINCIPLE AND NEW ACCOUNTING PRONOUNCEMENTS

     In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial  Accounting  Standards (SFAS) No. 142, "Goodwill and
     Other  Intangible  Assets."  SFAS 142 is effective  January 1, 2002. We are
     required to test for  impairment  of goodwill and assets  deemed to have an
     indefinite life as of January 1, 2002 and annually thereafter.  As a result
     of the adoption of SFAS 142, we recognized a transitional  impairment  loss
     of our  goodwill  of $39.8  million as a  cumulative  effect of a change in
     accounting principle in our statement of operations in the first quarter of
     2002. As of the date of adoption, we had unamortized goodwill in the amount
     of $39.8 million.  We utilized a discounted  cash flow  valuation  model in
     reaching our conclusions regarding goodwill impairment.  Subsequent to this
     write-off, we have no intangibles with indefinite lives.

     The amortization of goodwill ceased upon adoption of SFAS 142 on January 1,
     2002, and applies to all goodwill and certain other intangible  assets with
     an indefinite useful life recognized in the statement of financial position
     at that date, regardless of when the assets were initially recognized.

     The following table presents a reconciliation between reported net loss and
     adjusted net loss:

<TABLE>
<CAPTION>
     (In thousands, except per-share amounts)         For the three months ended March 31,
                                                  -------------------------------------------
                                                         2002                    2001
                                                  --------------------    -------------------
<S>                                                   <C>                    <C>
     Reported net loss                                $ (83,383)             $ (37,694)
     Add back: Goodwill amortization                        -                      697
                                                  --------------------    -------------------
     Adjusted net loss                                $ (83,383)             $ (36,997)
                                                  ====================    ===================

     Basic and Diluted earnings per share:
     Reported net loss                                $   (1.63)             $   (0.74)
     Goodwill amortization, net of tax                      -                     0.01
                                                  --------------------    -------------------
     Adjusted net loss                                $   (1.63)             $   (0.73)
                                                  ====================    ===================

</TABLE>

     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  was  adopted  on  January 1,  2002.  We test for  impairment  of
     long-lived assets on a quarterly basis. The test requires that we develop a
     business plan that  considers  operating  results,  capital  investment and
     financing  requirements necessary to achieve these results. Our performance
     objectives  assume  that the  Company  will not be  adversely  impacted  by
     unknown  external  forces  such as changes in the U.S.  economy,  rapid and
     unanticipated technological changes,  regulatory, tax and other changes. We
     believe that the assumptions  used in developing our overall  business plan
     are  reasonable  but we caution that they are  subjective.  The adoption of
     SFAS 144 did not have a material impact on our financial statements.

8.   COMMITMENTS AND CONTINGENCIES

     In 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  served  as agent  for the  construction  of these
     projects and upon  completion of each project  leased the  facilities for a
     three year term, with one year renewals  available  through April 30, 2002.
     At  March  31,  2002,  we were  leasing  assets  with an  original  cost of
     approximately  $108,541,000  under  this  agreement.  In January  2002,  we
     exercised  our option to purchase  the  facilities  at the end of the lease
     terms for the amount of the lessor's investment in the facilities. On April
     30, 2002 a final  payment of $110  million was made using  funding from the
     $450  million  Citizens  Credit  Facility.   Citizens  had  guaranteed  our
     obligations under this operating lease and we paid Citizens a guarantee fee
     of 3.25% per annum on the $110 million through April 30, 2002.

                                       10

<PAGE>

     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 - 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 were
     to  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,  a capital lease asset and related obligation of approximately
     $34.0  million is included in our balance sheet on March 31, 2002, of which
     $5.3 million is presented in current portion of capital lease  obligations.
     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.

     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.


                                       11
<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:

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

     *    if a restructuring occurs in the telecommunications industry generally
          and its nature and effect;

     *    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
          ILECs;

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

     *    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 ISPs;

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

     *    if a significant number or volume of our customers, 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;

     *    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;

     *    if we are not able to obtain  additional  financing  from  Citizens on
          favorable terms;

     *    if the market price for telecommunications industry stocks, generally,
          and our common stock specifically, remains depressed;

     *    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 2001 Annual  Report on Form
     10-K.

                                       12
<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.  Our product
     offerings include:

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

     *    Local telephone services - consists of 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.

     *    Long distance  services - includes  retail and wholesale long distance
          phone services.

     *    Data  services - includes 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

     The Citizens Credit  Facility  provides up to $450 million with an interest
     rate of 15% and a final maturity of October 30, 2005.

     We drew $18 million from the Citizens Credit Facility to fund operating and
     capital expenditures for the three months ended March 31, 2002. As of March
     31, 2002, we have drawn $212.5 million from the Citizens  Credit  Facility.
     On April 30, 2002,  we borrowed an  additional  $110 million from  Citizens
     under the Citizens Credit  Facility for the purchase of leased  facilities.
     Additionally,  we have  outstanding  $325  million  five-year  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  2002.  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,  which would provide the funds
     necessary to support our cash  requirements  or March 31, 2003.  Absent the
     Citizens  commitment,  we do not  believe  there is  currently  a market to
     further finance or refinance our existing indebtedness.

     Our cash capital  expenditures were approximately $4.2 million in the first
     quarter  2002.  We  originally  budgeted  $71.6  million  of  cash  capital
     expenditures  for 2002,  which we adjusted to $15.0  million in April 2002.
     Our cash capital  expenditures,  combined with our  operating  expenses and
     declining  revenues,  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.

                                       13
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

     In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial  Accounting  Standards (SFAS) No. 142, "Goodwill and
     Other  Intangible  Assets."  SFAS 142 is effective  January 1, 2002. We are
     required to test for  impairment  of goodwill and assets  deemed to have an
     indefinite life as of January 1, 2002 and annually thereafter.  As a result
     of the adoption of SFAS 142, we recognized a transitional  impairment  loss
     of our  goodwill  of $39.8  million as a  cumulative  effect of a change in
     accounting principle in our statement of operations in the first quarter of
     2002. As of the date of adoption, we had unamortized goodwill in the amount
     of $39.8 million. Subsequent to this write-off, we have no intangibles with
     indefinite lives.

     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. We are currently evaluating
     the impact of the adoption of SFAS No. 143.

     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  was  adopted  on  January 1,  2002.  We test for  impairment  of
     long-lived assets on a quarterly basis. The test requires that we develop a
     business plan that  considers  operating  results,  capital  investment and
     financing  requirements necessary to achieve these results. Our performance
     objectives  assume  that the  Company  will not be  adversely  impacted  by
     unknown  external  forces  such as changes in the U.S.  economy,  rapid and
     unanticipated technological changes,  regulatory, tax and other changes. We
     believe that the assumptions  used in developing our overall  business plan
     are  reasonable  but we caution that they are  subjective.  The adoption of
     SFAS 144 did not have a material impact on our financial statements.

OTHER MATTERS

RECIPROCAL COMPENSATION

     We have various interconnection  agreements with Qwest (formerly U S WEST),
     Verizon (formerly GTE), SBC (PacBell) and Sprint, the dominant ILECs in the
     states in which we operate. These agreements govern reciprocal compensation
     relating to the transport  and  termination  of traffic  between the ILECs'
     networks and our network. 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  which  is   generally   higher.
     Implementation  of the FCC's  transitional  rates for ISP-bound  traffic is
     taking place via amendments to certain existing interconnection agreements.

                                       14
<PAGE>

     We recognize reciprocal  compensation revenue as earned, based on the terms
     of the interconnection  agreements.  We recognized reciprocal  compensation
     revenues of $2.8  million and $7.7 million for the three months ended March
     31, 2002 and 2001, respectively.  Net trade accounts receivable relating to
     reciprocal  compensation totaled $2.3 million and $2.2 million at March 31,
     2002 and  December  31,  2001,  respectively.  The Verizon  interconnection
     agreements  expired  in May  and  June  2001  for  Washington  and  Oregon,
     respectively.  We are currently  negotiating a new agreement  with Verizon.
     The existing terms of the interconnection agreements remain in place during
     the  negotiations.  We have  completed  negotiating  a new  interconnection
     agreement with PacBell,  effective  April 2002.  The new PacBell  agreement
     does not  change  current  reciprocal  compensation  rates.  As a result of
     recent  FCC   mandates   we  do  not   anticipate   that   renewal  of  the
     interconnection  agreements  will be at terms as  favorable to us as in the
     past.

     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.  The tandem rate is higher than the end office rate
     because the traffic is serviced by a tandem  switch.  A tandem switch is an
     intermediate  switch; an end office switch is one which carries the traffic
     to the end  user.  Verizon  has paid  ELI's  invoices  per the terms of the
     approved interconnection  agreement since the agreement's effective date in
     June 1999.

b.   RESULTS OF OPERATIONS

REVENUE

     Revenue  decreased  $14.4 million,  or 23%, for the first quarter 2002 over
     the first  quarter  2001.  The  decline in revenue  is  primarily  due to a
     decrease in reciprocal compensation, a downturn in economic conditions that
     affected our internet service providers and wholesale customers,  a decline
     in data services due to the  expiration of a material  contract in February
     2001 and lower demand for Network long haul services.

                                       For the three months ended March 31,
                                    --------------------------------------------
     ($ In thousands)                  2002            2001          % Change
                                    ------------   -------------   -------------
     Network services                 $ 23,787       $ 25,768            (8%)
     Local telephone services           12,933         21,797           (41%)
     Long distance services              3,082          3,084            (0%)
     Data services                       8,348         11,913           (30%)
                                    ------------   -------------
        Total                         $ 48,150       $ 62,562           (23%)
                                    ============   =============

Network Services

     Network  services  revenue  decreased  $2.0  million,  or 8%, for the first
     quarter 2002 over the first quarter 2001.  Network services include Private
     Line Interstate (Long Haul) and Private Line Intrastate (MAN).

     *    Revenue from our Long Haul services  decreased  $3.4 million,  or 26%,
          for the first quarter 2002 over the first  quarter 2001.  The decrease
          is primarily due to lower demand from wholesale  customers and current
          market price pressures.

     *    Revenue from our MAN services increased $1.4 million,  or 12%, for the
          first  quarter  2002 over the first  quarter  2001.  The  increase  is
          primarily  due  to  continued  growth  in our  network  and  sales  of
          additional circuits to new and existing customers.

                                       15
<PAGE>

Local Telephone Services

     Local telephone  services revenue  decreased $8.9 million,  or 41%, for the
     first  quarter 2002 compared to the first  quarter  2001.  Local  telephone
     services  include  ISDN  PRI,  dial  tone,   Carrier  Access  Billings  and
     reciprocal compensation.

                                        For the three months ended March 31,
                                     -------------------------------------------
          ($ In thousands)               2002            2001         % Change
                                     ------------   -------------   ------------
          ISDN PRI                     $ 5,300        $  8,030          (34%)
          Dial tone                      3,581           4,703          (24%)
          Carrier access billings        1,224           1,350           (9%)
          Reciprocal compensation        2,828           7,714          (63%)
                                     ------------   -------------
             Total                     $ 12,933       $ 21,797          (41%)
                                     ============   =============

     *    ISDN PRI revenue decreased $2.7 million, or 34%, for the first quarter
          2002 over the first quarter  2001.  Dial tone revenue  decreased  $1.1
          million,  or 24%, for the first  quarter  2002 over the first  quarter
          2001.  Decreases  in  revenue  for both  ISDN PRI and dial tone is the
          result of a decrease in the average  access line  equivalents  for the
          first quarter 2002 over the first quarter 2001.

     *    Reciprocal  compensation  revenue decreased $4.9 million,  or 63%, for
          the first  quarter  2002  compared  to the  first  quarter  2001.  The
          decrease is  primarily  due to a decrease in average  monthly  minutes
          processed of 400 million,  or 34%, for the first quarter 2002 compared
          to the first  quarter  2001,  and a 44% decrease in average  rates per
          minute due to the effect of implementing the FCC  transitional  rates.
          See above for further discussion of reciprocal compensation.

Long Distance Services

     Long  distance  services  revenue  remained flat for the first quarter 2002
     compared to the first quarter 2001. Long distance  services  include retail
     and wholesale long distance.

     *    Retail long distance revenue  increased $0.4 million,  or 18%, for the
          first quarter 2002 compared to the first quarter 2001. The increase is
          primarily due to an increase in average monthly  minutes  processed of
          3.3 million,  or 38%,  offset by a 21%  decrease in average  rates per
          minute for the three months ended March 31, 2002.

     *    Wholesale long distance  revenue  decreased $0.4 million,  or 31%, for
          the first  quarter  2002  compared  to the  first  quarter  2001.  The
          decrease is due to a decrease in average monthly minutes  processed of
          2.5 million, or 18%, and a decrease of 20% in average rates per minute
          for the three months ended March 31, 2002.

Data Services

     Data services revenue decreased $3.6 million, or 30%, for the first quarter
     2002 compared to the first quarter 2001.  Data services  include  Internet,
     RSVP, Frame Relay and other services.

     *    Other Data Services  revenue  decreased $3.1 million,  or 72%, for the
          first quarter 2002  compared to the first quarter 2001,  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.

     *    Revenue from our Frame Relay product  decreased $0.4 million,  or 21%,
          for the first quarter 2002 over the first quarter 2001.

                                       16
<PAGE>

     *    Revenue from our Internet services product decreased $0.3 million,  or
          8%, for the first quarter 2002 over the first quarter 2001.

     *    These  decreases  were  offset  by  increased  revenue  from  our RSVP
          products of $0.3 million,  or 24%, for the first quarter 2002 over the
          first  quarter 2001  primarily  due to the  increased  number of ports
          sold.

OPERATING EXPENSES

     Operating expenses  decreased $12.8 million,  or 16%, for the first quarter
     2002 over the first quarter 2001.

                                           For the three months ended March 31,
                                          --------------------------------------

     ($ In thousands)                        2002           2001      % Change
                                          -----------   -----------  -----------
     Network access                         $ 13,594      $ 16,731       (19%)
     Operations                               11,846        12,142        (2%)
     Selling, general and administrative      20,195        29,161       (31%)
     Severance expense                            43         1,235       (97%)
     Depreciation and amortization            19,652        18,894         4%
                                          ------------  -----------
        Total                               $ 65,330      $ 78,163       (16%)
                                          ============  ===========

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 months ended March 31, 2002 decreased
     $3.1 million,  or 19%, compared to the same period in 2001. The decrease is
     a result of a favorable  settlement of termination  charges of $2.1 million
     and the  disconnection  of  certain  off-net  circuits  resulting  from the
     redeployment  of internet  routers,  frame relay  switches and ATM switches
     from certain cities.

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  expenses  decreased $0.3 million,  or 2%, for the first quarter
     2002 over the first quarter  2001,  primarily due to decreases in personnel
     and related  costs,  operating  rents and  related  expenses to support the
     delivery of services, partially offset by decreases in capitalized labor.

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  decreased $9.0 million,  or
     31%, for the first quarter 2002 over the first  quarter 2001.  The decrease
     is primarily  due to a reduction in personnel  and related costs as well as
     decreases in bad debt expense and outside services.


                                       17
<PAGE>

Severance Expense

     Severance  costs  in 2002  and  2001  represent  the  impact  of  headcount
     reductions,  which were made as part of our on-going effort to reduce costs
     throughout  the  business,  and  resulted in a reduction  of 288  employees
     throughout 2001.

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 in 2001.

     Depreciation  expense increased $1.5 million,  or 8%, for the first quarter
     2002 over the first quarter 2001. This was primarily due to higher plant in
     service balances for newly completed  telecommunications network facilities
     and electronics and increased expense due to capital lease additions.

     Amortization  expense decreased $0.7 million, or 84%, for the first quarter
     2002 over the first quarter 2001. This was primarily due to the adoption of
     SFAS 142, which eliminates goodwill amortization.

INTEREST EXPENSE, NET
                                     For the three months ended March 31,
                                  --------------------------------------------
     ($ In thousands)                 2002            2001          % Change
                                  ------------   -------------   -------------
     Gross interest expense         $ 26,469        $ 23,008           15%
     Capitalized interest               (306)           (958)         (68%)
                                  ------------   -------------
     Interest expense, net          $ 26,163        $ 22,050           19%
                                  ============   =============

     Gross  interest  expense  increased  $3.5  million,  or 15%,  for the first
     quarter 2002 over the first quarter 2001, primarily due to higher levels of
     outstanding  long-term debt. As of March 31, 2002, we had outstanding  debt
     and capital leases of $1,074.4  million compared to $912.6 million at March
     31, 2001.

     Capitalized  interest decreased $0.7 million, or 68%, for the first quarter
     2002 over the first  quarter  2001.  The  decrease is due to a reduction in
     average  Construction  Work In Process of $17.4  million,  or 68%,  for the
     first quarter 2002 compared to the first quarter 2001.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
<TABLE>
<CAPTION>

                                                                   For the three months ended March 31,
                                                               ---------------------------------------------
     ($ In thousands)                                              2002            2001          % Change
                                                               -------------   -------------   -------------
<S>                                                              <C>               <C>              <C>
     Cumulative effect of change in accounting principle         $ 39,812          $ -              100%

</TABLE>

     In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial  Accounting  Standards (SFAS) No. 142, "Goodwill and
     Other  Intangible  Assets."  SFAS 142 is  effective  January 1, 2002.  As a
     result of the adoption of SFAS 142, we recognized a transitional impairment
     loss of our goodwill of $39.8 million as a cumulative effect of a change in
     accounting principle in our statement of operations in the first quarter of
     2002.

                                       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  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 March 31, 2003.

     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 March  31,  2002,  a
     near-term  change  in  interest  rates  would  not  materially  affect  our
     financial position, results of operations or cash flows.

SENSITIVITY ANALYSIS

     At March 31, 2002,  the fair value of our long-term  debt and capital lease
     obligations  was estimated to be $425.5 million  compared to $666.9 million
     carrying value,  based on our overall weighted average rate of 7.2% and our
     overall weighted maturity of 6 years.  There has been no material change in
     the weighted average maturity  applicable to our obligations since December
     31, 2001. However,  the overall weighted average interest rate has declined
     by  approximately  6 basis points,  consistent  with the general decline of
     interest rates during the first quarter 2002. A hypothetical increase of 72
     basis points (10% of our overall  weighted  average  borrowing  rate) would
     result in an  approximate  $6.0  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 March 31, 2002. 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.




                                       19

<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

         None.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


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

b)   Reports on Form 8-K

     On March 8,  2002,  we filed a current  report on Form 8-K,  under  Item 5,
     "Other  Events",  to make  available a press  release  dated March 7, 2002,
     regarding our fourth quarter and fiscal 2001 financial results.


                                       20
<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

May 15, 2002