UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q
                                   (Mark One)

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

     For the quarterly period ended June 30, 2001

                                       or

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

     For the transition period from..................to.................

                       Commission file number 0-29536

                                AT&T CANADA INC.

             (exact name of registrant as specified in its charter)

                   Canada                                43-1656187
                   ------                                ----------
       (State or other jurisdiction of          (Employer identification No.)
        incorporation or organization)

                           200 Wellington Street West
                            Toronto, Ontario, Canada
                                     M5V 3G2
                    (Address of principal executive offices)
                                   (Zip code)

                                 (416) 345-2000
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant:(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                   Yes ..X..    No.......

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

               Class                Outstanding at July 27, 2001
         ----------------------     ----------------------------
         Class A Voting Shares           309,064
         Class A Deposit Receipts1       236,924
         Class B Non-Voting Shares       99,038,724
         Class B Deposit Receipts2       99,038,724

         (Former Name, former address and former fiscal year if changed
                               since last report)
        -----------------------------------------------------------------


----------
1    The Class A Deposit Receipts represent a beneficial  interest in 236,924 of
     the 309,064 Class A Voting Shares referred to above.

2    The Class B Deposit Receipts represent a beneficial  interest in 99,038,724
     Class B Non-Voting Shares referred to above.

<PAGE>


INDEX

PART I.  FINANCIAL INFORMATION                                             Page
                                                                          Number

Item 1.     Financial Statements                                               3

            Consolidated Balance Sheets                                        3

            Consolidated Statements of Operations and Deficit                  4

            Consolidated Statement of Cash Flows                               5

            Notes to Consolidated Financial Statements                      6-15

Item 2.     Management's Discussion and Analysis of Financial Condition    16-24
            and Results of Operations



PART II. OTHER INFORMATION

Item 1.     Legal Proceedings                                                 25

Item 2.     Changes in Securities and Use of Proceeds                         25

Item 3.     Defaults Upon Senior Securities                                   25

Item 4.     Submission of Matters to a Vote of Security Holders               25

Item 5.     Other Information                                                 25

Item 6.     Exhibits and Reports on Form 6-K                               25-26

SIGNATURES                                                                    27

<PAGE>

PART I.  Financial Information

         Item 1.  Financial Statements

                                AT&T Canada Inc.
                      Interim Consolidated Balance Sheets
                           (In thousands of dollars)

<TABLE>
<CAPTION>
                                                                                               June 30, 2001       December 31, 2000
                                                                                             -----------------     -----------------
                                                                                                (unaudited)           (audited)
<S>                                                                                            <C>                      <C>
Assets
Current assets:
   Cash and short term deposits                                                                $   552,151              $    68,587
   Accounts receivable                                                                             208,385                  242,161

   Other current assets                                                                             20,268                   12,922
                                                                                               -----------              -----------
                                                                                                   780,804                  323,670
Property, plant and equipment                                                                    2,193,944                2,120,659
Goodwill                                                                                         1,697,650                1,705,155
Other assets, net                                                                                  107,383                  112,691
Deferred pension asset                                                                              10,787                   10,626
Deferred foreign exchange                                                                               --                    40,853
                                                                                               -----------              -----------
                                                                                               $ 4,790,568              $ 4,313,654
                                                                                               ===========              ===========
Liabilities and Shareholders' Equity
Current liabilities:
   Accounts payable                                                                            $    71,582              $    78,961
   Accrued interest payable                                                                         65,721                   43,589
   Accrued liabilities                                                                             250,544                  270,640
   Income taxes payable                                                                              4,297                    3,655
   Current portion of capital lease obligations (note 4)                                             1,761                    2,210
                                                                                               -----------              -----------
                                                                                                   393,905                  399,055

Long term debt (note 4)                                                                          4,336,566                3,628,465

Other long term liabilities                                                                         26,844                   26,581

Deferred foreign exchange                                                                           60,614                     --

Shareholders' equity
   Common shares                                                                                 1,112,042                1,039,065
   Warrants                                                                                            809                    1,192
   Deficit                                                                                      (1,140,212)                (780,704)
                                                                                               -----------              -----------
                                                                                                   (27,361)                 259,553
                                                                                               -----------              -----------
                                                                                               $ 4,790,568              $ 4,313,654
                                                                                               ===========              ===========
</TABLE>

  See accompanying Condensed Notes to Interim Consoldiated Financial Statements




<PAGE>



                                AT&T Canada Inc.
            Interim Consolidated Statements of Operations and Deficit
                            (In thousands of dollars)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                     Three months ended                       Six months ended
                                                                          June 30,                                June 30,
                                                                   2001             2000                 2001               2000
                                                              --------------    -------------       --------------     -------------

<S>                                                            <C>                <C>                <C>                <C>
Revenue                                                        $   375,167        $   374,991        $   763,031        $   739,020
Expenses
    Service costs                                                  245,462            258,550            492,653            508,013
    Selling, general and administrative                            104,157            100,325            213,271            192,789
                                                               -----------        -----------        -----------        -----------

Earnings before interest, taxes, depreciation
 and amortization                                                   25,548             16,116             57,107             38,218

Depreciation and amortization                                      112,701             95,262            221,049            182,206
                                                               -----------        -----------        -----------        -----------

Loss from operations                                               (87,153)           (79,146)          (163,942)          (143,988)

Other income (expense):
    Interest income                                                  7,096              5,312              8,605             11,007
    Interest expense                                              (103,066)           (80,841)          (191,362)          (153,510)
    Other income (expense)                                          (6,731)               213             (8,800)               213
                                                               -----------        -----------        -----------        -----------

Loss before minority interest and income taxes                    (189,854)          (154,462)          (355,499)          (286,278)

Minority interest                                                     --               35,258               --               65,859

Provision for income taxes                                          (2,179)            (1,641)            (4,009)            (3,234)

Loss for the period                                               (192,033)          (120,845)          (359,508)          (223,653)

Deficit, beginning of period                                      (948,179)          (360,305)          (780,704)          (257,497)
                                                               -----------        -----------        -----------        -----------
Deficit, end of period                                         $(1,140,212)       $  (481,150)       $(1,140,212)       $  (481,150)
                                                               ===========        ===========        ===========        ===========
Loss per comnon share                                          $     (1.96)       $     (1.27)       $     (3.69)       $     (2.36)
                                                               ===========        ===========        ===========        ===========

Weighted average number of common shares
 outstanding (in thousands)                                         98,144             95,324             97,464             94,798
                                                               ===========        ===========        ===========        ===========

Diluted earnings per common share                              $     (1.96)       $     (1.27)       $     (3.69)       $     (2.36)

Diluted weighted average shares outstanding
  (in thousands) (note 6)                                          143,912            143,926            143,558            144,261
                                                               ===========        ===========        ===========        ===========
</TABLE>

  See accompanying Condensed Notes to Interim Consolidated Financial Statements


<PAGE>




                                AT&T Canada Inc.
                  Interim Consolidated Statements of Cash Flows
                            (In thousands of dollars)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                     Three months ended           Six months ended
                                                                                          June 30,                     June 30,
                                                                                      2001         2000          2001        2000
                                                                                   -----------  ----------    ---------   ----------

<S>                                                                                <C>          <C>          <C>          <C>
Cash provided by (used in):
Operating activities:
     Loss for the period                                                           $(192,033)   $(120,845)   $(359,508)   $(223,653)

     Adjustments  required  to  reconcile  loss to  cash  flows  from
     operating activities:
         Depreciation and amortization                                               112,701       91,884      221,049      178,356
         Accretion of senior discount note interest                                   35,345       30,772       69,931       60,684
         Amortization of debt issuance costs                                           3,992        3,893        7,982        7,736
         Amortization of deferred foreign exchange                                    (1,944)        --          4,603         --
         Amortization of deferred gain on sale of cross currency swaps
           and forward contracts                                                        (816)        --           (816)        --
         Minority interest                                                              --        (35,258)        --        (65,859)
         Loss on sale of investments                                                   9,375         --          9,375         --
         Other                                                                          (477)      (2,696)        (625)      (2,379)
                                                                                   ---------    ---------    ---------    ---------
                                                                                     (33,857)     (32,250)     (48,009)     (45,115)

         Change in non-cash working capital                                           32,937       29,789        9,604      (33,596)
                                                                                   ---------    ---------    ---------    ---------

Net cash used in operating activities                                                   (920)      (2,461)     (38,405)     (78,711)

Investing activities:
     Acquisitions, net of cash (bank indebtedness) acquired                          (20,502)     (90,450)     (20,502)    (193,855)
     Disposition of investments (net of disposition costs)                             3,401         --          3,401         --
     Additions to property, plant and equipment                                      (90,587)    (119,977)    (214,983)    (235,939)
     Additions to (decreases in) other assets                                         (3,305)      (2,197)      (8,053)      (5,878)
     Additions to (decreases in) restricted investments                                 --           (695)        --         20,369
                                                                                   ---------    ---------    ---------    ---------
     Net cash used in investing activities                                          (110,993)    (213,319)    (240,137)    (415,303)

Financing activities:
     Issue of share capital, net of issue costs                                       12,688        9,947       27,928       24,104
     Termination of cross currency swaps and forward contracts                       123,965         --        123,965         --
     Issues (decreases) of long term debt                                           (250,000)      32,330      633,159      438,826
     Debt issue costs                                                                    (62)        (515)      (5,991)      (3,886)
     Increase (decrease) in other long term liabilities                                 (330)         519          263          421
     Repayment of capital lease                                                         (828)      (1,311)      (1,101)        (550)
                                                                                   ---------    ---------    ---------    ---------
     Net cash provided by financing activities                                      (114,567)      40,970      778,223      458,915

Effect of exchange rate changes                                                      (14,397)       1,965      (16,117)      (8,366)
                                                                                   ---------    ---------    ---------    ---------

Increase (decrease) in cash and short-term deposits                                 (240,877)    (172,845)     483,564      (43,465)
Cash and short-term deposits, beginning of period                                    793,028      418,711       68,587      289,331
                                                                                   ---------    ---------    ---------    ---------

Cash and short-term deposits, end of period                                        $ 552,151    $ 245,866    $ 552,151    $ 245,866
                                                                                   =========    =========    =========    =========

  See accompanying Condensed Notes to Interim Consolidated Financial Statements


Supplemental Information:

Income taxes paid                                                                  $   1,827    $   1,154    $   3,572    $   5,149
Interest paid                                                                      $  18,334    $  17,670    $  91,302    $  71,675
Class B non-voting shares issued in acquisitions                                   $  44,666    $  45,385    $  44,666    $  45,385
</TABLE>


<PAGE>


          Condensed Notes to Interim Consolidated Financial Statements
                                   (Unaudited)

          (Dollar amounts are stated in thousands of Canadian dollars
                         except where otherwise noted)


AT&T Canada Inc. (the  "Company") was  incorporated  as MetroNet  Communications
Corp.   ("MetroNet")  under  the  laws  of  the  Province  of  Alberta  and  was
subsequently  continued under the Canada Business  Corporations Act. The Company
changed its name to AT&T Canada Inc.  coincident  with the  consummation  of the
combination  of  MetroNet  and AT&T  Canada  Corp.  (formerly  AT&T  Canada Long
Distance  Services  Company) ("AT&T LDS") and ACC  TelEnterprises  Ltd.  ("ACC")
effective June 1, 1999.


The  Company  is a holding  company,  which  engages  in the  telecommunications
business in Canada through its  subsidiaries,  the most  significant of which is
its 69% owned operating  subsidiary,  AT&T Canada Corp. The Company's activities
in the  telecommunications  business  consist  primarily of the  development and
construction  of  telecommunications  networks for the provision of local,  long
distance, data and Internet and E-Business solutions to businesses in Canada.


1.     Basis of presentation:

       The accompanying interim  consolidated  financial statements are prepared
       in accordance with  accounting  principles  generally  accepted in Canada
       which, in the case of the Company,  conform in all material respects with
       those in the United States, except as outlined in note 10.

       Certain  information  and  footnote   disclosures  normally  included  in
       financial  statements  prepared in  accordance  with  generally  accepted
       accounting principles have been condensed to include the notes related to
       elements which have  significantly  changed in the period.  These interim
       consolidated  financial statements should be read in conjunction with the
       audited consolidated  financial statements and notes thereto for the year
       ended December 31, 2000.

       The  financial  information  included  herein  reflects  all  adjustments
       (consisting  only of normal  recurring  adjustments)  which  are,  in the
       opinion of management,  necessary to a fair  presentation  of the results
       for the interim  periods  presented.  The results of  operations  for the
       three  months and six  months  ended  June 30,  2001 are not  necessarily
       indicative of the results to be expected for the full year.


2.     Significant accounting policies:

       These interim  consolidated  financial  statements are prepared following
       accounting  policies  consistent with the Company's audited  consolidated
       financial  statements  and notes thereto for the year ended  December 31,
       2000,  except that  effective  January 1, 2001,  the Company  adopted the
       "Earnings  per  Share"  standards  issued by the  Canadian  Institute  of
       Chartered  Accountants.  The  standard  requires  the use of the treasury
       stock method for calculating  diluted  earnings per share consistent with
       United States Generally Accepted Accounting  Principles.  For the periods
       presented,  all stock options and warrants outstanding are anti-dilutive,
       and therefore, the diluted loss per share is the basic loss per share.



<PAGE>

3.     Acquisitions and Dispositions

       On May 1, 2001,  the Company  disposed of the  TigerTel  Call Centres and
       Voice Messaging operations.  Proceeds on disposition were $3.6 million in
       cash.  The  disposition  generated a loss on sale of $9.4 million  before
       income taxes.

       On June 1, 2001, the Company  acquired all of the issued and  outstanding
       shares of MONTAGE  eIntegration Inc.  ("MONTAGE").  MONTAGE is a Canadian
       E-Business  solutions  integrator  focused  on  transforming  traditional
       organizations into connected  enterprises through Internet  technologies.
       The  acquisition  has  been  accounted  for by  the  purchase  method  of
       accounting  and the  results  of  operations  included  from  the date of
       acquisition.   Consideration  of  $59.9  million  was  paid  on  closing,
       comprised  of $15.2  million  in cash and $44.7  million  represented  by
       967,355 Class B Non-Voting Shares. The vendors have the potential to earn
       up to an additional $30.0 million  contingent upon the attainment by June
       30, 2002 of certain specified  performance targets. Any earned contingent
       consideration  is payable over the three year period ending June 30, 2004
       and will be  recorded  once the  contingent  amount  is  determinable.  A
       portion of the  contingent  payment will be accounted  for as  additional
       purchase price with the balance recorded as compensation expense.

       The allocation of the purchase price, including acquisition costs, to the
       net assets acquired at fair values is as follows:

--------------------------------------------------------------------------------
       Current assets                                                    $15,799
       Capital assets                                                      4,716
       Goodwill                                                           52,375
--------------------------------------------------------------------------------
                                                                          72,890

       Current liabilities                                                12,063
--------------------------------------------------------------------------------
       Purchase price                                                    $60,827
--------------------------------------------------------------------------------
<PAGE>

4.     Long-term debt:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------
                                                                               June 30,           December 31,
                                                                                 2001                2000
---------------------------------------------------------------------------------------------------------------------------
                                                                              (Unaudited)            (Audited)
<S>                                                                           <C>                    <C>
       12.0% Senior Notes (2001 - U.S. $248.5 million;
         December 31, 2000 - U.S. $248.4 million)                             $  376,209             $  372,419
       10.75% Senior Discount Notes (2001 - U.S. $147.9 million;
         December 31, 2000 - U.S. $140.4 million)                                223,911                210,455
       9.95% Senior Discount Notes (2001 - U.S. $802.3 million;
         December 31, 2000 - U.S. $764.3 million)                              1,214,685              1,146,036
       10.625% Senior Notes (2001 - U.S. $225.0 million;
         December 31, 2000 - U.S. $225.0 million)                                340,650                337,388
       7.65% Senior Notes (2001 - U.S. $1.0 billion;
         December 31, 2000 - U.S. $500.0 million) (a)                          1,514,000                749,750
       7.15% Senior Notes                                                        150,000                150,000
       7.625% Senior Notes (U.S. $250.0 million)                                 378,500                374,875
       Senior Credit Facilities (b)                                              120,000                270,000
       Capital lease obligations                                                  20,372                 19,752
---------------------------------------------------------------------------------------------------------------------------
                                                                               4,338,327              3,630,675

       Less current portion of capital lease obligations                           1,761                  2,210
---------------------------------------------------------------------------------------------------------------------------
                                                                              $4,336,566             $3,628,465
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


       At June 30, 2001,  principal repayments on long-term debt required within
       five years  consist of $150  million  for the 7.15%  Senior  Notes due in
       2004,  U.S.  $250  million for the 7.625%  Senior Notes due 2005 and $120
       million of the Credit Facility due 2003 through to 2004.


       (a) 7.65% Senior Notes:

           On March 30, 2001,  the Company  issued and sold U.S. $500 million of
           7.65% Senior Notes due 2006, which constituted an additional issuance
           to the 7.65%  Senior Notes issued  September  22, 1999 (the  combined
           issuance are defined as the "7.65%  Notes").  The 7.65% Notes are due
           on September  15, 2006 and are  repayable in the amount of U.S.  $1.0
           billion. The 7.65% Notes are redeemable,  in whole or in part, at the
           option of the Company at a  redemption  price equal to the greater of
           (i) 100% of the  principal  amount  and  (ii) the sum of the  present
           values of the remaining  scheduled payments of principal and interest
           thereon  discounted at a prescribed  interest rate to the  redemption
           date on a semi-annual basis plus accrued and unpaid interest, if any,
           to the date of  redemption.  Each  holder of the 7.65%  Notes has the
           right to require  the Company to  repurchase  all or any part of such
           holder's  7.65%  Notes in the  event of a change  in  control  of the
           Company,  as defined in the Indenture governing the 7.65% Notes, at a
           repurchase  price  in cash  equal  to 101%  of the  principal  amount
           thereof, plus accrued and unpaid interest to the repurchase date. The
           7.65%,  Notes are unsecured,  subordinated to all existing and future
           secured  indebtedness  of the Company and rank pari passu to existing
           unsecured  indebtedness.  The  Indenture  covering  the  7.65%  Notes
           contains  certain   covenants   including  limits  on  sale/leaseback
           transactions   or  liens,   the   ability  to   subordinate   certain
           intercompany  debt and the ability of the Company to  consolidate  or
           merge with or into or transfer all or substantially all of its assets
           to another entity.

<PAGE>

(b)  Senior Credit Facilities:


           The  Company  has a credit  agreement  with a  syndicate  of  various
           financial institutions to provide the Company with the following:


           (i)  A revolving  term  facility to a maximum of $525 million (or the
                equivalent  U.S.  dollar amount thereof) to be used to refinance
                vendor  financing  indebtedness  of up to  90% of  the  cost  of
                telecommunication  assets, as defined,  acquired by the Company;
                and

           (ii) An  operating  facility  to a  maximum  of $75  million  (or the
                equivalent  U.S.  dollar amount  thereof) to be used for working
                capital and general  corporate  purposes of which $25 million is
                available for letters of credit and $10 million is available for
                a swingline credit line.

           The Company is in compliance with all of its debt covenants including
           the completion of its requirement to raise additional financing prior
           to June 30, 2001.


5.   Financial instruments

     (a) Fair values of financial assets and liabilities:

            The  fair  values  of  cash  and   short-term   deposits,   accounts
            receivable,   accounts  payable,  accrued  liabilities  and  accrued
            interest  payable  approximate  their  carrying  values  due  to the
            short-term nature of these instruments.

            The fair value of long-term debt,  including the attached  warrants,
            at June 30, 2001 was  approximately  $4,432.7 million  (December 31,
            2000 - $3,710.9 million), based on current trading values.

            The fair value of foreign currency options, cross currency swaps and
            forward contracts at June 30, 2001 was  approximately  $28.1 million
            (December  31,  2000 - $84.5  million),  based  on  current  trading
            values.

     (b) Foreign currency risk:

            The Company is exposed to foreign currency  fluctuations on its U.S.
            dollar  denominated  debt and its U.S.  dollar  cash and short  term
            investments.  Foreign  currency  risks are  managed  by the  Company
            whenever  possible,  by matching U.S. dollar denominated assets with
            related  liabilities  through  the  use  of  financial  instruments,
            including from time to time,  purchasing  foreign currency  options,
            cross currency swaps and forward exchange contracts.

            As at June  30,  2001,  the  Company  had  purchased  the  following
            financial  instruments  to hedge  the  exposure  on the U.S.  dollar
            denominated financings:

            i.  Two foreign  currency options that give the Company the right to
                i)  acquire  U.S.  dollars  at the  current  exchange  rate at a
                specified  date in the future,  ii) acquire  U.S.  dollars at an
                already determined  exchange rate, or iii) to enter into a cross
                currency  interest  exchange  agreement to convert  U.S.  dollar
                interest  payments  at a specified  rate on a notional  Canadian
                dollar principal amount.  The fair value of these two options at
                June 30, 2001 was $17.4 million.

            ii. Twenty  cross  currency  swaps  with a  notional  value  of U.S.
                $1,683.0  million.  The Company is  obligated  to purchase  U.S.
                $1,683.0  million between  September 2005 and June 2008 at rates
                that range from Cdn.  $1.4675 to $1.55 per U.S. $1.00.  The fair
                value of these  swaps at June 30, 2001 was $26.7  million.  iii.
                Two forward exchange contracts under which the Company sold $470
                million U.S.  dollars on May 31, 2001 at a rate of Cdn.  $1.4589
                to U.S. $1.00. The Company is obligated to buy U.S. $475 million
                on August 31,  2001 at the rate of Cdn.  $1.5492 to U.S.  $1.00.
                The fair value of this forward exchange  contract as at June 30,
                2001 was ($16.0) million.

            The above noted financial instruments,  the U.S. cash held and short
            term investments hedge the fixed rate U.S. dollar denominated debt.

            In May 2001, the Company unwound certain  swaptions,  cross-currency
            swaps and a forward  contract  with  notional  value  totaling  U.S.
            $1,208.4  million for proceeds of $124.0 million.  These hedges were
            replaced  with new  cross-currency  swaps and forward  contracts  at
            current  market rates with notional  value  totaling  U.S.  $1,213.4
            million,  resulting in no change in the  Company's  overall  foreign
            currency  exposure.  The  deferred  gain of  $29.6  million  will be
            recognized  in earnings over the  remaining  term of the  underlying
            debt for  which  these  derivatives  were  designated  as Cash  Flow
            Hedges.

     (c) Interest rate risk:

         The following table summarizes the Company's  exposure to interest rate
         risk.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                  Fixed interest rate maturing within
-----------------------------------------------------------------------------------------------------------------------------
                                         Floating                                                         After Non-interest
June 30, 2001 (Unaudited)                  rate              1 year         1 - 5 years      5 years       bearing
-----------------------------------------------------------------------------------------------------------------------------

Financial assets:

<S>                                     <C>               <C>               <C>               <C>           <C>
Cash and short-term deposits            $  552,151        $     --          $     --          $     --      $     --
Accounts receivable                           --                --                --                --         208,385

Financial liabilities:

Current liabilities                           --               1,761              --                --         392,144
Long-term debt                             120,000              --             547,111         3,669,455          --

----------------------------------------------------------------------------------------------------------------------------
</TABLE>

       (d) Credit risk:

           The Company's  financial  instruments that are exposed to credit risk
           are cash and short-term  deposits,  accounts receivable and financial
           instruments used for hedging purposes.  Cash and short-term  deposits
           are on  deposit at major  financial  institutions.  Credit  risk with
           respect to accounts  receivable is limited due to the large number of
           customers  to which the  Company  provides  services.  Credit risk on
           hedging instruments is limited as these transactions are only entered
           into with highly rated bank counter-parties.

<PAGE>

6.     Diluted weighted average shares outstanding:

       Effective  January 1, 2001, the Company adopted the treasury stock method
       of calculating  diluted shares in accordance with new CICA  requirements.
       The treasury  stock method  includes only those  unexercised  options and
       warrants  where the average  market price of the common shares during the
       period  exceeds  the  exercise  price of the  options  and  warrants.  In
       addition, this method assumes that the proceeds would be used to purchase
       common shares at the average market price during the period.

       The  diluted  shares  include  the  ownership  by AT&T Corp.  and British
       Telecom  in  AT&T  Canada  Corp.,  the  Company's   principal   operating
       subsidiary, equivalent to approximately 43.7 million shares. The exercise
       of  options  and  warrants  outstanding  at June 30,  2001  would have an
       anti-dilutive  effect on the earnings per share and is therefore excluded
       from the calculation.


7.     Segmented information:

       The  Company   currently   operates  in  one   operating   segment,   the
       telecommunications  industry in Canada.  The  Company  offers a number of
       products, delivered through its integrated fibre optics networks, sold by
       a national  sales force and  provisioned  by one  operations  group.  The
       Company makes  decisions and evaluates  financial  performance  primarily
       based on its products. This view may change in the future as the business
       evolves.

       Revenue by product is as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                          Three months ended                  Six months ended
                                                                June 30,                         June 30,
                                                            2001         2000                2001         2000
-------------------------------------------------------------------------------------------------------------------
                                                        (unaudited)    (unaudited)        (unaudited)   (unaudited)

<S>                                                    <C>                <C>               <C>          <C>
       Long distance                                   $160,441           $176,128          $335,920     $356,033
       Data                                             115,553            111,173           238,267      222,740
       Local                                             52,168             44,509            98,434       84,652
       Internet and E-Business solutions                 40,094             30,795            77,741       53,383
       Other                                              6,911             12,386            12,669       22,212
------------------------------------------------------------------------------------------------------------------
                                                       $375,167           $374,991          $763,031     $739,020
==================================================================================================================
</TABLE>

       During the period  ended  June 30,  2001,  no  customers  of the  Company
       individually represented more than 10% of the Company's revenues.

<PAGE>

8.     Related party transactions:

       Services  are  exchanged  between the Company  and its  shareholders  and
       certain  of their  subsidiaries.  These  transactions  are in the  normal
       course of operations  and are measured at the exchange  amounts being the
       amounts agreed to by the parties.

       Transactions with related parties were as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                               Three months ended                                  Six months ended
                                                   June 30,                                           June 30,
                                            2001             2000                               2001           2000
---------------------------------------------------------------------------------------------------------------------------
                                        (Unaudited)       (Unaudited)                     (Unaudited)      (Unaudited)

<S>                                      <C>               <C>                              <C>            <C>
       Revenue                           $   33,572        $   28,911                       $  68,245      $   53,421
       Expenses                          $   24,674        $   29,475                       $  55,318      $   50,809


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


       Amounts due from and to the related parties are as follows:

---------------------------------------------------------------------------------------------------------------------------
                                                                                June 30,              December 31,
                                                                                  2001                   2000
---------------------------------------------------------------------------------------------------------------------------
                                                                              (Unaudited)            (Audited)

       Accounts receivable                                                       $  18,007             $14,265
       Accounts payable                                                          $  13,056             $12,181

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

---------------------------------------------------------------------------------------------------------------------------
</TABLE>

9.     Reclassification of prior period amounts

       Certain amounts  presented in the prior periods have been reclassified to
       conform with the presentation adopted in the current year.


<PAGE>

10.    Reconciliation to accounting principles generally accepted in the United
       States

       The Company's  consolidated  financial  statements  have been prepared in
       accordance  with accounting  principles  generally  accepted  ("GAAP") in
       Canada  which,  in the  case  of the  Company,  conform  in all  material
       respects with those in the United States, except as outlined below:

       (a) Statements of operations:

           The application of U.S. GAAP would have the following  effect on loss
           for the year, deficit and basic loss per common share as reported:
<TABLE>
<CAPTION>

                                                                    Three months ended                    Six months ended
                                                                         June 30                              June 30
                                                                   2001             2000                  2001            2000
(in thousands of dollars) unaudited                            -------------     ------------         -------------    -----------

<S>                                                            <C>                 <C>                   <C>            <C>
Net loss for ther period, Canadian GAAP                        $   (192,033)       $(120,845)            $(359,508)     $(223,653)
Stock-based compensation expense (a)(i)                                   --            (150)                 (231)          (300)
Unrealized gain/(loss) on derivative instruments (a) (ii)            (2,551)               --                 6,860             --
                                                               -------------     -----------         --------------    -----------
Net loss for the period, U.S. GAAP                                 (194,584)        (120,995)             (352,879)      (223,953)

Opening deficit, U.S. GAAP                                         (952,475)        (369,567)             (794,180)      (266,609)
                                                               -------------     ------------        --------------    -----------
Ending deficit, U.S. GAAP                                      $ (1,147,059)       $(490,562)          $(1,147,059)     $(490,562)
                                                               =============     ============        ==============    ===========
Basic loss per common share under U.S. GAAP                    $      (1.98)       $   (1.27)          $     (3.62)     $   (2.36)
                                                               =============     ============        ==============    ===========
Weighted average number of common shares outstanding                  98,144           95,324                97,464         94,798

</TABLE>

           (i)  Stock-based compensation expense:

                For U.S.  GAAP  purposes,  the Company has chosen to account for
                stock-based  compensations  using  the  intrinsic  value  method
                prescribed in Accounting  Principles  Board Opinion  ("APB") No.
                25,  "Accounting  for Stock Issued to  Employees".  Accordingly,
                compensation  expense for U.S. GAAP purposes has been recognized
                at the date of share purchases or option grants at the amount by
                which the quoted market price of the stock exceeds the amount an
                employee must pay to acquire the stock.

                In March  2000,  FASB issued  FASB  Interpretation  No. 44 ("FIN
                44"),  "Accounting  for  Certain  Transactions  involving  Stock
                Compensation - an Interpretation of Accounting  Principles Board
                ("APB")  Opinion No. 25." FIN 44 clarifies  the  following:  the
                criteria  for   determining   whether  a  plan  qualifies  as  a
                non-compensatory  plan; the accounting  consequences  of various
                modifications to the terms of the previously fixed stock options
                or  awards;   and  the  accounting  for  an  exchange  of  stock
                compensation awards in combination.  FIN 44 is effective July 1,
                2000, but certain  conclusions in FIN 44 covers  specific events
                that  occurred  after  either  December  15, 1998 or January 12,
                2000.  The Company  accounted  for FIN 44 in the current year as
                part of the  reconciliation to accounting  principles  generally
                accepted in the United States.

           (ii) Unrealized gain on derivative instruments:


                The Company is  required  and has  implemented  SFAS No. 133, as
                amended by SFAS No. 137 ("SFAS 133") for the current fiscal year
                ending December 31, 2001. The Company has designated derivatives
                with a notional value of U.S. $1,890 million as Cash Flow Hedges
                which hedge the foreign  currency risk of cash flows relating to
                U.S.  dollar  denominated  debt  with a face  value  of the same
                amount. These cash flow hedges were and are expected to continue
                to be highly  effective in hedging  foreign  currency rate risk.
                The  changes  in market  value of the  effective  portion of the
                derivatives  designated  as Cash Flow  Hedges  flow  through the
                Accumulated  Other  Comprehensive  Income ("AOCI")  account each
                month.  The AOCI  account  forms a  component  of  Shareholder's
                equity.   In  addition,   the  Company  holds  foreign  exchange
                contracts  with a notional value totaling U.S. $475 million that
                have not been  designated as hedging  instruments  and therefore
                the changes in their  market value are marked  through  earnings
                each month.

                In  May   2001,   the   Company   unwound   certain   swaptions,
                cross-currency  swaps and a forward contract with notional value
                totaling U.S.  $1,208.4  million for proceeds of $124.0 million.
                These  derivatives were replaced with new  cross-currency  swaps
                and forward  contracts  at current  market rates with a notional
                value totaling U.S.  $1,213.4  million.  The new  cross-currency
                swaps  were  designated  as  Cash  Flow  Hedges  of the  related
                underlying  debt. As a result of SFAS 133, the derivative  asset
                balance was reduced by the  proceeds  received,  reflecting  the
                market value of the  derivatives  at the time they were unwound.
                The related AOCI balances of the derivatives  unwound represents
                a deferred gain of $29.6  million.  This gain will be recognized
                in earnings over the remaining term of the  underlying  debt for
                which these derivatives were designated as Cash Flow Hedges. The
                gains to be recognized in future periods are as follows:

                           Period                             Gain
                                                             (`000s)

                           2001                               $  3,921
                           2002                               $  6,242
                           2003                               $  6,242
                           2004                               $  6,242
                           2005                               $  3,466
                           2006                               $  2,344
                           2007 and thereafter                $  1,138
                                                              --------
                                                              $29,595


                For the quarter  ending June 30, 2001,  as a result of SFAS 133,
                the  Company  recognized  a  loss  of  $2.6  million  due to the
                decrease in the fair market  value of foreign  exchange  forward
                contracts  not  designated  as  hedging  instruments,  partially
                offset by the change in market value of the unhedged U.S. dollar
                denominated  debt, the change in time value of the swaptions and
                recognition of $0.8 million of the deferred gain relating to the
                unwound swaps, as noted above.


<PAGE>

       (b) Other disclosures:


           Stock-based compensation expense disclosure:


                Had the Company determined  compensation  expense costs based on
                the fair value at the date of grant for stock options under SFAS
                No. 123, loss attributable to common shareholders and basic loss
                per share would have increased as indicated below.


                The Company utilized the  Black-Scholes  option pricing model to
                estimate the fair value at the date of grant for options granted
                subsequent to the Company's  initial Public Offering.  In second
                quarter of 2001, under the Black-Scholes  model, 212,100 options
                with a  weighted  average  fair  value of $10.67  per share were
                granted  using  the  following  assumptions:  risk  free rate of
                return ranging from 5.17% to 5.61%,  estimated volatility factor
                ranging from 0.334 to 0.352, estimated option life of five years
                and no dividend payments.


                In 2000, under the Black-Scholes model, 3,760,500 options with a
                weighted  average  fair value of $15.16  per share were  granted
                using  the  following  assumptions:  risk  free  rate of  return
                ranging from 5.32% to 6.55%, estimated volatility factor ranging
                from 0.09 to 12.72,  estimated  option life of five years and no
                dividend payments.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                         Three months ended            Six months ended
                                                                              June 30,                     June 30,
                                                                         2001         2000            2001         2000
---------------------------------------------------------------------------------------------------------------------------
                                                                     (Unaudited)   (Unaudited)    (Unaudited)   (Unaudited)
---------------------------------------------------------------------------------------------------------------------------

<S>                                                                <C>             <C>            <C>            <C>
                Loss attributable to common shareholders,
                  U.S. GAAP - as reported                          $  (194,584)    $  (120,995)   $ (352,879)    $ (223,953)
                Loss attributable to common shareholders,
                  U.S. GAAP - pro forma                               (208,124)       (134,743)     (379,788)      (251,449)
                Loss per share - as reported                             (1.98)          (1.27)        (3.62)         (2.36)
                Loss per share - pro forma                               (2.12)          (1.41)        (3.90)         (2.65)
                Weighted average number of shares outstanding           98,144          95,324        97,464         94,798
                (in thousands)

---------------------------------------------------------------------------------------------------------------------------
</TABLE>


11.      Subsequent events

         On July 20, 2001, the Company sold certain of its customer  receivables
         in a securitization  program for proceeds of $100,000. The maximum cash
         proceeds that can be funded under the program are $150,000.

         On July 27, 2001, the Company  announced a cost savings program,  which
         includes the reduction of its workforce by approximately 500 employees.
         These  measures are being taken to align the Company's  cost  structure
         with current growth opportunities that have been impacted by a weakened
         economy.  The Company will record a provision for the costs  associated
         with this program in the third quarter of 2001.


<PAGE>


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



The following Management's Discussion and Analysis should be read in conjunction
with AT&T Canada  Inc.'s  Consolidated  Financial  Statements  and  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
included in AT&T Canada's Inc.'s 2000 Annual Report.

(Dollar  amounts  are stated in  thousands  of  Canadian  dollars  except  where
otherwise noted)


Forward-Looking Statements

This discussion and analysis explains AT&T Canada Inc.'s (the "Company" or "AT&T
Canada")  financial  condition and results of operations for the quarter and six
months ended June 30, 2001  compared  with the quarter and six months ended June
30, 2000, and is intended to help shareholders and other readers  understand the
dynamics of the Company's  business and the key factors underlying its financial
results.  Certain  statements  in  this  Management's  Discussion  and  Analysis
("MD&A")   and   Interim   Consolidated    Financial    Statements    constitute
forward-looking  statements.  Such forward-looking  statements involve known and
unknown  risks,  uncertainties,  and other  factors  which may cause the  actual
results,  performance or achievements of the Company, to be materially different
from any future results,  performance,  or achievements  expressed or implied by
such  forward-looking  statements.  Such  factors  include,  among  others,  the
following:  competition,   technological  changes,  changes  to  the  regulatory
environment  and the other risks and  uncertainties  included  in AT&T  Canada's
Annual Report.


Overview

The Company's  revenue was $375,167 and $763,031 for the second  quarter of 2001
and the first  six  months  of 2001,  respectively,  compared  to  $374,991  and
$739,020 for the  comparable  periods in the prior year.  The Company's  revenue
from data,  local and Internet and  E-Business  solutions and other services was
$214,726 and $427,111 for the second quarter of 2001 and the first six months of
2001, respectively,  compared to $198,863 and $382,987 for the second quarter of
2000 and the first six months of 2000.  Revenue from long distance  services was
$160,441 and $335,920 for the second quarter of 2001 and the first six months of
2001, respectively, compared to $176,128 and $356,033 for the comparable periods
in the prior year.

The Company's  EBITDA was $25,548 and $57,107 for the second quarter of 2001 and
the first six months of 2001, respectively,  compared to $16,116 and $38,218 for
the second quarter of 2000 and the first six months of 2000,  respectively.  The
increases  were mainly due to a change in the  Canadian  regulatory  environment
whereby the Company's  contribution costs have been reduced effective January 1,
2001.  The Company's  presence in the business long  distance,  local,  data and
Internet and E-Business solutions markets allows it to bundle a full spectrum of
products.   With  its  extensive   local  and  long  distance   facilities   and
interconnection  arrangements,  the Company is capable of serving  approximately
85% of the  Canadian  business  telecommunications  market.  It has the greatest
reach of any  competitive  carrier in Canada.  Its  strategic  partnerships  and
interconnection agreements with other international service providers, including
AT&T Corp.  and  British  Telecommunications  plc,  allow the Company to provide
global voice, data, Internet and E-Business solutions to its business customers.



<PAGE>


Significant Transactions

On June 1, 2001, the Company acquired MONTAGE eIntegration Inc.  ("MONTAGE"),  a
leading  Canadian  E-Business   solutions  integrator  focused  on  transforming
traditional   organizations   into  connected   enterprises   through   Internet
technologies. MONTAGE employs approximately 450 E-Business professionals and has
solid financial growth and strong employee  retention while fostering  long-term
client relationships. When combined with its existing E-Business capability, the
Company will be one of the largest  providers in Canada focused on E-Integration
services with more than 600 E-Business  professionals.  Consideration of $59,877
was paid on closing,  comprised  of $15,211 in cash and $44,666  represented  by
967,355 Class B Non-Voting  Shares. The vendors have the potential to earn up to
an additional $30,000 contingent upon the attainment by June 30, 2002 of certain
specified  performance targets.  Any earned contingent  consideration is payable
over the three year period  ending  June 30, 2004 and will be recorded  once the
contingent amount is determinable.


<PAGE>

Results of Operations

Quarter and Six Months  ended June 30,  2001  Compared to Quarter and Six Months
ended June 30, 2000

Key financial data:

<TABLE>
<CAPTION>
                                                            Three months ended                Six months ended
                                                     June 30, 2001      June 30, 2000    June 30, 2001    June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
                                                      (Unaudited)        (Unaudited)      (Unaudited)       (Unaudited)
<S>                                                    <C>               <C>              <C>               <C>
Revenue
     Long Distance                                     $ 160,441         $ 176,128        $ 335,920         $ 356,033
     Data                                              $ 115,553         $ 111,173        $ 238,267         $ 222,740
     Local                                             $  52,168         $  44,509        $  98,434         $  84,652
     Internet and E-Business solutions                 $  40,094         $  30,795        $  77,741         $  53,383
     Other                                             $   6,911         $  12,386        $  12,669         $  22,212
                                                       ---------------------------        ----------------------------
Total Revenue                                          $ 375,167         $ 374,991        $ 763,031         $ 739,020
                                                       ---------------------------        ----------------------------

Service Costs                                          $ 245,462         $ 258,550        $ 492,653         $ 508,013

Gross Margin                                           $ 129,705         $ 116,441        $ 270,378         $ 231,007
Gross Margin%                                               34.6%             31.1%            35.4%             31.3%

Selling, General and Administrative
  Costs ("SG&A")                                       $ 104,157         $ 100,325        $ 213,271         $ 192,789
SG&A as a % of Revenue                                      27.8%             26.8%            28.0%             26.1%

EBITDA                                                 $  25,548         $  16,116        $  57,107         $  38,218

% of Revenue                                                 6.8%              4.3%             7.5%              5.2%

Other Income (Expense)                                 $  (6,731)        $     213        $  (8,800)        $     213
</TABLE>


Revenue


The Company's proportionate revenue from data, local and Internet and E-Business
solutions and other  services grew to 57% and 56% in the second  quarter of 2001
and the first six months of 2001,  respectively,  from 53% and 52% in the second
quarter of 2000 and the first six months of 2000,  respectively.  The  Company's
proportionate  revenues from long distance  services  declined to 43% and 44% in
the second quarter of 2001 and the first six months of 2001, respectively,  from
47% and 48% in the comparable periods in the prior year.

Long distance  ("LD")  revenue  decreased by $15,687 or 8.9%, to $160,441 in the
second  quarter of 2001 from $176,128 in the second  quarter of 2000. LD revenue
decreased  by $20,113 or 5.6%,  to $335,920 in the first six months of 2001 from
$356,033 in the first six months of 2000. The decreases were due to lower prices
per minute and lower non-volume  related services,  offset in part, by growth in
LD  minutes.  Growth in  minutes  was  tempered  by lower  demand due to general
economic  conditions.  Long distance minutes  increased by 7.6% and 13.7% in the
second quarter of 2001 and the first six months of 2001, as compared to the same
periods  in  the  previous  year  while  prices  dropped  by  14.9%  and  15.5%,
respectively.

Data revenue  increased by $4,380 or 3.9%, to $115,553 in the second  quarter of
2001 from  $111,173 in the second  quarter of 2000.  Data  revenue  increased by
$15,527 or 7.0%,  to $238,267  in the first six months of 2001 from  $222,740 in
the first six months of 2000. These increases were due to growth in Asynchronous
Transfer  Mode  ("ATM"),  high speed data  (MACH) and Data VPN Frame  Relay (the
Company's  virtual private network  product),  partially  offset by decreases in
legacy private line data services.

Local  voice  revenue  increased  by $7,659 or 17.2%,  to  $52,168 in the second
quarter of 2001 from $44,509 in the second quarter of 2000.  Local voice revenue
increased  by $13,782 or 16.3%,  to $98,434 in the first six months of 2001 from
$84,652 in the first six months of 2000.  New local  access  lines  added in the
second quarter of 2001 and the first six months of 2001, were 43,080 and 59,153,
respectively.  During the second quarter,  the Company  acquired the rights to a
local services customer base from the receiver of a recently  insolvent Canadian
CLEC. The Company is actively  marketing these customers to transition them over
to an AT&T Canada  local  services  package,  and based on success to date,  the
company has recognized 30,256 of these lines in the current period. In addition,
the Company  reduced the local access lines in service by 33,661 lines through a
one-time  adjustment,  the  result of  historical  system  conversion  and other
adjustments.  This  adjustment  was  statistical  in nature and has no effect on
revenue.  Local access lines in service  totaled  470,125 at June 30, 2001.  The
growth experienced in 2001 has been impacted by the general economic conditions,
including  lower  demand  from the  Company's  wholesale  and  internet  service
providers'  ("ISP")  distribution  channel,  as certain customers in this sector
experience financial difficulty.  As at June 30, 2001, the Company had completed
an  additional 9 local city  networks,  from second  quarter  2000, to achieve a
footprint of 29 cities.

Internet and  E-Business  solutions  revenue  increased  by $9,299 or 30.2%,  to
$40,094 in the  second  quarter  of 2001 from  $30,795 in the second  quarter of
2000.  Internet and E-Business  solutions revenue increased by $24,358 or 45.6%,
to $77,741 in the first six months of 2001 from  $53,383 in the first six months
of 2000. These increases were due to the Company's  strategic  acquisitions both
in 2000 and 2001 and internal  growth.  In 2001, the  acquisition of MONTAGE has
broadened the Company's existing  portfolio of Internet and E-Business  products
in solutions  consulting.  Consistent  with the  Company's  strategy to focus on
higher  growth  products,   the  Internet  and  E-Business  solutions  portfolio
increased  to 10.7% and 10.2% of total  revenue  in the second  quarter  and the
first six months of 2001 from 8.2% and 7.2% in the second  quarter and the first
six months of 2000.

Other revenue  decreased by $5,475 or 44.2%,  to $6,911 in the second quarter of
2001,  from $12,386 in the second  quarter of 2000.  Other revenue  decreased by
$9,543 or 43.0%, to $12,669 in the first six months of 2001, from $22,212 in the
first  six  months  of  2000.  These  decreases  were  due  to the  sale  of the
call-center operations and lower telecommunications equipment sales.



Service Costs and Selling, General and Administrative Expenses

The Company's  principal  operating expenses consist of service costs;  selling,
general and  administrative  costs  ("SG&A")  and  depreciation.  Service  costs
consist of expenses  directly  related to  delivering  service to customers  and
servicing the operations of the Company's  networks,  expenses  associated  with
fibre and  other  leases  where  the  Company  does not  presently  have its own
facilities,  local and long  distance  transport  costs paid to other  carriers,
maintenance agreements, right-of-way fees, municipal access fees, hub site lease
expenses,  costs of service  personnel  and leases of utility space in buildings
connected to the Company's  networks.  SG&A expenses  include the costs of sales
and marketing  personnel,  promotional  and  advertising  expenses and corporate
administrative expenses.

Service Costs  decreased by $13,088 or 5.1%, from $258,550 in the second quarter
of 2000 to $245,462 in the second  quarter of 2001.  Service Costs  decreased by
$15,360 or 3.0%,  to $492,653 in the first six months of 2001,  from $508,013 in
the first six months of 2000. These decreases were due to the positive impact of
the change in the contribution  subsidy regime,  offset,  in part, by additional
costs  related to higher  volume and Service  Costs  associated  with  strategic
acquisitions  in  2000  and  2001.  Effective  January  1,  2001,  the  Canadian
Radio-television   and   Telecommunications   Commission  ("CRTC")  changed  the
contribution   subsidy   regime  by   significantly   expanding  the  number  of
participants  who are required to pay  contribution and revised the contribution
basis of the subsidy from a per-minute basis to a percentage of eligible revenue
less  deductions.  Five  separate  appeals  of this  decision  have  been  filed
including  one by Bell  Canada  ("Bell")  and one by Telus  Communications  Inc.
("Telus").  Of the five,  four have been dismissed  including the Bell and Telus
appeals.  The remaining  appeal does not question the basic framework of the new
regime  and  consequently,  the  Company  does not  expect  the result to have a
negative impact on the Company.

Gross margin increased by $13,264 to $129,705 in the second quarter of 2001 from
$116,441 in the second  quarter of 2000.  Gross  margin  increased by $39,371 to
$270,378  in the first six months of 2001 from  $231,007 in the first six months
of 2000.  These increases were primarily due to the revision of the contribution
subsidy  regime and  emphasis  on higher  growth,  higher  margin  products  and
services, such as on-net local, VPN and Internet and E-Business solutions.

SG&A expenses  increased by $3,832 or 3.8%, to $104,157 in the second quarter of
2001 from $100,325 in the second  quarter of 2000.  SG&A  expenses  increased by
$20,482 or 10.6%,  to $213,271 in the first six months of 2001 from  $192,789 in
the first six months of 2000.  These  increases  were  mainly  due to  increased
uncollectible  accounts  primarily  as a result  of the  financial  difficulties
experienced  by  wholesalers  and ISPs,  development of the sales force and as a
result of acquisitions.


EBITDA 1


EBITDA  increased  to $25,548 in the second  quarter of 2001 from $16,116 in the
second quarter of 2000. On a percentage of revenue basis, EBITDA grew to 6.8% in
second quarter of 2001 from 4.3% in the second quarter of 2000.



<PAGE>

EBITDA  increased to $57,107 in the first six months of 2001 from $38,218 in the
first six months of 2000. On a percentage of revenue basis,  EBITDA grew to 7.5%
in the first six months of 2001 from 5.2% in the first six months of 2000.

----------
1   EBITDA is a financial  measure commonly used in the  telecommunications  and
    other  industries and is presented to assit in  understanding  the Company's
    operating  results.  However,  it is not intended to represent  cash flow or
    results of operations in accordance with Canadian or U.S. GAAP.


<PAGE>

Other Expenses

Other  expenses  were  $6,731 and $8,800 for the second  quarter of 2001 and the
first six months in 2001,  respectively.  These  amounts  include a $9.4 million
loss on the sale of the TigerTel Call Centers in May 2001, and foreign  exchange
gains and losses.


Depreciation and Amortization

Depreciation and amortization expense increased to $112,701 and $221,049 for the
second  quarter  and the  first six  months of 2001,  compared  to  $95,262  and
$182,206 for the second quarter and the first six months of 2000,  respectively.
The increase was primarily due to the Company's  strategic  acquisitions in 2000
and 2001 and an  increase  in the  level of  depreciation  due to the  Company's
capital spending program.


Interest Income and Expense

Interest income increased to $7,096 in the second quarter of 2001 from $5,312 in
the second  quarter of 2000.  The  increase of $1,784 was due to higher  average
cash and short-term deposits versus the second quarter of 2000.

Interest income decreased to $8,605 in the first six months of 2001 from $11,007
in the first six months of 2000. The decrease of $2,402 was due to lower average
cash and short-term  deposits  resulting  from low cash and short-term  deposits
during the first two months of 2001 and lower interest rate versus the first six
months of 2000.

Interest  expense  increased  to  $103,066  in the  second  quarter of 2001 from
$80,841  in the  second  quarter  of  2000.  Of the  interest  expensed,  $9,826
represented cash interest payments,  $35,345 was accreted on the Senior Discount
notes, and the remaining $57,895 was accrued interest. The increased expense was
due to higher  average debt  balances  and interest on advances  from the credit
facility.

Interest  expense  increased  to  $191,362  in the first six months of 2001 from
$153,510  in the first six months of 2000.  Of the  interest  expensed,  $55,026
represented cash interest payments,  $69,931 was accreted on the Senior Discount
notes, and the remaining $66,405 was accrued interest. The increased expense was
due to higher  average debt  balances  and interest on advances  from the credit
facility.


Integration costs and provision for restructuring

During the second  quarter and the first six months of 2001,  the  provision for
restructuring  and asset  write-downs  has been drawn down by $1,282 and $4,331,
respectively,  representing  cash  payments  during the  period.  The  remaining
balance  of  $17,895  represents  expenditures  for  lease  and  other  contract
cancellations   related  to  excess  space  in  various  leased  premises,   and
termination  penalties of contracts with  alternate  access  facility  providers
where  settlement of penalties  has not been  mutually  agreed to or the flow of
payment remains outstanding.

See  additional   discussion  of  the   integration   costs  and  provision  for
restructuring in Note 10 to 2000 Annual Consolidated Financial Statements.

<PAGE>

Recent Developments

On July 27, 2001, the Company  announced a cost savings program,  which includes
the reduction of its workforce by  approximately  500 employees.  These measures
are being  taken to align the  Company's  cost  structure  with  current  growth
opportunities  that have been impacted by a weakened  economy.  The Company will
record a  provision  for the costs  associated  with this  program  in the third
quarter of 2001.



Liquidity and Capital Resources


Cash Flow from Operating Activities

During the second  quarter of 2001,  net cash used in operating  activities  was
$920.  During the quarter,  net cash generated  through non-cash working capital
was  $32,937,  which was mainly due to  interest  expenses in excess of interest
payments.

During the first six months of 2001,  net cash used in operating  activities was
$38,405. Included in this amount was net cash generated through non-cash working
capital  of  $9,604,  which was  mainly  due to  increased  accounts  receivable
collections  and  interest  expenses in excess of interest  payments,  partially
offset by lower payables during the first six months of 2001.


Capital Expenditures

The continued  development  of the  Company's  business and the build out of its
networks  in its target  markets has and will  continue  to require  significant
capital spending. The Company's strategy is to build high capacity networks with
broad market  coverage,  which increases its level of capital  expenditures  and
operating  losses  during the  development  phases.  The Company  believes  that
ownership  of the high  capacity  networks  will  enhance  its future  financial
performance and profitability.

Expenditures on property,  plant and equipment during the second quarter and the
first six months of 2001 totaled $104,979 and $233,959  respectively compared to
$119,977 and  $235,939 for the second  quarter and the first six months of 2000,
respectively.  The lower spending level in 2001 is consistent with the Company's
capital  spending  program  for  2001  and  focuses  on the  development  of its
broadband  IP network to support new data,  Internet and  E-Business  solutions,
information technology infrastructure and growth from customer demand.


Liquidity

The Company used cash of $111,913 in the second  quarter ending June 30, 2001 to
fund operations,  capital spending and corporate  development  activities.  This
requirement  was  funded  with cash on hand,  the  proceeds  from the  unwind of
certain foreign exchange  contracts and proceeds from the issuance of equity for
stock options exercised.

The  Company  used cash of  $278,542  in the  first  six  months of 2001 to fund
operations,   capital  spending  and  corporate  development  activities.   This
requirement  was funded with a $100,000  draw from the Senior  Credit  Facility,
U.S. $500,000 in proceeds from the 7.65% Senior Notes issued March 30, 2001, the
proceeds  from  the  unwind  of  foreign  exchange  contracts,  cash on hand and
proceeds from the issuance of equity for stock options exercised.

The  Company  will need  capital to fund its  capital  spending  program and its
operating and working capital requirements. The terms of certain debt agreements
specify  that  new  debt  can  only be used to fund up to 90% of  capital  asset
additions with the balance to be funded  principally  from  operations and other
sources.  The Company will fund capital  expenditures  through the proceeds from
the U.S. $500,000 of 7.65% Senior Notes issued March 30, 2001, the proceeds from
the unwind of foreign  exchange  contracts and advances  under its Senior Credit
Facility.  The Company will meet its operating and working capital  requirements
from cash on hand,  advances  under its Senior Credit  Facility and the proceeds
from an accounts  receivable  securitization  as  discussed  below.  The Company
believes  that it has adequate  liquidity to meet its financial  obligations  as
they fall due.  However,  should cash  generated  from  operating  activities or
spending under its capital  programs deviate from forecasted  levels,  or should
the Company no longer have  access to its  current  facilities,  there can be no
assurances that sufficient additional debt or equity financing will be available
on terms acceptable to the Company.

The Company has issued significant amounts of U.S.  dollar-denominated  debt and
is therefore exposed to the risk of fluctuations in the relationship between the
value  of  Canadian  and  U.S.  dollars.  At June  30,  2001,  the  U.S.  dollar
denominated  debt  amounted to $2.7  billion  (Cdn $4.1  billion).  To hedge its
foreign currency  exposure,  the Company has a variety of financial  instruments
including  foreign  currency  options,  cross  currency  interest rate swaps and
forward exchange contracts, which the Company continually evaluates. At June 30,
2001,  the Company had hedged 75.8% of its cash debt,  principal  and  interest,
service requirements to 2008.

In May 2001, the Company unwound certain swaptions,  cross-currency  swaps and a
forward contract for proceeds of $123,965,  which resulted in a deferred gain of
$29,596. This gain will be recognized in earnings over the remaining term of the
underlying debt for which these derivatives were designated as Cash Flow Hedges.
These  derivatives  were  replaced  with new  cross-currency  swaps and  forward
contracts at current market rates.

On July 20, 2001,  the Company sold  certain of its  customer  receivables  in a
securitization  program for proceeds of $100,000. The maximum cash proceeds that
can be funded under the program are $150,000.


Credit Rating

On March 6, 2001,  Standard and Poor's Rating Services ("S&P") confirmed its BBB
investment  grade rating of the Company's  senior  unsecured  debt. On March 13,
2001,  Moody's  Investor  Services  Inc.  ("Moody's")  also  confirmed  its Baa3
investment grade rating of the Company's senior unsecured debt.


Notes Offering

Since January 2001, the Company issued and sold Senior Notes as follows:


7.65% Note Offering

On March 30, 2001, the Company issued and sold U.S. $500 million of 7.65% Senior
Notes due 2006 at a price of  99.648% of the  stated  principal  amount per Note
which  constituted  an  additional  issuance to the 7.65%  Senior  Notes  issued
September 22, 1999 (the combined issuance are defined as the "7.65% Notes"). The
7.65% Notes will mature on September  15,  2006.  Interest on the 7.65% Notes is
payable semi-annually in cash in arrears on March 15 and September 15 each year,
commencing on September 15, 2001.



Risks & Uncertainties


See  discussion  on  the  Company's  Risks  &   Uncertainties   section  of  the
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" included in AT&T Canada's 2000 Annual Report.



<PAGE>



PART II. Other Information

         Item 1.  Legal Proceedings

                  None

          Item 2. Changes in Securities and Use of Proceeds

                  (a)  Not applicable

                  (b)  Not applicable
                  (c)  Not applicable

                  (d)  Not applicable

         Item 3.  Defaults Upon Senior Securities

                  None

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

                  (a)  The annual meeting of the shareholders of the registrant
                       was held on May 2, 2001;

                  (b)  Election of Directors - all Directors were voted for
                       unanimously without dissent.

                        Nominee

                        Andre Bureau
                        Steven B. Chisholm
                        Purdy Crawford
                        John Haigh
                        Stephen H. Halperin
                        Alan D. Horn
                        Philip R. Ladouceur
                        James J. Meenan
                        Jonathan M. Nelson
                        Edward S. Rogers
                        Paul J. Salem
                        D. Craig Young

                  (c)  Holders of Class A voting shares voted at this
                       meeting on the following matters which were set forth in
                       the registrant's proxy dated March 19, 2001.

                        (i)  Ratification of Auditors - KPMG was ratified as the
                             auditors to audit the registrant's financial
                             statements for the year 2001.  The ratification of
                             Auditors was voted for unanimously without dissent.

                        (ii) Directors Proposals that the Shareholders amend the
                             1999 Employee Stock Option Plan (the "Plan") to
                             increase the number of Class B Non-voting Shares
                             that may be issued upon exercise of stock options
                             granted under the Plan from 8.8 million to 9.5
                             million shares.  The holders of the Class A Deposit
                             Receipts and the Class B Deposit Receipts approved
                             the amendment by a vote of 74,875,763 votes for
                             7,937,325 votes against and 14,528,642 abstentions.

         Item 5.  Other Information

                  None

         Item 6.  Exhibits and Reports on Form 6-K

                  (a)       Exhibits

                            None

                  (b)       Reports on Form 6-K

                    i)        On May 3, 2001, the Company filed a Report on Form
                              6-K for the month of May 2001 with the  Commission
                              regarding   the   Company's   first  quarter  2001
                              Financial  Results Press  Release.  This Report on
                              6-K   included   the   Company's   (a)   condensed
                              consolidated statement of operations for the three
                              months ended December 31, 2000, and March 31, 2000
                              and  2001;  (b)  condensed   consolidated  balance
                              sheets as at March 31, 2000 and 2001; (c) selected
                              quarterly  statistical  data for the three  months
                              ended  December 31,  2000,  and March 31, 2000 and
                              2001.

                    ii)       On May 14,  2001,  the  Company  filed a Report on
                              Form  6-K for  the  month  of May  2001  with  the
                              Commission regarding the Company's Material Change
                              Report   filed  in  Canada  with  respect  to  its
                              acquisition of MONTAGE  eIntegration  Inc.

                    iii)      On July 24,  2001,  the Company  filed a Report on
                              Form  6-K for the  month  of July  2001  with  the
                              Commission regarding the Company's Material Change
                              Report   filed  in  Canada  with  respect  to  its
                              accounts  receivable  securitization.

                    iv)       On July 27,  2001,  the Company  filed a Report on
                              Form  6-K for the  month  of July  2001  with  the
                              Commission  regarding the Company's second quarter
                              2001 Financial Results Press Release.  This Report
                              on  6-K  included  the   Company's  (a)  condensed
                              consolidated statement of operations for the three
                              months  ended  June 30,  2000 and 2001 and the six
                              months ended June 30, 2000 and June 30, 2001;  (b)
                              condensed  consolidated  balance sheets as at June
                              30,  2001 and  December  31,  2000;  (c)  selected
                              quarterly  statistical  data for the three  months
                              ended March 31, 2001, and June 30, 2000 and 2001.

                                   SIGNATURES



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.



                                            AT&T CANADA INC.





Date:  August 7, 2001     /s/ David Lazzarato
                      -----------------------------------------------------
                          David Lazzarato
                          Executive Vice President and Chief Financial Officer
                          (For the Registrant and Principal Financial Officer)