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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K

(MARK ONE)

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   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       OR

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   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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                          COMMISSION FILE NO. 0-23087

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                   STARTEC GLOBAL COMMUNICATIONS CORPORATION

             (Exact name of registrant as specified in its charter)

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            DELAWARE                                   52-2099559
(State or Other Jurisdiction of                     (I.R.S. Employer
 Incorporation or Organization)                    Identification No.)
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                              1151 SEVEN LOCKS RD.
                               POTOMAC, MD 20854
                    (Address of principal executive offices)

                                 (301) 365-8959
              (Registrant's telephone number, including area code)

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

          Securities registered pursuant to Section 12(g) of the Act:
                    COMMON STOCK, PAR VALUE $0.01 PER SHARE
                                (Title of class)

    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 the registrants' 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. / /

    Non-affiliates of the Registrant held approximately 4,756,441 shares of
Common Stock as of April 12, 2001. The fair market value of the stock held by
non-affiliates is approximately $223,553 based on the sale price of the shares
on April 12, 2001.

    As of April 12, 2001, 16,554,156 shares of Common Stock per share, par value
$0.01, were outstanding.

                   DOCUMENTS INCORPORATED BY REFERENCE: None.

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                               TABLE OF CONTENTS

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PART I.

  Item 1.       Business....................................................  2
  Item 2.       Properties..................................................  33
  Item 3.       Legal Proceedings...........................................  33
  Item 4.       Submission of Matters to a Vote of Security Holders.........  33

PART II.

  Item 5.       Market for Registrant's Common Equity and Related             34
                Stockholder Matters.........................................
  Item 6.       Selected Financial Data.....................................  35
  Item 7.       Management's Discussion and Analysis of Financial Condition   36
                and Results of Operations...................................
  Item 7A.      Quantitative and Qualitative Disclosures about Market         47
                Risk........................................................
  Item 8.       Financial Statements and Supplementary Data.................  47
  Item 9.       Changes in and Disagreements with Accountants on Accounting   82
                and Financial Disclosure....................................

PART III.

  Item 10.      Directors and Executive Officers of the Registrant..........  82
  Item 11.      Executive Compensation......................................  84
  Item 12.      Security Ownership of Certain Beneficial Owners and           86
                Management..................................................
  Item 13.      Certain Relationships and Related Transactions..............  88

PART IV.

  Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form  89
                8-K.........................................................
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                                       1
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                                     PART I

NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements are statements other than historical information or statements of
current condition. Some forward-looking statements may be identified by use of
terms such as "believes", "anticipates", "intends", or "expects". These
forward-looking statements relate to our plans, objectives and expectations for
future operations and growth. Other forward-looking statements in this
Form 10-K include statements regarding synergies and growth expected as a result
of future acquisitions, expected growth in earnings, EBITDA, revenue and gross
margin, expected decreases in operating expenses, our expectation regarding our
ability to consummate future acquisitions and any restructuring of our Senior
Notes or other indebtedness, our ability to meet our obligations to pay interest
and fees and repay the principal on our indebtedness and the necessity for and
expected availability of additional financing. In light of the risks and
uncertainties inherent in all such projected operational matters, the inclusion
of forward-looking statements in this Form 10-K should not be regarded as a
representation by us or any other person that any of our objectives or plans
will be achieved or that any of our operating expectations will be realized. Our
revenues and results of operations are difficult to forecast and could differ
materially from those projected in the forward-looking statements contained in
this Form 10-K as a result of certain risks and uncertainties including, but not
limited to, our business reliance on third parties to provide us with
technology, infrastructure and content, our ability to integrate and manage
acquired technology, assets, companies and personnel, changes in market
conditions, the volatile and intensely competitive environment in the
telecommunications and Internet industries, the availability of transmission
facilities, dependence on call termination agreements, entry into new and
developing markets, risks associated with the international telecommunications
industry, dependence on operating agreements with foreign partners, substantial
foreign governmental control of national telecommunications companies, customer
concentration and attrition, dependence on a few significant foreign and
domestic customers and suppliers, substantial U.S. and foreign regulatory
burdens, difficulty in obtaining foreign licenses or other governmental
approvals, international economic and political instability, dependence on
effective billing and information systems, rapid technological change, the
expansion of our global network, the risk of litigation in connection with the
contents of our Web portal, and our dependence on key and scarce employees in a
competitive market for skilled personnel. These factors should not be considered
exhaustive; we undertake no obligation to release publicly the results of any
future revisions we may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

ITEM 1. BUSINESS

OVERVIEW

    We are a facilities-based provider of Internet protocol communications
services, including voice, data and Internet access. Founded as a corporation in
1989, we market our services to ethnic businesses, residential communities
located in major metropolitan areas, to international long distance carriers and
to Internet service providers transacting with the world's emerging economies.
Our mission is to become a leading provider of Internet Protocol, ("IP"),
communication services, including voice, data and Internet services to our
targeted ethnic markets, comprised of ethnic communities from the Asia Pacific
Rim, the Middle East and North Africa, Russia and Central Europe and Latin and
South America. We provide our services through a flexible network of owned and
leased facilities, operating and termination agreements, and resale
arrangements. We have an extensive network of IP gateways, international
gateways, domestic switches, and ownership in undersea fiber optic cables.

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RECENT DEVELOPMENTS

    Beginning in the fourth quarter of 2000, we began to modify our business
plan. The revised plan calls for a restructuring that includes 1) consolidation
of selected North American and European operations, 2) accelerated migration of
circuit-switched traffic to our IP network, 3) discontinuation of unprofitable,
low-margin business lines and 4) implemention of certain cost reduction
procedures. Implementation of this plan commenced in the first quarter of 2001.
We believe these actions, combined with our recent financing transactions
described below, position us to become EBITDA positive during 2001.

REDUCTION IN WORKFORCE

    As a result of the restructuring, we eliminated approximately 400 positions
globally. This number represents approximately 45% of our total workforce.

CONSOLIDATION OF SELECTED NORTH AMERICAN AND EUROPEAN OPERATIONS

    A major part of the restructuring involved the consolidation of selected
North American and European operations. This consolidation of operations
represents approximately half of the positions we eliminated. A significant
portion of this reduction relates to our decision to shift our residential
customer service operations from Bethesda, Maryland to Vancouver, Canada, where
we already operate a call center facility. Last year, we established our
Vancouver presence through the acquisition of Vancouver Telephone Company.
Vancouver's diverse ethnic population provides a large pool of highly qualified
potential employees to serve as in-language customer service representatives and
the shift will allow us to take advantage of lower personnel costs and overhead.
We plan to use our Bethesda call center facilities to provide customer service
support for our managed network services targeting business customers. We also
intend to continue our call center operations in Guam, France and Germany.

    We are also consolidating our UK, France, Germany and Poland operations to
focus on the development of our European business customer base. Germany will
become the headquarters for our European customer service operations.

ACCELERATED MIGRATION OF CIRCUIT-SWITCHED TRAFFIC TO OUR IP NETWORK

    Our strategy is to increase our focus on business customers, which generally
have higher monthly revenue, generate higher margins and tend to have lower
attrition than residential customers. Accordingly, in 2000, we began eliminating
low margin circuit-switched wholesale business to focus on the higher-margin
voice-over-internet protocol ("VoIP"), business. This migration takes advantage
of efficiencies created by our focus on IP technologies and our acquisition of
Vancouver Telephone Company. The elimination of circuit-switched business
resulted in a reduction of interconnect charges. This change also freed up port
capacity for business customers without significantly increasing capital
expenditures.

WRITE DOWN OF IMPAIRED INVESTMENTS AND ACQUISITION-RELATED GOODWILL

    As described in greater detail in Note 16 to our financial statements, given
our historical operating losses, current liquidity concerns and a significant
decline in the market value of our common stock, we performed a review of
certain of our long-lived assets and investments we made in other companies as
of December 31, 2000. As a result of this review, we recognized a non-cash
charge of approximately $50.3 million for the impairment of long-lived assets
and certain identifiable intangible assets related to those investments.
Specifically, the charges relate to the following three areas:

    SIGMANET AND GLOBAL VILLAGER.  In the fourth quarter of 2000, in our efforts
to reduce operating losses and conserve cash, we decided to abandon certain of
our web portal services. As a result we

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discontinued our web portal operations to the Asian Indian community that was
operating under the name of IAOL and our bilingual Chinese/English Web
community, DragonSurf.com. We obtained IAOL and DragonSurf.com in December 1999
and March 2000, respectively, through the acquisitions of SigmaNet and Global
Villager. As we could not continue to fund the operating cash needs of the web
portals and we did not foresee a near term improvement in the cash flows of the
respective portals, we decided to shut down their operations. As a result, we
recognized an impairment charge of approximately $17.4 million for the
unamortized intangibles and goodwill of IAOL and DragonSurf.com.

    SUNRISE.  Pursuant to an agreement with Sunrise World Communications, Inc.
("Sunrise") dated September 29, 2000, we acquired a 40% equity interest in
Sunrise and a 5 year carrier services agreement in exchange for certain VoIP
termination facilities and the forgiveness of accounts receivable due to us from
Sunrise. Sunrise provides Internet communications service between the United
States and certain emerging countries. During the first nine months of 2000, we
earned revenue of approximately $24.5 million from terminating traffic on behalf
of Sunrise. The corresponding receivable together with certain other deposits
and VoIP termination facilities, with a carrying value of $4.3 million were
exchanged for Sunrise common stock and a favorable carrier services agreement.
We valued the investment in Sunrise at approximately $29 million based on the
carrying value of assets exchanged and as supported by a third party appraisal
for the value of Sunrise's equity. The transaction was negotiated at a time when
Internet communications entities were highly valued in the market place. Given
the dramatic downturn in market valuations and liquidity concerns facing
telecommunication entities, we expensed the investment in Sunrise during our
fourth quarter. While we continue to believe that the carrier services agreement
provided by Sunrise is valuable to us, there can be no assurance that these
services will continue to be available to us over the term of the agreement.

    ASIAN TELECOMMUNICATIONS BUSINESS.  Given our historical operating losses,
current liquidity concerns and a significant decline in the market value of our
common stock, we reviewed our long-lived assets including identifiable
intangible assets and goodwill for impairment. We performed our review based
upon projected probable undiscounted cash flows for our respective operating
regions. We concluded that the probable undiscounted cash flows for our Asian
telecommunications business would be less than the carrying value of the
respective long-lived assets. This reflects our reduction in force in our Hong
Kong operations. We recognized an impairment charge of $3.3 million to reduce
long-lived assets and goodwill with a carrying value of approximately
$16 million to estimate fair value. There were no losses on impairment for the
year ended December 31, 1999.

DEPARTURE FROM UNPROFITABLE BUSINESS LINES

    In 2000, we began to formulate a revised business plan to, among other
things, discontinue unprofitable, low-margin business lines. We also decided to
eliminate the low margin circuit switched wholesale business to focus on the
higher margin VoIP business. We terminated our eStart operations, and
consolidated UK, France, Germany and Polish operations to focus on the
development of our European business customer base. Startec UK, France and
Germany will discontinue non-profitable product lines and focus on growing our
existing profitable product line and increasing penetration into the business
customers segment.

RECENT FINANCING TRANSACTIONS

    In April 2001 in connection with the Allied financing transactions described
below, we amended the NTFC Facility. Pursuant to the amendment, NTFC agreed to
waive certain defaults and revise certain financial covenants. In connection
with this amendment, we used $7.625 million of the proceeds from the revolving
accounts-receivable purchase facility to pay NTFC overdue loan payments,
prepayments and a commitment fee. We also agreed to issue a stock purchase
warrant to NTFC to purchase 25,000 shares of our common stock upon any
restructuring of our Senior Notes.

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    In April 2001 two of our wholly owned subsidiaries, Startec Global Operating
Company ("Operating") and Startec Global Licensing Company ("Licensing"),
together borrowed an aggregate of $20 million from Allied, which funds were
distributed to us as a dividend. The proceeds were used to repay outstanding
indebtedness under the Allied Facility. As a result, the parent company no
longer has any indebtedness to Allied, but Operating and Licensing are jointly
indebted to Allied for $20 million, $10 million of which is secured by their
accounts receivable and $10 million of which is unsecured. This indebtedness
bears interests at a fixed rate of 15% per annum, payable semi-annually in
arrears, at the fixed rate of 10% per annum. A balloon payment is due at
maturity in 2005, but the indebtedness may be prepaid at any time without
penalty. In addition, we are subject to certain financial and operational
covenants, including limitations on our ability to incur additional
indebtedness.

    In addition, Operating and Licensing entered into a two-year
accounts-receivable purchase facility with Allied, resulting in net proceeds of
approximately $14.3 million. The proceeds of this purchase facility may be used
for general corporate purposes, including payments on the NTFC Facility,
$7.625 million, as described above. Under the purchase facility, Allied
purchased an interest in the accounts receivable of Operating and Licensing. The
annual discount rate payable with respect to the purchase price is 16%. During
the two-year term of the facility, Allied is obligated to use proceeds from
collection of the accounts receivable to purchase additional interests in other
accounts receivable up to a maximum aggregate amount of $15 million, assuming
that we remain in compliance with the financial and other covenants pursuant to
this facility.

EVALUATION OF FINANCIAL ALTERNATIVES

    In March 2001, we entered into an engagement letter with Jefferies &
Company, Inc., pursuant to which Jefferies has agreed to act as our financial
advisor to assist us in evaluating our financing alternatives. In particular,
Jefferies is advising us in connection with a possible restructuring of our
$160 million 12% Senior Notes. There can be no assurance that we will
successfully restructure the Senior Notes.

NASDAQ DELISTING NOTICE

    On April 5, 2001, we received written notification from the Nasdaq Listing
Qualifications Department, stating that our common stock no longer met the
listing requirement of the Nasdaq National Market. As permitted under Nasdaq's
rules, we have appealed the delisting determination. Our request for an appeal
will suspend the delisting process pending a decision by the Nasdaq Listing
Qualifications Panel. We do not believe we will be eligible to list our common
stock on the Nasdaq Small Cap Market should it be delisted from the Nasdaq
National Market. There can be no assurance that our common stock will continue
to be listed on Nasdaq.

2000 KEY ACCOMPLISHMENTS

    During 2000, we continued to exploit our strong presence in ethnic
communities by expanding the services we offer. Our strategy is to facilitate
our continued expansion into emerging economies by expanding telecommunications
and Internet services for our residential customers. The following are our key
accomplishments in 2000:

    1.  We expanded our VoIP network to include 100 gateways in 50 countries,
       predominantly in the emerging economies. IP technology provides several
       advantages for us: (i) it reduces traffic termination costs; (ii) it
       increases bandwidth utilization on long-haul circuits; (iii) it enables
       us to offer enhanced services, such as Internet access, for select
       residential customers in North America, Europe and Asia Pacific Rim, data
       and high-speed Internet services for corporate customers, as well as
       video services and other broadband applications; and (iv) it reduces our
       reliance on the network facilities of other carriers.

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    2.  We facilitated our entry into the small- and medium-sized enterprise
       (SME) market through our acquisition of DLC Enterprises, Inc., a
       telecommunications company that offers dial-1, debit card and ISP
       services.

    3.  We expanded our access network in Germany, Europe's largest
       telecommunications market. This development carries particular strategic
       importance as Germany is home to over 7 million ethnic immigrants,
       including people from Russia, Poland, Turkey, Iran, and the Middle East.

    4.  We consolidated the network traffic of Vancouver Telecom Company (VTC),
       which we acquired in the first quarter of 2000. Vancouver Telephone
       Company provides domestic and international long distance services in
       Canada to over 50,000 residential customers. Vancouver Telephone Company
       markets its telephone services to ethnic communities in Canada, including
       Taiwanese, Chinese, Romanian and Serbian communities.

GLOBAL NETWORK

    We continue to build and maintain a state-of-the-art network. Although we
originally relied primarily on circuit-switched technologies, we now depend more
on Internet Protocol to provide connectivity to the emerging economies of the
world, allowing us to integrate voice, data, Internet and video services on a
seamless network, supported by a backbone of scalable, IP transaction-based
technology.

    Our network currently consists of 13 domestic and international switches,
100 affiliated IP gateways, 20 Points of Presence (installations of scalable
telecommunications equipment, commonly known as POPs) and ownership interests on
14 undersea fiber optic cable systems linking North America with Europe, the
Pacific Rim, Asia and Latin America, as well as linking the East and West Coasts
of the United States. Our network includes major switching centers in New York,
Los Angeles, Miami, Paris, London, Dusseldorf and Guam. These centers also act
as Startec Network Access Points (known as SNAPs). To facilitate the termination
of calls overseas, we are a party to interconnection agreements with 50
incumbent local carriers in foreign countries, commonly known as PTTs, and other
competitive carriers covering 44 countries, primarily in the emerging economies.

BUSINESS STRATEGY

    Our mission is to become a leading provider of voice, data and Internet
services to businesses and ethnic residential communities located in major
metropolitan areas in North America, Europe and the Asia Pacific Rim. Our
strategy relies on the following initiatives:

    INCREASE SERVICE OFFERINGS TO ETHNIC COMMUNITIES.  In 2000, we continued to
offer integrated long distance and Internet access services to ethnic
residential customers in 20 major metropolitan areas in the United States. We
seek to increase our penetration of our existing and prospective markets and to
increase our average revenue per customer by: (i) marketing our integrated long
distance and Internet access services to our existing long distance customer
base; (ii) migrating our dial-around customers to dial-1 services; and
(iii) offering additional value-added services such as universal messaging,
online billing and customer service, through our communications portal.

    ACHIEVE "FIRST-TO-MARKET" IN SELECT ETHNIC RESIDENTIAL MARKETS.  We believe
that we have achieved significant competitive advantages by establishing a
customer base and brand name in select ethnic residential communities ahead of
our competitors. We intend to capitalize on our proven marketing strategy to
further penetrate ethnic communities in North America, Europe and the Asia
Pacific Rim ahead of our competitors. We select our target markets based on
favorable demographics with respect to long distance telephone usage, level of
personal computer (PC) penetration, level of Internet usage, availability of
alternative Internet access devices, immigration patterns, population growth and
income levels. Targeting select ethnic communities also enables us to aggregate
traffic along certain routes,

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which reduces our network costs, and allows us to focus on rapidly expanding and
deregulating telecommunications markets. Our target residential customer base is
comprised of immigrants from the emerging markets in the Asia Pacific Rim, the
Middle East and North Africa, Central Europe and Russia and Latin and South
America.

    BUILD CUSTOMER LOYALTY THROUGH THE CREATION OF A GLOBAL BRAND.  We market
our residential and business services under the "Startec" brand. For our
residential customers, we seek to build and maintain long-term customer loyalty
through tailored, in-language marketing efforts focusing on each ethnic
community's specific needs and cultural background. For our business customers
we intend to build and maintain long-term loyalty by providing them with a full
suite of customized voice, data, and Internet solutions that leverage our global
IP network

    DATABASE MARKETING.  We maintain a detailed database of information on our
existing and prospective customers. We use this information to target customers,
to analyze response rates to marketing campaigns, to monitor their usage and to
track their level of satisfaction. Our database marketing approach enables us
acquire, up sell, cross sell and retain customers in order to maximize lifetime
value.

    ESTABLISH A STRONG INTERNET PRESENCE THROUGH OUR COMMUNICATIONS PORTAL.  We
have created an online destination for existing and potential customers to
access features and services that are tailored to their communications needs.
This communications portal will serve as a sales channel, designed to attract
new residential customers to Startec. By creating a robust Internet presence, we
hope to strengthen our brand recognition among various ethnic communities and to
generate revenue through the use of our communication services (such as dial
around, dial-1 long distance, etc.). We will achieve this objective through the
use of agent programs, affinity programs with ethnic-centered organizations, and
affiliate programs with other web sites.

    MARKET ENHANCED VOICE, DATA AND INTERNET SERVICES TO COMMERCIAL BUSINESS
CUSTOMERS.  In 2000, we targeted small and mid-sized enterprises and mid-size
business customers with telecommunication expenditures ranging from $2,500 to
$25,000 per month. For the small businesses, we have leveraged our ethnic media
channels, community relationships and ethnic brand to market our long distance
and dial-up Internet acces serivces. We utilized our in-language call centers to
provide full-service customer support and technical assistance. For mid-sized
business customers, we provide a full range of communications services,
including long distance, dial-up Internet access, domestic and international
private line services, IP-virtual private networks, web hosting, collocation,
ATM and frame relay services. We plan to service these customers with a
dedicated nationwide sales team to ensure that they receive a high level of
customer service, quality and responsiveness.

    EXPAND INTERNATIONAL NETWORK FACILITIES.  In 1999 and 2000, we expanded our
international network facilities by deploying additional switches, POPs and IP
technology. We operate a network consisting of domestic and international
switches, POPs, IP gateways and ownership interests in undersea fiber-optic
cables. Our network spans over 50 countries and includes major switching centers
in New York, Los Angeles, Miami, Paris, London, Dusseldorf and Guam. The POPs
aggregate traffic from a surrounding region and route it to one of our main
switching centers. We have significantly improved the quality of our network by
upgrading our monitoring and routing systems and by replacing and converting all
of our supporting technology, including customer service, billing and office
automation processes to Web-enabled technology. We replaced all of our PC-based
systems for customer support with scalable new systems, using IBM Thin Clients
and Oracle databases for billing and reporting.

    DEPLOY IP CAPABILITIES THROUGHOUT OUR NETWORK.  To seize the new
opportunities available through the convergence of voice and data traffic, we
have continued our efforts to deploy a world-class IP network into the emerging
economies. In 2000, we integrated 45 IP gateways into our existing IP network.
The IP gateways facilitate the transmission of voice and data traffic on our
network through packet switching. Installing IP technology throughout our
international network facilities provides us

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with several advantages: (i) it reduces traffic termination costs; (ii) it
increases bandwidth utilization on long-haul circuits; and (iii) it reduces our
reliance on the network facilities of other carriers.

    PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES.  In order to take advantage of
the rapidly changing telecommunications and Internet environments, we are
carefully evaluating and pursuing strategic acquisitions, alliances and
investments. In 2000, we completed several acquisitions and investments, which
have accelerated our entry into global markets and have provided us with
important licensing and network capabilities:

       - During the first quarter of 2000, we acquired Vancouver Telephone
         Company. Vancouver Telephone Company provides domestic and
         international long distance services in Canada to over 50,000
         residential customers. Vancouver Telephone Company markets its
         telephone services to ethnic communities in Canada, including
         Taiwanese, Chinese, Romanian and Serbian communities.

       - During the first quarter of 2000, we acquired 19.9% of the issued and
         outstanding shares of DataLink Telecommunications Ltd. DataLink
         provides us with access to several additional IP gateway facilities in
         the emerging economies.

       - During the first quarter of 2000, we acquired several IP termination
         facilities from various vendors. We have integrated these facilities
         into our IP network and launched VoIP services as a new line of
         business in the first quarter of 2000.

       - During the first quarter of 2000, we acquired DLC Enterprises Inc., a
         New York-based telecommunications company, which offers dial-1, debit
         card and ISP services. DLC provides us with a strong management and
         sales force, proprietary billing and customer provisioning software and
         small business revenue. The acquisition of DLC facilitates the
         introduction of commercial services for ethnic and mid-sized business
         customers.

       - During the first quarter of 2000, we acquired Global Villager Inc., the
         owner of a leading bilingual Chinese/English Web community,
         DragonSurf.com. DragonSurf.com provides a vast range of content and
         services on its Web site for the Greater Chinese community.

KEY MANAGEMENT EXECUTIVES

    To execute our business strategy, we have a management team of
highly-experienced professionals.

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    Ram Mukunda--Founder, Chairman, President and Chief Executive Officer. Prior
to founding Startec, Mr. Mukunda was an advisor in strategic planning at
INTELSAT, an international consortium responsible for global satellite services.
While at INTELSAT, he was responsible for issues relating to corporate,
business, financial and strategic planning. Mr. Mukunda earned an M.S. in
electrical engineering from the University of Maryland.

    Prabhav Maniyar--Chief Financial Officer. Mr. Maniyar joined Startec in
January 1997. From June 1993 until 1997, he was the chief financial officer of
Eldyne, Inc., Unidyne Corporation and Diversified Control systems, LLC,
collectively known as the Witt Group of Companies. The Witt Group of Companies
was acquired by the Titan Corporation in May 1996. From June 1985 to May 1993,
he held progressively more responsible positions with NationsBank, now Bank of
America.

    Subhash Pai--Senior Vice President and Controller. Mr. Pai has been with
Startec since January 1992. Prior to joining Startec, he held various positions
with a multinational shipping company in India.

    John H. Wolaver--Chief Operating Officer, North American Operations.
Mr. Wolaver joined Startec in January 2000. Prior to joining Startec, he was
chief operating officer of G.B. Data Systems, Inc. Mr. Wolaver has held officer
level assignments for leading U.S. telecommunications companies, including AT&T,
MCI, and Sprint, where he directed corporate sales and marketing programs.

    Anthony A. Das--Chief Operating Officer, VoIP and Managed Network Services.
Mr. Das has worked at Startec since February 1997. Prior to joining Startec,
Mr. Das was a senior consultant at Armitage Associates. Prior to joining
Armitage Associates, he served as a senior career executive in the Office of the
Secretary, Department of Commerce from 1993 to 1995. From 1990 to 1993, Mr. Das
was the Director of Public Communication at the State Department.

    Yolanda Stefanou Faerber--General Counsel, Senior Vice President and
Corporate Secretary. Ms. Faerber has been with Startec since January 1999.
Previously, she was associated with Piper Marbury Rudnick & Wolfe LLP (formerly,
Piper & Marbury LLP) and with Shulman, Rogers, Gandal, Pordy & Ecker, PA, where
Ms. Faerber was counsel to Startec during its initial public offering.

    Gustavo Pereira--Chief Technology Officer. Mr. Pereira has worked at Startec
since August 1995. Previously, he served as the director of switching systems
for Marconi, an affiliate of Blue Carol Enterprises and Portugal Telecom.

    Ramesh Seshadri--Chief Information Officer. Mr. Seshadri has worked at
Startec since October 1998 and has over 20 years of experience in information
technology, of which 19 were spent at IBM. While at IBM, he served as a project
manager and architect working in development labs in the U.S. and Germany and as
an advisory system engineer on the FAA Air Traffic Control System Development
Project.

MARKET OPPORTUNITY

    Through our telecommunications and Internet strategies, we believe that we
can capitalize on several emerging growth opportunities through the following
service offerings:

    RETAIL IP TELEPHONY SERVICES AND ISP SERVICES.  According to International
Data Corporation (IDC), the global retail IP telephony market opportunity is
expected to grow from $332 million in 2000 to $55.8 billion in 2005. With a
compounded annual growth rate of 179%, this sector is forecasted to be among the
fastest growing sectors in the retail communications industry. We intend to
target ethnic residential and business customers in North America and Western
Europe that transact with emerging economies. We expect to derive revenue from
our suite of integrated communications services by using Internet access as a
tool to convert high volume dial around customers to dial 1, thereby capturing

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additional long distance calls at a minimal incremental cost. In addition, we
expect to experience lower churn and derive greater EBITDA contribution from
these customers on a long-term basis.

    ISP SERVICES IN EMERGING ECONOMIES.  According to The Industry Standard,
there were 33 million Internet users outside of North America and Western Europe
in 1998. This number was predicted to grow twelve-fold to 412 million by the
year 2005. In the Middle East, one of our major markets, industry sources
predict that there were approximately one million Internet users who spent an
estimated $95 million online in 1999. Moreover, Internet usage in dominant
Middle Eastern markets is expected to grow between 30% and 140% on a compounded
annual growth basis. The number of Internet users in India is projected to reach
4.5 million with revenue from e-commerce generated from India predicted to grow
to over half a billion dollars by 2002.

    IP-BASED ENHANCED SERVICES.  Besides lowering transport and termination
costs, our IP network will allow us to generate new revenue streams from
next-generation enhanced services like universal messaging, global roaming, and
e-commerce. According to IDC, global voice revenue generated utilizing IP
technology is expected to reach $24.2 billion by 2002. Due to expected
improvements in voice quality, reaching the toll-quality standards of
circuit-switched transmissions. IDC estimates that the "voice-enabled Web" is
expected to grow to $5.6 billion in 2004, representing a compounded annual
growth rate of 462%.

    IP-VIRTUAL PRIVATE NETWORKS (IP-VPN).  According to IDC, the IP-VPN market
opportunity is expected to grow to $17.6 billion in 2004. This sector is
forecast to be among the fastest growing sectors in the communications industry.
We intend to target businesses that transact between the worlds developed and
emerging economies. Unlike certain competing offerings which focus on data, our
IP-VPN offering combines voice, video and data, thus leveraging our global VoIP
network. We also plan to focus on serving selected industry verticals such as
Information Technology, Call Centers and Financial Services.

    COMMUNICATIONS PLATFORM.  We expect to generate new revenue streams and
reduce costs from new Internet initiatives such as virtual calling cards,
universal messaging and online subscription, billing and customer service. We
also intend to leverage this platform as an acquisition channel for agent,
affinity and affiliate marketing initiatives.

MARKETING STRATEGY

    Startec primarily serves three market segments--ethnic residential, business
and carrier wholesale--and uses its global IP network to target products to
these segments. Our marketing strategy is to provide overall value to our
customers by combining competitive pricing and high levels of service, rather
than to compete on the basis of price alone. We operate customer service centers
in Maryland, Guam, Canada, the United Kingdom, Germany and France, which are
staffed by trained, multilingual customer service representatives. We believe
that our focused marketing programs, our early adoption of Internet channels and
our dedication to online and offline customer service enhance our ability to
attract and retain customers in a low-cost, efficient manner.

ETHNIC RESIDENTIAL

    Our marketing model to ethnic residential consumers consists of a
highly-focused niche marketing approach. We identify and target ethnic
communities concentrated in major metropolitan areas by conducting demographic
and competitive analyses. We employ sophisticated database marketing techniques
and a variety of media to reach our targeted ethnic residential customers,
including print advertising in ethnic newspapers, advertising on ethnic radio
and television stations, advertising on high-traffic ethnic Internet portals and
community sites, direct mail, sponsorship of ethnic events and customer
referrals. In 2001, we intend to develop our agent, affiliate and affinity
programs further in an

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effort to increase our market share in select ethnic communities. In each of
these efforts we intend to take full advantage of our online registration,
online billing and online customer care capabilities.

BUSINESS

    Our marketing model to businesses focuses on targeting customers with
Internet and international long distance usage of at least $500 per month.
Customers are provided integrated Internet and long distance services with the
option of upgrading to our IP-VPN offering as their business needs evolve.
Larger businesses are provided with Startec's IP-VPN offering which enables them
to benefit from an integrated solution for their voice, video and data
communications needs. We employ a sales force of direct and indirect agents to
identify and target businesses concentrated in major metropolitan areas.

CARRIER WHOLESALE

    To realize economies of scale in our network operations and to balance our
residential traffic flow, we market our excess IP network capacity to
international carriers. Since activating our international IP network in 1999,
we have garnered 3.9% worldwide wholesale Voice over Internet Protocol (VoIP)
market.

CUSTOMERS

    Currently, we market our communication services primarily to three customer
groups: (i) residential ethnic communities with significant demand for telephony
and Internet connectivity to the emerging economies; (ii) businesses with
significant Internet and international long distance usage transacting with the
world's emerging economies; and (iii) international long distance carriers.

    Our residential customers generally are members of ethnic groups that tend
to be concentrated in major U.S. metropolitan areas. The number of such
customers has grown significantly over the past three years, from 27,797 as of
December 31, 1996 to 670,634 as of December 31, 2000. Net revenues from
residential customers accounted for approximately 45%, 29% and 33% of our net
revenues in the years ended December 31, 2000, 1999 and 1998, respectively.

    Our business customers generally have Internet and international long
distance usage of at least $500 per month. Customers are provided integrated
Internet and long distance services with the option of upgrading to our IP-VPN
offering as their business needs evolve. They tend to be concentrated in major
U.S. metropolitan areas where we can provide on-net access. The number of such
customers has grown significantly to over 3,000 customers as of December 31,
2000.

    We offer wholesale VoIP services to other carriers, which allows us to
balance our residential and business customer base and more efficiently use our
network capacity. These carrier customers include first-and second-tier
international long distance carriers, ISPs and ITSPs seeking competitive rates
and high-quality transmission capacity. As of December 31, 2000, we had 87
carrier customers. Revenues from carrier customers accounted for 62%, 72% and
67% of our net revenues in the years ended December 31, 2000, 1999 and 1998,
respectively. During the year ended December 31, 2000, our five largest carrier
customers accounted for 18% of net revenues. In a number of cases, we provide
services to carriers that are also our suppliers.

PRODUCTS AND SERVICES

    RESIDENTIAL CUSTOMERS

    We provide our ethnic residential customers with the following services:
(i) dial-around domestic and international long distance; (ii) dial-1 domestic
and international long distance; (iii) a suite of integrated communications
services including dial-1 long distance, Internet access; (iv) stand-alone
Internet access services; and (v) communications portals.

                                       11
<PAGE>
    -   INTERNATIONAL AND DOMESTIC LONG DISTANCE

       We provide our residential customers with dial-around and dial-1 long
       distance service for the U.S. and to all international destinations.
       Dial-around residential customers access our network by dialing our
       Carrier Identification Code ("10-10-719") before dialing the number they
       are calling, enabling them to use our services at any time without
       changing their existing long distance carrier.

       Dial-1 residential customers pre-select us as their primary long distance
       carrier by calling one of our customer service centers. After we obtain a
       third-party verification of the customer's desire to switch to our long
       distance service, we notify the local exchange carrier (LEC) that
       services the customer. The LEC then assigns the customer's home number to
       our service. We then become the primary carrier for all of their domestic
       and international long distance calls.

       We invest substantial resources in identifying and evaluating potential
       markets for our services. In particular, we seek to identify ethnic
       groups with demographic profiles that suggest significant potential for
       high-volume international telecommunications usage. Once a market has
       been identified, we evaluate the opportunity presented by that market
       based upon factors that include the credit characteristics of the target
       group, switching requirements, network access and vendor diversity.
       Assuming that the target market meets our criteria, we implement
       marketing programs targeted specifically at that ethnic group, with the
       goal of generating region-specific international long distance traffic.
       We market our residential services through a variety of media, including
       focused print advertising in ethnic newspapers, advertising on ethnic
       radio and television stations, direct mail, sponsorship of ethnic events
       and customer referrals. We also sponsor and attend community and cultural
       events.

       Once the customer begins to use the services, we routinely monitor usage
       and periodically communicate with the customer to gauge service
       satisfaction. We also use proprietary software to assist us in tracking
       customer satisfaction and a variety of customer behaviors, including,
       retention and frequency of usage. Our customer service center, which
       services our residential customer base, is staffed by trained,
       in-language customer service representatives.

       Although we are sensitive to the role that the price of long distance
       service plays in consumer decision-making, we generally do not attempt to
       be the low-price leader. Instead, we focus on: (i) providing overall
       value to our customers; (ii) combining competitive pricing with high
       levels of service; (iii) providing customer representatives fluent in the
       customers' native languages; (iv) utilizing focused marketing campaigns
       directed at our customers' ethnic groups; and (v) being involved in our
       customers' communities through sponsorship of local events and other
       activities. We believe that this strategy increases usage of our services
       and enhances customer loyalty and retention.

    -   INTEGRATED COMMUNICATIONS SERVICES

       In addition to offering long distance services, we evaluate potential new
       service offerings in order to increase traffic and enhance customer
       loyalty and retention. In 2000, we introduced a service offering free,
       unlimited Internet access service for our dial-1 residential customers.
       This service allows our customers to conveniently pay for both their long
       distance and Internet access with one bill and to communicate with
       friends and relatives through the Internet.

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<PAGE>
    -   STAND-ALONE INTERNET ACCESS

       We also offer Internet access to residential customers in selected
       metropolitan area throughout North America through our agreements with
       Level-3 Communications and Navipath.

    -   COMMUNICATIONS PORTAL

       Startec has created an online destination for existing and potential
       customers to access features and services that are tailored to their
       communications needs. This communications portal serves as a sales
       channel, designed to attract new residential customers. By creating a
       robust Internet presence, we hope to strengthen our brand recognition
       among various ethnic communities and to generate revenue through the use
       of our communication services (such as dial-around, dial-1 long distance,
       etc.). We believe we can achieve this objective through the use of agent
       programs, affinity programs with ethnic-centered organizations, and
       affiliate programs with other web sites.

       The communications portal supports our agent programs, which are designed
       to promote customer referrals. Agents will be compensated for all the
       accounts that they successfully acquire. The agent program will be
       powered by the online account management application that is currently in
       place for our residential customer base, which allows agents to track and
       monitor the usage of the customer base that they have acquired.

       Organizations whose members fit the demographic profile that we target in
       terms of ethnicity and international calling patterns will be able to
       negotiate affinity agreements with us that will allow them to use the
       portals capabilities to communicate with their members. The services may
       include web site design and hosting, interactive communication
       applications (such as chat and message board functionalities), and
       e-mail. The organization will be responsible for creating the content for
       their sites and the portal will present that content, along with
       advertising and marketing messages aimed at converting the site viewers
       to sign up for residential dial-1 long distance service.

       The portal also features an affiliate program, which is similar to the
       agent program, that allows web site owners to earn revenue based upon the
       customers that they refer online to us. This program requires that the
       site owner place a banner advertisement or other link to our online
       account sign-up application on their web property. The site owner then
       will be compensated for every individual that they deliver who signs up
       for (and begins using) our services.

    BUSINESS CUSTOMERS

    We provide business customers with voice, data and Internet services. We
target two types of business customers: (i) ethnic small and medium-sized
enterprises, and (ii) mid-sized business customers with telecommunications
expenditures ranging from $2,500 to $25,000 per month. For the small businesses,
we have leveraged our ethnic media channels, community relationships and ethnic
brand to market our long distance, dial-up Internet access and digital
subscriber line (DSL) services. We utilized our in-language call centers to
provide full-service customer support and technical assistance. For mid-sized
business customers, we provide a full range of communications services,
including long distance, dial-up Internet access, domestic and international
private line services, IP-virtual private networks, web hosting, collocation,
ATM and frame relay services. These customers are serviced by a dedicated
nationwide sales team to ensure that they receive a high level of customer
service, quality and responsiveness.

    CARRIER CUSTOMERS

    To maximize the efficiency of our IP network capacity, we sell our VoIP
services to other telecommunications carriers. We have been actively marketing
our VoIP services to carrier customers

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<PAGE>
since late 1999. We believe that we have established a high degree of
credibility and valuable relationships with the leading carriers. We have a
dedicated marketing team serving the carrier market. In addition, we participate
in international carrier membership organizations, trade shows, seminars and
other events that provide our carrier marketing staff with additional
opportunities to establish and maintain relationships with other carriers that
are potential customers. We primarily focus our marketing efforts on first-and
second-tier international long distance carriers, ISPs and ITSPs. We generally
avoid providing services to lower-tiered carriers because of potential
difficulties in collecting accounts receivable. Because carrier customers
generally are extremely price sensitive, we closely track the prices of
competitors serving the carrier market and monitor our own network costs to
ensure optimal pricing for our carrier customers.

    FUTURE SERVICE OFFERINGS

    We intend to capitalize onour existing customer base and strong brand to
increase the amount of residential and corporate customer voice, data and
Internet traffic on our network by extending our range of communications
services.

    IP VIRTUAL PRIVATE NETWORKS

    We intend to extend our IP-VPN offering to France and all other on-net areas
covered by our global IP network. We also intend to target selected industry
verticals such as the software development, financial services and call center
sectors with customized solutions.

    VALUE ADDED SERVICES

    We intend to extend the penetration of our domestic and international
toll-free, universal messaging, prepaid and postpaid calling cards to our
business and residential customers within selected countries served by our
global IP network.

THE STARTEC GLOBAL NETWORK

    We provide services through a flexible network of owned and leased
transmission facilities, resale arrangements and a variety of operating
agreements and termination arrangements, all of which allow us to terminate
voice traffic in the over 200 countries that have telecommunications
capabilities. We have been expanding our network to match increases in our long
distance traffic volume and to support the needs of our customers. Our network
employs advanced switching technologies and is supported by monitoring
facilities and our technical support personnel.

    CUSTOMER CALL CENTERS.  As part of our dedication to customer service, we
operate three customer service centers in Maryland, Guam and France. Each center
operates 24 hours a day, seven days a week and accommodates approximately 300
customer service representatives. The Bethesda center supports the languages of
the Middle East and Central Europe; the Guam center supports Asian languages,
while the French center supports the languages of Western Europe. In total, our
customer service centers support over 20 different languages and are supported
by the Lucent Definity G3r in a multi-language environment.

    SUPPORTING TECHNOLOGY.  In 2000, we replaced and converted all of our
supporting technology, including customer service, billing and office automation
processes, to IP transaction-based technology. Upgrading our technology has
enabled us to have scalable systems that seamlessly connect to the Internet. We
replaced all of our PC-based systems with new systems, using IBM Thin Client
Servers for our customer service centers and Oracle databases for our billing
and reporting systems. By making these changes in our internal support systems,
we created a scalable network and were then able to economically begin offering
additional services to our retail customer base in the fall of 1999, such as
integrated long distance and Internet access services.

                                       14
<PAGE>
    We are presently evaluating soft-switch solutions that, once implemented,
will allow us to deploy a ubiquitous IP global network. We have been evaluating
different solutions to offer a variety of products to the business community.
Those solutions involving edge and core devices will allow us to offer value-
added services to the business user with a price advantage.

    SWITCHING AND TRANSMISSION FACILITIES.  We continue to build and maintain a
state-of-the-art network using a combination of IP and circuit-switched
technologies to provide connectivity to the emerging economies of the world,
allowing us to integrate voice, data, Internet and video services on a seamless
network.

    Our network currently consists of 13 domestic and international switches
located in New York (2), Los Angeles, Miami, London, France (5), Dusseldorf,
Vancouver and Guam. Our network also includes approximately 20 Points of
Presence (POPs) in the U.S., Canada, Europe and Asia. POPs aggregate traffic
originating from the region around the city in which it is located and route the
traffic to our international gateway switches. Each POP contains
telecommunications equipment that is scalable to accommodate the traffic volume
demands of each region.

    To seize the new opportunities available through the convergence of voice
and data traffic, we exploit our IP network, primarily accessing emerging
economies. In 1999, we deployed approximately 50 IP gateways with access to 20
countries. We acquired and integrated a second IP network in early 2000 with ten
additional IP gateways into our existing IP network. The IP gateways facilitate
the transmission of voice and data traffic on our network through packet
switching. We plan to continue to enhance our network with IP capabilities in
2001. Installing IP technology throughout our international network facilities
provides us with several advantages: (i) it reduces traffic termination costs;
(ii) it increases bandwidth utilization on long-haul circuits; (iii) it enables
us to offer enhanced services, such as Internet access for select ethnic
residential customers in North America, Europe and the Asia Pacific Rim, data
and high-speed Internet services for corporate customers and video services and
other broadband applications; and (iv) it reduces our reliance on the network
facilities of other carriers.

    We generally install switches, POPs and IP gateways in regions where we
believe we can achieve one or more of the following goals: (i) originate voice,
data and Internet connections from our own customer base; (ii) transmit voice,
data and Internet traffic originated elsewhere on our network to the final
destination of the traffic on a more cost-efficient basis; or (iii) terminate
voice, data and Internet traffic originated and carried on our own network. We
intend to use the switches, POPs and IP gateways to be installed in the U.S.,
Canada and Europe primarily to carry traffic originated in those areas by our
ethnic customer base. Equipment installed in the Asia Pacific Rim, the Middle
East and in Latin and South America will be used both as "hubbing" or transit
sites and to terminate traffic originated in other locations.

    In 2000, we completed construction of a data center located in Bethesda,
Maryland. This data center, along the three completed during 1999 (New York, Los
Angeles and Miami) will allow us to offer Web hosting services, collocation
facilities and high-speed Internet connectivity for domestic and international
telecommunications carriers and corporate customers in 2001. We plan to open one
new data center in India in 2001.

    We currently have ownership interests through Indefeasible Rights of Usage
(IRUs) on 14 cable systems, including the Canus-1, Cantat-3, Columbus II,
EurAfrica, Gemini and TAT 12-13, Atlantic Crossing and FLAG cables, and we are a
signatory owner on the Columbus III, TAT 14, TCP-5, Guam-Philippines, China-US
and Se-Me-We 3 cables. We access additional cables and satellite facilities
through arrangements with other carriers. In 2000, we invested in domestic
land-based fiber-optic cable facilities linking the European countries. Having
an ownership interest rather than a lease interest in cable systems enables us
to increase capacity without a significant increase in cost, by utilizing
digital compression equipment, which we cannot do under leasing or similar
access arrangements. Digital

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compression equipment enhances the traffic capacity of the undersea cable, which
permits us to maximize cable utilization while reducing our need to acquire
additional capacity.

    We enter into lease arrangements and resale agreements with other
telecommunications carriers when it is cost effective to do so. We purchase
switched-minute capacity from various carriers and depend on such agreements for
termination of our traffic. We currently purchase capacity from approximately 75
carriers. Our efforts to build additional switching and transmission capacity
are intended to decrease our reliance on leased facilities and resale
agreements. We anticipate realizing operational efficiencies and improving
margins as traffic across our owned facilities increases.

    We intend to continue incorporating additional IP capabilities in our
network architecture. We are currently using several VoIP vendors in our network
and taking advantage of their interoperability. We anticipate realizing lower
overall switching and transmission costs and an increase in the types of data
and Internet services we can offer to both residential and business customers.

    OPERATING AGREEMENTS AND OTHER TERMINATION ARRANGEMENTS.  We attempt to
retain flexibility and maximize our termination options by using a mixture of
operating agreements, transit and refile arrangements, resale agreements and
other arrangements to terminate our traffic in the destination country. Our
approach is designed to enable us to take advantage of the rapidly evolving
international telecommunications and Internet markets in order to provide low
cost international long distance services and Internet access to our customers.
We also intend to leverage our relationships with international Postal,
Telephone and Telegraphs (PTTs) and other foreign-based carriers as we begin
offering Internet access to customers based in emerging economies.

    Our strategy is based on our ability to enter into and maintain:
(i) operating agreements with PTTs in countries whose telecommunication markets
have yet to become liberalized; (ii) operating agreements with PTTs and emerging
carriers in foreign countries whose telecommunications markets have liberalized;
(iii) resale agreements and transit and refile arrangements to terminate our
traffic in countries with which we do not have operating agreements so as to
provide us with multiple options for routing traffic; and (iv) interconnection
agreements with PTTs in each of the countries where we plan to have operating
facilities. As of December 31, 2000, we had approximately 88 operating
agreements, of which 47 were fully activated. These operating agreements enable
us to terminate traffic at lower rates than by resale in markets where we cannot
establish an on-net connection due to the current regulatory environment. We
believe that we would not be able to serve our customers at competitive prices
without such operating or interconnection agreements. In addition, these
operating agreements provide a source of profitable return traffic for us.
Termination of such operating agreements by certain foreign carriers or PTTs
could have a material adverse effect on our business.

    NETWORK OPERATIONS AND TECHNICAL SUPPORT.  During 2000, we introduced
automatic test equipment in our network to provide us with proactive
measurements on quality of service. The introduction of this equipment created
for us significant efficiencies on our overall quality and response time. We use
proprietary routing software to maximize routing efficiency. Network operations
personnel continually monitor pricing changes by our carrier-suppliers and
adjust call routing to make cost efficient use of available capacity. In
addition, we provide 24-hour network monitoring, trouble reporting and response
procedures, service implementation coordination and problem resolution, and have
developed and implemented proprietary software that enables us to monitor, on a
minute-by-minute basis, all key aspects of our services. Recent software
upgrades and additional network monitoring equipment have been installed to
enhance our ability to handle increased traffic and monitor network operations.
While we perform the majority of the maintenance of our network, we also have
service and support agreements with our vendors of IP and Time Division
Multiplexing (commonly called TDM, this is the technology employed in our
switches) technology covering our major hubs in New York, Los Angeles, Miami,
London, Paris and Dusseldorf. We depend upon third parties with respect to the
maintenance of leased facilities and fiber-optic cable lines in which we have an
IRU or other use arrangements.

                                       16
<PAGE>
    We utilize highly automated state-of-the-art telecommunications equipment in
our network and have diverse alternate routes available in cases of component or
facility failure, or in the event that cable transmission wires are
inadvertently cut. Back-up power systems and automatic traffic re-routing
enables us to provide a high level of reliability for our customers.
Computerized automatic network monitoring equipment allows fast and accurate
analysis and resolution of network problems. In general, we rely upon the
utilization of other carriers' networks to provide redundancy in the event of
technical difficulties in the network. We believe that this is a more cost
effective strategy than purchasing or leasing our own redundancy systems.

MANAGEMENT INFORMATION AND BILLING SYSTEMS

    Our Operation Support Systems (OSS) consists of internally developed
Customer Relationship Management (CRM) and Billing Systems and a combination of
off the shelf and vendor-developed and customized Network Management System
(NMS). The web enabled Customer Care and Billing Systems are developed in Java
and Oracle. They are deployed on the Startec intranet for Customer Support
Center to service Startec customers and on the web for Startec Customer
self-service. For managing circuit switched network elements on the Startec
network we have deployed a system developed and customized by Israel's Team
Telecom Inc. HP OpenView along with network element managers such as CiscoWorks
are used to manage the data network.

    The CRM system provides customer subscription to retail, SME and wholesale
products. Retail customers can either call into the customer support center or
subscribe themselves on the web. The application is written in Java using
servlets and Java Server Pages (JSPs). The customer and related data is stored
in an Oracle relational data base. The application uses Java Data Base
Connection (JDBC) driver to access the data in Oracle.

    The CRM system supports flow-through provisioning. When a customer
subscribes to a product it automatically provisions the customer on to the
appropriate switches and systems. The CRM supports individual and bundled
products, rate management, customer usage information management, Internet and
paper invoicing, collection and aging management, discount plans and provides a
variety of reports for customer service supervisors.

    The rating engine supports rating retail, wholesale and SME Call Data
Records (CDRs). Among its capabilities include support for flat rates, time of
day and day of the week rates, tiered rates, inter/ intra Lata/State rates,
international country and city specific rates, call connection fee. We collect
CDRs every hour and rate them once a day. In addition to rating the CDRs for
revenue, the rating engine also determines cost and margin on a call by call
basis. Sophisticated management decision reports are generated daily from the
revenue, cost and margin output of the rating engine.

    Our residential customers have the option of being billed through the Local
Exchange Carrier (LEC) or being direct billed via the Internet or on paper. SME
and wholesale customers are sent paper bills. Residential and SME customers have
the ability to view their invoices and usage on the Internet. LEC billing is
done utilizing a third party billing company that has arrangements with the
LECs.

    NMS enables our Network Operations Center (NOC) to manage, route and
terminate traffic efficiently through our network onto its destinations.
Capacity and termination statistical reports generated regularly by the NMS are
used for traffic routing and network planning. NMS also provides sophisticated
audio and visual alerts and error correlation to isolate faults as they happen
in real-time. We maximize our margins by applying the results of our
sophisticated proprietary Least Cost Routing (LCR) software to route traffic in
and out of our network.

COMPETITION

    As a provider of IP-based voice and data services, we compete with companies
in the domestic and international telecommunications industries. Our success
depends upon our ability to compete with a

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variety of service providers within each area in the United States and in each
of our international markets. These service providers include large,
facilities-based multinational carriers in North America and Europe, such as
AT&T, WorldCom, British Telecom, France Telecom and Deutsche Telecom. We must
also compete with smaller facilities-based wholesale long distance service
providers in the United States and overseas that have emerged as a result of
deregulation, switch-based resellers of international long distance and the
respective PTT in each country in which we operate or plan to operate in the
future. As local exchange carriers are gradually permitted to enter the long
distance market under the Telecommunications Act of 1996, we expect to
experience additional competition from carriers such as Bell Atlantic and SBC
Communications. International telecommunications providers compete on the basis
of price, customer service, transmission quality, breadth of service offerings
and value-added services. Residential customers frequently change long distance
carriers in response to competitors' offerings of lower rates or promotional
incentives. Our carrier customers generally use the services of a number of
international long distance companies, and are especially price sensitive. In
addition, many of our competitors enjoy economies of scale that can result in a
lower cost structure for termination and network costs, which could cause
significant pricing pressures within the international communications industry.
Several long distance carriers in the United States have introduced pricing
strategies that provide for fixed, low rates for both international and domestic
calls originating in the United States. Such a strategy, if widely adopted,
could have an adverse effect on our business, financial condition and results of
operations if increases in telecommunications usage do not result or are
insufficient to offset the effects of such price decreases. In recent years,
competition has intensified causing prices for international long distance
services to decrease substantially. Prices are expected to continue todecrease
in most of the markets in which we currently compete. We believe, however, that
these reductions in prices have been and will continue to be more than offset by
reductions in our cost of providing such services.

THE INTERNATIONAL TELECOMMUNICATIONS INDUSTRY

    The international telecommunications industry involves the origination of
voice and data transmissions in one country and the termination of such
transmissions in another country. The significant growth in the usage of
international telecommunications services has resulted in the industry
undergoing a period of fundamental change. The international market can be
divided into two major segments:

    The U.S.-originated market, which consists of all international calls that
either originate or are billed in the United States, and the overseas market,
which consists of all calls billed outside the United States.

    We believe that the international telecommunications market will continue to
grow for the foreseeable future because of the following developments and
trends:

    GLOBAL ECONOMIC DEVELOPMENT AND INCREASING DEMAND FOR TELECOMMUNICATIONS
    SERVICES.  The continuing increase in the number of telephone lines, as well
    as global economic development, various government initiatives and
    technological advancements, are expected to lead to increased demand for
    international telecommunications services.

    LIBERALIZATION OF TELECOMMUNICATIONS MARKETS AND REGULATION.  The continuing
    liberalization and privatization of telecommunications markets and the
    movement toward deregulation has provided, and continues to provide,
    opportunities for new carriers who desire to penetrate those markets.

    REDUCED RATES CREATING HIGHER TRAFFIC VOLUMES.  The reduction of outbound
    international long distance rates, resulting from increased competition and
    technological advancements continues to make, international calling
    available to a much larger customer base, thereby creating an increase in
    traffic volumes.

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    INCREASED CAPACITY.  The increased availability of higher-quality digital
    undersea fiber-optic cable has enabled international long distance carriers
    to improve service quality while reducing costs.

    POPULARITY AND ACCEPTANCE OF TECHNOLOGY.  The widespread use of
    communications devices, including cellular telephones, and facsimile
    machines, as well as the increased use of the Internet has led to a general
    increase in the use of communications services and stimulated demand for
    faster transmission of data.

    Liberalization of communications markets and deregulation has encouraged
competition, which in turn has prompted carriers to offer a wider selection of
products and services at lower prices. This same process has occurred and is
occurring elsewhere around the world, including in most EU nations, several
Latin American nations and certain Asian nations. In recent years, prices for
international long distance services have decreased substantially and are
expected to continue to decrease in many of the markets in which we currently
compete. Several long distance carriers in the United States have introduced
pricing strategies that provide for fixed, low rates for both domestic and
international calls originating in the United States. We believe that revenue
losses resulting from competition-induced price decreases can be offset by cost
reductions. We believe that as settlement rates and costs for leased capacity
continue to decline, international long distance will continue to provide high
revenues and gross margin per minute.

INTERNATIONAL SWITCHED LONG DISTANCE SERVICES

    International switched long distance services are provided through switching
and transmission facilities that automatically route calls to circuits based
upon a predetermined set of routing criteria. In the United States, an
international long distance call typically originates on a local exchange
carrier's network and is transported to the caller's domestic long distance
carrier. The domestic long distance carrier picks up the call and carries the
call to its own or another carrier's international gateway switch, where an
international long distance provider picks it up and sends it directly or
through one or more other long distance providers to a corresponding gateway
switch in the destination country. Once the traffic reaches the destination
country, it is routed to the party being called through that country's domestic
telephone network.

    International long distance carriers are often categorized according to
ownership and use of transmission facilities and switches. No carrier uses only
facilities that it owns for transmission of all of its long distance traffic.
Carriers vary from being primarily facilities-based, meaning that they own and
operate their own land-based and/or undersea cable, satellite-based facilities
and switches, to those that are purely resellers of other carrier's transmission
capacity. The largest U.S.-based carriers, such as AT&T, Sprint and
MCI/WorldCom, are primarily facilities-based and may transmit some of their
overflow traffic through other long distance providers, such as Startec. Only
very large carriers have the transmission facilities and operating agreements
necessary to cover the over 200 countries to which major long distance providers
generally offer service. A significantly larger group of long distance providers
own and operate their own switches but use a combination of resale agreements
with other long distance providers and leased and owned facilities to transmit
and terminate traffic, or rely solely on resale agreements with other long
distance providers.

    Under Accounting Rate Mechanisms, which has been the traditional model for
handling traffic between international carriers, traffic is exchanged under
bilateral carrier agreements, or operating agreements, between carriers in two
countries. Operating agreements generally are three to five years in length and
provide for the termination of traffic in, and return of traffic to, the
carriers' respective countries at a negotiated accounting rate, known as the
Total Accounting Rate ("TAR"). In addition, operating agreements provide for
network coordination and accounting and settlement procedures between the
carriers.

    Settlement costs, which typically equal one-half of the TAR, are the fees
owed to another international carrier for transporting traffic on its
facilities. Settlement costs are reciprocal between

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each party to an operating agreement at a negotiated rate (which must be the
same for all U.S.-based carriers, unless the Federal Communications Commission
(FCC) approves an exception). Additionally, the TAR is the same for all carriers
transporting traffic into a particular country, but varies from country to
country. The term "settlement costs" arises because carriers essentially pay
each other on a net basis determined by the difference between inbound and
outbound traffic between them.

    Under a typical operating agreement, each carrier owns or leases its portion
of the transmission facilities between two countries. A carrier gains ownership
rights in digital undersea fiber-optic cables by: (i) purchasing direct
ownership in a particular cable (usually prior to the time the cable is placed
into service); (ii) acquiring an IRU in a previously installed cable; or
(iii) by leasing or otherwise obtaining capacity from another long distance
provider that has either direct ownership or IRUs in a cable. In situations in
which a long distance provider has sufficiently high traffic volume, routing
calls across cable that is directly owned by a carrier or in which a carrier has
an IRU is generally more cost-effective than the use of short-term variable
capacity arrangements with other long distance providers or leased cable. Direct
ownership and IRUs, however, require a carrier to make an initial capital
commitment based on anticipated usage.

    In addition to using traditional operating agreements, an international long
distance provider may use transit arrangements, resale arrangements and
alternative transit/termination arrangements.

    TRANSIT ARRANGEMENTS.  Transit arrangements involve a long distance provider
in an intermediate country carrying the long distance traffic originating in a
second country to its destination in a third country. These arrangements require
an agreement among the carriers in each of the countries involved in the
transmission and termination of the traffic, and are generally used for overflow
traffic or in cases in which a direct circuit is unavailable or not volume
justified.

    RESALE ARRANGEMENTS.  Resale arrangements typically involve the wholesale
purchase and sale of transmission and termination services between two long
distance providers on a variable, per-minute basis. The sale of capacity was
first permitted as a result of the deregulation of the U.S. telecommunications
market, and has fostered the emergence of alternative international long
distance providers that rely, at least in part, on transmission capacity
acquired on a wholesale basis from other long distance providers. A single
international call may pass through the facilities of multiple resellers before
it reaches the foreign facilities-based carrier that ultimately terminates the
call. Resale arrangements set per-minute prices for different routes, which may
be guaranteed for a set period of time or may be subject to fluctuation
following notice. The international long distance resale market is continually
changing as new long distance resellers emerge and existing providers respond to
changing costs and competitive pressures.

    ALTERNATIVE TRANSIT/TERMINATION ARRANGEMENTS.  As the international long
distance market has become increasingly competitive as a result of deregulation
and other factors, long distance providers have developed alternative
transit/termination arrangements in an effort to decrease their costs of
terminating international traffic. Some of the more significant of these
arrangements include international simple resale (ISR), refiling and ownership
of transmission and switching facilities in foreign countries, which enables a
provider to terminate its traffic on its own facilities. Under ISR, a long
distance provider completely bypasses the accounting rates system by connecting
an international leased private line to the public switched telephone network of
a foreign country or directly to the premises of a customer or foreign partner.
Although ISR is currently sanctioned by United States and other applicable
regulatory authorities only on some routes, ISR services are increasing and are
expected to expand significantly as liberalization continues in the
international telecommunications industry. As with transit arrangements,
refiling involves the use of an intermediate country to carry the long-distance
traffic originating in a second country to the destination third country.
However, the key difference between transit and refiling arrangements is that
under a transit arrangement the operator in the destination country has a direct
relationship with the originating operator and is aware of the transit
arrangement, while with refiling, the operator in the destination country
typically is not aware that the received traffic originated in another

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country with another carrier. Refiling of traffic takes advantage of disparities
in settlement rates between different countries by allowing traffic to a
destination country to be treated as if it originated in another country which
enjoys lower settlement rates with the destination country, thereby resulting in
a lower overall termination cost. In addition, new market access agreements,
such as the World Trade Organization (WTO) Agreement, have made it possible for
many international long distance providers to establish their own switching
facilities in certain foreign countries, allowing them to directly terminate
traffic, including traffic which they have originated.

    DEVELOPMENTS IN THE INTERNET INDUSTRY.  The Internet is an interconnected
global computer network of tens of thousands of packet-switched networks using
IP. Technology trends over the past decade have removed the distinction between
voice and data segments. Traditionally, voice conversations have been routed on
analog lines. Today, voice conversations are routinely converted into digital
signals and sent together with other data over high-speed lines. In order to
satisfy the high demand for low-cost communication, software and hardware
developers began to develop technologies capable of allowing the Internet to be
utilized for voice communications. Several companies now offer services that
provide real-time voice conversations over the Internet (Internet Telephony).
Current Internet Telephony does not provide comparable sound quality to
traditional long distance service. The sound quality of Internet Telephony,
however, has improved over the past few years and is expected to reach
toll-quality standards in the near future.

    The FCC and most foreign regulators have not yet attempted to regulate the
companies that provide the software and hardware for Internet Telephony, the
access providers that transmit their data, or the service providers, as common
carriers or telecommunications services providers. Therefore, the existing
systems of access charges and international accounting rates, to which
traditional long distance carriers are subject, are not imposed on providers of
Internet Telephony services. As a result, such providers may offer calls at a
significant discount to standard international calls.

GOVERNMENT REGULATION

    OVERVIEW

    Our business is subject to varying degrees of regulation by United States
regulatory authorities at the federal and state level, as well as by foreign
regulatory authorities. In recent years, the regulation of the
telecommunications industry has been in a state of flux as a result of the
passage of new laws seeking to foster greater competition in telecommunications
markets. In particular, Congress made comprehensive amendments to the
Communications Act of 1934, in the Telecommunications Act of 1996. The purpose
of the 1996 Act is to promote competition in all areas of telecommunications by
reducing unnecessary regulation at both the federal and state levels to the
greatest extent possible. State legislatures also have passed new laws
increasing competition. The FCC and state public service commissions (PSCs) have
adopted many rules to implement new legislation and encourage competition. These
changes have created new opportunities for us and our competitors.

    U.S. federal laws, including common carriage requirements under the 1934 Act
and the FCC's rules, apply to our international and interstate facilities-based
and resale telecommunications services. Applicable PSCs have jurisdiction under
separate state statutes over telecommunications services originating and
terminating within the same state. The FCC and the PSCs generally have the
authority to condition, modify, cancel, terminate or revoke our operating
authority for failure to comply with federal and state laws and applicable
rules, regulations and policies. Fines or other penalties also may be imposed
for such violations. In addition, the FCC and one or more states possesses the
ability to regulate our rates and the terms and conditions under which we offer
service. Any such action by the FCC and/or the PSCs could have a material
adverse effect on our business, financial condition and results of operations.

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<PAGE>
    In addition, the laws of other countries directly apply only to carriers
doing business in those countries. We are affected indirectly by such laws
insofar as it is doing business in foreign countries, and indirectly to the
extent that such laws affect foreign carriers with which we do business.

    The following summary of regulatory developments and legislation does not
purport to describe all present and proposed U.S. or foreign regulations and
legislation affecting the telecommunications industry. Other existing
regulations are currently the subject of judicial proceedings, legislative
hearings or administrative proposals which could change, in varying degrees, the
manner in which this industry operates. Neither the outcome of these
proceedings, nor their impact upon the telecommunications industry or us can be
predicted at this time. There can be no assurance that future regulatory
judicial and legislative changes will not have a material adverse effect on us,
that U.S. or foreign regulators or third parties will not raise material issues
with regard to our compliance or noncompliance with applicable laws and
regulations, or that regulatory activities will not have a material adverse
effect on our business, financial condition and results of operations.

    BILATERAL AGREEMENTS

    On February 15, 1997, the United States and 68 other countries signed the
WTO Agreement and agreed to open their telecommunications markets to competition
and foreign ownership starting January 1, 1998. The signatories represent
approximately 90% of worldwide telecommunications traffic. We believe that the
WTO Agreement will provide us with significant opportunities to compete in
markets we could not previously access and provide facilities-based services.

U.S. FEDERAL REGULATION

    The FCC's rules implementing the WTO Agreement, which took effect on
February 9, 1998, generally ease restrictions on entry by foreign
telecommunications carriers from WTO member countries into the U.S. and
streamline FCC regulation of such carriers. The FCC's new policies implementing
the WTO Agreement also address the applicability to companies from WTO member
and non-member countries of equivalency and other reciprocity principles
regarding international facilities-based and resale services, foreign ownership
limitations and foreign carrier entry into the U.S. market. At the same time,
telecommunications markets in many foreign countries are expected to be
significantly liberalized, creating additional competitive market opportunities
for U.S. telecommunications businesses such as us. Although many countries have
agreed to make certain changes to increase competition in their respective
markets, there can be no assurance that countries will enact or implement the
legislation required to effect the changes to which they have committed in a
timely manner or at all. Failure by a country to meet commitments made under the
WTO Agreement may give rise to a cause of action for the injured foreign
countries to file a complaint with the WTO.

    International telecommunications carriers are required to obtain authority
from the FCC under Section 214 of the Communications Act in order to provide
international service that originates or terminates in the United States. In
1989, we received Section 214 authority from the FCC to acquire and operate
satellite facilities for the provision of direct international service to Italy,
Israel, Kenya, India, Iran, Saudi Arabia, Pakistan, Sri Lanka, South Korea and
the United Arab Emirates. We are also authorized to resell services of other
common carriers for the provision of switched voice, telex, facsimile and other
data services, and for the provision of INTELSAT business services and
international television services to various overseas points.

    On August 27, 1997, we were granted global facilities-based Section 214
authority under new FCC streamlined processing rules adopted in 1996 for
international carriers. We are classified by the FCC as a non-dominant carrier
on international and domestic routes. A facilities-based global Section 214
authorization enables us to provide international basic switched, private line,
data, television and business services using authorized facilities to virtually
all countries in the world. In March 1999, the FCC once again streamlined its
rules for licensing and regulating international carriers. Among other

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things, under the most recent rules a carrier with global Section 214
authorization for facilities-based services will be allowed to utilize any
foreign submarine cable system in its provision of facilities-based
international services without additional authorization.

    The FCC has adopted a rebuttable presumption in favor of the provision of
switched services over interconnected private lines (international simple resale
or ISR) to WTO member countries. The FCC will authorize the provision of ISR
between the U.S. and a WTO member country if either the settlement rates for at
least 50 percent of the settled U.S.-billed traffic between the U.S. and that
country are at or below the FCC's benchmark settlement rate for that country, or
the country satisfies the FCC's test for equivalent ISR policies. The FCC will
authorize ISR between the U.S. and a non-WTO member country only if both the
settlement rates for at least 50 percent of the settled U.S.-billed traffic
between the U.S. and that country are at or below the FCC's benchmark settlement
rate for that country, and the country satisfies the FCC's equivalency test.
Pursuant to FCC rules and policies, our authorization to provide service via ISR
will be expanded automatically to include countries subsequently approved by the
FCC for ISR.

    We must also conduct our international business in compliance with the FCC's
international settlements policy ("ISP"). The ISP requires: (1) the equal
division of the accounting rate between the U.S. and foreign carrier;
(2) nondiscriminatory treatment of U.S. carriers (all U.S. carriers must receive
the same accounting rate, with the same effective date); and (3) proportionate
return of inbound traffic. The FCC has removed the ISP for: (1) settlement
arrangements between U.S. carriers and foreign telecommunications carriers that
lack market power; and (2) all settlement arrangements on routes where U.S.
carriers are able to terminate at least 50 percent of their U.S. billed traffic
in the foreign market at rates that are at least 25 percent below the applicable
benchmark settlement rate. Thus far, only eleven international routes have been
deemed to satisfy the criteria from relief from the ISP and associated filing
requirements. The exempt routes include: Canada, Denmark, France, Germany, Hong
Kong, Ireland, Italy, The Netherlands, Norway, Sweden, and United Kingdom.

    Consistent with its pro-competition policies, the FCC has prohibited
U.S.-based carriers from agreeing to accept special concessions from any foreign
carrier or administration with market power. A special concession is any
arrangement that affects traffic flow to or from the U.S. that is offered
exclusively by a foreign carrier or administration to a particular U.S. carrier
that is not offered to similarly situated U.S. carriers authorized to serve a
particular route. The foregoing rule does not apply to the rates, terms and
conditions in an agreement between a U.S. carrier and a foreign carrier that
govern the settlement of international traffic, including the method for
allocating return traffic, if the international route is exempt from the ISP. We
intend, where possible, to take advantage of lowered accounting rates and more
flexible settlement arrangements.

    As of December 31, 1999, we had operating agreements and interconnection
arrangements with carriers in approximately 50 countries, primarily in emerging
economies. FCC regulations require that U.S. international telecommunications
carriers file copies of their contracts with dominant foreign carriers,
including operating agreements, with the FCC within 30 days of execution. We
have filed, or will file, operating agreements with the FCC as required. The
FCC's rules also require us to file periodically a variety of reports regarding
its international traffic flows and use of international facilities. We have on
file, and maintain with the FCC, annual circuit status reports and traffic data
reports. The FCC recently eliminated the requirement that non-dominant carriers
file tariffs for most international interexchange services. There are four types
of international service that international carriers must still tariff:
(1) international dial-around services; (2) inbound international collect calls;
(3) "on-demand" mobile satellite services; and (4) services to new customers
that choose their long distance provider through their local service provider
(for the first 45 days of service or until there is a contract between the
customer and the long distance provider, whichever occurs first).

    The FCC is currently considering whether to limit or prohibit the practice
whereby a carrier routes, through its facilities in a third country, traffic
originating from one country and destined for

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another country. The FCC has permitted third country calling where all countries
involved consent to this type of routing arrangements, referred to as
"transiting." Under certain arrangements referred to as "refiling," the carrier
in the destination country does not consent to receiving traffic from the
originating country and does not realize the traffic it receives from the third
country is actually originating from a different country. The FCC to date has
made no pronouncement as to whether refile arrangements comport either with U.S.
or ITU regulations. It is possible that the FCC may determine that refiling, as
defined, violates U.S. and/or international law. To the extent that our traffic
is routed through a third country to reach a destination country, such an FCC
determination with respect to transiting and refiling could have a material
adverse effect on our business, financial condition and results of operations.

    The FCC also regulates the ability of U.S.-based international carriers
affiliated with foreign carriers to serve markets where the foreign affiliate is
dominant. Previously, U.S. carriers were required to report any investment by a
foreign carrier of 10% or greater, and we reported the only foreign carrier
investment in us at the time, an affiliate of Portugal Telecom. Under the FCC's
new rules implementing the WTO Agreement, which took effect on February 9, 1998
the threshold for notification of affiliations with foreign carriers has been
increased to 25%. Under the new rules, we are affiliated with Global
Communications GmbH, a licensed carrier in Germany, and Phone Systems and
Network, S.A., a licensed carrier in France. The FCC considers a
foreign-affiliated U.S. carrier to be dominant on foreign routes where the
foreign affiliate is a monopoly or has more than 50 percent market share in
international or local telecommunications. None of the carriers with which we
are affiliated are considered dominant in their foreign markets, and we are not
regulated as dominant on any international route.

    In September 1999, the FCC adopted a policy allowing United States users of
International Telecommunications Satellite Organization (INTELSAT) satellite
services to have direct access to the INTELSAT system. The policy is designed to
promote competition in international satellite communications and strengthens
the competitiveness of U.S. carriers and service providers in the global
communications market. Previously, U.S. users had to go through Comsat
Corporation (Comsat) exclusively to gain access to INTELSAT. Interexchange
carriers, broadcast networks, and earth station operators will now be able to
order, receive, and pay INTELSAT for use of satellite services at the same rates
that INTELSAT charges its Signatories. As a result, U.S. companies will be able
to compete on a level playing field with foreign companies that already have
direct access to the INTELSAT system. The new policy may also put competitive
pressure on Comsat rates and the rates of competing satellite operators, and
enhance the ability of U.S. carriers to compete globally with their counterparts
that obtain capacity directly from INTELSAT.

    The FCC may condition, modify or revoke any of the Section 214
authorizations granted to us for violations of the Communications Act, the FCC's
rules and policies or the conditions of those authorizations or may impose
monetary forfeitures for such violations. Any such action on the part of the FCC
may have a material adverse effect on our business, financial condition and
results of operations.

    INTERNET SERVICES, INTERNET TELEPHONY AND ADVANCED SERVICES

    In the U.S., Internet services, including voice communications over the
Internet or Internet telephony, currently are treated as information services
and may be provided on an unregulated basis. In December 1996, the FCC initiated
a Notice of Inquiry (the "Internet NOI") regarding whether to impose regulations
or surcharges upon providers of Internet access and information services. The
Internet NOI specifically identifies Internet telephony as a subject for FCC
consideration. This proceeding remains pending. In April 1998, the FCC filed a
report with Congress stating that Internet access falls into the category of
information services, and should not be subject to common carrier regulation,
including the obligation to pay access charges, but that the record suggests
that some forms of Internet services may be more like telecommunications
services than information services, and possibly should be subject to common
carrier regulation. To our knowledge, there are no domestic and only a few
foreign laws that prohibit voice communications over the Internet.

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<PAGE>
    In addition, several efforts have been made to enact federal legislation
that would either regulate or exempt from regulation services provided over the
Internet. State PSCs may also retain jurisdiction to regulate the provision of
intrastate Internet telephone services. If Congress, the FCC, or a state utility
commission begins to regulate Internet telephony, there can be no assurances
that any such regulation will not materially adversely affect our business,
financial condition or results of operations. Similarly, certain foreign
governments have begun to consider more closely the regulatory status of
Internet services, especially Internet telephony. We cannot predict the
likelihood that U.S. federal or state authorities or foreign governments will
impose additional regulation on our Internet-related services, nor can we
predict the impact that future regulation will have on our operations.

    In September 1999, the FCC initiated a notice of inquiry regarding voice
over Internet telephony (both computer to computer and phone to phone Internet
telephony) seeking comment on the availability of Internet telephony, the extent
it has begun to replace traditional telecommunications services, the percentage
of disabled persons who utilize Internet telephony, and whether it falls under
the purview of Section 255 of the Telecommunications Act. Section 255 of the
Telecommunications Act requires a provider of telecommunications service to
ensure that its service is accessible and usable by persons with disabilities,
if readily achievable. Our operations could be materially impacted if the FCC
decides to adopt rules subjecting Internet telephony to the requirements of
Section 255 since it would require us to ensure that our Internet telephony
services are compatible with telecommunications devices used by the disabled.

    INTERSTATE INTEREXCHANGE SERVICES

    Our provision of domestic long distance service in the United States is
subject to regulation by the FCC and certain state PSCs, who regulate to varying
degrees interstate and intrastate rates, respectively, ownership of transmission
facilities, and the terms and conditions under which our domestic services are
provided. We must comply with the requirements of common carriage under the
Communications Act. Pursuant to the Communications Act, we are subject to the
general requirement that our charges and regulations for communications services
must be "just and reasonable" and that we may not make any "unjust or
unreasonable discrimination" in our charges or regulations. Carriers like us
also are subject to a variety of miscellaneous regulations that, for instance,
govern the documentation and verifications necessary to change a consumer's long
distance carrier, require the filing of periodic reports, and restrict
interlocking directors and management. We have also filed domestic long distance
tariffs with the FCC. Effective July 31, 2001, carriers are required to detariff
their domestic interexchange services. However, carriers may file tariffs for
dial-around 1+ services or "casual calling" services and for services provided
to new customers until a written contract is executed, but for no longer than
45 days. The casual calling services that may continue to be tariffed are those
services for which the customer and carrier do not have an underlying
contractual relationship because of the unique technological concerns with dial-
around services that are not conducive to the establishment of a written
contract.

    The 1996 Act directs the FCC, in cooperation with state regulators, to
establish a Universal Service Fund ("USF") that will provide subsidies to
carriers that provide service to under-served individuals and in high cost
areas. A portion of carriers' contributions to the USF also will be used to
provide telecommunications related facilities for schools, libraries and certain
rural health care providers. Implementation of the subsidy will increase burdens
on interexchange carriers that must contribute to the USF. The FCC, however,
allows interexchange carriers to pass these charges through to their customers.
Additionally, any entity otherwise required to contribute to the federal
universal service fund whose interstate end-user telecommunications revenues
comprise less than 8% of its combined interstate and international end-user
telecommunications revenues shall contribute to the fund based only on such
entity's interstate end-user telecommunications revenues. Based upon our
domestic interexchange revenues, we have applied to the FCC for a waiver of USF
contribution requirements. We cannot predict the likelihood that its request
will be granted.

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    OTHER LEGISLATIVE AND REGULATORY INITIATIVES

    The 1996 Act is designed to promote local competition through state and
federal deregulation. As part of its pro-competitive policies, the 1996 Act
frees the Regional Bell Operating Companies (RBOCs) from the judicial orders
that prohibited their provision of long distance services outside of their
operating territories (LATAs). The 1996 Act provides specific guidelines that
allow the RBOCs to provide long distance inter-LATA service to customers inside
its region, subject to a demonstration to the FCC and state regulators that the
RBOC has opened up its local network to competition and met a "competitive
checklist" of requirements designed to provide competing network providers with
nondiscriminatory access to the RBOC's local network.

    Some RBOCs have filed applications with various state public utility
commissions and the FCC seeking approval to offer in-region interLATA service.
Some states have denied these applications while others have approved them. To
date, the FCC has approved four RBOC Section 271 applications to provide long
distance telephone service. Other Section 271 applications are pending.

    To originate and terminate calls in connection with providing their
services, long distance carriers like us must purchase "access services" from
ILECs or CLECs. Access charges represent a significant portion of our cost of
U.S. domestic long distance services and, generally, such access charges are
regulated by the FCC for interstate services and by PSCs for intrastate
services. In May 1997, the FCC released an order that fundamentally restructured
the "access charges" that ILECs charge to interexchange carriers and end user
customers. Appeals by numerous parties were denied by the Eighth Circuit Court
of Appeals on August 19, 1998. Subsequently, the FCC proposed various measures
to accelerate reductions in ILEC access charges and to give ILECs increased
flexibility to set prices in response to competition. Together, these actions
could significantly reduce the prices of ILEC access services to us, as well as
to our competitors.

    In August 1999, the FCC revised its rules that govern the provision of
interstate access services by those local exchange carriers (LECs) subject to
price cap regulation. The FCC implemented a market-based approach, pursuant to
which price cap LECs would receive pricing flexibility in the provision of
interstate access services as competition for those services develops. The Order
granted immediate pricing flexibility to price cap LECs in the form of
streamlined introduction of new services, geographic deaveraging of rates for
services in the trunking basket, and removal, upon implementation of
toll-dialing parity, of certain interstate interexchange services from price cap
regulation. It also established a framework for granting price cap LECs greater
flexibility in the pricing of all interstate access services once they satisfy
certain competitive criteria. Pursuant to a two-phase introduction, the FCC will
(1) allow price cap LECs to offer contract tariffs and volume and term discounts
for those services for which they make a specific competitive showing, and
(2) permit price cap LECs to offer dedicated transport and special access
services free rate structure and price cap rules, provided that the LECs can
demonstrate a significantly higher level of competition for those services. The
FCC also issued a Notice of Proposed Rulemaking seeking comment on proposals for
geographic deaveraging of the rates for services in the common line and
traffic-sensitive baskets. The FCC denied a petition for declaratory ruling
filed by AT&T requesting that the FCC confirm that interexchange carriers may
elect not to purchase switched access services offered under tariff by
competitive local exchange carriers. While the FCC declined to address AT&T's
concerns in a declaratory ruling it did find that AT&T's petition and supporting
comments suggest a need for the FCC to revisit the issue of CLEC access rates.
Therefore, it initiated a rulemaking regarding the reasonableness of these
charges and whether the FCC might adopt rules to address, by the least intrusive
means, any failure of market forces to constrain CLEC access charges.

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    The Internet is also the subject of an increasing number of laws and
regulations. These laws and regulations may relate to liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and the quality of products and services. In particular:

    - Children's Online Privacy Protection Act of 1998. The Act makes it
      unlawful for an operator of a web site or online service directed to
      children under 13 to collect, use or distribute personal information from
      a child under 13 without prior verifiable parental consent.

    - Protection of Children from Sexual Predators Act of 1998. This Act
      mandates that electronic communication service providers report facts or
      circumstances from which a violation of child pornography laws is
      apparent.

    - Digital Millennium Copyright Act of 1998. This Act establishes limited
      liability for online copyright infringement by online service providers
      for listing or linking to third-party web sites that include
      copyright-infringing materials.

    Because judicial interpretation of these laws is nascent, their
applicability and reach are not yet clearly defined. Nonetheless, these laws
have imposed significant additional costs on our business, prompting us to
change our operating methods and business model. Moreover, the applicability to
the Internet of existing laws governing issues such as intellectual property
ownership, copyright, defamation, obscenity and personal privacy is uncertain
and developing. The Company may be subject to claims that our services violate
such laws. Any new legislation or regulation in the United States or abroad or
the application of existing laws and regulations to the Internet could damage
our business.

STATE REGULATION

    INTRASTATE SERVICES

    Section 253 of the 1996 Act prohibits states and localities from adopting or
imposing any legal requirement that may prohibit, or have the effect of
prohibiting, the ability of any entity to provide any interstate or intrastate
telecommunications services. The FCC has the authority to preempt any such state
or local requirements to the extent necessary to enforce the open market entry
requirements of the 1996 Act. States and localities may, however, continue to
regulate the provision of intrastate telecommunications services, and,
presumably, require carriers to obtain certificates or licenses before providing
service.

    Generally we are required to obtain certification from the relevant state
PSC prior to the initiation of intrastate service and to file tariffs with such
states. Through our subsidiary, Startec Global Licensing Company, we are
currently authorized (or certification is not required) to provide service in 40
states and the District of Columbia. Additional applications for approval are
pending in three states. In some states where we are already certified, we are
seeking or may seek modification of our certification to provide
facilities-based, in addition to resale, services. Although we intend and expect
to obtain operating authority in each jurisdiction in which operating authority
is required, there can be no assurance that one or more of these jurisdictions
will not deny our request for operating authority. Any failure to maintain
proper state certification or tariffs, or any difficulties or delays in
obtaining required certifications could have a material adverse effect on our
business, financial condition and results of operations.

    Many states also impose various reporting requirements and/or require prior
approval for transfers of control of certified carriers, corporate
reorganizations, acquisitions of telecommunications operations, assignments of
carrier assets, carrier stock offerings, and incurrence by carriers of
significant debt obligations. Certificates of authority can generally be
conditioned, modified, canceled, terminated, or revoked by state regulatory
authorities for failure to comply with state law and/or the rules, regulations,
and policies of the PSCs. Fines and other penalties also may be imposed for such
violations. Any such action by the PSCs could have a material adverse effect on
our business, financial

                                       27
<PAGE>
condition and results of operations. As we expand our operations into other
states, we may become subject to the jurisdiction of their respective PSCs for
certain services offered by us. We monitor regulatory developments in all 50
states to ensure regulatory compliance.

FOREIGN REGULATION

    EUROPEAN UNION

    As we have expanded our operations into Europe, it has become subject to the
regulations established by various European governments. These regulations, in
turn, are evolving within the context of a European-wide telecommunications
framework established by the European Commission (EC) for the entire European
Union (EU). The EU consists of the following fifteen member states: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden and the United Kingdom. Our expansion
into any EU country may be directly or indirectly affected by the EC regulatory
framework.

    EU member states are required to implement directives issued by the EC
authorities (the EU Commission and the Council of the European Union) by passing
national legislation. If an EU member state fails to effect such directives with
national (or, as the case may be, regional, community or local) legislation
and/or fails to render the provisions of such directives effective within its
territory, the EC may take action against the EU member state, including
proceedings before the European Court of Justice, to enforce the directives.

    The EC and Council of the EU have issued a number of key regulations and
directives establishing basic principles for the liberalization of the EU
telecommunications market. The general framework for this liberalized
environment has been set out in the EC's Services Directive. The Services
Directive sets out principles relating to restrictions on the number of licenses
permitted and to procedures, fees, essential requirements and appeals. The
Services Directive directs EU member states to permit the competitive provision
of all telecommunications services with the exception of voice telephony (which
does not include value-added services and voice services within closed user
groups) and certain other services that have been gradually liberalized through
subsequent amendments to the Services Directive.

    The Full Competition Directive, adopted in March 1996, amended the Services
Directive to set January 1, 1998 as the date by which all EU member states were
required to remove all remaining restrictions on the provision of
telecommunications services and telecommunications infrastructure, including
voice telephony. Certain derogations from compliance with this timetable have
been granted. The derogations granted by the EC are as follows: Luxembourg
(July 1, 1998), Spain (November 30, 1998), Ireland (January 1, 2000), Portugal
(January 1, 2000) and Greece (January 1, 2001).

    This basic framework has been advanced by a series of harmonization
directives, which include the so-called Open Network Provision directive (ONP),
which established the basic rules for access to the public network, the Leased
Lines Directive, which required the incumbent carriers to lease lines to
competitors and end-users and to establish cost accounting systems for those
products by the end of 1993, the Licensing Directive of April 1997, which set
out framework rules for the procedures associated with the granting of national
authorizations for the provision of telecommunications services and for the
establishment or operation of any infrastructure for the provision of
telecommunications services, and the Interconnection Directive of June 1997,
which sets out the regulatory framework for securing in the EU the
interconnection of telecommunications networks.

    The EU has also enacted a directive on data protection that imposes
restrictions on the processing of personal data which are more restrictive than
current United States privacy standards. Under the directive, personal data
about EU residents may not be transferred outside the EU unless certain
specified conditions are met. In addition, persons whose personal data is
collected, processed or transferred within the EU are guaranteed a number of
rights, including the right to access and obtain

                                       28
<PAGE>
information about their data, the right to have inaccurate data rectified, and
the right to object to the processing of their data for direct marketing
purposes. The directive affects all companies that collect, process or transfer
personal data in the EU or receive personal data from the EU. It may also affect
companies that collect or transmit information over the Internet from
individuals in the EU. For example, companies that do business in the EU may not
be permitted to transfer personal data to countries that do not maintain
adequate levels of data protection. The EU also has a separate directive on the
privacy and processing of personal data in the telecommunications sector.
Although we do not engage in the collection of data for purposes other than the
routing of calls and billing, the data protection directives are quite broad and
the EU privacy standards are stringent. The potential effect of these directives
on the development of our business is uncertain.

    A 1998 amendment to the Interconnection Directive calls for the introduction
of operator number portability by January 1, 2000 and extended the requirement
of number portability to the entire fixed network. The amended Directive further
requires the introduction of carrier preselection for at least all fixed network
operators by January 1, 2000. Each EU member state in which we currently conduct
business has a different regulatory regime, and we expect such differences to
continue. Accordingly, we must obtain different approvals, where required, from
country to country. As part of the EC commitment, all EU member states are also
signatories to the WTO Agreement.

    In November 1999, the EC released a report setting forth principles for the
development of a new framework for the regulation of EU communications
infrastructure and associated services. Based on comments submitted by
interested parties in February 2000, the EC expects to produce proposals to
amend the existing regulatory framework in the first half of 2000. Among others,
new regulatory measures will be adopted in the following areas: (i) licensing
and authorizations; (ii) access and interconnection; (iii) management of radio
spectrum; (iv) universal service; (v) number portability; (vi) consumer
protection; and (vi) competition. The EC indicated that it did not support the
creation of Internet-specific rules, instead the EC expressed its desire to
treat Internet transmission services in the same way as other transmission
services.

    A proposal for a directive to establish a coherent legal framework for the
development of electronic commerce was put forth by the EC in November 1998. The
directive would cover all information services, both business to business and
business to consumer services, including services provided free of charge to the
recipient (e.g. funded by advertising or sponsorship revenue and services
allowing for on-line electronic transactions such as interactive teleshopping of
goods and services and on-line shopping malls). The proposed Directive would
establish specific harmonized rules only in those areas strictly necessary to
ensure that businesses and citizens could supply and receive information society
services through the EU, irrespective of frontiers. These areas include
definition of where operators are established, electronic contracts, liability
of intermediaries, dispute settlement and role of national authorities. In other
areas the Directive would build on existing EU instruments which provide for
harmonization or on mutual recognition of national laws. The Directive would
apply only to service providers established within the EU and not those
established outside.

    OUR MAJOR INTERNATIONAL MARKETS

    AUSTRIA.  Austria joined the EU in January 1995 and, consequently, became
subject to the telecommunications directives of the EC, including the agreement
for total market liberalization by January 1998. In compliance with the EU
directives, in particular in response to an official EU directive warning
Austria of the consequences of delaying deregulation, a new telecommunications
law (TKG 97) was passed by Parliament on August 1, 1997. The TKG 97 introduced
full competition to the Austrian telecommunications market and established a new
independent regulatory body, the Telekom Control Commission, to issue licenses
and monitor compliance with telecom regulations.

                                       29
<PAGE>
    Under the TKG 97, an individual license is required only for the provision
of public voice telephony services, leased lines offered to the public by means
of a fixed telecommunications network, public mobile telephony services and
other mobile communications provided using a mobile communications network. All
other services, public or non-public, may be provided upon notification to the
Telekom Control Commission. Currently, Internet telephony is not covered by the
legal provisions for "public voice telephony service." Any operator or service
provider can offer Internet services.

    Startec Global Communications U.K. Ltd. (Startec UK), a wholly owned
subsidiary of Startec Global Communications Corporation, was incorporated on
April 27, 1998. Startec UK holds various telecommunications licenses and/or
authorizations that allow it to offer services both in the United Kingdom and
other European countries. In Austria, Startec UK holds a license for the
provision of voice telephone by self-operated telecommunications network in
Austria. This license allows for interconnection to Telekom Austria AG, the
former monopoly PTT, and for the provision of retail and wholesale services in
Austria.

    CANADA.  The Canadian market has been significantly liberalized over the
past year. As of October 1, 1998, international voice service, previously
provided exclusively by Teleglobe, was opened to full competition. The domestic
long distance market also has become more competitive as a result of the break
up of the Stentor Alliance, comprised of nine provincial incumbent local
exchange carriers, and the announcement by other companies of their intent to
offer nationwide long distance service. Additionally, the Canadian government
has relaxed long distance routing restrictions so that carriers may now route
domestic and international traffic according to the most economical route, even
by transiting or hubbing through the United States. These market and regulatory
changes will provide increased opportunity for competitive entry in both
domestic and international long distance services markets. Section 16 of the
Telecommunications Act restricts Canadian facilities based carriers to a maximum
total of 46.7% of direct and indirect foreign ownership of voting shares.

    Startec Global Communications Company Canada (Startec Canada), was
incorporated on July 29, 1998. Startec Canada has obtained a Class A License,
enabling it to provide commercial and wholesale telecommunication services in
Canada. Startec Canada has also obtained extra-provincial registrations in Nova
Scotia, Ontario, Manitoba, Alberta and British Columbia. Startec Canada
currently offers retail prepaid services in British Columbia, Quebec and Ontario
and wholesale carrier services nationwide.

    CHINA.  China's regulatory regime remains one of the strictest in the world.
Some analysts predict that foreign participation in the Chinese
telecommunications industry will be relatively slow. These analysts believe that
local, domestic long distance, and international gateway facilities services
will remain under Chinese government control for several years. China has some
government-affiliated ISPs and some small independent ISPs that are not linked
to the Internet. Access to the Chinese market remains uncertain.

    EGYPT.  Telecom Egypt has a monopoly on national long distance and
international long distance telephony. There does not appear to be plans to
introduce competition in these segments of the market in the near future. The
Telecommunication Regulatory Authority (TRA) regulates the telecommunications
industry in Egypt. Among other things, the role of TRA is to issue licenses,
consent to changes to tariffs, and ensure adequate quality of services. Both
Egypt Telecom and TRA operate under the Ministry of Transportation and
Communication. It is possible that a portion of the Egyptian telecommunication
industry may be privatized in the future.

    FRANCE.  In July 1996, legislation was enacted providing for the immediate
liberalization of all telecommunications activities in France, but maintaining a
partial exception for the provision of voice telephony. Voice telephony was
subsequently fully liberalized on January 1, 1998. The establishment and
operation of public telecommunications networks and the provision of voice
telephony are subject to individual licenses, which are granted by the minister
in charge of telecommunications upon

                                       30
<PAGE>
recommendation of France's independent regulatory authority, the Autorite de
Regulation des Telecommunications (ART).

    GERMANY.  The German Telecommunications Act of July 25, 1996 liberalized all
telecommunications activities, but postponed effective liberalization of voice
telephony until January 1, 1998. The German Telecommunications Act has been
complemented by several Ordinances. The most significant Ordinances concern
license fees, rate regulation, interconnection, universal service, frequencies
and customer protection.

    Under the German regulatory scheme, licenses can be granted within four
license classes. A license is required for operation of transmission lines that
extend beyond the limits of a property and that are used to provide
telecommunications services for the general public. The licenses required for
the operation of transmission lines are divided into three infrastructure
license classes: mobile telecommunications (license class 1), satellite (license
class 2), and telecommunications services for the general public (license
class 3). In addition to the infrastructure licenses, a license is required for
operation of voice telephony services over self-operated telecommunications
networks (license class 4). A class 4 license does not include the right to
operate transmission lines.

    Startec Global Communications (Germany) GmbH (Startec Germany), is a wholly
owned subsidiary of Startec. In December 1998, Startec Germany purchased Global
Communications GmbH, a German carrier with Siemens EWSD switch located in
Dusseldorf. Global Communications GmbH holds a Class 4 (Nationwide) license, and
an interconnection agreement with Deutsche Telekom which allows us to provide a
full range of telecommunication services and to obtain interconnection with
Deutsche Telekom. An interconnection agreement with Deutsche Telekom has been
signed with final physical interconnect pending. Currently also, Startec Germany
has installed a POP site in Frankfurt which is being upgraded to a Siemens EWSD
switch. We offer wholesale and retail prepaid services in Germany.

    HONG KONG.  The international telecommunications services market is open for
competition. As of September 30, 1999, 33 companies have filed for licenses to
provide international fixed telecommunications network services in Hong Kong. We
expect to face stiff competition in this market.

    INDIA.  In 1999, the Government of India announced a series of regulatory
initiatives designed to change the telecommunications market in India. The
primary initiatives include: (1) Indian commitment to creating a strong and
independent regulator; (2) privatizing the Department of Telecommunications (by
2001); (3) changing its licensing regime for new licenses (from fixed fee to
entry fee plus revenue share); (4) opening its domestic long distance market;
(5) reviewing its international service monopoly; (6) allowing more carriers to
provide fixed line services; and (7) monitoring and reviewing the merits of
allowing Internet telephony (which is currently prohibited).

    IRELAND.  Ireland has recently accelerated the liberalization of its
telecommunications market, implementing full competition a year ahead of
schedule. On December 1, 1998 Ireland granted 29 new telecommunications licenses
of which 21 were general licenses for public voice telephony. The Office of the
Director of Telecommunications Regulation (ODTR), created by the
Telecommunications (Miscellaneous Provisions) Act of 1996 is currently working
on a broad range of regulatory initiatives to bring Ireland up to par with other
European countries with more advanced liberalization regimes.

    In Ireland, Startec U.K. holds a General Telecommunications License, which
allows Startec to offer retail and wholesale telecommunication services in
Ireland and to interconnect to Telecom Eireann.

    THE NETHERLANDS.  The Dutch Telecommunications Act of 1998 (Dutch Telecom
Act), which became effective December 15, 1998, provides the current regulatory
framework for the provision of telecommunications services in the Netherlands.
The new regime closely parallels the EU Licensing Directive requiring individual
licenses only for the use of spectrum. All other services including the
installation and provision of public telecommunications networks, leased lines
and broadcasting

                                       31
<PAGE>
networks may be provided pursuant to registration. The newly enacted Dutch
Telecom Act also facilitates the construction of telecommunications networks by
giving registered carriers access to rights-of-way, subject to certain
conditions.

    In the Netherlands, we hold a Special Network Access Registration, which
allows for retail and wholesale services and interconnection with Royal KPN
Netherlands, N.V. Startec has installed a POP in the Netherlands, and currently
offers carrier wholesale and prepaid retail services to customers in the
Netherlands.

    NEW ZEALAND.  The New Zealand market is fully liberalized. In New Zealand,
Startec UK holds a registration as an operator under the Telecommunications
(International Services) Regulations 1994. We have not yet commenced services in
New Zealand.

    SWITZERLAND.  Switzerland is not a member of the EU. Nonetheless, a new
Telecommunications Act was adopted by the Swiss Parliament in April 1997 and
took effect on January 1, 1998, together with Ordinances containing more
detailed regulations covering telecommunications services, frequency management,
numbering, terminal equipment and license fees. The new Telecommunications Act
liberalized the Swiss telecommunications market as of January 1, 1998.

    The newly enacted Swiss telecommunications regulatory framework facilitates
market entry by: (1) applying a notification procedure for resellers;
(2) applying a procedure for operators wishing to be granted a concession for
the establishment and operation of transmission facilities; and (3) providing
rights-of-way, subject to a procedure of authorization, over the public domain
to facilities-based carriers. Pro-competitive regulation is also applicable in
the area of numbering.

    Startec Global Communications (Switzerland) GmbH (Startec Switzerland), our
wholly owned subsidiary, was incorporated on August 5, 1998. Startec Switzerland
holds a Registration for the Supply of Telecommunications Services in
Switzerland, which allows for interconnection with Swisscom S.A. as well as for
the provision of wholesale and retail services. Startec Switzerland has
installed a POP site in Geneva through which retail prepaid and wholesale
carrier services are provided in Switzerland.

    SYRIA.  The Syrian Telecommunications Establishment (STE) is both the
regulator and telecommunications service provider in Syria. The STE has the
exclusive rights on all wireline and wireless services provided in the country.
The policy of the Syrian government continues to be against privatization of
telecommunications services. Recently, the STE has entered into build, operate,
and transfer agreements with several private sector companies for the provision
of certain telecommunications services. In September 1999, the STE issued a
request for proposal that would award a contract to establish a countrywide
Internet backbone. The government will control the country's international
connection to the global Internet.

    THE UNITED KINGDOM.  The Telecommunications Act 1984 (the U.K. Act) provides
a licensing and regulatory framework for telecommunications activities in the
United Kingdom, which are fully competitive. The Secretary of State for Trade
and Industry at the Department of Trade and Industry (the Secretary of Trade) is
responsible for granting licenses under the U.K. Act and for overseeing
telecommunications policy, while the Director General of Telecommunications (the
"Director General") and his office are responsible, among other things, for
enforcing the terms of such licenses. The Director General will recommend the
grant of a license to operate a telecommunications network to any applicant that
the Director General believes has a reasonable business plan, the necessary
financial resources and where there are no other overriding considerations
against the grant of a license. In December 1996, the British Government
introduced the International Facilities License (IFL) which authorizes holders
to provide international telecommunications services over their own
international infrastructure and/or by making use of IRUs in undersea cables.

    Startec U.K. holds an IFL which enables us to own telecommunications
facilities entering the U.K. and gives Startec UK the rights and obligations to
interconnect with British Telecom Communications

                                       32
<PAGE>
at wholesale interconnect rates. Startec Global Communications Corporation also
holds an International Simple Voice Resale (ISVR) license in the U.K. Startec UK
has a POP in London and is in the process of upgrading to a Siemens EWSD switch.
Currently, Startec UK offers wholesale carrier and retail prepaid services in
the U.K.

    TURKEY.  In February 2000, Turkey passed telecommunications laws designed to
establish an independent regulatory body, liberalize all non-basic services and
liberalize voice services and infrastructure by the end of 2003.

EMPLOYEES

    As of December 31, 2000, we had 687 full-time employees and 24 part-time
employees. Our employees are not represented by a collective bargaining
agreement. We believe that we have good relations with our employees. In
connection with our restructuring plans, we reduced our global workforce by
approximately 400 positions during 2000 and the first quarter of 2001, which
represents about 45% of our total workforce.

ITEM 2. PROPERTIES

    The following table sets forth certain information as of December 31, 2000,
relating to facilities used by the Company. All of the properties are leased.

<TABLE>
<CAPTION>
                                  SQUARE                                         SQUARE    DATE PLACED
LEASED OFFICE SPACE              FOOTAGE                CALL CENTERS            FOOTAGE    IN SERVICE
-------------------              --------      -------------------------------  --------   -----------
<S>                              <C>           <C>                              <C>        <C>
Bethesda, MD...................   46,454       Guam, United States............    1,760        1996
Bethesda, MD(1)................   43,700       Seven Locks, MD................   70,370        1999
Paris France...................    9,394       Paris, France..................    1,265        1998
Los Angeles, CA(2).............    7,260       Vancouver, British Columbia....    9,600        2000
Guam, United States............    8,000       Vancouver, British Columbia....    6,500        2000
Hong Kong......................    1,187       Toronto, Ontario...............    3,200        2000
London, UK.....................    1,126
Frankfurt, Germany.............   11,066
Miami, FL(2)...................   12,000
New York, NY(2)................    2,110
New York, NY(2)................   14,274
Saipan, Mariana Islands........    1,000
</TABLE>

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

(1) Headquarters of Startec Global Communications Corporation.

(2) Facilities that house the switches. We also have a switch located in
    Dusseldorf, Germany.

ITEM 3. LEGAL PROCEEDINGS

    From time to time we are involved in litigation incidental to the conduct of
our business. We are not currently a party to any lawsuit or proceeding which,
in the opinion of management, is likely to have a material adverse effect on our
business, financial condition or results of operations.

    In a press release dated March 12, 2001, we jointly announced with Capsule
Communications, Inc. that the parties had resolved all issues resulting from the
termination of the Agreement and Plan of Reorganization dated as of November 2,
2000 and that all parties had released one another from any liability in
connection therewith. To reflect the differences in incurred expenses in the
course of the merger efforts, we agreed to make a series of payments to Capsule
over the first half of 2001 totalling $400,000 in the aggregate. We made the
first scheduled payment of $100,000 in March 2001.

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

    None.

                                       33
<PAGE>
                                    PART II

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

    Shares of our common stock, par value $0.01 per share, were initially
offered to the public on October 9, 1997 at a price of $12.00 per share. Our
common stock is currently listed on the Nasdaq National Market under the ticker
symbol "STGC." On April 5, 2001, we received written notification from the
Nasdaq Listing Qualifications Department, stating that our common stock no
longer met certain requirements for continued listing on the Nasdaq National
Market. As permitted under Nasdaq's rules, we appealed the delisting
determination. Our request for an appeal will suspend the delisting process
pending a decision by the Nasdaq Listing Qualifications Panel. We do not believe
we will be eligible to list our securities on the Nasdaq Small Cap Market should
the securities be delisted from the Nasdaq National Market. There can be no
assurance that our common stock will continue to be listed on Nasdaq. We have
not declared any cash dividends on the common stock. We intend to retain future
earnings, if any, for use in our business and do not anticipate paying regular
cash dividends on the common stock. The following table sets forth, on a
pershare basis, the high and low sale prices for our common stock as reported by
the Nasdaq National Market, for the periods indicated. Such prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and do not
necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                           HIGH          LOW
                                                         --------      --------
<S>                                                      <C>           <C>
1999
  1st Quarter..........................................  $10.188       $ 7.625
  2nd Quarter..........................................   12.625         5.875
  3rd Quarter..........................................   15.25         12.25
  4th Quarter..........................................   22.00         12.438
2000
  1st Quarter..........................................   34.125        19.625
  2nd Quarter..........................................   23.3125        8.25
  3rd Quarter..........................................   13.25          5.75
  4th Quarter..........................................    6.5           2.5
2001
  1st Quarter..........................................    6.0           0.4062
  2nd Quarter (through 4/03/2001)......................    0.8125        0.5625
</TABLE>

As of April 12, 2001, there were approximately 179 stockholders of record of our
common stock.

    In May 2000, we issued and sold 1,377,800 shares of our common stock for an
aggregate offering price of $16.5 million in a private transaction to accredited
investors exempt from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act").

    In June 2000, in connection with an unsecured credit facility extended to us
by Allied Capital Corporation, we issued a stock purchase warrant to Allied
pursuant to which, at any time and from time to time until June 30, 2005, Allied
is entitled at its sole option to purchase an aggregate of 125,000 shares of our
common stock at an exercise price of $11.21 per share subject to antidilution
adjustments. Allied certified to us its status as an accredited investor; the
warrant was issued without registration pursuant to Section 4(2) of the
Securities Act.

    In November 2000, we issued and sold an aggregate of 1,855,000 shares of our
common stock for an aggregate offering price of approximately $7.2 million in a
private transaction to accredited investors exempt from registration under
Section 4(2) of the Securities Act. In March 2001 we issued an additional
185,500 shares of common stock to the investors who had participated in the
November 2000 private placement. These shares were issued in compensation for
our failure to timely file a registration statement with respect to the resale
of shares of common stock originally issued in connection with the

                                       34
<PAGE>
November 2000 private placement. The 185,500 shares were issued in a private
transaction to accredited investors exempt from registration under Section 4(2)
of the Securities Act of 1933, as amended.

    In the first quarter of 2000, we acquired several Voice over Internet
Protocol ("VoIP") termination facilities from various vendors for approximately
$2.2 million in cash and shares of our common stock valued at approximately
$1.9 million. The shares of common stock were issued without registration
pursuant to Section 4(2) of the Securities Act.

    In March 2000, we acquired Vancouver Telephone Company ("VTC"), for
approximately $1.1 million in cash and 520,463 shares of common stock valued at
approximately $12.3 million. The shares of common stock were issued without
registration pursuant to Section 4(2) of the Securities Act.

    In March 2000, we acquired DLC Enterprises Inc. ("DLC"), a New York-based
telecommunications company for approximately $0.5 million. DLC offers dial-1,
debit card and ISP services. DLC provides us with a management and sales force,
proprietary billing and customer provisioning software and small business
revenue. The acquisition of DLC facilitates the introduction of commercial
services for ethnic and mid-sized business customers. If certain financial
criteria are met by April 30, 2001, we are subject to a contingent payment of
approximately $5.6 million payable in cash of approximately $0.5 million and
$5.1 million in the form of either cash or our common stock. The shares of
common stock were issued without registration pursuant to Section 4(2) of the
Securities Act.

    In March 2000, we acquired Global Villager Inc. for approximately
$0.8 million in cash and 503,872 shares of our common stock valued at
approximately $13.2 million. The shares of common stock were issued without
registration pursuant to Section 4(2) of the Securities Act.

    In March 2000, we acquired a 19.9% ownership interest in Datalink
Telecommunications Limited ("Datalink") in exchange for 200,000 of our common
shares valued at $3.92 million.

ITEM 6. SELECTED FINANCIAL DATA

    The following table presents selected historical financial data for Startec
which has been derived from our audited financial statements for the five most
recent years in the period ended December 31, 2000. The following information
should be read in conjunction with our consolidated financial statements and
notes

                                       35
<PAGE>
thereto presented elsewhere herein. See "Consolidated Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.

<TABLE>
<CAPTION>
                                                                   FOR THE YEAR ENDED DECEMBER 31,
                                                        -----------------------------------------------------
                                                          2000        1999       1998       1997       1996
                                                        ---------   --------   --------   --------   --------
                                                                (IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S>                                                     <C>         <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.........................................   $ 324,547   $276,471   $161,169   $85,857    $32,215
Cost of services.....................................     258,933    242,735    141,176    75,783     29,881
                                                        ---------   --------   --------   -------    -------
  Gross margin.......................................      65,614     33,736     19,993    10,074      2,334
General and administrative expenses..................      83,577     41,783     20,520     6,288      3,996
Selling and marketing expenses.......................      16,227     15,409      7,876     1,238        514
Depreciation and amortization........................      16,728      7,753      2,253       451        333
Loss on impairment(4)................................      50,255         --         --        --         --
                                                        ---------   --------   --------   -------    -------
  (Loss) income from operations......................    (101,173)   (31,209)   (10,656)    2,097     (2,509)
Interest income (expense), net.......................     (24,895)   (16,736)    (7,404)     (449)      (321)
Equity in losses from affiliates.....................      (1,385)      (290)        --        --         --
                                                        ---------   --------   --------   -------    -------
  (Loss) income before taxes and extraordinary
    items............................................    (127,453)   (48,235)   (18,060)    1,648     (2,830)
                                                        ---------   --------   --------   -------    -------
  Net (loss) income(1)...............................   $(128,355)  $(48,235)  $(18,574)  $ 1,619    $(2,830)
                                                        =========   ========   ========   =======    =======

Basic (loss) earnings per common share(2):
  (Loss) income before extraordinary items...........   $   (9.32)  $  (5.13)  $  (2.02)  $  0.26    $ (0.52)
  Net (loss) income(1)...............................       (9.39)     (5.13)     (2.08)     0.26      (0.52)
  Weighted average common shares
    outstanding--basic...............................      13,676      9,411      8,945     6,136      5,403
Diluted (loss) earnings per common share(2):
  (Loss) earnings before extraordinary items.........   $   (9.32)  $  (5.13)  $  (2.02)  $  0.25    $ (0.52)
  Net (loss) income(1)...............................       (9.39)     (5.13)     (2.08)     0.25      (0.52)
  Weighted average common and equivalent shares
    outstanding--diluted.............................      13,676      9,411      8,945     6,423      5,403
OTHER FINANCIAL DATA:
EBITDA(3)............................................   $ (34,190)  $(23,456)  $ (8,403)  $ 2,548    $(2,176)
Capital expenditures.................................      40,094     56,761     34,931     3,881        520
BALANCE SHEET DATA:
Cash and cash equivalents............................   $  14,875   $ 54,731   $ 81,456   $26,114    $   148
Working capital (deficit)............................     (88,619)    28,450     81,414    25,735     (6,999)
Total assets.........................................     254,010    280,631    225,982    51,530      7,327
Long term obligations, net of current portion........     158,444    177,903    165,490       461        646
Total stockholders' (deficit) equity.................     (68,674)     5,871     15,480    31,590     (6,089)
</TABLE>

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

(1) In 2000, we recognized a $902,000 extraordinary loss on the early
    extinguishment of debt. In 1998, we recognized a $514,000 extraordinary loss
    on the early extinguishment of debt.

(2) Basic earnings (loss) per common share is computed by dividing net income
    (loss) by the weighted average number of shares of common stock outstanding.
    Diluted earnings (loss) per common share is computed by dividing net income
    (loss) by the weighted average number of shares of common stock outstanding
    plus other dilutive securities.

(3) EBITDA consists of earnings (loss) before interest, income taxes, loss on
    impairment of assets, depreciation and amortization. EBITDA should not be
    considered as a substitute for income (loss) from operations, net income
    (loss), cash flow or other statement of income or cash flow data computed in
    accordance with GAAP or as a measure of a company's results of operations or
    liquidity. Although EBITDA is not a measure of performance or liquidity
    calculated in accordance with GAAP, we nevertheless believe that investors
    consider it a useful measure in assessing a company's ability to incur and
    service indebtedness.

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

    The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with the financial statements,
related notes, and other detailed information

                                       36
<PAGE>
included elsewhere in this Form 10-K. Certain information contained below and
elsewhere in this Form 10-K, including information regarding our plans and
strategy for our business, are forward-looking statements. See "Note Regarding
Forward-Looking Statements."

OVERVIEW

    We are a facilities-based provider of Internet protocol communication
services, including voice, data and Internet access. Founded in 1989, we market
our services to businesses, ethnic residential communities located in major
metropolitan areas, international long distance carriers and Internet service
provider's transacting with the world's emerging economies. Our mission is to
become a leading provider of IP communication services, including voice, data
and Internet services. Our target markets comprise of businesses and ethnic
residential customers that transact with the Asia Pacific Rim, the Middle East
and North Africa, Russia and Central Europe and Latin and South America. We
provide our services through a flexible network of owned and leased facilities,
operating and termination agreements, and resale arrangements. We have an
extensive network of IP gateways, international gateways, domestic switches, and
ownership in undersea fiber optic cables.

    Beginning in the fourth quarter of 2000, we began to modify our business
plan. The revised plan calls for a restructuring that includes 1) consolidation
of selected North American and European operations, 2) accelerated migration of
circuit switched traffic to our IP network, 3) the discontinuation of
unprofitable, low-margin business lines and 4) implementing certain cost
reduction procedures. Implementation of this plan commenced in the first quarter
of 2001. We believe these actions, combined with our recent financing
transaction as described below, position us to become EBITDA positive during
2001.

                                       37
<PAGE>
    During 2000, and in the first quarter of 2001, we eliminated approximately
400 positions globally. This number represents approximately 45% of our total
workforce. The consolidation of operations represents approximately half of the
positions we eliminated. A significant portion of this reduction related to our
decision to shift our residential customer service operations from Bethesda,
Maryland to Vancouver, Canada, where we already operate a call center facility.
Last year, we established our Vancouver presence through the acquisition of
Vancouver Telephone Company. Vancouver's diverse ethnic population provides a
large pool of highly qualified potential employees to serve as in-language
customer service representatives, and the shift will allow us to take advantage
of lower personnel costs and overhead. We plan to use our Bethesda call center
facilities to provide customer service support for our managed network services
targeting business customers. We also intend to continue our call center
operations in Guam, France and Germany.

    We are also consolidating our UK, France, Germany and Poland operations to
focus on the development of our European business customer base. Germany will
become the headquarters for our European customer service operations. Startec
UK, France and Germany will discontinue non-profitable product lines and focus
on growing our existing profitable product line and increasing penetration into
the business customers segment.

    In 2000, we began eliminating the low margin circuit switched wholesale
business to focus on the higher margin VoIP business. If we are successful in
fully transitioning traffic to our IP network, the elimination of circuit
switched business would result in a reduction of interconnect charges. This will
also free up port capacity for business customers without significant increases
in capital expenditures. Our strategy is to increase our focus on business
customers, who generally have higher monthly revenue, generate higher margins
and tend to "churn" less frequently than residential customers.

    As a result of our review of operations and projected profitability, we
determined that approximately $50.3 million of long-lived assets and investments
were impaired. This noncash loss relates to our decision to exit certain
business lines including web portals and other investments in emerging companies
that we concluded were impaired based upon their probable future undiscounted
cash flows. Our decision to exit the carrier switched business and certain
business lines in Europe and Asia together with the capital market downturn in
the telecommunications sector resulted in additional provisions of bad debts of
approximately $8 million in the fourth quarter.

LIQUIDITY AND CAPITAL RESOURCES

    We had approximately $14.9 million of unrestricted cash and cash equivalents
and an additional $9.9 million of restricted cash and pledged securities as of
December 31, 2000. We obtained $15 million in new funding from Allied Capital
Corporation, one of our existing creditors. The transaction is structured as a
two year revolving accounts receivable purchase facility. Of the $15 million, we
received net proceeds of $14.3 million, approximately $7.625 million of which
was used to pay NTFC Capital Corporation overdue loan payments, prepayments and
a commitment fee of $125,000. Based on our internal projections, we expect this
new funding will allow us to remain funded through the third quarter of 2001.

    Currently, there is no availability under our credit facility with NTFC. If
we are unable to restructure our senior notes, we will require additional
financing to meet the November 2001 interest payment on our senior notes. We
have classified the outstanding amounts under our credit and vendor facilities
as current due to violation of certain covenants. The above factors raise
substantial doubt about our ability to continue as a going concern. We prepared
our financial statements on the basis that we will continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should we be unable to
continue as a going concern.

                                       38
<PAGE>
    We have engaged Jefferies & Company, Inc. as our financial advisor to assist
in evaluating alternatives to strengthen our capital structure, including the
potential restructuring of our $160 million, 12% senior notes due 2008. We are
in discussions with other investors to obtain additional financing. There can be
no assurance such new financing will be available on terms that we find
acceptable or that we will be able to restructure the senior notes. In the event
that we are unable to obtain such additional financing and restructure the
notes, we will be required to limit or curtail our operations, and we may be
required to sell assets to the extent permitted by our debt facilities. Even
with such reductions, we believe that if we cannot restructure the terms of the
senior notes or raise additional financing, it is unlikely that we will make the
November 2001 interest payment. Furthermore, if we cannot restructure the senior
notes, there will be a material and adverse effect on our financial condition,
to the extent that a restructuring, sale or liquidation will be required, in
whole or in part.

RESULTS OF OPERATIONS

    Our annual revenues have increased more than nine-fold over the last five
years from approximately $32.2 million for the year ended December 31, 1996 to
approximately $324.6 million for the year ended December 31, 2000. We reported a
2000 net loss of $128.4 million, or $9.39 per common share compared to a net
loss of $48.2 million, or $5.13 per common share in 1999. The number of our
residential customers increased from 10,675 customers as of December 31, 1996 to
670,634 customers as of December 31, 2000. To achieve economies of scale in our
network operations and balance our residential international traffic, in late
1995, we began marketing our excess network capacity to international carriers
seeking competitive rates and high quality capacity. Consistent with our
intention of curtailing the circuit switched carrier business; we have reduced
the number of our carrier customers to 87 at December 31, 2000 from 105 at
December 31, 1999. For the year ended December 31, 2000, carrier customers
accounted for approximately 62% of our net revenues versus 72% for the year
ended December 31, 1999.

    A large majority of our revenues for the past three fiscal years have been
derived from calls originated within the United States and terminated outside
the United States. The percentages of net revenues attributable to traffic
terminating on a region-by-region basis are set forth in the table below.

<TABLE>
<CAPTION>
                                                                FOR THE YEAR ENDED
                                                                   DECEMBER 31,
                                                       ------------------------------------
                                                         2000          1999          1998
                                                       --------      --------      --------
<S>                                                    <C>           <C>           <C>
Asia Pacific Rim.....................................    28.5%         37.2%         44.8%
Middle East/North Africa.............................    11.7          15.7          18.8
Sub-Saharan Africa...................................     7.1           9.6           8.1
Eastern Europe.......................................     8.5           9.1           9.6
Western Europe.......................................    10.8           4.5           1.7
North America........................................    14.0           2.8           3.5
South America and Other..............................    19.4          21.1          13.5
                                                        -----         -----         -----
Total................................................   100.0%        100.0%        100.0%
                                                        =====         =====         =====
</TABLE>

    Our cost of services consists of origination, transmission, termination and
Internet connectivity expenses. Origination costs include the amounts paid to
local exchange carriers ("LECs"), and in areas where we do not have our own
network facilities, to other telecommunication network providers for originating
calls ultimately carried to our IP gateways. Transmission expenses are fixed
month-to-month payments associated with capacity on domestic and international
leased lines, satellites and undersea fiber optic cables. Leasing this capacity
subjects us to price changes that are beyond our control and to transmission
costs that are higher than transmission costs on our own network. As we build
our own transmission capacity, the risks associated with price fluctuations and
the relative costs of transmission are expected to decrease; however, fixed
costs will increase.

                                       39
<PAGE>
    Termination expenses consist of variable per minute charges paid to foreign
PTTs and alternative carriers to terminate our international long-distance
traffic. Among our various foreign termination arrangements, we have entered
into operating agreements with a number of foreign PTTs, under which
international long distance traffic is both delivered and received. Under these
agreements, the foreign carriers are contractually obligated to adhere to the
policy of the FCC, whereby traffic from the foreign country to the United States
is routed through U.S.-based international carriers like us. This traffic is in
the same proportion as traffic carried into the foreign country from the United
States ("return traffic"). Mutually exchanged traffic between foreign carriers
and us is reconciled through a formal settlement arrangement at agreed upon
rates. We record the amount due to the foreign PTT as an expense in the period
the traffic is terminated. When we receive return traffic in a future period, we
generally realize a higher gross margin on the return traffic as compared to the
lower gross margin on the outbound traffic. Revenue recognized from return
traffic was approximately $2.2 million or 0.7% in 2000, $824,000 or 0.3% in
1999, and $2.6 million or 1.6% of net revenues in 1998. There can be no
assurance that traffic will be delivered back to the United States or that
changes in future settlement rates, allocations among carriers or levels of
traffic will not adversely affect net payments received and revenues recorded by
us.

    In addition to operating agreements, we utilize alternative termination
arrangements offered by third party vendors. We seek to maintain vendor
diversity for countries where traffic volume is high. These vendor arrangements
provide service on a variable cost basis subject to volume. These prices are
subject to changes, generally upon seven days notice.

    Internet access expenses include amounts paid to tier one and tier two
Internet backbone providers. Internet backbone providers provide broadband
connectivity to Startec's Network Access Points (SNAP). This enables us to offer
our business and residential customers with high quality internet access, web
hosting and other advanced IP services.

    As the international telecommunications marketplace has been deregulated,
per-minute prices have fallen and, as a consequence, related per-minute costs
for these services have also fallen. As a result, we have not been adversely
affected by price reductions, although there can be no assurance that this will
continue. We expect selling, general and administrative costs to increase as we
develop our infrastructure to manage higher business volume.

    Although consolidated operations were EBITDA negative in 2000, we believe
that our revised business plan positions us to become EBITDA profitable during
2001. In addition, we believe the restructuring we have undertaken by us in 2001
will put us on a trajectory to be EBITDA positive on a global basis for the
foreseeable future.

                                       40
<PAGE>
    The following table sets forth certain financial data as a percentage of net
revenues for the periods indicated.

<TABLE>
<CAPTION>
                                                                FOR THE YEAR ENDED
                                                                   DECEMBER 31,
                                                       ------------------------------------
                                                         2000          1999          1998
                                                       --------      --------      --------
<S>                                                    <C>           <C>           <C>
Net revenues.........................................   100.0%        100.0%        100.0%
Cost of services.....................................    79.8          87.8          87.6
                                                        -----         -----         -----
  Gross margin.......................................    20.2          12.2          12.4
General and administrative expenses..................    25.8          15.1          12.7
Selling and marketing expenses.......................     5.0           5.6           4.9
Depreciation and amortization........................     5.2           2.8           1.4
Loss on impairment of assets.........................    15.5            --            --
                                                        -----         -----         -----
  Loss from operations...............................   (31.3)        (11.3)         (6.6)
Interest expense.....................................    (8.5)         (7.9)         (8.0)
Interest income and other expense, net...............     0.4           1.6           3.4
                                                        -----         -----         -----
  Loss before taxes and extraordinary item...........   (39.4)%       (17.5)%       (11.2)%
                                                        =====         =====         =====
</TABLE>

    2000 COMPARED TO 1999

    NET REVENUES.  Net revenues for the year ended December 31, 2000 increased
approximately $48.0 million, or 17.4% to approximately $324.5 million from
$276.5 million for the year ended December 31, 1999. Revenues from North
American operations were $289.7 million or 89.3% of the total revenues in 2000
compared to $263.6 million in 1999. Revenues from European operations were
$27.5 million or 8.5% of the total revenues in 2000 compared to $7.2 million in
1999. Revenues from Asian operations were $7.3 million or 2.2% of the total
revenues in 2000 compared to $5.7 million in 1999. Residential revenue increased
in comparative periods by approximately $101.8 million or 128.1%, to
approximately $181.3 million for 2000 from approximately $79.5 million in 1999.
The increase in residential revenue is due to an increase in sales to ethnic
residential customers. Residential customers grew to over 670,000 for
December 2000 from approximately 303,000 for December 1999. This represents a
121.1% increase in residential customers over 1999. The number of carrier
customers decreased to 87 in 2000 from 105 in 1999. Circuit switched carrier
revenue for 2000 declined approximately $53.7 million, or 27.3%, to
approximately $143.3 million from approximately $197.0 million for 1999. The
decrease in carrier revenues is due to the execution of our strategy to
consciously exit the low margin circuit switched carrier segment and focus on
the higher margin VoIP traffic. We grew our VoIP wholesale business to
$49.5 million in 2000. The VoIP revenues in 1999 were negligible. This enabled
us to optimize the capacity of our global IP network.

    GROSS MARGIN.  Gross margin increased approximately $31.9 million to
approximately $65.6 million for the year ended December 31, 2000 from
approximately $33.7 million for the year ended December 31, 1999. Gross margin
was $59.1 million or 20.4% of net revenues for our North American operations in
2000. Gross margin was $4.0 million or 14.5% of net revenues for our European
operations in 2000. Gross margin was $2.5 million or 34.2% of net revenues for
our Asian operations in 2000. The majority of this increase can be attributed to
the higher gross margins we experienced from operations in our IP segment.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
year ended December 31, 2000 increased approximately $41.8 million or 100.0% to
approximately $83.6 million from $41.8 million for the year ended December 31,
1999. The increased amount of payroll and related general and administrative
expenses associated with acquisitions completed in 2000 represented
approximately $8.3 million of the increase. Additionally, we recognized
approximately $8.0 million in

                                       41
<PAGE>
reserves in the fourth quarter for the carrier circuit switched business that we
are in the process of exiting, we provided a valuation reserve against a
$3.0 million loan to BCH Holding Co., Inc., and $2.4 million was reserved for
receivables related to European and Hong Kong product lines that we are exiting.
The remainder of the increase from the prior year was due to the implementation
of our expansion plans during the first 8 months of the year. As a percentage of
net revenues, general and administrative expenses increased to 25.8% in 2000
from 15.1% in 1999 due to our increased reserves. As a percentage of revenues,
general and administrative expenses vary considerably between our reporting
segments.

    In the first quarter of 2001, we incurred substantial additional severance
costs associated with implementing our revised business plan, but we expect the
overall decrease in personnel will result in savings for all of fiscal 2001.

    SELLING AND MARKETING.  Selling and marketing expenses for the year ended
December 31, 2000 increased approximately $0.8 million or 5.2% to approximately
$16.2 million from approximately $15.4 million for the year ended December 31,
1999. As a percentage of net revenues, selling and marketing expenses decreased
to 5.0% from 5.6% in the respective periods. The increase is primarily due to
our efforts to market to new customer groups in North America and developing new
regions in Europe and Asia.

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
the year ended December 31, 2000 increased to approximately $16.7 million from
approximately $7.8 million for the year ended December 31, 1999, due to
increases in capital expenditures pursuant to our strategy of expanding our
network infrastructure and due to the increase in capital assets associated with
acquisitions completed in fiscal years 2000 and 1999.

    LOSS ON IMPAIRMENT.  Loss on impairment for the year ended December 31, 2000
was $50.3 million. The loss on impairment was comprised of the following items.

    SIGMANET AND GLOBAL VILLAGER.  In the fourth quarter of 2000, in our efforts
to reduce operating losses and conserve cash, we decided to abandon certain of
our web portal services. As a result we discontinued our web portal operations
to the Asian Indian community that was operating under the name of IAOL and our
bilingual Chinese/English Web community, DragonSurf.com. We obtained IAOL and
DragonSurf.com in December 1999 and March 2000, respectively, through the
acquisitions of SigmaNet and Global Villager. As we could not continue to fund
the operating cash needs of the web portals and we did not foresee a near term
improvement in the cash flows of the respective portals, we decided to shut down
their operations. As a result, we recognized an impairment charge of
approximately $17.4 million for the unamortized intangibles and goodwill of IAOL
and DragonSurf.com.

    SUNRISE.  Pursuant to an agreement with Sunrise World Communications, Inc.
("Sunrise") dated September 29, 2000, we acquired a 40% equity interest in
Sunrise and a 5 year carrier services agreement in exchange for certain VoIP
termination facilities and the forgiveness of accounts receivable due to us from
Sunrise. Sunrise provides Internet communications service between the United
States and certain emerging countries. During the first nine months of 2000, we
earned revenue of approximately $24.5 million from terminating traffic on behalf
of Sunrise. The corresponding receivable together with certain other deposits
and VoIP termination facilities, with a carrying value of $4.3 million were
exchanged for Sunrise common stock and a favorable carrier services agreement.
We valued the investment in Sunrise at approximately $29 million based on the
carrying value of assets exchanged and as supported by a third party appraisal
for the value of Sunrise's equity. The transaction was negotiated at a time when
Internet communications entities were highly valued in the market place. Given
the dramatic downturn in market valuations and liquidity concerns facing
telecommunication entities, we expensed the investment in Sunrise during the
fourth quarter. While we

                                       42
<PAGE>
continue to believe that the carrier services agreement provided by Sunrise is
valuable to us, there can be no assurance that these services will continue to
be available to us over the term of the agreement.

    ASIAN TELECOMMUNICATIONS BUSINESS.  Given our historical operating losses,
current liquidity concerns and a significant decline in the market value of our
common stock, we reviewed our long-lived assets including identifiable
intangible assets and goodwill for impairment. We performed our review based
upon projected probable undiscounted cash flows for our respective operating
regions. We concluded that the probable undiscounted cash flows for our Asian
telecommunications business would be less than the carrying value of the
respective long-lived assets. This reflects our reduction in force in our Hong
Kong operations. We recognized an impairment charge of $3.3 million to reduce
long-lived assets and goodwill with a carrying value of approximately
$16 million to estimate fair value. There were no losses on impairment for the
year ended December 31, 1999.

    INTEREST EXPENSE.  Interest expense for the year ended December 31, 2000
increased to approximately $27.7 million from approximately $21.8 million for
the year ended December 31, 1999, as a result of the interest charged on the
proceeds from our bank and vendor financing facilities and interest on the
senior notes.

    INTEREST INCOME.  Interest income for 2000 decreased to $2.8 million from
$5.1 million in 1999 as we redeemed the pledged securities to pay the interest
for the senior notes.

    OTHER INCOME (EXPENSE).  Other expense was $1.4 million for 2000 compared to
$290,000 in 1999, primarily as a result of the operating losses incurred by
companies in which we own an equity interest.

    EXTRAORDINARY ITEM.  Extraordinary losses were $0.9 million in connection
with the early extinguishments of our Loan and Security Agreement with Congress
Financial Corporation ("CFC"). This amount consisted of a one-time payment to
CFC and unamortized deferred financing costs.

    NET LOSS.  The net loss was approximately $128.4 million or $9.39 per
diluted share in 2000 as compared to a net loss of approximately $48.2 million
or $5.13 per diluted share in 1999.

    1999 COMPARED TO 1998

    NET REVENUES.  Net revenues for the year ended December 31, 1999 increased
approximately $115.3 million, or 71.5% to approximately $276.5 million from
$161.2 million for the year ended December 31, 1998. Revenues from North
American operations were $263.6 million or 95% of the total revenues in 1999
compared to $160.8 million or 99% of the total revenues in 1998. Residential
revenue increased in comparative periods by approximately $25.8 million or
48.1%, to approximately $79.5 million for 1999 from approximately $53.7 million
in 1998. The increase in residential revenue is due to an increase in sales to
ethnic residential customers. Residential billers grew to over 303,000 for
December 1999 from approximately 122,000 for December 1998. This represents a
148% increase in residential customers over 1998. The number of carrier
customers grew to 105 in 1999 from 53 in 1998. Carrier revenue for 1999
increased approximately $89.5 million, or 83%, to approximately $197 million
from approximately $107.5 million for 1998. The increase in carrier revenues is
due to the execution of our strategy to optimize our capacity on our facilities,
which has resulted in sales to additional carrier customers and increased sales
to existing carrier customers.

    GROSS MARGIN.  Gross margin increased approximately $13.7 million to
approximately $33.7 million for the year ended December 31, 1999 from
approximately $20 million for the year ended December 31, 1998. Gross margin was
$31.7 million or 12% for our North American operations in 1999. Gross margin is
impacted by several key factors: first, positively through the continued
implementation of our operating agreements for termination of our call traffic
volume. Second, due to increase in our on-net traffic by utilizing our expanded
capacity thereby reducing the origination and

                                       43
<PAGE>
transport cost. Lastly, the lease cost of the network for Europe to build
customer and traffic volume has had negative implications.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
year ended December 31, 1999 increased approximately $21.3 million or 104% to
approximately $41.8 million from $20.5 million for the year ended December 31,
1998. The increase was primarily due to an increase in personnel to 774 at
December 31, 1999 from 409 at December 31, 1998, and to a lesser extent, an
increase in billing processing fees as a result of the increased residential
customer base. The employee base of 774 at December 31, 1999 consists of
approximately 30% of the employees based outside of the US and are primarily
focused on business opportunities in Asia and Europe and approximately 10% of
the employees focused on our Internet or eStart activities. As a percentage of
net revenues, general and administrative expenses increased to 15.1% in 1999
from 12.7% in 1998 due to our continued worldwide development and expansion.

    SELLING AND MARKETING.  Selling and marketing expenses for the year ended
December 31, 1999 increased approximately $7.5 million or 96% to approximately
$15.4 million from approximately $7.9 million for the year ended December 31,
1998. As a percentage of net revenues, selling and marketing expenses increased
to 5.6% from 4.9% in the respective periods. The increase is primarily due to
our efforts to market to new customer groups in North America and developing new
regions in Europe and Asia.

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
the year ended December 31, 1999 increased to approximately $7.8 million from
approximately $2.3 million for the year ended December 31, 1998, primarily due
to increases in capital expenditures pursuant to our strategy of expanding our
network infrastructure.

    INTEREST EXPENSE.  Interest expense for the year ended December 31, 1999
increased to approximately $21.8 million from approximately $12.8 million for
the year ended December 31, 1998, as a result of the interest charged on the
proceeds from our bank and vendor financing facilities and interest on the high
yield debt.

    INTEREST INCOME.  Interest income for 1999 decreased to $5.1 million from
$5.4 million in 1998 as we redeemed the pledged securities to pay the interest
for the high yield debt.

    OTHER INCOME (EXPENSE).  Other expense was $290,000 for 1999 compared to
zero in 1998, primarily as a result of the operating losses incurred by
companies in which we own an equity interest.

    NET LOSS.  The net loss was approximately $48.2 million or $5.13 per diluted
share in 1999 as compared to a net loss of approximately $18.6 million or $2.08
per diluted share in 1998.

    CAPITAL ACQUISITIONS AND EXPENDITURES

    In the first quarter of 2000, we acquired several VoIP termination
facilities from various vendors for approximately $2.2 million in cash and
approximately $1.9 million in common stock. The purchase price was allocated to
the net assets acquired based upon the estimated fair value of such assets,
which resulted in an allocation of approximately $4.1 million to goodwill.

    In 2000, we paid $2.4 million in cash and $25.5 million in common stock for
the acquisition of VTC, DLC Enterprises Inc. ("DLC"), and Global Villager, which
were all accounted for as purchases.

    During 2000 and 1999, we used approximately $73.9 million and
$74.1 million, respectively, in investing activities for continued expansion of
our network including the deployment of multiple switches, POPs and IP gateways,
the purchase of capacity on fiber optic cables, Indefeasible Rights of Usage
("IRUs"), acquisitions and the development of Internet-related services. We
capitalized approximately $4.6 million and $2.1 million in 2000 and 1999,
respectively, pursuant to the Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". Capital
expenditures for 2000 and 1999 were $40.1 million and $56.8 million,
respectively.

                                       44
<PAGE>
    During 1999, we paid $4.6 million in cash and $12.6 million in common stock
for SigmaNet Network Corporation ("SigmaNet"), Worldwide Telecommunications
Company Limited, Infinity Telecommunications Limited and Pacific Direct, Inc.
(collectively "Worldwide Group") and Phone Systems and Network, Inc. of France
("PSN").

    In March 2000, we acquired a 19.9% ownership interest in Datalink
Telecommunications Limited ("Datalink") in exchange for 200,000 shares of our
common stock valued at $3.92 million. Datalink is a telecommunications provider
incorporated in Canada that owns and operates a fiber optic telecommunications
network to emerging countries. During the second quarter of 2000, we received a
$375,000 note payable from Datalink due within one year at 12% interest per
year. At year-end, we provided a valuation reserve against the note and recorded
the expense within general and administrative expenses within the accompanying
statements of operations.

    In May 1999, we entered into an agreement to acquire up to a 49% fully
diluted ownership interest in Dialnet Communications Limited ("Dialnet") for up
to $1.6 million. Dialnet provides value added voice and data services in India.
The agreement, which became effective July 1999 upon approval by the government
of India, we made a total investment of $1 million, and also extended $600,000
in credit to Dialnet. Through July 2002, we can require that the face amount of
Dialnet's outstanding debt be converted into common stock of Dialnet. As of
December 31, 2000, we had an equity investment of $1.3 million in Dialnet and
$600,000 outstanding under the loan.

    In February 1999, we acquired a 20% equity ownership interest in BCH Holding
Company, Inc. ("BCH") with operations in Poland, for approximately
$1.2 million. Concurrent with the acquisition, we received a $2.5 million note
payable from BCH convertible at our option into common shares equivalent to an
additional 28% fully diluted ownership interest of BCH. BCH is a reseller of
international voice and a licensed Internet service provider in Poland. During
the second and third quarter of 2000, we extended an additional $0.5 million to
BCH. The investment in BCH and the note payable from BCH are included in
intangibles and other long-term assets in the accompanying condensed
consolidated balance sheet. As of December 31, 2000, we had provided a valuation
reserve against the entire $3.0 million loan.

    Our business strategy contemplates aggregate capital expenditures (including
capital expenditures, working capital and other general corporate purposes) of
approximately $4.0 million to $5.0 million through December 31, 2001 to be spent
on our VoIP infrastructure.

    Although we intend to implement the capital spending plan described above,
it is possible that unanticipated business opportunities may arise which we may
conclude are more favorable to our long-term prospects than those contemplated
by the current capital spending plan.

    CAPITAL TRANSACTIONS

    In November 2000, we issued 1,885,000 shares of voting common stock for net
proceeds of approximately $6.7 million through a private placement. We did not
register these shares for resale within the prescribed period following the
issuance of such shares. According to the terms of the private placement, we
were required to issue 188,500 additional shares.

    In May 2000, we issued 1,377,800 shares of unregistered common stock for net
proceeds of approximately $15.4 million in a private transaction. We
subsequently registered the shares for resale.

    In June 2000, we entered into a five-year term loan with a principal balance
of $50 million with NTFC Capital Corporation, a financing arm of GE Capital
("NTFC Facility"). This loan represents an increase of $15 million over the
original $35 million facility entered into in December 1998 with NTFC. Advances
under the original $35 million mature on January 31, 2004 and advances under the
$15 million increase mature on May 31, 2005. The NTFC Facility may be used to
finance the continued expansion of our Internet initiatives and transport
business, additional development of Wireless

                                       45
<PAGE>
Applications Protocol, applications of our Internet portals, expansion of VoIP
services, acquisitions and working capital for general corporate purposes. The
outstanding borrowings on the NTFC Facility carry interest rates ranging from
8.91% to 10.65%, with a weighted average interest rate of 10.2%. Principal and
interest payments are due monthly. Under the terms of the NTFC Facility, we are
subject to certain financial and operational covenants, including but not
limited to minimum cash levels of $20 million during 2001, minimum EBITDA,
restrictions on our ability to pay dividends and level of indebtedness. As of
December 31, 2000 and 1999, approximately $45.9 million and $21.0 million,
respectively, was outstanding under the NTFC Facility. The NTFC Facility is
secured by a pledge of all shares of Startec Global Operating Company
("Operating Company") that we own, and by a first priority security interest in
all of the Operating Company's assets. As of March 31, 2001, we were not in
compliance with the NTFC covenants and we have classified amounts outstanding as
current in the accompanying Consolidated Balance Sheets.

    In April 2001 in connection with the Allied financing transactions described
below, we amended the NTFC Facility. Pursuant to the amendment, NTFC agreed to
waive certain defaults and revise certain financial covenants. In connection
with this amendment, we used $7.625 million of the proceeds from the revolving
accounts-receivable purchase facility to pay NTFC overdue loan payments,
prepayments and a commitment fee of $125,000. We also agreed to issue a stock
purchase warrant to NTFC to purchase 25,000 shares of our common stock upon any
restructuring of our Senior Notes.

    In May 2000, we entered into vendor financing facility for up to
$12.0 million from Coast Business Credit Corporation ("Coast Facility") due in
Novemer 2002. The Coast Facility may be used to satisfy various operating
liabilities. The interest rate on the Coast facility is the Prime Rate plus
3.5%, with a floor of 9%. As of December 31, 2000, approximately $5.8 million
was outstanding under the Coast Facility.

    In June 2000, we entered into a $20 million unsecured facility from Allied
Capital Corporation ("Allied Facility") with a balloon payment due at maturity
in 2005. The Allied Facility may be used for general corporate purposes,
including, without limitation, the purchase of telecommunications assets. The
Allied Facility bears interest at the fixed rate of 15% per annum and is payable
semi-annually, in arrears, at the fixed rate of 10% per annum. In connection
with entering into the Allied Facility, we issued a stock purchase warrant to
Allied pursuant to which, at any time and from time to time until June 30, 2005,
Allied is entitled at its sole option to purchase an aggregate of 125,000 shares
of common stock at an exercise price of $11.21 per share, subject to certain
antidilution adjustments. Under the terms of the Allied Facility, we are subject
to certain financial and operational covenants, including but not limited to
restrictions on our ability to pay dividends and level of indebtedness. As of
December 31, 2000, $20.4 million was outstanding under the facility. After
July 1, 2002, we can prepay all or part of this loan without penalty. As
amended, amounts outstanding are also subject to acceleration upon a material
adverse change in the business.

    In April 2001 two of the wholly owned subsidiaries of Startec Global
Communications Corporation, Startec Global Operating Company and Startec Global
Licensing Company, together borrowed an aggregate of $20 million from Allied,
which funds were distributed to the parent company as a dividend. The proceeds
were used to repay outstanding indebtedness under the Allied Facility. As a
result, the parent company no longer has any indebtedness to Allied, but
Operating and Licensing are jointly indebted to Allied for $20 million,
$10 million of which is secured by their accounts receivable and $10 million of
which is unsecured. This indebtedness bears interest at a fixed rate of 15% per
annum, payable semi-annually in arrears, at the fixed rate of 10% per annum. A
balloon payment is due at maturity in 2005, but the indebtedness may be prepaid
at any time without penalty. In addition, we are subject to certain financial
and operational covenants, including limitations on our ability to incur
additional indebtedness.

                                       46
<PAGE>
    In addition, Operating and Licensing entered into a two-year revolving
accounts-receivable purchase facility with Allied, resulting in net proceeds of
approximately $14.3 million, approximately $7.625 million of which was used to
pay NTFC overdue loan payments, prepayments and a commitment fee of $125,000.
The proceeds of this purchase facility may be used for general corporate
purposes. Under the purchase facility, Allied purchased an interest in the
accounts receivable of Operating and Licensing. The annual discount rate payable
with respect to the purchase price is 16%. During the two-year term of the
facility, Allied is obligated to use proceeds from collection of the accounts
receivable to purchase additional interests in other accounts receivable up to a
maximum aggregate amount of $15 million, assuming that we remain in compliance
with the financial and other covenants pursuant to this facility.

    In June 2000, we repaid and terminated a three-year Loan and Security
Agreement with Congress Financial Corporation ("CFC Facility") two years ahead
of the original term. Extraordinary losses of approximately $902,000 incurred
with this extinguishment consisted of a one-time payment to Congress Financial
Corporation and unamortized deferred financing costs.

    In December 1999, we issued 1,875,000 shares of voting common stock for net
proceeds of $29.0 million through a private placement. The shares were
subsequently registered in January 2000.

    In July 1999, we entered into a three-year vendor financing facility for up
to $5 million with IBM Credit Corporation ("IBM Facility"). The IBM Facility may
be used to finance the purchase of IBM hardware and software from IBM under a
capital lease structure. Borrowings under the IBM Facility bear interest at a
fixed rate equal to the average yield to maturity of the five-year Treasury Note
plus a rate adjustment, which varies by the type of equipment, purchased. The
outstanding borrowings on the IBM Facility carry interest rates ranging from
6.9% to 15.4% with a weighted average interest rate of 11.8%. As of
December 31, 2000 and 1999, approximately $1.7 and $1.5 million, respectively,
was outstanding under the IBM Facility.

    In May 1999, we entered into a vendor financing facility for up to
$20 million with Ascend Credit Corporation ("Ascend Facility"). The Ascend
Facility may be used to finance equipment purchased from Ascend under a capital
lease structure. As of December 31, 2000 and 1999, approximately $1.8 million
and $2.3 million, respectively, bearing interest at 8.5% was outstanding under
the facility.

    CASH FLOWS

    Our liquidity requirements arise from cash used in operating activities,
purchases of network equipment and payments on outstanding indebtedness.

    Our cash and cash equivalents decreased to approximately $14.9 million at
December 31, 2000 from approximately $54.7 million at December 31, 1999. Net
cash used by operating activities was approximately $64.5 million for 2000 and
$30.5 million for 1999. The decrease in cash from operations was primarily the
result of the net loss and an increase in accounts receivable, which was
partially offset by an increase in accounts payable and accrued expenses.

    Net cash used in investing activities was approximately $44.8 million,
$74.1 million and $37.6 million for 2000, 1999 and 1998, respectively. Net cash
used in investing activities for 2000 was primarily related to acquisitions and
capital expenditures made in connection with its telecommunication network
expansion.

    Net cash provided by financing activities was approximately $72.6 million,
$77.9 million and $118.4 million for 2000, 1999 and 1998, respectively. Cash
provided by financing activities for 2000 primarily resulted from the proceeds
from vendor and bank financing agreements and proceeds from the issuance of our
common stock through private placements.

    EFFECTS OF INFLATION

    Inflation is not a material factor affecting our business and has not had a
significant effect on our operations to date.

                                       47
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are exposed to market risk, including changes in interest rates, and to
foreign currency exchange rate risks. We do not hold any financial instruments
for trading purposes. We believe that our primary market risk exposure relates
the effects that changes in interest rates have on our investments and those
portions of our outstanding indebtedness that do not have fixed rates of
interest. In this regard, changes in interest rates affect the interest earned
on our investments in cash equivalents, which consist primarily of demand
deposits and money market accounts, and U.S. Government obligations which have
been purchased and pledged to make interest payments on the Senior Notes. In
addition, changes in interest rates impact the fair value of our long-term debt
obligations (including the Senior Notes). As of December 31, 2000, the fair
value of the Senior Notes was approximately $9.6 million, and the fair value of
the securities pledged to make certain interest payments on the Senior Notes was
approximately $9.8 million and $29.2 million, respectively. Changes in interest
rates also affect our borrowings under our vendor financing facilities with
NTFC, IBM and Coast. Borrowings under the NTFC Facility bear interest at a fixed
rate equal to the average yield to maturity of the five-year Treasury Note plus
an agreed-upon rate adjustment. Borrowings under the IBM Facility bears a
weighted average interest rate of 11.8% and NTFC bears interest rates ranging
from 8.91% to 10.65%. Borrowings under the Coast Facility bear interest at a
rate of prime plus 3.5%, with a floor of 9%.

    For 2000 and 1999, we experienced a translation adjustment of approximately
$1.4 million and $148,000, respectively, relating to net assets held in foreign
subsidiaries. We have not entered into foreign currency exchange forward
contracts or other derivative arrangements to manage risks associated with
foreign exchange rate fluctuations. Foreign exchange rate fluctuations exposure
may increase in the future as the size and scope of our foreign operations
increases.

    Additional information relating to the fair value of certain of our
financial assets and liabilities is included in Note 13 in the Notes to
Consolidated Financial Statements.

    We believe that our primary technology risk is the unauthorized entry into
our network systems and disruption of operations ("hacking"). We did not
experience any unauthorized entries or disruptions in 2000. We have taken steps
to prevent any hacking into our network; however, we cannot provide any
assurance that we will not be affected by potential attempts at disruption in
the future.

                                       48
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Report of Independent Public Accountants....................    48

Consolidated Statements of Operations
  for the years ended December 31, 2000, 1999 and 1998......    49

Consolidated Balance Sheets
  as of December 31, 2000 and 1999..........................    50

Consolidated Statements of Changes in Stockholders' Equity
  (Deficit)
  for the years ended December 31, 2000, 1999 and 1998......    51

Consolidated Statements of Cash Flows
  for the years ended December 31, 2000, 1999 and 1998......    52

Notes to Consolidated Financial Statements..................  53-81
</TABLE>

                                       49
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Startec Global Communications Corporation:

    We have audited the accompanying consolidated balance sheets of Startec
Global Communications Corporation and subsidiaries (the "Company," a Delaware
corporation), as of December 31, 2000 and 1999, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Startec Global
Communications Corporation and subsidiaries as of December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

    The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency and a working capital deficit. These facts
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plan in regard to these matters is also described in
Note 1. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

    Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information included in Schedule II,
Valuation and Qualifying Accounts, is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                          ARTHUR ANDERSEN LLP

Vienna, Virginia
April 13, 2001

                                       50
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                          FOR THE YEAR
                                                                       ENDED DECEMBER 31,
                                                              -------------------------------------
                                                                2000           1999          1998
                                                              ---------      --------      --------
<S>                                                           <C>            <C>           <C>
Net revenues................................................  $ 324,547      $276,471      $161,169
Cost of services............................................    258,933       242,735       141,176
                                                              ---------      --------      --------
  Gross margin..............................................     65,614        33,736        19,993
General and administrative expenses.........................     83,577        41,783        20,520
Selling and marketing expenses..............................     16,227        15,409         7,876
Depreciation and amortization...............................     16,728         7,753         2,253
Loss on impairment..........................................     50,255            --            --
                                                              ---------      --------      --------
Loss from operations........................................   (101,173)      (31,209)      (10,656)
Interest expense............................................    (27,707)      (21,813)      (12,830)
Interest income.............................................      2,812         5,077         5,426
Equity in losses from affiliates............................     (1,385)         (290)           --
                                                              ---------      --------      --------
  Loss before income taxes and extraordinary item...........   (127,453)      (48,235)      (18,060)
Income tax provision........................................         --            --            --
                                                              ---------      --------      --------
  Loss before extraordinary item............................   (127,453)      (48,235)      (18,060)
Extraordinary item--loss on early extinguishment of debt....       (902)           --          (514)
                                                              ---------      --------      --------
Net loss....................................................  $(128,355)     $(48,235)     $(18,574)
                                                              =========      ========      ========

Basic and diluted loss per common share:
Loss before extraordinary item..............................  $   (9.32)     $  (5.13)     $  (2.02)
Extraordinary item--loss on early extinguishment of debt....      (0.07)           --         (0.06)
                                                              ---------      --------      --------
Loss per common share.......................................  $   (9.39)     $  (5.13)     $  (2.08)
                                                              =========      ========      ========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       51
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                2000           1999
                                                              ---------      --------
<S>                                                           <C>            <C>
                                       ASSETS

CURRENT ASSETS:
Cash and cash equivalents...................................  $  14,875      $ 54,731
Accounts receivable, net of allowance for doubtful accounts
  of $16,809 and $3,964, respectively.......................     51,411        65,182
Accounts receivable, related party..........................        265           518
Other current assets........................................      9,070         4,876
                                                              ---------      --------
  Total current assets......................................     75,621       125,307
Property and equipment, net of accumulated depreciation and
  amortization of $24,366 and $10,422, respectively.........    123,843        94,221
Restricted cash and pledged securities......................      9,859        28,108
Investments in affiliates...................................      5,164         4,729
Intangible assets, net of accumulated amortization of $1,949
  and $952, respectively....................................     32,235        21,982
Other long-term assets......................................      7,288         6,284
                                                              ---------      --------
                                                              $ 254,010      $280,631
                                                              =========      ========

                   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable............................................  $  70,777      $ 68,095
Accrued expenses............................................     17,098         9,186
Credit facility.............................................     25,187        14,191
Vendor financing............................................     50,844         5,253
Capital lease and other obligations.........................        334           132
                                                              ---------      --------
  Total current liabilities.................................    164,240        96,857
Senior notes................................................    158,444       158,233
Vendor financing, net of current portion....................         --        19,504
Capital lease and other obligations, net of current
  portion...................................................         --           130
Minority interest...........................................         --            36
                                                              ---------      --------
  Total liabilities.........................................    322,684       274,760

Commitments and contingencies (Note 7)

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value; 40,000,000 shares authorized,
  16,365,656 and 11,354,005 shares issued and outstanding,
  respectively..............................................        164           114
Additional paid-in capital..................................    133,526        78,447
Unearned compensation.......................................       (131)         (255)
Accumulated deficit.........................................   (200,642)      (72,287)
Accumulated other comprehensive loss........................     (1,591)         (148)
                                                              ---------      --------
  Total stockholders' equity (deficit)......................    (68,674)        5,871
                                                              ---------      --------
                                                              $ 254,010      $280,631
                                                              =========      ========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       52
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                           VOTING                                                       ACCUMULATED
                                        COMMON STOCK       ADDITIONAL                                      OTHER
                                     -------------------    PAID-IN       UNEARNED      ACCUMULATED    COMPREHENSIVE
                                      SHARES     AMOUNT     CAPITAL     COMPENSATION      DEFICIT           LOSS          TOTAL
                                     --------   --------   ----------   -------------   ------------   --------------   ---------
<S>                                  <C>        <C>        <C>          <C>             <C>            <C>              <C>
Balance at December 31, 1997.......    8,812      $ 88      $ 37,221        $(241)       $  (5,478)       $    --       $  31,590
  Amortization of unearned
    compensation...................       --        --            --           51               --             --              51
  Exercise of employee stock
    options........................      129         2           260           --               --             --             262
  Shares issued in repayment of
    note payable to individual.....       24        --            44           --               --             --              44
  Warrants issued in connection
    with Senior Notes Offering.....       --        --         2,107           --               --             --           2,107
  Net loss.........................       --        --            --           --          (18,574)            --         (18,574)
  Comprehensive loss, December 31,
    1998...........................       --        --            --           --               --             --              --
                                      ------      ----      --------        -----        ---------        -------       ---------
Balance at December 31, 1998.......    8,965        90        39,632         (190)         (24,052)            --          15,480
  Net proceeds from private
    placement......................    1,875        19        29,024           --               --             --          29,043
  Exercise of employee stock
    options........................       49        --           422           --               --             --             422
  Unearned compensation pursuant to
    issuance of stock options......       --        --           283         (283)              --             --              --
  Amortization of unearned
    compensation...................       --        --            --          218               --             --             218
  Shares issued in connection with
    acquisitions (Note 14).........       --        --         4,555           --               --             --           4,555
  Issuance of common stock in
    connection with acquisitions...      465         5         4,531           --               --             --           4,536
  Net loss.........................       --        --            --           --          (48,235)            --         (48,235)
  Foreign currency translation
    adjustment.....................       --        --            --           --               --           (148)           (148)
  Comprehensive loss, December 31,
    1999...........................       --        --            --           --               --             --              --
                                      ------      ----      --------        -----        ---------        -------       ---------
Balance at December 31, 1999.......   11,354       114        78,447         (255)         (72,287)          (148)          5,871
  Net proceeds from private
    placement......................    3,232        32        22,111           --               --             --          22,143
  Exercise of employee stock
    options........................       57         1           492           --               --             --             493
  Amortization of unearned
    compensation...................       --        --            --          124               --             --             124
  Issuance of shares related to
    warrant exercise...............       20        --         1,414           --               --             --           1,414
  Issuance of common stock in
    connection with acquisitions
    (Note 14)......................    1,703        17        31,062           --               --             --          31,079
  Net loss.........................       --        --            --           --         (128,355)            --        (128,355)
  Foreign currency translation
    adjustment.....................       --        --            --           --               --         (1,443)         (1,443)
  Comprehensive loss, Decmeber 31,
    2000...........................       --        --            --           --               --             --              --
                                      ------      ----      --------        -----        ---------        -------       ---------
Balance at December 31, 2000.......   16,366      $164      $133,526        $(131)       $(200,642)       $(1,591)      $ (68,674)
                                      ======      ====      ========        =====        =========        =======       =========

<CAPTION>

                                     COMPREHENSIVE
                                          LOSS
                                     --------------
<S>                                  <C>
Balance at December 31, 1997.......
  Amortization of unearned
    compensation...................
  Exercise of employee stock
    options........................
  Shares issued in repayment of
    note payable to individual.....
  Warrants issued in connection
    with Senior Notes Offering.....
  Net loss.........................    $ (18,574)
                                       ---------
  Comprehensive loss, December 31,
    1998...........................    $ (18,574)
                                       =========
Balance at December 31, 1998.......
  Net proceeds from private
    placement......................
  Exercise of employee stock
    options........................
  Unearned compensation pursuant to
    issuance of stock options......
  Amortization of unearned
    compensation...................
  Shares issued in connection with
    acquisitions (Note 14).........
  Issuance of common stock in
    connection with acquisitions...
  Net loss.........................    $ (48,235)
  Foreign currency translation
    adjustment.....................         (148)
                                       ---------
  Comprehensive loss, December 31,
    1999...........................    $ (48,383)
                                       =========
Balance at December 31, 1999.......
  Net proceeds from private
    placement......................
  Exercise of employee stock
    options........................
  Amortization of unearned
    compensation...................
  Issuance of shares related to
    warrant exercise...............
  Issuance of common stock in
    connection with acquisitions
    (Note 14)......................
  Net loss.........................    $(128,355)
  Foreign currency translation
    adjustment.....................       (1,443)
                                       ---------
  Comprehensive loss, Decmeber 31,
    2000...........................    $(129,798)
                                       =========
Balance at December 31, 2000.......
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       53
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED
                                                                       DECEMBER 31,
                                                              -------------------------------
                                                                2000        1999       1998
                                                              ---------   --------   --------
<S>                                                           <C>         <C>        <C>
OPERATING ACTIVITIES:
Net loss....................................................  $(128,355)  $(48,235)  $(18,574)
Extraordinary item-loss on early extinguishment of debt.....        902         --        514
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization.............................     16,728      7,753      2,253
  Loss on impairment........................................     50,255         --         --
  Compensation pursuant to stock options....................        124        218         51
  Amortization of deferred debt financing costs and debt
    discounts...............................................      1,072        795        947
Changes in operating assets and liabilities, net of effect
  of acquisitions:
  Accounts receivable, net..................................     (5,530)   (23,193)   (22,315)
  Accounts receivable, related party........................        253        166       (307)
  Accounts payable..........................................       (881)    34,237     13,248
  Accrued expenses..........................................      6,524      2,158        745
  Other.....................................................     (5,565)    (4,417)    (2,039)
                                                              ---------   --------   --------
      Net cash used in operating activities.................    (64,473)   (30,518)   (25,477)
                                                              ---------   --------   --------
INVESTING ACTIVITIES:
Acquisitions................................................     (4,648)   (17,298)    (2,648)
Purchases of property and equipment.........................    (40,094)   (56,761)   (34,931)
Sale of property and equipment..............................        424         --         --
Investments in affiliates...................................       (500)        --         --
                                                              ---------   --------   --------
      Net cash used in investing activities.................    (44,818)   (74,059)   (37,579)
                                                              ---------   --------   --------
FINANCING ACTIVITIES:
Proceeds from Senior Notes and Warrants Offering............         --         --    160,000
Proceeds from sale of pledged securities....................     17,854     19,200      8,261
Proceeds from vendor financing..............................     40,542     18,579      8,885
Proceeds from private placements............................     22,143     29,043         --
Proceeds from credit facility...............................    105,257     93,377         --
Net proceeds from issuance of common stock..................        757        422        262
Investments in pledged securities...........................         --         --    (52,417)
Payments of debt financing costs............................     (1,353)      (400)    (6,222)
Repayments of credit facility...............................   (108,270)   (79,186)        --
Repayments of vendor financing..............................     (6,899)    (2,707)        --
Repayments under capital lease obligations..................       (596)      (476)      (371)
                                                              ---------   --------   --------
      Net cash provided by financing activities.............     69,435     77,852    118,398
                                                              ---------   --------   --------
(Decrease) increase in cash and cash equivalents............    (39,856)   (26,725)    55,342
Cash and cash equivalents, beginning of year................     54,731     81,456     26,114
                                                              ---------   --------   --------
Cash and cash equivalents, end of year......................  $  14,875   $ 54,731   $ 81,456
                                                              =========   ========   ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid...............................................  $  26,263   $ 20,981   $  9,408
Income tax paid.............................................         --         --         10
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Equipment acquired under capital lease......................  $      --   $     --   $     84
Note payable to individual converted to common stock........         --         --         44
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       54
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    ORGANIZATION

    Startec Global Communications Corporation (the "Company"), is a
facilities-based provider of Internet Protocol ("IP") communication services,
including voice, data and Internet access. Founded in 1989, the Company markets
its services to businesses, ethnic residential communities located in major
metropolitan areas, international long distance carriers and Internet service
providers transacting with the world's emerging economies. The Company's mission
is to become a leading provider of IP communication services, including voice,
data and Internet services. The Company's target markets comprise of businesses
and ethnic residential customers that transact with the Asia Pacific Rim, the
Middle East and North Africa, Russia and Central Europe and Latin and South
America. The Company provides services through a flexible network of owned and
leased facilities, operating and termination agreements, and resale
arrangements. The Company has an extensive network of IP gateways, international
gateways, domestic switches, and ownership in undersea fiber optic cables.

    GOING CONCERN AND OTHER RISK FACTORS

    The Company has devoted substantial resources to the buildout of its
network, deployment of its Internet initiatives, and the expansion of its
marketing programs and strategic acquisitions. As a result, the Company
experienced operating losses and negative cash flows from operations in each of
the last three years. These losses and negative cash flows are expected to
continue in the future. During the first quarter of 2001, the Company has
substantially reduced its work force and consolidated its administrative
functions previously located in Bethesda, Maryland to the Company's operations
center in Potomac, Maryland. Additionally, the Company has curtailed its
operations in Europe and Hong Kong. Although these reductions in force will
result in severance and other termination costs in the first quarter of 2001,
management believes these actions will result in significant cost savings in
2001. Additionally, management plans to substantially curtail capital
expenditures in 2001. However, there can be no assurance that the Company's
operations will become profitable or will produce positive cash flows. As of
December 31, 2000, the Company's current liabilities were in excess of current
assets by approximately $88.6 million due in part to the current classification
of approximately $76 million of debt outstanding under its credit and vendor
financing agreements (see Note 6).

    In April 2001, the Company entered into a twenty-four month accounts
receivable purchase transaction with Allied Capital Corporation ("Allied"),
resulting in net proceeds of approximately $7.375 million after paying certain
loan payments, prepayments and a commitment fee to NTFC Capital Corporation
("NTFC"). If the Company cannot raise additional financing or restructure its
senior notes, it is unlikely that the Company will be able to make its
November 2001 interest payment on the Company's senior notes. The Company is in
discussions with its lenders to obtain additional debt financing and with
holders of its senior notes to restructure the indebtedness outstanding under
the senior notes. There can be no assurance that such new financing will be
available on terms management finds acceptable or at all, or that management
will be able to restructure the senior notes. In the event that the Company is
unable to obtain such additional financing or restructure the senior notes, it
will be required to further limit or curtail its operations, and the Company may
resort to selling assets to the extent permitted by its debt facilities. Even
with such reductions, management believes that if the Company cannot restructure
the terms of the senior notes or raise additional financing, it is unlikely that
the Company will make the November 2001 interest payment. Furthermore, if the
Company cannot restructure the senior notes, there will be a material and
adverse effect on the financial condition of the Company, to the extent that a
restructuring, sale or liquidation of the

                                       55
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Company will be required in whole or in part. The above factors raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
On April 5, 2001, the Company received written notification from the Nasdaq
Listing Qualifications Department, stating that the Company's common stock no
longer met the requirements for continued listing. (See Note 18.)

    As part of management's plan to improve operating performance, the Company
is accelerating its migration away from circuit switched traffic which accounted
for approximately $143 million of the Company's 2000 net revenues. The Company's
plan is to generate more traffic for its own IP network with a goal of
generating higher margins. While there can be no assurance that higher gross
margins can be achieved, the Company may experience a decrease in net revenues.

    The Company is subject to various risks in connection with the operation of
its business. These risks include, but are not limited to, dependence on
operating agreements with foreign partners, significant foreign and U.S.-based
customers and suppliers, availability of transmission facilities, U.S. and
foreign regulations, international economic and political instability,
dependence on effective billing and information systems, customer attrition, and
rapid technological change. Many of the Company's competitors are significantly
larger and have substantially greater financial, technical, and marketing
resources than the Company; employ larger networks and control transmission
lines; offer a broader portfolio of services; have stronger name recognition and
loyalty; and have long-standing relationships with the Company's target
customers. In addition, many of the Company's competitors enjoy economies of
scale that can result in a lower cost structure for transmission and related
costs, which could cause significant pricing pressures within the
telecommunications industry. If the Company's competitors were to devote
significant additional resources to the provision of international long-distance
services to the Company's target customer base, the Company's business,
financial condition, and results of operations could be materially adversely
affected.

    In the United States, the Federal Communications Commission ("FCC") and
relevant state Public Service Commissions have the authority to regulate
interstate and intrastate telephone service rates, respectively, ownership of
transmission facilities, and the terms and conditions under which the Company's
services are provided. Legislation that substantially revised the U.S.
Communications Act of 1934 was signed into law on February 8, 1996. This
legislation has specific guidelines under which the Regional Bell Operating
Companies ("RBOCs") can provide long-distance services, which will permit the
RBOCs to compete with the Company in providing domestic and international
long-distance services. Further, the legislation, among other things, opens
local service markets to competition from any entity (including long-distance
carriers, cable television companies and utilities).

    Because the legislation opens the Company's markets to additional
competition, particularly from the RBOCs, the Company's ability to compete may
be adversely affected. Moreover, certain Federal and other governmental
regulations may be amended or modified, and any such amendment or modification
could have material adverse effects on the Company's business, results of
operations, and financial condition.

                                       56
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements of the Company include the accounts of
the Company and its majority-owned subsidiaries. All material intercompany
transactions and balances have been eliminated.

    USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.

    RECLASSIFICATION

    Certain prior year amounts have been reclassified to conform with the
current year presentation.

    REVENUE RECOGNITION

    Revenues for telecommunication services provided to customers are recognized
as services are rendered, net of an allowance for revenue that the Company
estimates will ultimately not be realized. Revenues for return traffic received
according to the terms of the Company's operating agreements with its foreign
partners are recognized as revenue as the return traffic is received and
processed.

    The Company has entered into operating agreements with telecommunications
carriers in foreign countries under which international long-distance traffic is
both delivered and received. Under these agreements, the foreign carriers are
contractually obligated to adhere to the policy of the FCC, whereby traffic from
the foreign country is routed to international carriers, such as the Company, in
the same proportion as traffic carried into the country. Mutually exchanged
traffic between the Company and foreign carriers is settled through a formal
settlement policy at agreed upon rates-per-minute. The Company records the
amount due to the foreign partner as an expense in the period the traffic is
terminated. When the return traffic is received in the future period, the
Company generally realizes a higher gross margin on the return traffic compared
to the lower margin (or sometimes negative margin) on the outbound traffic.
Revenue recognized from return traffic was approximately $2.2 million, $824,000
and $2.6 million, or 0.7%, 0.3% and 1.6% of net revenues in 2000, 1999 and 1998,
respectively.

    There can be no assurance that traffic will be delivered back to the United
States or what impact changes in future settlement rates, allocations among
carriers or levels of traffic will have on net payments received and revenues
recorded by the Company.

    INTERNATIONAL OPERATIONS

    The consolidated statements of operations include amounts related to
non-U.S. subsidiaries. In 2000, 1999 and 1998, the Company recognized net
revenues of approximately $54.3 million, $8.7 million and $23,000 and net losses
of approximately $33.8 million, $11.7 million and $340,000 attributable to
non-U.S. subsidiaries, respectively.

                                       57
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    COST OF SERVICES

    Cost of services represents direct charges from vendors that the Company
incurs to deliver service to its customers. These include costs of leasing
capacity and rate-per-minute charges from carriers that originate, transmit, and
terminate traffic on behalf of the Company.

    CASH AND CASH EQUIVALENTS

    The Company considers all short-term investments with original maturities of
90 days or less to be cash equivalents. Cash equivalents consist primarily of
money market accounts that are available on demand.

    RESTRICTED CASH AND PLEDGED SECURITIES

    In connection with the Senior Notes and Warrants Offering (see Note 6), the
Company was required to placed $52 million of net proceeds into marketable
securities to fund the first six payments of interest on the Senior Notes
through May 2001. Interest on the Senior Notes is payable semi-annually in May
and November. The Company was also required to provide a bank guarantee of
$180,000 in connection with one of its foreign operating agreements. This
guarantee is in the form of a certificate of deposit. The restricted cash and
pledged securities are shown as restricted cash and pledged securities in the
accompanying consolidated balance sheets. The Company has both the positive
intent and ability to hold the pledged securities and restricted cash until
maturity. Accordingly, these instruments are carried at amortized cost. As of
December 31, 2000 and 1999, restricted cash and pledged securities totaled
$9.9 million and $28.1 million, respectively.

    OTHER CURRENT ASSETS

    During 1998, the Company advanced an aggregate of approximately
$1.4 million to certain of its employees and officers. The secured loans bear
interest at a rate of 7.87% per year, and were originally due and payable on
December 31, 1999. At December 31, 1999, $1.4 million of these loans were
outstanding and are included in other current assets in the accompanying
consolidated balance sheets. All but $472,000 of these amounts were collected in
January 2000, and the remaining payment terms were extended until December 31,
2000. During 2000, an additional $1.0 million was advanced to employees and
officers. At December 31, 2000, the Company established a valuation reserve
against 100% of the loans outstanding, as payments were not received as of
December 31, 2000.

    LONG-LIVED ASSETS

    Long-lived assets, including property and equipment, identifiable intangible
assets to be held and used and goodwill, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. To determine recoverability of its long-lived
assets, the Company evaluates the probability that future undiscounted net cash
flows will be less than the carrying amount of assets. If future estimated
undiscounted net cash flows are less than the carrying amount of long-lived
assets, then such assets are written down to their fair value. The Company
considers expected cash flows and estimated future operating results, trends,
and other available information in assessing whether the carrying value of the
assets is impaired.

                                       58
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    The Company's estimates of anticipated gross revenues, the remaining
estimated lives of tangible and intangible assets, or both, could be reduced
significantly in the future due to changes in technology, regulation, available
financing, or competitive pressures. As a result, the carrying amount of
long-lived assets could be reduced materially in the future.

    Due to significant adverse changes in market conditions during the fourth
quarter of 2000, the Company performed an impairment analysis of its long-lived
assets and certain identifiable intangibles to be held and used in accordance
with Statement on Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121"). See Note 16.

    INVESTMENTS

    Investments in 50% or less-owned enterprises over which the Company can
exercise significant influence are accounted for using the equity method. Under
the equity method, investments are carried at cost plus or minus the Company's
equity in all increases and decreases in the investee's net assets after the
date of acquisition, subject to impairment losses recorded.

    FOREIGN CURRENCY TRANSLATION

    The asset and liability accounts of the Company's foreign subsidiaries are
translated at year-end exchange rates and revenue and expenses are translated at
average exchange rates prevailing during the period. The resulting translation
adjustments are included in other comprehensive income.

    PROPERTY AND EQUIPMENT

    Property and equipment are stated at historical cost. Depreciation is
provided for financial reporting purposes using the straight line method over
the following estimated useful lives:

<TABLE>
<S>                                                           <C>
Property and leasehold improvements.........................  5 years
Communications equipment (including undersea cable).........  7 to 20 years
Computer and office equipment...............................  3 to 5 years
</TABLE>

    Long-distance communications equipment includes assets financed under
facility agreements and capital lease obligations of approximately
$51.2 million and $25.0 million as of December 31, 2000 and 1999, respectively.

    Maintenance and repairs are expensed as incurred. Replacements and
improvements are capitalized. Gains on sales of assets are recognized at the
time of sale or deferred to the extent required by accounting principles
generally accepted in the United States.

    INTERNAL USE COMPUTER SOFTWARE

    In accordance with Statement of Position 98-1, "Accounting for the Costs of
Software Developed or Obtained for Internal Use," the Company capitalized
approximately $4.6 million and $2.1 million for the years ended December 31,
2000 and 1999, respectively, in connection with its internal use software
systems. Such costs are amortized principally over 3 to 5 years and are included
in property and equipment in the accompanying consolidated balance sheets.

                                       59
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    DEBT DISCOUNTS AND DEFERRED FINANCING COSTS

    Deferred financing costs totaled $7.0 million and $6.3 million as of
December 31, 2000 and 1999, net of accumulated amortization of $1.7 million and
$964,000 in 2000 and 1999, respectively. Deferred financing costs were incurred
primarily in connection with the 2000 and 1999 financing agreements and the 1998
Senior Notes and Warrants Offering and are included in other long-term assets in
the accompanying consolidated balance sheets. Debt discounts associated with the
Senior Notes and Warrants Offering total $1.6 million and $1.8 million, net of
amortization of $551,000 and $340,000 in 2000 and 1999, respectively, and are
reflected as a reduction of the Senior Notes. Additional discounts associated
with the Allied financing obtained during 2000 total $1.0 million, net of
amortization of $115,000 at December 31, 2000, and are reflected as a reduction
of the Allied Facility in the accompanying balance sheets. Debt discounts and
deferred financing costs are amortized as interest expense over the remaining
life of the debt using the effective interest method.

    CONCENTRATION OF CREDIT RISK

    Financial instruments that potentially subject the Company to a
concentration of credit risk are accounts receivable. Residential accounts
receivable consist of individually small amounts due from geographically
dispersed customers. Carrier accounts receivable represent amounts due from
long-distance carriers. The Company's allowance for doubtful accounts is based
on current market conditions. The Company's four largest carrier customers
represented approximately 32% and 26% of gross accounts receivable as of
December 31, 2000 and 1999, respectively. Revenues from one customer represented
more than 10% of net revenues for the periods presented (see Note 12). Purchases
from the five largest suppliers represented approximately 20%, 25% and 30% of
cost of services for the years ended December 31, 2000, 1999 and 1998,
respectively. Services purchased from two suppliers represented more than 10% of
cost of services in the periods presented (see Note 12). One of these five
largest suppliers, representing 5%, 4% and 4% of cost of services in the years
ended December 31, 2000, 1999 and 1998, respectively, is based in a foreign
country.

    INCOME TAXES

    The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires that deferred income taxes
reflect the expected tax consequences on future years of differences between the
tax bases of assets and liabilities and their bases for financial reporting
purposes. Valuation allowances are established when necessary to reduce deferred
tax assets to the expected amount to be realized.

    LOSS PER COMMON SHARE

    SFAS No. 128, "Earnings per Share," requires dual presentation of basic and
diluted earnings per share on the face of the statements of operations for all
periods presented. Basic earnings per common share excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then

                                       60
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
shared in the earnings of the entity. Weighted average common shares outstanding
consist of the following as of December 31, 2000, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                          2000       1999       1998
                                                        --------   --------   --------
<S>                                                     <C>        <C>        <C>
Weighted average common shares outstanding--basic.....   13,676     9,411      8,945
Stock options and warrant equivalents.................       --        --         --
                                                         ------     -----      -----
Weighted average common and equivalent shares
  outstanding--diluted................................   13,676     9,411      8,945
                                                         ======     =====      =====
</TABLE>

    Options and warrants to purchase 3,012,516, 2,455,928 and 1,366,726 shares
of common stock were excluded from the computation of diluted loss per share in
2000, 1999 and 1998, respectively, because inclusion of these options would have
an anti-dilutive effect on loss per share.

    COMPREHENSIVE LOSS

    SFAS No. 130 requires the reporting of net income and other items recorded
directly to the equity accounts. The objective is to report a measure of all
changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with others. The Company's
only component of other comprehensive loss represents the foreign currency
translation adjustment recognized in the years ended December 31, 2000 and 1999.

    ADVERTISING COSTS

    In accordance with Statement of Position 93-7, "Reporting on Advertising
Costs," costs for advertising are expensed as incurred within the fiscal year.
Such costs are included in selling and marketing expenses in the accompanying
consolidated statements of operations.

    RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative and Hedging Activities" ("SFAS No. 133"),
which establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS
No. 133, as amended, is effective January 1, 2001. The adoption of SFAS No. 133
is not expected to have a material effect on the Company's consolidated balance
sheets or statements of operations.

    In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB 101 explains the SEC staff's general framework for revenue
recognition, stating the criteria that must be met in order to recognize
revenue. The adoption of SAB 101, as amended, did not have a material effect on
the consolidated balance sheets or statements of operations of the Company.

    In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation." FIN 44
clarifies the application of Accounting Principles Board Opinion No. 25 in
regards to the definition of an employee and the criteria for determining
whether a plan qualifies as a non-compensatory plan. The Company adopted FIN 44
in July 2000.

                                       61
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTS RECEIVABLE:

    Accounts receivable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           -------------------
                                                             2000       1999
                                                           --------   --------
<S>                                                        <C>        <C>
Residential..............................................  $ 34,998   $24,598
Carrier..................................................    33,222    44,548
                                                           --------   -------
                                                             68,220    69,146
Allowance for doubtful accounts..........................   (16,809)   (3,964)
                                                           --------   -------
                                                           $ 51,411   $65,182
                                                           ========   =======
</TABLE>

    The Company has certain service providers that are also customers. The
Company settles amounts receivable and payable from and to certain of these
parties on a net basis.

    The Company is in the process of exiting the circuit switched carrier
business. Correspondingly, the Company increased its allowance for doubtful
accounts associated with those receivable balances.

    $10.0 million of Startec Global Operating Company ("Operating") and Startec
Global Licensing Company ("Licensing") accounts receivable are pledged to
Allied. The remainder of Operating and Licensing accounts receivable are pledged
to NTFC (See Note 6.) Another of the Company's wholly owned subsidiaries,
Vancouver Telephone Company ("VTC"), has pledged it's accounts receivable to
Coast Business Credit Corporation ("Coast Facility").

3. PROPERTY AND EQUIPMENT:

    Property and equipment, including equipment under capital leases, consist of
the following at December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                               ESTIMATED
                                             USEFUL LIVES      2000       1999
                                             -------------   --------   --------
<S>                                          <C>             <C>        <C>
Property and leasehold improvements........        5 years   $  8,535   $  3,795
Communications equipment...................  7 to 20 years     99,254     51,642
Computer and office equipment..............   3 to 5 years     22,838     11,583
                                                             --------   --------
                                                              130,627     67,020
Less: accumulated depreciation and
  amortization.............................                   (24,366)   (10,422)
                                                             --------   --------
                                                              106,261     56,598
Construction in progress...................                    17,582     37,623
                                                             --------   --------
                                                             $123,843   $ 94,221
                                                             ========   ========
</TABLE>

    Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $14.3 million, $6.9 million and $2.3 million, respectively. Construction in
progress consists primarily of network infrastructure equipment that has not
been placed into service; accordingly, no depreciation has been recorded.

    All of Operating and Licensing property and equipment are pledged to NTFC.
Another of the Company's subsidiaries, VTC, has pledged all of its property and
equipment for the Coast Facility.

                                       62
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INTANGIBLE ASSETS:

    Intangible assets recorded in connection with the acquisitions made in 2000
and 1999 (Note 14) consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                            -------------------
                                                              2000       1999
                                                            --------   --------
<S>                                                         <C>        <C>
Telecommunications licenses...............................  $ 2,311    $ 2,659
Covenant not-to-compete...................................       --        250
Goodwill..................................................   31,873     20,025
                                                            -------    -------
                                                             34,184     22,934
Accumulated amortization..................................   (1,949)      (952)
                                                            -------    -------
Intangible assets, net....................................  $32,235    $21,982
                                                            =======    =======
</TABLE>

    Goodwill and covenants not-to-compete are amortized on the straight-line
basis over 20 and 5 years, respectively. The telecommunications licenses were
acquired through the acquisition of Global Communications GmbH of Germany and
Phone Systems and Network, Inc. of France ("PSN"). These licenses are being
amortized on the straight line basis over 1 to 4 years.

    Amortization expense for the years ended December 31, 2000, 1999 and 1998
was $2.4 million, $0.9 million and $0, respectively.

                                       63
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ACCRUED EXPENSES:

    Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31
                                                             -------------------
                                                               2000       1999
                                                             --------   --------
<S>                                                          <C>        <C>
Accrued interest...........................................  $ 3,487     $3,047
Accrued telco expenses.....................................    2,849        886
Accrued marketing expense..................................      713        156
Accrued payroll and related taxes..........................    1,323      1,358
Accrued excise taxes and related charges...................      670      1,909
Other......................................................    8,056      1,830
                                                             -------     ------
                                                             $17,098     $9,186
                                                             =======     ======
</TABLE>

6. DEBT:

    Debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Senior Notes, with a rate of 12% due May 2008...............  $160,000   $160,000
NTFC Financing Agreement, with a weighted average rate of
  10.2%, maturing January 2004 through May 2005.............    45,937     20,982
Congress Facility Agreement at the prime rate...............        --     14,191
IBM Financing Agreement, with a weighted average rate of
  11.8%, maturing 2003......................................     1,697      1,464
Ascend Financing Agreement, with a rate of 8.5%, maturing
  October 2003..............................................     1,762      2,311
Allied Financing Agreement, with a rate of 15%, maturing
  June 2005.................................................    19,348         --
Coast Facility Agreement at the prime rate plus 3.5%, with a
  floor of 9%, maturing November 2002.......................     5,839         --
Notes payable to individuals and other......................       679         --
Capital lease and other obligations.........................     1,103        262
                                                              --------   --------
                                                               236,365    199,210
Less: debt discounts on Senior Notes........................    (1,556)    (1,767)
Less: current portion.......................................   (76,365)   (19,576)
                                                              --------   --------
                                                              $158,444   $177,867
                                                              ========   ========
</TABLE>

CURRENT CLASSIFICATION OF AMOUNTS OUTSTANDING UNDER VENDOR AND CREDIT FACILITIES

    The Company has classified amounts outstanding under its vendor and credit
facilities as current in the accompanying financial statements due to
noncompliance with certain financial and other covenants under the agreements or
due to the subjective nature of certain covenants. If the respective lenders
were to demand payment for such borrowings outstanding, it is unlikely that the
Company would have the available resources to make such payments.

                                       64
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)
SENIOR NOTES AND WARRANTS OFFERING

    In May 1998, the Company issued $160 million of 12% senior unsecured notes
("Senior Notes") with a final maturity of May 2008. Interest on the Senior Notes
is payable semi-annually in arrears in May and November commencing
November 1998. Warrants to purchase 200,226 shares of common stock at an
exercise price of $24.20 per share were issued in conjunction with the Senior
Notes issuance. The Senior Notes were recorded at a discount of $2.1 million to
their face amount to reflect the fair market value attributable to the warrants.
The warrants became exercisable in November 1998. The Company received proceeds
of $155 million, net of offering expenses. Concurrent with the issuance, the
Company used proceeds from the offering to purchase $52 million in U.S.
Government obligations that were pledged to fund the first six interest
payments. Approximately $9.6 million remains as of December 31, 2000, to cover
the May 2001 payment. Without additional financing in 2001 or restructuring the
Senior Notes, it is unlikely that the Company will meet the November 2001
interest payment on the Senior Notes.

    Interest expense on the Senior Notes was approximately $19.9 million,
$20.0 million and $12.3 million for the years ended December 31, 2000, 1999 and
1998, respectively. Accrued interest as of December 31, 2000 and 1999, was
$2.4 million and $2.4 million respectively. As of December 31, 2000, no warrants
issued in connection with the Senior Notes have been exercised.

    Under the terms of the Senior Notes, the Company is subject to certain
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness, pay dividends or make distributions in respect to
capital stock or make certain restricted payments; create liens; or merge or
sell all or substantially all of its assets. The Senior Notes are redeemable at
the option of the Company, in whole or in part on or after May 15, 2003, at the
redemption prices set forth below, plus accrued and unpaid interest and
liquidated damages as defined in the indenture, if any, to the date of
redemption.

<TABLE>
<CAPTION>
                                                   REDEMPTION
YEAR                                                 PRICE
----                                               ----------
<S>                                                <C>
2003.............................................   106  %
2004.............................................   104  %
2005.............................................   102  %
2006 (and thereafter)............................   100  %
</TABLE>

    In addition, at any time prior to May 15, 2001, through proceeds of a public
equity offering, the Company may redeem up to 35% of the Senior Notes originally
outstanding at a redemption price of 112% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, to the date of
redemption. Upon a change of control, the Company will be required to offer to
repurchase the outstanding Senior Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the date of purchase.

    The Senior Notes are unsecured obligations of the Company and rank pari
passu in right of payment with all other existing and future unsecured and
unsubordinated obligations of the Company unless expressly noted.

NTFC FINANCING AGREEMENT

    In June 2000, the Company entered into a five-year term loan with a
principal balance of $50 million with NTFC Capital Corporation, a financing arm
of GE Capital ("NTFC Facility"). This

                                       65
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)
loan represents an increase of $15 million over the original $35 million
facility entered into in December 1998 with NTFC. Advances under the original
$35 million mature on January 31, 2004 and advances under the $15 million
increase mature on May 31, 2005. The NTFC Facility may be used to finance the
continued expansion of Startec's Internet initiatives and transport business,
additional development of Wireless Applications Protocol, applications of its
Internet portals, expansion of Voice over Internet Protocol ("VoIP") services,
acquisitions and working capital for general corporate purposes. The outstanding
borrowings on the NTFC Facility carry interest rates ranging from 8.91% to
10.65%, with a weighted average interest rate of 10.2%. Principal and interest
payments are due monthly. Under the terms of the NTFC Facility, the Company is
subject to certain financial and operational covenants, including but not
limited to minimum cash levels of $20 million during 2001, minimum EBITDA,
restrictions on the Company's ability to pay dividends and level of
indebtedness. The NTFC Facility is secured by a pledge of all shares of Startec
Global Operating Company ("Operating Company") owned by the Company, and by a
first priority security interest in all of the Operating Company's assets. As of
March 31, 2001, the Company was not in compliance with the NTFC covenants and
has classified amounts outstanding as current in the accompanying consolidated
balance sheets. Interest expense on the NTFC Facility was approximately
$3.9 million and $0.9 million for the years ended December 31, 2000 and 1999,
respectively.

    In April 2001, in connection with the Allied financing transactions,
described below, the Company amended the NTFC Facility. Pursuant to the
amendment, NTFC agreed to waive certain defaults and revise certain financial
covenants. In connection with this amendment, the Company used $7.625 million of
the proceeds from the Allied accounts-receivable purchase facility with Allied
to pay NTFC overdue loan payments, prepayments and a $125,000 commitment fee.
The Company also agreed to issue a stock purchase warrant to NTFC to purchase
25,000 shares of the Company's common stock upon any restructuring of the Senior
Notes.

    CFC FACILITY AGREEMENT

    In June 1999, the Company entered into a three year Loan and Security
Agreement with Congress Financial Corporation ("CFC Facility"), a subsidiary of
First Union National Bank, for up to $30 million. In June 2000, the Company
repaid and terminated the CFC Facility two years ahead of the original term.
Extraordinary losses of approximately $902,000 incurred with this extinguishment
consisted of a one-time payment to Congress Financial Corporation and
unamortized deferred financing costs. There was no tax effect for recording this
extraordinary loss. The CFC Facility, secured by trade accounts receivable, was
used to finance equipment, undersea cables and the expansion of the Company's
facilities. The CFC Facility bore interest at the prime rate effective on the
date of borrowing. Principal and interest on the CFC Facility was repaid through
collections from trade accounts receivable. During 2000 and 1999, all borrowings
on the CFC Facility carried an interest rate of 7.5%. Interest expense on the
CFC Facility was approximately $425,000 and $273,000 for the years ended
December 31, 2000 and 1999, respectively.

    IBM FINANCING AGREEMENT

    In July 1999, the Company entered into a three year vendor financing
facility for up to $5 million with IBM Credit Corporation (the "IBM Facility").
The IBM Facility may be used to finance the purchase of IBM hardware and
software from IBM under a capital lease structure. Borrowings under the IBM
Facility bear interest at a fixed rate, determined at the date of purchase equal
to the average

                                       66
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)
yield to maturity of the five-year Treasury Note plus a rate adjustment which
varies by the type of equipment purchased. The outstanding borrowings on the IBM
Facility carry interest rates ranging from 6.9% to 15.4% with a weighted average
interest rate at December 31, 2000, of 11.8%. Interest expense on the IBM
Facility was approximately $184,000 and $34,000 for the years ended
December 31, 2000 and 1999, respectively.

    ASCEND FINANCING AGREEMENT

    In May 1999, the Company entered into a vendor financing facility for up to
$20 million bearing interest at 8.5% with Ascend Credit Corporation ("Ascend
Facility"). The Ascend Facility may be used to finance equipment purchased from
Ascend under a capitalized lease structure. Interest expense was approximately
$168,000 and $58,000 for the years ended December 31, 2000 and 1999,
respectively.

    ALLIED FACILITY

    In June 2000, the Company entered into a $20 million unsecured facility from
Allied with a balloon payment due at maturity in June 2005. The Allied Facility
may be used for general corporate purposes, including, without limitation, the
purchase of telecommunications assets. The Allied Facility bears interest at the
fixed rate of 15% per annum and is payable semi-annually, in arrears, at the
fixed rate of 10% per annum. In connection with entering into the Allied
Facility, the Company issued a stock purchase warrant to Allied pursuant to
which, at any time and from time to time until June 30, 2005, Allied is entitled
at its sole option to purchase an aggregate of 125,000 shares of common stock at
an exercise price of $11.21 per share, subject to certain antidilution
adjustments. Under the terms of the Allied Facility, the Company is subject to
certain financial and operational covenants, including but not limited to
restrictions on the Company's ability to pay dividends and level of
indebtedness. Amounts outstanding are also subject to acceleration upon a
material adverse change in the business. After July 1, 2002, the Company can
prepay all or part of this loan without penalty. Interest expense on the Allied
Facility was approximately $1.7 million for the year ended December 31, 2000.

    In April 2001, two of the wholly owned subsidiaries of the Company,
Operating and Licensing, together borrowed an aggregate of $20 million from
Allied. These funds were distributed to the parent company as a dividend. The
proceeds were used to repay the Company's outstanding indebtedness under the
Allied Facility. As a result, the parent company no longer has any indebtedness
to Allied, but Operating and Licensing are jointly indebted to Allied for
$20 million, $10 million of which is secured by their accounts receivable and
$10 million of which is unsecured. This indebtedness bears interest at a fixed
rate of 15% per annum, payable semi-annually in arrears, at the fixed rate of
10% per annum. A balloon payment is due at maturity in 2005, but the
indebtedness may be prepaid at any time without penalty. In addition, the
Company is subject to certain financial and operational covenants, including
limitations on its ability to incur additional indebtedness.

    In addition, Operating and Licensing entered into a twenty-four month
revolving accounts-receivable purchase facility with Allied, resulting in net
proceeds of approximately $14.3 million, approximately $7.625 million of which
was used to pay NTFC overdue loan payments, prepayments and a commitment fee of
$125,000. The proceeds of this purchase facility may be used for general
corporate purposes including payments on the NTFC Facility as described above.
Under the purchase facility, Allied purchased an interest in the accounts
receivable of Operating and Licensing. The annual discount rate payable by the
Company with respect to the purchase price is 16%. During the two-year term of
the facility, Allied is obligated to use proceeds from collection of the
accounts receivable to

                                       67
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)
purchase additional interests in other accounts receivable up to a maximum
aggregate amount of $15 million, assuming that the Company remains in compliance
with the financial and other covenants pursuant to this facility.

    COAST FACILITY

    In May 2000, the Company entered into a credit facility for up to
$12.0 million the Coast Facility due in November 2002. The Coast Facility may be
used to satisfy various operating liabilities. The interest rate on the Coast
facility is the Prime Rate plus 3.5%, with a floor of 9%. Interest expense on
the Coast Facility was approximately $847,000 for the year ended December 31,
2000.

    COMMERCIAL LOAN AGREEMENT

    In July 1997, the Company entered into a loan agreement ("Loan") with a
commercial bank ("Lender"). In December 1998, the Company terminated the Loan.
In connection with the termination, the Company recognized an extraordinary loss
of $514,000 related to the write-off of deferred financing costs and debt
discounts related to the Loan.

    In connection with the Loan, the Company issued the Lender warrants to
purchase 539,800 shares of the Company's common stock at $8.46 per share.
Vesting on the remaining warrants was contingent on the occurrence of certain
events. In December 1997, as a result of the Company's completed initial public
offering of common stock, the remaining warrants were retired. The warrants were
valued at $823,000 and are classified as a component of stockholders' equity. As
of December 31, 2000, warrants to acquire 725,126 shares of common stock remain
outstanding and expire July 1, 2002.

    Debt maturities as of December 31, 2000, excluding capital lease
obligations, are as follows (in thousands);

<TABLE>
<S>                                                 <C>
2001..............................................    76,031
2002..............................................        --
2003..............................................        --
2004..............................................        --
2005..............................................        --
Thereafter........................................   158,444
                                                    --------
                                                    $234,475
                                                    ========
</TABLE>

7. COMMITMENTS AND CONTINGENCIES:

LEASES

    The Company leases office space and equipment under non-cancelable operating
leases. Rent expense was approximately $4.6 million, $2.3 million and
$1.0 million for the years ended December 31, 2000, 1999 and 1998, respectively.
The terms of the office lease require the Company to pay a proportionate share
of real estate taxes and operating expenses. The Company also leases equipment

                                       68
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
under capital lease obligations. The future minimum commitments under lease
obligations are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            CAPITAL       OPERATING
FOR THE YEAR ENDING DECEMBER 31,                             LEASES        LEASES
--------------------------------                            --------      ---------
<S>                                                         <C>           <C>
2001......................................................   $ 350         $ 2,738
2002......................................................      --           2,372
2003......................................................      --           2,264
2004......................................................      --           2,262
2005......................................................      --           1,375
Thereafter................................................      --           2,960
                                                             -----         -------
                                                               350         $13,971
                                                                           =======

Less--Amounts representing interest.......................     (16)
Less--Current portion.....................................    (334)
                                                             -----
Long-term portion.........................................   $  --
                                                             =====
</TABLE>

    LEASE WITH RELATED PARTY

    The Company has entered into an agreement with an affiliate of a stockholder
to lease capacity in certain undersea fiber optic cable. The agreement grants a
perpetual right to use the cable and requires ten semiannual payments of $38,330
beginning in June 1996. The Company is required to pay a proportional share of
the cost of operating and maintaining the cable. The Company can cancel this
agreement without further obligation, except for amounts related to past usage,
at any time.

    LITIGATION

    Certain claims and suits have been filed or are pending against the Company.
In management's opinion, resolution of these matters will not have a material
impact on the Company's financial position or results of operations and adequate
provision for any potential losses has been made in the accompanying
consolidated financial statements.

8. STOCKHOLDERS' EQUITY (DEFICIT):

    COMMON AND PREFERRED STOCK

    In November 2000, the Company issued 1,885,000 shares of voting common stock
for net proceeds of approximately $6.7 million through a private placement. The
Company did not register these shares for resale within the prescribed period
following the issuance of such shares. As a result, the Company was required to
issue an additional 188,500 shares. The Company has accrued the fair value of
this obligation as of December 31, 2000, in the accompanying financial
statements.

    In May 2000, the Company issued 1,377,800 shares of unregistered common
stock for net proceeds of approximately $15.4 million through a private
placement. The Company subsequently registered the shares for resale.

                                       69
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    In December 1999, the Company issued 1,875,000 shares of voting common stock
for net proceeds of approximately $29.0 million through a private placement. The
Company subsequently registered the shares for resale in January 2000.

    In 1997, the Board of Directors authorized 100,000 shares of $1.00 par value
preferred stock. In 1999, the Board of Directors approved an increase in the
authorized shares of common and preferred stock. In 1999, total common and
preferred shares authorized increased to 40,000,000 and 1,000,000. The Board of
Directors has the authority to issue these shares and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without further vote or action by the stockholders.

    In October 1997, the Company completed an Initial Public Offering of its
common stock (the "Initial Public Offering"). Together with the exercise of the
overallotment option in November 1997, the Initial Public Offering placed
3,277,500 shares of common stock at a price of $12.00 per share, yielding net
proceeds (after underwriting discounts, commissions, and other professional
fees) to the Company of approximately $35 million.

    STOCK OPTION PLANS

    In August 1997, the stockholders of the Company approved the 1997
Performance Incentive Plan (the "Performance Plan"). The Performance Plan
provides for the award to eligible employees of the Company and others of stock
options, stock appreciation rights, restricted stock, and other stock-based
awards, as well as cash-based annual and long-term incentive awards. In 1998,
the Board of Directors and stockholders approved an increase in the shares
authorized for issuance under the Performance Plan to 18.5% of the common shares
outstanding. The options expire ten years from the date of grant and vest
ratably over five years. The Performance Plan provides that all outstanding
options become fully vested in the event of a change in control, as defined. As
of December 31, 2000 and 1999, approximately 740,256 and 264,689 options,
respectively, were available for grant under the Performance Plan.

    The Company's Amended and Restated Stock Option Plan, reserves 270,000
shares of voting common stock to be issued to officers and key employees under
terms and conditions to be set by the Company's Board of Directors. In
conjunction with the Company's January 20, 1997, amendment to the plan, all
options were cancelled and certain options were reissued at their original
exercise prices, and compensation expense was recognized for the excess of the
fair value of the common stock over the exercise price of the related options.
The Company recognized approximately $131,000 in compensation expense for the
year ended December 31, 1997, as the vesting of the options accelerated upon
completion of the Initial Public Offering.

    On December 14, 1998, the Company repriced 581,150 options outstanding,
which had exercise prices ranging between $10.00 and $26.75 per share to the
then market price of $9.00 per share. This was the Company's first and only
repricing of options and the repricing did not benefit executive officers,
affiliates, or major stockholders.

                                       70
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    A summary of the status of the Company's stock option plans as of
December 31, 2000, 1999 and 1998 and changes during the years ending on those
dates is presented in the following chart:

<TABLE>
<CAPTION>
                                             2000                    1999                    1998
                                     ---------------------   ---------------------   --------------------
                                                 WEIGHTED                WEIGHTED               WEIGHTED
                                                  AVERAGE                 AVERAGE                AVERAGE
                                                 PRICE PER               PRICE PER              PRICE PER
                                      OPTIONS      SHARE      OPTIONS      SHARE     OPTIONS      SHARE
                                     ---------   ---------   ---------   ---------   --------   ---------
<S>                                  <C>         <C>         <C>         <C>         <C>        <C>
Options outstanding at January
  1,...............................  1,835,802    $12.91       743,600    $ 9.64      531,666    $ 9.96
Granted............................    830,990     11.58     1,248,652     14.47      977,900     10.54
Exercised..........................    (56,460)     8.86       (48,500)     8.69     (125,816)     1.85
Canceled...........................   (322,942)    14.22      (107,950)    10.30     (640,150)    12.81
                                     ---------    ------     ---------    ------     --------    ------
Options outstanding at December
  31,..............................  2,287,390    $12.35     1,835,802    $12.91      743,600    $ 9.64
                                     ---------    ------     ---------    ------     --------    ------
Options exercisable at December
  31,..............................    461,116    $11.76       161,450    $ 9.78       76,530    $ 9.23
                                     =========    ======     =========    ======     ========    ======
</TABLE>

    The following table summarizes information about stock options outstanding
at December 31, 2000:

<TABLE>
<CAPTION>
                                                      OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                             -------------------------------------   -----------------------
                                                            WEIGHTED
                                                             AVERAGE     WEIGHTED                  WEIGHTED
                                                            REMAINING     AVERAGE                   AVERAGE
RANGE OF                                       NUMBER      CONTRACTUAL   PRICE PER     NUMBER      PRICE PER
EXERCISE PRICES                              OUTSTANDING      LIFE         SHARE     EXERCISABLE     SHARE
---------------                              -----------   -----------   ---------   -----------   ---------
<S>                                          <C>           <C>           <C>         <C>           <C>
$ 1.85--$ 6.00............................      363,550        9.76       $ 4.82        18,250      $ 3.66
$ 8.00--$ 8.50............................       26,000        6.23         8.29        13,400        8.11
$ 9.00--$12.00............................      992,260        8.34         9.77       250,900        9.11
$12.25--$16.56............................      230,800        8.26        13.59        74,930       13.84
$18.16--$18.50............................      551,080        9.01        18.45       103,636       18.45
$21.50--$27.87............................      123,700        9.13        26.43            --          --
                                              ---------        ----       ------       -------      ------
$ 1.85--$27.87............................    2,287,390        8.74       $12.35       461,116      $11.76
                                              =========        ====       ======       =======      ======
</TABLE>

    The Company has elected to account for stock and stock rights in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." SFAS No. 123, "Accounting for Stock-Based Compensation," established
an alternative method of expense recognition for stock-based compensation awards
to employees based on fair values. The Company has elected not to adopt SFAS
No. 123 for expense recognition purposes.

    Pro forma information regarding net income is required by SFAS No. 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method prescribed by SFAS No. 123. The fair value
of options granted during the years ended December 31, 2000, 1999, and 1998 was
estimated at the date of grant using a fair value option pricing model with the
following weighted-average assumptions: risk-free interest rates of 5.5%, 6%,
and 4.56%, respectively; no dividend yield; weighted-average expected lives of
the options of five years, and expected volatility of 100%, 87%, and 95%,
respectively.

    The fair value option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price characteristics

                                       71
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
that are significantly different from those of traded options. Because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock rights.

    The weighted-average fair value of options granted during 2000, 1999 and
1998, was $8.02 per share, $7.76 per share and $5.47 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the estimated service period. If the Company had used
the fair value accounting provisions of SFAS No. 123, the pro forma net loss for
2000, 1999 and 1998 would have been approximately $133,062,000, $50,292,000 and
$20,130,000, respectively, or $9.73, $5.34 and $2.25 per share, respectively.
The provisions of SFAS No. 123 are not required to be applied to awards granted
prior to January 1, 1995. The impact of applying SFAS No. 123 may not
necessarily be indicative of future results.

    Under the Performance Plan, the Company has granted options to acquire
57,500 shares of the Company's common stock to the Company's consultants in lieu
of payment for certain consulting services to be performed in the future.
Pursuant to SFAS No. 123, the Company recognized deferred compensation of
$668,000 for the fair value of these options, as calculated using a fair value
option pricing model, using the weighted average assumptions described above.
For the years ended December 31, 2000, 1999 and 1998, the Company recognized
expense of $124,000, $218,000 and $51,000, respectively, related to these
options over the estimated service periods of the consultants.

    STOCKHOLDER RIGHTS PLAN

    The Board of Directors has adopted a stockholder rights plan ("Rights" and
"Rights Plan"), which is designed to protect the rights of its stockholders and
deter coercive or unfair takeover tactics. It is not in response to any
acquisition proposal. Preferred stock purchase rights have been granted as a
dividend at the rate of one Right for each outstanding share of common stock
held of record as of the close of business on April 3, 1998.

    Each Right, when exercisable, would entitle the holder thereof to purchase
1/1,000th of a share of Series A Junior Participating Preferred Stock ("Junior
Preferred Stock") at a price of $175 per 1/1,000th share. The Company's Board of
Directors designated 25,000 shares of the authorized Preferred Stock for this
purpose. The Rights, which have no voting rights, will expire on March 25, 2008.

    At the time of adoption of the Rights Plan, the Rights are neither
exercisable nor traded separately from the common stock. Subject to certain
limited exceptions, the Rights will be exercisable only if a person or group,
other than an Exempt Person, as defined in the Rights Plan, becomes the
beneficial owner of 15% or more of the common stock or announces a tender or
exchange offer which would result in its ownership of 15% or more of the common
stock. Ten days after a public announcement that a person has become the
beneficial owner of 15% or more of the common stock or ten days following the
commencement of a tender or exchange offer which would result in a person
becoming the beneficial owner of 15% or more of the common stock (the earlier of
which is called the "Distribution Date"), each holder of a Right, other than the
acquiring person, would be entitled to purchase a certain number of shares of
common stock for each Right at one-half of the then-current market price. If the
Company is acquired in a merger, or 50% or more of the Company's assets are sold
in one or more related transactions, each Right would entitle the holder thereof
to purchase common stock of the acquiring company at one half of the then-market
price of such common stock.

                                       72
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           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)

    At any time after a person or group becomes the beneficial owner of 15% or
more of the common stock, the Board of Directors may exchange one share of
common stock for each Right, other than Rights held by the acquiring person.
Generally, the Board of Directors may redeem the Rights at any time until
10 days following the public announcement that a person or group of persons has
acquired beneficial ownership of 15% or more of the outstanding common stock.
The redemption price is $.001 per Right. The Rights Plan was amended by the
Board of Directors on August 21, 1999 to raise the trigger threshold from 10% to
15% and to authorize the Board to take steps to preclude an inadvertant
triggering of the Rights Plan.

    The Rights plan was further amended by the Board of Directors in October
2000 to give the Board of Directors the authority to prevent the triggering of
the dilutive provisions of the Plan with respect to specific persons and
transactions.

    WARRANT AND REGISTRATION RIGHTS

    The Company agreed to issue to certain underwriters of the Initial Public
Offering, warrants to purchase up to 150,000 shares of common stock at an
exercise price of $13.20 per share. The warrants are exercisable for a period of
five years beginning October 1998. The holders of the warrants will have no
voting or other stockholder rights unless and until the warrants are exercised.
The fair value of these warrants was approximately $870,000 when issued, and is
classified in stockholders' equity. Exercised warrants equaled 20,000, during
2000. No warrants were exercised in either 1999 or 1998.

    As of December 31, 2000, the Company has warrants outstanding of 725,126 in
connection with debt issuances and agreements. Warrants issued in connection
with the Senior Notes and Warrants Offering have an exercise price of $24.20 and
expire in May 2008. Warrants issued in connection with the Commercial Loan
Agreement have an exercise price of $8.46 and are exercisable for a period of
five years beginning July 1997. These warrants expire on July 1, 2002. The
holders of the warrants will have no voting or other stockholder rights unless
and until the warrants are exercised.

    EMPLOYEE BENEFIT PLANS

    During 1998, the Company adopted the Startec Employee 401(K) Plan (the
"Plan"), a defined contribution plan. Employees are eligible for the Plan after
completing at least one year of service and attaining age 20. The Plan allows
for employees to contribute up to 15% of their compensation. In September 1998,
the Company adopted a contribution matching plan pursuant to which the Company,
at its discretion, may contribute shares of the Company's common stock in an
amount up to five percent of employee contributions. In the years ended
December 31, 2000 and 1999, the Company contributed approximately 7,030 and
5,000 shares, respectively. These shares will vest ratably over a five year
period from the date of employment.

9. INCOME TAXES:

    The Company has net operating loss carryforwards ("NOLs") for Federal income
tax purposes of approximately $108,094,000 and $79,578,000, as of December 31,
2000 and 1999, respectively, which may be applied against future taxable income
and expire between 2010 and 2020. The use of the NOLs is subject to statutory
and regulatory limitations regarding changes in ownership. SFAS No. 109 requires
that the tax benefit of NOLs for financial reporting purposes be recorded as an
asset to the extent that

                                       73
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           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES: (CONTINUED)
management assesses the realization of such deferred tax assets is "more likely
than not." A valuation reserve is established for any deferred tax assets that
are not expected to be realized.

    As a result of historical and projected operating losses, a valuation
allowance equal to the net deferred tax asset was recorded for all periods
presented.

    The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                           ----------------------
                                                             2000          1999
                                                           --------      --------
<S>                                                        <C>           <C>
Deferred tax assets:
  Net operating loss carryforwards.......................  $41,746       $30,733
  Allowance for doubtful accounts........................    6,097         1,531
  Contested liabilities..................................      680         1,052
  Other..................................................      182           456
                                                           -------       -------
    Total deferred tax assets............................   48,705        33,772
                                                           -------       -------
Deferred tax liabilities:
  Depreciation...........................................    5,495         3,227
  Other..................................................      262            19
                                                           -------       -------
    Total deferred tax liabilities.......................    5,757         3,246
                                                           -------       -------
Net deferred tax assets..................................   42,948        30,526
Valuation allowance......................................  (42,948)      (30,526)
                                                           -------       -------
                                                           $    --       $    --
                                                           =======       =======
</TABLE>

Pursuant to Section 448 of the Internal Revenue Code, the Company was required
to change from the cash to the accrual method of accounting. The effect of this
change was amortized over four years for tax purposes.

10. RELATED-PARTY TRANSACTIONS:

    The Company has an agreement with an affiliate of a stockholder of the
Company that calls for the purchase and sale of long distance services. Revenues
generated from this affiliate amounted to approximately $422,000, $825,000 and
$1.9 million or 0.1%, 0.3% and 1.2% of total net revenues for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company was in a net
accounts receivable position with this affiliate of approximately $301,000 and
$286,000 as of December 31, 2000 and 1999, respectively. Services provided by
this affiliate and recognized in cost of services amounted to approximately
$113,000, $409,000 and $366,000 for the years ended December 31, 2000, 1999 and
1998, respectively.

    The Company also has a lease with an affiliate of a stockholder of the
Company (see Note 7).

    The Company issued a loan to Mr. Mukunda in October 1998 in an amount equal
to $400,000 at an interest rate of 7.67%. Effective October 25, 2000, the amount
of the loan was increased to $961,000. As of December 31, 2000, the Company
established a valuation reserve against 100% of the loan outstanding.

                                       74
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           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. BUSINESS SEGMENT DATA:

    The Company changed the composition of its reportable segments during 2000.
Previously, the Company had classified its operations into two industry
segments, traditional telecommunications services and IP services. The
traditional telecommunications service segment was evaluated by management on a
regional basis. The IP services segment was evaluated by management on a product
basis. In 2000, the Company stopped evaluating services by product, and began
evaluating all services by region. In addition, the Company views traffic
terminating on its IP network as IP revenue. The IP revenue represents wholesale
VoIP and residential and business traffic. All other traffic is considered to be
circuit switched revenue. Restatement of prior period segment amounts is
impractical and in accordance with SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," the Company will present segment
information for 2000, the year in which the change occurred, under the old
method and under the new method.

    The Company evaluates the performance of its segments based primarily on
Earnings before Interest, Taxes, Depreciation, Amortization and loss on
impairment ("EBITDA"). The Company's interest income and expense is included in
the consolidated Federal income tax return of the Company and its subsidiaries
and is allocated based upon the relative contribution to the Company's
consolidated general and administrative expense.

    The majority of the Company's selling, general, and administrative cost is
incurred by the North American operations. However, selling, general, and
administrative cost is allocated to the Company's other segments based on the
total head count for the Company.

    The following table presents revenues and other financial information on a
segmented basis based on product, which was the old method, as of and for the
year ended December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                   LONG DISTANCE
                                                 TELECOMMUNICATIONS                 IP
                                           ------------------------------   -------------------
                                            NORTH
                                           AMERICA     EUROPE      ASIA      ESTART      VOIP     CONSOLIDATED
                                           --------   --------   --------   --------   --------   ------------
<S>                                        <C>        <C>        <C>        <C>        <C>        <C>
Net revenues.............................  $138,911   $11,519    $ 3,493    $117,005   $53,619      $324,547

Gross margin.............................     9,407     2,081      1,144      37,488    15,494        65,614
Selling, marketing, general and
  administrative expense.................    31,661     9,683      4,838      47,300     6,322        99,804
EBITDA...................................   (22,254)   (7,602)    (3,694)     (9,812)    9,172       (34,190)
Depreciation and amortization expense....     8,076       236        485       7,410       521        16,728
Interest expense.........................    27,519        59          1         128        --        27,707
Interest income..........................     2,720        14         24          54        --         2,812
Fixed Assets, gross......................    85,960    35,403     16,194       9,565     1,087       148,209
Total assets.............................  $174,166   $48,986    $17,230    $  9,720   $ 3,908      $254,010
</TABLE>

                                       75
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           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. BUSINESS SEGMENT DATA: (CONTINUED)
    The following table presents revenues and other financial information on a
regional and segmented basis for the year ended December 31, 1999 (in
thousands);

<TABLE>
<CAPTION>
                                                   LONG DISTANCE
                                                 TELECOMMUNICATIONS
                                           ------------------------------
                                            NORTH
                                           AMERICA     EUROPE      ASIA            IP           CONSOLIDATED
                                           --------   --------   --------   -----------------   ------------
<S>                                        <C>        <C>        <C>        <C>                 <C>
Net revenues.............................  $263,611   $ 7,169    $ 5,691        $     --          $276,471

Gross margin.............................    31,747      (594)     2,583              --            33,736
Selling, marketing, general and
  administrative expense.................    42,204    10,328      3,193           1,467            57,192
EBITDA...................................   (10,457)  (10,922)      (610)         (1,467)          (23,456)
Depreciation and amortization expense....     6,364       657        732              --             7,753
Interest expense.........................    21,794        19         --              --            21,813
Interest income..........................     5,019        22         36              --             5,077
Fixed Assets, gross......................    83,897     2,249      3,077          15,420           104,643
Total assets.............................   249,890     8,256      9,998          12,487           280,631
</TABLE>

    The following table presents revenues and other financial information on a
segmented basis based on region, which is the new method, as of and for the year
ended December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                       NORTH                              TOTAL
                                      AMERICA     EUROPE      ASIA     CONSOLIDATED
                                      --------   --------   --------   ------------
<S>                                   <C>        <C>        <C>        <C>
Net revenues:
  IP................................  $150,836   $ 23,178   $ 7,260      $181,274
  Circuit switched..................   138,910      4,363        --       143,273
                                      --------   --------   -------      --------
    Total net revenues..............   289,746     27,541     7,260       324,547
Gross margin:
  IP................................    49,706      2,518     2,546        54,770
  Circuit switched..................     9,406      1,438        --        10,844
                                      --------   --------   -------      --------
    Total gross margin..............    59,112      3,956     2,546        65,614
Selling, marketing, general and
  administrative expense............    65,382     22,607    11,815        99,804
EBITDA..............................    (6,270)   (18,651)   (9,269)      (34,190)
Depreciation and amortization
  expense...........................    14,747      1,028       953        16,728
Interest expense....................    27,638         69        --        27,707
Interest income.....................     2,749         --        63         2,812
Fixed assets, gross.................    96,612     35,403    16,194       148,209
Total assets........................  $187,794   $ 48,986   $17,230      $254,010
</TABLE>

    The net book value of the Company's long-lived assets located in the United
States were $82,383,000 and $83,897,000 as of December 31, 2000 and 1999,
respectively.

                                       76
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. BUSINESS SEGMENT DATA: (CONTINUED)
    Substantially all of the Company's revenues for each period presented were
derived from long-distance telecommunications service calls originated within
the United States and terminated outside the United States. Net revenues
terminated by geographic area were as follows (in thousands):

<TABLE>
<CAPTION>
                                                 FOR THE YEAR ENDED DECEMBER 31,
                                                ---------------------------------
                                                  2000        1999        1998
                                                ---------   ---------   ---------
<S>                                             <C>         <C>         <C>
Asia Pacific Rim..............................  $ 92,336    $102,809    $ 72,274
Middle East/North Africa......................    37,933      43,373      30,303
Sub-Saharan Africa............................    23,043      26,718      13,020
Eastern Europe................................    27,679      25,180      15,539
Western Europe................................    34,903      12,346       2,725
North America.................................    45,321       7,785       5,661
South America and Other.......................    63,332      58,260      21,647
                                                --------    --------    --------
Total.........................................  $324,547    $276,471    $161,169
                                                ========    ========    ========
</TABLE>

12. SIGNIFICANT CUSTOMERS AND SUPPLIERS:

    A significant portion of the Company's net revenues is derived from a
limited number of customers. During 2000, 1999 and 1998, the Company's five
largest carrier customers accounted for approximately 18%, 35% and 61% of net
revenues, respectively. No customers accounted for ten percent or more of net
revenues in 2000. One customer accounted for ten percent or more of net revenues
in 1999 and 1998. The Company's agreements and arrangements with its carrier
customers generally may be terminated on short notice without penalty. The
following customer provided 10% or more of the Company's total net revenues in
the years indicated (in thousands):

<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED
                                                               DECEMBER 31,
                                                      ------------------------------
                                                        2000       1999       1998
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
WorldCom, Inc.......................................     *       $61,927    $38,289
</TABLE>

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

*   Represents less than 10% of the total.

    SIGNIFICANT SUPPLIERS

    A significant portion of the Company's cost of services is purchased from a
limited number of suppliers. The following suppliers provided 10% or more of the
Company's total cost of services in the year indicated (in thousands):

<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED
                                                               DECEMBER 31,
                                                      ------------------------------
                                                        2000       1999       1998
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
WorldCom, Inc.......................................     *       $22,213          *
Pacific Gateway Exchange............................     *             *    $14,421
</TABLE>

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

*   Represents less than 10% of the total

                                       77
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. FAIR VALUE OF FINANCIAL INSTRUMENTS:

    The fair value of certain financial assets and liabilities are shown below:

<TABLE>
<CAPTION>
                                                        DECEMBER 31, 2000        DECEMBER 31, 1999
                                                      ----------------------   ----------------------
                                                      CARRYING        FAIR     CARRYING        FAIR
                                                       AMOUNT        VALUE      AMOUNT        VALUE
                                                      --------      --------   --------      --------
<S>                                                   <C>           <C>        <C>           <C>
Financial assets:
  Pledged short-term marketable securities..........  $  9,859      $ 9,844    $ 28,108      $ 29,401
Financial liabilities:
  Senior Notes, excluding debt discount.............   160,000        9,600     160,000       129,600
Vendor financing and credit facilities..............  $ 76,031      $64,860    $ 38,948      $ 38,948
</TABLE>

    Short-term marketable securities and the Senior Notes are valued based on
quoted market prices. The fair values of the vendor financing and credit
facilities are estimated based on expected future payments discounted at the
Company's incremental borrowing rate.

    The carrying amounts for current assets, restricted cash and current
liabilities other than vendor financing and the credit facilities approximate
their fair value due to their short maturity. The fair value of notes payable to
individuals and others and notes payable to related parties cannot be reasonably
and practicably estimated due to the unique nature of the related underlying
transactions and terms. However, given the terms and conditions of these
instruments, if these financial instruments were with unrelated parties,
interest rates and payment terms could be different than the currently stated
rates and terms.

                                       78
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           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. ACQUISITIONS:

    In the first quarter of 2000, the Company acquired several VoIP termination
facilities from various vendors for approximately $2.2 million in cash and
approximately $1.9 million in common stock. The purchase price was allocated to
the net assets acquired based upon the estimated fair value of such assets,
which resulted in an allocation of approximately $4.1 million to goodwill.
Purchase price allocations have been completed on a preliminary basis and are
subject to adjustment should new or additional facts about the business become
known.

    In March 2000, the Company acquired VTC for approximately $1.1 million in
cash and 520,463 shares of common stock valued at approximately $12.3 million.
VTC provides domestic and international long distance services in Canada. VTC
markets its telephone services to ethnic communities in Canada, including
Taiwanese, Chinese, Romanian and Serbian communities. The purchase price was
allocated to the net assets acquired based upon the estimated fair value of such
assets, which resulted in an allocation of approximately $14.2 million to
goodwill. Purchase price allocations have been completed on a preliminary basis
and are subject to adjustment should new or additional facts about the business
become known.

    In March 2000, the Company acquired DLC Enterprises Inc. ("DLC"), a New
York-based telecommunications company for approximately $0.5 million. DLC offers
dial-1, debit card and ISP services. DLC provides Startec with a management and
sales force, proprietary billing and customer provisioning software and small
business revenue. The acquisition of DLC facilitates the introduction of
commercial services for ethnic and mid-sized business customers. The purchase
price was allocated to the net assets acquired based upon the estimated fair
value of such assets, which resulted in an allocation of approximately
$1.1 million to goodwill. If certain financial criteria are met by April 30,
2001, the Company is subject to a contingent payment of approximately
$5.6 million payable in cash of approximately $0.6 million and $5.0 million in
the form of either cash or the Company's common stock. Purchase price
allocations have been completed on a preliminary basis and are subject to
adjustment should new or additional facts about the business become known.

    In March 2000, Startec acquired Global Villager Inc. for approximately
$0.8 million in cash and 503,872 shares of the Company's common stock valued at
approximately $13.2 million. Global Villager owns a leading bilingual
Chinese/English web community, DragonSurf.com, which provides a range of content
and services on its web site for the Chinese community. The purchase price was
allocated to the net assets acquired based upon the estimated fair value of such
assets, which resulted in an allocation of approximately $13.8 million to
goodwill. Purchase price allocations have been completed on a preliminary basis
and are subject to adjustment should new or additional facts about the business
become known.

    In December 1999, the Company acquired SigmaNet Network Corporation
("SigmaNet") for approximately $648,000 in cash and 223,786 shares of Startec
common stock valued at approximately $4.3 million. These shares were issued in
January 2000. SigmaNet provides Internet services under the name of IAOL,
including Internet access and a Web portal for the Asian Indian community. The
purchase price was allocated to the net assets acquired based upon the estimated
fair value of such assets, which resulted in an allocation of $4.9 million to
goodwill.

    In July 1999, the Company acquired the fixed assets and customers of
Worldwide Telecommunications Company Limited, Infinity Telecommunications
Limited and Pacific Direct, Inc. (collectively "Worldwide Group") for
approximately $200,000 in cash and 54,482 shares of common stock valued at
$790,000. Worldwide Group provides voice and data services to businesses and

                                       79
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. ACQUISITIONS: (CONTINUED)
individuals in the Hong Kong, China region. The purchase price was allocated to
the net assets acquired based upon the estimated fair value of such assets,
which resulted in an allocation of $1.1 million to goodwill.

    In February 1999, the Company acquired a 64.6% ownership interest in Phone
Systems and Network, Inc. of France ("PSN") for approximately $3.8 million in
cash and 425,000 shares of the common stock. The Company acquired an additional
20.4% ownership interest through a cash tender offer and open market purchases
for a total ownership interest of approximately 85%. Total consideration
amounted to approximately $11.3 million, including acquisition costs. The
Company recognized approximately $10.5 million in intangible assets associated
with the acquisition. PSN is a facilities based provider in France, with
switches in both Paris and Switzerland and additional capacity on a switch
located in the United Kingdom. PSN also provides services on a switchless
reseller basis in Belgium. Common shares of PSN are traded on the Nouveau Marche
Exchange in France.

    In November 1998, the Company acquired PCI Communications, Inc. ("PCI") for
$2.65 million. PCI is a provider of voice and data services located in the
Pacific Rim island of Guam. PCI has signatory status on the TPC-5,
Guam-Filipinos and China-U.S. cables. The acquisition will allow Startec to
access a U.S. based satellite line of sight that extends from Southeast Asia to
Central Europe. The purchase price was allocated to the net assets acquired
based upon the estimated fair value of such assets, which resulted in an
allocation of $1 million to goodwill and $250,000 to a covenant not to compete
agreement.

    In December 1998, the Company acquired Global Communications GmbH of Germany
("Global") for $5.4 million. Global has a Class IV nationwide telecommunications
license for Germany, an interconnection agreement with Deutsche Telekom and a
Siemens EWSD switch located in Dusseldorf. The purchase price was allocated to
the net assets acquired based upon the estimated fair value of such assets,
which resulted in an allocation of $2.5 million to goodwill and a
telecommunications license.

    The Company has accounted for all of the referenced acquisitions using the
purchase method. Accordingly, the results of operations of the acquired
companies are included in the accompanying consolidated statements of operations
of the Company, as of the date of their respective acquisition.

    The Company's summarized, unaudited consolidated pro forma results of
operations, assuming the above transactions occurred on January 1, 1999 are as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                          FOR THE YEAR ENDED
                                                             DECEMBER 31,
                                                         --------------------
                                                           2000        1999
                                                         ---------   --------
                                                             (UNAUDITED)
<S>                                                      <C>         <C>
Net revenues...........................................  $ 327,887   $292,422
Loss from operations...................................   (100,951)   (30,143)
Loss before extraordinary item.........................   (127,321)   (47,274)
Net loss...............................................   (128,223)   (47,274)
Basic and diluted net loss per common share:
  Net loss before extraordinary item...................      (9.31)     (5.02)
  Net loss per common share............................      (9.38)     (5.02)
</TABLE>

                                       80
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. ACQUISITIONS: (CONTINUED)
    Operations for SigmaNet, Global Villager and DLC were not significant for
2000 and 1999. Operations for PSN were not significant for January 1999. These
were eliminated from the pro forma table.

15. INVESTMENTS:

    In March 2000, the Company acquired a 19.9% ownership interest in Datalink
Telecommunications Limited ("Datalink") in exchange for 200,000 shares of the
Company's common stock valued at $3.92 million. Datalink is a telecommunications
provider incorporated in Canada that owns and operates a fiber optic
telecommunications network to emerging countries. During the second quarter of
2000, the Company received a $375,000 note payable from Datalink due within one
year at 12% interest per year. At year-end, Startec provided a valuation reserve
against the note and recorded the expense within general and administrative
expenses within the accompanying statements of operations.

    In May 1999, the Company entered into an agreement to acquire up to a 49%
fully diluted ownership interest in Dialnet Communications Limited ("Dialnet")
for up to $1.6 million. Dialnet provides value added voice and data services in
India. Pursuant to the agreement, which became effective July 1999 upon approval
by the government of India, the Company made a total investment of $1 million,
and also extended $600,000 in credit to Dialnet. Through July 2002, the Company
can require that the face amount of Dialnet's outstanding debt be converted into
common stock of Dialnet. As of December 31, 2000, the Company had an equity
investment of $1.3 million in Dialnet, and $600,000 outstanding under the loan.

    In February 1999, the Company acquired a 20% equity ownership interest in
BCH Holding Company, Inc. ("BCH") with operations in Poland, for approximately
$1.2 million. Concurrent with the acquisition, Startec received a $2.5 million
note payable from BCH convertible at Startec's option into common shares
equivalent to an additional 28% fully diluted ownership interest of BCH. BCH is
a reseller of international voice and a licensed Internet service provider in
Poland. During the second and third quarters of 2000, the Company extended an
additional $0.5 million to BCH. At year-end, based on the financial condition of
BCH, the Company provided a valuation reserve against the entire $3.0 million
loan to BCH and recorded the expense within general and administrative expenses
in the accompanying consolidated statements of operations.

16. IMPAIRMENT LOSSES:

    SIGMANET AND GLOBAL VILLAGER.  In the fourth quarter of 2000, in its efforts
to reduce operating losses and conserve cash, the Company decided to abandon
certain of its web portal services. As a result, the Company discontinued its
web portal operations to the Asian Indian community that was operating under the
name of IAOL and the Company's bilingual Chinese/English Web community,
DragonSurf.com. The Company obtained IAOL and DragonSurf.com in December 1999
and March 2000, respectively, through the acquisitions of SigmaNet and Global
Villager. As the Company could not continue to fund the operating cash needs of
the web portals and as management did not foresee a near term improvement in the
cash flows of the respective portals, the Company decided to shut down their
operations. As a result, the Company recognized an impairment charge of
approximately $17.4 million for the unamortized intangibles and goodwill of IAOL
and DragonSurf.com.

                                       81
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. IMPAIRMENT LOSSES: (CONTINUED)
    SUNRISE.  Pursuant to an agreement with Sunrise World Communications, Inc.
("Sunrise") dated September 29, 2000, the Company acquired a 40% equity interest
in Sunrise and a 5 year carrier services agreement in exchange for certain VoIP
termination facilities and the forgiveness of accounts receivable due the
Company from Sunrise. Sunrise provides Internet communications service between
the United States and certain emerging countries. During the first nine months
of 2000, the Company earned revenue of approximately $24.5 million from
terminating traffic on behalf of Sunrise. The corresponding receivable together
with certain other deposits and VoIP termination facilities, with a carrying
value of $4.3 million, were exchanged for Sunrise common stock and a favorable
carrier services agreement. The Company valued the investment in Sunrise at
approximately $29.6 million based on the carrying value of assets exchanged and
as supported by a third party appraisal for the value of Sunrise's equity. The
transaction was negotiated at a time when Internet communications entities were
highly valued in the market place. Given the dramatic downturn in market
valuations and liquidity concerns facing telecommunication entities, the Company
expensed the investment in Sunrise during its fourth quarter. While management
continues to believe that the carrier services agreement provided by Sunrise is
valuable to the Company, there can be no assurance that these services will
continue to be available to the Company over the term of the agreement.

    ASIAN TELECOMMUNICATIONS BUSINESS.  Given the Company's historical operating
losses, current liquidity concerns and a significant decline in the market value
of the Company's common stock, the Company reviewed its long-lived assets
including identifiable intangible assets and goodwill for impairment. The
Company performed its review based upon projected probable undiscounted cash
flows for its respective operating regions. The Company concluded that the
probable undiscounted cash flows for its Asian telecommunications business would
be less than the carrying value of the respective long-lived assets. This
reflects the Company's reduction in force in its Hong Kong operations. The
Company recognized an impairment charge of $3.3 million to reduce long-lived
assets and goodwill with a carrying value of approximately $16 million to
estimated fair value.

17. QUARTERLY FINANCIAL DATA (UNAUDITED):

    The following quarterly financial data has been prepared from the financial
records of the Company without audit, and reflects all adjustments which, in the
opinion of management, were

                                       82
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. QUARTERLY FINANCIAL DATA (UNAUDITED): (CONTINUED)
necessary for a fair presentation of the results of operations for the interim
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.

<TABLE>
<CAPTION>
                                                                          2000
                                                       -------------------------------------------
                                                        FIRST      SECOND     THIRD       FOURTH
                                                       QUARTER    QUARTER    QUARTER    QUARTER(1)
                                                       --------   --------   --------   ----------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                    <C>        <C>        <C>        <C>
Net revenues.........................................  $ 77,376   $ 89,166   $ 83,198    $ 74,807
Gross margin.........................................    14,486     16,802     18,391      15,935
Loss from operations.................................    (7,117)    (8,627)    (7,539)    (77,890)
Net loss.............................................   (12,176)   (15,624)   (15,127)    (85,428)
Basic and diluted loss per common share:
  Net loss...........................................     (1.05)     (1.16)     (1.05)      (5.60)
  Weighted average common shares outstanding--
    basic and diluted................................    11,615     13,498     14,345      15,247
</TABLE>

<TABLE>
<CAPTION>
                                                                         1999
                                                       -----------------------------------------
                                                        FIRST      SECOND     THIRD      FOURTH
                                                       QUARTER    QUARTER    QUARTER    QUARTER
                                                       --------   --------   --------   --------
                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                    <C>        <C>        <C>        <C>
Net revenues.........................................  $ 57,714   $ 61,916   $ 76,616   $ 80,225
Gross margin.........................................     5,060      7,188     10,071     11,417
Loss from operations.................................   (10,260)    (7,899)    (6,860)    (6,190)
Net loss.............................................   (13,827)   (11,922)   (11,272)   (11,214)
Basic and diluted loss per common share:
  Net loss...........................................     (1.51)     (1.28)     (1.19)     (1.15)
  Weighted average common shares outstanding--
    basic and diluted................................     9,144      9,390      9,422      9,681
</TABLE>

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

(1) Loss from operations in the fourth quarter includes an impairment charge of
    $50.3 million (Note16), additional bad debt provisions of $8 million
    reflecting management's decision to exit the carrier circuit switched
    business, and valuation reserves against BCH, Datalink and employee
    receivables of $5.0 million.

18. SUBSEQUENT EVENTS:

    On January 23, 2001, the Company gave notice to Capsule
Communications, Inc. ("Capsule") that Capsule had breached the terms of the
merger agreement entered into on November 2, 2000 among the Company, Capsule,
Gold & Appel Transfer, S.A. and Foundation for the International Nongovernmental
Development of Space. On January 25, 2001, Capsule issued a press release
stating that it had terminated the merger agreement. On March 12, 2001, the
Company, Capsule, Gold & Appel and Foundation for the International
Nongovernmental Development of Space announced that they had resolved all issues
resulting from the termination of the merger agreement. In connection with the
termination of the merger agreement, the Company agreed to make a series of
payments to Capsule over several months in 2001 for an aggregate of
approximately $400,000. In March 2000, the Company paid $100,000 in connection
with this settlement.

                                       83
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. SUBSEQUENT EVENTS: (CONTINUED)
    In March 2001, the Company executed an engagement letter with Jefferies &
Company, Inc., pursuant to which Jefferies has agreed to act as the Company's
financial advisor. In connection with the execution of the engagement letter,
the Company paid Jefferies a non-refundable cash fee of $200,000. In addition,
the Company has agreed to pay Jefferies additional fees in connection with the
services to be provided under the engagement letter in the future. Under certain
circumstances, the Company may be required to issue warrants to Jefferies
exercisable into shares of its voting common stock.

    In March 2001, the Company issued an additional 185,500 shares of its voting
common stock to the investors who had participated in the Company's
November 2000 private placement. These shares were issued in compensation for
the Company's failure to timely file a registration statement with respect to
the resale of the shares of voting stock originally issued in connection with
the November 2000 private placement.

    On April 5, 2001, the Company received written notification from the Nasdaq
Listing Qualifications Department, stating that the Company's common stock no
longer met certain requirements for continued listing on the Nasdaq National
Market. As permitted under Nasdaq's rules, the Company has appealed the
delisting determination. The Company's request for an appeal will suspend the
delisting process pending a decision by the Nasdaq Listing Qualifications Panel.
The Company does not believe it will be eligible to list its securities on the
Nasdaq Small Cap Market should the securities be delisted from the Nasdaq
National Market.

    In April 2001 two of the Company's wholly owned subsidiaries, Startec Global
Operating Company and Startec Global Licensing Company, borrowed an aggregate of
$20 million from Allied, which funds were distributed to the Company and used to
repay the Company's outstanding indebtedness under the Allied Facility. As a
result, the Company no longer has any indebtedness to Allied, but the Company's
two subsidiaries are indebted to Allied for $20 million, $10 million of which is
secured by their accounts receivable and $10 million of which is unsecured. In
addition, Operating and Licensing entered into an accounts-receivable purchase
transaction with Allied, resulting in net proceeds of approximately
$14.3 million, approximately $7.625 million of which was used to pay NTFC
overdue loan payments, prepayments and a commitment fee of $125,000.

    In conjunction with the restructuring of the Allied indebtedness described
below, the Company amended the NTFC Facility. Pursuant to the amendment, NTFC
agreed to waive certain defaults and revise certain financial covenants. In
connection with this amendment, the Company paid NTFC $7.5 million in loan
prepayments and a $125,000 commitment fee. The Company also agreed to issue NTFC
a stock purchase warrant to purchase 25,000 shares of voting stock upon any
restructuring of the Senior Notes.

                                       84
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

    None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    The following table sets forth the names and other information about our
executive officers and directors. Our board of directors is divided into three
classes of directors, each containing, as nearly as possible, an equal number of
directors. Directors within each class are elected to serve three-year terms,
and approximately one-third of the directors stand for election at each annual
meeting of the stockholders.

<TABLE>
<CAPTION>
                                              AGE                POSITION WITH COMPANY
                                            --------   ------------------------------------------
<S>                                         <C>        <C>
Ram Mukunda...............................     42      Chairman, President, and Chief Executive
                                                       Officer
Prabhav V. Maniyar........................     41      Chief Financial Officer and Director
Nazir G. Dossani..........................     59      Director
Richard K. Prins..........................     44      Director
Sudhaker Shenoy...........................     54      Director
Anthony A. Das............................     47      Chief Operating Officer, VoIP and Managed
                                                       Network Services
John H. Wolaver...........................     55      Chief Operating Officer, North American
                                                       Operations
David Venn................................     40      Chief Operating Officer, European
                                                       Operations
</TABLE>

    The business experience, principal occupation and employment of our
executive officers and directors are as follows:

    Ram Mukunda is our founder. Prior to 1989, Mr. Mukunda was an Advisor in
Strategic Planning with INTELSAT, an international consortium responsible for
global satellite services. While at INTELSAT, he was responsible for issues
relating to corporate, business, financial planning and strategic development.
Prior to joining INTELSAT, he worked as a fixed-income analyst with Caine,
Gressel. Mr. Mukunda earned an M.S. in electrical engineering from the
University of Maryland.

    Prabhav V. Maniyar joined us as Chief Financial Officer in January 1997.
From June 1993 until he joined us, Mr. Maniyar was the Chief Financial Officer
of Eldyne, Inc., Unidyne Corporation and Diversified Control Systems, LLC,
collectively known as the Witt Group of Companies. The Witt Group of Companies
was acquired by the Titan Corporation in May 1996. From June 1985 to May 1993,
Mr. Maniyar held progressively more responsible positions with NationsBank.
Mr. Maniyar earned a B.S. in Economics from Virginia Commonwealth University and
an M.A. in Economics from Old Dominion University.

    Nazir G. Dossani joined us as a director in October 1997 at the completion
of our initial public offering. Mr. Dossani was recently appointed Senior Vice
President for Asset/Liability Management and Research at the Federal Home Loan
Mortgage Corp. From January 1993 until his recent promotion, he was Vice
President for Asset/Liability Management. Prior to this position, Mr. Dossani
was Vice President--Pricing and Portfolio Analysis at the Federal National
Mortgage Association. Mr. Dossani received a Ph.D. in regional science from the
University of Pennsylvania and an M.B.A. from the Wharton School of the
University of Pennsylvania.

    Richard K. Prins joined us as a director in October 1997 at the completion
of our initial public offering. Mr. Prins is a Senior Vice President with
Ferris, Baker Watts, Incorporated. From July 1988

                                       85
<PAGE>
through March 1996, he served as Managing Director of Investment Banking with
Crestar Securities Corporation. Mr. Prins received an M.B.A. from Oral Roberts
University and a B.A. from Colgate University. He currently serves on the Board
of Directors of Path Net, Inc., a domestic telecommunications company, Socrates
Corporation (SOCT) and The Association for Corporation Growth, National Capital
Chapter.

    Sudhakar Shenoy joined us as a director in 1999. He is the founder and Chief
Executive Officer of Information Management Consultants, an internationally
recognized systems and software development firm serving the public and private
sectors for more than the last five years. Mr. Shenoy received a B.A. in
electrical engineering from the Indian Institute of Technology, an M.S. in
electrical engineering and an M.B.A. from the University of Connecticut Schools
of Engineering and Business Administration, respectively.

    Anthony A. Das has been our Chief Operating Officer for Online Services
since November 2000. Mr. Das joined us in February 1997. Prior to joining us,
Mr. Das was a senior consultant at Armitage Associates between 1995 and 1997.
Prior to joining Armitage Associates, he served as a senior career executive in
the Office of the Secretary, Department of Commerce from 1993 to 1995. From 1990
to 1993, Mr. Das was the Director of Public Communication at the State
Department.

    John H. Wolaver joined us as Chief Operating Officer, North American
operations, in December 1999. Mr. Wolaver was most recently an executive vice
president and chief operating officer of United Telesis, LLC in Washington, D.C.
Mr. Wolaver has almost 20 years of telecommunications experience, particularly
in the areas of sales and marketing. At Sprint, he was a director in the
partnership marketing/consumer services group. At MCI he was a director in
corporate marketing. Mr. Wolaver received a B.A. in liberal arts from Purdue
University, an M.A. in finance and statistics from Central Michigan University
and an M.B.A. from The Wharton School of the University of Pennsylvania.

    David Venn joined us as Chief Operating Officer, European Operations, in
December 1999. Mr. Venn was a senior vice president and then the chief operating
officer from 1997 to 2000 for International Wireless Communications Inc. in
London, England. From 1994-97, Mr. Venn was the managing director of London
Interconnect Ltd. In 1998, while Mr. Venn was a senior vice president of
International Wireless Communications, Inc., it filed for protection under
Chapter 11 of the Federal bankruptcy laws. The company emerged from Chapter 11
status in February 2000. Mr. Venn holds a bachelor of science in
telecommunications engineering from University South West and an M.B.A. from
Ashridge Management College, both in the U.K.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    Section 16(a) of the Securities Exchange Act of 1934requires our directors
and executive officers, and persons who own more than 10% of our common stock,
to file reports of ownership and changes in their ownership of our common stock
with the Securities and Exchange Commission. Such insiders are required these
regulations to furnish us with copies of all Section 16(a) reports that they
file.

    Based solely on our review of the copies of such reports (and any amendments
thereof) received by us, or written representations from such reporting persons
that no Form 5s were required for those persons, we believe that our directors
and executive officers complied with all applicable Section 16(a) filing
requirements for fiscal 2000.

ITEM 11. EXECUTIVE COMPENSATION

    The following table sets forth certain summary financial information
concerning compensation for services in all capacities awarded to, earned by or
paid to, our chief executive officer and our four

                                       86
<PAGE>
other most highly compensated executive officers who were serving at the end of
2000, whose aggregate cash and cash equivalent compensation exceeded $100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                  LONG TERM COMPENSATION
                                                  ANNUAL COMPENSATION      -------------------------------------
                                                ------------------------       SECURITIES       ALL OTHER ANNUAL
NAME AND PRINCIPAL POSITION            YEAR      SALARY          BONUS     UNDERLYING OPTIONS   COMPENSATION(1)
---------------------------          --------   --------       ---------   ------------------   ----------------
<S>                                  <C>        <C>            <C>         <C>                  <C>
Ram Mukunda........................    2000     $569,910       $     --              --             $35,426
  President, Chief Executive
  Officer                              1999      324,987             --          40,000              35,426
                                       1998      401,117(2)          --          30,000              35,000

Prabhav V. Maniyar.................    2000      368,627             --              --              15,846
  Chief Financial Officer              1999      233,645             --          21,000              15,846
                                       1998      180,042             --          15,000              18,000

Anthony A. Das.....................    2000      166,067             --              --                  --
  Chief Operating Officer,             1999      152,305             --          21,000                  --
  Online Services                      1998      124,167             --          15,000                  --

John H. Wolaver (3)................    2000      213,231             --              --                  --
  Chief Operating Officer,             1999           --             --          36,500                  --
  North American Operations            1998           --             --              --                  --
</TABLE>

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

(1) This amount includes the value of an automobile allowance.

(2) Includes $102,000 accrued salary for prior periods.

(3) Mr. Wolaver joined us on December 28, 1999.

DIRECTOR COMPENSATION

    Directors do not receive cash compensation for their service on our board of
directors. In the future, however, directors who are not employees may receive
meeting fees, committee fees and other compensation relating to their service.
Each member of our board of directors who is not an employee is entitled to
receive an automatic grant of options to purchase 10,000 shares of our common
stock upon joining the board and additional options to purchase 10,000 shares
per year of service thereafter. All directors will be reimbursed for reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
committee meetings.

EMPLOYMENT AGREEMENTS

    Startec entered into an employment agreement with Mr. Ram Mukunda on
July 1,1997, pursuant to which Mr. Mukunda holds the positions of President,
Chief Executive Officer and Treasurer, was paid an initial annual base salary of
$250,000 per year, is entitled to participate in the 1997 Stock Incentive Plan,
is eligible to receive a bonus of up to 40% of his base salary as determined by
the Compensation Committee based upon our financial and operating performance,
and is entitled to receive an automobile allowance of $1,500 per month. In
addition, the agreement provides that, if there is a "Change of Control,"
Mr. Mukunda will receive, for the longer of 12 months or the balance of the term
under his employment agreement (which initially could be for a period of up to
three years), the following benefits: (1) a severance payment equal to $20,830
per month; (2) a pro rata portion of the bonus applicable to the calendar year
in which such termination occurs; (3) all accrued but unpaid base salary and
other benefits as of the date of termination; and (4) such other benefits as he
was eligible to participate in at and as of the date of termination. Effective
July 1, 1998, Mr. Mukunda's annual base salary was increased to $325,000.

                                       87
<PAGE>
    We also entered into an employment agreement with Prabhav V. Maniyar on
July 1, 1997, pursuant to which Mr. Maniyar holds the positions of Senior Vice
President, Chief Financial Officer and Secretary, was paid an initial annual
base salary of $175,000 per year, is entitled to participate in the 1997 Stock
Incentive Plan, is eligible to receive a bonus of up to 40% of his base salary
as determined by the Compensation Committee based upon our financial and
operating performance, and is entitled to receive an automobile allowance of
$750 per month. Mr. Maniyar resigned effective February 22, 2000 as secretary.
In addition, the agreement provides that if there is a "Change of Control,"
Mr. Maniyar will receive, for the longer of 12 months or the balance of the term
under his employment agreement (which initially could be for a period of up to
three years), the following benefits: (1) a severance payment equal to $14,580
per month; (2) a pro rata portion of the bonus applicable to the calendar year
in which such termination occurs; (3) all accrued but unpaid base salary and
other benefits; and (4) such other benefits as he was eligible to participate in
at and as of the date of termination. Effective July 1, 1998, Mr. Maniyar's
annual base salary was increased to $225,000.

    Each of Mr. Mukunda's and Mr. Maniyar's agreements have an initial term of
three years and are renewable for successive one year terms. In addition, the
agreements also contain provisions which restrict the ability of
Messrs. Mukunda and Maniyar to compete with Startec for a period of one year
following termination. For purposes of the agreements, a "Change of Control"
shall be deemed to have occurred if (A) any person becomes a beneficial owner,
directly or indirectly, of our securities representing 30% or more of the
combined voting power of all classes of our outstanding voting securities; or
(B) during any period of two consecutive calendar years individuals who at the
beginning of such period constitute the board of directors, cease for any reason
to constitute at least a majority thereof, unless the election or nomination for
the election by our stockholders of each new director was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved; or (C) our stockholders
approve a merger or consolidation with any other company or entity, other than a
merger or consolidation that would result in our voting securities outstanding
immediately prior thereto continuing to represent more than 50% of the combined
voting power of our voting securities or such surviving entity outstanding
immediately after such merger or consolidation (exclusive of the situation where
the merger or consolidation is effected in order to implement a recapitalization
in which no person acquires more than 30% of the combined voting power of our
outstanding securities); or (D) our stockholders approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of our assets.

    On December 28, 1999, we entered into an employment agreement with David
Venn. Under the agreement, Mr. Venn receives a base salary of $225,000 and is
eligible for an annual bonus of up to 40% of his base salary as determined by
our board of directors or president. The agreement provides for limited
severance payments if he is terminated without cause equal to his base salary
for a period of six months. The agreement expires on December 31, 2002 unless
extended and contains confidentiality and non-competition provisions.
Mr. Venn's employment with the Company was terminated without cause, effective
January 2001.

STOCK OPTION GRANTS

    The following table sets forth certain information regarding grants of
options to purchase common stock made by the Compensation Committee during the
fiscal year ended December 31, 2000, to each

                                       88
<PAGE>
of the officers listed in the summary compensation table above. No stock
appreciation rights were granted during 2000. On April 12, 2001, the closing
price of our common stock was $0.47.

<TABLE>
<CAPTION>
                                                                                                  REALIZED VALUE AT
                                                                                                ASSUMED ANNUAL RATES
                              NUMBER OF    PERCENTAGE OF                                           OF STOCK PRICE
                              SECURITIES   TOTAL OPTIONS                                          APPRECIATION FOR
                              UNDERLYING    GRANTED TO                  MARKET                     OPTIONS TERM(3)
                               OPTIONS     EMPLOYEES IN    EXERCISE    PRICE ON    EXPIRATION   ---------------------
NAME                           GRANTED        2000(1)      PRICE(2)   GRANT DATE      DATE         5%         10%
----                          ----------   -------------   --------   ----------   ----------   --------   ----------
<S>                           <C>          <C>             <C>        <C>          <C>          <C>        <C>
Ram Mukunda.................    40,000         3.21%        $18.50      $18.16      12/28/09    $537,705   $1,362,650
Prabhav V. Maniyar..........    21,000         1.69%         12.44       12.44      10/1/09c     276,492      697,751
Anthony A. Das..............    21,000         1.68%         18.50       18.16      12/28/09     282,295      715,391
David Venn..................    40,000         3.21%         18.50       18.16      12/28/09     537,705    1,362,650
John H. Wolaver.............    36,500         2.92%         18.50       18.16      12/28/09     490,656    1,243,418
</TABLE>

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

(1) During 2000, options were granted to purchase a total of 1,248,652 shares of
    our common stock.

(2) The exercise price was equal to or greater than the per share price of our
    common stock underlying the options on the date of grant.

(3) Amounts reflected in these columns represent amounts that may be realized
    upon exercise of options immediately prior to the expiration of their term
    assuming the specified compounded rates of appreciation (5% and 10%) on our
    common stock over the term of the options. Actual gains, if any, on the
    stock option exercises and common stock holdings are dependent upon the
    timing of such exercise and the future performance of our common stock.
    There can be no assurance that the rates of appreciation assumed in this
    table can be achieved or that the amounts reflected will be received by the
    holder of the option.

OPTION EXERCISES AND HOLDINGS

    The following table sets forth certain information as of December 31, 2000
regarding the number and value of options exercised during 2000 and unexercised
options held by each of the officers listed in the summary compensation table
above. No stock appreciation rights were exercised during 2000.

              AGGREGATED OPTION/SAT EXERCISES IN LAST FISCAL YEAR
                      AND FISCAL YEAR END OPTION/SAR VALUE

<TABLE>
<CAPTION>
                                                               NUMBER OF SECURITIES      VALUE OF UNEXERCISED
                                                              UNDERLYING UNEXERCISED    "IN-THE-MONEY" OPTIONS
                                 SHARES                         AT FISCAL YEAR-END        FISCAL YEAR-END($)
                               ACQUIRED ON   VALUE REALIZED    OPTIONS EXERCISABLE/          EXERCISABLE/
NAME                           EXERCISE(#)        ($)             UNEXERCISABLE            UNEXERCISABLE(1)
----                           -----------   --------------   ----------------------   ------------------------
<S>                            <C>           <C>              <C>                      <C>
Ram Mukunda..................        --              --               6,000/64,000              76,125/642,000
Prabhav V. Maniyar...........        --              --              23,000/63,000             376,812/964,823
Anthony A. Das...............     9,000         111,375               3,000/46,500              53,813/634,595
David Venn...................        --              --                 -- /40,000                   0/351,100
John H. Wolaver..............        --              --                  --/36,500                   0/320,379
</TABLE>

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

(1) Options are "in-the-money" if the fair market value of underlying securities
    exceeds the exercise price of the options. On April 12, 2001, the closing
    price of our common stock was $0.47.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth information regarding the ownership of our
common stock as of April 12, 2001, including options and warrants, by (i) each
person known to be the beneficial owner of more than five percent of any class
of our voting securities, (ii) each director the chief executive officer

                                       89
<PAGE>
and each of the four most highly compensated executive officers at the end of
2000, and (iii) all directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                               AMOUNT AND
                                                               NATURE OF
                                                               BENEFICIAL
NAME AND ADDRESS(1)                                           OWNERSHIP(2)   PERCENT OF CLASS
-------------------                                           ------------   ----------------
<S>                                                           <C>            <C>
Ram Mukunda(3)..............................................    3,548,675          21.6%
Prabhav V. Maniyar(4).......................................      157,516        *
Sudhakar Shenoy(5)..........................................        6,000        *
Nazir G. Dossani (6)........................................       19,000        *
Richard K. Prins(7).........................................       21,000        *
Anthony A. Das(8)...........................................       10,000        *
David Venn(9)...............................................           --        *
John H. Wolaver(10).........................................        8,500        *
All Directors and Executive Officers as a group (8
  persons)..................................................    3,762,191          31.2%
Liberty Wanger Asset Management, L.P.(11)...................      933,000           5.7%
  227 West Monroe Street, Suite 3000
  Chicago, IL 60606
RS Investment Management Co. LLC(12)........................    1,995,000          12.2%
  388 Market Street, Suite 200
  San Francisco, CA 94111
Zesiger Capital Group, LLC(13)..............................    2,667,100          16.3%
  320 Park Avenue, 30th Floor
  New York, NY 10022
</TABLE>

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

*   Represents beneficial ownership of less than one percent of the outstanding
    shares of our class of common stock.

 (1) Unless otherwise noted, the address of all persons listed is c /o Startec
     Global Communications Corporation, 1151 Seven Locks Road, Potomac, MD
     20854.

 (2) Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission. Shares of our common stock subject to
     options, warrants or other rights to purchase which are currently
     exercisable or are exercisable within 60 days of December 31, 2000 are
     deemed beneficially owned for computing the percentage ownership of the
     persons holdings such options, warrants or rights, but are not deemed
     outstanding for computing the percentage ownership of any other person.
     Unless otherwise indicated, each person possesses sole voting and
     investment power with respect to the shares shown.

 (3) Includes exercisable options to purchase 20,000 shares of our common stock.
     Does not include unexercisable options to purchase 150,000 shares of common
     stock.

 (4) Includes exercisable options to purchase 40,200 shares of our common stock.
     Does not include unexercisable options to purchase 95,800 shares of common
     stock.

 (5) Includes exercisable options to purchase 5,000 shares of our common stock.

 (6) Includes exercisable options to purchase 10,000 shares of common stock.
     Does not include unexercisable options to purchase 20,000 shares of common
     stock.

 (7) Includes exercisable options to purchase 10,000 shares of common stock and
     a warrant to purchase 33,000 shares of common stock. Does not include
     unexercisable options to purchase 20,000 shares of common stock.

                                       90
<PAGE>
 (8) Includes exercisable options to purchase 10,000 shares of common stock.
     Does not include unexercisable options to purchase 20,000 shares of common
     stock.

 (9) Does not include unexercisable options to purchase 40,000 shares of common
     stock.

(10) Includes exercisable options to purchase 8,500 shares of common stock. Does
     not include unexercisable options to purchase 28,000 shares of common
     stock.

(11) As reported on Schedule 13G filed with the SEC on February 14, 2001.

(12) As reported on Schedule 13G/A filed with the SEC on February 15, 2001.

(13) As reported on Schedule 13G filed with the SEC on December 6, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    We have an agreement with Companhia Santomensed De Telecommunicacoes, an
affiliate of Blue Carol Enterprises Ltd., which currently holds 6.7% of the
outstanding shares of our common stock, for the purchase and sale of long
distance services. Revenues generated from this agreement amounted to
approximately $1,900,000, $1,900,000 and $825,000, or 2%, 1% and 0.3% of our
total revenues for the years ended December 31, 1997, 1998 and 1999,
respectively. Services provided amounted to approximately $680,000, $366,000 and
$409,000 of our costs of services for the years ended December 31, 1997, 1998
and 1999, respectively. We also have a lease agreement with an affiliate of Blue
Carol, Companhia Portuguesa Radio Marconi, S.A. dated June 15, 1996, for rights
to use undersea fiber optic cable at a cost of $38,330 semi-annually for five
years on a resale basis.

    During the second quarter of 1998, loans to certain employees, including
executive officers, were made on substantially the same terms, including
interest rates. An aggregate of $1,488,238 was advanced to the employees,
including $400,000 to Mr. Mukunda, and $550,000 to Mr. Maniyar. The loan to
Mr. Mukunda was made in connection with the payment of taxes and other
obligations. Mr. Maniyar's loan was granted in connection with his exercise of
outstanding options to purchase common stock and the payment of taxes related
thereto. Both loans bear interest at a rate of 7.87% per year. Mr. Maniyar's
loan, including accrued interest, has been repaid. Principal and interest on
Mr. Mukunda's loan were originally due on December 31, 2000. Effective
October 25, 2000, the amount of the loan was increased to $961,000. As of
December 31, 2000, the Company established a valuation reserve against 100% of
the loan outstanding.

    One of our directors, Richard Prins, is a Senior Vice President of Ferris,
Baker Watts, Incorporated. We engaged Ferris, Baker Watts in the second quarter
of 2000 in connection with the original Allied transaction.

                                       91
<PAGE>
                                    PART IV

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

    The following documents are filed as part of this Annual Report on
Form 10-K:

    (a) 1. FINANCIAL STATEMENTS. The financial statements of the Company and the
           related Report of Independent Public Accountants are filed as Item 8
           hereof.

    (a) 2. FINANCIAL STATEMENT SCHEDULE. The Financial Statement Schedule
           described below is filed as part of this report.
        Description:
        Schedule II--Valuation and Qualifying Accounts

    (a) 3. EXHIBITS. The Exhibits required to be filed pursuant to Form 10-K are
           identified in the Exhibit Index.

    (b) REPORTS ON FORM 8-K

    On November 13, 2000, we filed a Current Report on Form 8-K with the
Securities and Exchange Commission to disclose (1) that we had entered into
agreements with Capsule Communications, Inc., a Delaware corporation, and two of
Capsule's shareholders, Gold & Appel Transfer, S.A. and Foundation for the
International Non-Governmental Development of Space, for the merger of Capsule
with and into one of our wholly owned subsidiaries; and (2) that we had amended
our Shareholder Rights Agreement to grant our Board of Directors the authority
to prevent the triggering of the dilutive provisions of the Agreement with
respect to specific persons and transactions.

                                       92
<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 this 17th
day of April 2001.

<TABLE>
<S>                                                    <C>  <C>
                                                       STARTEC GLOBAL COMMUNICATIONS CORPORATION

                                                       By             /s/ PRABHAV V. MANIYAR
                                                            ------------------------------------------
                                                                        Prabhav V. Maniyar
                                                                      CHIEF FINANCIAL OFFICER
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and amended, on the dates indicated.

                   STARTEC GLOBAL COMMUNICATIONS CORPORATION

<TABLE>
<CAPTION>
                   SIGNATURE                                     TITLE                       DATE
                   ---------                                     -----                       ----
<C>                                               <S>                                   <C>
                /s/ RAM MUKUNDA                   President, Chief Executive Officer,
     --------------------------------------         Treasurer and Chairman (Principal   April 17, 2001
                  Ram Mukunda                       Executive Officer)

             /s/ PRABHAV V. MANIYAR               Chief Financial Officer and Director
     --------------------------------------         (Principal Financial and            April 17, 2001
               Prabhav V. Maniyar                   Accounting Officer)

     --------------------------------------       Director                              April 17, 2001
               Sudhakar V. Shenoy

              /s/ NAZIR G. DOSSANI
     --------------------------------------       Director                              April 17, 2001
                Nazir G. Dossani

              /s/ RICHARD K. PRINS
     --------------------------------------       Director                              April 17, 2001
                Richard K. Prins
</TABLE>

                                       93
<PAGE>
           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                ADDITIONS
                                                        -------------------------
                                                         CHARGED TO
                                            BEGINNING   REVENUES AND   CHARGED TO                 ENDING
DESCRIPTION                                  BALANCE      EXPENSES      OTHER(A)    DEDUCTIONS   BALANCE
-----------                                 ---------   ------------   ----------   ----------   --------
<S>                                         <C>         <C>            <C>          <C>          <C>
Reflected as reductions to the related
  assets:
Provisions for uncollectible accounts
  (deductions from trade accounts
  receivable)
Year ended December 31, 1998.............    $2,353        $   827        $329        $  (850)   $ 2,659
Year ended December 31, 1999.............     2,659          3,993         271         (2,959)     3,964
Year ended December 31, 2000.............     3,964         16,542         264         (3,961)    16,809
Provisions for uncollectible other
  accounts and notes receivable
Year ended December 31, 1998.............        --             --          --             --         --
Year ended December 31, 1999.............        --             --          --             --         --
Year ended December 31, 2000.............        --          4,969(b)       --             --      4,969
</TABLE>

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

(a) Other represents reserves recognized in purchase accounting in 1998 and
    1999.

(b) This amount represents valuation allowances for employee and officer loans
    and both the BCH and Datalink notes receivable.

                                       94
<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                  DESCRIPTION
--------------          ------------------------------------------------------------
<C>                     <S>
      2.1****           Agreement and Plan of Reorganization dated June 30, 1998 by
                        and between Startec Global Communications Corporation and
                        Startec Global Holding Corporation

      3.1****           Restated Certificate of Incorporation.

      3.2****           Bylaws.

      4.1*              Specimen of Common Stock Certificate.

      4.2*              Warrant Agreement dated as of July 1, 1997 by and between
                        Startec, Inc. and Signet Bank.

      4.3*              Form of Underwriters' Warrant Agreement (including Form of
                        Warrant).

      4.4*              Voting Agreement dated as of July 31, 1997 by and between
                        Ram Mukunda and Vijay and Usha Srinivas.

      4.5***            Indenture, dated as of May 21, 1998, between the Company and
                        First Union National Bank.

      4.5.1++++++++     First Supplemental Indenture dated as of February 28, 1999
                        by and among Startec Global Holding Corporation, Startec
                        Global Communications Corporation and First Union National
                        Bank.

      4.5.2++++++++     Amended and Restated First Supplemental Indenture dated as
                        of February 28, 1999 by and among Startec Global
                        Communications Corporation and First Union National Bank.

      4.6***            Form of 12% Series A Senior Notes due 2008

      4.7***            Registration Rights Agreement, dated as of May 21, 1998,
                        among the Company, Lehman Brothers Inc., Goldman Sachs & Co.
                        and ING Barings (U.S.) Securities, Inc.

      4.8***            Warrant Agreement, dated as of May 21, 1998 by and between
                        the Company and First Union National Bank, as Warrant Agent

      4.9***            Form of Warrant (included as Exhibit A to Exhibit 4.8)

      4.10***           Collateral Pledge and Security Agreement, dated as of
                        May 21, 1998 by and between the Company and First Union
                        National Bank, as Trustee

      4.11**            Shareholder Rights Agreement, dated as of March 26, 1998,
                        between the Company and Continental Stock Transfer & Trust
                        Company.

      4.11.1++++        First Amendment dated as of August 21, 1999 to Shareholder
                        Rights Agreement dated as of March 26, 1998, between Startec
                        Global Communications Corporation and Continental Stock
                        Transfer & Trust Company.

      4.11.2++          Second Amendment dated November 8, 2000 to Shareholder
                        Rights Agreement dated as of March 26, 1998, between Startec
                        Global Communications Corporation and Continental Stock
                        Transfer & Trust Company.

      4.12++++          Second Supplemental Indenture dated as of 20 August 1999 by
                        and between the Company and First Union National Bank, as
                        Trustee
</TABLE>

                                       95
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                  DESCRIPTION
--------------          ------------------------------------------------------------
<C>                     <S>
      4.13++++++        Stock Purchase Warrant issued by Startec Global
                        Communications Corporation to Allied Capital Corporation on
                        June 30, 2000.

     10.1*              Secured Revolving Line of Credit Facility Agreement dated as
                        of July 1, 1997 by and between Startec, Inc. and Signet
                        Bank.

     10.2*              Lease by and between Vaswani Place Limited Partnership and
                        Startec, Inc. dated as of September 1, 1994, as amended.

     10.3*              Agreement by and between World Communications, Inc. and
                        Startec, Inc. dated as of April 25, 1990.

     10.4*              Co-Location and Facilities Management Services Agreement by
                        and between Extranet Telecommunications, Inc. and
                        Startec, Inc. dated as of August 28, 1997.

     10.5*              Employment Agreement dated as of July 1, 1997 by and between
                        Startec, Inc. and Ram Mukunda.

     10.6*              Employment Agreement dated as of July 1, 1997 by and between
                        Startec, Inc. and Prabhav V. Maniyar.

     10.7*              Amended and Restated Stock Option Plan.

     10.8*              1997 Performance Incentive Plan.

     10.9*              Subscription Agreement by and among Blue Carol Enterprises,
                        Limited, Startec, Inc. and Ram Mukunda dated as of
                        February 8, 1995.

     10.10*             Agreement for Management Participation by and among Blue
                        Carol Enterprises, Limited, Startec, Inc. and Ram Makunda
                        dated as of February 8, 1995, as amended as of June 16,
                        1997.

     10.11*             Service Agreement by and between Companhia Santomensed De
                        Telecommunicacoes and Startec, Inc. as amended on
                        February 8, 1995.

     10.12*+            Lease Agreement between Companhia Protuguesa Radio Marconi,
                        S.A. and Startec, Inc. dated as of June 15, 1996.

     10.13*+            Indefeasible Right of Use Agreement between Companhia
                        Portuguesa Radio Marconi, S.A. and Startec, Inc. dated as of
                        January 1, 1996.

     10.14*+            International Telecommunication Services Agreement between
                        Videsh Sanchar Nigam Ltd. and Startec, Inc. dated as of
                        November 12, 1992.

     10.15*+            Digital Service Agreement with Communications Transmission
                        Group, Inc. dated as of October 25, 1994.

     10.16*+            Lease Agreement by and between GPT Finance Corporation and
                        Startec, Inc. dated as of January 10, 1990.

     10.17*+            Carrier Services Agreement by and between Frontier
                        Communications Services, Inc. and Startec, Inc. dated as of
                        February 26, 1997.

     10.18*+            Carrier Services Agreement by and between MFS
                        International, Inc. and Startec, Inc. dated as of July 3,
                        1996.

     10.19*+            International Carrier Voice Service Agreement by and between
                        MFS International, Inc. and Startec, Inc. dated as of
                        June 6, 1996.
</TABLE>

                                       96
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                  DESCRIPTION
--------------          ------------------------------------------------------------
<C>                     <S>
     10.20*+            Carrier Services Agreement by and between Cherry
                        Communications, Inc. and Startec, Inc. dated as of June 7,
                        1995.

     10.21***           Agreement by and between Northern Telecom Inc. and the
                        Company, dated as of December 23, 1997

     10.22***           Indefeasible Right of Use Agreement by and between
                        Telegloble Cantat-3, Inc. and the Company, dated as of
                        September 15, 1997 (Canus 1 Cable System).

     10.23***           Indefeasible Right of Use Agreement by and between Teleglobe
                        Cantat-3, Inc. and the Company, dated as of September 15,
                        1997 (Cantat 3 Cable System).

     10.24#             Loan and Security Agreement by and between Prabhav V.
                        Maniyar and the Company, dated June 30, 1998 (as amended and
                        related by agreement dated December 31, 1998. See
                        Exhibit 10.41 below).

     10.25#             Lease by and between The Vaswani Place Corporation and the
                        Company, dated as of October 27, 1998.

     10.26#             Indefeasible Right of Use Agreement by and between Cable &
                        Wireless Inc. and the Company, dated June 9, 1998 (Gemini
                        Cable System)

     10.27#             First Amendment to Lease by and between The Vaswani Place
                        Corporation and the Company, dated May 11, 1998.

     10.28#             International Facilities License, United Kingdom

     10.29##            Columbus III Cable System Construction and Maintenance
                        Agreement dated February 11, 1998.

     10.30###           TAT-14 Cable Network Construction and Maintenance Agreement
                        dated as of September 2, 1998.

     10.31###           SEA-ME-WE Construction and Maintenance Agreement dated as of
                        January 1, 1997.

     10.32###           Amendment dated as of July 8, 1998 by and between Cable &
                        Wireless, Inc. and the Company to the Indefeasible Right of
                        Use Agreement, dated as of June 9, 1998 (Gemini Cable
                        System).

     10.33###           Rack Space Agreement by and between Americatel Corporation
                        and the Company, dated as of July 27, 1998.

     10.34###           Rack Space Agreement by and between IXC Carrier, Inc. and
                        the Company, dated as of July 6, 1998 (Los Angeles).

     10.35###           Rack Space Agreement by and between IXC Carrier, Inc. and
                        the Company, dated as of August 19, 1998 (Dallas).

     10.36###           Co-Location Agreement by and between Espirit Telecom
                        Benelux BV and the Company., dated as of September 21, 1998

     10.37###           Sublease Agreement by and between Information Systems &
                        Networks, Inc. and the Company dated as of August 11, 1998.

     10.38###           Master Supply Agreement by and between TTN, Inc. and the
                        Company dated as of September 21, 1998.

     10.39#####         Loan and Security Agreement by and between NTFC Capital
                        Corporation and the Company, dated as of December 31, 1998.
</TABLE>

                                       97
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                  DESCRIPTION
--------------          ------------------------------------------------------------
<C>                     <S>
     10.40#####         Loan and Security Agreement by and between Ram Mukunda and
                        the Company, dated as of October 8, 1998.

     10.40.1            Loan and Security Agreement between Ram Mukunda and Startec
                        Global Communications Corporation dated as of October 25,
                        2000.

     10.41#####         Loan and Security Agreement by and between Prabhav V.
                        Maniyar and the Company, dated as of December 31, 1998.

     10.42#####         TPC-5 Cable Network IRU Agreement between Companhia
                        Portuguesa Radio Marconi, SA and the Company, dated
                        December 15, 1998.

     10.43#####         TPC-5 Cable Network Indefeasible Right of Use Agreement
                        between KDD Corporation and the Company dated December 31,
                        1998.

     10.44#####         TAT-12/13 Cable Network IRU Agreement between Companhia
                        Portuguesa Radio Marconi, SA and the Company, dated
                        December 15, 1998.

     10.45#####         Lease between 36 North East Second Street, L.L.C and the
                        Company executed on November 30, 1998.

     10.46#####         Lease between 36 North East Second Street, L.L.C and the
                        Company executed on October 29, 1998.

     10.47####          Stock Purchase Agreement dated as of November 30, 1998 by
                        and between the Company and Pacific Systems Corporation

     10.48####          Quota Purchase Agreement by and between Martin Otten and
                        Rolf Otten, on the one part, and the Company, on the other
                        part, effective as of December 31, 1998.

     10.49++            Sublease Agreement by and between Ceridian Corporation and
                        the Company dated January 8, 1999.

     10.50+++           Purchase and License Agreement between Ascend
                        Communications Inc. and Startec Global Operating Company
                        dated on May 5, 1999.

     10.51+++           Term Lease Master Agreement between IBM Corporation and
                        Startec Global Operating Company dated as of June 22, 1999.

     10.52+++           Loan and Security Agreement between Congress Financial
                        Corporation and Startec Global Operating Company dated as of
                        June 29, 1999.

     10.53+++           Lease Agreement between the Rector, Church Wardens and
                        Vestryment of Trinity Church in the City of New York and the
                        Company dated as of April 23, 1999.

     10.54++++          Billing and Collection Services Agreement between BC Tel
                        Corporation and Startec Global Communications Company
                        (Canada) dated 23 July, 1999.

     10.55++++          Procedures of the Interexchange Carrier Group Agreement
                        between BC Tel Corporation and Startec Global Communications
                        Company (Canada) dated July 23, 1999.

     10.56++++++        Investment and Loan Agreement between Startec Global
                        Communications Corporation and Allied Capital Corporation
                        dated June 30, 2000.

     10.57++++++        $20,000,000 Promissory Note issued by Startec Global
                        Communications Corporation to Allied Capital Corporation on
                        June 30, 2000.

     21.1               Subsidiaries of Company.
</TABLE>

                                       98
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                  DESCRIPTION
--------------          ------------------------------------------------------------
<C>                     <S>
     23.1               Consent of Arthur Andersen LLP.
</TABLE>

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

<TABLE>
<S>                     <C>
*                       Incorporated by reference from the Company's Registration
                        Statement on Form S-1 (SEC File No. 333-32753).

**                      Incorporated by reference from the Company's Current Report
                        on Form 8-K filed on April 8, 1998

***                     Incorporated by reference from the Company's Quarterly
                        Report on Form 10-Q for the quarter ended June 30, 1998

****                    Incorporated by reference from the Company's Registration
                        Statement on Form S-4 (SEC File No. 333-58247)

#                       Incorporated by reference from the Company's Registration
                        Statement on Form S-4 (SEC File No. 333-61779)

##                      Incorporated by reference from the Company's Registration
                        Statement on Form S-1 (SEC File No. 333-64465)

###                     Incorporated by reference from the Company's Quarterly
                        Report on Form 10-Q for the quarter ended September 30,
                        1998.

####                    Incorporated by reference from the Company's Current Report
                        on Form 8-K/A filed on February 12, 1999.

#####                   Incorporated by reference from the Company's Annual report
                        on Form 10-K for the fiscal year ended 1998.

+                       Portions of the Exhibit have been omitted pursuant to a
                        grant of Confidential Treatment by the Securities and
                        Exchange Commission under Rule 406 of the Securities Act of
                        1933, as amended, and the Freedom of Information Act.

++                      Incorporated by reference from the Company's Quarterly
                        Report on Form 10-Q for the quarter ended March 31, 1999.

+++                     Incorporated by reference from the Company's Quarterly
                        Report on Form 10-Q for the quarter ended June 30, 1999.

++++                    Incorporated by reference from the Company's Quarterly
                        Report on Form 10-Q for the quarter ended September 30,
                        1999.

++                      Incorporated by reference from the Company's Current Report
                        on Form-8K filed on November 13, 2000.

++++                    Incorporated by reference from the Company's Current Report
                        on Form-8K filed on August 25, 1999.

++++++                  Incorporated by reference from the Company's Quarterly
                        Report on Form-10Q filed on August 14, 2000.

++++++++                Incorporated by reference from the Company's Registration
                        Statement on Form-S 3 (SEC File No. 333-44392).

+                       Management contract or compensatory plan or arrangement
                        required to be filed as an exhibit pursuant to Item 601 of
                        Regulation S-K.
</TABLE>

                                       99