<PAGE>


================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

                   For the fiscal year ended December 31, 1999

[ ] 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 001-15693

                                   -----------

                          CARRIER 1 INTERNATIONAL S.A.
             (Exact name of Registrant as specified in its charter)

           LUXEMBOURG                                  98-0199626
(State or other jurisdiction of                     (I.R.S. Employer
 incorporation or organization)                    Identification No.)

                                   -----------

                                 ROUTE D'ARLON 3
                           L-8009 STRASSEN, LUXEMBOURG
                              (011) (41-1) 297-2600
               (Address, including ZIP code, and telephone number,
        including area code, of Registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

     Shares of Capital Stock, $2.00 par value per share

     American Depositary Shares representing shares of Capital Stock

                                   -----------

         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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         At March 22, 2000, the aggregate market value of the shares of the
registrant held by non-affiliates was $1,551,736,854 (based upon the closing
price for shares as reported by the Neuer Markt segment of the Frankfurt
Stock Exchange on that date and calculated using the March 22, 2000 exchange
rate of 1 Euro to 0.9612 dollar). Shares held by each executive officer,
director, and holder of 5% or more of the outstanding shares have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.

         At March 22, 2000 there were 41,719,178 shares of Common Stock of the
registrant outstanding.

================================================================================
<PAGE>


         In this Annual Report on Form 10-K, "Carrier1 International" refers to
Carrier 1 International S.A., a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg, and "Carrier1," "we," "our" and "us" refers to
Carrier1 International and its subsidiaries and their predecessors, except where
the context otherwise requires. The symbol for the euro is represented by
"(u)".

         Certain statements contained herein which express "belief,"
"anticipation" "expectation," or "intention" or any other projection,
including statements concerning the design, configuration, feature and
performance of our network and related services, the development and
expansion of our business, the markets in which our services are or will be
offered, capital expenditures and regulatory reform, insofar as they may
apply prospectively and are not historical facts, are "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Because such
statements include risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements include, but
are not limited to, the factors set forth in "Item 1. Business--Risk
Factors" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."

                                    PART I

ITEM 1. BUSINESS

         Carrier1 International is a holding company and renders its services
indirectly through subsidiaries primarily located in various Western European
countries. Its registered office is located at L-8009, Strassen, Route d'Arlon
3, Luxembourg. Executive offices of Carrier1 International GmbH, its principal
management services subsidiary, are located at Militarstrasse 36, CH-8004
Zurich, Switzerland. Its phone number is 41-1- 297-2600.

OVERVIEW

         We are a rapidly expanding European facilities-based provider of voice,
Internet and bandwidth and related telecommunications services. We offer these
services primarily to other telecommunications service providers. In March 1998,
our experienced management team and Providence Equity Partners formed Carrier1
to capitalize on the significant opportunities emerging for facilities-based
carriers in Europe's rapidly liberalizing telecommunications markets. By
September 1998, we had deployed our initial network and commenced selling
services. By December 31, 1999, we had 259 contracts with voice customers and 70
contracts with Internet and bandwidth customers.

         We are developing an extensive city-to-city European fiber optic
network accessing and linking key population centers. In select European cities,
we are also developing intra-city networks and data centers for housing and
managing equipment. We expect these intra-city networks to give us faster, lower
cost access to customers, with better quality control. We also expect to bundle
and cross-sell our intra-city network and data center capabilities with our
other services.

         As of December 31, 1999, we offered voice, Internet and bandwidth and
related services in 17 cities and 11 countries. In addition, as of December 31,
1999 we had arranged to secure, through a combination of


                                       2
<PAGE>

building, buying and swapping assets, an extensive network which we expect to
become operational in stages through the end of 2000. This network will
consist of wholly-owned fiber in Germany, France, the United Kingdom, The
Netherlands, Norway and Sweden, and wholly-owned capacity at speeds greater
than 2.5 Gbps in Denmark, Italy, Switzerland and Belgium. The network will
include a 2,370 kilometer network in Germany, and an intra-city network in
Amsterdam that we expect to complete by the end of the third quarter of 2000.

         We intend to continue rapidly expanding our network in a cost-effective
manner by building, buying or swapping network assets. For example:

         o        We expect to complete construction of the 2,370 kilometer
                  German network in the first half of 2000. The German network
                  will connect 14 principal cities and pass a number of other
                  major cities. We are building the German network with partners
                  to lower our fixed cost of construction. We will own our own
                  duct, which will initially contain 72 fiber strands. We have
                  swapped excess capacity on the German network for fiber
                  capacity on other networks in our target markets to increase
                  the reach of our owned and controlled network in a
                  capital-efficient way. Moreover, our duct may have space for
                  additional fiber strands which may be used to meet additional
                  demands for bandwidth or improvements in technology.

         o        We have arranged to construct 44 kilometers of intra-city
                  network capacity in Amsterdam for expected completion in the
                  third quarter of 2000. We pre-sold conduit rights on this
                  network to lower our fixed cost of construction, and we have
                  swapped excess capacity to extend it an additional 70
                  kilometers. When completed, this network will connect major
                  telecommunications and business centers in Amsterdam.

As we have expanded our owned network, we have been phasing out our leased
network assets.

         Stig Johansson, Chief Executive Officer, and our management team have
extensive experience in European telecommunications markets and longstanding
relationships with European wholesale customers and suppliers. Mr. Johansson was
formerly the President of Unisource Carrier Services AG, a large European
wholesale carrier. Our senior management comes from Unisource Carrier Services,
ACC Corp., AT&T- Unisource Communications Services, Telia Norge AS, British
Telecom and AT&T. Mr. Johansson and others in management have also had
significant experience with start-up ventures. We believe that management's
experience and long-standing customer relationships were key to our launch of
operations approximately six months after our founding.

INDUSTRY AND MARKET OPPORTUNITY

         We believe that the market for advanced, high bandwidth, transmission
capacity and other telecommunications services in Europe will grow significantly
due to a number of factors, including:

         o        LIBERALIZATION. Entry to the telecommunications market was
                  liberalized in almost all European Union member states on
                  January 1, 1998. We expect the European telecommunications
                  market to experience developments similar to those that have
                  occurred in the United States and the United Kingdom following
                  liberalization, including an increase in both international
                  and national traffic volume, reduced prices, increased service
                  offerings and the emergence of new


                                       3
<PAGE>

                  entrants seeking to outsource some or all of their
                  telecommunications infrastructure and service needs. In
                  addition, we expect some regional carriers in the United
                  States to begin to offer international long distance service,
                  which we believe will lead to increased demand for alternative
                  carriers of transatlantic and European traffic.

         o        LARGE AND RAPIDLY GROWING MARKET FOR VOICE SERVICES. Industry
                  sources report that the European international long distance
                  market is among the largest in the world and is continuing to
                  grow rapidly.

         o        RAPIDLY GROWING DEMAND FOR INTERNET AND BANDWIDTH SERVICES.
                  Industry sources estimate that the penetration rate of web
                  users in Europe will grow from a level of approximately 10% at
                  the end of 1998 to approximately 45% in 2003. We believe that
                  substantial additional bandwidth and faster transmission
                  speeds will be required to accommodate new Internet intensive
                  business applications, such as electronic commerce, the
                  deployment of corporate intranets and virtual private
                  networks, voice communication over the Internet, video
                  conferencing, broadcast multimedia, application hosting
                  services, access via cellular networks, and other Internet
                  protocol-based value added products and services.

         o        DEMAND FOR RELATED SERVICES. Increasing demand for basic
                  telecommunications services presents opportunities for
                  companies to market other related services, such as data
                  centers to house and manage a customer's mission-critical
                  telecommunications and data equipment, which have significant
                  space and monitoring requirements.

BUSINESS STRATEGY

         Our objective is to become a leading European provider of high quality
voice, Internet and bandwidth and related services to other telecommunications
service providers. The key elements of our strategy are:

         o        TARGET TELECOMMUNICATIONS SERVICE PROVIDERS. By focusing on
                  the wholesale sector, we can take advantage of our
                  management's strong market-oriented skills, first-hand
                  understanding of the European telecommunications markets and
                  long-standing customer relationships. Moreover, our focused
                  wholesale marketing strategy allows us to operate with less
                  overhead than carriers with mass retail operations and to
                  provide unbiased services to new entrants and established
                  carriers alike.

                  In particular, we focus our marketing efforts on fixed-line
                  and mobile competitive retail operators that lack
                  international infrastructure. We also focus our marketing
                  efforts on established non-European operators that lack
                  infrastructure in Europe or are seeking lower-cost
                  alternatives and wish to outsource their European
                  infrastructure needs. Based on our management's experience
                  in European telecommunications markets, we believe these
                  new entrants and non-European operators prefer an
                  independent supplier of wholesale services to an incumbent
                  telephone operator or other supplier with which they
                  compete directly. In addition, we believe that these
                  customers are increasingly seeking flexible, lower cost
                  alternatives to the high tariffs that incumbents have
                  traditionally charged.

         o        FOCUS ON CUSTOMER NEEDS. We will continue to build
                  relationships with a large number of telecommunications
                  service providers by providing quality, customized service and
                  a superior level of customer support.


                                       4
<PAGE>

                  o        QUALITY OF SERVICE. We believe that quality of
                           service is critical to obtaining and retaining
                           customers. Our technologically advanced network
                           and network management and information systems
                           allow us to offer our services at guaranteed
                           minimum levels of order implementation, response
                           and repair time and availability. Based on our
                           management's experience in telecommunications
                           markets, we believe that we offer among the
                           highest minimum service levels for voice and
                           Internet and bandwidth services. Owning fiber
                           optic networks, switches, multiplexers and routers
                           helps us to control the quality and breadth of our
                           service offerings.

                  o        SUPERIOR CUSTOMER SUPPORT. We have designed our
                           systems with the goal of providing a level of
                           customer support significantly higher than what we
                           believe is generally offered in the wholesale
                           market in Europe, particularly by incumbent
                           telephone operators. Key features of these systems
                           include: (1) decentralized and locally based
                           sales, installation and basic support,
                           facilitating quick response to customer needs, (2)
                           a help desk operating 24 hours a day, 365 days a
                           year, (3) on-line order management and
                           provisioning, traffic reports, fault reports and
                           repair information and (4) on-line customized
                           billing. We believe that these features allow us
                           to offer our customers the ability to monitor and
                           control services we provide them.

         o        RAPID AND CAPITAL-EFFICIENT NETWORK EXPANSION. We seek to
                  invest in key strategic assets, such as our German network,
                  which we can use as a currency for swaps to extend our
                  European coverage as rapidly as possible. Through this
                  strategy we are developing a cross-border network linking
                  principal cities of Western Europe and expect to continue to
                  increase the number of countries covered by the network and
                  broaden our network presence within particular countries. We
                  have reduced the capital necessary to assemble this existing
                  and contracted network by:

                           -        sharing the cost of building the German
                                    network with partners,
                           -        selling or pre-selling conduit rights or
                                    capacity to defray costs, and
                           -        swapping capacity or services.

                  We plan to continue to take this rapid and capital-efficient
                  approach in implementing our strategy to secure intra-city
                  networks in up to 20 cities throughout Europe through swaps of
                  fiber and pre-selling of conduit rights. Similarly, we are
                  taking a capital-efficient approach to developing data center
                  capabilities by building them through a joint venture. We
                  expect that having intra-city networks and data center
                  capabilities will enhance the value of our network by bringing
                  us closer to major telecommunication centers and therefore to
                  our customers.

         o        EXPLOIT LOW COST PROVIDER POSITION. Owning a high capacity,
                  cross-border network in Europe gives us a significant cost
                  advantage over incumbent providers with extensive legacy
                  networks and newer competitors that currently lease the
                  majority of their network or that will be required to lease a
                  significant amount of capacity in the future to meet increased
                  demand or that are incurring the full cost of building
                  networks without the use of capital-efficient swapping or
                  pre-selling strategies. We believe that we will further reduce
                  the overall cost of deploying our network by continuing to
                  engage in swaps and sales of dark fiber. We believe that the
                  intra-city extension of our network in up to 20 major cities
                  will enhance our low-cost position by reducing the need for
                  alternative city carriers and leased lines, which can be
                  expensive and have long lead times for delivery. We expect
                  that acquiring our data center capabilities through a joint
                  venture will also enhance our low-cost position.


                                       5
<PAGE>

         o        PURSUE GROWING DEMAND FOR BANDWIDTH. We believe that demand
                  from European telecommunications carriers, Internet service
                  providers and other businesses for high bandwidth Internet
                  transmission capacity will increase substantially over the
                  next several years primarily due to technological and
                  regulatory developments. We also believe that additional
                  network transmission capacity and faster transmission speeds
                  will be required to accommodate high bandwidth business
                  applications such as electronic commerce, the deployment of
                  corporate intranets and virtual private networks, facsimile
                  transmission over the Internet, video conferencing, access via
                  cellular networks, and other Internet protocol-based services.
                  We believe that pursuing this demand in the Internet sector
                  will be key to our continued success.

         o        BUNDLE AND CROSS-SELL A COMPREHENSIVE RANGE OF NETWORK
                  SOLUTIONS. We can customize our voice, Internet and bandwidth
                  and other capabilities in combinations, or as comprehensive
                  European end-to-end network solutions. For example, we believe
                  existing customers that use our city-to-city capabilities will
                  be interested in locating their equipment in our data centers,
                  as they become available. After a customer places equipment in
                  a data center, we have an enhanced opportunity to manage that
                  equipment or to provide additional city-to-city or intra- city
                  transport. Similarly, a customer who may use our intra-city
                  and data center capabilities, as both of these develop, may
                  also find it convenient to use our city-to-city and other
                  capabilities. We can also offer customers the entire range of
                  our capabilities to create a virtual carrier network in which
                  we provide all of the European telecommunications network
                  infrastructure and services they require, except for branding,
                  sales and features customized for end users. These virtual
                  carrier network solutions will allow a customer to select from
                  a menu of our capabilities to create its own branded
                  pan-European service, with the ability to monitor and control
                  the services we provide, without investing in the
                  infrastructure and support that we offer.

         In furtherance of our core business strategy, we regularly explore
possible strategic alliances, acquisitions, business combinations and other
similar transactions, with a view to expanding our European and international
presence, securing cost-effective access to transmission capacity or other
products and services, or otherwise enhancing our business, operations and
competitive position. Our industry is characterized by high levels of this type
of activity. We expect to continue to regularly explore possibilities of this
kind with other telecommunications companies. We believe that the flexibility to
utilize either cash or our publicly traded shares as a currency for possible
transactions may enhance our ability to pursue acquisition or other business
combination opportunities. Any future transaction may be significant to us,
although no assurance can be given that any transaction will occur.

SERVICES

         We are focusing on providing voice, Internet and bandwidth and related
services, primarily to other telecommunications service providers, at the high
level of quality expected by European customers. For the year ended December 31,
1999, we had $87.6 million of revenues from voice services and $9.5 million of
revenues from Internet and bandwidth services. For more information about our
revenues, see Note 13 to our consolidated financial statements.


                                       6
<PAGE>

         VOICE SERVICES

         Our voice services generally consist of providing city-to-city
transport from our network points of presence located in strategic European
cities and New York for termination anywhere in the world. Our customers
generally will arrange for transmission of their traffic to one of our points of
presence at their own cost, although we may provide service from the customer's
site if traffic volume is sufficient. We are in the process of extending our
network locally in select cities, which will enable us to provide city-to-city
and intra-city service from some customers' sites in those cities and will
increase quality control, lower the cost of connection and shorten
implementation times. Our voice service contracts guarantee a minimum of 99.9%
availability on the network and maximum implementation, response and repair
times.

         Our current offering of voice services allows a customer to access our
network both by direct connection and indirect access. Indirect access and other
capabilities have allowed us to provide value-added services to customers with
no telecommunications infrastructure, such as switchless resellers, to
distributors of pre-paid phone cards and toll-free services, and to other
customers with needs for particular value-added capabilities, such as ISDN.

         INTERNET AND BANDWIDTH SERVICES

         We seek to be a major European Internet backbone and value-added
services provider.

INTERNET TRANSPORT SERVICES. We currently offer two types of wholesale Internet
transport services, "Global Transit Services" and "Internet Exchange Connect
Services." We offer both services at various capacity and quality levels.

         Our Global Transit Service provides customers with high-speed,
high-quality connectivity to Internet domain addresses world-wide. This backbone
service interconnects our customers with selected Internet exchanges and other
international Internet backbone providers. Customers connected to the Global
Transit Service backbone have any-to-any connectivity geared to providing
optimal Internet reach and connectivity.

         Our Internet Exchange Connect Service, or IX Connect, is a
point-to-point option for customers who want to transit solely to a specific
Internet exchange or to a specific partner. It offers one-to-one connectivity to
a select number of destinations through main Internet exchanges in Europe and
the United States. We currently offer IX Connect connectivity to the following
internet exchanges: LINX in London, BNIX in Brussels, AMS-IX in Amsterdam, D-GIX
in Stockholm, DE-CIX in Frankfurt, VIX in Vienna, MIX in Milan, CIPX in Geneva,
SFINX and PARIX in Paris, MAE East in Washington and several Internet backbone
providers in New York. We expect to extend connectivity to MAE West in San
Francisco and selected other exchanges in the United States by the end of the
second quarter of 2000. The principal guaranteed parameters of IX Connect are
dedicated reserved capacity, access speed ranging from 2 Mb to 155 Mb and the
announcement of the customer's Internet domain at the remote location. We will
also guarantee certain minimum connection speeds and maximum response and repair
times.

VALUE-ADDED INTERNET SERVICES. We are currently offering select Internet-based
value added services. These include streaming media distribution, which consists
of the transmission of audio and video media, and virtual ISP service, which
consists of providing a menu of our capabilities from which an ISP can create
its own branded Internet service without investing in the Internet
infrastructure we plan to provide. For example, we have entered into an
agreement with Yahoo! Broadcast Services to facilitate the distribution of their
streaming


                                       7
<PAGE>

media. To optimize the distribution process, we have enabled our network for
multicasting, which is an efficient mechanism for delivering broadcasts from one
source to thousands of receivers. We are also enabling our ISP customers'
networks for multicasting.

         We are currently testing other Internet-based value-added services and
evaluating their introduction, which will depend on commercial feasibility and
demand. These services include virtual private networks using security
management, electronic-commerce related services, application hosting, wireless
access to the Internet, voice transmission over Internet protocol and unified
messaging services.

BANDWIDTH SERVICES. As we migrate our services to our owned transmission
network, we have increasingly targeted the demand for high quality bandwidth
services, including:

         o        MANAGED BANDWIDTH. Our managed bandwidth service provides
                  capacity of 2 Mbps, 34 Mbps, 45 Mbps, and 155 Mbps. Larger
                  bandwidths up to 2.5 Gbps are available upon request. These
                  services are designed for customers who require large data
                  transport capacity between cities.

         o        WAVELENGTH SERVICES. The dense wave division multiplexing, or
                  DWDM, technology used in our network allows us to offer
                  optical wave or "wavelength" services to our customers, which
                  provides 2.5 Gbps to 10 Gbps of capacity. The capacity that we
                  use to provide these wavelengths is in addition to the
                  capacity we use to provide our other services. We can derive
                  on average eight 10 Gbps wavelengths, and up to thirty-two 10
                  Gbps wavelengths, from a single strand of fiber with equipment
                  that we currently have on order. We expect this capability to
                  increase with advances in technology. This service is designed
                  for customers who require very large transport capacities
                  between cities, but who do not wish to purchase dark fiber and
                  invest in the transmission electronics to enable the fiber to
                  carry traffic. We believe, based on our management's
                  experience, that many potential customers will be interested
                  in wavelength services because they allow purchases of
                  bandwidth in smaller increments than purchases of dark fiber
                  while retaining the control advantages of dark fiber.

         o        DARK FIBER. We also offer rights for dark fiber and related
                  services. Because dark fiber consists of fiber strands
                  contained within a fiber optic cable which has been laid but
                  has not yet been "lit" with transmission electronics,
                  purchasers of dark fiber typically install their own
                  electrical and optical transmission equipment. For example, in
                  December 1999, we entered into an 18 year IRU under which we
                  will provide two pairs of dark fiber on the German network,
                  and related services, to Tesion, a joint venture in which
                  Swisscom is a 50% participant.

         DATA CENTER CAPABILITIES

         Telecommunications and Internet technologies that are emerging in
Europe, as well as existing technologies, have significant space and monitoring
requirements. The liberalization of the telecommunications industry and
resulting increase in new entrants and demand for Internet services have created
a growing demand for data center services in Europe. We plan to offer to
customers state-of-the-art data centers to house mission-critical voice, video,
caching, data networking and transmission equipment in a highly reliable,
redundant and secure environment. We will also offer technical support to
monitor, manage and troubleshoot the equipment.


                                       8
<PAGE>

         We believe the ability to offer managed data center capabilities will
help us to cross-sell multiple services to customers and to further secure our
relationships with those customers. In addition, as we develop additional
Internet services, we expect that these facilities will enhance our ability to
offer virtual ISP and similar services.

         We are developing our network of data centers in major European markets
through our Hubco joint venture. Hubco intends to build up to 20 to 25
facilities, generally ranging in size from 100,000 to 350,000 square feet in
major markets in Europe during 2000 and 2001. We expect to have a minimum of
between 10,000 and 25,000 square feet for our use and the use of our customers
in each facility. We expect to connect each facility in which we become a
strategic anchor tenant to our fiber optic network. As a strategic anchor tenant
in these facilities, we will have favorable rents and rights to additional
space, subject to some conditions, including that we not become an affiliate of
a Hubco competitor. We can opt not to be a tenant in some planned locations and,
if we wish to build data centers in additional locations, we have given Hubco
the right of first refusal to construct them.

         We expect to compete with Hubco and another of our joint venture
partners in providing data center capabilities.

NETWORK

         We believe it is critical to own or control key elements of our network
in order to become a high-quality, low-cost provider. We commenced operations
primarily on a leased fiber optic transmission platform to enable our early
entry into the market. Over time, we have expanded our network in a phased
approach, adding capacity to meet expected increases in demand. To reduce our
cost base, however, we have sought to obtain additional transmission capacity at
dark fiber cost levels, through building new capacity and acquiring capacity
through purchases or swaps of excess capacity.

         For example, by investing in the German network with partners, and
by pre-selling rights to conduit space on the Amsterdam network, we first
reduced our own cost of construction. We then swapped fiber on the German
network for transmission capacity in other regions. Similarly, we have
swapped fiber to extend the reach of the Amsterdam network.

         In addition, by extending our network intra-city in up to 20 European
cities, we intend to acquire transmission capacity in areas that have
traditionally been served by very few carriers or by only one carrier. We expect
that these intra-city networks will lower the cost of our services by providing
us with a dark fiber alternative to expensive leased lines. We also expect that
these intra-city networks will serve as valuable currency to swap for capacity
on other networks.

         Our early and continued use of multiplexers to establish points of
presence rapidly and cost effectively also illustrates this capital-efficient
approach to network expansion. Multiplexers are less costly and easier to
install than switches, enhance our flexibility and service quality and help to
reduce our termination costs. As voice traffic increases, we may replace
multiplexers with switches and redeploy these multiplexers in new markets. We
have the flexibility to continue using multiplexers and defer purchasing
additional switches until improved technologies, which we are in the process of
testing, become commercially available.


                                       9
<PAGE>

         The following table shows, as of December 31, 1999, the cities where we
had Nortel switches, multiplexers and high-capacity Cisco routers in service. We
selected these cities because they represent important sites of European traffic
origination or termination. The table also shows, as of December 31, 1999, the
cities where we plan to install multiplexers and routers through the end of
2000. In anticipation of technological advances in voice transmission and
switches, we are deferring the installation of more traditional switches. The
timing, location and number of switches, multiplexers and routers may change
depending on advances in technology, customer demand or regulatory conditions.

<TABLE>
<CAPTION>
                INSTALLED NETWORK COMPONENTS (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------
                         VOICE                                 INTERNET
------------------------------------------------------ ------------------------
          SWITCHES                  MULTIPLEXERS               ROUTERS
---------------------------- ------------------------- ------------------------
<S>                          <C>                       <C>
Amsterdam                    Copenhagen                Amsterdam
Berlin                       Geneva                    Brussels
Brussels                     Hanover                   Dusseldorf
Dusseldorf                   Munich                    Frankfurt
Frankfurt                                              Geneva
Hamburg                                                Hamburg
London                                                 London
Manchester                                             Milan
Milan                                                  New York
New York                                               Paris
Paris                                                  Stockholm
Stockholm                                              Vienna
Vienna                                                 Zurich
Zurich
</TABLE>

<TABLE>
<CAPTION>
PLANNED NETWORK INSTALLATIONS THROUGH END OF YEAR 2000 (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------
                 VOICE                                   INTERNET
---------------------------------------  ---------------------------------------
              MULTIPLEXERS                               ROUTERS
---------------------------------------  ---------------------------------------
<S>                                      <C>
Barcelona                                Barcelona
Bremen                                   Chicago
Cologne                                  Cologne
Dortmund                                 Dallas
Dresden                                  Dublin
Dublin                                   Lyon
Essen                                    Madrid
Helsinki                                 Marseille
Leipzig                                  Stuttgart
Lyon                                     Helsinki
Madrid                                   Leipzig
Marseille                                Oslo
Mannheim                                 San Francisco
Nuremberg                                Washington D.C.
Oslo
San Francisco
Stuttgart
</TABLE>


                                       10
<PAGE>

         We are also considering installing multiplexers in Athens, Budapest,
Lisbon, Prague and Warsaw, and routers in Athens, Berlin, Budapest, Copenhagen,
Manchester, Munich, Lisbon, Prague and Warsaw.

         EXISTING NETWORK

         Our management believes that entering the liberalizing European
telecommunications markets early and establishing our position quickly with a
technologically advanced network has given us a competitive advantage in such
markets.

TRANSMISSION CAPACITY. As of February 15, 2000, our traffic
is transmitted principally over:

1)       three STM-1 (155 Mbps) transatlantic circuits, all terminating in New
         York and starting in Amsterdam, Frankfurt, and London,

2)       one DWDM enabled fiber ring connecting London, Paris, Frankfurt and
         Amsterdam and, on a physically separate route, one 2.5 Gbps wavelength,
         with an option to upgrade to 10 Gbps, acquired in a swap for the
         purpose of diversity, configured in a ring linking London, Brussels,
         Amsterdam, Frankfurt and Paris,

3)       one 2.5 Gbps wavelength, with an option to upgrade to 10 Gbps,
         configured in a ring linking Paris, Zurich, Milan and Geneva,

4)       one STM-1 linking Hamburg, Copenhagen and Stockholm,

5)       two STM-1s linking Frankfurt and Vienna,

6)       one STM-1 linking Frankfurt and Zurich,

7)       one E3 (34 Mbps) linking Vienna and Zurich,

8)       one VC-3 (45 Mbps) linking Frankfurt and Milan,

9)       one STM-1 linking London and Manchester,

10)      one T3 (45 Mbps) linking MAE East and New York,

11)      in Germany, STM-1s linking Frankfurt and Dusseldorf; Dusseldorf and
         Hamburg; Hamburg and Berlin; Berlin and Frankfurt; Hamburg and
         Hannover; Hannover and Frankfurt; and Frankfurt and Munich,

12)      two VC-3 circuits, acquired in a swap, linking London and Stockholm,
         and

13)      one long term lease of DWDM enabled fiber connecting the major
         telecommunications facilities in London.


                                       11
<PAGE>

NETWORK MANAGEMENT CAPABILITIES. We have installed Synchronous Digital
Hierarchy, or SDH, equipment at each network point of presence that provides us
with information relating to the status and performance of all elements of our
network, including the transmission capacity provided to us by various third
parties. This SDH layer also provides us with flexibility to connect new
providers of transmission capacity and to configure this capacity in a flexible
manner.

         PLANNED NETWORK DEPLOYMENT

         We are continuing to pursue an aggressive timetable for extending the
scope of our network, thereby rapidly expanding our presence in our target
markets. We are installing a cross-border network linking the principal cities
of several European countries and will continue to increase the number of
countries covered by the network and broaden our presence within particular
countries and cities.

THE GERMAN NETWORK. We entered into a development agreement to build the German
network with affiliates of Viatel and Metromedia. We expect the German network
to be completed in the first half of 2000. The German network, when completed,
will be an advanced, high-capacity, bi-directional self-healing 2,370 kilometer
fiber optic ring utilizing advanced SDH and DWDM technologies. The German
network will initially connect Berlin, Bremen, Cologne, Dortmund, Dresden,
Dusseldorf, Essen, Frankfurt, Hamburg, Leipzig, Mannheim, Munich, Nuremberg, and
Stuttgart. The German network will also pass a number of other major cities.
When the German network is completed, we will own our own cable duct and access
points. Our cable duct will initially contain 72 strands of fiber. It may have
space for additional strands, permitting for upgrades in quality or capacity in
the future. Our estimated share of the development costs will be approximately
$115 million, including the fiber initially deployed and the installation of 14
points of presence.

         We decided to build our network in Germany because:

         o        Germany is the largest telecommunications market in Europe and
                  a major center for voice and Internet traffic within Europe,

         o        there is limited availability of cost-effective transmission
                  capacity in Germany,

         o        leased transmission costs are currently high in Germany and we
                  desire to lower our cost base in such a large market,

         o        Germany's population is widely and relatively evenly dispersed
                  among many cities, requiring the installation of a number of
                  switches and routers throughout the country to effectively
                  access the full range of potential customers,

         o        installing multiple points of presence in Germany will reduce
                  our voice termination and access costs and improve our
                  position within the German regulatory framework, and

         o        Germany's central location within Europe provides a good base
                  from which to connect the German network to other parts of
                  Europe.

In addition, excess capacity on the German network has been useful to us as a
valuable currency to swap for capacity on other networks,as described below. We
believe excess capacity will continue to be useful swap currency.


                                       12
<PAGE>

         Pursuant to the Development Agreement, Carrier1 and Metromedia each
have a 24.995% interest and Viatel has a 50.01% interest in the development
company. Viatel, as a result of its majority interest, controls all but certain
major decisions relating to the development of the German network which require
unanimous consent. Costs of construction are borne pro rata by Viatel, Carrier1
and Metromedia, and the development company will be indemnified for certain
liabilities, costs and expenses by each of the parties. In addition, Viatel is
entitled to a developer's fee of 3% of certain construction costs, 25% of which
is borne by us.

         Each of Viatel, Metromedia and us provided the development company with
a letter of credit. The development company may draw on the letter of credit of
a party that does not meet its funding obligations.


THE SCANDINAVIAN NETWORK. Under the terms of another 15 year IRU exchange
agreement, we will receive two wavelengths connecting Hamburg to Copenhagen and
Malmo, Sweden, in exchange for two wavelengths connecting the German cities of
Hamburg, Berlin and Frankfurt. The initial capacity of the wavelengths will be
2.5 Gbps, but we have secured options to upgrade to 10 Gbps. The agreement
includes the operations and maintenance on each of the wavelengths, and rack
space in repeater sites, regeneration sites and points of presence. We expect to
make the exchange by the third quarter of 2000.

         In addition, under the terms of an 18 year IRU capacity exchange
agreement, we will obtain transmission capacity along a 2,000 kilometer route
linking four major population centers of the Nordic region: Stockholm, Oslo,
Gothenburg and Malmo. For the first three years of the agreement we will receive
a 2.5 Gbps wavelength, upgradable at our option to 10 Gbps or dark fiber after
one year. We believe that receiving this wavelength will enable us to defer the
significant investment in transmission equipment required to light the 2,000
kilometer route. In exchange, we will provide Internet transmission capacity.
The agreement includes the ancillary services required for use of the
transmission capacity. These services consist primarily of operations and
maintenance, rack space in repeater and regeneration sites, power facilities and
security, but do not include the transmission equipment required to light the
fiber if we elect to upgrade to dark fiber. We began to deliver the Internet
capacity in November 1999, and we expect to receive the transmission capacity in
August 2000.

THE FRENCH NETWORK. We currently have owned transmission capacity operational
in the northern part of France, inlcuding Paris. We are also a party to an
exchange agreement that calls for us to provide 12 strands of fiber on our
German network in exchange for 12 strands of fiber on a 2,650 kilometer
French network that connects 14 cities, representing some the largest
population centers within France. Although on March 28, 2000, the other party
to this agreement provided a notice that seeks to terminate, we believe the
notice is not valid and we are working to reach a satisfactory resolution of
the matter with that party. In any event, we are already seeking to secure
additional comparable fiber in France on a swap basis from one or more of the
available alternative suppliers with whom we are currently in discussion.

OTHER CITY TO CITY EUROPEAN NETWORKS. Under the terms of a 10 year IRU, we will
receive a 2.5 Gbps wavelength linking Paris, Geneva, Zurich, Milan and
Frankfurt, which may be upgraded to 10 Gbps of capacity.

THE AMSTERDAM NETWORK. For the Amsterdam intra-city network, we are building a
44 kilometer ring of 12 ducts, one of which is to be filled with a cable of 144
strands of fiber and four of which have been pre-sold, reducing our future unit
costs. In addition, we have arranged a swap to extend this network by an
additional


                                       13
<PAGE>

70 kilometers, to cover the greater Amsterdam metropolitan area, including
Schiphol Airport and the major business parks. Construction of the Amsterdam
network is currently underway and is expected to be completed in the third
quarter of 2000.

TRANSATLANTIC CAPACITY. We have arranged to purchase a multiple investment unit
in TAT-14, a transatlantic cable connecting Amsterdam, London and New York. We
expect TAT-14 to become operational during the first quarter of 2001.

         FURTHER NETWORK EXTENSIONS AND DEVELOPMENTS

         We have already begun to extend our planned network beyond our original
deployment plans. We will consider further extending our network within Europe
beyond our current planned deployment in light of evolving market conditions and
our financial position and financing options. Due to the rapidly evolving
dynamics of the European telecommunications market, we will continually reassess
the most cost-effective means of network expansion. Future increases in the
supply of dark fiber may make building new capacity a less favorable option, in
economic terms, than variable or fixed-rate lease arrangements, the purchase of
transmission rights or the swapping of transmission capacity or services.

         EXISTING AND PLANNED TRAFFIC TERMINATION ARRANGEMENTS

         By establishing interconnection arrangements with incumbent telephone
operators in liberalized markets and direct operating agreements with incumbent
telephone operators in emerging markets, we can keep our costs of terminating
voice traffic lower and exercise greater control over quality and transmission
capacity than we can using refile or resale agreements. Similarly, entering into
additional peering agreements will minimize the cost of terminating our Internet
traffic.

VOICE TERMINATION. We carry voice traffic to any destination in the world,
either directly through interconnection or direct operating agreements or
indirectly through "refile" or "resale" agreements with other carriers who have
a local point of presence and an interconnection agreement with the relevant
incumbent telephone operator.

         As of December 31, 1999, we had established points of interconnection
to provide for the local origination and termination of our voice traffic with
carriers in Austria, Belgium, Denmark, Germany, Italy, The Netherlands, Sweden,
Switzerland, the United Kingdom, and the United States, and we had started to
implement an interconnection arrangement in France. Subsequent to December 31,
1999, we implemented the interconnection agreement with the local carrier in
France.

         As of December 31, 1999, we had interconnection applications pending in
Finland, Ireland and Norway. We also had upgraded our direct link into Turkey,
an important traffic destination from Germany, and had also implemented direct
operating agreements with local carriers for termination of voice traffic in a
number of emerging markets in Africa that are important traffic destinations
from France and the United Kingdom.

         Most refilers currently operate out of London or New York. Accordingly,
much of our refiled traffic is rerouted to London or New York, but we can also
refile traffic from most of our other points of presence, where refiled traffic
is then carried to its termination point.


                                       14
<PAGE>

INTERNET TERMINATION. Internet termination is effected free-of-charge through
peering and for a fee through transit arrangements. As of December 31, 1999, we
had peering arrangements with approximately 85 ISPs and backbone providers,
primarily in Europe, including Cable & Wireless, UUNet and Deutsche Telekom. As
our volume of Internet traffic increases, we expect we will be in a position to
negotiate peering with other major European backbone providers. In the United
States, where almost all European backbone providers must pay to access the
backbones of the major United States Internet backbone providers, we have
transit agreements with UUNet Technologies, Inc., an MCI WorldCom subsidiary,
and GTE Internetworking, a unit of GTE Corporation. In the United States, we
have peering arrangements with Epoch Networks, Exodus and PSINet.

OPERATIONS

         NETWORK IMPLEMENTATION AND OPERATION

         In July 1999, we assumed the technical operation of our network from
Cisco and Nortel, other than basic equipment servicing, so that we can control
all the customer-related functions of the business. A small team of operations
staff will manage the future planning and architecture of the network.

         The voice and Internet network operating systems allow us to use
advanced software to maximize the efficient operation of the network, including
managing the flow of voice and Internet traffic on a daily basis and identifying
the precise location of faults. These systems are also sufficiently flexible to
allow us to migrate to more advanced technological applications as they become
commercially feasible.

         We have a network operations center in London from which we operate the
voice and Internet network. We believe that a centralized network operations
center enables us to identify overloaded or malfunctioning circuits and reroute
traffic much more quickly than if the network were controlled by separate
network operations centers in different countries.

         CUSTOMER SUPPORT

         An essential goal of our business strategy is to provide a level of
customer support above that which is currently available in the wholesale
telecommunications markets of Europe.

         The in-country operations support team, together with the operations
teams at our network operations center, manages the point of presence locations
and implementation of a customer's order. The in-country operations and sales
teams provide a customer with local language support and quick access and
response to orders and other needs. A help desk in London serves as the first
place to which customer inquiries are directed. The help desk is open 24 hours a
day, 365 days a year. It not only manages customer inquiries but is the first
place to which customer problems are reported and, from there, internally
directed for resolution. Customers may call the help desk at any time to receive
a status report regarding their request or problem. During the second quarter of
2000, we plan to establish an additional help desk in continental Europe to
specifically address our German- and French-speaking customers.

         All customer service orders received by the local sales forces are
reported to the central order desk at our network operations center. The central
desk then logs the order into our computer system and directs the order to the
voice or Internet team. The central desk also tracks the status of an order
during implementation. We have automated our operational workflows so that the
status of customer order implementation, traffic


                                       15
<PAGE>

faults, repair histories and other customer-related information is accessible,
on-line, by our employees at any time. We believe that the internal visibility
created by the on-line availability to employees of all customer-related
information enhances the general monitoring and management of the customer
relationship and facilitates informed and timely responses to customers' service
needs or problems. Furthermore, by tracking on-line all aspects of a customer's
history from the customer's first call through the term of the relationship, we
optimize our ability to provide follow-up and proactive advice to our customers.

         In addition to the minimum service level guarantees contained in our
voice and Internet service contracts, we also guarantee response times to
customer requests within hours, and repair times within one day of the fault
being reported.

         INFORMATION SYSTEMS

         We have obtained and installed advanced information technology systems
tailored to providing voice, Internet and bandwidth services on a wholesale
basis. We have developed our own system to enable us to determine optimum
routing on a real-time basis, allowing us to optimize margins and quality within
the constraints of the network. In order to identify the most cost-efficient and
quality-acceptable route for voice traffic at any given time, the system takes
into account costs on a given route, the capacity of the route, and quality
considerations. Routing information is updated daily and takes into account the
prior day's actual costs rather than hypothetical forward costs. Once the
optimum routing has been determined, all switches are updated automatically from
a routing computer. Among other things, our systems are designed to facilitate
on a real-time basis:

         o        swift and efficient order management,

         o        service provisioning,

         o        customer-responsive traffic fault management,

         o        billing,

         o        general management of the customer service process, and

         o        compliance with our performance level guarantees.

         We currently use software programs developed by third parties as our
primary office and information management systems. These programs have been
tailored, however, to our particular specifications.

         BILLING SYSTEMS

         As part of our strategy of focusing on the specific needs of many types
of telecommunications service providers, our billing system emphasizes
flexibility and customization. Customers may be billed in the currency of their
choice, and may have their bills broken down by country, site, or other call
detail records. Our billing system analyzes our traffic, revenues and margins by
customer and by route, on a daily basis, which is an important cost management
tool for us. Our voice customers are able to obtain call detail records and
other information through an on-line billing information inquiry function. We
plan to maintain separate billing


                                       16
<PAGE>

modules for voice and Internet services, although customers utilizing both
services may be billed on one invoice if desired.

TARGET CUSTOMERS

         As of December 31, 1999, we had 259 contracts with voice customers and
70 contracts with Internet and bandwidth customers. We target the following
specific categories of customers:

         o        COMPETITIVE FIXED-LINE OPERATORS. This category includes
                  fixed-line operators that compete with the incumbent telephone
                  operators. These operators typically desire to outsource their
                  international and, from time to time, their national long
                  distance voice traffic as well as their Internet and bandwidth
                  needs.

         o        WIRELESS OPERATORS. Wireless operators frequently outsource
                  much of their international and national long distance traffic
                  and also have demand for bandwidth.

         o        INCUMBENTS AND THEIR ALLIANCES. A number of incumbent
                  telephone operators and their affiliated alliances are
                  increasingly using wholesale carriers, rather than sending
                  traffic under bilateral agreements with other incumbents. As
                  these operators concentrate on their domestic markets, we
                  expect they will increasingly outsource their international
                  networks and related traffic transmission to independent
                  carriers such as us.

         o        NON-EUROPEAN CARRIERS. This category includes operators that
                  lack infrastructure in Europe or have experienced an imbalance
                  in their remaining bilateral agreements and wish to outsource
                  their European telecommunications needs to an independent
                  supplier of wholesale services with which they do not compete
                  directly. This category will include regional Bell operating
                  companies that receive regulatory approval to provide long
                  distance services.

         o        ISPS AND REGIONAL AND SPECIALIST PROVIDERS. As demand for
                  Internet and bandwidth services grows in Europe, ISPs are
                  increasingly requiring low-cost transmission and connection
                  capabilities from wholesale carriers. Many ISPs do not own or
                  operate their own transmission capacity. This category also
                  includes application service providers, or ASPs.

         o        OTHER NON-INCUMBENT CARRIERS. This category includes operators
                  with international infrastructure, who select us to carry
                  overflow traffic, to carry traffic to select, low-price
                  destinations and to provide managed bandwidth services.

         o        RESELLERS. This category includes switchless resellers, a
                  group that has been rapidly growing in the United Kingdom and
                  Germany in recent years. Resellers generally outsource their
                  international and, from time to time, national long distance
                  traffic. Switchless resellers do not have telecommunications
                  infrastructure, but access retail markets through the
                  infrastructure of others. The reseller category also includes
                  satellite resellers, a group that is currently demanding a
                  significant amount of low-cost Internet services.


                                       17
<PAGE>

         o        INTERNET CONTENT PROVIDERS AND MEDIA COMPANIES. This category
                  includes Internet-based content providers, media companies,
                  cable networks and emerging broadband service providers
                  looking to distribute their respective content in a
                  cost-effective manner to their end users. Demand for
                  distributing media-related content, such as audio and video
                  streaming and other value-added services, is expected to grow
                  significantly as broadband capabilities become available to
                  the end user.

         o        MULTI-NATIONAL CORPORATIONS. Increasingly, multi-national
                  corporations are seeking wholesale voice, Internet and
                  bandwidth services to reduce their costs or as a component of
                  their own value-added services such as frame relay. Although
                  we are not currently serving this customer category, we intend
                  to target select multi-national corporations in the future.

         o        CONSORTIA. A number of groups have formed buying consortia to
                  pool traffic volume in order to obtain higher discounts from
                  carriers. For example, a group of European multinational
                  entities have combined to form the European VPN Users
                  Association's Ventures Group to acquire voice services and
                  currently split their traffic among incumbent telephone
                  operators and incumbents' alliances. Although we are not
                  currently serving this customer category, we intend to target
                  buying consortia and will also seek to provide our services to
                  research consortia. The research consortia represent an
                  important part of the Internet market.

         Our customers are located primarily in Europe and the United States,
with customers in Germany representing approximately 41% of our revenues for the
year ended December 31, 1999. See Note 13 to our consolidated financial
statements for more geographical financial information.

         We use a credit screening process to evaluate potential new customers.
In performing our credit analysis, we rely primarily on internal assessments of
our exposure, based on the costs of terminating international traffic in certain
countries and the capacity requested by the proposed carrier or service
provider, as well as references provided by the potential customer. We currently
depend on a small number of significant customers for our revenues. For the year
ended December 31, 1999, Mobilcom AG accounted for approximately 14% of our
revenues and may continue to account for a significant portion of our revenues
in the near term. Our agreement with Mobilcom employs usage-based pricing and
does not provide for minimum volume commitments.

SALES

         As of December 31, 1999, we had an internal sales force focused on
marketing voice, Internet and bandwidth and data center services to wholesale
customers. We have sales representatives in Amsterdam, Berlin, Frankfurt,
London, New York, Milan, Paris, Stockholm and Zurich. As of December 31, 1999 we
had 40 sales representatives. The heads of these sales offices have extensive
telecommunications-related marketing and sales experience, as well as strong
customer relationships, in the geographic markets in which they are located. We
intend to hire between approximately 40 and 50 additional sales executives as we
increase the number of our offices and expand our existing sales efforts. In the
first quarter of 2000, we anticipate opening sales offices in Vienna and Madrid.
We will continue to seek personnel with a high degree of experience in and
knowledge of the local telecommunications markets in which they will be working.


                                       18
<PAGE>

         Currently, our Frankfurt sales office functions as the regional head
office generally covering German-speaking Europe (Austria, Germany and
Switzerland) and Central and Eastern Europe; the Amsterdam sales office
functions as the regional head sales office for the Benelux countries (Belgium,
The Netherlands and Luxembourg); our Paris sales office functions as the
regional head office for France; our New York sales office functions as the
regional sales center for North America; our Stockholm sales office functions as
the regional sales center for the Nordic region (Denmark, Finland, Norway and
Sweden) and the Baltic region (Estonia, Latvia and Lithuania); our Milan sales
office functions as the regional sales center for Italy; our London sales office
functions as the regional head office for all English-speaking countries in
Europe (United Kingdom and Ireland); and our Berlin sales office functions as
the regional sales center for the Berlin vicinity and Poland. Customers who are
not within a specific region are covered centrally by our Zurich headquarters
sales office, which also co-ordinates servicing pan-European and global
customers. During the year 2000, we expect that the new Madrid sales office will
function as the sales center for the Iberian peninsula (Portugal and Spain) and
that the new Vienna sales office will serve Austria, Hungary and the Czech
Republic, Slovakia and the former Yugoslavia. We also anticipate establishing
sales offices in Dusseldorf, Hamburg, Munich and Geneva to cover the regions
around these cities, but we expect our regional strategy will permit us to keep
operating costs down until traffic volumes in various other locations in Europe
are large enough to justify establishing sales offices in those locations.

         We also have sales people specializing in Internet services who work
out of the London, Frankfurt, Paris and Amsterdam sales offices. These Internet
specialists focus on marketing to ISPs and other customers whose needs are
primarily or exclusively Internet-oriented. They also work with other members of
the sales force in marketing a package of voice and Internet services as
required by customer demand.

         We provide each prospective or actual customer with personalized
account management. Furthermore, in comparison to the mass retail market, the
wholesale telecommunications market has a relatively small number of customers.
We expect that this market characteristic will permit us to continue to provide
personalized account management even as the number of our customers continues to
grow.

PRICING

         Our agreements with our voice customers are typically for an initial
term of twelve months and will be renewed automatically unless cancelled. They
employ usage-based pricing and do not provide for minimum volume commitments by
the customer. Our Internet and bandwidth services are generally charged at a
flat monthly rate, based on the line speed and level of performance made
available to the customer. We offer usage-based Internet pricing only in
combination with Internet transport contracts that have a fee-based component
that guarantees minimum revenue, in order to encourage usage of our network
services by our Internet transport customers. Our agreements with our Internet
transport customers are generally for a minimum term of twelve months, although
we may seek minimum terms of two years or more for agreements providing for
higher line speeds. Currently, our bandwidth services are also typically for an
initial term of twelve months, although we expect to be able to offer more
flexible pricing alternatives to bandwidth customers in the future.


                                       19
<PAGE>

         Our services are priced competitively and we emphasize quality and
customer support. The rates charged to customers are subject to change from time
to time. We expect to experience declining revenue per billable minute for voice
traffic and declining revenue per Mb for Internet traffic, in part as a result
of increasing competition, and declining revenue per Mb for bandwidth in part as
a result of advances in technology. We believe, however, that the impact on our
results of operations from such price decreases will be at least partially
offset by decreases in our cost of providing services and increases in our
traffic volumes and the demand for bandwidth services. In addition, our ability
to bundle and cross-sell network services allows us to compete effectively and
to protect our business, in part, against the impact of these price decreases.

COMPETITION

         The European telecommunications industry is highly competitive, and the
liberalization it is currently undergoing is rendering it increasingly more so.
The opening of the market to new telecommunications service providers, combined
with technological advances that greatly augment the transmission capacity of
circuits at a relatively small incremental cost, has resulted in significant
reductions in retail and wholesale prices for transmission capacity. New
networks are being built to provide significant additional capacity, creating
further downward pressure on prices. While decreasing prices are fueling growing
demand for bandwidth, they are also narrowing gross profit margins on long
distance voice traffic. Except for value-added services for switchless
resellers, basic voice carrier services are not highly differentiated, and
switching carriers is not costly. Most voice customers can easily redirect their
traffic to another carrier, and certain customers may do so on the basis of even
small differences in price. Our ability to compete successfully in this
environment will be highly dependent on our ability to generate high traffic
volumes from our customers while keeping the costs of our services low. We
believe that Internet customers will typically renew their contracts, if the
quality of the service is consistently high, because it is costly and
technically burdensome to switch carriers.

         In voice services, we have two main categories of competitors. The
first is the group of large established carriers, consisting of incumbent
telephone operators and affiliated companies, that offer a wide range of
wholesale services in addition to their retail services. This group includes
AT&T, British Telecommunications plc, Cable & Wireless Communications plc,
Global One (a joint venture of Deutsche Telekom, France Telecom and Sprint
Corp.), MCI WorldCom, Inc., Tele Danmark A/S, Teleglobe Inc. and Telecom Italia
S.p.A. The second category comprises new entrants to the telecommunications
market that provide wholesale services. This group includes Energis plc, Pacific
Gateway Exchange, Inc., Viatel, Inc., RSL Communications Ltd., Interoute
Telecommunications (UK) Ltd. and Storm Telecommunications Limited.

         In Internet services, our main competitors include UUNet, a subsidiary
of MCI WorldCom, Ebone, Cable & Wireless, InfoNet and KPN Qwest N.V., all of
which have an established customer base and either a significant European
infrastructure or strong connectivity to the United States through various
peering arrangements. Our main bandwidth competitors include KPN Qwest N.V.,
Global Telesystems, Inc., Global Crossing Ltd., Viatel, Inc., MCI WorldCom, Inc.
and Level 3 Communications, Inc. There are currently several existing and
potential operators with whom we will compete in providing data center services.
These include KPN Qwest N.V., Global Crossing Ltd., Level 3 Communications,
Inc., Telehouse Europe, Worldswitch, iaxis B.V. and our joint venture Hubco S.A.

         Many of our competitors are larger enterprises that have greater
financial resources than we do, and accordingly may be able to deploy more
extensive networks or may be better able to withstand pricing and other market
pressures. In addition, incumbent telephone operators and their affiliates have
additional


                                       20
<PAGE>

competitive advantages, such as control of access to local networks, significant
operational economies, large national networks and close ties with national
regulatory authorities.

GOVERNMENT REGULATION

         The following discussion summarizes the material aspects of the
regulatory frameworks in certain regions in which we currently operate or plan
to operate in the near future. This discussion is intended to provide a general
overview of the more relevant regulations and our current regulatory posture in
the most significant jurisdictions in which we operate and expect to operate. It
is not intended as a detailed description of the entire regulatory framework
applicable to us.

         OVERVIEW

         Increasing regulatory liberalization in many countries'
telecommunications markets now permits more flexibility in the way we can
provide infrastructure and services to our customers. The recent steps of the
European Union to implement full liberalization, as well as the World Trade
Organization (the "WTO") Basic Telecom Agreement (the "WTO Agreement"), have
significantly reduced most if not all regulatory barriers to entry in the
markets in which we intend to operate. However, national regulatory frameworks
within the European Union that are fully consistent with the policies and
requirements of the European Union and the WTO have only recently been, or are
still being, put in place in many member states.

         Various Directorates General ("DG") of the European Commission,
including DG Information Society (previously DG XIII) and DG Competition
(previously DG IV), have had an active role in overseeing the implementation of
recently adopted European Union directives. These directorates have, on their
own initiative or upon formal or informal complaint by interested parties,
sought to ensure consistent implementation and interpretation of various key
European Union directives, including in particular those relating to licensing
and interconnection.

         The principal telecommunications operators in many European Union
member states, including in particular the United Kingdom, the Netherlands and
most Scandinavian countries, have generally accepted market liberalization and
have acted accordingly in their dealings with new entrants. In other markets, we
and other new entrants face less open and independent regulatory environments
and hence have experienced more protracted and difficult procedures in obtaining
licenses and negotiating interconnection agreements. We believe that the current
overall regulatory climate in the European Union is favorable to development of
new infrastructure and services by new entrants, and that potential restrictions
on our operations will become less onerous as national regulatory frameworks
within the European Union become more uniform and begin to converge with those
in the countries with fully liberalized regulatory policies such as the United
States. However, we are unable to predict with certainty the precise impact of
regulatory requirements and restrictions on our implementation of our business
strategy or on our financial performance.

         International value-added telecommunications services, such as the data
center capabilities and value-added Internet services we intend to provide, are
generally not regulated or only lightly regulated in the United States and
Europe at the present time. The regulatory framework applicable to voice
transported over Internet protocols is still developing. In addition to the
telecommunications regulatory framework in Europe, a separate legal framework is
evolving for electronic commerce. Recently established or pending rules and
conventions on jurisdiction, consumer protection, and ISP liability for unlawful
content, copyright infringement and defamation could directly and adversely
impact our ISP and other of our Internet and bandwidth customers,


                                       21
<PAGE>

which could indirectly impact our business. We cannot predict, however, whether
the final forms of these or similar regulatory developments will affect us
directly or indirectly, or the way in which they may do so.

         WTO AGREEMENT

         The regulation of the European Union telecommunications industry is
subject to certain multilateral trade rules and regulations. Under the WTO
Agreement, concluded on February 15, 1997, 69 countries comprising more than 90%
of the global market for basic telecommunications services agreed to permit
competition from foreign carriers and adopt regulatory measures designed to
protect telecommunications providers against anticompetitive behavior by
incumbent telephone operators. In addition, 59 of these countries have
subscribed to specific pro-competitive regulatory principles.

         The WTO Agreement became effective on February 5, 1998 and for most
signatory countries (including ten European Union member states) the commitments
took effect on January 1, 1998. We believe that the WTO Agreement has increased
and will continue to increase opportunities for us and our competitors. However,
the precise scope and timing of the implementations of the WTO Agreement remain
uncertain and there can be no assurance that the WTO Agreement will
significantly expedite regulatory liberalization already underway in countries
in which we operate.

         EUROPEAN UNION

         In an effort to promote competition and efficiency in the European
Union telecommunications market, the European Commission and the European
Council have in recent years issued a series of directives establishing basic
principles for the liberalization of such market. The general framework for this
liberalized environment has been set out in the European Commission's Services
Directive, adopted in 1990, and its subsequent amendments, including the Full
Competition Directive, adopted in March 1996. These directives require most
European Union member states to permit competition in all telecommunications
services, and had set January 1, 1998 as the date by which all restrictions on
the provision of telecommunications services and telecommunications
infrastructure were to be removed. These directives have been supplemented by
various harmonizing directives, including primarily the Licensing Directive and
the Interconnection Directive, adopted in 1997.

         The Licensing Directive established a common framework for the granting
of authorizations and licenses related to telecommunications services. It
permits European Union member states to establish different categories of
authorizations for providers of infrastructure and services, but requires the
overall scheme to be transparent and non-discriminatory. The Interconnection
Directive requires European Union member states to remove restrictions
preventing negotiation of interconnection agreements, ensure that
interconnection requirements are non-discriminatory and transparent, and ensure
adequate and efficient interconnection for public telecommunications networks
and publicly available telecommunications services. It also requires that
interconnection be cost-based and supported by a cost accounting system that
telecommunications operators with significant market power are expected to put
in place under the supervision of national regulatory agencies.

         In October 1997, the European Commission issued a consultative document
supporting the implementation of long run incremental cost ("LRIC") principles
as a basis for interconnection pricing. This document also sets forth
interconnection pricing benchmarks reflecting current interconnection agreements
in European Union member states. The European Commission has subsequently
updated these benchmarks to take


                                       22
<PAGE>

account of recently negotiated interconnection arrangements. It believes such
benchmarks should be relied upon pending the adoption of accounting systems and
interconnection rates based on LRIC principles. These guidelines have become an
important reference point for determining interconnection rates in many
countries.

         Several European Union member states have chosen to apply the
provisions of the Interconnection Directive within their jurisdictions in such
ways as to give more favorable treatment to infrastructure providers and network
operators than to carriers and resellers that have made no infrastructure
investment. Such distinctions must be objectively justified on the grounds of
the type of interconnection provided or because of relevant licensing
conditions. The Licensing Directive does not provide a clear definition of an
infrastructure investment, and many European Union member states have adopted
inconsistent approaches with respect to the level and type of infrastructure
investment required to justify differences in interconnection charges. As an
infrastructure provider in many countries, we have been able to benefit from
lower interconnection rates than are applicable to many of our competitors.
However, in countries where we cannot effectively build out our own network
infrastructure, these rate differentials can work to our disadvantage. To the
extent we do not have a point of presence in a country we serve, such as Ireland
or Luxembourg, we will be forced to terminate traffic through refile or resale
agreements with other carriers, resulting in higher costs.

         The European Commission has been regularly monitoring the
implementation by European Union member states of its overall regulatory
framework. On the basis of its most recent review, the Commission has indicated
its commitment to ensuring more uniform and consistent steps to put this
framework into practice. It has also concurrently announced its proposals for a
comprehensive overhaul of the existing framework which is intended to simplify
and consolidate existing directives related to licensing and interconnection.

         In particular, the European Commission has stated its intention to
assess various ways of encouraging higher speed local access for Internet and
other data services, including a requirement for unbundling components of
incumbent telecommunications operators' local loops and steps to encourage the
licensing of wireless local loops. We believe that such initiatives could
stimulate demand for our Internet backbone and connection services. In addition,
the Commission is proposing to examine other interconnection-related issues,
such as the cost of terminating traffic on mobile systems and the availability
for resale of the infrastructure and services of mobile operators, that might
enable us to offer more cost effective and diverse services to our customers. We
believe that the Commission's proposals to streamline and make more efficient
current regulatory arrangements would have an overall beneficial impact on our
business operations and enable us to become more responsive to our customers'
needs. However, there can be no assurances as to the ultimate outcome of the
Commission's review or its impact on our business operations.

         REGULATORY STATUS

         The following discussion summarizes our assessment of the regulatory
situation in the major markets in which we expect to operate in the next several
years.

UNITED KINGDOM. The Telecommunications Act 1984 provides a licensing and
regulatory framework for telecommunications activities in the United Kingdom.
The United Kingdom has already liberalized its market to meet or even exceed the
requirements of the Full Competition Directive, and most restrictions on
competition have been removed in practice as well as in law.

         We have been granted an international simple voice services resale
license and an international facilities license that allows us to own
indefeasible rights of use and to lay cable for international services. The


                                       23
<PAGE>

international facilities license has been converted into a national Public
Telecommunications Operator (PTO) license through statutory instrument of the
United Kingdom Department of Trade and Industry, which came into force on
September 27, 1999. This national PTO license will allow us to provide any
national or international service in the United Kingdom. We have obtained a
switched access number which has been implemented with British Telecom. With
this access number, we can provide services directly to end users, which allows
our switchless reseller customers to offer switched access services directly to
their customers in the United Kingdom.

         We currently have implemented interconnection agreements with Cable &
Wireless and British Telecom. In addition, we have entered into interconnection
agreements with other telecommunications operators in the United Kingdom to
route traffic to locations not directly served by us.

         The current liberal regulatory climate in the United Kingdom has
encouraged the rapid development of new operators that are available to
interconnect with us or to be served by us as our customers. London, along with
New York, has become one of the major international centers for refiling of
traffic among international telecommunications service providers.

UNITED STATES. In June 1998, we obtained a Section 214 authorization to provide
international telecommunications services to all locations around the world. We
will be subject only to various reporting and filing obligations with respect to
our current operations in the United States.

         Under the terms of recent Federal Communications Commission (the "FCC")
orders relating to international settlement rates, the terms of our Section 214
authorization and the WTO Agreement, we will be expected to settle our
international switched traffic at or below the level of the international rate
benchmarks prescribed by the FCC. We would also have to obtain prior FCC
approval to resell leased lines between the United States and any country in
which we might operate with an affiliated carrier with market power. However, we
do not expect that any current or currently anticipated FCC regulatory
requirement would materially limit our commercial or operational flexibility.

         The FCC has taken an active role in opening competition on an
international basis and has been involved in a longstanding effort to lower
international accounting rates on a world-wide basis. Although the FCC has
implemented the WTO Agreement and no longer bases its international licensing
determinations specifically on whether international markets are open on a fully
reciprocal and comparable basis to U.S. telecommunications operators, it
continues to monitor competitive developments in international markets in order
to assess whether any restrictive practices with respect to international
service arrangements or rates might have an adverse or distorting impact on
competition in the U.S. domestic telecommunications market. In addition, the FCC
as well as various executive branch agencies of the U.S. government have taken
an active posture with respect to the full implementation of market-opening
commitments made in connection with the WTO Agreement, and have from time to
time taken positions against potential restrictive regulatory practices by
national regulators or operators in the European countries in which we intend to
operate.

         We have experienced no difficulties in negotiating interconnection
agreements with U.S.-based telecommunications operators. These arrangements
permit us to extend our services into the U.S. domestic market as well as to
terminate traffic worldwide. In addition, refiling arrangements available in the
United States allow us to terminate traffic in European Union and other markets
that are not directly served by our own infrastructure. Depending on market
conditions, such arrangements represent a viable alternative to refiling through
the United Kingdom or one of our other points of presence.


                                       24
<PAGE>

GERMANY. The German Telecommunications Act of July 25, 1996 provided for the
liberalization of all telecommunications activities by January 1, 1998. The
German Telecommunications Act has been complemented by several ordinances
concerning, among other things, license fees, rate regulation, interconnection,
universal service, frequencies and customer protection. The German
telecommunications sector is currently overseen by a new Regulatory Authority
for Telecommunications and Post that operates under the aegis of the Ministry of
Economics and has taken over the regulatory responsibilities of the now
disbanded Ministry of Post and Telecommunications.

         Under the German Telecommunications Act, licenses can be issued for
different types of infrastructure as well as for the provision of services based
on transmission lines provided by other service providers. We have been issued a
nationwide Class 4 license for the provision of voice telephony services and a
Class 3 infrastructure license to construct and operate fiber optic cables. We
have obtained amendments to our infrastructure licenses to authorize the
geographic extension of our network. We do not anticipate any difficulty in
obtaining any further required amendments. We are in the process of filing
another amendment to extend our license prior to putting our German network into
service. However, we do not expect any problems or delays in obtaining any
necessary regulatory approvals.

         On October 30, 1998, the German regulator ruled, in a case filed by us
against Deutsche Telekom, that Deutsche Telekom had to interconnect with us at
the two points of interconnect requested by us within three months after the
ruling. This ruling was implemented by both parties and was based on a condition
that we would install an additional 11 points of interconnection with Deutsche
Telekom when we deploy our German network.

         We subsequently signed an interconnection agreement with Deutsche
Telekom that adds ten points of interconnection to the 13 points that we have
already arranged. Both parties are working to implement this interconnection
agreement by the end of the first quarter of 2000. This agreement supersedes the
German regulatory agency's decision to the extent it does not require us to
install additional points of interconnection. However, if we do not install a
point of interconnection in all of the 23 access areas in Germany, the amount of
traffic that we may originate or terminate will be significantly limited in any
access area in which we have not installed a point of interconnection. We do not
currently anticipate any difficulties in installing points of interconnection in
all 23 access areas.

         We are currently negotiating a new interconnection agreement with
Deutsche Telecom. The interconnect tariffs as of January 1, 2000 have been
approved by the German regulator. We do not expect any adverse effect on our
business operations from the new interconnection tariffs and the new
interconnection agreement. We have obtained a switched access number and have
implemented it with Deutsche Telekom. With this access number, we can provide
services directly to end users, which allows our switchless reseller customers
to offer switched access services directly to their customers in Germany.

FRANCE. In July 1996, legislation was enacted providing for the liberalization
of all telecommunications activities in France by January 1, 1998. The
establishment and operation of public telecommunications networks and the
provision of voice telephony services are subject to individual licenses granted
by the Minister in charge of telecommunications, upon the recommendation of the
Autorite de regulation des Telecommunications ("ART"), France's regulatory
agency.

         We have received an L-33.1 license (governing public telecommunications
network operators) and an L-34.1 license (governing voice telephony providers).
The interconnection tariffs of France Telecom, which


                                       25
<PAGE>

have been officially approved by the ART, provide substantially more favorable
interconnection rates for public telecommunications network operators than for
public voice telephony providers. Public telephony providers are charged
interconnection rates that can be as much as 30% higher than rates charged to
public telecommunications network operators. An L-34.1 license allows an
operator to terminate traffic nationwide via interconnect only if it connects in
all 18 interconnect regions, whereas an L-33.1 license allows an operator to
terminate traffic nationwide via interconnect at only one point.

         We have recently implemented an interconnection agreement with France
Telecom.

         In France, the ART implements an extra charge (on a cost per minute
basis, regardless of whether the traffic originates in France) to finance the
cost of a universal service fund. The total amount of this universal service
fund was approximately $1.1 billion for 1998 and has been challenged by new
entrants in the French market, who have filed a complaint with DG Competition.
In response, the European Commission sent a reasoned opinion to the French
Government regarding non-conformity of French legislation to European Community
Directives regarding the telecommunication sector, in particular with respect to
methods of calculation of the net costs of telecommunications universal service
provision and contributions paid by telecommunications operators for its
financing. We are unable to estimate at this time the impact of the proposed
universal service program on our operating margins if fully implemented. We have
obtained from the French regulator a switched access number. With this number,
we can provide services directly to end users, which allows our switchless
reseller customers to offer switched access services directly to their customers
in France. We are in the process of filing an amendment to our L33.1 license
prior to putting the French network into service in order to cover the expansion
of this network. However, we do not expect any problems or delays in obtaining
any necessary regulatory approvals.

BELGIUM. In December 1997, the Belgian Parliament provided for the full
liberalization of the provision of telecommunications services. The
Telecommunications Act and secondary legislation have now been fully
implemented.

         Under the current licensing scheme, applicants for a telecommunications
network operator license such as us must agree to make a minimum amount of
infrastructure investment or install a minimum amount of fiber capacity within
three years, as well as make a contribution to the advancement of technological
processes by investing an amount equal to 1% of net revenues to fund research
and development activities. We have been granted approval of our application to
become a network operator from the Belgian national regulator, the Belgian
Institute for Postal Services and Telecommunications ("BIPT"). We plan to deploy
dark fiber in Belgium, and have been granted an infrastructure license for this
purpose. We will also be required to obtain a voice services license in order to
serve switchless resellers and end users directly. We expect to submit this
application early in the year 2000 and do not anticipate any significant delay
in obtaining regulatory approval.

         We have implemented an interconnection agreement with Belgacom S.A.,
Belgium's incumbent telephone operator.

         The Belgian telecommunications law also provides for the establishment
of a universal service fund, to be managed by BIPT, according to which operators
would be required to contribute in proportion to their revenues derived from the
Belgian market. The fund has not yet been activated. We are unable to estimate
at this time the impact of any potential universal service payments on the
overall cost of terminating our customers' calls in Belgium.


                                       26
<PAGE>

ITALY. In 1997, the Italian authorities enacted a legislative framework for the
full liberalization of telecommunications services by January 1, 1998. This
framework has been fully implemented. We have obtained both infrastructure and
public voice licenses. In contrast with the other major markets in which we
operate, the Italian authorities require general authorization to provide
Internet services, which we have also obtained.

         In July 1999, Telecom Italia published its Reference Interconnect Offer
(the "RIO"). The RIO provides for nationwide origination and termination, even
through one single point of interconnect with the incumbent's network, and has
brought interconnection rates down to a level much closer to the European Union
benchmarks for "best practices." We have implemented an interconnection
agreement with Telecom Italia.

         We have obtained a switched access number which is implemented with
Telecom Italia. With this access number, we can provide services directly to end
users, which allows our switchless reseller customers to offer switched access
services directly to their customers in Italy.

         In Italy, providers of network infrastructure and switched voice
services, as well as national mobile operators, may be required to contribute to
a universal service fund. Such a requirement has not yet taken effect and will
only be implemented if Telecom Italia can demonstrate, on the basis of audited
reports, that its universal service obligations impose on it net losses. Even in
these circumstances, the Italian regulator may exempt new entrants from an
obligation to contribute to such a universal service fund. The Italian
competition agency may recommend such an exemption scheme to the Italian
regulator. However, we cannot assess at this time any possible impact of any
such universal service obligations on our operating margins.

THE NETHERLANDS. The Netherlands liberalized voice telephony in July 1997.
Legislation to implement the requirements of the Full Competition Directive has
been enacted.

         We have obtained the necessary authorizations to provide both services
and infrastructure in The Netherlands.

         We have implemented an interconnection agreement with KPN Telecom and
we have obtained a switched access number from the Dutch regulator. With this
access number, we can provide services directly to end users, which allows our
switchless reseller customers to offer switched access services directly to
their customers in the Netherlands.

         SWITZERLAND. A new Telecommunications Act went into effect on January
1, 1998, together with ordinances containing more detailed regulations covering
telecommunications services, frequency management, numbering, terminal equipment
and license fees. The Telecommunications Act provides for liberalization of the
Swiss telecommunication market as of January 1, 1998.

         We have obtained the necessary authorization to provide voice services
in Switzerland. We do not currently have authorization to provide infrastructure
in Switzerland but we will apply for a license if we decide to build
infrastructure in Switzerland. In that event, we do not expect any difficulty or
delay in obtaining the necessary approvals. Although Switzerland is not a member
of the European Union and accordingly European Union directives do not apply,
the Swiss regulatory agency, Ofcom, generally follows European Union policies
and directives. Switzerland is a party to the WTO Agreement as well, and we
expect that the national regulatory body will follow the general principles and
policies embedded in the WTO Agreement.


                                       27
<PAGE>

         We signed an interconnection agreement with Swisscom which has been
implemented, and we have obtained a switched access number which has been
implemented by Swisscom. With this access number, we can provide services
directly to end users, which allows our switchless reseller customers to offer
switched access services directly to their customers in Switzerland.

         AUSTRIA. A new Telecommunications Act came into effect on January, 1,
1998, together with ordinances providing more detailed regulations on
telecommunications services, interconnection and numbering. We obtained the
necessary licenses in Austria necessary to provide voice services and to operate
our own infrastructure.

         The interconnection rules provide for cost-based interconnection rates
for every licenseholder, without distinction between infrastructure owners and
resellers. We have implemented an interconnection agreement with Telekom
Austria, the Austrian incumbent telephone operator. We have also obtained a
switched access number from the Austrian regulator which has been implemented by
Telekom Austria.

         Telekom Austria has recently proposed interconnection arrangements that
are generally similarly structured to those provided by Deutsche Telekom in
Germany. It has indicated an intention to limit the amount of traffic that may
be originated or terminated in any of the eight access areas in which a carrier
interconnecting with its network does not have a point of interconnection. There
can be no assurance concerning the impact of any such restrictions on our
operations in Austria in the event that Telekom Austria's proposals are
implemented.

         We believe that the restrictions proposed by Telekom Austria are
violating Austrian regulation as well as provisions of various relevant European
Union Directives. We may challenge Telekom Austria's restrictions in the future.
However, any process initiated by us against Telekom Austria's practices with
the Austrian regulator or the European Commission might well be costly and time
consuming, and we are unable to predict with certainty the timing and outcome of
such proceedings.

SPAIN. The Spanish government implemented the full liberalization of public
switched telephone services on December 1, 1998. Prior to full liberalization, a
second telecommunications operator was authorized to compete with Telefonica de
Espana, S.A., and a third national voice telephony license was granted in May
1998. Cable television operators have been granted licenses to provide voice
telephony services. As of the end of 1999, numerous individual licenses for the
provision of telecommunications services to third parties or for the operation
of public telecommunications networks have been granted by the Spanish
regulator. In addition, a third license for a mobile telecommunications operator
was granted in June 1998. We expect to be able to provide services on a
wholesale basis to these newly authorized operators.

         We have filed an application to provide infrastructure and voice and
Internet services in Spain in early 2000. In addition, we have filed for a
carrier's carrier registration. As in the case of Italy, and unlike the other
major markets in which we operate, the Spanish authorities require specific
authorization to provide Internet services. We will need a license and an
interconnection agreement when we plan to install a point of presence in Spain
in mid 2000. We are not currently subject to access deficit contributions or
contributions to universal service obligations, but such obligations might be
imposed in the future by regulatory authorities.

SWEDEN, DENMARK, FINLAND, NORWAY, AND IRELAND. We are offering services in
Sweden and are planning to provide services in a number of countries including
Denmark, Finland, Norway, and Ireland which have adopted a liberal approach to
authorizing new service providers.


                                       28
<PAGE>

         In Norway, new service providers must register with the national
regulator, and in Finland and Sweden, a similar notification procedure is
required to authorize new service providers. In Denmark, services and
infrastructure can be provided by new entrants on the basis of a class license
requiring no registration, notification, or prior approval procedures involving
the national regulator. We have complied with the applicable procedures in each
of these countries.

         We have implemented an interconnection agreement with Tele Danmark in
Denmark and with Telia in Sweden. We have obtained switched access numbers in
both Sweden and Denmark, which are implemented by Telia and Tele Danmark. We
have opened discussions with the main national operators in Finland and Norway
and we expect that interconnection arrangements will be implemented when our
points of presence become operational in these countries. We have obtained a
switched access number in Finland and in Norway.

         Any new service provider must obtain a license to provide services in
Ireland. We have received such a license. We expect that an interconnection
agreement with Telecom Eireann will be implemented when our point of presence in
Dublin is operational. We have also received a switched access number in
Ireland.

OTHER COUNTRIES. We will also be able to provide service through direct
operating agreements with correspondent telecommunications operators in
countries where we have not been directly authorized to provide services. As a
consequence of our having obtained the status of a recognized operator agency
under the rules of the International Telecommunications Union, we will negotiate
such correspondent agreements with foreign telecommunications operators in
circumstances where such agreements will result in lower termination costs than
might be possible through refile arrangements. See "-Network-Existing and
Planned Traffic Termination Agreements."

EMPLOYEES

         As of December 31, 1999, we employed 137 people. Our employees
represent fifteen different nationalities in total. None of our employees is
represented by a labor union or covered by a collective bargaining agreement. We
believe that relations with our employees are good.

ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES

         Carrier1 International is a societe anonyme organized under the laws of
the Grand Duchy of Luxembourg. Carrier1 International is a holding company that
conducts its operations primarily through other European companies. In addition,
certain members of our board, all of our executive officers and certain of the
experts named in this report are residents of countries other than the United
States. A substantial portion of our assets and the assets of such non-resident
persons are located outside the United States. As a result, it may not be
possible for investors to:

         o        effect service of process within the United States upon us or
                  such persons; or

         o        enforce against us or such persons in U.S. courts judgments
                  obtained in U.S. courts predicated upon civil liability
                  provisions of the federal securities laws of the United
                  States.

         There is doubt as to whether the courts of Luxembourg would recognize
jurisdiction of the U.S. courts in respect of judgments obtained in U.S. courts
in actions against us or such directors and officers, as well as certain of the
experts named in this report, and as to whether Luxembourg courts would enforce
judgments of


                                       29
<PAGE>

U.S. courts predicated upon the civil liability provisions of the U.S. federal
or state securities laws. There is also doubt as to whether Luxembourg courts
would admit original actions brought under the U.S. securities laws. In
addition, certain remedies available under the U.S. federal or state laws may
not be admitted or enforced by Luxembourg courts on the basis of being contrary
to Luxembourg's public policy. We cannot assure investors that they will be able
to enforce any judgment against us, certain members of our board, our executive
officers or certain of the experts named in this report, including judgments
under the U.S. securities laws.


                                  RISK FACTORS

         IF ANY OF THE FOLLOWING EVENTS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED, AND
THE TRADING PRICE OF OUR SHARES, ADSS AND OTHER SECURITIES COULD DECLINE. IN
THAT EVENT, YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
PERFORMANCE.

         We formed our business in March 1998, and we commenced commercial
operations on September 1, 1998. Accordingly, you have limited historical
operating and financial information on which to base your evaluation of our
performance.

WE EXPECT TO EXPERIENCE NET LOSSES AND NEGATIVE CASH FLOW.

         Our continued business development and network deployment will
require that we incur substantial capital expenditures. In general, we expect
to incur net losses and negative cash flow from operating activities through
at least 2002. Whether or when we will generate positive cash flow from
operating activities will depend on a number of financial, competitive,
regulatory, technical and other factors, many of which are beyond our
control. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources." We
cannot assure you that we will achieve profitability or positive cash flow.

IF WE ARE UNABLE TO IMPROVE AND ADAPT OUR OPERATIONS AND SYSTEMS AS WE GROW, WE
COULD LOSE CUSTOMERS AND REVENUES.

         We expect our business to continue to grow rapidly, which may
significantly strain our customer support, sales and marketing, accounting and
administrative resources, network operation and management and billing systems.
Such a strain on our operational and administrative capabilities could adversely
affect the quality of our services and our ability to collect revenues. To
manage our growth effectively, we will have to further enhance the efficiency of
our operational support and other back office systems and procedures, and of our
financial systems and controls. We will also have to expand and train our
employee base to handle the increased volume and complexities of our business.
We cannot assure that we will maintain adequate internal operating,
administrative and financial systems, procedures and controls, or obtain, train
and adequately manage sufficient personnel to keep pace with our growth.

         In addition, if we fail to project traffic volume and routing
preferences correctly, or to determine the optimal means of expanding the
network, we could lose customers, make inefficient use of the network, and have
higher costs and lower profit margins.


                                       30
<PAGE>

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

         At least initially, our revenues are dependent upon a relatively small
number of significant customers and contracts. The loss or addition of one or
more of these customers or contracts could cause significant fluctuations in our
financial performance. In addition, the significant expenses resulting from the
expansion of our network and services are likely to lead to operating results
that vary significantly from quarter to quarter.

OUR ABILITY TO GENERATE CASH TO SERVICE OUR SUBSTANTIAL CAPITAL NEEDS DEPENDS ON
MANY FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL.

         We will require significant capital to fund our capital expenditures
and working capital needs, as well as our debt service requirements and cash
flow deficits.

         We expect to incur significant capital expenditures in connection with
the expansion of our network. The actual amounts and timing of our future
capital requirements may vary significantly from our estimates. The demand for
our services, regulatory developments and the competitive environment of the
telecommunications industry could cause our capital needs to exceed our current
expectations. In that case, we may need to seek additional capital sooner than
we expect, and such additional financing may not be available on acceptable
terms or at all. Moreover, our substantial existing indebtedness and any
additional indebtedness we may incur may adversely affect our ability to raise
additional funds. A lack of financing may require us to delay or abandon plans
for deploying parts of our network, which in turn could increase our costs and
hinder our ability to swap or sell transmission capacity to other
telecommunications entities.

OUR SUBSTANTIAL INDEBTEDNESS AND OUR ABILITY TO INCUR MORE INDEBTEDNESS COULD
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER OUR EXISTING DEBT OBLIGATIONS.

         We have significant indebtedness. The following table shows certain
important credit statistics at December 31, 1999 and as adjusted to give
effect to our initial public offering and the prepayment of certain
indebtedness from the proceeds of the offering.

<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 1999
                                                              -----------------------------
                                                                  ACTUAL      AS ADJUSTED
                                                              -------------  --------------
                                                              (IN THOUSANDS) (IN THOUSANDS)
<S>                                                              <C>           <C>
Total long-term debt .........................................   $ 337,756     $ 262,753
Shareholders' equity .........................................     (34,509)      582,398
Total long-term debt as a percentage of total capitalization .         111%           31%
</TABLE>

         Our deficiency of earnings to fixed charges for the year ended December
31, 1999 was approximately $90.0 million.

         Our debt instruments limit, but do not prohibit, us from incurring more
indebtedness. Moreover, our debt instruments permit us to incur an unlimited
amount of indebtedness to finance the acquisition of equipment, inventory and
network assets.

         If we cannot generate sufficient cash flow from operations to meet our
debt service requirements, we may be required to refinance our indebtedness. Our
ability to obtain such financing will depend on our financial condition at the
time, the restrictions in the agreements governing our indebtedness and other
factors, including


                                       31
<PAGE>

general market and economic conditions. If such refinancing were not possible,
we could be forced to dispose of assets at unfavorable prices. In addition, we
could default on our debt obligations.

OUR DEBT AGREEMENTS IMPOSE OPERATING AND FINANCIAL RESTRICTIONS, WHICH MAY
PREVENT US FROM CAPITALIZING ON BUSINESS OPPORTUNITIES.

         Our existing debt agreements impose significant operating and financial
restrictions on us. The terms of any other financings we may obtain may do so as
well. These restrictions may substantially limit or prohibit us from taking
various actions, including incurring additional debt, making investments, paying
dividends to our shareholders, creating liens, selling assets, engaging in
mergers, consolidations or other business combinations, repurchasing or
redeeming our shares, or otherwise capitalizing on business opportunities.
Failure to comply with the covenants and restrictions in our indentures or other
financing agreements could trigger defaults under such agreements even if we are
able to pay our debt.

         In addition, the indentures governing our 13 1/4% senior notes provide
that upon a "change of control," each note holder will have the right to require
us to purchase all or a portion of the holder's notes at a purchase price of
101% of the principal amount, together with accrued and unpaid interest, if any,
to the redemption date. We may be unable to incur the additional indebtedness or
otherwise obtain the additional funds necessary to satisfy that obligation,
which could have a material adverse effect on us. This provision could also
delay, deter or prevent a change of control transaction.

IF WE ARE UNABLE TO EXTEND OUR NETWORK IN THE MANNER WE HAVE PLANNED, OUR
OPERATING REVENUES OR GROSS MARGINS COULD BE ADVERSELY AFFECTED.

         Our success will depend on our ability to continue to deploy our
network on a timely basis. A number of factors could hinder the deployment of
our network. These factors include cost overruns, the unavailability of
additional capital, strikes, shortages, delays in obtaining governmental or
other third-party approvals, other construction delays, natural disasters and
other casualties, delays in the deployment or delivery of network capacity of
others that we have arranged to acquire, and other events that we cannot
foresee. We have recently experienced some construction delays in connection
with the planned completion of our Amsterdam network, and some cost overruns and
construction delays in connection with the planned completion of portions of our
German network.

         Delays in the continued deployment of our network could:

         o        limit the geographic scope of our services,

         o        prevent us from providing services on a cost-effective basis,

         o        reduce the number of customers we can attract and the volume
                  of traffic we carry,

         o        force us to rely more heavily on refiling or reselling for
                  terminating our voice traffic, increasing termination costs
                  and making our quality control more difficult, and

         o        affect our ability to obtain lower cost capacity on other
                  networks by swapping excess capacity or cause us to incur
                  penalties for untimely delivery of promised capacity or could
                  result in termination of our swaps. One swap party has
                  provided such a termination notice, although we believe the
                  notice is not valid and we are working to reach a
                  satisfactory resolution of the matter.


                                       32
<PAGE>

         Any one of these results could prevent us from increasing our operating
revenues or could adversely impact gross margins.

EUROPEAN USE OF THE INTERNET, ELECTRONIC COMMERCE AND THE DEMAND FOR BANDWIDTH
INTENSIVE APPLICATIONS MAY NOT INCREASE AS SUBSTANTIALLY AS WE EXPECT, WHICH
WOULD LIMIT DEMAND FOR OUR SERVICES AND LIMIT OUR ABILITY TO INCREASE OUR
REVENUES.

         Our business plan assumes that European use of the Internet, electronic
commerce and other bandwidth intensive applications will increase substantially
in the next few years, in a manner similar to the increased use in the United
States market in the past few years. If the use of bandwidth intensive
applications in Europe does not increase as anticipated, demand for some of our
services, including our Internet and bandwidth services will be lower than we
currently anticipate and our ability to generate revenues will be adversely
affected. We cannot assure you that demand for our services will grow in
accordance with our expectations. Reduced demand for our services will have a
negative effect on our business.

WE HAVE NO CONTROL OVER THIRD PARTIES ON WHOM WE RELY FOR THE OPERATION OR
MAINTENANCE OF PORTIONS OF OUR NETWORK, AND IF THEY OR THEIR FACILITIES DO NOT
PERFORM OR FUNCTION ADEQUATELY, OUR NETWORK MAY BE IMPAIRED.

         Our success is dependent on the technical operation of our network and
on the management of traffic volumes and route selections over the network. We
depend on parties from whom we have leased or acquired a right to use
transmission capacity for maintenance of certain of the network's circuits.
Shortfalls in maintenance by any of these parties could lead to transmission
failure. Our network is also subject to other risks outside our control, such as
the risk of damage from fire, power loss, natural disasters and general
transmission failures caused by these or other factors.

WE DEPEND ON OUR HIGHLY TRAINED EXECUTIVE OFFICERS AND EMPLOYEES. ANY DIFFICULTY
IN RETAINING OUR CURRENT EMPLOYEES OR IN HIRING NEW EMPLOYEES WOULD ADVERSELY
AFFECT OUR ABILITY TO OPERATE OUR BUSINESS.

         Our operations are managed by a small number of key executive officers,
including our Chief Executive Officer, Stig Johansson. In addition, our business
functions are managed by a relatively small number of key employees. The loss of
any of these individuals could have a material adverse effect on us. Our success
depends on our ability to continue to attract, recruit and retain sufficient
qualified personnel as we grow. Competition for qualified personnel in Europe is
intense, and there is generally a limited number of persons with the requisite
experience in the sectors in which we operate. We cannot assure you that we will
be able to retain senior management, integrate new managers or recruit qualified
personnel in the future.

A FAILURE TO ENTER INTO OR MAINTAIN ADEQUATE INTERCONNECTION AND PEERING
ARRANGEMENTS COULD CAUSE US TO INCUR HIGHER TERMINATION COSTS THAN COMPETITORS
WHO HAVE SUCH ARRANGEMENTS.

         One of the most cost-effective ways for a wholesale carrier to achieve
voice termination in a country in which it has a point of presence is to
negotiate an interconnection agreement with the national incumbent telephone
operator. Failure to maintain adequate interconnection arrangements would cause
us to incur high voice termination costs, which could have a material adverse
effect on our ability to compete with carriers that have a more effective system
of interconnection agreements for the countries in which they operate.


                                       33
<PAGE>

         Our ability to maintain arrangements for the free exchange of data with
European and United States ISPs that have traffic volumes roughly equivalent to
ours will also affect our costs. To the extent we do not maintain these peering
arrangements, we are required to pay a transit fee in order to exchange Internet
traffic. Our inability to maintain sufficient peering arrangements would keep
our Internet termination costs high and could limit our ability to compete
effectively with other European Internet backbone providers that have lower
transit costs than we do.

         See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Factors Affecting Future Operations-Cost
of Services."

IF WE LOST ONE OR MORE OF OUR GOVERNMENT LICENSES OR BECAME SUBJECT TO MORE
ONEROUS GOVERNMENT REGULATIONS, WE COULD BE ADVERSELY AFFECTED.

         We are subject to varying degrees of regulation in each of the
jurisdictions in which we provide services. Local laws and regulations, and
their interpretation, differ significantly among those jurisdictions. Future
regulatory, judicial and legislative changes may have a material adverse effect
on the operation of our business.

         National regulatory frameworks that are fully consistent with the
policies and requirements of the European Commission and the World Trade
Organization have only recently been, or are still being, put in place in many
European Union member states. These nations are still providing for and adapting
to a liberalized telecommunications market. As a result, in these markets, we
and other new entrants may encounter more protracted and difficult procedures to
obtain licenses and negotiate interconnection agreements.

         Our operations are dependent on licenses that we acquire from
governmental authorities in each jurisdiction in which we operate. These
licenses generally contain clauses pursuant to which we may be fined or our
license may be revoked in certain circumstances. Such revocation may be on short
notice, at times as short as 30 days' written notice to us. The revocation of
any of our licenses may cause us to lose favorable interconnection rates or, in
some cases, force us to stop operating in the relevant country.

THE ADOPTION OR MODIFICATION OF LAWS OR REGULATIONS RELATING TO THE INTERNET
COULD ADVERSELY AFFECT OUR BUSINESS.

         The adoption or modification of laws or regulations relating to the
Internet could adversely affect our business. The European Union has recently
enacted its own privacy regulations. The law of the Internet, however, remains
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws, such as those
governing intellectual property, privacy, libel and taxation, apply to the
Internet. In addition, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on companies conducting business online.

THE TELECOMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY.

         The European telecommunications market is highly competitive, and
liberalization is rendering it increasingly more so. The opening of the market
to new service providers, combined with technological advances, has resulted in
significant reductions in retail and wholesale prices for voice services. We
expect prices to continue to decline. Decreasing prices are also narrowing gross
profit margins on long distance voice


                                       34
<PAGE>

traffic. Our ability to compete successfully in this environment will
significantly depend on our ability to generate high traffic volumes from our
customers while keeping our costs of services low and to effectively bundle and
cross-sell the services we offer to our customers. We cannot assure that we will
be able to do so.

         We expect price decreases in the European Internet market over the next
few years as competition increases. We cannot assure that Internet service
prices will not decline more quickly than our Internet transmission or
termination costs, which could have a material adverse effect on our gross
profit margins.

         As a result of the construction of European fiber optic networks by our
competitors, the price of wholesale bandwidth capacity is declining rapidly. The
decline in market prices has lowered the price at which we are able to sell our
voice and Internet and bandwidth products, including dark fiber, that is, fiber
that has been laid but not "lit" with transmission electronics. We also expect
technological advances that greatly increase the capacity of fiber optic cable
to exacerbate downward price pressure.

         Other competitive factors include the following:

         o        Certain voice customers may redirect their traffic to another
                  carrier on the basis of even small differences in price.

         o        Wholesale carriers that have a more developed network than
                  ours may lower prices so as to increase volume and maximize
                  utilization rates.

         See "-Competition."

OUR COMPETITORS MAY HAVE MORE EXPERIENCE, SUPERIOR OPERATIONAL ECONOMIES OR
GREATER RESOURCES, PLACING US AT A COST AND PRICE DISADVANTAGE.

         We compete with a number of incumbent telephone operators, who
generally control access to local networks and have significant operational
economies, including large national networks and existing operating agreements
with other incumbents. Moreover, national regulatory authorities have, in some
instances, shown reluctance to adopt policies that would result in increased
competition for the local incumbent. In addition, incumbents may be more likely
to provide transmission capacity on favorable terms and direct excess traffic to
their related carriers than to us.

         In Internet transport services, our main competitors have an
established customer base and either a significant infrastructure or strong
connectivity to the United States through various peering arrangements. We
believe that, if the quality of the service is consistently high, Internet
transport and data center customers will typically renew their contracts because
it is costly and technically burdensome to switch providers, which could impede
our ability to attract new customers.

         Although we believe that there has been and is currently strong demand
for data centers in the European market, there are numerous new entrants with
which we compete in specific markets. Many of our competitors have been
established providers of data center services in Europe for longer than we have.
There can be no assurance that new entrants like us will be able to effectively
compete.

         We also compete with companies that are building European networks to
the extent these companies offer wholesale services. Some of these companies
have more experience operating a network than our


                                       35
<PAGE>

company does. We may not be able to deploy a European network as quickly or run
it as efficiently as some or all of these competitors, which could impair our
ability to compete with them.

         Many of our competitors have greater financial resources and would be
in a better position than we would be to withstand the adverse effect on gross
profit margins caused by price decreases, particularly those competitors that
own more infrastructure and thus may enjoy a lower cost base than we do. Unless
and until we are able to reduce our cost base, we may not be able to compete on
the basis of price if market prices are reduced below a certain level. Inability
to price services competitively may in turn cause us to lose customers.

WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT COST-EFFECTIVE TRANSMISSION CAPACITY,
WHICH COULD DELAY OUR ABILITY TO PENETRATE CERTAIN MARKETS OR CARRY A HIGHER
VOLUME OF TRAFFIC IN MARKETS IN WHICH WE ALREADY OPERATE.

         We lease or have purchased rights to use transmission capacity from
others, and we have swapped capacity on our own German network for transmission
capacity on other carriers' networks. We therefore currently depend on other
parties for much of our transmission capacity. We cannot assure that we will
always be able to obtain capacity where and when we need it at an acceptable
price or at all. Any failure to obtain such capacity could delay our ability to
penetrate certain markets or to carry a higher volume of traffic in the markets
in which we already operate. Furthermore, to the extent some of our capacity
suppliers begin to compete with us in the provision of wholesale
telecommunications services, those suppliers may no longer be willing to provide
us with capacity.

         Until our owned network is fully operational, we will need to continue
to lease capacity. We will therefore, in the short term, continue to have
transmission costs that are higher than our target cost levels and higher than
the costs of our competitors who own transmission infrastructure. We cannot
assure that the cost of obtaining capacity will decrease. In addition, if our
owned network is not completed on a timely basis, we will need to rely on leased
lines to a greater extent than currently anticipated. If we cannot purchase
additional capacity at our target costs for additional needs we may have in the
future, we may have to seek to meet those needs by building additional capacity,
for which we would need to incur additional capital expenditures. It is also
possible that additional capacity would not be available for purchase at the
time that we need it.

IF ESTIMATES WE HAVE MADE ARE NOT CORRECT, WE MAY HAVE TOO MUCH OR TOO LITTLE
CAPACITY.

         We rely on other carriers to provide certain voice termination
services. Negotiation of refile or resale agreements with such carriers involves
making estimates of the future calling patterns and traffic levels of our
customers. Underestimation of traffic levels or failure to estimate calling
patterns correctly could lead to:

         o        a shortage of capacity, requiring us to either lease more
                  capacity or reroute calls to other carriers at a higher
                  termination cost,

         o        higher termination costs, as we may have to use additional,
                  higher priced, refilers or resellers, and

         o        a possibly lower quality of service, as we may not be carrying
                  the traffic over our own network.


                                       36
<PAGE>

         Our leased capacity costs are fixed monthly payments based on the
capacity made available to us. If our traffic volumes decrease, or do not grow
as expected, the resulting idle capacity will increase our per unit costs.

WE MAY HAVE DIFFICULTY ENHANCING OUR SOPHISTICATED BILLING, CUSTOMER AND
INFORMATION SYSTEMS. ANY SUCH DIFFICULTIES COULD DELAY OR DISRUPT OUR ABILITY TO
SERVICE OR BILL OUR CUSTOMERS.

         Sophisticated information systems are vital to our growth and our
ability to:

         o        manage and monitor traffic along our network,

         o        track service provisioning, traffic faults and repairs,

         o        effect least cost routing,

         o        achieve operating efficiencies,

         o        monitor costs,

         o        bill and receive payments from customers, and

         o        reduce credit exposure.

         The billing and information systems we have acquired will require
enhancements and ongoing investments, particularly as traffic volume increases.
We may encounter difficulties in enhancing our systems or integrating new
technology into our systems in a timely and cost-effective manner. Such
difficulties could have a material adverse effect on our ability to operate
efficiently and to provide adequate customer service.

RAPID CHANGE IN OUR INDUSTRY COULD REQUIRE US TO EXPEND SUBSTANTIAL COSTS TO
IMPLEMENT NEW TECHNOLOGIES. WE COULD LOSE CUSTOMERS IF OUR COMPETITORS IMPLEMENT
NEW TECHNOLOGIES BEFORE WE DO.

         The European telecommunications industry is changing rapidly due to,
among other things:

         o        market liberalization,

         o        significant technological advancements,

         o        introductions of new products and services utilizing new
                  technologies,

         o        increased availability of transmission capacity,

         o        expansion of telecommunications infrastructure, and

         o        increased use of the Internet for voice and data transmission.


                                       37
<PAGE>

         If the growth we anticipate in the demand for telecommunications
services were not to occur or we were precluded from servicing this demand, we
might not be able to generate sufficient revenues in the next few years to fund
our working capital requirements.

         To compete effectively, we must anticipate and adapt to rapid
technological changes and offer, on a timely basis, competitively priced
services that meet evolving industry standards and customer preferences. We may
choose new technologies that prove to be inadequate or incompatible with
technologies of our customers, providers of transmission capacity or other
carriers. As new technologies develop, we may be forced to implement such new
technologies at substantial cost to remain competitive. In addition, competitors
may implement new technologies before we do, allowing such competitors to
provide lower priced or enhanced services and superior quality compared to those
we provide. Such a development could have a material adverse effect on our
ability to compete, particularly because we seek to distinguish ourselves on the
basis of the quality of our services.

WHOLESALE CUSTOMERS THAT ARE PRICE SENSITIVE MAY DIVERT THEIR TRAFFIC TO ANOTHER
CARRIER BASED ON SMALL PRICE CHANGES, RESULTING IN FLUCTUATIONS OR LOSS IN OUR
REVENUE.

         Voice customers often maintain relationships with a number of
telecommunications providers, and our contracts with our wholesale voice
customers generally do not impose on customers minimum usage requirements.
Furthermore, basic voice services are not highly differentiated. As a result,
most customers are price sensitive and certain customers may divert their
traffic to another carrier based solely on small price changes. These diversions
can result in large and abrupt fluctuations in revenues. Similarly, while we
seek to provide a higher quality of bandwidth service than our competitors,
there is somewhat limited scope for differentiation. There can be no assurance
that small variations between our prices and those of other carriers will not
cause our customers to divert their traffic or choose other carriers.

         Our contracts with our wholesale customers require us to carry their
voice traffic at a contractually fixed price per minute that can only be changed
upon seven or thirty days' notice. Similarly, we have contracted with some
Internet customers to carry their Internet traffic at a fixed monthly rate that
can only be changed upon six or twelve months' notice. If we were forced to
carry voice or Internet traffic over a higher-cost route due to capacity and
quality constraints, our gross profit margins would be reduced.

WE RELY ON A SMALL NUMBER OF SIGNIFICANT CUSTOMERS, AND THE LOSS OF ANY SINGLE
CUSTOMER COULD THEREFORE HAVE A MATERIAL ADVERSE EFFECT ON OUR REVENUES.

         We currently depend on a small number of significant customers for our
revenues. In the year ended December 31, 1999, for example, one customer
accounted for approximately 14% of our revenue. The loss of any single customer
could therefore have a material adverse effect on us. In addition, certain
wholesale customers may be unprofitable or only marginally profitable, resulting
in a higher risk of delinquency or nonpayment. Recently, the Internet services
industry has experienced increased merger and consolidation activity among ISPs
and Internet backbone providers. The consolidation of ISPs may reduce the
customer base for our Internet services.


                                       38
<PAGE>

WE WILL ENGAGE IN JOINT VENTURES, WHICH ARE ACCOMPANIED BY INHERENT RISKS.

         We are constructing the German network with Viatel and Metromedia. We
are investing in data center facilities through a joint venture. We may enter
into future joint ventures with other companies. All joint ventures are
accompanied by risks. These risks include:

         o        the lack of complete control over the relevant project,

         o        diversion of our resources and management time,

         o        inconsistent economic, business or legal interests or
                  objectives among joint venture partners,

         o        the possibility that a joint venture partner will default in
                  connection with a capital contribution or other obligation,
                  thereby forcing us to fulfill such obligation, and

         o        difficulty maintaining uniform standards, controls, procedures
                  and policies.

THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING BUSINESSES OR ENGAGING
IN OTHER STRATEGIC TRANSACTIONS COULD IMPEDE OUR FUTURE GROWTH AND ADVERSELY
AFFECT OUR COMPETITIVENESS.

         We intend to evaluate, and may enter into, acquisition or other
strategic transactions in order to expand our business or enhance our product
portfolio. We may acquire interests in businesses in countries in which we do
not currently operate. Any such acquisitions or other strategic transactions may
expose us to the following risks:

         o        the difficulty of identifying appropriate strategic
                  transaction candidates in the countries in which we do
                  business or intend to do business,

         o        the difficulty of assimilating the operations and personnel of
                  the acquired entities,

         o        the potential disruption to our ongoing business caused by
                  senior management's focus on the strategic transactions,

         o        our failure to successfully incorporate licensed or acquired
                  technology into our network and product offerings,

         o        the failure to maintain uniform standards, controls,
                  procedures and policies, and

         o        the impairment of relationships with employees and customers
                  as a result of changes in management and ownership.

         We cannot assure that we would be successful in overcoming these risks,
and our failure to overcome these risks could have a negative effect on our
business. Additionally, in connection with an acquisition, we will generally
record goodwill that must be amortized and which would reduce our earnings per
share.

         In addition, in connection with the listing of common shares of our
capital on the Neuer Markt segment of the Frankfurt Stock Exchange, we are
required to agree to comply with the German take-over code.


                                       39
<PAGE>

Our compliance with the German take-over code could have the effect of delaying
or preventing a tender offer or takeover. If we intend to merge with or acquire
a publicly-traded German stock corporation, we must comply with notice,
disclosure and other regulatory requirements.

WE ARE CONTROLLED BY PARTIES WHOSE INTERESTS MAY NOT BE ALIGNED WITH OTHER
HOLDERS OF OUR SECURITIES.

         Funds managed by Providence Equity Partners Inc. alone, and funds
managed by Providence and funds managed by Primus Venture Partners Inc.
together, indirectly control us. Such ownership may present conflicts of
interest between the Providence or Primus funds and us. They may pursue or
cause us to pursue transactions that could enhance their controlling
interest, or permit them to realize upon their investment, in a manner that
is not in the interests of minority shareholders.

         Providence and Primus, or their affiliates, currently have significant
investments in other telecommunications companies, and may in the future invest
in other entities engaged in the telecommunications business, some of which may
compete with us. Providence and Primus are under no obligation to bring us any
investment or business opportunities of which they are aware, even if
opportunities are within our objectives. Conflicts may also arise in the
negotiation or enforcement of arrangements we may enter into with entities in
which Providence or Primus, or their affiliates, have an interest.

THE INTERNATIONAL SCOPE OF OUR OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS.

         We may face certain risks because we conduct an international business
including:

         o        regulatory restrictions or prohibitions on the provision of
                  our services,

         o        tariffs and other trade barriers,

         o        longer payment cycles,

         o        problems in collecting accounts receivable,

         o        political risks, and

         o        potentially adverse tax consequences of operating in multiple
                  jurisdictions.

         In addition, an adverse change in laws or administrative practices in
countries within which we operate could have a material adverse effect on us.

         We are exposed to fluctuations in foreign currencies, as our revenues,
costs, assets and liabilities are denominated in multiple local currencies. Our
payment obligations on our debt are denominated in U.S. dollars and euros, but
our revenues are denominated in other currencies as well. Any appreciation in
the value of the U.S. dollar or the euro relative to such other currencies could
decrease our revenues, increase our debt and interest payments and, therefore,
materially adversely affect our operating margins. Fluctuations in foreign
currencies may also make period to period comparisons of our results of
operations difficult.

CONVERSION TO THE EURO MAY RESULT IN INCREASED COSTS AND POSSIBLE ACCOUNTING,
BILLING AND LOGISTICAL DIFFICULTIES IN OPERATING OUR BUSINESS.


                                       40
<PAGE>

         From January 1, 1999, until January 1, 2002, the euro will exist in
electronic form only and the participating countries' individual currencies will
persist in tangible form as legal tender. During the transition period, everyone
must manage transactions in both the euro and the participating countries'
respective individual currencies. While we believe that our systems have not
been and will not be adversely impacted by the introduction of the euro, there
can be no assurance that we will not incur increased operational costs or have
to modify or upgrade our information systems in order to respond to possible
accounting, billing and other logistical problems resulting from the conversion
to the euro. In addition, there can be no assurance that our third-party
suppliers and customers will be able to successfully implement the necessary
protocols.

WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES.

         Computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculations or a major system failure. We cannot assure that all our
systems will continue to function adequately although as of March 23, 2000,
we have not experienced any sigificant problems or failures and we do not
expect to experience any in the future. A failure of our computer systems
or other systems could have a material adverse effect on us. Any failure of the
computer systems of our vendors, suppliers or customers could materially and
adversely affect our ability to operate our network and retain customers and
could impose significant costs on us. See Item 7 of this Report: "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Impact
of Year 2000."

ENFORCING JUDGMENTS AGAINST US MAY REQUIRE COMPLIANCE WITH NON-U.S. LAW.

         Most assets of Carrier1 International and its subsidiaries are located
outside the United States. Persons will need to comply with foreign laws to
enforce judgments obtained in a U.S. court against our assets, including to
foreclose upon such assets. In addition, it may not be possible for persons to
effect service of process within the United States upon us, or to enforce
against us U.S. court judgments predicated upon U.S.
federal securities laws.

THE ABSENCE OF A PRIOR PUBLIC MARKET FOR OUR SHARES OR THE ADSS CREATES
UNCERTAINTY IN MARKET PRICE.

         Prior to the initial public offering of shares of our capital stock in
February 2000, there was no public market for our shares. The market price of
the shares and ADSs may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:

         o        quarterly variations in our operating results,

         o        changes in financial estimates by securities analysts,

         o        changes in market valuations of telecommunications companies,

         o        announcements by us, or our competitors, of significant
                  contracts, acquisitions, strategic partnerships, joint
                  ventures, business combinations, or capital commitments,

         o        loss of a major customer,

         o        additions or departures of key personnel, and


                                       41
<PAGE>

         o        sales of shares or ADSs.

THE POSSIBLE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR
SHAREHOLDERS.

         Historically, the market prices for securities of emerging companies in
the telecommunications industry have been highly volatile. In addition, the
stock market has experienced volatility that has affected the market prices of
equity securities of many companies and that often has been unrelated to the
operating performance of those companies. These broad market fluctuations may
adversely affect the market price of our shares or ADSs. Furthermore, following
periods of volatility in the market price of a company's securities,
shareholders of the company have often instituted securities class action
litigation against the company. Any similar litigation against us could result
in substantial costs and a diversion of management's attention and resources,
which could adversely affect the conduct of our business.

SALES OF SUBSTANTIAL NUMBERS OF SHARES COULD ADVERSELY AFFECT THE MARKET PRICE
OF OUR SHARES.

         We have 41,719,178 shares outstanding, 56.5% of which are held
indirectly by funds managed by Providence and 11.3% of which are held
indirectly by funds managed by Primus. Subject to some exceptions, the
investment vehicle for the Providence and Primus funds and each of our
executive officers and directors have agreed not to sell any shares for a
period of 180 days after the date of the prospectus issued in connection with
our February 2000 initial public offering without the prior written consent
of Morgan Stanley & Co. International Limited and Salomon Brothers
International Limited or certain of their affiliates. Following this 180-day
period, they may sell their shares as permitted by the securityholders'
agreement, U.S. securities laws and other applicable laws. In addition as of
December 31, 1999, we had 4,232,661 shares issuable upon the exercise of
outstanding warrants and options, and we are completing the process of
granting an additional 97,000 options to new employees. We expect to grant
additional options to employees. Future sales of a large block of our shares,
or the perception that these sales could occur, could cause a decrease in the
market price of our shares or ADSs. The warrant holders and our majority
shareholder, among others, have registration rights described under specified
circumstances.

EVENTS DESCRIBED BY OUR FORWARD-LOOKING STATEMENTS MAY NOT OCCUR.

         This report includes forward-looking statements. We have based these
forward- looking statements on our current expectations and projections about
future events and on industry publications. We have not independently verified
the data derived from industry publications.

         Our forward-looking statements are subject to risks, uncertainties
and assumptions including, among other things, those discussed above as well
as under "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations." Examples of forward-looking statements include
all statements that are not historical in nature, including statements
regarding:

         o        operations and prospects,

         o        technical capabilities,

         o        funding needs and financing sources,

         o        network deployment plans,


                                       42
<PAGE>

         o        scheduled and future regulatory approvals,

         o        expected financial position,

         o        business and financial plans,

         o        markets, including the future growth in the European
                  telecommunications market,

         o        expected characteristics of competing systems, and

         o        expected actions of third parties such as equipment suppliers
                  and joint venture partners.

         In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this report might not occur. Additional
risks, and uncertainties and assumptions that we may currently deem immaterial
or that are not presently known to us could also cause the forward-looking
events discussed in this report not to occur. We do not intend to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.

THESE RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES FACING US.

         Additional risks and uncertainties not presently known to us or that we
may currently deem immaterial may also impair our business operations.


ITEM 2. PROPERTIES

         We lease certain office and other space under operating leases and
subleases that expire at various dates, including a lease of Carrier1
International GmbH's 762 square meter headquarters in Zurich, Switzerland, which
expires in 2004.

         Our aggregate rent expense was approximately $2.6 million for the
fiscal year ended December 31, 1999 and approximately $1.0 million for the
period from Inception to December 31, 1998.


ITEM 3. LEGAL PROCEEDINGS

         We may, from time to time, be a party to litigation that arises in the
normal course of our business operations. In October 1998, in a case filed by us
against Deutsche Telekom, the German regulator made a ruling requiring Deutsche
Telekom to interconnect with us at two points of interconnection that we
requested. Since our inception we have not been, and we are not presently, a
party to any litigation or arbitration that we believe had or would reasonably
be expected to have a material adverse effect on our business or results of
operations.


                                       43
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the fourth quarter of 1999, no matters were submitted to a vote
of security holders.


                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND
              RELATED SECURITYHOLDER MATTERS

    Market information. Our shares are listed on the Neuer Markt segment of
the Frankfurt Stock Exchange under the symbol "CJN." Our American Depositary
Shares are quoted on the Nasdaq National Market under the symbol "CONE." Our
American Depositary Shares each represent the right to receive 0.2 shares.
American Depositary Receipts for our American Depositary Shares are issued by
Bankers Trust Company, as depositary. As of March 22, 2000, 3,117,246 of our
shares are held in the form of American Depositary Shares. Prior to the
February 2000 initial public offering of our shares of capital stock, par
value $2.00 per share, and American Depositary Shares representing shares of
capital stock (our "IPO"), there was no established public trading market for
our common equity.

    Holders. There were 143 owners of record of our shares as of March 15, 2000.
This number excludes stockholders whose stock is held in nominee or street name
by brokers, and we believe that we have a significantly larger number of
beneficial holders of our shares.

    Dividends. Carrier1 International has never declared or paid any dividends
and does not expect to do so in the foreseeable future. We do not expect to
generate any net income in the foreseeable future, but anticipate that future
earnings generated from operations, if any, will be retained to finance the
expansion and continued development of our business. Subject to the declaration
of interim dividends by Carrier1 International's board of directors, decisions
to pay dividends may only be made by its shareholders acting at a shareholders'
meeting. If Carrier1 International were to pay dividends, we would expect to pay
them in either U.S. dollars or euros. Any cash dividends payable to holders of
shares or ADSs who are nonresidents of Luxembourg would normally be subject to
Luxembourg statutory withholding taxes. Any future determination with respect to
the payment of dividends on our shares will depend upon, among other things, our
earnings, capital requirements, the terms of the existing indebtedness,
applicable requirements of Luxembourg corporate law, general economic conditions
and such other factors considered relevant by Carrier1 International's board of
directors. In addition, Carrier1 International's ability to pay dividends will
be restricted under the terms of our debt agreements.

CERTAIN LUXEMBOURG TAX CONSIDERATIONS

    THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER OF OUR
COMMON SHARES IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX CONSULTANTS TO
DETERMINE POSSIBLE LUXEMBOURG TAX CONSEQUENCES OF AN INVESTMENT IN OUR SHARES.

    The following summary outlines certain Luxembourg tax consequences to
persons who are nonresidents of Luxembourg and who do not have a permanent
establishment in Luxembourg ("Non-Resident Holders") with respect to the
ownership and disposition of shares. It does not examine tax consequences to
residents or to some extent, former residents.

    Non-Resident Holders of shares are not liable for Luxembourg tax on capital
gains on any such shares; PROVIDED, HOWEVER, that if they hold more than 25% of
the share capital of Carrier1 International, they are subject to tax on capital
gains on the disposal of shares held for not more than six months.

    Dividends paid on shares to Non-Resident Holders are subject to a
withholding tax of 25%. Under certain circumstances, European Union Non-Resident
Holders may benefit from an exemption of withholding tax. Reductions of the
withholding rate may also be provided by tax treaties. In the case of the
current treaty between Luxembourg and the United States, the withholding tax is
reduced to 12.5% or less, and in the new proposed treaty the rate will be
reduced to 15%, PROVIDED that the holder is entitled to claim treaty benefits.

    No inheritance tax is payable by a non-resident holder of shares except if
the deceased holder was a resident of Luxembourg at the time of death.


RECENT SALES OF UNREGISTERED SECURITIES

         Since our inception on February 20, 1998, we have sold and issued the
following securities:

1.       Between March 1, 1998 and June 14, 1999 we sold to employees 2,537,236
         shares of our capital stock at $2.00 per share for an aggregate
         consideration of $5,074,472; between June 15, 1999 and September 8,
         1999 we sold to employees 90,664 shares of our capital stock at $5.00
         per share, for an aggregate consideration of $453,320; and between
         September 9, 1999 and December 31, 1999 we sold to employees 37,940
         shares of our capital stock at $10.00 per share, for an aggregate
         consideration of $379,400.

2.       From time to time from our inception to February 19, 1999 we issued to
         Carrier One, LLC a total of 29,999,999 shares of our capital stock at
         $2.00 per share for an aggregate consideration of $59,999,998. In
         addition, in 1998 we issued to Providence Equity Partners L.P. 1 share
         of our capital stock for $2.00.

3.       On June 14, 1999, we sold to Carrier One LLC a total of 400,000 shares
         of our capital stock at $2.00 per share for an aggregate consideration
         of $800,000, which amount was funded by Messrs. Thomas Wynne and Victor
         Pelson, both directors of Carrier1 International S.A., who received a
         total of 800,000 Class A Units in Carrier One LLC at $1.00 per Class A
         Unit.


                                       44
<PAGE>

4.       Between our inception and September 8, 1999, we granted to our
         employees pursuant to our 1999 share option plan options to purchase
         2,255,718 shares of our capital stock, at an exercise price of $2.00
         per share.

5.       Between September 9, 1999 and December 1, 1999 we granted to our
         employees pursuant to our 1999 share option plan options to purchase
         123,500 shares of our capital stock, at an exercise price of $10.00 per
         share.

6.       On December 6, 1999 we granted to Mr. Alexander Schmid, a new member of
         management, pursuant to our 1999 share option plan options to purchase
         100,000 shares of our capital stock, at an exercise price of $40.34 per
         share.

7.       In addition, on September 9, 1999 we granted to Messrs. Wynne and
         Pelson options to purchase a total of 40,000 shares of our capital
         stock (20,000 shares each) at an exercise price of $2.00 per share.

8.       On February 19, 1999, we issued 160,000 dollar units each consisting of
         one 13 1/4% senior dollar note together with one detachable warrant
         entitling the holder to purchase 6.71013 shares of our capital stock,
         and 85,000 euro units, each consisting of one 13 1/4% senior euro note
         together with one detachable warrant entitling the holder to purchase
         7.53614 shares of our capital stock. The aggregate principal amount of
         the dollar notes was $160 million and the aggregate principal amount of
         the euro notes was (u)85 million. The warrants become exercisable on
         February 19, 2000 and have an exercise price per share equal to the
         greater of $2.00 and the minimum par value required by Luxembourg law
         (currently 50 Luxembourg francs) excluding a 1% Luxembourg capital duty
         which is payable by us. Morgan Stanley Dean Witter, Salomon Smith
         Barney, Warburg Dillon Read LLC and Bear, Stearns & Co. Inc. acted as
         placement agents in connection with this offering.

         The securities issued in the transactions described above were deemed
exempt from registration under the Securities Act in reliance upon Section 4(2)
of the Securities Act, or Regulation D or Regulation S under the Securities Act,
or Rule 701 under the Securities Act as transactions by an issuer not involving
a public offering, or transactions pursuant to compensation benefit plans and
contracts relating to compensation. The recipients of securities in each of such
transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution of the securities. All recipients were either furnished with or had
adequate access to, through their relationship with us, information about
Carrier1 International.



                                       45
<PAGE>

    On March 1, 2000, we completed our IPO (File No. 333-94541; effective date
February 22, 2000) for which we received net proceeds of approximately $712
million. At the completion of the offering on March 1, 2000, pursuant to the
exercise of the underwriters' over-allotment option, all of the shares
registered for sale were sold at the aggregate price of the offering amount
registered. In the offering, for which Morgan Stanley & Co. International
Limited and Salomon Brothers International Limited acted as joint global
coordinators and bookrunners, a total of 8,625,000 shares and 2,156,250 shares
were registered for sale (including pursuant to the over-allotment option) by
Carrier1 International and selling shareholders, respectively, at an estimated
aggregate offering price of (u)750,375,000 and (u)187,593,750, respectively (or
(u)87.00 per share). Through March 15, 2000, we have used approximately $115
million of proceeds from the IPO to repay (i) (u)40 million of floating rate
indebtedness that was outstanding under an interim credit facility with Morgan
Stanley Senior Funding, Inc. and Citibank, N.A., plus interest thereon and (ii)
$75 million of floating rate indebtedness that was outstanding under an
equipment financing agreement with Nortel Networks Inc., plus interest thereon.
We intend to use the balance of the net proceeds for (i) our $23.25 million
commitment to invest in the Hubco joint venture, (ii) to fund an estimated $75
million for the expansion of our network to intra-city networks, and (iii) with
respect to the remainder, for working capital and other general corporate
purposes.
                                       46
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

         The following table sets forth our selected consolidated financial
data as of and for the year ended December 31, 1999 and as of and for the
period from our inception to December 31, 1998. The selected consolidated
financial data as of and for the year ended December 31, 1999, and as of and
for the period from our inception to December 31, 1998 were derived from our
consolidated financial statements which were audited by Deloitte & Touche
Experta AG, independent auditors. The information set forth below is not
necessarily indicative of the results of future operations and should be read
in conjunction with our consolidated financial statements and related notes
and "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."

         Amounts are presented in thousands, except share data.

<TABLE>
<CAPTION>
                                                                      YEAR ENDED       INCEPTION TO
                                                                  DECEMBER 31, 1999 DECEMBER 31, 1998
                                                                  ----------------- -----------------
<S>                                                                   <C>             <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues ..........................................................   $     97,117    $      2,792
Cost of services (exclusive of amounts shown separately below) ....        113,809          11,669
Selling, general and administrative expenses ......................         18,369           8,977
Depreciation and amortization .....................................         13,849           1,409
                                                                      ------------    ------------
Loss from operations ..............................................        (48,910)        (19,263)
Other income (expense):
   Interest income ................................................          5,859              92
   Interest expense ...............................................        (29,475)            (11)
   Other income (expense) .........................................           (555)           --
   Currency exchange loss, net ....................................        (15,418)            (53)
                                                                      ------------    ------------
Loss before income tax benefit ....................................        (88,499)        (19,235)
Income tax benefit, net of valuation allowance (1) ................           --              --
                                                                      ------------    ------------
Net loss ..........................................................   $    (88,499)   $    (19,235)
                                                                      ============    ============

Weighted average number of shares outstanding (2) .................     29,752,000       7,367,000
Net loss per share (basic) ........................................   $      (2.97)   $      (2.61)
Net loss per share (diluted) (3) ..................................          (2.97)          (2.61)

OTHER FINANCIAL DATA:
EBITDA (4) ........................................................   $    (35,061)   $    (17,854)
Capital expenditures (5) ..........................................        195,376          37,168
Net cash used in operating activities .............................        (78,359)        (14,441)
Net cash used in investing activities .............................       (253,247)        (19,866)
Net cash provided by financing activities .........................        353,450          37,770

<CAPTION>
                                                                        AS  OF            AS OF
                                                                  DECEMBER 31, 1999 DECEMBER 31, 1998
                                                                  ----------------- -----------------
<S>                                                                   <C>             <C>
BALANCE SHEET DATA:
Cash and cash equivalents .........................................   $     28,504    $      4,184
Restricted cash ...................................................          5,512           1,518
Restricted investments (6) ........................................         90,177            --
Total assets (7) ..................................................        437,655          51,434
Total long-term debt (8) ..........................................        337,756            --
Shareholders' equity (deficit) ....................................        (34,509)         19,189
</TABLE>


                                       47
<PAGE>

(1)      Due to our limited operating history, we were unable to conclude that
         realization of our deferred tax assets in the near future was more
         likely than not. Accordingly, a valuation allowance was recorded to
         offset the full amount of such assets. See Note 10 to our consolidated
         financial statements.

(2)      See Note 4 to our consolidated financial statements.

(3)      Potential dilutive securities have been excluded from the computation
         for the period from our inception to December 31, 1998 and for the year
         ended December 31, 1999, as their effect is antidilutive. See Note 4 to
         our consolidated financial statements.

(4)      EBITDA stands for earnings before interest, taxes, depreciation,
         amortization, foreign currency exchange gains or losses and other
         income (expense).

         EBITDA is used by management and certain investors as an indicator of a
         company's ability to service debt and to satisfy its capital
         requirements. However, EBITDA is not a measure of financial performance
         under generally accepted accounting principles and should not be
         considered as an alternative to cash flows from operating, investing or
         financing activities as a measure of liquidity or an alternative to net
         income as indications of our operating performance or any other measure
         of performance derived under generally accepted accounting principles.
         EBITDA as presented may not be comparable to other similarly titled
         measures of other companies or to similarly titled measures as
         calculated under our debt agreements.

(5)      Consists of purchases of property and equipment and investment in joint
         venture.

(6)      Reflects:

         (a)      the remaining portion of the net proceeds of our 13 1/4%
                  senior notes which was used to purchase government securities
                  to secure and fund the first five scheduled interest payments
                  on the notes, and

         (b)      approximately $29.3 million used to collateralize a letter of
                  credit relating to the construction of the German network.

         See Notes 6 and 7 to our consolidated financial statements.

(7)      Includes net capitalized financing costs of approximately $14.2 million
         as of December 31, 1999.

(8)      For a description of indebtedness incurred subsequent to December 31,
         1999, see "Item 7. Management's Discussion and Analysis of Financial
         Condition and Results of Operations-Liquidity and Capital Resources."


                                       48
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES. CERTAIN INFORMATION CONTAINED IN THE
DISCUSSION AND ANALYSIS OR SET FORTH ELSEWHERE IN THIS REPORT, INCLUDING
INFORMATION WITH RESPECT TO OUR PLANS AND STRATEGY FOR OUR BUSINESS AND
RELATED FINANCING, INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
UNCERTAINTIES. SEE ITEM 1. BUSINESS -"RISK FACTORS" FOR A DISCUSSION OF
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE RESULTS DESCRIBED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS REPORT.

OVERVIEW

         We are a rapidly expanding European facilities-based provider of voice,
Internet and bandwidth and related telecommunications services. We offer these
services primarily to other telecommunications service providers. In March 1998,
our experienced management team and Providence Equity Partners formed Carrier1
to capitalize on the significant opportunities emerging for facilities-based
carriers in Europe's rapidly liberalizing telecommunications markets. By
September 1998, we had deployed our initial network and commenced selling
services. By December 31, 1999, we had 259 contracts with voice customers and 70
contracts with Internet and bandwidth customers.

         We are developing an extensive city-to-city European fiber optic
network accessing and linking key population centers. In select European cities,
we are also developing intra-city networks and data centers for housing and
managing equipment. We expect these intra-city networks to give us faster, lower
cost access to customers, with better quality control. We also expect to bundle
and cross-sell our intra-city network and data center capabilities with our
other services. We intend to continue rapidly expanding our network in a
cost-effective manner by building, buying or swapping network assets.

         To date, we have experienced net losses and negative cash flow from
operating activities. From our inception to September 1998, our principal
activities included developing our business plans, obtaining governmental
authorizations and licenses, acquiring equipment and facilities, designing and
implementing our voice and Internet networks, hiring management and other key
personnel, developing, acquiring and integrating information and operational
support systems and operational procedures, negotiating interconnection
agreements and negotiating and executing customer service agreements. In
September 1998, we commenced the roll-out of our services. We expect to continue
to generate net losses and negative cash flow through at least 2002 as we expand
our operations. Whether or when we will generate positive cash flow from
operating activities will depend on a number of financial, competitive,
regulatory, technical and other factors. See "-Liquidity and Capital Resources."

         Although our management is highly experienced in the wholesale
telecommunications business, our company itself has a limited operating history.
Prospective investors therefore have limited operating and financial information
about our company upon which to base an evaluation of our performance and an
investment in our securities.

         Our consolidated financial statements are prepared in accordance with
U.S. generally accepted accounting principles. We have adopted a fiscal year end
of December 31.


                                       49
<PAGE>

FACTORS AFFECTING FUTURE OPERATIONS

         REVENUES

         We expect to generate most of our revenues through the sale of
wholesale long distance voice and Internet and bandwidth services to other
telecommunications service providers. We record revenues from the sale of voice
and Internet services at the time of customer usage. During the quarter ended
June 30, 1999, we recognized revenue of approximately $3.2 million and cost of
services of approximately $1.9 million from one bandwidth IRU contract that was
treated as a sales-type lease. In the future, similar revenues and expenses will
be recognized over the term of the relevant contract, typically over 15 to 20
years. Our agreements with our voice customers are typically for an initial term
of twelve months and will be renewed automatically unless cancelled. They employ
usage-based pricing and do not provide for minimum volume commitments by the
customer. We generate a steady stream of voice traffic by providing high-quality
service and superior customer support. Our Internet and bandwidth services are
generally charged at a flat monthly rate, regardless of usage, based on the line
speed and level of performance made available to the customer. Since March 31,
1999, we have migrated to offering usage-based Internet pricing for our Internet
transport services, "Internet Exchange Connect" and "Global Transit", only in
combination with Internet contracts that have a fee-based component that
guarantees minimum revenue, in order to encourage usage of our network services
by our Internet customers. Our agreements with our Internet transport customers
are generally for a minimum term of twelve months, although we may seek minimum
terms of two years or more for agreements providing for higher line speeds.
Currently, our bandwidth services are typically also for an initial term of
twelve months, although we expect to be able to offer more flexible pricing
alternatives to bandwidth customers in the future. We believe that, if the
quality of the service is consistently high, Internet transport customers will
typically increase the amount of capacity they purchase from us. We believe that
they will also generally renew their contracts because it is costly and
technically burdensome to switch carriers.

         Our services are priced competitively and we emphasize quality and
customer support. The rates charged to voice and Internet and bandwidth
customers are subject to change from time to time. Although our revenue per
billable minute for voice traffic in the third quarter of 1999 increased as a
result of a more favorable traffic and services mix, we generally expect to
experience declining revenue per billable minute for voice traffic and declining
revenue per Mb for Internet traffic and bandwidth, in part as a result of
increasing competition.

         As a result of the construction of European fiber optic networks by our
competitors, the price of wholesale bandwidth capacity is declining rapidly,
which has lowered the price at which we are able to sell our Internet and
bandwidth products, including dark fiber. We also expect technological advances
that greatly increase the capacity of fiber optic cable to exacerbate downward
price pressure. We anticipate, however, that the incremental costs of lighting
dark fiber with transmission equipment will remain significant and will
therefore serve as an economic restraint to increases in available managed
bandwidth capacity at low marginal costs. Furthermore, we believe that price
decreases will promote demand for high volumes and opportunities for volume-
related revenue increases. The impact on our results of operations from price
decreases has been in prior quarters and we believe it will continue to be, at
least partially offset by decreases in our cost of providing services, largely
due to our increased use of our own fiber and our consequent decreased
termination costs, and increases in our voice and Internet traffic volumes. In
addition, we believe that our ability to bundle and cross-sell network services
allows us to compete effectively and to protect our business, in part, against
the impact of these price decreases.


                                       50
<PAGE>

         Our focus on the wholesale markets results in us having substantially
fewer customers than a carrier in the mass retail sector. As a result, a shift
in the traffic pattern of any one customer, especially in the near term and on
one of our high volume routes, could have a material impact, positive or
negative, on our revenues. For example, for the year ended December 31, 1999,
one customer accounted for approximately 14% of our revenues, and this customer
may continue to account for a significant portion of revenues in the near term.
Furthermore, many wholesale customers of voice services tend to be price
sensitive and may switch suppliers for certain routes on the basis of small
price differentials. In contrast, Internet and bandwidth customers tend to use
fewer suppliers than voice customers, cannot switch suppliers as easily and, we
believe, are more sensitive to service quality than to price. We believe that
customers for data center services are more sensitive to the differential
services that we plan to provide than to price. In addition, we believe that
they are unlikely to move between facilities due to their initial investments in
tenant improvements and the high costs and risks of network outage associated
with moving to another facility.

         COST OF SERVICES, EXCLUSIVE OF ITEMS DISCUSSED SEPARATELY BELOW

         Cost of services, exclusive of depreciation and amortization, which is
discussed separately below, are classified into the following general
categories: access costs, transmission costs, voice and Internet termination
costs and other costs of services.

ACCESS COSTS. We have minimal access costs as our wholesale customers are
typically responsible for the cost of accessing our network. We have begun to
provide services to switchless resellers. Switchless resellers do not have any
telecommunications infrastructure. Therefore, for services to switchless
resellers we will have access costs payable to the originating local provider,
usually the incumbent telephone operator. These costs are reflected in our
pricing and will vary based on calling volume and the distance between the
caller and our point of presence.

TRANSMISSION COSTS. Our transmission costs currently consist primarily of leased
capacity and switch and router facilities costs. Leased capacity charges are
fixed monthly payments based on capacity provided and are typically higher than
a "dark fiber cost level," which is our target cost level and represents the
lowest possible per unit cost. Dark fiber cost level is the per unit cost of
high-capacity fiber that has been laid and readied for use but which has not
been "lit" with transmission electronics. Dark fiber cost levels can be achieved
not only through owned facilities, but also may be possible through other rights
of use such as multiple investment units, known as "MIUs," or indefeasible
rights of use, known as "IRUs." Because of the higher cost base of leased
capacity, we have not generally sought to provide our bandwidth services over
leased network routes.

         As part of our strategy to lower our cost base over time, we will seek
dark fiber cost levels for our entire transmission platform, through building,
acquiring or swapping capacity. For example, we anticipate that the German
network will be operational in the first half of 2000 and the Amsterdam
intra-city network will be operational in the third quarter of 2000. We have
acquired intra-city capacity in London to lower our access costs, and we have
made capital-efficient arrangements to swap capacity on the German network for
capacity on other networks. We further minimize our transmission costs by
optimizing the routing of our voice traffic and increasing volumes on our
fixed-cost leased and owned lines, thereby spreading the allocation of fixed
costs over a larger number of voice minutes or larger volume of Internet
traffic, as applicable. To the extent we overestimate anticipated traffic
volume, however, per unit costs will increase. As we continue to develop our
owned network and rely less on leased capacity, per unit voice transmission
costs are expected to decrease substantially, offset partially by an increase in
depreciation and amortization expense. We also expect to


                                       51
<PAGE>

experience declining transmission costs per billable minute or per Mb, as
applicable, as a result of increasing use of our owned network as opposed to
leased network assets, decreasing cost of leased transmission capacity,
increasing availability of more competitively priced IRUs and MIUs and
increasing traffic volumes.

VOICE TERMINATION COSTS. Termination costs represent the costs we are required
to pay to other carriers from the point of exit from our network to the final
point of destination. Generally, most of the total costs associated with a call,
from receipt to completion, are termination-related costs. Voice termination
costs per unit are generally variable based on distance, quality, geographical
location of the termination point and the degree of competition in the country
in which the call is being terminated.

         If a call is terminated in a city in which we have a point of presence
and an interconnection agreement with the national incumbent telephone operator,
the call will be transferred to the public switched telephone network for local
termination. This is usually the least costly mode of terminating a call. If a
call is to a location in which we do not have a point of presence, or have a
point of presence but do not have an interconnection agreement giving us access
to the public switched telephone network, then the call must be transferred to,
and refiled with, another carrier that has access to the relevant public network
for local termination. We pay this carrier a refile fee for terminating our
traffic. Most refilers currently operate out of London or New York, so that the
refiled traffic is rerouted to London or New York and from there is carried to
its termination point. Refile agreements provide for fluctuating rates with rate
change notice periods typically of one or four weeks. We seek to reduce our
refile costs by utilizing least cost routing. For example, where we do not yet
have interconnection agreements, we implement "resale" agreements whereby a
local carrier that has an interconnection agreement with the incumbent telephone
operator "resells" or shares this interconnection right with us for a fee.
Termination through resale agreements is more expensive than through
interconnection agreements but significantly less expensive than through refile
agreements because the traffic does not need to be rerouted to another country.
In countries where we have not been directly authorized to provide services, we
will negotiate to obtain direct operating agreements with correspondent
telecommunications operators where such agreements will result in lower
termination costs than might be possible through refile arrangements. We believe
our refile and resale agreements are competitively priced. If our traffic
volumes are higher than expected, we may have to divert excess traffic onto
another carrier's network, which would also increase our termination costs. We
believe, however, that we have sufficient capacity and could, if necessary,
obtain more. In addition, our technologically advanced daily traffic monitoring
capabilities allow us to identify changes in volume and termination cost
patterns as they begin to develop, thereby permitting us to respond in a
cost-efficient manner.

         In general, the majority of our voice traffic originates and terminates
in Europe where prices are generally lower, but where we have implemented
interconnection agreements and therefore generally do not need to terminate
traffic via more costly refile or resale arrangements.

         We believe that our termination costs per unit should decrease as we
extend our network, increase transmission capacity and interconnect with more
incumbent telephone operators. We also believe that continuing liberalization in
Europe will lead to decreases in termination costs as new telecommunications
service providers emerge, offering alternatives to the incumbent telephone
operators for local termination, and as European Union member states implement
and enforce regulations requiring incumbent telephone operators to establish
rates which are set on the basis of forward-looking, long run economic costs
that would be incurred by an efficient provider using advanced technology. There
can be no assurance, however, regarding the extent or timing of such decreases
in termination costs.


                                       52
<PAGE>

INTERNET TERMINATION COSTS. Termination costs represent costs we are required to
pay to other Internet backbone providers from the point of exit of our network.
Internet termination is effected through peering and transit arrangements.
Peering arrangements provide for the exchange of Internet traffic
free-of-charge. We have entered into peering arrangements with ISPs in the
United States and Europe, including recent peering arrangements with several
European incumbent telephone operators. There can be no assurance that we will
be able to negotiate additional peering arrangements. Under transit
arrangements, we are required to pay a fee to exchange traffic. That fee has a
variable and a fixed component. The variable component is based on monthly
traffic volumes. The fixed component is based on the minimum Mb amount charged
to us by our transit partners. The major United States ISPs require almost all
European ISPs and Internet backbone providers, including us, to pay a transit
fee to exchange traffic. See Item 1. - "Business-Network-Existing and Planned
Traffic Termination Arrangements-Internet Termination."

         Recently, the Internet services industry has experienced increased
merger and consolidation activity. This activity is likely to increase the
concentration of market power of Internet backbone providers, and may adversely
affect our ability to obtain peering and cost-effective transit arrangements.

OTHER COSTS OF SERVICES. Other costs of planned services include the expenses
associated with providing value-added Internet services and data center
capabilities. These expenses will consist primarily of certain engineering
costs, personnel costs and lease expenses within our data center facilities.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Our wholesale strategy allows us to maintain lower selling, general and
administrative expenses than companies providing services to the mass retail
market. Our selling, general and administrative expenses consist primarily of
personnel costs, information technology costs, office costs, travel,
commissions, billing, professional fees and advertising and promotion expenses.
We employ a direct sales force located in the major markets in which we offer
services. To attract and retain a highly qualified sales force, we offer our
sales personnel a compensation package emphasizing performance-based commissions
and equity options. We expect to incur significant selling and marketing costs
in advance of anticipated related revenue as we continue to expand our
operations and service offerings. Our selling, general and administrative
expenses are expected to decrease as a percentage of revenues, however, once we
have established our operations in targeted markets and expanded our customer
base.

         DEPRECIATION AND AMORTIZATION

         Depreciation and amortization expense includes charges relating to
depreciation of property and equipment, which consist principally of equipment
(such as switches, multiplexers and routers), investments in indefeasible rights
of use and in multiple investment units, furniture and equipment. We depreciate
our network over periods ranging from 5 to 15 years and amortize our intangible
assets over a period of 5 years. We depreciate our investments in indefeasible
rights of use and in multiple investment units over their estimated useful lives
of not more than 15 years. We expect depreciation and amortization expense to
increase significantly as we expand our owned network, including the development
of the German network.

RESULTS OF OPERATIONS


                                       53
<PAGE>

         Because we commercially introduced our services in September 1998, our
management believes that comparisons of results for the year ended December 31,
1999 to the period from our inception to December 31, 1998 are not meaningful.

         YEAR ENDED DECEMBER 31, 1999

         Revenues for the year ended December 31, 1999 were approximately $97.1
million, primarily relating to voice services, which contributed $87.6 million
or 90% to the total revenue generated during that period. Voice traffic volume
of 606 million minutes was billed to our customers. Average revenue per minute
for the period was 14.5 cents. Revenue of $9.5 million for the same period was
generated by Internet and bandwidth services, including revenue of $3.2 million
associated with the second quarter bandwidth IRU contract.

         Cost of services (exclusive of items shown separately) consists
primarily of operation of the network, leases for transmission capacity, and
termination expenses including refiling. These costs for the year ended December
31, 1999 were approximately $113.8 million, including $1.9 million of cost of
services associated with the second quarter bandwidth IRU contract.

         Selling, general and administrative expenses were approximately $18.4
million for the year ended December 31, 1999 and consisted primarily of
personnel costs, information technology costs, office costs, professional fees
and expenses.

         Depreciation and amortization for the year ended December 31, 1999 was
approximately $13.8 million and consisted primarily of depreciation costs for
network equipment, indefeasible rights of use, and other furniture and
equipment.

         Net interest expense for the year ended December 31, 1999 was
approximately $23.6 million. It consisted during this period of approximately
$29.5 million of interest on the 13 1/4% senior notes, other short term and long
term debt, less interest income of approximately $5.9 million. Interest income
consists of interest earned from investing the remaining proceeds of the
investments by our equity sponsors, employees and directors and the issuance of
the 13 1/4% senior notes and related warrants.

         The weakening of the euro to the U.S. dollar in the year ended December
31, 1999 resulted in a currency exchange loss of approximately $15.4 million.

         Our management evaluates the relative performance of our voice and
Internet and bandwidth services operations based on their respective fixed cost
contributions. Fixed cost contribution consists of the revenues generated by the
provision of voice services or Internet and bandwidth services, as the case may
be, less direct variable costs incurred as a result of providing such services.
Certain direct costs, such as network and transmission costs, are shared by both
the voice and Internet and bandwidth operations and are not allocated by
management to either service. See Note 13 to our consolidated financial
statements.

         Fixed cost contribution for voice services for the year ended December
31, 1999 was $12.6 million, representing $87.6 million in voice revenue less
$75.0 million, or 12.4 cents per minute, in voice termination costs. Fixed cost
contribution for Internet and bandwidth services for the same period was $7.6
million, representing approximately $9.5 million in Internet and bandwidth
services revenue less approximately $1.9 million of cost of services for the
bandwidth IRU contract.


                                       54
<PAGE>

         PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1998

         We commercially introduced our services in September 1998. Revenues for
the period from our inception to December 31, 1998 were approximately $2.8
million, primarily relating to voice services, which contributed 98% to the
total revenue achieved in 1998. Voice traffic volume from the start of
operations in September 1998 until the end of 1998 amounted to 10 million
minutes. Revenue of $0.1 million for the same period was generated by Internet
services.

         Cost of services (exclusive of amounts shown separately) consists
primarily of operation of the network, leases for transmission capacity, and
termination expenses including refiling. These costs for the period from our
inception to December 31, 1998 were approximately $11.7 million.

         Selling, general and administrative expenses were approximately $9.0
million for the period from our inception to December 31, 1998 and consisted
primarily of start-up expenses, personnel costs, information technology costs,
office costs, professional fees and promotion expenses.

         Depreciation and amortization for the period from our inception to
December 31, 1998 was approximately $1.4 million and consisted primarily of
depreciation costs for network equipment, indefeasible rights of use, and other
furniture and equipment.

         Interest income during the period from our inception to December 31,
1998 consisted of interest earned from investing the proceeds of the issuance of
equity. Interest income totaled approximately $92,000 for the period from our
inception to December 31, 1998. No material interest expense was incurred during
the same period. No material currency exchange loss was incurred during the same
period.

         Fixed cost contribution for voice services for the period from our
inception to December 31, 1998 was $0.1 million, representing $2.7 million in
voice revenue less $2.6 million in voice termination costs, reflecting the fact
that during the early stages of our operations, we had relatively few
interconnection agreements with incumbent telephone operators so that traffic
had to be terminated at higher cost through refiling. Fixed cost contribution
for Internet and bandwidth services for the same period was equivalent to
Internet and bandwidth services revenue, or $0.1 million.

LIQUIDITY AND CAPITAL RESOURCES

         We broadly define liquidity as our ability to generate sufficient cash
flow from operating activities to meet our obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.

         From our inception through December 31, 1998, we financed our
operations through equity contributions. During the year ended December 31,
1999, we financed our operations through additional equity contributions and
with the proceeds of the issuance of our 13 1/4% senior notes and related
warrants, vendor financing and other long term debt, and an interim credit
facility. The further development of our business and deployment of our network
will require significant capital to fund capital expenditures, working capital,
cash flow deficits and debt service. Our principal capital expenditure
requirements include the expansion of our


                                       55
<PAGE>

network, including construction of the German and intra-city networks, the
acquisition of multiplexers, routers and transmission equipment and the
construction of data center facilities through an investment in the Hubco joint
venture. Additional funding will also be required for office space, switch site
buildout and corporate overhead and personnel.

         Between our inception and December 31, 1998, we had incurred capital
expenditures of approximately $37.2 million, and during the year ended December
31, 1999 we incurred capital expenditures of approximately $195.4 million,
including amounts related to the German network in both periods. Capital
expenditures in 1998 and 1999 were principally for investments in fiber
infrastructure and transmission equipment. We estimate that we will incur
capital expenditures of approximately $362 million from January 2000 through the
end of 2001 ($242 million for 2000 and $120 million for 2001), including
approximately $23 million of which we estimate will be required for our
investment in the Hubco joint venture. We expect capital expenditures in 2000
and 2001 will be principally for investments in fiber infrastructure and
transmission equipment. By the end of the first half of 2000, we plan to
complete construction of the German network and to purchase additional
multiplexers and routers, and we plan to complete the Amsterdam intra-city
network in the third quarter of 2000.

         As of December 31, 1998 funds managed by our equity sponsors had
invested a total of approximately $37.8 million to fund start-up operations. By
February 19, 1999, such funds had completed their aggregate equity investment
totaling $60 million in equity contributions. On February 19, 1999, we issued 13
1/4% senior notes, with warrants, for net proceeds of approximately $242
million, after deducting discounts and commissions and expenses. Approximately
$79.0 million of the net proceeds were originally used to secure the first five
interest payments on the notes. In addition, as of December 31, 1999, employees
and directors had directly or indirectly invested approximately $6.7 million in
our shares, approximately $0.5 million of which relates to shares formally
issued under Luxembourg law after December 31, 1999.

         On March 1, 2000, we completed our initial public offering of
8,625,000 shares of common stock (including the underwriters' overallotment
of 1,125,000 shares) at a price of (U) 87 per share (approximately $87.42 per
share). We received proceeds of approximately $712 million, net of
underwriting discounts and commissions and listing fees.

         In addition to the net proceeds of our initial public offering, other
potential sources of capital, if available on acceptable terms or at all, may
include possible sales of dark fiber on the German or Amsterdam networks or
additional private or public financings, such as an offering of debt or equity
in the capital markets, an accounts receivable or bank facility or equipment
financings. We believe, based on our current business plan, that these sources,
or a combination of them, will be sufficient to fund the expansion of our
business as planned, and to fund operations until we achieve positive cash flow
from operations. We expect to continue to generate net losses and negative cash
flow through at least 2002 as we expand our operations, and we do not expect to
generate positive cash flow from operating activities until at least 2003.
Whether or when we will generate positive cash flow from operating activities
will depend on a number of financial, competitive, regulatory, technical and
other factors. For example, our net losses and negative cash flow from operating
activities are likely to continue beyond that time if:

         o        we decide to build extensions to our network because we cannot
                  otherwise reduce our transmission costs,

         o        we do not establish a customer base that generates sufficient
                  revenue,


                                       56
<PAGE>

         o        we do not reduce our termination costs by negotiating
                  competitive interconnection rates and peering arrangements as
                  we expand our network,

         o        prices decline faster than we have anticipated,

         o        we do not attract and retain qualified personnel,

         o        we do not obtain necessary governmental approvals and operator
                  licenses or

         o        we are unable to obtain any additional financing as may be
                  required.

         Our ability to achieve these objectives is subject to financial,
competitive, regulatory, technical and other factors, many of which are beyond
our control. There can be no assurance that we will achieve profitability or
positive cash flow.

         The actual amount and timing of our future capital requirements may
differ materially from our estimates as a result of, among other things, the
demand for our services and regulatory, technological and competitive
developments. There can be no assurance that sources of additional financing
will be available on acceptable terms or at all.

         As of December 31, 1999, we had total current assets of $171.3 million,
of which $32.6 million was escrowed for interest payments on the 13 1/4% senior
notes and $29.3 million of which was allocated to the construction cost of the
German network. Net unrestricted cash as of the same date was $28.5 million. In
the first quarter of 2000, we allocated approximately $20.0 million in
additional funds for the construction cost of the German network and provided a
letter of credit to secure payment of that amount.

         EBITDA, which we define as earnings before interest, taxes,
depreciation, amortization, foreign currency exchange gains or losses and other
income (expense), decreased from negative $9.4 million in the third quarter of
1999 to negative $12.3 million in the fourth quarter of 1999. EBITDA is used by
management and certain investors as an indicator of a company's ability to
service debt and to satisfy capital requirements. However, EBITDA is not a
measure of financial performance under generally accepted accounting principles
and should not be considered as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity or an alternative to
net income as an indication of our operating performance or any other measure of
performance derived under generally accepted accounting principles. EBITDA as
used in this report may not be comparable to other similarly titled measures of
other companies or to similarly titled measures as calculated under our debt
agreements.

         Our significant debt and vendor financing activity to date has
consisted of the following:

         o        On February 19, 1999, we issued $160 million and (u)85 million
                  of 13 1/4% senior notes, with a scheduled maturity of February
                  15, 2009, with detachable warrants.

         o        On February 18, 1999 we entered into an agreement to purchase
                  fiber optic cable for the German network for $20.3 million
                  plus value-added tax. We have borrowed an additional amount of
                  approximately $4.0 million under this agreement since December
                  31, 1999. We have the right to defer payment until December
                  31, 2000 without interest, after which we may obtain seller
                  financing, with interest accruing from January 1, 2001.


                                       57
<PAGE>

         o        In June 1999, we entered into a financing facility with Nortel
                  Networks Inc., an equipment supplier. As of December 31, 1999,
                  we had borrowed substantially the full amount of the $75
                  million available under the facility. The debt outstanding
                  under this facility bore interest at a LIBOR-based floating
                  interest rate, and the weighted average on outstanding amounts
                  was 11.04% as of December 31, 1999. The debt was repaid from
                  the proceeds of our initial public offering.

         o        In December 1999, we entered into an interim credit agreement
                  with Morgan Stanley Senior Funding, Inc. and Citibank N.A. As
                  of December 31, 1999, we had borrowed (U)10 million of the
                  $200.0 million (or the euro equivalent) available under the
                  facility. This debt bore interest at a LIBOR-based floating
                  interest rate equal to 6.72% as of December 31, 1999. The debt
                  outstanding under this facility ((U)40 million at the time of
                  our initial public offering), was repaid from the proceeds of
                  our initial public offering, and the facility terminated.

FOREIGN CURRENCY

         Our reporting currency is the U.S. dollar, and interest and principal
payments on the 13 1/4% senior notes are in U.S. dollars and euros. However, the
majority of our revenues and operating costs are derived from sales and
operations outside the United States and are incurred in a number of different
currencies. Accordingly, fluctuations in currency exchange rates may have a
significant effect on our results of operations and balance sheet data. The euro
has eliminated exchange rate fluctuations among the 11 participating European
Union member states. Adoption of the euro has therefore reduced the degree of
intra-Western European currency fluctuations to which we are subject. We will,
however, continue to incur revenues and operating costs in non-Euro denominated
currencies, such as pounds sterling. Although we do not currently engage in
exchange rate hedging strategies, we may attempt to limit foreign exchange
exposure by purchasing forward foreign exchange contracts or engaging in other
similar hedging strategies. We have outstanding one contract to purchase
Deutsche Marks in exchange for dollars from time to time in amounts anticipated
to satisfy our Deutsche Mark-denominated obligations under our German network
arrangements. Any reversion from the euro currency system to a system of
individual country floating currencies could subject us to increased currency
exchange risk.

INFLATION

         We do not believe that inflation will have a material effect on our
results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1999, the Financial Accounting Standards Board (the "FASB")
issued Interpretation No. 43, "Real Estate Sales, an interpretation of FASB
Statement No. 66." The interpretation is effective for sales of real estate with
property improvements or integral equipment entered into after June 30, 1999.
Under this interpretation, fiber is considered integral equipment and
accordingly title must transfer to a lessee in order for a lease transaction to
be accounted for as a sales-type lease. After June 30, 1999, the effective date
of FASB Interpretation No. 43, sales-type lease accounting is not appropriate
for fiber leases and, therefore, these transactions are accounted for as
operating leases unless title to the fibers under lease transfers to the lessee
or the agreement was entered into prior to June 30, 1999. During the second
quarter of 1999,


                                       58
<PAGE>

Carrier1 recognized revenue of approximately $3.2 million and cost of services
of approximately $1.9 million from one bandwidth IRU contract that was treated
as a sales-type lease. In the future, similar revenues and expenses will be
recognized over the term of the related contracts, typically 15 to 20 years.

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The adoption of this
standard is effective for the first quarter of our fiscal year ending December
31, 2001. Management has not yet completed its analysis of this new accounting
standard and, therefore, has not determined whether this standard will have a
material effect on our financial statements.

IMPACT OF YEAR 2000

         "Year 2000" generally refers to the various problems that may result
from the improper processing of dates and date-sensitive calculations by
computers and other equipment as a result of computer hardware and software
using two digits, rather than four digits, to define the applicable year. If a
computer program or other piece of equipment fails to properly process dates
including and after the year 2000, date-sensitive calculations may be inaccurate
or a major system failure may occur. Any such miscalculations or system failures
may cause disruptions in operations including, among other things, a temporary
inability to process transactions, send invoices or engage in other routine
business activities. A failure of our computer systems could have a material
adverse effect on our operations, including our ability to make payments on our
existing indebtedness.

         TRANSITION TO YEAR 2000

         We did not experience any interruption to our business as a result of
the transition to January 1, 2000. As we developed and implemented our network,
operational support systems, and computer systems, we conducted an evaluation
for Year 2000 compliance. Based on such evaluation, we concluded that our
critical information technology, known as IT, systems and our non-IT systems,
such as our network transmission equipment and the Nortel and Cisco network
operating systems, were Year 2000 compliant. In addition, we received written
assurances from Cisco, Nortel, and International Computers Limited (a
significant software supplier) that the systems they provided us are Year 2000
compliant. We intend to maintain a Year 2000 project team with responsibility
for our efforts to continue to protect us and our customers from Year 2000
issues and the other potential problem dates in the year 2000, and beyond. The
Year 2000 project team includes members of the network and voice switches, IP
network services, IT, building services, corporate network, customer care and
legal departments.

         RISKS OF YEAR 2000 ISSUES

         Any failure of the computer systems of our vendors, service or capacity
suppliers or customers as a result of not being Year 2000 compliant could
materially and adversely affect us. For example, in the event


                                       59
<PAGE>

of a failure as a result of Year 2000 issues in any systems of third parties
with whom we interact, we could experience disruptions in portions of our
network, lose or have trouble accessing or receive inaccurate third party data,
experience internal and external communication difficulties, or have difficulty
obtaining components that are Year 2000 compliant from our vendors. Any of these
occurrences could adversely affect our ability to operate our network and retain
customers. In addition, we could also experience a slowdown or reduction of
sales if customers are adversely affected by Year 2000 issues. Although we have
not experienced any failure of our computer systems and we are not aware of any
of our major vendors, suppliers or customers experiencing significant problems,
there can be no assurance as to the potential for problems to emerge throughout
the course of the year 2000 and even beyond. For example, our sophisticated
billing system is designed to provide flexible options to our customers in the
presentation of their bills as well as valuable cost management information to
us, including breakdowns of traffic, revenues and margins by customer and route.
This system is vital to our ability to operate efficiently and provide a high
level of customer service. We will not be able to fully assess the impact of the
transition to the year 2000 until we have completed at least one or more full
billing cycles without any system failure.

         CONTINGENCY PLANS AND COSTS

         Based on Year 2000 compliance information we received from suppliers
and customers, we developed a contingency plan to assess the likelihood of and
address worst-case scenarios, to deal with potential Year 2000 problems caused
by a failure of our vendors, service or capacity suppliers or customers to be
Year 2000 compliant. This contingency plan has been reviewed and approved by
management. There can be no assurance this plan will not need to be revised over
the course of the year 2000.

         We did not incur any significant costs associated with our Year 2000
testing and planning phase and do not anticipate incurring significant costs in
the future. We may, however, have to bear costs and expenses in connection with
any failure of our vendors, suppliers or customers to be Year 2000 compliant. We
have not yet identified any material Year 2000 issues in connection with
external sources, and therefore cannot reasonably estimate costs which may be
required for remediation or for implementation of contingency plans.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Because most of our outstanding debt at December 31, 1999 is fixed-rate
debt, a change in market interest rates is not likely to have a material effect
on our earnings, cash flows or financial condition. We have had some exposure to
fluctuations in interest rates due to the (U)40 million and $75 million that
were outstanding under facilities that bear interest at a floating rate and
which were repaid during the first quarter of 2000. However, our future exposure
is minimized because we repaid this debt out of the proceeds of our
initial public offering. We are exposed to market risk from changes in foreign
currency exchange rates. Our market risk exposure exists from changes in foreign
currency exchange rates associated with our non-derivative financial
instruments, such as our 13 1/4% senior euro notes, and with transactions in
currencies other than local currencies in which we operate. As of December 31,
1999, we did not have a position in futures, forwards, swaps, options or other
similar financial instruments to manage the risk arising from these interest
rate and foreign currency exchange rate exposures.

         We have foreign currency exposures related to purchasing services and
equipment and selling our services in currencies other than the local currencies
in which we operate. Our most significant foreign currency exposures relate to
Western European countries, primarily Germany, Switzerland, and the United
Kingdom,


                                       60
<PAGE>

where our principal operations exist. However, the introduction of the euro has
significantly reduced the degree of intra-Western European currency fluctuations
to which we are subject as of December 31, 1999 (other than fluctuations in
currencies that were not converted to the euro, such as the British pound and
the Swiss franc). Additionally, we are exposed to cash flow risk related to debt
obligations denominated in foreign currencies, particularly our 13 1/4% senior
euro notes.

         The table below presents principal cash flows and related average
interest rates for our obligations by expected maturity dates as of December 31,
1999. The information is presented in U.S. dollar equivalents, our reporting
currency, using the exchange rate at December 31, 1999. The actual cash flows
are payable in either U.S. dollars (US$) or euro ((U)), as indicated in the
parentheses. Average variable interest rates are based on our borrowing rate as
of December 31, 1999. Fair value of the dollar and euro notes was estimated
based on quoted market prices. Fair value for all other debt obligations was
estimated using discounted cash flows analyses, based on our borrowing rate as
of December 31, 1999.

<TABLE>
<CAPTION>
 (IN THOUSANDS) EXPECTED                                                                                           FAIR
       MATURITY DATE            2000       2001       2002       2003      2004       THEREAFTER        TOTAL      VALUE
 -----------------------        ----       ----       ----       ----      ----       ----------        -----      -----
<S>                            <C>        <C>        <C>        <C>       <C>
Notes payable:

Fixed rate ((U)).........                                                              $  85,541      $  85,541  $  90,887
Interest rate............                                                                  13.25%         13.25%
Fixed rate ($)...........                                                              $ 160,000      $ 160,000  $ 160,800
Interest rate............                                                                  13.25%         13.25%

Other long-term debt:

Fixed rate ($)...........      $3,124     $2,838     $  754                                           $   6,716  $   6,716
Interest rate............         9.7%       9.7%       9.7%
Variable rate ($)........                 $5,249     $5,249     $5,248                                $  15,746  $  14,296
Interest rate............                    9.7%       9.7%       9.7%
</TABLE>

         The cash flows in the table above are presented in accordance with the
maturity dates defined in the debt obligations. However, the dollar and euro
notes allow for early redemption at specified dates in stated principal amounts,
plus accrued interest. We have not determined if these debt obligations will be
redeemed at the specified early redemption dates and amounts. We may elect to
redeem these debt obligations early at a future date. Cash flows associated with
the early redemption of these debt obligations are not assumed in the table
above. Should we elect to redeem these debt obligations earlier than the
required maturities, the cash flow amounts in the table above could change
significantly. We have not presented in the above table information relating to
our obligations under the Nortel facility since those obligations were repaid
with proceeds of our initial public offering.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED QUARTERLY FINANCIAL DATA

         The following table sets forth our consolidated financial data as of
and for the three-month periods ended December 31, September 30, June 30 and
March 31, 1999, and December 31, September 30 and June 30, 1998. The
consolidated financial data were derived from our unaudited consolidated
financial statements and include, in the opinion of our management, all
adjustments, consisting solely of normal recurring


                                       61
<PAGE>

adjustments, necessary to present fairly the data for such period. The
information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the rest of this
discussion and with our consolidated financial statements and related notes.

                       Amounts are presented in thousands.

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                   -------------------------------------------------------------------------------------------------
                                   DECEMBER 31,  SEPTEMBER 30,     JUNE 30,     MARCH 31,   DECEMBER 31,   SEPTEMBER 30,  JUNE 30,
                                      1999           1999           1999          1999        1998            1998         1998
                                   ------------  -------------     --------     ---------   ------------   -------------  --------
<S>                                  <C>            <C>            <C>          <C>            <C>            <C>           <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue.........................     $37,319        $27,311        $20,194      $12,293        $  2,741        $    51          -
Cost of services (exclusive
of amounts shown separately
below)..........................      41,905         32,543         22,346       17,015           7,607          4,062          -
Selling, general and
administrative expenses.........       7,688          4,216          3,147        3,318           4,868          2,671      1,281
Depreciation and amortization...       6,032          4,183          2,298        1,336           1,163            246          -
                                     -------        -------        -------      -------        --------        -------     ------

Loss from operations............     (18,306)       (13,631)        (7,597)      (9,376)       $(10,897)        (6,928)    (1,281)
Other income (expense):
Interest income.................         772          2,009          2,099          979               3             89          -
Interest expense................      (8,152)        (8,718)        (8,400)      (4,205)            (11)             -          -
Other income (expense)..........        (117)           (25)          (413)           -               -              -          -
Currency exchange
gain (loss), net................     (10,200)         1,931         (4,721)      (2,428)           (924)           871          -
                                     -------        -------        -------      -------        --------        -------     ------

Loss before income tax benefit..     (36,003)       (18,434)       (19,032)     (15,030)        (11,829)        (5,968)    (1,281)
Income tax benefit, net of
valuation allowance.............           -              -              -            -               -              -          -
                                     -------        -------        -------      -------        --------        -------     ------

Net loss........................    $(36,003)      $(18,434)      $(19,032)    $(15,030)        (11,829)        (5,968)    (1,281)
                                     =======        =======        =======      =======        ========        =======     ======
</TABLE>

The other information requested by this item is attached as Appendix A.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

There have not been any changes in or disagreements with our accountants
regarding our accounting and financial disclosure during 1999 or 1998.


                                       62
<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

      The following table sets forth certain information with respect to the
directors of Carrier1 International and our executive officers and other key
employees as of December 31, 1999.

<TABLE>
<CAPTION>
NAME                                  AGE   POSITION WITH CARRIER1
----                                  ---   ----------------------
<S>                                   <C>   <C>
Stig Johansson....................    57    Chief Executive Officer, President and Director of Carrier1
                                            International
Eugene A. Rizzo...................    48    Vice President, Sales and Marketing
Terje Nordahl.....................    52    Chief Operating Officer
Joachim W. Bauer..................    55    Chief Financial Officer
Kees van Ophem....................    37    Vice President, Purchase and General Counsel
Neil E. Craven....................    31    Vice President, Business Development
Alex Schmid.......................    31    Vice President, Strategic Development
Philip Poulter....................    49    Managing Director of Sales, United Kingdom and Ireland
Edward A. Gross...................    41    Managing Director of Sales, Germany, Austria, Switzerland and
                                            Central and Eastern Europe
Isabelle Russier..................    35    Managing Director of Sales, France
Marcus J. Gauw....................    39    Managing Director of Sales, Benelux
Carlos Colina.....................    47    Acting Managing Director of Sales, North America
Oscar Escribano...................    41    Managing Director of Sales, Spain and Portugal
Thomas Svalstedt..................    47    Managing Director of Sales, Nordic and Baltic Regions
Sebastiano Galantucci.............    33    Managing Director of Sales, Italy
Glenn M. Creamer..................    37    Director of Carrier1 International
Jonathan E. Dick..................    41    Director of Carrier1 International
Mark A. Pelson....................    37    Director of Carrier1 International
Victor A. Pelson..................    62    Director of Carrier1 International
Thomas J. Wynne...................    59    Director of Carrier1 International
</TABLE>

         STIG JOHANSSON has served as a director of Carrier1 International since
August 1998 and as our Chief Executive Officer and President since March 1998
and has more than 30 years of experience in the telecommunications industry.
Prior to founding Carrier1, Mr. Johansson was President of Unisource Carrier
Services AG from September 1996 until February 1998, where he was responsible
for transforming Unisource Carrier Services from a network development and
planning company into a fully commercial, wholesale carrier of international
traffic. Mr. Johansson was a member of Unisource N.V.'s supervisory board from
1992 until 1996. Prior to joining Unisource Carrier Services, Mr. Johansson
worked for Telia AB, the Swedish incumbent telephone operator, where he was most
recently Executive Vice President. During his 26 years at Telia, Mr. Johansson
held a variety of positions. He began in 1970 working in engineering operations
and rose to head of strategic network planning (1977), general manager of the
Norrkoping Telecom region (1978), head of CPE-business division (1980),
executive vice president and marketing director of Televerkit/Telia AB (1984)
and Executive Vice President responsible for Telia's start-up operations in the
Nordic countries and the United Kingdom (1995). He was a member of Telia's
corporate management board from 1985 to 1996. Mr. Johansson holds a Master's
degree in Business Economics from Hermods Institut, Sweden and a degree of
Engineer of


                                       63
<PAGE>

Telecommunications from Luleo College, and he completed a senior executive
business course at IMD in Lausanne, Switzerland. He is a citizen of Sweden.

         EUGENE A. RIZZO has served as our Vice President, Sales and Marketing
since March 1998 and has over 22 years of experience in international sales and
marketing and 11 years of experience in the telecommunications industry. From
1993 to 1998, Mr. Rizzo managed sales and marketing groups for several
affiliates of Unisource NV, including Unisource Carrier Services and
AT&T-Unisource Communications Services, an international joint venture between
AT&T Corp. and Unisource NV. Prior to joining Unisource, Mr. Rizzo held various
marketing and management positions with International Business Machines
Corporation, or "IBM", Wang Laboratories, Inc. and Tandem Computers Inc. While
at Tandem, Mr. Rizzo assisted in the start-up of Tandem's European Telco Group.
Mr. Rizzo holds a Master of Business Administration degree from the University
of Massachusetts. He is a citizen of the United States.

         TERJE NORDAHL has served as our Chief Operating Officer since March
1998 and has 26 years of experience in telecommunications operations. Mr.
Nordahl also has extensive experience in the computer and Internet industry. As
a Managing Director at Unisource Business Networks BV from 1997 to 1998, he
established and built the Unisource Business Data Network in Norway. From 1995
to 1997, Mr. Nordahl was President of Telia AS (Norway), Telia's subsidiary in
Norway, where he supervised the building of an ATM backbone network with
integrated voice and data services. From 1993 to 1995, Mr. Nordahl established
and operated Creative Technology Management AS, which provided business
development services for government and industrial organizations. Prior to
establishing CTM, Mr. Nordahl held engineering, development and marketing
positions with various companies, including IBM and telecommunications companies
affiliated with Ericsson (L.M.) Telephone Co. and ITT Corp. Mr. Nordahl holds a
First Honors Bachelor of Science degree from Heriot-Watt University, Edinburgh
and has completed the INSEAD Advanced Management Program.
He is a citizen of Norway.

         JOACHIM W. BAUER has served as our Chief Financial Officer since March
1998 and has six years of experience in the telecommunications industry. From
1994 to 1998, Mr. Bauer served as Chief Financial Officer of Unisource Carrier
Services. Before joining Unisource Carrier Services, Mr. Bauer held various
management positions with IBM and its affiliates, including Controller of IBM
(Switzerland). Mr. Bauer graduated from a commercial school in Zurich, was
educated at IMEDE business school, Lausanne, Switzerland, and completed the
senior executive program of the Swiss Executive School (SKU). Mr. Bauer holds a
Certified Diploma in Accounting and Finance (CPA). He is a citizen of Germany.

         KEES VAN OPHEM has served as our Vice President, Purchase and General
Counsel since March 1998, with responsibility for interconnection, licensing,
legal affairs and carrier relations. Mr. van Ophem has eight years of experience
in the telecommunications industry. Prior to joining us, he was Vice President,
Purchase and General Counsel for Unisource Carrier Services from 1994 to 1998
and was on its management board from its inception in early 1994. From 1992 to
1994 Mr. van Ophem served as legal counsel to Royal PTT Nederland NV (KPN), with
responsibility for the legal aspects of its start-up ventures in Hungary,
Bulgaria, Czech Republic and Ukraine and the formation of Unisource Carrier
Services. Prior to joining KPN, Mr. van Ophem worked at law firms in Europe and
the United States. Mr. van Ophem holds a Juris Doctorate degree from the
University of Amsterdam and, as a Fulbright scholar, a Master of Laws degree in
International Legal Studies from New York University. He is a citizen of The
Netherlands.

         NEIL E. CRAVEN has served as our Vice President, Business Development
since March 1998 and has six years of experience in the telecommunications
industry. From 1995 to 1998, Mr. Craven was a member


                                       64
<PAGE>

of the management team at Unisource Carrier Services, initially responsible for
Corporate Strategy and Planning and later serving as Vice President of Business
Development. Prior to joining Unisource Carrier Services, Mr. Craven was
employed by Siemens AG in Germany, where he worked on various international
infrastructure projects. Mr. Craven has an Honors degree in Computer Engineering
from Trinity College, Dublin and a Master of Business Administration degree from
the Rotterdam School of Management. He is a citizen of Ireland.

         ALEX SCHMID has served as our Vice President, Strategic Development
since December 1999 and has over seven years of experience in international
telecommunications, Internet technology and media industry investments.
Immediately prior to joining us, Mr. Schmid was the General Partner of personal
investment vehicles targeting the technology, Internet, telecommunications and
media industries. From February 1996 until September 1998, Mr. Schmid was a
Managing Director and Head of Private Equity for the Bank Austria Group, where
he was responsible for investing primarily in European telecommunications and
telecommunications-related companies and investment vehicles. Mr. Schmid also
served on the board of directors of Central Europe Telecom Investment L.P., a
venture capital fund targeting investments in telecommunications and
telecommunications-related companies in Central Europe. From August 1995 until
February 1996, Mr. Schmid was a Vice President at AIG Capital Partners. From
March 1993 until August 1995, Mr. Schmid was an Associate of the Private Equity
Group at Creditanstalt. Mr. Schmid is a graduate of the Wharton School at the
University of Pennsylvania with a Bachelor of Science in Economics.
He is a German citizen.

         PHILIP POULTER has served as our Managing Director of Sales, United
Kingdom and Ireland since June 1998 and has over 30 years of experience in the
telecommunications industry. Prior to joining us, Mr. Poulter was Operations
Director of ACC Long Distance UK Ltd., a switch-based provider of
telecommunications services, from December 1997 to June 1998. From March 1997 to
December 1997, Mr. Poulter served as Network & Carrier Services Director of ACC.
From August 1996 to March 1997, Mr. Poulter was Managing Director of Nelcraft
Services Ltd., a provider of installation and maintenance services relating to
the cable television and telecommunications industries. From March 1995 to
August 1996, Mr. Poulter served as Carrier Manager of ACC. From 1993 to 1995,
Mr. Poulter was employed as Sales Director for Business Communication for
Videotron Corporation Ltd., a U.K. provider of cable television and telephony
services. Prior to joining Videotron, Mr. Poulter held various management, sales
and engineering positions, including more than fifteen years of experience in
designing and implementing telecommunications switching and transmission systems
for British Telecom. Mr. Poulter is a director of Carrier1 UK Ltd., a subsidiary
of Carrier1 International. Mr. Poulter has a Final Certificate in Electronics
and Communications from the London C & G Institute. He is a citizen of the
United Kingdom.

         EDWARD A. GROSS has served as our Managing Director of Sales, Germany,
Austria and Switzerland since May 1998 and has over 20 years of experience in
the telecommunications and networking industries. Prior to joining us, Mr. Gross
served as Sales Director, Germany for Unisource Carrier Services from December
1996 to May 1998. From March 1996 to December 1996, Mr. Gross served as Director
of Customer Services Engineering-Central Europe for AT&T-Unisource. From 1992 to
1996, Mr. Gross was a member of the management team at Unisource Business
Networks, where he was responsible for the start-up of operations in Germany and
Austria and subsequently served as Director of Customer Services. Prior to
joining Unisource Business Networks, Mr. Gross was employed by Unisys
Corporation for more than 14 years, during which time he held various positions
in network support and software development, primarily in Germany as well as
South Korea and the United States. Mr. Gross holds a Bachelor of Science degree
in


                                       65
<PAGE>

Management Studies from the University of Maryland and has completed the
Accelerated Development Program at London Business School. He is a citizen of
the United States.

         ISABELLE RUSSIER has served as our Managing Director of Sales, France
since August 1998 and has four years of experience in the telecommunications
industry. From November 1997 to July 1998, Ms. Russier was employed in London by
ACC, where she handled various projects in its Business Development Europe
Division. From December 1995 to October 1997, Ms. Russier was employed in France
as General Manager of Sales for UNIFI Communications, Inc., a U.S.-based
telecommunications value-added service provider. From 1992 to 1995, she worked
for Apple Computer, Inc., most recently as a Regional Sales Director, and from
1987 to 1992, she was employed by Intel Corp. in a variety of sales positions.
Ms. Russier holds an Engineering degree in Microelectronics and a European
Master of Business Administration degree (ISA) from the HEC School of
Management. She is a citizen of France.

         MARCUS J. GAUW has served as our Managing Director of Sales, Benelux
since June 1999 and prior to that had served as our Managing Director of Sales,
Internet, since May 1998. He has 14 years of experience in the
telecommunications industry. From 1996 to 1998, Mr. Gauw served as Sales Manager
for Internet Transit Services at AT&T-Unisource, and from 1994 to 1996, he
served as Sales Manager, Voice Services at AT&T-Unisource. From 1992 to 1994,
Mr. Gauw was a Senior Sales Consultant for Unisource Business Networks. Prior to
joining Unisource Business Networks, Mr. Gauw was employed by KPN for
approximately seven years, during which time he held various positions in sales
and marketing. Mr. Gauw holds a Bachelor's degree in Telecommunications and
Electronics from Hogere Technische School, Alkmaar, The Netherlands.
He is a citizen of The Netherlands.

         CARLOS COLINA has served as our Acting Managing Director of Sales,
North America since March 1999 and before that as its Manager, Carrier
Sales-North America since September 1998. He has over 24 years of experience in
the telecommunications industry. Prior to joining us, Mr. Colina handled various
sales and marketing assignments with AT&T, including responsibility for
directing AT&T's efforts in the assessment and analysis of the international
business switched services marketplace from 1993 to 1998. Mr. Colina has
extensive training in voice and data communications and holds a Bachelor's
degree in Information Sciences from Fordham University. He also has completed
the Wharton School of Business/AT&T business education program. He is a citizen
of the United States.

         OSCAR ESCRIBANO has served as our Managing Director of Sales, Spain and
Portugal since December 1999 and has 13 years experience in the
telecommunications industry. Prior to joining us, Mr. Escribano held various
positions in sales management at Unisource Carrier Services from 1995 to 1999,
among them Director of Sales for Internet Services and Director of Sales
Southern Europe. From 1986 to 1995, he worked for Telefonica, where he served as
Project Manager for planning and procurement of fixed telephony and data
networks, as well as satellite communications. Prior to his involvement in the
telecommunications industry, Mr. Escribano worked 4 years as an engineer in the
field of Safety of Nuclear Power Plants. Mr. Escribano holds an Engineering
degree in Power and Energy from the Politechnical University of Madrid.
He is a citizen of Spain.

         THOMAS SVALSTEDT has served as our Managing Director of Sales for the
Nordic and Baltic Regions since April 1999 and has 23 years of experience in the
telecommunications industry. Prior to joining us, Mr. Svalstedt was the Managing
Director for Corporate Business and a member of the Management Board at Telecom
Eireann in Ireland from 1997 to 1999. From 1993 to 1997, he was the Nordic
Region's Managing Director for Unisource. Mr. Svalstedt was the Sales Director
for Telia Megacom, Telia's company for


                                       66
<PAGE>

corporate business customers, from 1991 to 1993. From 1976 to 1991, Mr.
Svalstedt held various positions in sales management and project management at
the Telia Group and for different data communications companies in the Nordic
Region. Mr. Svalstedt holds a Masters Degree in Business Administration from the
Stockholm School of Economics. He is a citizen of Sweden.

         SEBASTIANO GALANTUCCI has served as our Managing Director of Sales for
Italy and Greece since January 1 2000. He has 12 years of experience in the
telecommunications industry. Prior to joining us, Mr. Galantucci held various
positions in sales and marketing management at Telecom Italia and Telemedia
International, most recently as Area Sales Manager for International Accounts
from December 1998 to December 1999. From 1995 to 1998, Mr. Galantucci worked in
Singapore and then Hong Kong for the Asia Pacific Area of Telemedia where he
served as a Marketing & Sales Manager and Senior Marketing Manager,
respectively. Prior to working overseas, Mr. Galantucci worked from 1987 to 1993
in planning and project implementation for Telecom Italia in Milan, Italy. Mr.
Galantucci holds a Degree in Business Administration from the Cattolica
University of Milan and a Diploma in Marketing from the University of Hong Kong.
He is a citizen of Italy.

         GLENN M. CREAMER has served as a director of Carrier1 International
since August 1998. Mr. Creamer has been a Managing Director of Providence Equity
Partners Inc. since its inception in 1996 and is also a General Partner of
Providence Ventures L.P., which was formed in 1991. Mr. Creamer is a director of
American Cellular Corporation, Celpage, Inc., Epoch Networks, Inc., Hubco S.A.,
Wireless One Network L.P. and Worldwide Fiber Inc. Mr. Creamer received a
Bachelor of Arts degree from Brown University and a Master of Business
Administration degree from the Harvard Graduate School of Business
Administration. He is a citizen of the United States.

         JONATHAN E. DICK has served as a director of Carrier1 International
since August 1998. Mr. Dick has been a Managing Director of Primus Venture
Partners, Inc. since December 1993. Prior to joining Primus in June 1991, Mr.
Dick held various positions in sales management at Lotus Development
Corporation. Mr. Dick is also a director of Entek IRD International Corporation,
Ingredients.com, Paycor, Inc., PlanSoft Corporation and Spirian Technologies,
Inc. Mr. Dick received a Bachelor of Science degree in Applied Mathematics and
Economics from Brown University and a Master of Business Administration degree
from the Harvard Graduate School of Business Administration. He is a citizen of
the United States.

         MARK A. PELSON has served as a director of Carrier1 International since
August 1998. Mr. Pelson is a Principal of Providence Equity Partners Inc., which
he joined in August 1996. Prior to 1996, Mr. Pelson was a co-founder and
director, from 1995 to 1996, of TeleCorp., Inc., a wireless telecommunications
company, and from 1989 to 1995 served in various management positions with AT&T,
including most recently as a general manager of strategic planning and mergers
and acquisitions. Mr. Pelson is a director of Madison River Telephone Company,
L.L.C., GlobeNet Communications Group Limited and Language Line Holdings, LLC.
Mr. Pelson received a Bachelor of Arts degree from Cornell University and a
Juris Doctorate from Boston University. Mr. Pelson is the son of Victor A.
Pelson. He is a citizen of the United States.

         VICTOR A. PELSON has served as a director of Carrier1 International
since January 1999. Mr. Pelson is a Senior Advisor to Warburg Dillon Read LLC.,
an investment banking firm. He was a Director and Senior Advisor of Dillon, Read
& Co. Inc. at the time of its merger in 1997 with SBC Warburg. Before joining
Dillon, Read in April 1996, Mr. Pelson was associated with AT&T from 1959 to
March 1996, where he held a number of executive positions, including Group
Executive and President responsible for the Communications Services Group,
Executive Vice President and member of the Management Executive Committee. At
his retirement from


                                       67
<PAGE>

AT&T, Mr. Pelson was Chairman of Global Operations (for what is now AT&T, Lucent
Technologies and NCR) and a member of the board of directors. Mr. Pelson is also
chairman of the board of trustees of New Jersey Institute of Technology and a
director of Eaton Corporation, Dun & Bradstreet Corporation and United Parcel
Service, Inc. and Dynatech Corporation. Mr. Pelson received a Bachelor of
Science degree in Mechanical Engineering from New Jersey Institute of Technology
and a Master of Business Administration degree from New York University. Mr.
Pelson is the father of Mark A. Pelson. He is a citizen of the United States.

         THOMAS J. WYNNE has served as a director of Carrier1 International
since January 1999. Mr. Wynne is currently a partner with Sycamore Creek
Development Co. He was President and Chief Operating Officer of LCI
International Inc. and its subsidiaries from July 1991 to October 1997. From
1977 to 1991, Mr. Wynne held several executive positions with MCI Communications
Corp., including President of the West Division, Vice President of Sales and
Marketing for the Mid-Atlantic Division, and Vice President in the Midwest
Division. Mr. Wynne holds a Bachelor of Science degree in Political Science from
St. Joseph's University. He is a citizen of the United States.

BOARD OF DIRECTORS

         The general affairs and business of Carrier1 International are managed
by the board of directors. Carrier1 International's articles of incorporation
provide for at least three directors appointed by a general meeting of
shareholders for terms no greater than six years. Under the articles, the number
and terms of directors are to be determined, and each director may be reelected
or removed at any time, by a general meeting of shareholders. Directors are not
required to hold any shares in Carrier1 International by way of qualification.
Carrier1 International is bound by the joint signature of two directors or the
sole signature of a managing director for ordinary course management decisions,
if one has been appointed by the board. Carrier1 International currently has six
directors and has no persons appointed as corporate officers. Each director was
appointed to hold office for a term of 6 years.

COMMITTEES OF THE BOARD OF DIRECTORS

         Our board has recently established an audit committee. The audit
committee, consisting of Messrs. Dick, Wynne and M. Pelson, is responsible for
reviewing the services provided by our independent auditors, our annual
financial statements and our system of internal accounting controls.

COMPENSATION OF DIRECTORS

         Carrier1 International will reimburse the members of the board for
their reasonable out-of-pocket expenses incurred in connection with attending
board meetings. Additionally Carrier1 International maintains directors' and
officers' liability insurance. Carrier1 International has granted 20,000 options
to purchase shares to each of Messrs. Wynne and V. Pelson. Members of the board
receive no other compensation for services provided as a director.


                                       68
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY EXECUTIVE COMPENSATION TABLE

         The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, our Chief Executive
Officer and our other four most highly compensated executive officers during the
periods from March 4, 1998 through December 31, 1998 and from January 1, 1999
through December 31, 1999. During 1998, these individuals held options in
Carrier One, LLC, which in turn held substantially all of the equity of Carrier1
International. Pursuant to a restructuring of our management equity, these
options for Carrier One, LLC interests were cancelled and equivalent options for
shares of Carrier1 International were issued in their place. The economic terms
of these new options are substantially the same as the terms of the Carrier One,
LLC options.

<TABLE>
<CAPTION>
                                                                        SHORT TERM                      LONG TERM
                                                                       COMPENSATION                    COMPENSATION
                                                                --------------------------  ---------------------------------
                                                                              OTHER ANNUAL  SECURITIES
                                                                              COMPENSATION  UNDERLYING           ALL OTHER
NAME AND PRINCIPAL POSITION          PERIOD(A)    SALARY(B)     BONUS(B)         (B)(C)       OPTIONS         COMPENSATION(E)
---------------------------          ---------    ---------     --------      ------------  ----------        ---------------
<S>                                     <C>       <C>           <C>              <C>          <C>                <C>
Stig Johansson..................        1999      $279,603      $43,339          $27,938      355,555            $72,823
   PRESIDENT AND CHIEF EXECUTIVE        1998       245,569       46,044           22,188          (d)             39,550
OFFICER
Eugene A. Rizzo.................        1999       197,368       30,592           26,723      355,555             31,649
   VICE PRESIDENT, SALES AND            1998       173,343       32,502           22,188          (d)             27,248
MARKETING
Terje Nordahl...................        1999       171,051       26,513           25,263      177,777             37,666
   CHIEF OPERATING OFFICER              1998       135,207       25,352           19,969          (d)             24,248
Joachim W. Bauer................        1999       171,051       26,513           26,245      355,555             40,380
   CHIEF FINANCIAL OFFICER              1998       150,230       28,168           23,147          (d)             34,793
Kees van Ophem..................        1999       171,051       26,513           25,111      355,555             16,788
   VICE-PRESIDENT, PURCHASE AND         1998       150,230       28,168           22,188          (d)             14,756
GENERAL COUNSEL
</TABLE>

-----------

(a)      Short term compensation for the 1998 period relates to the period from
         March 4, 1998 through December 31, 1998 except in the case of Terje
         Nordahl, for whom the relevant 1998 period was March 26, 1998 through
         December 31, 1998.

(b)      We record this compensation expense in Swiss Francs. The U.S. dollar
         amounts shown for 1998 were calculated using an average exchange rate
         of $0.69337 to SFr1, and for 1999 were calculated using an average
         exchange rate of $0.65789 to SFr1.

(c)      Consists of general business expenses and contributions under a health
         plan for our executive officers. Business expenses consist of car and
         travel expenses in the following approximate amounts, in thousands:


                                       69
<PAGE>

<TABLE>
<CAPTION>
                                                       1998          1999
                                                      ------        ------
<S>                                                   <C>           <C>
Stig Johansson ...........................            $ 22.2        $ 27.9
Eugene A. Rizzo ..........................              22.2          26.7
Terje Nordahl ............................              20.0          25.3
Joachim W. Bauer .........................              22.2          26.2
Kees van Ophem ...........................              22.2          25.1
</TABLE>

(d)      Pursuant to the equity restructuring, options to purchase Carrier One,
         LLC interests, which were granted to each executive in 1998, have been
         cancelled and were replaced by the economically equivalent options
         shown above as granted in 1999.

(e)      Consists of contributions under a defined contribution pension plan.


STOCK OPTION GRANTS AND FISCAL YEAR-END VALUES

         The following tables set forth information regarding grants of options
to purchase shares of Carrier1 International and the fiscal year-end value of
such options, which were granted to the executive officers listed in the Summary
Compensation Table above pursuant to the 1999 share option plan to replace
options to purchase Carrier One, LLC interests pursuant to a restructuring of
our management equity. The economic terms of these new options are substantially
the same as the terms of the Carrier One, LLC options. Options vest in equal
annual installments over the five years ending on the fifth anniversary of the
grant date of the predecessor options, subject to the executive's continuing
employment.

                              OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
                                              INDIVIDUAL GRANTS
                         ------------------------------------------------------------
                                        PERCENT OF
                         NUMBER OF         TOTAL
                         SECURITIES       OPTIONS
                         UNDERLYING     GRANTED TO      EXERCISE                         PRESENT VALUE
                          OPTIONS        EMPLOYEES       PRICE                            AT DATE OF
NAME                      GRANTED         IN 1999      ($/SHARE)      EXPIRATION DATE       GRANT(A)
----                      -------         -------      ---------      ---------------    -------------
<S>                       <C>              <C>            <C>          <C>                <C>
Stig Johansson......      355,555          14.4%          $2.0         March 4, 2008      $106,666.65
Eugene A. Rizzo.....      355,555          14.4%           2.0         March 4, 2008       106,666.65
Terje Nordahl.......      177,777           7.2%           2.0         March 26, 2008       53,333.25
Joachim W. Bauer....      355,555          14.4%           2.0         March 4, 2008       106,666.65
Kees van Ophem......      355,555          14.4%           2.0         March 4, 2008       106,666.65
</TABLE>

----------

(a)      The fair value of options grants is estimated on the date of the grant
         of the economically equivalent predecessor options to purchase Carrier
         One, LLC interests, using the minimum value option-pricing model, as
         allowed under SFAS 123 for nonpublic companies, for pro-forma footnote
         purposes with the following assumptions used: dividend yield of 0%,
         risk-free interest rate of 5.53%, and expected option life of 5 years.


                                       70
<PAGE>

         AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
                           YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                             NUMBER OF
                                                             SECURITIES                  VALUE OF
                                                             UNDERLYING                 UNEXERCISED
                                                             UNEXERCISED                IN-THE-MONEY
                                                           OPTIONS/SARS AT             OPTIONS/SARS AT
                                                          DECEMBER 31, 1999           DECEMBER 31, 1999
                                                      -------------------------    ------------------------
                               SHARES
                             ACQUIRED ON    VALUE
NAME                          EXERCISE     REALIZED   EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
----                          --------     --------   -------------------------    -------------------------
<S>                              <C>          <C>           <C>    <C>               <C>        <C>
Stig Johansson...........        0            $0            71,111/284,444           $2,726,395/10,905,583
Eugene A. Rizzo..........        0             0            71,111/284,444            2,726,395/10,905,583
Terje Nordahl............        0             0            35,555/142,222            1,363,179/5,452,791
Joachim W. Bauer.........        0             0            71,111/284,444            2,726,395/10,905,583
Kees van Ophem...........        0             0            71,111/284,444            2,726,395/10,905,583
</TABLE>

         Carrier1 International has authorized the issuance of options for up
to 2,747,222 shares of Carrier1 International pursuant to its 1999 share
option plan dated as of December 30, 1998. As of December 31, 1999, Carrier1
International had outstanding options for a total of 2,478,468 shares under
the 1999 share option plan and we are completing the process of granting an
additional 97,000 options to new employees. We expect to grant additional
options to employees. Carrier1 International has also issued options to
acquire 20,000 shares to each of Messrs. Wynne and V. Pelson outside the
scope of the 1999 share option plan. See "Item 13. Certain Relationships and
Related Transactions-Equity Investments-1999 Share Option Plan."

EMPLOYMENT AGREEMENTS

         Each of Stig Johansson, Eugene A. Rizzo, Terje Nordahl, Joachim W.
Bauer and Kees van Ophem has entered into an employment agreement with a wholly
owned subsidiary of Carrier1 International. The employment agreements provide
that the executive shall serve in his current capacity and that the executive
shall be paid base salary, bonus and pension plan contributions as set forth in
the Summary Compensation Table. Such agreements include, among others, the
following terms:

TERM. The employment agreements continue for an unspecified period of time and
may be terminated by either party upon six months' notice.

NONDISCLOSURE, NONCOMPETITION AND NONSOLICITATION COVENANTS. Each of the above
executives has agreed that during his period of employment and the eighteen
months thereafter he will not participate in any business that is engaged in the
provision of international long distance telecommunications services or that is
otherwise in competition with any business conducted by Carrier One, LLC or its
subsidiaries. Additionally, each of the above executives has agreed that during
this non-compete period, he will not induce or attempt to induce any of our
employees to leave our employ, nor will he attempt to induce any of our
suppliers, distributors or customers to cease doing business with us. Each of
the above executives has also agreed that he will refrain from disclosing
confidential information. In addition, each of the above executives is subject
to nondisclosure, noncompetition and nonsolicitation covenants pursuant to deeds
of covenant entered into among Carrier One, LLC, Carrier One Limited, Providence
and the executives.


                                       71
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Carrier1 International does not have a compensation committee. The
compensation of executive officers and other of our key employees is determined
by the board. Stig Johansson, our President and Chief Executive Officer, is
currently a member of the board and has participated in such determinations. See
"Certain Relationships and Related Transactions" for a description of
transactions involving some members of the board.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information regarding the beneficial
ownership of the shares of Carrier1 International, as of March 22, 2000 by:

                  (1) each person known to Carrier1 International to own
         beneficially more than 5% of Carrier1 International's outstanding
         shares,

                  (2) each director of Carrier1 International,

                  (3) each executive officer of Carrier1 International listed in
         the Summary Compensation Table under "Management" above, and

                  (4) all executive officers and directors of Carrier1
         International as a group.


                                       72
<PAGE>

         All information with respect to beneficial ownership has been furnished
to us by the respective shareholders of Carrier1 International.

<TABLE>
<CAPTION>
                                                                     NUMBER OF          PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                               SHARES             OF SHARES
---------------------------------------                           --------------      --------------
<S>                                                                  <C>                   <C>
Carrier One, LLC...........................................          28,272,087            69.8%
   c/o Providence Equity Partners Inc.
   901 Fleet Center
   50 Kennedy Plaza
   Providence, RI 02903
Providence Equity Partners L.P.(3).........................          28,272,088            69.8
   901 Fleet Center
   50 Kennedy Plaza
   Providence, RI 02903
Jonathan M. Nelson(3)......................................          28,272,088            69.8
Paul J. Salem(3)...........................................          28,272,088            69.8

NAME OF EXECUTIVE OFFICER OR DIRECTOR
Stig Johansson(4)..........................................             176,352             *
Eugene A. Rizzo(4).........................................             176,352             *
Terje Nordahl(4)...........................................             105,240             *
Joachim Bauer(4)...........................................             176,352             *
Kees van Ophem(4)..........................................             176,352             *
Glenn M. Creamer(3)........................................          28,272,088            69.8
Jonathan E. Dick...........................................               --                --
Mark A. Pelson.............................................               --                --

Victor A. Pelson(5)........................................               8,000             *
Thomas J. Wynne(5).........................................               8,000             *
All directors and executive officers as a group (12 persons)         29,275,088            70.2
</TABLE>

----------

* Less than one percent.

(1)      "Beneficial owner" refers to a person who has or shares the power to
         vote or direct the voting of a security or the power to dispose or
         direct the disposition of the security or who has the right to acquire
         beneficial ownership of a security within 60 days. More than one person
         may be deemed to be a beneficial owner of the same securities. In
         computing the number of shares beneficially owned by a person and the
         percentage ownership of that person, shares subject to options and
         warrants held by that person that are currently exercisable or
         exercisable within 60 days of March 22, 2000 are deemed outstanding.
         Such shares, however, are not deemed outstanding for the purpose of
         computing the percentage ownership of any other person.

(3)      Carrier One, LLC is the direct beneficial owner of 30,399,999 shares
         and Providence Equity Partners L.P. ("Providence L.P.") is the direct
         beneficial owner of 1 share. Providence L.P. is the majority Class A
         Unit holder of Carrier One, LLC, and by virtue of such status may be
         deemed to be the beneficial owner of the shares in which Carrier One,
         LLC has direct beneficial ownership. Providence Equity Partners L.L.C.
         ("PEP LLC") is the general partner of Providence L.P., and by virtue of
         such status may be deemed to be the beneficial owner of the shares in
         which Providence L.P. has direct or indirect beneficial ownership.
         Jonathan M. Nelson, Glenn M. Creamer and Paul J. Salem may be deemed to
         share voting and investment power with respect to the shares in which
         PEP LLC has direct


                                       73
<PAGE>

         or indirect beneficial ownership. Each of Jonathan M. Nelson, Glenn M.
         Creamer, Paul J. Salem, PEP LLC and Providence L.P. disclaims such
         deemed beneficial ownership. The address of Messrs. Nelson and Salem is
         c/o Providence Equity Partners Inc., 901 Fleet Center, 50 Kennedy
         Plaza, Providence, RI 02903.

(4)      Includes 34,130 shares and an additional 142,222 shares (71,110, in the
         case of Mr. Nordahl) issuable to each such person upon exercise of
         options which are exercisable within 60 days.

(5)      Consists of options exercisable within 60 days that Carrier1
         International has issued to each of Thomas J. Wynne and Victor A.
         Pelson out of a total of 40,000 shares (20,000 shares each).


BENEFICIAL OWNERSHIP OF CARRIER ONE, LLC, THE MAJORITY SHAREHOLDER OF CARRIER1
INTERNATIONAL

         The following table sets forth certain information regarding the
beneficial ownership of Class A Units (the "Class A Units") of Carrier One, LLC,
the majority shareholder of Carrier1 International, as of December 31, 1999 by:

(1)      each director of Carrier1 International,

(2)      each executive officer of Carrier1 International listed in the Summary
         Compensation Table under "Management" above,

(3)      all directors and executive officers of Carrier1 International as a
         group as of December 31, 1999, and

(4)      each person known to Carrier1 International to own beneficially more
         than 5% of Carrier One, LLC's Class A Units.

<TABLE>
<CAPTION>
                                                                                     PERCENTAGE OF
NAME OF DIRECTOR/EXECUTIVE OFFICER(1)                           NUMBER OF UNITS        UNITS(1)
-------------------------------------                           ---------------      -------------
<S>                                                                <C>                   <C>
Stig Johansson.................................................             -              -
Eugene A. Rizzo................................................             -              -
Terje Nordahl..................................................             -              -
Joachim Bauer..................................................             -              -
Kees van Ophem.................................................             -              -
Glenn M. Creamer (2)...........................................    50,000,000             82.24%
Jonathan E. Dick...............................................             -              -
Mark A. Pelson.................................................             -              -
Victor A. Pelson...............................................       100,000              *
Thomas J. Wynne (3)............................................       400,000              *
All directors and executive officers as a group (12 persons)...    50,500,000             83.55%
</TABLE>


                                       74
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER
<S>                                                                <C>                   <C>
Providence Equity Partners, L.P. (2)...........................     49,312,400            81.11%
   901 Fleet Center
   50 Kennedy Plaza
   Providence, RI 02903
Jonathan M. Nelson (2).........................................     50,000,000            82.24%
Paul J. Salem (2)..............................................     50,000,000            82.24%
Primus Capital Fund IV Limited Partnership (4).................      9,600,000            15.79%
   5900 Landerbrook Drive,
   Suite 200
   Cleveland, OH 44124-4020
</TABLE>

----------

*        Less than one percent.

(1)      Based upon 60.8 million Class A Units outstanding.

(2)      Providence L.P. holds 49,312,400 Class A Units, and another fund
         managed by Providence holds 687,600 Class A Units. PEP LLC is the
         general partner of Providence L.P. and the other fund, and by virtue of
         such status may be deemed to be the beneficial owner of the Class A
         Units in which Providence L.P. and the other fund have direct or
         indirect beneficial ownership. Jonathan M. Nelson, Glenn M. Creamer and
         Paul J. Salem may be deemed to share voting and investment power with
         respect to the Class A Units in which PEP LLC has direct or indirect
         beneficial ownership. Each of Jonathan M. Nelson, Glenn M. Creamer,
         Paul J. Salem and PEP LLC disclaims such deemed beneficial ownership.

(3)      Thomas J. Wynne holds (directly or through trusts organized for the
         benefit of family members) 400,000 Class A Units. These Class A Units
         do not include additional options that Carrier1 International has
         issued to Mr. Wynne for a total of 40,000 shares. Mr. Wynne disclaims
         beneficial ownership in any Class A Units held in any such trusts.

(4)      Primus Capital Fund IV Limited Partnership ("Primus Capital LP") holds
         9,600,000 Class A Units and another fund managed by Primus holds
         400,000 Class A Units. Primus Venture Partners IV Limited Partnership
         ("Primus Venture LP") is the general partner of Primus Capital LP and
         the other fund, and Primus Venture Partners IV, Inc. ("Primus Venture
         Inc.") is the General Partner of Primus Venture LP. By virtue of such
         status, either of Primus Venture LP or Primus Venture Inc. may be
         deemed to be the beneficial owner of the Class A Units in which Primus
         Capital LP and the other fund have beneficial ownership. Each of Primus
         Venture LP and Primus Venture Inc. disclaims such deemed beneficial
         ownership.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

EQUITY INVESTMENTS

         As of December 31, 1999, shares of Carrier1 International were held by
Carrier1's management and employees, Providence Equity Partners L.P. (which
holds one share) and Carrier One, LLC. Messrs. Johansson, Bauer, Rizzo, van
Ophem, Craven, Nordahl, Gross and Poulter are among the management that have
subscribed and paid for outstanding shares.

         Carrier One, LLC is the vehicle through which Providence and Primus
participate in the equity investment in Carrier1 International. In addition,
Thomas J. Wynne and Victor A. Pelson, who are directors


                                       75
<PAGE>

of Carrier1 International, hold interests in Carrier One, LLC through
arrangements arrived at separately with Providence and Primus. Mr. Wynne owns
(directly or through trusts organized for the benefit of family members)
400,000 Class A Units in Carrier One, LLC, acquired at a purchase price of
$1.00 per Class A Unit. Mr. Wynne disclaims beneficial ownership of any Class
A Units in any such trusts. Mr. Pelson owns 100,000 Class A Units in Carrier
One, LLC, acquired at a purchase price of $1.00 per Class A Unit. Messrs.
Wynne and Pelson do not directly hold any outstanding shares of Carrier1
International.

         In 1999, we completed a restructuring of our management equity
arrangements. Pursuant to this restructuring, each of Messrs. Johansson, Bauer,
Rizzo, van Ophem, Craven, Nordahl, Gross and Poulter in effect exchanged his
equity interests and options that he had held in Carrier One, LLC to acquire an
equivalent dollar amount of shares and options to purchase shares of Carrier1
International. Each effected this exchange through a series of transactions with
Carrier One, LLC, Providence and Primus and Carrier1 International. These
individuals' portions of the total equity investment in Carrier1 International
did not change significantly as a result of this restructuring, but each of
these individuals holds shares and options to acquire shares of Carrier1
International directly. In addition, Carrier1 International has granted Thomas
J. Wynne and Victor A. Pelson options to purchase a total of 40,000 shares of
Carrier1 International (20,000 shares for each), at $2.00 per share.

         1999 SHARE OPTION PLAN

         The board of Carrier1 International has adopted the 1999 share option
plan, dated as of December 30, 1998, under which we and related companies of the
consolidated Carrier1 group may grant to any employee or director options for
shares of Carrier1 International or other equity securities issued by Carrier1
International. The option plan is administered by the board or a committee
appointed by the board, and authorizes the board or such committee to issue
options in such forms and on such terms as determined by the board or such
committee. The board or such committee may determine the number of options to
grant. During 1999, the board raised the maximum number of shares issuable
pursuant to the option plan from 2,222,222 to 2,747,222 shares. The per share
exercise price for the options may not be less than $2.00. If options are to be
granted to an employee of a subsidiary, such subsidiary will grant such options
instead of Carrier1 International. Carrier1 International will grant the
subsidiary options to acquire shares to meet its option obligations at a per
share exercise price based upon an agreed fair market value (or, failing
agreement, a fair market value determined by the board). Options granted under
the option plan will vest in five equal annual installments beginning on the
first anniversary of the date of commencement of employment. Options will expire
if not exercised within 10 years of the grant, or on an earlier date as
specified by the board or the committee. If the employment of a participant is
terminated for any reason, all unvested options will immediately expire and
vested options must be exercised within a particular number of days, which
number will vary depending on the reasons for termination. Subject to certain
exceptions, options will be nontransferable during the life of an optionee
except pursuant to a valid domestic relations order. Upon an optionee's death,
disability or termination of employment, the subsidiary which employs the
optionee, or its designee, will have the right to repurchase all shares held by
the optionee, whether or not such shares were acquired pursuant to the exercise
of options. Under Luxembourg law, Carrier1 International and certain
subsidiaries may be precluded from exercising such right directly.

         As of December 31, 1999, we have granted options pursuant to the option
plan to acquire 2,478,468 shares at exercise prices ranging from $2.00 to $40.34
per share plus applicable capital duty (currently 1% of the subscription price
payable to Carrier1 International by the subsidiary granting the applicable
option).


                                       76
<PAGE>

We are completing the process of granting an additional 97,000 options to new
employees and we intend to grant additional options in the future.

         SECURITIES PURCHASE AGREEMENT

         Carrier1 International, Carrier One, LLC and employee investors have
entered into the securities purchase agreement (effective as of March 1, 1999)
under which Carrier One, LLC and each employee investor has purchased a
specified number of shares at prices ranging from $2.00 to $10.00 per share, for
an aggregate purchase price of approximately $6.0 million. As part of the
restructuring of the management equity arrangements described above, each of
Messrs. Johansson, Bauer, Rizzo, van Ophem, Craven, Nordahl, Gross, and Poulter,
in effect, exchanged 68,260 Class A Units (at $1.00 per unit) of Carrier One,
LLC to acquire, pursuant to the securities purchase agreement, 34,130 shares (at
$2.00 per share). Carrier1 International intends in the future to issue
additional shares to employees that are or become party to the securities
purchase agreement. The securities purchase agreement also contains provisions
relating to the completion of the equity investment in Carrier1 International by
Carrier One, LLC in which Providence, Primus and Messrs. Wynne and Pelson have
membership interests. The $60 million equity investment by Providence and
Primus was completed in February 1999. Carrier One, LLC has paid in an
additional $800,000 to the capital of Carrier1 International and received
400,000 shares. The securities purchase agreement provides that Carrier1
International will indemnify Carrier One, LLC and employee investors for, among
other things, losses related to any transaction financed or to be financed with
proceeds from the sale of securities purchased pursuant to the securities
purchase agreement or any related agreement and environmental losses. The
securities purchase agreement contains customary conditions, representations and
warranties.

         REGISTRATION RIGHTS AGREEMENT

         Carrier1 International, Carrier One, LLC, and Messrs. Johansson, Bauer,
Rizzo, van Ophem, Craven, Nordahl, Gross, Poulter, Wynne and Pelson, as the
original investors, have entered into a registration rights agreement, effective
as of March 1, 1999. The registration rights agreement provides that Carrier
One, LLC may at any time request registration under the Securities Act of its
shares and certain other equity securities. In addition, the registration rights
agreement gives certain piggyback registration rights to Carrier One, LLC and
the original investors and, at the request of certain original investors,
possibly additional employees party to the securityholders' agreement described
below. The original investors do not, however, have piggyback rights in
connection with an initial public offering. The registration rights agreement
contains provisions governing the registration statement filing process. Among
other things, it provides that Carrier1 International will bear all registration
expenses and expenses for each piggyback registration in which Carrier One, LLC
or any of the original investors participate, other than underwriting discounts
and commissions, in connection with its obligations under the registration
rights agreement.

         SECURITYHOLDERS' AGREEMENT

         In connection with the securities purchase agreement, Carrier1
International has entered into a securityholders' agreement, effective as of
March 1, 1999, with Messrs. Wynne and Pelson, the employee investors and Carrier
One, LLC. This agreement places restrictions on employee investors' ability to
transfer their securities without the prior written consent of the board except
under special circumstances. Transfers of securities are subject to the right of
first refusal by Carrier One, LLC or its transferee. Carrier One, LLC will also
benefit from preemptive rights in certain other circumstances. This agreement
also provides that the employee investors will (i) consent to and raise no
objections to a sale of Carrier1 International approved by


                                       77
<PAGE>

the board and (ii) comply with a board request to pledge their securities to
secure financing to be provided to Carrier1 International. Employee investors
have tag-along rights in the event of sales by Carrier One, LLC or its members
of securities if a change of control is involved. Finally, under this agreement,
the employee investors agree not to disclose confidential information of,
compete with, or solicit employees or customers from Carrier One, LLC or
Carrier1.

EPOCH PEERING ARRANGEMENT

         We have entered into a peering arrangement with Epoch Networks. The
contract with Epoch Networks provides for the free exchange of Internet traffic
between us and Epoch Networks. A fund managed by Providence that holds a
majority of the Class A Units of Carrier One, LLC and another fund managed by
Providence that also holds an interest in Class A Units of Carrier One, LLC own
a combined 19% of the outstanding equity of Epoch Networks. Glenn Creamer, one
of our directors, is also a director of Epoch.

DATA CENTER FACILITIES JOINT VENTURE

         We are developing our network of data centers in major European markets
through our Hubco joint venture. Hubco intends to build up to 20 to 25
facilities, generally ranging in size from 100,000 to 350,000 square feet in
major markets in Europe during 2000 and 2001. We expect to have a minimum of
between 10,000 and 25,000 square feet for our use and the use of our customers
in each facility. We expect to connect each facility to our fiber optic network.
As a strategic anchor tenant in these facilities, we will have favorable rents
and rights to additional space. We can opt not to be a strategic anchor tenant
in some planned locations and, if we wish to build data centers in additional
locations, we have given Hubco the right of first refusal to construct them.

         We expect to compete with Hubco and another of our joint venture
partners in providing data center capabilities. The joint venture agreement
permits us to do so, with some exceptions. Moreover, we will be entitled to
retain the benefits of our strategic anchor tenant status unless we default or
we cease to be a Hubco shareholder or we acquire or are acquired by a company
that competes with Hubco.

         Our partners in Hubco include an investment vehicle for funds managed
by Providence and Primus. Glenn Creamer, one of our directors, is a director of
Hubco.

WORLDWIDE FIBER BACKHAUL AGREEMENT

         In December 1999, we entered into an agreement with Worldwide Fiber
Networks (UK) Limited, a wholesale managed bandwidth services provider with
substantial North American and transatlantic assets, under which we will provide
bandwidth from the point of termination of its transatlantic capacity in London,
to destinations across Europe. We expect to commence transmission pursuant to
this agreement in March 2001 and, as one of their major providers of European
backhaul capacity, expect to deliver a substantial amount of bandwidth over the
15 year term of the agreement. Under the agreement, Worldwide Fiber has the
option to swap excess transatlantic capacity for four strands of fiber on our
German network or a combination of two strands of fiber and a 10 Gbps wavelength
once it has purchased a total of 100 STM-1s. A fund managed by Providence owns
approximately 4.5% of the outstanding common stock of Worldwide Fiber Inc. Glenn
Creamer, one of our directors, is also a director of Worldwide Fiber Inc.


                                       78
<PAGE>

OTHER TRANSACTIONS

         Carrier One, LLC advanced a loan of $68,260, bearing interest at
12%, to Mr. van Ophem, evidenced by a promissory note dated June 30, 1998, to
finance his original equity investment in Carrier One, LLC. Mr. van Ophem is
required to repay principal and interest on the loan in five equal annual
installments of $18,936 commencing July 1, 2001. Effective as of March 1,
1999, Carrier1 International GmbH became the creditor with respect to the
loan. As of December 31, 1999, Mr. van Ophem owed $68,260 to Carrier1.

         During the year ended December 31, 1999 and during the period ended
December 31, 1998, we reimbursed Providence and Primus for expenses incurred
in connection with our formation and the negotiation of certain agreements we
entered into. Such reimbursements totaled $96,000 and $339,000, respectively,
and were expensed as selling, general and administrative expenses.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

         (a)(1)   Financial statements

         The following financial statement and schedules of the Company are
included as Appendix A to this Report.

         I.       Consolidated Balance Sheets--December 31, 1999 and 1998.

         II.      Consolidated Statements of Operations--Year ended December 31,
                  1999 and Period from February 20, 1998 (Date of Inception) to
                  December 31, 1998.

         III.     Consolidated Statement of Shareholders' Equity (Deficit)--
                  Year ended December 31, 1999 and Period from February 20, 1998
                  (Date of Inception) to December 31, 1998.

         IV.      Consolidated Statements of Cash Flows--Year ended December 31,
                  1999 and Period from February 20, 1998 (Date of Inception) to
                  December 31, 1998.

         V.       Notes to Consolidated Financial Statements.

         (2)      Financial statement schedules


                                       79
<PAGE>

Schedule II - Valuation and Qualifying Accounts (See Appendix A)

             All other schedules for which provision is made in the
             applicable accounting regulations of the Securities and Exchange
             Commission are not required under the related instructions, are
             inapplicable or not material, or the information called for
             thereby is otherwise included in the financial statements or
             related notes and therefore has been omitted.

         (3) Exhibits


      EXHIBIT
       NUMBER     DESCRIPTION
       ------     -----------

         3.1      Articles of Incorporation of Carrier1 International S.A.
                  (filed as Exhibit 3.1 to the Registrant's Registration
                  Statement on Form S-1 (No. 333-94541) (the "Registrant's Form
                  S-1")).*
         4.1      Indenture, dated as of February 19, 1999, between Carrier1
                  International S.A. and the Chase Manhattan Bank, as Trustee,
                  relating to Carrier1 International S.A.'s 13 1/4% Senior
                  Dollar Notes Due 2009 (filed as Exhibit 4.1 to the
                  Registrant's Registration Statement on Form S-4 (No.
                  333-75195) (the "Registrant's Form S-4"))*
         4.2      Form of 13 1/4% Senior Dollar Note (included in Exhibit 4.1 to
                  the Registrant's Form S-1)
         4.3      Indenture, dated as of February 19, 1999, between Carrier1
                  International S.A. and the Chase Manhattan Bank, as Trustee,
                  relating to Carrier1 International S.A.'s 13 1/4% Senior Euro
                  Notes Due 2009 (filed as Exhibit 4.3 to the Registrant's Form
                  S-4)*
         4.4      Form of 13 1/4% Senior Euro Note (included in Exhibit 4.3 to
                  the Registrant's Form S-1)
         4.5      Notes Registration Rights Agreement, dated February 12, 1999,
                  among Carrier1 International S.A., Morgan Stanley & Co.
                  Incorporated, Salomon Smith Barney Inc., Warburg Dillon Read
                  LLC and Bear, Stearns & Co. Inc. (filed as Exhibit 4.5 to the
                  Registrant's Form S-4)*
         4.6      U.S. Dollar Collateral Pledge and Security Agreement, dated as
                  of February 19, 1999, among Carrier1 International S.A., The
                  Chase Manhattan Bank, as Trustee and The Chase Manhattan Bank,
                  as securities intermediary (filed as Exhibit 4.6 to the
                  Registrant's Form S-4)*
         4.7      Euro Collateral Pledge and Security Agreement, dated as of
                  February 19, 1999, among Carrier1 International S.A., The
                  Chase Manhattan Bank, as Trustee and The Chase Manhattan Bank
                  AG, as securities intermediary (filed as Exhibit 4.7 to the
                  Registrant's Form S-4)*
         4.8      Loan Agreement, dated June 25, 1999, between Carrier1
                  International S.A. as Borrower, the Lenders and Financial
                  Institutions named therein, and Nortel Networks Inc. as Agent
                  (filed as Exhibit 4.8 to the Registrant's Form S-4)*
         4.9      Credit Agreement, dated as of December 21, 1999, among
                  Carrier1 International S.A., certain of its subsidiaries as
                  Borrowers and certain of its subsidiaries as Guarantors, the
                  Lenders and Financial Institutions named therein, and Morgan
                  Stanley Senior Funding, Inc. and Citibank, N.A. as Lead
                  Arrangers and Morgan Stanley Senior Funding, Inc. as
                  Administrative Agent and Security Agent (filed as Exhibit 4.9
                  to the Registrant's S-1).*
         10.1     Dollar Warrant Agreement, dated as of February 19, 1999,
                  between Carrier1 International S.A. and The Chase Manhattan
                  Bank, as Warrant Agent (filed as Exhibit 10.1 to the
                  Registrant's Form S-4)*


                                       80
<PAGE>

         10.2     Euro Warrant Agreement, dated as of February 19, 1999, between
                  Carrier1 International S.A. and The Chase Manhattan Bank, as
                  Warrant Agent (filed as Exhibit 10.2 to the Registrant's Form
                  S-4)*
         10.3     Warrants Registration Rights Agreement, dated as of February
                  12, 1999, between Carrier1 International S.A. and The Chase
                  Manhattan Bank, as Warrant Agent (filed as Exhibit 10.3 to the
                  Registrant's Form S-4)*
         10.4     Carrier1 International S.A. 1999 Share Option Plan (filed as
                  Exhibit 10.4 to the Registrant's Form S-4)*
         10.5     Master Option Agreement, dated as of December 30, 1998, among
                  Carrier1 International S.A., Carrier One LLC, Carrier1
                  International GmbH, Carrier1 B.V., Carrier1 France S.A.R.L.,
                  Carrier1 U.K. Limited and Carrier1 GmbH & Co. AG (filed as
                  Exhibit 10.5 to the Registrant's Form S-4)*
         10.6     Form of Option Agreement (filed as Exhibit 10.6 to the
                  Registrant's Form S-4)*
         10.7     Employment Agreement, dated as of March 4, 1998, between
                  Carrier One AG and Stig Johansson (filed as Exhibit 10.7 to
                  the Registrant's Form S-4)*
         10.8     Employment Agreement, dated as of March 4, 1998, between
                  Carrier One AG and Eugene A. Rizzo (filed as Exhibit 10.8 to
                  the Registrant's Form S-4)*
         10.9     Employment Agreement, dated as of March 26, 1998, between
                  Carrier One AG and Terje Nordahl (filed as Exhibit 10.9 to the
                  Registrant's Form S-4)*
         10.10    Employment Agreement, dated as of March 4, 1998, between
                  Carrier One AG and Joachim Bauer (filed as Exhibit 10.10 to
                  the Registrant's Form S-4)*
         10.11    Employment Agreement, dated as of March 4, 1998, between
                  Carrier One AG and Kees van Ophem (filed as Exhibit 10.11 to
                  the Registrant's Form S-4)*
         10.12    Securities Purchase Agreement, dated as of March 1, 1999,
                  among Carrier1 International S.A., Carrier One LLC and the
                  employee investors named therein (filed as Exhibit 10.12 to
                  the Registrant's Form S-4)*
         10.13    Registration Rights Agreement, dated as of March 1, 1999,
                  among Carrier1 International S.A., Carrier One LLC, Stig
                  Johansson, Joachim Bauer, Gene Rizzo, Kees van Ophem, Terje
                  Nordahl and the other parties named therein (filed as Exhibit
                  10.13 to the Registrant's Form S-4)*
         10.14    Securityholders' Agreement, dated as of March 1, 1999, among
                  Carrier1 International S.A. and the employee investors named
                  therein (filed as Exhibit 10.14 to the Registrant's Form S-4)*
         10.15    Development Agreement, dated as of February 19, 1999 by and
                  among ViCaMe Infrastructure Development GmbH, Viatel German
                  Asset GmbH, Carrier 1 Fiber Network GmbH & Co. oHG, Metromedia
                  Fiber Network GmbH, Viatel, Inc. and Metromedia Fiber Network,
                  Inc. (filed as Exhibit 10.15 to the Registrant's Form S-4)* ++
         10.16    Amendment No. 1 to Securityholders' Agreement and Registration
                  Rights Agreement, dated as of March 1, 1999 (filed as Exhibit
                  10.16 to the Registrant's Form S-4)*
         10.17    Amendment No. 2 to Securityholders' Agreement and Securities
                  Purchase Agreement, dated as of March 1, 1999 (filed as
                  Exhibit 10.17 to the Registrant's Form S-4)*
         10.18    Amendment No. 3 to Securityholders' Agreement and Securities
                  Purchase Agreement, dated as of March 1, 1999 (filed as
                  Exhibit 10.18 to the Registrant's Form S-4)*
         10.19    Amendment No. 4 to Securityholders' Agreement and Securities
                  Purchase Agreement, dated as of March 1, 1999 (filed as
                  Exhibit 10.19 to the Registrant's Form S-4)*
         10.20    Amended and Restated Shareholders Agreement, dated as of
                  January 13, 2000, among Carlyle Hubco International Partners,
                  L.P., iaxis B.V., Carrier1 International S.A., Providence
                  Equity Hubco (Cayman) L.P., and Hubco S.A. (filed as Exhibit
                  10.1 to the Registrant's periodic report filed on Form 8-K /A
                  dated January 4, 2000 (the "Registrant's Form 8-K/A"))* ++
         10.21    Strategic Anchor Tenant Agreement, dated November 23, 1999,
                  between Carrier1 International S.A. and Hubco S.A., (filed as
                  Exhibit 10.3 to the Registrant's Form 8-K /A)* ++
         10.22    Registration Rights Agreement, dated November 23, 1999, by and
                  among The Carlyle entities named therein, iaxis B.V., Carrier1
                  International S.A., Providence Equity Partners III L.P.,
                  Providence Equity Operating Partners III L.P. and Hubco S.A.
                  (filed as Exhibit 10.2 to the Registrant's periodic report
                  filed on Form 8-K/A dated February 17, 2000 (the "Registrant's
                  Revised Form 8-K/A"))*


                                       81
<PAGE>

         10.23    Amendment No. 1 to Registration Rights Agreement, dated as of
                  January 13, 2000, by and among Hubco S.A. and the Persons
                  listed on the signature pages thereto (filed as Exhibit 10.4
                  to the Registrant's Revised Form 8-K/A)*
         21.1     List of Subsidiaries of Carrier1 International S.A. (filed
                  as exhibit 21.1 to the Registrant's Form S-1)*
         27.1     Financial Data Schedule

----------

     *    Incorporated by reference.
     ++ Previously filed under a request for confidential treatment.

         (b) Reports on Form 8-K

         We did not file any reports on Form 8-K during the fiscal quarter ended
December 31, 1999.


                                       82
<PAGE>

                                   SIGNATURES

         PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.


                                           By:    /s/ Stig Johansson
                                                  ------------------------------
                                           Name:      Stig Johansson
                                           Title: Chief Executive Officer and
                                                  President
                                           Date:  March 30, 2000

         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATE INDICATED.

<TABLE>
<CAPTION>
           SIGNATURE                         CAPACITY IN WHICH SIGNED                      DATE
           ---------                         ------------------------                      ----
<S>                                   <C>                                             <C>
/s/    Stig Johansson                 Director, Chief Executive Officer and           March 30, 2000
---------------------------------     President (Principal Executive Officer)
       Stig Johansson


/s/    Joachim W. Bauer               Chief Financial Officer (Principal Financial    March 30, 2000
----------------------------------    Officer and Principal Accounting Officer)
       Joachim W. Bauer


/s/    Glenn M. Creamer               Director                                        March 30, 2000
----------------------------------
       Glenn M. Creamer


/s/    Jonathan E. Dick               Director                                        March 30, 2000
----------------------------------
       Jonathan E. Dick


/s/    Mark A. Pelson                 Director                                        March 30, 2000
----------------------------------
       Mark A. Pelson


/s/    Victor A. Pelson               Director                                        March 30, 2000
----------------------------------
       Victor A. Pelson


/s/    Thomas J. Wynne                Director                                        March 30, 2000
----------------------------------
       Thomas J. Wynne
</TABLE>


                                       83
<PAGE>



                                                    APPENDIX A

                                    CARRIER INTERNATIONAL S.A. AND SUBSIDIARIES
                                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                      PAGE


<S>                                                                                   <C>
INDEPENDENT AUDITORS' REPORT.....................................................     F-2

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998:
   Consolidated Balance Sheets...................................................     F-3
   Consolidated Statements of Operations.........................................     F-4
   Consolidated Statement of Shareholders' Equity (Deficit)......................     F-5
   Consolidated Statements of Cash Flows.........................................     F-6
   Notes to Consolidated Financial Statements....................................     F-7

FINANCIAL STATEMENT SCHEDULES
   Schedule II -- Valuation and Qualifying Accounts..............................    F-27
</TABLE>

   All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements or related
notes and therefore has been omitted.






                                      F-1



<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of CARRIER1 INTERNATIONAL S.A.

         We have audited the accompanying consolidated balance sheets of
Carrier1 International S.A. and subsidiaries (collectively, the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for the year ended
December 31, 1999 and the period from February 20, 1998 (date of inception) to
December 31, 1998. Our audits also included the financial statement schedule
listed in the index. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Carrier1 International S.A.
and subsidiaries as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the year ended December 31, 1999 and the
period from February 20, 1998 (date of inception) to December 31, 1998 in
conformity with generally accepted accounting principles in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

DELOITTE & TOUCHE EXPERTA AG





/s/ David Wilson                          /s/ Aniko Smith

David Wilson                              Aniko Smith



Erlenbach, Switzerland
February 11, 2000
(March 1, 2000 as to the initial public offering described in Note 14)



                                      F-2

<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)




<TABLE>
<CAPTION>
                                                                                            1999       -    1998
                                                                                      ----------------- --------------
ASSETS
CURRENT ASSETS:
<S>                                                                                            <C>             <C>
   Cash and cash equivalents.........................................................          $28,504         $4,184
   Restricted cash...................................................................            5,512          1,518
   Restricted investments held in escrow.............................................           61,863              -
   Accounts receivables, net of allowance for doubtful accounts of $840
      and $0 at December 31, 1999 and 1998, respectively.............................           26,795          1,217
   Unbilled receivables..............................................................           18,226          1,645
   Value-added tax refunds receivable................................................           20,499          3,014
   Prepaid expenses and other current assets.........................................            9,873          3,179
                                                                                              --------        -------


      Total current assets...........................................................          171,272         14,757
RESTRICTED INVESTMENTS HELD IN ESCROW................................................           28,314              -
PROPERTY AND EQUIPMENT-Net (See Notes 5, 7 and 8)....................................          213,743         31,091
INVESTMENTS IN JOINT VENTURES (See Note 6)...........................................            4,691          4,675
OTHER ASSETS.........................................................................           19,635            911
                                                                                              --------        -------
TOTAL................................................................................         $437,655        $51,434
                                                                                              ========        =======

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
   Accounts payable..................................................................          $46,338        $27,602
   Accrued network costs.............................................................           22,154            516
   Accrued refile costs..............................................................           18,234          1,515
   Accrued interest..................................................................           12,984              -
   Other accrued liabilities.........................................................           17,020          2,612
   Short-term debt (See Note 7)......................................................           12,658              -
                                                                                              --------        -------

      Total current liabilities......................................................          129,388         32,245
DEFERRED REVENUE.....................................................................            5,020              -
LONG-TERM DEBT (See Note 7):
   Senior notes......................................................................          243,415              -
   Other long-term debt..............................................................           94,341              -
                                                                                              --------        -------

      Total long-term debt...........................................................          337,756              -
                                                                                              --------        -------

COMMITMENTS AND CONTINGENCIES (See Note 8)
SHAREHOLDERS' EQUITY (DEFICIT):
   Common stock, $2 par value, 55,000,000 and 30,000,000 shares authorized,
      respectively, 33,010,700 and 18,885,207 issued and outstanding,
      respectively...................................................................           66,021         37,770
   Additional paid-in capital........................................................            2,524              -
   Accumulated deficit...............................................................        (107,734)       (19,235)
   Accumulated other comprehensive income............................................            4,688            654
   Common stock held in treasury, 4,083 shares at December 31, 1999..................              (8)              -
                                                                                              --------        -------

      Total shareholders' equity (deficit)...........................................         (34,509)         19,189
                                                                                              --------        -------

TOTAL................................................................................         $437,655        $51,434
                                                                                              ========        =======
</TABLE>


                 See notes to consolidated financial statements.



                                      F-3
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
           FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)



<TABLE>
<CAPTION>
                                                                                   YEAR            FEBRUARY 20, 1998
                                                                                  ENDED           (DATE OF INCEPTION)
                                                                               DECEMBER 31,                TO
                                                                                   1999            DECEMBER 31, 1998
                                                                         -------------------       -----------------
<S>                                                                                  <C>                      <C>
REVENUES...............................................................              $97,117                  $2,792

OPERATING EXPENSES:
   Cost of services (exclusive of items shown separately below)........              113,809                  11,669
   Selling, general and administrative.................................               18,369                   8,977
   Depreciation and amortization.......................................               13,849                   1,409
                                                                         -------------------       -----------------
      Total operating expenses.........................................              146,027                  22,055
                                                                         -------------------       -----------------

LOSS FROM OPERATIONS...................................................             (48,910)                (19,263)

OTHER INCOME (EXPENSE):
   Interest expense....................................................             (29,475)                    (11)
   Interest income.....................................................                5,859                      92
   Currency exchange loss, net.........................................             (15,418)                    (53)
   Other, net..........................................................                (555)                       -
                                                                         -------------------       -----------------
      Total other income (expense).....................................             (39,589)                      28
                                                                         -------------------       -----------------
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)...............................             (88,499)                (19,235)

INCOME TAX EXPENSE (BENEFIT)-Net of valuation allowance
(See Note 10)..........................................................                    -                       -
                                                                         -------------------       -----------------
NET LOSS...............................................................            $(88,499)               $(19,235)
                                                                         ===================       =================



EARNINGS (LOSS) PER SHARE:
   Net loss:
      Basic............................................................              $(2.97)                 $(2.61)
                                                                         ===================       =================
      Diluted..........................................................              $(2.97)                 $(2.61)
                                                                         ===================       =================
</TABLE>






                 See notes to consolidated financial statements.



                                      F-4
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
                  YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
           FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)




<TABLE>
<CAPTION>
                                                                                ACCUMULATED
                                                ADDITIONAL                          OTHER           COMMON
                                  COMMON         PAID-IN      ACCUMULATED      COMPREHENSIVE      STOCK HELD
                                  STOCK          CAPITAL        DEFICIT            INCOME         IN-TREASURY      TOTAL
                                  -----          -------        -------         ------------      -----------      -----
<S>                              <C>            <C>          <C>                    <C>                <C>      <C>
Issuance of shares
   (18,885,207 shares).....      $37,770                                                                         $37,770
Comprehensive income
   (loss):.................
   Net loss................                                   $(19,235)                                          (19,235)
   Other comprehensive
      income, net of tax:..
      Currency translation
        adjustments........                                                           $654                           654
                                                                                                               ----------

   Total comprehensive
      loss.................                                                                                      (18,581)
                                 -------                     ----------             ------                      --------

BALANCE-December 31,
   1998....................       37,770                       (19,235)                654                        19,189
Issuance of shares
   (14,125,493 shares).....       28,251          $220                                                            28,471
Issuance of warrants.......                      2,304                                                             2,304
Repurchase of shares
   (4,083 shares)..........                                                                            $(8)           (8)
Comprehensive income
   (loss):.................
   Net loss................                                    (88,499)                                          (88,499)
   Other comprehensive
      income, net of tax:
      Currency translation
        adjustments........                                                          4,034                         4,034
                                                                                                                --------

   Total comprehensive
      loss.................                                                                                      (84,465)
                                 -------        ------       ----------             ------                      --------

BALANCE-December 31,
   1999....................      $66,021        $2,524       $(107,734)             $4,688             $(8)     $(34,509)
                                 =======        ======       ==========             ======             ====     ========
</TABLE>




                 See notes to consolidated financial statements.



                                      F-5
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM
           FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
                                                                                                        FEBRUARY 20,
                                                                                                        1998 (DATE OF
                                                                                     YEAR ENDED         INCEPTION) TO
                                                                                    DECEMBER 31,         DECEMBER 31,
                                                                                        1999                1998
                                                                                   --------------      --------------
<S>                                                                                     <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss................................................................             $(88,499)           $(19,235)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization........................................               13,849               1,409
      Amortization of financing costs......................................                  987                   -
      Changes in operating assets and liabilities:
        Restricted cash....................................................               (3,994)             (1,518)
        Receivables........................................................              (61,641)             (5,838)
        Prepaid expenses and other current assets..........................               (6,266)             (3,165)
        Other assets.......................................................               (5,626)               (898)
        Accounts payable and accrued liabilities...........................               67,811              14,804
        Deferred revenue...................................................                5,020                   -
                                                                                        --------            ---------

        Net cash used in operating activities..............................              (78,359)            (14,441)
                                                                                        --------            ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Receipts from maturity of restricted investments........................               53,071                   -
   Purchases of property and equipment.....................................             (160,485)            (15,191)
   Purchases of restricted investments held in escrow......................             (145,817)                  -
   Investment in joint ventures............................................                  (16)             (4,675)
                                                                                        --------            ---------

      Net cash used in investing activities................................             (253,247)            (19,866)
                                                                                        --------            ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of debt..........................................              339,185                   -
   Payments on debt........................................................               (1,776)                  -
   Proceeds from issuance of common stock and warrants.....................               30,775              37,770
   Proceeds from subscription of stock.....................................                  465                   -
   Purchase of treasury stock..............................................                   (8)                  -
   Cash paid for financing costs...........................................              (15,191)                  -
                                                                                        --------            ---------

      Net cash provided by financing activities............................              353,450              37,770
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS................................................................                2,476                 721
                                                                                        --------            ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS..................................               24,320               4,184
CASH AND CASH EQUIVALENTS:
   Beginning of period.....................................................                4,184                   -
                                                                                        --------            ---------

   End of period...........................................................              $28,504              $4,184
                                                                                        ========            =========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for interest..................................................              $16,491
                                                                                         =======

</TABLE>



SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING, INVESTING
AND FINANCING ACTIVITIES:
   At December 31, 1999 and 1998, equipment purchases of approximately
      $39,720 and $17,315, respectively, are included in accounts payable and
      accrued network costs.
   During 1999, Carrier1 acquired property and equipment of $7,944 by entering
      into a capital lease. In addition, Carrier1 acquired $15,746 of equipment
      by entering into a long-term financing agreement with a vendor.

                 See notes to consolidated financial statements.



                                      F-6
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)

1. NATURE OF OPERATIONS

         Carrier1 International S.A., its subsidiaries in Europe and its
subsidiary in the United States ("Carrier1"), operate in the telecommunications
industry offering voice, Internet and bandwidth and related telecommunications
services. Carrier1 offers these services primarily to other telecommunications
service providers. Carrier1 is a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg and has adopted a fiscal year end of December 31.

2. ORGANIZATION

         In February 1998, the investors of Carrier1 purchased a shelf company
registered in the United Kingdom which was ultimately renamed Carrier1 UK
Limited ("UK"). Subsequently, UK formed subsidiaries in Switzerland, Germany,
the United States and the United Kingdom. In August 1998, Carrier1 International
S.A. ("SA") was formed. Subsequently, SA formed subsidiaries in France, the
Netherlands, Germany, Austria and Luxembourg. Both UK and SA were 99.995% owned
by Carrier One, LLC ("LLC"), a Delaware limited liability company. In December
1998, Carrier1 reorganized the ownership structure of all of its subsidiaries.
SA, in exchange for all of the outstanding shares of UK, issued 15,365,207
shares of common stock to LLC.

         The effects of the reorganization have been accounted for as a
reorganization of entities under common control similar to a pooling of
interests. This reorganization has been reflected in Carrier1's consolidated
financial statements as if the post-reorganization structure had been in effect
since the date of inception since all of the entities are under common control.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

         The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. Estimates are used when accounting for such items as revenue,
long-term customer contracts, allowances for uncollectible receivables,
investments, costs of services, depreciation and amortization, employee benefit
plans and taxes.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements of Carrier1 are prepared in
accordance with generally accepted accounting principles in the United States of
America. The financial statements include the consolidated accounts of Carrier1
with all significant intercompany balances and transactions eliminated.
Investments in joint ventures are accounted for using the equity method.



                                      F-7
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


FOREIGN CURRENCY TRANSLATION

         The U.S. dollar is Carrier1's functional and reporting currency. The
financial statements of Carrier1's non-U.S. subsidiaries, where the local
currency is the functional currency, are translated into U.S. dollars using
exchange rates in effect at period end for assets and liabilities and average
exchange rates during each reporting period for results of operations.
Adjustments resulting from translation of financial statements are reflected as
a separate component of shareholders' equity (deficit).

         Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the respective functional
currency are included in results of operations as incurred.

REVENUE

         Carrier1 recognizes revenue on telecommunication services, generally
measured in terms of traffic minutes processed or transmission capacity provided
to customers, in the period that the service is provided.
Revenue is presented net of discounts.

         Bandwidth sales in the form of grants of indefeasible rights of use
("IRUs") of fiber and fiber capacity, in exchange for cash, are accounted for as
leases. IRUs are evaluated for sales-type lease accounting which resulted in
certain lease transactions being accounted for as sales at the time of
acceptance of the fiber by the customer. IRUs that do not meet the criteria for
a sales-type lease are accounted for as an operating lease, and the cash
received is recognized as revenue over the term of the IRU. IRUs exchanged for
cash entered into after June 30, 1999 are accounted for as operating leases. See
"New Accounting Pronouncements" below.

COMPREHENSIVE INCOME

         Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. It includes all changes in equity for a period except those
resulting from investments by owners and distributions to owners. For the year
ended December 31, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998, other comprehensive income consisted of foreign
currency translation adjustments.

EARNINGS PER SHARE

         Basic earnings per share is computed using the weighted average number
of shares outstanding during the period. Diluted earnings per share is computed
by including the warrants, stock options and stock subscriptions considered to
be dilutive common stock equivalents, unless deemed anti-dilutive.

CASH AND CASH EQUIVALENTS

         Cash equivalents consist primarily of interest bearing certificates of
deposit of well-rated European banks. Carrier1 considers all highly-liquid
investments with a maturity of 90 days or less at the time of



                                      F-8
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


purchase to be cash equivalents. The carrying amount reported in the
accompanying balance sheets for cash equivalents approximates fair value due to
the short-term maturity of these instruments.

RESTRICTED CASH

         At December 31, 1999 and 1998, $5,512 and $1,518, respectively, of cash
was pledged as collateral on outstanding letters of credit and guarantees to
telecommunication companies that provide refile services to Carrier1.

RESTRICTED INVESTMENTS HELD IN ESCROW

         Restricted investments held in escrow in connection with the line of
credit securing certain construction commitments (see Note 6) and the terms of a
long-term debt agreement (see Note 7) are classified as held-to-maturity. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," securities
are classified as held-to-maturity when Carrier1 has the positive intent and
ability to hold the securities to maturity. Held-to-maturity investments are
stated at cost, adjusted for amortization of premiums or discounts to maturity.

         At December 31, 1999, such investments had an aggregate amortized cost
of $90,177 and a fair value of $91,738.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost less accumulated
depreciation. Cost includes the charges received from the equipment and software
suppliers for turnkey installation and customization and network set-up costs.
Depreciation is recorded commencing with the first full month that the assets
are in service. The straight-line depreciation method is applied using the
assets' estimated useful lives as follows:


Switching equipment, routers and
   network management equipment
   including related software                 5 years
Computer and data center equipment            3 years
Furniture and fixtures                        5 years
Leasehold improvements                        Lesser of lease term
                                              or estimated useful life

         Indefeasible right of use investments, which are treated as capital
leases, are amortized over their estimated useful lives, not to exceed 15 years
even in those cases where the right of use has been acquired for a longer period
of time because management believes that, due to anticipated advances in
technology, Carrier1's IRUs are not likely to be productive assets beyond 15
years. During the period from February 20, 1998 (date of inception) to December
31, 1998, Carrier1 acquired a 25-year IRU on a transatlantic cable. This IRU is
being amortized over a useful life of 15 years. Maintenance, repairs, and
reengineering costs are charged to expense as incurred.



                                      F-9
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)

LONG-LIVED ASSETS

         Carrier1 reviews the carrying value of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of these assets may not be recoverable. In the event that events
or circumstances indicate that the cost of any long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down is necessary. The write-down would be measured as the difference
between the discounted estimated future operating cash flows from such asset and
the carrying value.

OTHER ASSETS

         At December 31, 1999, other assets included deferred financing costs of
$14,204, net of accumulated amortization of $987, incurred in connection with
the issuance of the senior notes, the Nortel financing facility, and the interim
credit facility (see Note 7). Amortization of deferred financing costs is
recognized as interest expense. Also included in other assets are licenses of
$3,554, net of accumulated amortization of $40.

NONMONETARY EXCHANGES

         Carrier1 accounts for swaps of IRUs for fiber and fiber wavelength
capacity as nonmonetary exchanges in accordance with Accounting Principles Board
("APB") Opinion No. 29, "Accounting for Nonmonetary Transactions."

PENSION PLANS

         Carrier1 maintains various plans for providing employee pension
benefits, which conform to laws and practices in the countries concerned.
Retirement benefit plans are generally funded by contributions by both the
employees and the companies to independent entities that operate the retirement
benefit schemes. Where this is not the case, appropriate liabilities are
recorded in the financial statements. Currently, all of Carrier1's pension plans
are defined contribution plans.

TAXES

         Taxes are provided based on reported income and include taxes on
capital as well as non-recoverable tax withheld on dividends, management fees
and royalties received or paid. Such taxes are calculated in accordance with the
tax regulations in effect in each country. Carrier1 provides for deferred taxes
using the comprehensive liability method. Provision is made in respect of all
temporary differences arising between the tax values of assets and liabilities
and their values in the consolidated financial statements. Provision is made
against deferred tax assets to the extent that it is more likely than not that
these will not be realized. Deferred tax balances are adjusted for subsequent
changes in tax rates or for new taxes imposed. Deferred tax liabilities are
included under provisions. Non-recoverable withholding taxes are only accrued if
distribution by subsidiary companies is probable.



                                      F-10
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


STOCK-BASED COMPENSATION PLANS

         Carrier1 records compensation expense for its stock-based compensation
plans in accordance with the intrinsic value method prescribed by APB 25,
"Accounting for Stock Issued to Employees." Intrinsic value is the amount by
which the estimated market value of the underlying stock exceeds the exercise
price of the stock option on the measurement date, generally the date of grant.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         At December 31, 1999 and 1998, the carrying amounts of Carrier1's
financial instruments approximate their fair value, except for notes payable and
certain other long-term debt. The fair values of the dollar and euro notes
payable was determined using quoted market prices. Fair value for the seller
financing for the German Network was estimated using discounted cash flows
analyses based on Carrier1's estimated borrowing rate at December 31, 1999.
Based on these methods, fair values of these financial instruments at December
31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                      BOOK VALUE     FAIR VALUE
                                                      ----------     ----------
<S>                                                   <C>               <C>
Notes payable:
   Dollar                                              $160,000         $160,800
   Euro                                                  85,541           90,887
Other long-term debt:
   Seller financing                                      15,746           14,296

</TABLE>

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1999, the Financial Accounting Standards Board (the "FASB")
issued Interpretation No. 43, "Real Estate Sales, an interpretation of FASB
Statement No. 66." The interpretation is effective for sales of real estate with
property improvements or integral equipment entered into after June 30, 1999.
Under this interpretation, fiber is considered integral equipment and
accordingly title must transfer to a lessee in order for a lease transaction to
be accounted for as a sales-type lease. After June 30, 1999, the effective date
of FASB Interpretation No. 43, sales-type lease accounting will no longer be
appropriate for fiber leases and, therefore, these transactions will be
accounted for as operating leases unless title to the fibers under lease
transfers to the lessee or the agreement was entered into prior to June 30,
1999. During the second quarter of 1999, Carrier1 recognized revenue of
approximately $3.2 million and cost of services of approximately $1.9 million
from one bandwidth IRU contract that was treated as a sales-type lease. In the
future, similar revenues and expenses will be recognized over the term of the
related contracts, typically 15 to 20 years.

         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge



                                      F-11
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


of the exposure to variable cash flows of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This standard is effective
for the first quarter of Carrier1's fiscal year ending December 31, 2001.
Management has not yet completed its analysis of this new accounting standard
and, therefore, has not determined whether this standard will have a material
effect on Carrier1's financial statements.

4. EARNINGS PER SHARE

         The following details the earnings per share calculations for the year
ended December 31, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998:

<TABLE>
<CAPTION>
                                                                                                  PERIOD FROM
                                                                                                  FEBRUARY 20,
                                                                                                 1998 (DATE OF
                                                                            YEAR ENDED          INCEPTION) TO
                                                                           DECEMBER 31,            DECEMBER 31,
                                                                               1999                   1998
                                                                           ----------------     ---------------
<S>                                                                               <C>                 <C>
Loss from operations...................................................           $(48,910)           $(19,263)
                                                                           ================     ===============
Net loss...............................................................           $(88,499)           $(19,235)
                                                                           ================     ===============

Total number of shares used to compute
  basic earnings (loss) per share........................................       29,752,000           7,367,000
                                                                           ================     ===============

Loss from operations:
   Basic loss per share................................................             $(1.64)             $(2.61)
                                                                           ================     ===============

   Diluted loss per share..............................................             $(1.64)             $(2.61)
                                                                           ================     ===============

Net loss:
   Basic loss per share................................................             $(2.97)             $(2.61)
                                                                           ================     ===============

   Diluted loss per share..............................................             $(2.97)             $(2.61)
                                                                           ================     ===============
</TABLE>




         Potential dilutive securities have been excluded from the computation
for the year ended December 31, 1999 and the period from February 20, 1998 (date
of inception) to December 31, 1998 as their effect is anti-dilutive. Had
Carrier1 been in a net income position for the year ended December 31, 1999 or
the period from February 20, 1998 (date of inception) to December 31, 1998, the
number of weighted-average shares used to compute diluted earnings per share
would have included an additional 4,288,000 and 2,822,000 shares, respectively,
related to outstanding warrants, stock options and stock subscriptions
(determined using the treasury stock method at the estimated average market
value).



                                      F-12
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


5. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1999 and 1998 consist of the following:


<TABLE>
<CAPTION>

                                                                                       1999          1998
                                                                                   -----------    ----------
<S>                                                                                    <C>           <C>
Network equipment................................................................      $81,220       $14,613
Indefeasible right of use investments............................................       49,099        11,106
Leasehold improvements...........................................................       10,333         1,712
Furniture, fixtures and office equipment.........................................        8,652           709
Construction in progress.........................................................       78,549         4,353
                                                                                   -----------    ----------

                                                                                       227,853        32,493
Less: accumulated depreciation and amortization..................................     (14,110)       (1,402)
                                                                                   -----------    ----------
   Property and equipment, net...................................................     $213,743       $31,091
                                                                                   ===========    ==========
</TABLE>


6. INVESTMENT IN JOINT VENTURE

         Carrier1 entered into a binding letter of intent dated August 20, 1998
(the "LOI") with affiliates of Viatel, Inc. ("Viatel") and Metromedia Fiber
Network, Inc. ("Metromedia") which set forth the principal terms upon which the
parties will build and own a telecommunications network in Germany (the "German
Network"). Under the LOI, the parties agreed to form a company (the "Developer")
to act as their agent to arrange construction of the German Network.

         As of December 31, 1998, the parties were in negotiations with respect
to the legal structure of the Developer and the definitive project terms. Until
such development agreement was negotiated and executed by the parties, Viatel
provided such services as the Developer is obligated to provide under the LOI.
Each of the parties had contributed $4.05 million for incremental costs, and
their pro-rata share of $2.5 million for pre-development costs. Each party was
obligated to provide the Developer with a $75 million letter of credit,
conditional upon the ability of each of Carrier1 and Metromedia to raise at
least $75 million through financing or equity. Under the terms of the LOI,
Viatel is entitled to receive a developer's fee of 3% of certain construction
costs associated with the German Network.

         On February 19, 1999, the parties executed a development agreement. In
accordance with the development agreement, Carrier1 provided a 109.5 million
German Mark letter of credit (approximately $64.8 million) to the Developer to
fund Carrier1's share of construction costs. Pursuant to the development
agreement, all decisions required to be made by Viatel, Metromedia and Carrier1
will be made by a majority in interest, except for major decisions specified in
the development agreement. Most specified major decisions, such as those
approving budgets, significant cost increases and delays, or changes in network
cities shall be approved by unanimous vote. Other major decisions, such as
related-party transactions, require the vote of at least two owners. During
1999, the Developer entered into a construction contract for which each party,
and not the Developer, is severally liable. As each portion of the network is
completed and delivered, each party will own its own network. The parties have
agreed to take all actions necessary or desirable to obtain and maintain
separate ownership of all components of their respective networks. The
development agreement contains contingency provisions for the possibility in
limited circumstances of joint ownership of particular



                                      F-13
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


assets, such as rights of way, licenses and permits. The owners will have equal
access rights to use transmission equipment sites in each network city, but the
specific form of legal ownership at each such site will be determined on a
case-by-case basis.

         Upon completion of the German Network, each party will own its own
cable subduct and access points. In addition, to the extent possible, each party
will have its own divisible and transferable rights in all permits, easements,
rights of way and other third party approvals. In the event the agreement is
terminated, each party (other than a defaulting party) is entitled to maintain
its ownership interest in any intellectual property rights, technology, plans,
permits and approvals (to the extent such permits and approvals are issued in
the name of such party) and other intangible property, as well as in any actual
construction completed and materials ordered.

         As of December 31, 1999, Carrier1 estimates that its share of the
development costs of the German Network will be up to approximately $105
million, including the fiber deployed, and is expected to be incurred before
December 31, 2000. The network is expected to be completed in the first quarter
of 2000.

7. DEBT

LONG-TERM DEBT

         On February 19, 1999, Carrier1 issued $160 million and (U)85 million of
13 1/4% senior notes (the "Notes") with detachable warrants with a scheduled
maturity of February 15, 2009. Each dollar warrant is initially exercisable to
purchase 6.71013 shares of common stock and each euro warrant is initially
exercisable to purchase 7.53614 shares of common stock. Holders will be able to
exercise the warrants at a per share price equal to the greater of $2.00 per
share and the minimum par value required by Luxembourg law (currently 50
Luxembourg francs), subject to adjustment.

         Carrier1 has the right to redeem any of the Notes beginning on February
15, 2004. The initial redemption price is 106.625% of their principal amount,
plus accrued interest. The redemption price will decline each year after 2004
and will be 100% of their principal amount, plus accrued interest, beginning on
February 15, 2007. In addition, before February 15, 2002, Carrier1 may redeem up
to 35% of the aggregate amount of either series of Notes with the proceeds of
sales of its capital stock at 113.25% of their principal amount. Carrier1 may
make such redemption only if after any such redemption, an amount equal to at
least 65% of the aggregate principal amount of such Notes originally issued
remains outstanding.

         The Notes contain covenants that restrict Carrier1's ability to enter
into certain transactions including, but not limited to, incurring additional
indebtedness, creating liens, paying dividends, redeeming capital stock, selling
assets, issuing or selling stock of restricted subsidiaries, or effecting a
consolidation or merger.

         As required by the terms of the Notes, Carrier1 used approximately
$49.2 million of the net proceeds to purchase a portfolio of U.S. government
securities and approximately (U)26.9 million ($29.8 million) of the net proceeds
to purchase a portfolio of European government securities, and pledged these
portfolios for the benefit of the holders of the respective series of Notes to
secure and fund the first five interest payments.



                                      F-14
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


         Other long-term debt as of December 31, 1999 consists of the following:


Seller financing.....................................     $90,749

Network fiber lease..................................       3,592
                                                     ------------
                                                          $94,341
                                                     ============


         Approximately $15.7 million of other long-term indebtedness is
attributable to seller financing of fiber optic cable for Carrier1's German
Network. Pursuant to the terms of the financing agreement, the seller will
either provide financing for the entire amount of the purchase with the contract
value to be repaid over three years in equal annual installments beginning on
December 31, 2001 together with interest, or will allow Carrier1 to make payment
in full by December 31, 2000 without interest. The loan, if provided, will bear
interest at the U.S. dollar LIBOR rate plus 4% per annum.

         Carrier1 entered into a financing facility with Nortel Networks Inc.
("Nortel"), a major equipment supplier, on June 25, 1999. The Nortel facility
allows Carrier1 to borrow money to purchase network equipment from Nortel and,
in limited amounts, other suppliers. Under this facility, Carrier1 may borrow up
to $75 million or the actual amount paid or payable by Carrier1 for network
equipment supplied prior to December 31, 1999, whichever is less. Advances under
the facility bear interest at a floating rate tied to LIBOR, and interest
payments are payable periodically from the date of the relevant advance. At
Carrier1's option, it may pledge assets to secure the Nortel facility and
receive a lower interest rate. Carrier1 may not borrow additional funds under
this facility after December 31, 2000. Advances are to be repaid in sixteen
equal quarterly installments beginning March 31, 2001. As of December 31, 1999,
Carrier1 has borrowed approximately $75 million under this agreement on an
unsecured basis. These borrowings bear interest at a weighted-average rate of
11.04% per annum as of December 31, 1999.

         Approximately $3.6 million of other long-term indebtedness is
attributable to a lease of capacity Carrier1 entered into on April 1, 1999. The
lease requires Carrier1 to make monthly payments of $274, including operating
and maintenance costs, for 36 months, after which Carrier1 will obtain a 15 year
IRU in the capacity underlying the lease. Carrier1 will be required to pay an
annual operating and maintenance fee of $250 for the term of the IRU. Minimum
lease payments under this arrangement are due as follows:


         FISCAL YEAR ENDING DECEMBER 31:

         2000..........................................           $3,038

         2001..........................................            3,038

         2002..........................................              759
                                                        -----------------
                                                                   6,835

         Amounts representing interest.................             (666)
                                                         -----------------
                                                                  $6,169
                                                         =================



                                      F-15
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


SHORT-TERM DEBT

         At December 31, 1999, short-term debt consists of the following:


         Interim credit facility.........................          $10,081

         Current portion of capital lease obligation.....            2,577
                                                            ---------------
                                                                   $12,658
                                                            ===============

         On December 21, 1999, Carrier1 entered into an interim credit facility
with Morgan Stanley Senior Funding, Inc. and Citibank N.A. as lead arrangers. As
of December 31, 1999, Carrier1 had drawn (U)10 million under the facility. The
facility allows Carrier1 to draw up to a maximum amount of $200 million, or its
equivalent in euros, for purposes of refinancing the $75 million Nortel
facility, financing the acquisition and installation of telecommunications
equipment and other general corporate purposes. The facility is available until
November 30, 2000 and has a scheduled maturity of December 20, 2000. Advances
will bear interest at LIBOR plus a margin to be determined by reference to
factors including the value of the security delivered by Carrier1 and any
default in payment. At December 31, 1999, such interest rate was 6.72%. Interest
is payable periodically, at the time of any repayment and at maturity. Carrier1
may make voluntary pre-payments of amounts drawn under the facility without
penalty and is required to apply specified proceeds, including the net cash
proceeds from the initial public offering of equity securities and the issuance
of any additional debt or equity securities, subject to exceptions, to prepay
amounts outstanding under the facility and then to reduce the commitments under
the facility. The facility contains covenants and events of default similar to
those in the indentures governing the 13 1/4% senior notes.

8. COMMITMENTS AND CONTINGENCIES

LEASES

         Carrier1 leases certain network capacity, office space, equipment,
vehicles and operating facilities under noncancellable operating leases. Certain
leases contain renewal options and many leases for office space require Carrier1
to pay additional amounts for operating and maintenance costs. As of December
31, 1999, future minimum lease payments under operating leases with remaining
terms in excess of one year are as follows:



                                      F-16
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)



         FISCAL YEAR ENDING DECEMBER 31:

         2000.....................................        $13,454
         2001.....................................          7,038
         2002.....................................          6,812
         2003.....................................          6,560
         2004.....................................          4,229

         Thereafter...............................         11,959
                                                     ------------
         Total minimum lease payments.............        $50,052
                                                     ============

         Total rental expense under operating leases was $24,712 and $5,171,
respectively, during the year ended December 31, 1999 and the period from
February 20, 1998 (date of inception) to December 31, 1998.

PURCHASE AND SUPPLY COMMITMENTS

         During the period from February 20, 1998 (date of inception) to
December 31, 1998, Carrier1 entered into an agreement to purchase a Multiple
Investment Unit ("MIU") that gives Carrier1 rights to a portion of a
trans-Atlantic cable scheduled for completion in early 2000. Currently, Carrier1
estimates its remaining share of development and construction costs to be
$11,013. Carrier1 has also entered into various contracts with vendors to
provide network set-up and maintenance services.

         On April 16, 1999, Carrier1 signed an agreement to swap wavelengths on
the basis of a 15-year IRU. Carrier1 is to receive two unprotected wavelengths
on diverse routes between Hamburg, Copenhagen and Malmo and provide two
unprotected wavelengths on the routes between Hamburg and Frankfurt, Hamburg and
Berlin, and Berlin and Frankfurt in exchange. The wavelengths are expected to be
exchanged by the third quarter of 2000.

         On April 29, 1999, Carrier1 signed a letter of intent with Nortel for
the purchase of network equipment to light up dark fiber in Germany and the
United Kingdom. The value of the purchases and the associated services to be
performed before December 31, 2000 amounts to $22 million. Through December 31,
1999, Carrier1 had not received any equipment or services under this contract.

         On May 7, 1999, Carrier1 signed a contract to swap a 10-year IRU for
wavelength capacity from London to Amsterdam, Frankfurt, Paris and Brussels for
a 10-year IRU for wavelength capacity from London to Frankfurt, Amsterdam and
Paris. In addition, Carrier1 paid $3.0 million on the date of acceptance. The
capacity was received in August 1999. Carrier1 expects to deliver capacity to
the other party in the first quarter of 2000.

         On August 17, 1999, Carrier1 signed a contract to swap 12 strands of
dark fiber on Carrier1's German Network for 12 strands of dark fiber covering
substantially all of the major cities in France. The French fiber infrastructure
will become available in phases throughout 2000. Each party will provide certain
network maintenance services for the other party in their respective countries.



                                      F-17
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


         On September 3, 1999, Carrier1 signed a swap agreement under which it
will provide Internet services for a total amount of $20.7 million in exchange
for bandwidth capacity connecting Stockholm, Malmo, Oslo and Gothenburg. The
bandwidth capacity is scheduled to be provided in August 2000. Carrier1 has the
right to convert the wavelength any time after May 31, 2000 to an 18-year IRU of
one fiber pair.

         On September 29, 1999, Carrier1 contracted to build a 44-kilometer,
multiple duct city ring connecting major telecommunications points-of-presence
in Amsterdam. The ring will pass much of Amsterdam's business and financial
district, and is scheduled to be completed in the second quarter of 2000. Parts
of the ring are expected to be usable in the first quarter of 2000. The
construction cost is estimated to be approximately $4.8 million.

         On October 1, 1999, Carrier1 entered into an agreement to acquire fiber
capacity on the basis of a 10-year IRU on the route connecting Paris, Kehl,
Milan, Geneva and Zurich for a total purchase price of $6.8 million. Carrier1
received access to this capacity in December 1999. In addition, Carrier1 will be
required to pay an annual operating and maintenance charge of $380. The contract
also contains options which allow Carrier1 to purchase additional capacity with
a value of $3.8 million and to sell certain capacity back to the seller after
November 30, 2000 for 70% of its original value. If Carrier1 exercises its
option to acquire additional capacity, the annual operating and maintenance
charge will increase to $440.

         On October 19, 1999, Carrier1 signed an agreement to swap one of the
ducts of the Amsterdam city ring for one duct on a city ring connecting
Amsterdam south with the business centers in Amsterdam-Schiphol and
Amsterdam-Hoofddorp.

         During November 1999, Carrier1 entered into a joint venture to form
Hubco S.A. to build facilities in which Carrier1 will house and manage both its
own and its customers' telecommunications equipment. Carrier1 has committed
$23.25 million to this $155 million project. An affiliate of Providence Equity
Partners L.P., the majority unitholder of LLC, is expected to be one of the
partners in the venture.

         Based on Carrier1's current network development plans, the costs of the
MIU and network services are expected to be paid as follows:



                                                      NETWORK
                                        MIU           SERVICES           TOTAL
                                   ---------         ---------         ---------
FISCAL YEAR ENDING DECEMBER 31:
2000                                 $10,061            $9,360           $19,421
2001                                     952                 -               952
                                   ---------         ---------         ---------
                                     $11,013            $9,360           $20,373
                                   =========         =========         =========

9. INCENTIVE COMPENSATION PLANS

         In February 1998, the employee stock option plan (the "Stock Option
Plan") was adopted. This plan provides for the issuance of options to purchase
Class A or Class B shares of LLC based on certain criteria as defined in the
plan document. The aggregate number of options to be issued under the Stock
Option Plan



                                      F-18
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


is the lesser of 4,444,444 options or 11.1% of the number of shares purchased by
the current owners of LLC. The per-share exercise price for the options may not
be less than $1 per share. Options vest over a period of five years and expire
if not exercised within 10 years of the grant. In connection with the creation
of the Stock Option Plan, employees were required to agree to reduce the
percentage of the bonus to which they are eligible under Carrier1's cash bonus
plan (the "Cash Bonus Plan").

         In connection with the recapitalization of Carrier1 during December
1998, Carrier1 canceled the 1998 Share Option Plan and replaced it with the new
1999 Share Option Plan (the "1999 Option Plan"), under which SA and related
companies of the consolidated Carrier1 group (the "Related Corporations") may
grant to any employee of Carrier1 or Related Corporations options in equity
securities (the "Options") issued by Carrier1. This effectively reduced the
number of outstanding shares of Carrier1 by half and, therefore, reduced the
number of options under the 1998 Share Option Plan by half and increased the per
share exercise price value to $2 per share.

         The 1999 Option Plan is administered by the Board and may be
administered by a committee appointed by the Board, and authorizes the Board or
such committee to issue Options in such forms and on such terms as determined by
the Board or such committee. The Board or such committee may determine the
number of Options to grant, provided that the number of shares of Carrier1
issued pursuant to the 1999 Option Plan is no greater than the lesser of (a)
2,222,222 shares and (b) the number of shares representing 11.1% of the shares
held by purchasers purchasing shares pursuant to a securities purchase agreement
dated as of March 1, 1999. The per-share exercise price for the Options may not
be less than $2. Options granted under the 1999 Option Plan vest in five equal
annual installments beginning on the first anniversary of the commencement of
employment. Options expire if not exercised within 10 years of the grant, or on
an earlier date as specified by the Board or the committee. If the employment of
a participant is terminated for any reason, all unvested Options immediately
expire and vested Options must be exercised within a certain period of time as
specified by the plan document. During 1999, Carrier1 canceled the options
granted under the 1998 Stock Option Plan and issued replacement options under
the 1999 Option Plan.

         As of September 9, 1999, the number of shares granted exceeded the
amount authorized under the plan by 37,940 options. The Board approved the
overrun and increased the number of shares available under the 1999 Option Plan
to 2,747,222.

         In addition, Carrier1 has granted to two directors options to purchase
a total of 40,000 shares at an exercise price of $2.00 per share.



                                      F-19
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)



         The status of Carrier1's stock option plans, reflecting the effects of
the option replacement in 1999 as of December 31, 1998, is summarized below as
of December 31, 1999:



                                                                       WEIGHTED
                                                                       AVERAGE
                                                   NUMBER OF           EXERCISE
                                                     SHARES             PRICE
                                                 --------------       ----------

Outstanding at December 31, 1998                      2,022,221          $2.00
Granted                                                 456,997          12.55
Exercised                                                    --             --
Canceled                                                   (750)          2.00
                                                 --------------


Outstanding at December 31, 1999                      2,478,468          $3.95
                                                 ==============

Options exercisable at December 31, 1999                808,888          $2.00
                                                 ==============




         As required by SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), Carrier1 has determined the pro-forma information as if Carrier1
had accounted for stock options under the fair value method of SFAS 123. The
weighted-average fair value of options granted during the year ended December
31, 1999 and the period from February 20, 1998 (date of inception) to December
31, 1998 was $3.12 and $0.15 per option, respectively. During the year ended
December 31, 1999, the fair value of option grants is estimated on the date of
grant using the following assumptions: dividend yield of 0%, risk-free interest
rate range of 5.5% to 5.8%, expected option life of 3 years, and volatility
factor of 25%. During the period from February 20, 1998 (date of inception) to
December 31, 1998, the fair value of option grants was estimated on the date of
grant using the minimum value option-pricing model, as allowed under SFAS 123
for nonpublic companies, for pro-forma footnote purposes with the following
assumptions used: dividend yield of 0%, risk-free interest rate of 5.53%, and
expected option life of 5 years.

         Had compensation cost for Carrier1's stock option plans been determined
under SFAS 123, based on the fair market value at the grant dates, Carrier1's
pro-forma net loss and net loss per share for the year ended December 31, 1999
and the period from February 20, 1998 (date of inception) to December 31, 1998
would have been reflected as follows:




                                                        1999            1998
                                                 --------------   --------------

Net loss:
  As reported                                        $(88,499)         $(19,235)
                                                 ==============   ==============

  Pro forma                                          $(88,778)         $(19,461)
                                                 ==============   ==============

Net loss per share-basic basis:
  As reported                                          $(2.97)           $(2.61)
                                                 ==============   ==============

  Pro forma                                            $(2.98)           $(2.64)
                                                 ==============   ==============





         In March 1998, Carrier1 established the Cash Bonus Plan to provide
incentive compensation to certain officers and employees. Individuals are
eligible to receive an annual cash bonus ranging from 10% to 25% of their annual
salary based on the terms of their employment agreement. Bonuses are payable at
the discretion of the Board of Directors based upon Carrier1 achieving specific
goals.



                                      F-20
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)

         Employees were also entitled to subscribe to purchase shares (the
"Stock Purchase Plan") in LLC at the price of $1 per Class A share up to a
maximum investment of approximately $68 per employee. The purchase offer was
valid until September 1, 1998 with payment due before October 1, 1998. Under the
Stock Purchase Plan, certain employees committed to purchase approximately
1,424,000 Class A shares with an aggregate value of approximately $1.4 million.
Management has determined that no compensation expense is required to be
recognized in connection with this plan since the estimated market value of the
stock was less than the price paid by employees. As a result of the
reorganization of Carrier1 in December 1998, Carrier1 amended the Stock Purchase
Plan so that employees will be issued shares of common stock of Carrier1 rather
than shares of LLC. This effectively reduced the number of shares to be issued
under the previous plan by half and increased the par value of the shares to $2
per share. Carrier1 collected the amounts due from employees under the Stock
Purchase Plan at December 31, 1998 during 1999 and issued the related shares in
1999. During the year ended December 31, 1999, employees committed to purchase
approximately 2,354,000 additional shares with an aggregate value of
approximately $5.3 million, including 400,000 shares sold at $2.00 per share to
LLC for the benefit of two directors.

10. INCOME TAXES

         The income tax expense (benefit) for the year ended December 31, 1999
and the period from February 20, 1998 (date of inception) to December 31, 1998
consists of the following:



                                                        1999            1998
                                                 ---------------  --------------

Current                                                   $-                 $-
Deferred                                              24,037              5,378
                                                 ---------------  --------------

                                                      24,037              5,378
Valuation allowance                                  (24,037)            (5,378)
                                                 ---------------  --------------

Total                                                     $-                 $-
                                                 ===============  ==============


         Carrier1 has tax loss carryforwards of approximately $29,415 and $5,378
at December 31, 1999 and 1998, respectively. The ability of Carrier1 to fully
realize deferred tax assets related to these tax loss carryforwards in future
years is contingent upon its success in generating sufficient levels of taxable
income before the statutory expiration periods for utilizing such net operating
losses lapses. Net operating losses expire as follows: 2003 - $67; 2004 - $341;
2005 - $4,753; 2006 - $13,636; 2013 - $46; 2014 - $79. Net operating losses
totaling $10,493 do not expire. Due to its limited history, Carrier1 was unable
to conclude that realization of such deferred tax assets in the near future was
more likely than not. Accordingly, a valuation allowance was recorded to offset
the full amount of such assets.

         Deferred income tax assets result primarily from net operating loss
carryforwards. Other components of deferred income tax assets and liabilities
are not significant as of December 31, 1999 and 1998.



                                      F-21
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


11. RELATED PARTY TRANSACTIONS

         During the year ended December 31, 1999 and the period from February
20, 1998 (date of inception) to December 31, 1998, Carrier1 reimbursed certain
companies, which are shareholders in LLC, for expenses incurred in connection
with the formation of Carrier1 and the negotiation of certain agreements entered
into by Carrier1. Such reimbursements totaled $96 and $339, respectively, during
1999 and 1998 and were expensed as selling, general and administrative expenses.

         Carrier1 has entered into a transmission peering arrangement with an
entity that is 21% beneficially owned by a combination of Providence Equity
Partners L.P., the majority unitholder of LLC, and Providence Equity Partners II
L.P., another unitholder of LLC. Under the terms of the agreement, the parties
agree to carry certain levels of each other's traffic on their network without
charge for one year. This agreement is automatically renewable unless it is
terminated by either party with appropriate notice as required by the agreement.

         Carrier1 has loaned an officer of the company approximately $68. The
loan bears interest at 12% per annum and will be repaid in five equal
installments of principal and interest of approximately $19 beginning July 1,
2001.

         In December 1999, Carrier1 entered into an agreement with an affiliate
of Worldwide Fiber Inc. ("Worldwide Fiber") under which it will sell bandwidth
capacity in the form of IRUs to Worldwide Fiber beginning in March 2001. Under
the agreement, Worldwide Fiber also has the option to swap excess trans-Atlantic
capacity for capacity on Carrier1's German Network once it has purchased a
certain amount of capacity. A fund managed by Providence Equity Partners L.P.
invests in Worldwide Fiber. In addition, one of Carrier1's directors is also a
director of Worldwide Fiber.

12. EMPLOYEE BENEFIT PLANS

         Carrier1 contributes to defined contribution pension plans in
accordance with the laws and practices of the countries in which it operates.
During the year ended December 31, 1999 and the period from February 20, 1998
(date of inception) to December 31, 1998, Carrier1 recorded pension expense
totaling $770 and $267, respectively.

13. SEGMENT AND RELATED INFORMATION

         SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires Carrier1 to disclose certain information related to
segments and geographic areas in which Carrier1 operates and its major
customers.

SEGMENT INFORMATION

         Carrier1 has identified two reportable operating segments as defined in
SFAS No. 131: voice services and Internet and bandwidth services. The voice
services segment provides long distance voice



                                      F-22
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


telecommunications services to competitive fixed-line operators, other carriers,
wireless operators, resellers and multi-national corporations. The Internet and
bandwidth services segment provides telecommunications services to Internet
service providers and other telecommunications companies.

         Carrier1's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.

         The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Carrier1 evaluates
performance of segments based on its fixed cost contribution, which is defined
as segment revenues less direct variable costs incurred directly by the segment.
Certain direct costs, such as network and transmission costs, are shared by the
segments and are not allocated by management to the segments. Fixed cost
contribution is a non-GAAP measure of financial performance. Shared costs and
assets are not allocated to the segments. There were no intersegment
transactions during the year ended December 31, 1999 or the period from February
20, 1998 (date of inception) to December 31, 1998.

         Summarized financial information concerning Carrier1's reportable
segments as of December 31, 1999 and 1998, and for the year ended December 31,
1999 and the period from February 20, 1998 (date of inception) to December 31,
1998 is shown in the following table. The "Other" column includes unallocated
shared network and corporate-related assets which are all assets other than
network equipment that has been identified as relating to a specific segment. As
of December 31, 1999 and 1998, network equipment with a cost basis of $42,857
and $12,008, respectively, has been identified as relating to a specific segment
and network equipment of $38,363 and $2,605, respectively, is shared by the
segments. The remaining assets, including but not limited to IRU investments and
construction in progress, are not allocated to segments since such assets are
considered to be either shared or corporate-related.

YEAR ENDED DECEMBER 31, 1999:

<TABLE>
<CAPTION>
                                                              INTERNET AND
                                                 VOICE          BANDWIDTH
                                                SERVICES         SERVICES         OTHER        CONSOLIDATED
                                               ----------    --------------     ---------      ------------

<S>                                              <C>                 <C>              <C>           <C>
Revenues.................................        $87,619             $9,498           $-            $97,117
Fixed cost contribution..................         12,614              7,561            -             20,175
Identifiable assets......................         33,984              3,482      400,189            437,655
Depreciation and amortization............          4,406                614        8,829             13,849
Capital expenditures.....................         28,587              2,262      164,527            195,376

PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998:


                                                              INTERNET AND
                                                 VOICE          BANDWIDTH
                                                SERVICES         SERVICES         OTHER        CONSOLIDATED
                                               ----------    --------------     ---------      ------------

Revenues..................................        $2,735                $57           $-             $2,792
Fixed cost contribution...................            61                 57            -                118
Identifiable assets.......................         9,599              1,801       40,034             51,434
Depreciation and amortization.............           483                125          801              1,409
Capital expenditures......................        10,082              1,926       25,160             37,168
</TABLE>




                                      F-23
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)

         The following table reconciles the fixed cost contribution for
reportable segments to the loss before income tax expense (benefit) for the year
ended December 31, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998:

<TABLE>
<CAPTION>
                                                                                    1999           1998
                                                                               -------------  -------------
<S>                                                                                  <C>               <C>
Total fixed cost contribution for reportable segments........................       $20,175           $118
Unallocated amounts:
   Unallocated cost of services (exclusive of items shown separately below)..       (36,867)        (8,995)
   Selling, general and administrative expenses..............................       (18,369)        (8,977)
   Depreciation and amortization.............................................       (13,849)        (1,409)
   Other income (expense)....................................................       (39,589)            28
                                                                               -------------  -------------
Loss before income tax expense (benefit).....................................      $(88,499)      $(19,235)
                                                                               =============  =============
</TABLE>

         Unallocated cost of services include network and transmission costs
that are shared by the voice and Internet and bandwidth services segments.

         The following table provides detail of the other identifiable assets as
of December 31, 1999 and 1998 in the table shown above:



<TABLE>
<CAPTION>
                                                                                    1999           1998
                                                                               -------------  -------------
<S>                                                                            <C>             <C>
Cash and cash equivalents (including restricted cash).........................      $34,016         $5,702
Receivables...................................................................       65,520          5,876
Prepaid expenses and other current assets.....................................        9,873          3,179
Restricted investments........................................................       90,177              -
Investment in joint ventures..................................................        4,691          4,675
Other noncurrent assets.......................................................       19,635            911
Property and equipment:
   Unallocated network equipment..............................................       38,363          2,605
   Indefeasible right of use investments......................................       49,099         11,106
   Leasehold improvements.....................................................       10,333          1,712
   Furniture, fixtures and office equipment...................................        8,652            709
   Construction in progress...................................................       78,549          4,353
   Accumulated depreciation and amortization..................................       (8,719)          (794)
                                                                               -------------  -------------

Total other identifiable assets...............................................     $400,189        $40,034
                                                                               =============  =============
</TABLE>


GEOGRAPHIC INFORMATION

         The following table provides detail of Carrier1's revenues for the year
ended December 31, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998 and long-lived assets as of December 31, 1999
and 1998 on a geographic basis. Revenues have been allocated based on the
location of the customer. IRU investments are included based on the entity which
owns the investment. Carrier1 did not earn any revenues in its country of
domicile, Luxembourg.






                                      F-24
<PAGE>

                  CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
                    (DATE OF INCEPTION) TO DECEMBER 31, 1998
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)


<TABLE>
<CAPTION>
                                                            1999                             1998
                                                 ----------------------------    ----------------------------
                                                                   LONG-LIVED                      LONG-LIVED
                                                   REVENUES           ASSETS        REVENUES           ASSETS
                                                 -----------       -----------   -----------      -----------

<S>                                                  <C>              <C>             <C>             <C>
Germany.......................................       $40,235           $91,115          $878          $10,369
Switzerland...................................         6,240            72,052           108           14,186
United Kingdom................................        26,549            25,582         1,768            7,399
United States.................................         3,299             4,582             -            3,006
Netherlands...................................         7,985             9,713            38              725
France........................................         6,627             3,924             -              407
Luxembourg....................................             -            14,294             -                -
Other countries...............................         6,182            16,807             -              585
                                                 -----------       -----------   -----------      -----------
                                                     $97,117          $238,069        $2,792          $36,677
                                                 ===========       ===========   ===========      ===========
</TABLE>


MAJOR CUSTOMERS

         During the year ended December 31, 1999 and the period from February
20, 1998 (date of inception) to December 31, 1998, Carrier1 earned 14% and 69%,
respectively, of its revenues from major customers. During 1999, revenues earned
from one major customer amounted to approximately 14% of total revenues. During
1998, revenues earned from one major customer amounted to approximately 46% of
total revenues, to another major customer, approximately 13% of total revenues,
and to a third major customer, approximately 10% of total revenues.


14. SUBSEQUENT EVENTS

SHORT-TERM DEBT

         As of February 11, 2000, Carrier1 had borrowed an additional (U)15
million under the interim credit facility with Morgan Stanley Senior Funding,
Inc. and Citibank N.A.

INVESTMENT IN JOINT VENTURE

         In February 2000, Carrier1 provided a (U)20 million (approximately $20
million) letter of credit to the Developer to fund Carrier1's share of
additional project costs for the German Network. The letter of credit is fully
cash collateralized.

INITIAL PUBLIC OFFERING

         On March 1, 2000, Carrier1 completed its initial public offering of
8,625,000 shares of common stock (including the underwriters' overallotment
of 1,125,000 shares) at a price of (U)87 per share (approximately $87.42 per
share). Carrier1 received proceeds of approximately $712 million, net of
underwriting discounts and commissions and listing fees. Carrier1's shares
are quoted and traded in the Federal Republic of Germany on the Neuer Markt
segment of the Frankfurt Stock Exchange. In the United States of America,
Carrier1's shares are traded in the form of American Depositary Shares
("ADSs"). Each ADS represents the right to receive 0.2 shares of common
stock. The ADSs are quoted and traded in the U.S. on the NASDAQ National
Market.

                                      F-25
<PAGE>

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                         (IN THOUSANDS OF U.S. DOLLARS)





<TABLE>
<CAPTION>
                                                              ADDITIONS
                                                        ---------------------

                                                        CHARGED
                                        BALANCE AT      TO COSTS      CHARGED                    BALANCE AT
                                       BEGINNING OF        AND        TO OTHER                      END OF
             DESCRIPTION                  PERIOD        EXPENSES      ACCOUNTS     DEDUCTIONS       PERIOD
------------------------------------   -----------      --------      --------     ----------    ---------

<S>                                     <C>              <C>          <C>          <C>            <C>
             (Column A)                 (Column B)           (Column C)            (Column D)    (Column E)
1999:
Reserves deducted from assets to
which they apply:
   Allowance for doubtful
      accounts receivable............          $-           $870            $-         $30(1)           $840
</TABLE>

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

(1)      Deductions consist entirely of currency translation adjustments.



<PAGE>

                                  EXHIBIT INDEX


   EXHIBIT
   NUMBER                         DESCRIPTION

          3.1   Articles of Incorporation of Carrier1 International S.A. (filed
                as Exhibit 3.1 to the Registrant's Registration Statement on
                Form S-1 (No. 333-94541) (the "Registrant's Form S-1")).*
          4.1  Indenture, dated as of February 19, 1999, between Carrier1
                International S.A. and the Chase Manhattan Bank, as Trustee,
                relating to Carrier1 International S.A.'s 13 1/4% Senior Dollar
                Notes Due 2009 (filed as Exhibit 4.1 to the Registrant's
                Registration Statement on Form S-4 (No. 333-75195) (the
                "Registrant's Form S-4"))*
          4.2   Form of 13 1/4% Senior Dollar Note (included in Exhibit 4.1 to
                the Registrant's Form S-1)
          4.3  Indenture, dated as of February 19, 1999, between Carrier1
                International S.A. and the Chase Manhattan Bank, as Trustee,
                relating to Carrier1 International S.A.'s 13 1/4% Senior Euro
                Notes Due 2009 (filed as Exhibit 4.3 to the Registrant's Form
                S-4)*
          4.4   Form of 13 1/4% Senior Euro Note (included in Exhibit 4.3 to the
                Registrant's Form S-1)
          4.5  Notes Registration Rights Agreement, dated February 12, 1999,
                among Carrier1 International S.A., Morgan Stanley & Co.
                Incorporated, Salomon Smith Barney Inc., Warburg Dillon Read LLC
                and Bear, Stearns & Co. Inc. (filed as Exhibit 4.5 to the
                Registrant's Form S-4)*
          4.6   U.S. Dollar Collateral Pledge and Security Agreement, dated as
                of February 19, 1999, among Carrier1 International S.A., The
                Chase Manhattan Bank, as Trustee and The Chase Manhattan Bank,
                as securities intermediary (filed as Exhibit 4.6 to the
                Registrant's Form S-4)*
          4.7   Euro Collateral Pledge and Security Agreement, dated as of
                February 19, 1999, among Carrier1 International S.A., The Chase
                Manhattan Bank, as Trustee and The Chase Manhattan Bank AG, as
                securities intermediary (filed as Exhibit 4.7 to the
                Registrant's Form S-4)*
          4.8   Loan Agreement, dated June 25, 1999, between Carrier1
                International S.A. as Borrower, the Lenders and Financial
                Institutions named therein, and Nortel Networks Inc. as Agent
                (filed as Exhibit 4.8 to the Registrant's Form S-4)*
          4.9  Credit Agreement, dated as of December 21, 1999, among Carrier1
                International S.A., certain of its subsidiaries as Borrowers and
                certain of its subsidiaries as Guarantors, the Lenders and
                Financial Institutions named therein, and Morgan Stanley Senior
                Funding, Inc. and Citibank, N.A. as Lead Arrangers and Morgan
                Stanley Senior Funding, Inc. as Administrative Agent and
                Security Agent (filed as Exhibit 4.9 to the Registrant's S-1).*
          10.1  Dollar Warrant Agreement, dated as of February 19, 1999, between
                Carrier1 International S.A. and The Chase Manhattan Bank, as
                Warrant Agent (filed as Exhibit 10.1 to the Registrant's Form
                S-4)*
          10.2  Euro Warrant Agreement, dated as of February 19, 1999, between
                Carrier1 International S.A. and The Chase Manhattan Bank, as
                Warrant Agent (filed as Exhibit 10.2 to the Registrant's Form
                S-4)*
          10.3 Warrants Registration Rights Agreement, dated as of February 12,
                1999, between Carrier1 International S.A. and The Chase
                Manhattan Bank, as Warrant Agent (filed as Exhibit 10.3 to the
                Registrant's Form S-4)*
          10.4  Carrier1 International S.A. 1999 Share Option Plan (filed as
                Exhibit 10.4 to the Registrant's Form S-4)*
          10.5  Master Option Agreement, dated as of December 30, 1998, among
                Carrier1 International S.A., Carrier One LLC, Carrier1
                International GmbH, Carrier1 B.V., Carrier1 France S.A.R.L.,
                Carrier1 U.K. Limited and Carrier1 GmbH & Co. AG (filed as
                Exhibit 10.5 to the Registrant's Form S-4)*
          10.6  Form of Option Agreement (filed as Exhibit 10.6 to the
                Registrant's Form S-4)*
          10.7  Employment Agreement, dated as of March 4, 1998, between Carrier
                One AG and Stig Johansson (filed as Exhibit 10.7 to the
                Registrant's Form S-4)*
          10.8 Employment Agreement, dated as of March 4, 1998, between Carrier
                One AG and Eugene A. Rizzo (filed as Exhibit 10.8  to the
                Registrant's Form S-4)*
         10.9  Employment Agreement, dated as of March 26, 1998, between
                Carrier One AG and Terje Nordahl (filed as Exhibit 10.9 to the
                Registrant's Form S-4)*
          10.10 Employment Agreement, dated as of March 4, 1998, between Carrier
                One AG and Joachim Bauer (filed as Exhibit 10.10 to the
                Registrant's Form S-4)*





<PAGE>



          10.11 Employment Agreement, dated as of March 4, 1998, between Carrier
                One AG and Kees van Ophem (filed as Exhibit 10.11 to the
                Registrant's Form S-4)*
          10.12 Securities Purchase Agreement, dated as of March 1, 1999, among
                Carrier1 International S.A., Carrier One LLC and the employee
                investors named therein (filed as Exhibit 10.12 to the
                Registrant's Form S-4)*
          10.13 Registration Rights Agreement, dated as of March 1, 1999, among
                Carrier1 International S.A., Carrier One LLC, Stig Johansson,
                Joachim Bauer, Gene Rizzo, Kees van Ophem, Terje Nordahl and the
                other parties named therein (filed as Exhibit 10.13 to the
                Registrant's Form S-4)*
          10.14 Securityholders' Agreement, dated as of March 1, 1999, among
                Carrier1 International S.A. and the employee investors named
                therein (filed as Exhibit 10.14 to the Registrant's Form S-4)*
          10.15 Development Agreement, dated as of February 19, 1999 by and
                among ViCaMe Infrastructure Development GmbH, Viatel German
                Asset GmbH, Carrier 1 Fiber Network GmbH & Co. oHG, Metromedia
                Fiber Network GmbH, Viatel, Inc. and Metromedia Fiber Network,
                Inc. (filed as Exhibit 10.15 to the Registrant's Form S-4)* ++
          10.16 Amendment No. 1 to Securityholders' Agreement and Registration
                Rights Agreement, dated as of March 1, 1999 (filed as Exhibit
                10.16 to the Registrant's Form S-4)*
          10.17 Amendment No. 2 to Securityholders' Agreement and Securities
                Purchase Agreement, dated as of March 1, 1999 (filed as Exhibit
                10.17 to the Registrant's Form S-4)*
          10.18 Amendment No. 3 to Securityholders' Agreement and Securities
                Purchase Agreement, dated as of March 1, 1999 (filed as Exhibit
                10.18 to the Registrant's Form S-4)*
          10.19 Amendment No. 4 to Securityholders' Agreement and Securities
                Purchase Agreement, dated as of March 1, 1999 (filed as Exhibit
                10.19 to the Registrant's Form S-4)*
          10.20 Amended and Restated Shareholders Agreement, dated as of January
                13, 2000, among Carlyle Hubco International Partners, L.P.,
                iaxis B.V., Carrier1 International S.A., Providence Equity Hubco
                (Cayman) L.P., and Hubco S.A. (filed as Exhibit 10.1 to the
                Registrant's periodic report filed on Form 8-K /A dated January
                4, 2000 (the "Registrant's Form 8-K/A"))* ++
          10.21 Strategic Anchor Tenant Agreement, dated November 23, 1999,
                between Carrier1 International S.A. and Hubco S.A., (filed as
                Exhibit 10.3 to the Registrant's Form 8-K /A)* ++
          10.22 Registration Rights Agreement, dated November 23, 1999, by and
                among The Carlyle entities named therein, iaxis B.V., Carrier1
                International S.A., Providence Equity Partners III L.P.,
                Providence Equity Operating Partners III L.P. and Hubco S.A.
                (filed as Exhibit 10.2 to the Registrant's periodic report filed
                on Form 8-K/A dated February 17, 2000 (the "Registrant's Revised
                Form 8-K/A"))*
          10.23 Amendment No. 1 to Registration Rights Agreement, dated as of
                January 13, 2000, by and among Hubco S.A. and the Persons listed
                on the signature pages thereto (filed as Exhibit 10.4 to the
                Registrant's Revised Form 8-K/A)*
          21.1  List of Subsidiaries of Carrier1 International S.A. (filed as
                exhibit 21.1 to the Registrant's Form S-1)*
          27.1  Financial Data Schedule
   ----------------------------

         *    Incorporated by reference.
         ++   Previously filed under a request for confidential treatment.